[Title 42 CFR ]
[Code of Federal Regulations (annual edition) - October 1, 1998 Edition]
[From the U.S. Government Printing Office]


          42



          Public Health



[[Page i]]

          PARTS 400 TO 429

                         Revised as of October 1, 1998

          CONTAINING
          A CODIFICATION OF DOCUMENTS
          OF GENERAL APPLICABILITY
          AND FUTURE EFFECT

          AS OF OCTOBER 1, 1998
          With Ancillaries
          Published by
          the Office of the Federal Register
          National Archives and Records
          Administration

          as a Special Edition of
          the Federal Register



[[Page ii]]

                                      




                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 1998



               For sale by U.S. Government Printing Office
 Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328



[[Page iii]]




                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 42:
          Chapter IV--Health Care Financing Administration, 
          Department of Health and Human Services                    3
  Finding Aids:
      Material Approved for Incorporation by Reference........     787
      Table of CFR Titles and Chapters........................     789
      Alphabetical List of Agencies Appearing in the CFR......     807
      Redesignation Tables....................................     817
      List of CFR Sections Affected...........................     845



[[Page iv]]


      


                     ----------------------------

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus,  42 CFR 400.200 
                       refers to title 42, part 
                       400, section 200.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, October 1, 1998), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 1986, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, or 1973-1985, published in seven separate volumes. For 
the period beginning January 1, 1986, a ``List of CFR Sections 
Affected'' is published at the end of each CFR volume.

INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
established by statute and allows Federal agencies to meet the 
requirement to publish regulations in the Federal Register by referring 
to materials already published elsewhere. For an incorporation to be 
valid, the Director of the Federal Register must approve it. The legal 
effect of incorporation by reference is that the material is treated as 
if it were published in full in the Federal Register (5 U.S.C. 552(a)). 
This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    Properly approved incorporations by reference in this volume are 
listed in the Finding Aids at the end of this volume.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed in 
the Finding Aids of this volume as an approved incorporation by 
reference, please contact the agency that issued the regulation 
containing that incorporation. If, after contacting the agency, you find 
the material is not available, please notify the Director of the Federal 
Register, National Archives and Records Administration, Washington DC 
20408, or call (202) 523-4534.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I), and Acts Requiring Publication 
in the Federal Register (Table II). A list of CFR titles, chapters, and 
parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.

[[Page vii]]

    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-523-5227 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408.

SALES

    The Government Printing Office (GPO) processes all sales and 
distribution of the CFR. For payment by credit card, call 202-512-1800, 
M-F, 8 a.m. to 4 p.m. e.s.t. or fax your order to 202-512-2233, 24 hours 
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Customer Service call 202-512-1803.

ELECTRONIC SERVICES

    The full text of the Code of Federal Regulations, The United States 
Government Manual, the Federal Register, Public Laws, Weekly Compilation 
of Presidential Documents and the Privacy Act Compilation are available 
in electronic format at www.access.gpo.gov/nara (``GPO Access''). For 
more information, contact Electronic Information Dissemination Services, 
U.S. Government Printing Office. Phone 202-512-1530, or 888-293-6498 
(toll-free). E-mail, [email protected].
    The Office of the Federal Register also offers a free service on the 
National Archives and Records Administration's (NARA) World Wide Web 
site for public law numbers, Federal Register finding aids, and related 
information. Connect to NARA's web site at www.nara.gov/fedreg. The NARA 
site also contains links to GPO Access.

                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

October 1, 1998.



[[Page ix]]



                               THIS TITLE

    Title 42--Public Health is composed of three volumes. The parts in 
these volumes are arranged in the following order: Parts 1-399, parts 
400-429 and part 430 to end. The first volume (parts 1-399) contains 
current regulations issued under chapter I--Public Health Service (HHS). 
The second volume (parts 400-429) includes regulations issued under 
chapter IV--Health Care Financing Administration (HHS) and the third 
volume (part 430 to end) contains the remaining regulations in chapter 
IV and the regulations issued under chapter V by the Office of Inspector 
General-Health Care (HHS). The contents of these volumes represent all 
current regulations codified under this title of the CFR as of October 
1, 1998.

    The OMB control numbers for the Health Care Financing Administration 
appear in Sec. 400.310 of chapter IV. For the convenience of the user 
subpart C consisting of Secs. 400.300-400.310 is reprinted in the 
Finding Aids section of the third volume.

    Redesignation tables appear in the Finding Aids section of all 
volumes.

    For this volume, Cheryl E. Sirofchuck was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Frances D. McDonald, assisted by Alomha S. Morris.

[[Page x]]





[[Page 1]]



                         TITLE 42--PUBLIC HEALTH




                 (This volume contains parts 400 to 429)

  --------------------------------------------------------------------
                                                                    Part

chapter iv-- Health Care Financing Administration, 
  Department of Health and Human Services...................         400

[[Page 3]]



                         CHAPTER IV--HEALTH CARE
                        FINANCING ADMINISTRATION,
                        DEPARTMENT OF HEALTH AND
                             HUMAN SERVICES



  --------------------------------------------------------------------


  Editorial Note: Nomenclature changes affecting chapter IV appear at 53 
FR 6634, Mar. 2, 1988; 53 FR 47201, Nov. 22, 1988; 56 FR 8852, Mar. 1, 
1991 and 62 FR 46037, Aug. 29, 1997.

                    SUBCHAPTER A--GENERAL PROVISIONS
Part                                                                Page
400             Introduction; definitions...................           5
401             General administrative requirements.........           9
402             [Reserved]
403             Special programs and projects...............          22
                     SUBCHAPTER B--MEDICARE PROGRAM
405             Federal health insurance for the aged and 
                    disabled................................          39
406             Hospital insurance eligibility and 
                    entitlement.............................         139
407             Supplementary medical insurance (SMI) 
                    enrollment and entitlement..............         155
408             Premiums for supplementary medical insurance         165
409             Hospital insurance benefits.................         179
410             Supplementary medical insurance (SMI) 
                    benefits................................         204
411             Exclusions from Medicare and limitations on 
                    Medicare payment........................         237
412             Prospective payment systems for inpatient 
                    hospital services.......................         291
413             Principles of reasonable cost reimbursement; 
                    payment for end-stage renal disease 
                    services; optional prospectively 
                    determined payment rates for skilled 
                    nursing facilities......................         377
414             Payment for Part B medical and other health 
                    services................................         482
415             Services furnished by physicians in 
                    providers, supervising physicians in 
                    teaching settings, and residents in 
                    certain settings........................         506
416             Ambulatory surgical services................         523

[[Page 4]]

417             Health maintenance organizations, 
                    competitive medical plans, and health 
                    care prepayment plans...................         531
418             Hospice care................................         624
420             Program integrity: Medicare.................         642
421             Intermediaries and carriers.................         650
422             Medicare+Choice program.....................         663
424             Conditions for Medicare payment.............         758

[[Page 5]]



                    SUBCHAPTER A--GENERAL PROVISIONS



PART 400--INTRODUCTION; DEFINITIONS--Table of Contents




                          Subpart A--[Reserved]

                         Subpart B--Definitions

Sec.
400.200  General definitions.
400.202  Definitions specific to Medicare.
400.203  Definitions specific to Medicaid.

 Subpart C--OMB Control Numbers for Approved Collections of Information

400.300  Scope.
400.310  Display of currently valid OMB control numbers.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh) and 44 U.S.C. Chapter 35.



                          Subpart A--[Reserved]



                         Subpart B--Definitions



Sec. 400.200  General definitions.

    In this chapter, unless the context indicates otherwise--
    Act means the Social Security Act, and titles referred to are titles 
of that Act.
    Administrator means the Administrator, Health Care Financing 
Administration.
    ALJ stands for administrative law judge.
    Area means the geographical area within the boundaries of a State, 
or a State or other jurisdiction, designated as constituting an area 
with respect to which a Professional Standards Review Organization or a 
Utilization and Quality Control Peer Review Organization has been or may 
be designated.
    CMP stands for competitive medical plan.
    Conditions of participation includes requirements for participation 
as the latter term is used in part 483 of this chapter.
    Condition level deficiencies includes deficiencies with respect to 
``level A requirements'' as the latter term is used in parts 442 and 483 
of this chapter.
    CORF stands for comprehensive outpatient rehabilitation facility.
    CFR stands for Code of Federal Regulations.
    CY stands for calendar year.
    Department means the Department of Health and Human Services (HHS), 
formerly the Department of Health, Education, and Welfare.
    ESRD stands for end-stage renal disease.
    FDA stands for the Food and Drug Administration.
    FQHC means Federally qualified health center.
    FR stands for Federal Register.
    FY stands for fiscal year.
    HCFA stands for Health Care Financing Administration.
    HCPP stands for health care prepayment plan.
    HHS stands for the Department of Health and Human Services.
    HHA stands for home health agency.
    HMO stands for health maintenance organization.
    ICF stands for intermediate care facility.
    ICF/MR stands for intermediate care facility for the mentally 
retarded.
    Medicaid means medical assistance provided under a State plan 
approved under title XIX of the Act.
    Medicare means the health insurance program for the aged and 
disabled under title XVIII of the Act.
    NCD stands for national coverage determination.
    OASDI stands for the Old Age, Survivors, and Disability Insurance 
program under title II of the Act.
    OIG stands for the Department's Office of the Inspector General.
    Peer review organization means an organization that has a contract 
with HCFA, under part B of title XI of the Act, to perform utilization 
and quality control review of the health care furnished, or to be 
furnished, to Medicare beneficiaries.
    PRO stands for peer review organization.
    QDWI stands for Qualified Disabled and Working Individual.
    QMB stands for Qualified Medicare Beneficiary.
    Qualified Disabled and Working Individual means an individual who--

[[Page 6]]

    (1) Is eligible to enroll for Medicare Part A under section 1818A of 
the Act.
    (2) Has income, as determined in accordance with SSI methodologies, 
that does not exceed 200 percent of the Federal poverty guidelines (as 
defined and revised annually by the Office of Management and Budget) for 
a family of the size of the individual's family;
    (3) Has resources, as determined in accordance with SSI 
methodologies, that do not exceed twice the relevant maximum amount 
established, for SSI eligibility, for an individual or for an individual 
and his or her spouse; and
    (4) Is not otherwise eligible for Medicaid.
    Qualified Medicare Beneficiary means an individual who--
    (1) Is entitled to Medicare Part A, with or without payment of 
premiums, but is not entitled solely because he or she is eligible to 
enroll as a QDWI;
    (2) Has resources, as determined in accordance with SSI 
methodologies, that do not exceed twice the maximum amount established 
for SSI eligibility; and
    (3) Has income, as determined in accordance with SSI methodologies, 
that does not exceed 100 percent of the Federal poverty guidelines.
    Regional Administrator means a Regional Administrator of HCFA.
    Regional Office means one of the regional offices of HCFA.
    RHC stands for rural health clinic.
    RRB stands for Railroad Retirement Board.
    Secretary means the Secretary of Health and Human Services.
    SNF stands for skilled nursing facility.
    Social security benefits means monthly cash benefits payable under 
section 202 or 223 of the Act.
    SSA stands for Social Security Administration.
    United States means the fifty States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, 
and the Northern Mariana Islands.
    U.S.C. stands for United States Code.

[48 FR 12534, Mar. 25, 1983, as amended at 49 FR 7206, Feb. 27, 1984; 50 
FR 15326 and 15358, Apr. 17, 1985; 50 FR 41886, Oct. 16, 1985; 51 FR 
43197, Dec. 1, 1986; 52 FR 27764, July 23, 1987; 56 FR 8852, Mar. 1, 
1991; 56 FR 38077, Aug. 12, 1991; 57 FR 24975, June 12, 1992; 57 FR 
55912, Nov. 25, 1992; 63 FR 35065, June 26, 1998; 63 FR 52611, Oct. 1, 
1998]



Sec. 400.202  Definitions specific to Medicare.

    As used in connection with the Medicare program, unless the context 
indicates otherwise--
    Beneficiary means a person who is entitled to Medicare benefits.
    Carrier means an entity that has a contract with HCFA to determine 
and make Medicare payments for Part B benefits payable on a charge basis 
and to perform other related functions.
    Critical access hospital (CAH) means a facility designated by HFCA 
as meeting the applicable requirements of section 1820 of the Act and of 
subpart F of part 485 of this chapter.
    Entitled means that an individual meets all the requirements for 
Medicare benefits.
    Essential access community hospital (EACH) means a hospital 
designated by HCFA as meeting the applicable requirements of section 
1820 of the Act and of subpart G of part 412 of this chapter, as in 
effect on September 30, 1997.
    GME stands for graduate medical education.
    Hospital insurance benefits means payments on behalf of, and in rare 
circumstances directly to, an entitled individual for services that are 
covered under Part A of title XVIII of the Act.
    Intermediary means an entity that has a contract with HCFA to 
determine and make Medicare payments for Part A or Part B benefits 
payable on a cost basis and to perform other related functions.
    Medicare Part A means the hospital insurance program authorized 
under Part A of title XVIII of the Act.
    Medicare Part B means the supplementary medical insurance program 
authorized under Part B of title XVIII of the Act.

[[Page 7]]

    National coverage determination (NCD) means a national policy 
determination regarding the coverage status of a particular service, 
that HCFA makes under section 1862(a)(1) of the Act, and publishes as a 
Federal Register notice or HCFA Ruling. (The term does not include 
coverage changes mandated by statute.)
    Nonparticipating supplier means a supplier that does not have an 
agreement with HCFA to participate in Part B of Medicare in effect on 
the date of the service.
    Participating supplier means a supplier that has an agreement with 
HCFA to participate in Part B of Medicare in effect on the date of the 
service.
    Payment on an assignment-related basis means payment for Part B 
services--
    (1) To a physician or other supplier that accepts assignment from 
the beneficiary, in accordance with Sec. 424.55 or Sec. 424.56 of this 
chapter;
    (2) To a physician or other supplier after the beneficiary's death, 
in accordance with Sec. 424.64(c)(1) of this chapter; or
    (3) To an entity that pays the physician or other supplier under a 
health benefit plan, in accordance with Sec. 424.66 of this chapter.
    Provider means a hospital, a CAH, a skilled nursing facility, a 
comprehensive outpatient rehabilitation facility, a home health agency, 
or a hospice that has in effect an agreement to participate in Medicare, 
or a clinic, a rehabilitation agency, or a public health agency that has 
in effect a similar agreement but only to furnish outpatient physical 
therapy or speech pathology services, or a community mental health 
center that has in effect a similar agreement but only to furnish 
partial hospitalization services.
    Railroad retirement benefits means monthly benefits payable to 
individuals under the Railroad Retirement Act of 1974 (45 U.S.C. 
beginning at section 231).
    Services means medical care or services and items, such as medical 
diagnosis and treatment, drugs and biologicals, supplies, appliances, 
and equipment, medical social services, and use of hospital, CAH, or SNF 
facilities.
    Supplementary medical insurance benefits means payment to or on 
behalf of an entitled individual for services covered under Part B of 
title XVIII of the Act.
    Supplier means a physician or other practitioner, or an entity other 
than a provider, that furnishes health care services under Medicare.

[48 FR 12534, Mar. 25, 1983, as amended at 48 FR 56024, Dec. 16, 1983; 
49 FR 3658, Jan. 30, 1984; 51 FR 43197, Dec. 1, 1986; 52 FR 27764, July 
23, 1987; 55 FR 24567, June 18, 1990; 56 FR 8852, Mar. 1, 1991; 58 FR 
30666, May 26, 1993; 59 FR 6576, Feb. 11, 1994; 60 FR 63175, Dec. 8, 
1995; 62 FR 46025, Aug. 29, 1997; 62 FR 59098, Oct. 31, 1997; 63 FR 
35065, June 26, 1998]



Sec. 400.203  Definitions specific to Medicaid.

    As used in connection with the Medicaid program, unless the context 
indicates otherwise--
    Applicant means an individual whose written application for Medicaid 
has been submitted to the agency determining Medicaid eligibility, but 
has not received final action. This includes an individual (who need not 
be alive at the time of application) whose application is submitted 
through a representative or a person acting responsibly for the 
individual.
    Federal financial participation (FFP) means the Federal Government's 
share of a State's expenditures under the Medicaid program.
    FMAP stands for the Federal medical assistance percentage, which is 
used to calculate the amount of Federal share of State expenditures for 
services.
    Medicaid agency or agency means the single State agency 
administering or supervising the administration of a State Medicaid 
plan.
    Nursing facility (NF), effective October 1, 1990, means an SNF or an 
ICF participating in the Medicaid program.
    Provider means any individual or entity furnishing Medicaid services 
under a provider agreement with the Medicaid agency.
    Recipient means an individual who has been determined eligible for 
Medicaid.
    Services means the types of medical assistance specified in section 
1905(a) of the Act and defined in subpart A of part 440 of this chapter.

[[Page 8]]

    State means the several States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa 
and the Northern Mariana Islands.
    State plan or the plan means a comprehensive written commitment by a 
Medicaid agency, submitted under section 1902(a) of the Act, to 
administer or supervise the administration of a Medicaid program in 
accordance with Federal requirements.

[48 FR 12534, Mar. 25, 1983, as amended at 50 FR 33029, Aug. 16, 1985; 
56 FR 8852, Mar. 1, 1991; 57 FR 29155, June 30, 1992]



 Subpart C--OMB Control Numbers for Approved Collections of Information

    Source: 49 FR 4477, Feb. 7, 1984, unless otherwise noted.



Sec. 400.300  Scope.

    This subpart collects and displays control numbers assigned by the 
Office of Management and Budget (OMB) to collections of information 
contained in HCFA regulations, in accordance with OMB's regulations for 
controlling paperwork burdens on the public, 5 CFR part 1320. HCFA 
intends that the subpart comply with the requirements of section 3507(f) 
of the Paperwork Reduction Act of 1980, 44 U.S.C. chapter 35 which 
requires that agencies shall not engage in a ``collection of 
information'' without obtaining a control number from OMB.



Sec. 400.310  Display of currently valid OMB control numbers.

------------------------------------------------------------------------
                                                             Current OMB
Sections in 42 CFR that contain collections of information  control Nos.
------------------------------------------------------------------------
403.510...................................................    0938--0641
405.509...................................................    0938--0666
405.512...................................................    0938--0008
405.2112, 405.2123, 405.2134, 405.2136-405.2140, 405.2171.    0938--0386
409.43....................................................    0938--0365
410.105...................................................    0938--0267
411.25, 411.32............................................    0938--0564
411.54....................................................    0938--0558
411.165...................................................    0938--0564
411.404, 411.406..........................................    0938--0465
411.408...................................................    0938--0566
412.42....................................................    0938--0666
412.92....................................................    0938--0477
412.105...................................................    0938--0456
412.230, 412.232, 412.234, 412.236, 412.254, 412.260,         0938--0573
 412.266, 412.278.........................................
415.60....................................................    0938--0301
415.162...................................................    0938--0301
416.43....................................................    0938--0506
416.47....................................................    0938--0266
                                                                     and
                                                              0938--0506
417.126...................................................    0938--0472
417.436, 417.801..........................................    0938--0610
418.22, 418.24, 418.28, 418.56, 418.58, 418.70, 418.74....    0938--0302
418.30, 418.82, 418.83, 418.96, 418.100...................    0938--0475
418.96, 418.100...........................................    0938--0302
421.117...................................................    0938--0542
424.3.....................................................    0938--0008
424.5, 424.7, 424.20......................................    0938--0454
424.22....................................................    0938--0489
424.32, 424.34............................................    0938--0008
431.17....................................................    0938--0467
431.50, 431.52, 431.55....................................    0938--0247
431.107...................................................    0938--0610
431.306...................................................    0938--0467
431.625...................................................    0938--0247
431.630...................................................    0938--0445
431.800...................................................    0938--0247
431.806, 431.830, 431.432, 431.834, 431.836...............    0938--0438
432.50....................................................    0938--0459
433.36, 433.37............................................    0938--0247
433.68, 433.74............................................    0938--0618
433.110, 433.112-433.114, 433.116, 433.117, 433.119-          0938--0247
 433.121, 433.123, 433.127, 433.130, 433.131, 433.135.....
433.138...................................................    0938--0502
                                                              0938--0553
                                                                     and
                                                              0938--0555
433.139...................................................    0938--0459
                                                              0938--0554
                                                                     and
                                                              0938--0555
434.27....................................................    0938--0572
434.28....................................................    0938--0610
435.1, 435.910, 435.919, 435.920, 435.940, 435.945,           0938--0247
 435.948, 435.952, 435.953, 435.955, 435.960, 435.965,
 435.1003, 441.11, 441.15, 441.20.........................
441.56, 441.58, 441.60, 441.61............................    0938--0354
441.302...................................................    0938--0449
441.303...................................................    0938--0272
                                                                     and
                                                              0938--0449
441.351, 441.352, 441.353, 441.356, 441.365...............    0938--0613
442.505...................................................    0938--0366
447.31....................................................    0938--0287
447.45, 447.50, 447.51, 447.52............................    0938--0247
447.53....................................................    0938--0429
447.55....................................................    0938--0247
447.253...................................................    0938--0366
                                                              0938--0523
                                                                     and
                                                              0938--0556
447.255...................................................    0938--0193
447.272, 447.299..........................................    0938--0618
447.302, 447.331, 447.332, 447.333........................    0938--0247
456.80....................................................    0938--0247
456.654...................................................    0938--0445
456.700, 456.705, 456.709, 456.711, 456.712...............    0938--0659
462.102, 462.103..........................................    0938--0526
466.70, 466.72, 466.74....................................    0938--0445
466.78....................................................    0938--0445
                                                                     and
                                                              0938--0665
466.80, 466.94............................................    0938--0445
473.18, 473.34, 473.36, 473.42............................    0938--0443
476.104, 476.105, 476.116, 476.134........................    0938--0426

[[Page 9]]

 
481.61....................................................    0938--0328
482.12, 482.21, 482.22, 482.27, 482.30, 482.41, 482.43,       0938--0328
 482.53, 482.56, 482.57, 482.60, 482.62...................
483.10....................................................    0938--0610
483.410, 483.420, 483.440, 483.460, 483.470...............    0938--0366
484.1, 484.2..............................................    0938--0365
484.10....................................................    0938--0365
                                                                     and
                                                              0938--0610
484.12, 484.14, 484.16, 484.18, 484.30, 484.32, 484.34,       0938--0365
 484.36, 484.48, 484.52...................................
485.56, 485.58, 485.60, 485.64, 485.66....................    0938--0267
                                                                     and
                                                              0938--0538
485.709, 485.711, 485.717, 485.719, 485.721, 487.723,         0938--0336
 485.725, 485.727.........................................
486.104, 486.106, 486.110.................................    0938--0338
486.155, 486.161, 486.163.................................    0938--0336
488.10....................................................    0938--0646
488.18....................................................    0938--0667
488.26....................................................    0938--0646
489.20....................................................    0938--0564
                                                                     and
                                                              0938--0667
489.24....................................................    0938--0334
                                                              0938--0663
                                                                     and
                                                              0938--0667
489.102...................................................    0938--0610
491.9, 491.10.............................................    0938--0334
493.35, 493.37, 493.39, 493.43, 493.45, 493.47, 493.49,
 493.51, 493.53,..........................................
493.55, 493.60, 493.61, 493.62, 493.63....................    0938--0612
493.614, 493.633, 494.634.................................    0938--0607
493.801-493.1285, 493.1425, 493.1701, 493.1703, 493.1705,     0938--0612
 493.1707, 493.1709, 493.1711, 493.1713, 493.1715,
 493.1717, 493.1719, 493.1721, 493.1775, 493.1776,
 493.1777, 493.1780, 493.2001.............................
494.52, 494.54, 494.56, 494.58, 494.64....................    0938--0608
498.22, 498.40, 498.58, 498.82............................    0938--0508
1004.40, 1004.50, 1004.60, 1004.70........................    0938--0444
------------------------------------------------------------------------


[60 FR 50445, Sept. 29, 1995, as amended at 60 FR 63188, Dec. 8, 1995]



PART 401--GENERAL ADMINISTRATIVE REQUIREMENTS--Table of Contents




                          Subpart A--[Reserved]

                Subpart B--Confidentiality and Disclosure

Sec.
401.101  Purpose and scope.
401.102  Definitions.
401.105  Rules for disclosure.
401.106  Publication.
401.108  HCFA rulings.
401.110  Publications for sale.
401.112  Availability of administrative staff manuals.
401.116  Availability of records upon request.
401.118  Deletion of identifying details.
401.120  Creation of records.
401.126  Information or records that are not available.
401.128  Where requests for records may be made.
401.130  Materials available at social security district offices and 
          branch offices.
401.132  Materials in field offices of the Office of Hearings and 
          Appeals, SSA.
401.133  Availability of official reports on providers and suppliers of 
          services, State agencies, intermediaries, and carriers under 
          Medicare.
401.134  Release of Medicare information to State and Federal agencies.
401.135  Release of Medicare information to the public.
401.136  Requests for information or records.
401.140  Fees and charges.
401.144  Denial of requests.
401.148  Administrative review.
401.152  Court review.

                        Subparts C-E--[Reserved]

               Subpart F--Claims Collection and Compromise

401.601  Basis and scope.
401.603  Definitions.
401.605  Omissions not a defense.
401.607  Claims collection.
401.613  Compromise of claims.
401.615  Payment of compromise amount.
401.617  Suspension of collection action.
401.621  Termination of collection action.
401.623  Joint and several liability.
401.625  Effect of HCFA claims collection decisions on appeals.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh). Subpart F is also issued under the authority of the 
Federal Claims Collection Act (31 U.S.C. 3711).



                          Subpart A--[Reserved]



                Subpart B--Confidentiality and Disclosure

    Source: 46 FR 55696, Nov. 12, 1981, unless otherwise noted.



Sec. 401.101  Purpose and scope.

    (a) The regulations in this subpart:
    (1) Implement section 1106(a) of the Social Security Act as it 
applies to the Health Care Financing Administration (HCFA). The rules 
apply to information obtained by officers or employees of HCFA in the 
course of administering title XVIII of the Social Security Act 
(Medicare), information obtained by Medicare intermediaries or carriers 
in the course of carrying out agreements

[[Page 10]]

under sections 1816 and 1842 of the Social Security Act, and any other 
information subject to section 1106(a) of the Social Security Act;
    (2) Relate to the availability to the public, under 5 U.S.C. 552, of 
records of HCFA and its components. They set out what records are 
available and how they may be obtained; and
    (3) Supplement the regulations of the Department of Health and Human 
Services relating to availability of information under 5 U.S.C. 552, 
codified in 45 CFR part 5, and do not replace or restrict them.
    (b) Except as authorized by the rules in this subpart, no 
information described in paragraph (a)(1) of this section shall be 
disclosed. The procedural rules in this subpart (Secs. 401.106 through 
401.152) shall be applied to requests for information which is subject 
to the rules for disclosure in this subpart.
    (c) Requests for information which may not be disclosed according to 
the provisions of this subpart shall be denied under authority of 
section 1106(a) of the Social Security Act and this subpart, and 
furthermore, such requests which have been made pursuant to the Freedom 
of Information Act shall be denied under authority of an appropriate 
Freedom of Information Act exemption, 5 U.S.C. 552(b).



Sec. 401.102  Definitions.

    For purposes of this subpart:
    Act means the Social Security Act.
    Freedom of Information Act rules means the substantive mandatory 
disclosure provisions of the Freedom of Information Act, 5 U.S.C. 552 
(including the exemptions from mandatory disclosure, 5 U.S.C. 552(b), as 
implemented by the Department's public information regulation, 45 CFR 
part 5, subpart F and by Secs. 401.106 to 401.152 of this subpart.
    Person means a person as defined in the Administrative Procedure 
Act, 5 U.S.C. 551(2). This includes State or local agencies, but does 
not include Federal agencies or State or Federal courts.
    Record has the same meaning as that provided in 45 CFR 5.5.
    Subject individual means an individual whose record is maintained by 
the Department in a system of records, as the terms ``individual,'' 
``record'', and ``system of records'' are defined in the Privacy Act of 
1974, 5 U.S.C. 552a(a).



Sec. 401.105  Rules for disclosure.

    (a) General rule. The Freedom of Information Act rules shall be 
applied to every proposed disclosure of information. If, considering the 
circumstances of the disclosure, the information would be made available 
in accordance with the Freedom of Information Act rules, then the 
information may be disclosed regardless of whether the requester or 
recipient of the information has a statutory right to request the 
information under the Freedom of Information Act, 5 U.S.C. 552, or 
whether a request has been made.
    (b) Application of the general rule. Pursuant to the general rule in 
paragraph (a) of this section,
    (1) Information shall be disclosed--
    (i) To a subject individual when required by the access provision of 
the Privacy Act, 5 U.S.C. 552a(d), as implemented by the Department 
Privacy Act regulation, 45 CFR part 5b; and
    (ii) To a person upon request when required by the Freedom of 
Information Act, 5 U.S.C. 552;
    (2) Unless prohibited by any other statute (e.g., the Privacy Act of 
1974, 5 U.S.C. 552a(b), the Tax Reform Act of 1976, 26 U.S.C. 6103, or 
section 1106(d) and (e) of the Social Security Act), information may be 
disclosed to any requester or recipient of the information, including 
another Federal agency or a State or Federal court, when the information 
would not be exempt from mandatory disclosure under Freedom of 
Information Act rules or when the information nevertheless would be made 
available under the Department's public information regulation's 
criteria for disclosures which are in the public interest and consistent 
with obligations of confidentiality and administrative necessity, 45 CFR 
part 5, subpart F, as supplemented by Secs. 401.106 to 401.152 of this 
subpart.

[42 FR 14704, Mar. 16, 1977. Redesignated at 45 FR 74913, 74914, Nov. 
13, 1980, and correctly redesignated at 46 FR 24551, May 1, 1981, as 
amended at 46 FR 55697, Nov. 12, 1981]

[[Page 11]]



Sec. 401.106  Publication.

    (a) Methods of publication. Materials required to be published under 
the provisions of The Freedom of Information Act, 5 U.S.C. 552 (a)(1) 
and (2) are published in one of the following ways:
    (1) By publication in the Federal Register of HCFA regulations, and 
by their subsequent inclusion in the Code of Federal Regulations;
    (2) By publication in the Federal Register of appropriate general 
notices;
    (3) By other forms of publication, when incorporated by reference in 
the Federal Register with the approval of the Director of the Federal 
Register; and
    (4) By publication of indexes of precedential orders and opinions 
issued in the adjudication of claims, statements of policy and 
interpretations which have been adopted but have not been published in 
the Federal Register, and of administrative staff manuals and 
instructions to staff that affect a member of the public.
    (b) Availability for inspection. Those materials which are published 
in the Federal Register pursuant to 5 U.S.C. 552(a)(1) shall, to the 
extent practicable and to further assist the public, be made available 
for inspection at the places specified in Sec. 401.128.

[46 FR 55696, Nov. 12, 1981, as amended at 48 FR 22924, May 23, 1983]



Sec. 401.108  HCFA rulings.

    (a) After September 1981, a precedent final opinion or order or a 
statement of policy or interpretation that has not been published in the 
Federal Register as a part of a regulation or of a notice implementing 
regulations, but which has been adopted by HCFA as having precedent, may 
be published in the Federal Register as a HCFA Ruling and will be made 
available in the publication entitled HCFA Rulings.
    (b) Precedent final opinions and orders and statements of policy and 
interpretation that were adopted by HCFA before October, 1981, and that 
have not been published in the Federal Register are available in HCFA 
Rulings.
    (c) HCFA Rulings are published under the authority of the 
Administrator, HCFA. They are binding on all HCFA Components, and on the 
Social Security Administration to the extent that components of the 
Social Security Administration adjudicate matters under the jurisdiction 
of HCFA.

[48 FR 22924, May 23, 1983]



Sec. 401.110  Publications for sale.

    The following publications containing information pertaining to the 
program, organization, functions, and procedures of HCFA may be 
purchased from the Superintendent of Documents, Government Printing 
Office, Washington, DC 20402.
    (a) Titles 20, 42, and 45 of the Code of Federal Regulations.
    (b) Federal Register issues.
    (c) Compilation of the Social Security Laws.
    (d) HCFA Rulings.
    (e) Social Security Handbook. The information in the Handbook is not 
of precedent or interpretative force.
    (f) Medicare/Medicaid Directory of Medical Facilities.



Sec. 401.112  Availability of administrative staff manuals.

    All HCFA administrative staff manuals and instructions to staff 
personnel which contain policies, procedures, or interpretations that 
affect the public are available for inspection and copying. A complete 
listing of such materials is published in HCFA Rulings. These manuals 
are generally not printed in a sufficient quantity to permit sale or 
other general distribution to the public. Selected material is 
maintained at Social Security Administration district offices and field 
offices and may be inspected there. See Secs. 401.130 and 401.132 for a 
listing of this material.



Sec. 401.116  Availability of records upon request.

    (a) General. In addition to the records made available pursuant to 
Secs. 401.106, 401.108, 401.110 and 401.112, HCFA will, upon request 
made in accordance with this subpart, make identified records available 
to any person, unless they are exempt from disclosure under the 
provisions of section 552(b) of title 5, United States Code (see 
Sec. 401.126), or any other provision of law.

[[Page 12]]

    (b) Misappropriation, alteration, or destruction of records. No 
person may remove any record made available to him for inspection or 
copying under this part, from the place where it is made available. In 
addition, no person may steal, alter, mutilate, obliterate, or destroy 
in whole or in part, such a record. See sections 641 and 2071 of title 
18 of the United States Code.



Sec. 401.118  Deletion of identifying details.

    When HCFA publishes or otherwise makes available an opinion or 
order, statement of policy, or other record which relates to a private 
party or parties, the name or names or other identifying details will be 
deleted.



Sec. 401.120  Creation of records.

    Records will not be created by compiling selected items from the 
files, and records will not be created to provide the requester with 
such data as ratios, proportions, percentages, per capitas, frequency 
distributions, trends, correlations, and comparisons. If such data have 
been compiled and are available in the form of a record, the record 
shall be made available as provided in this subpart.



Sec. 401.126  Information or records that are not available.

    (a) Specific exemptions from disclosure. Pursuant to paragraph (b) 
of 5 U.S.C. 552, certain classes of records are exempt from disclosure. 
For some examples of the kinds of materials which are exempt, see 
subpart F of the public information regulation of the Department of 
Health and Human Services (45 CFR part 5) and the appendix to that 
regulation.
    (b) Materials exempt from disclosure by statute. Pursuant to 
paragraph (b)(3) of 5 U.S.C. 552, as amended, which exempts from the 
requirement for disclosure matters that are exempted from disclosure by 
statute, provided that such statute requires that the matters be 
withheld from the public in such a manner as to leave no discretion on 
the issue, or establishes particular criteria for withholding or refers 
to particular types of matter to be withheld:
    (1) Reports described in sections 1106 (d) and (e) of the Social 
Security Act shall not be disclosed, except in accordance with the 
provisions of sections 1106 (d) and (e). Sections 1106 (d) and (e) 
provide for public inspection of certain official reports dealing with 
the operation of the health programs established by titles XVIII and XIX 
of the Social Security Act (Medicare and Medicaid), but require that 
program validation survey reports and other formal evaluations of 
providers of services shall not identify individual patients, individual 
health care practitioners, or other individuals. Section 1106(e) further 
requires that none of the reports shall be made public until the 
contractor or provider whose performance is being evaluated has had a 
reasonable opportunity to review that report and to offer comments. See 
Sec. 401.133 (b) and (c);
    (2)(i) Except as specified in paragraph (b)(2)(ii) of this section, 
HCFA may not disclose any accreditation survey or any information 
directly related to the survey (including corrective action plans) made 
by and released to it by the Joint Commission on Accreditation of 
Healthcare Organizations, the American Osteopathic Association or any 
other national accreditation organization that meets the requirements of 
Sec. 488.6 or Sec. 493.506 of this chapter. Materials that are 
confidential include accreditation letters and accompanying 
recommendations and comments prepared by an accreditation organization 
concerning the entities it surveys.
    (ii) Exceptions.
    (A) HCFA may release the accreditation survey of any home health 
agency; and
    (B) HCFA may release the accreditation survey and other information 
directly related to the survey (including corrective action plans) to 
the extent the survey and information relate to an enforcement action 
(for example, denial of payment for new admissions, civil money 
penalties, temporary management and termination) taken by HCFA; and
    (3) Tax returns and return information defined in section 6103 of 
the Internal Revenue Code, as amended by the Tax Reform Act of 1976, 
shall not be disclosed except as authorized by the Internal Revenue 
Code.

[[Page 13]]

    (c) Effect of exemption. Neither 5 U.S.C. 552 nor this regulation 
directs the withholding of any record or information, except to the 
extent of the prohibitions in paragraph (b) of this section. Except for 
material required to be withheld under the statutory provisions 
incorporated in paragraph (b) of this section or under another statute 
which meets the standards in 5 U.S.C. 552(b)(3), materials exempt from 
mandatory disclosure will nevertheless be made available when this can 
be done consistently with obligations of confidentiality and 
administrative necessity. The disclosure of materials or records under 
these circumstances in response to a specific request, however, is of no 
precedent force with respect to any other request.

[46 FR 55696, Nov. 12, 1981, as amended at 58 FR 61837, Nov. 23, 1993]



Sec. 401.128  Where requests for records may be made.

    (a) General. Any request for any record may be made to--
    (1) Any HCFA component;
    (2) Director, Office of Public Affairs, HCFA 313-H, Hubert H. 
Humphrey Building, 200 Independence Avenue, Washington, DC 20201; or
    (3) Director of Public Affairs in any Regional Office of the 
Department of Health and Human Services.

The locations and service areas of these offices are as follows:

Region I--John F. Kennedy Federal Building, Boston, MA 02203. 
Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont.
Region II--26 Federal Plaza, New York, NY 10007. New York, New Jersey, 
Puerto Rico, Virgin Islands.
Region III--Gateway Building, 3535 Market Street, Philadelphia, PA 
19101. Delaware, Maryland, Pennsylvania, Virginia, West Virginia, 
District of Columbia.
Region IV--101 Marietta Street, Altanta, GA 30323. Alabama, Florida, 
Georgia, Kentucky, Mississippi, North Carolina, South Carolina, 
Tennessee.
Region V--300 South Wacker Drive, Chicago, IL 60606. Illinois, Indiana, 
Michigan, Minnesota, Ohio, Wisconsin.
Region VI--1200 Main Tower Building, Dallas, TX 75202. Arkansas, 
Louisiana, New Mexico, Oklahoma, Texas.
Region VII--601 East 12th Street, Kansas City, MO 64106. Iowa, Kansas, 
Missouri, Nebraska.
Region VIII--Federal Office Building, 19th and Stout Streets, Denver, CO 
80294. Colorado, Montana, North Dakota, South Dakota, Utah, Wyoming.
Region IX--Federal Office Building, 50 United Nations Plaza, San 
Francisco, CA 94102. Arizona, California, Hawaii, Nevada, Guam, Trust 
Territory of Pacific Islands, American Samoa.
Region X--Arcade Plaza Building, 1321 Second Avenue, Seattle, WA 98101. 
Alaska, Idaho, Oregon, Washington.

    (b) Records pertaining to individuals. HCFA maintains some records 
pertaining to individuals. Disclosure of such records is generally 
prohibited by section 1106 of the Social Security Act (42 U.S.C. 1306), 
except as prescribed in Sec. 401.105 (See also Sec. 401.126(b)). 
Requests for records pertaining to individuals may be addressed to:

Director, Office of Research, Demonstrations and Statistics, HCFA, 
Baltimore, Maryland 21235, when information is sought from the record of 
a person who has participated in a research survey conducted by or for 
HCFA, Office of Research, Demonstrations and Statistics; or whose 
records have been included by statistical sampling techniques in 
research and statistical studies authorized by the Social Security Act 
in the field of health care financing.
    (c) Requests for materials listed in Sec. 401.130 or Sec. 401.132 or 
indexed in the HCFA Rulings. A request to inspect and copy materials 
listed in Sec. 401.130 or Sec. 401.132 or indexed in HCFA Rulings may be 
made to any district or branch office of the Social Security 
Administration. If the specific material requested is not available in 
the office receiving the request, the material will be obtained and made 
available promptly.



Sec. 401.130  Materials available at social security district offices and branch offices.

    (a) Materials available for inspection. The following are available 
or will be made available for inspection at the social security district 
offices and branch offices:
    (1) Compilation of the Social Security Laws.
    (2) The Public Information Regulation of the Department of Health 
and Human Services (45 CFR part 5).

[[Page 14]]

    (3) Medicare Program regulations issued by the Health Care Financing 
Administration. 42 CFR chapter IV .
    (4) HCFA Rulings.
    (5) Social Security Handbook.
    (b) Materials available for inspection and copying. The following 
materials are available or will be made available for inspection and 
copying at the social security district offices and branch offices:
    (1) Claims Manual of the Social Security Administration.
    (2) Department Staff Manual on Organization, Department of Health 
and Human Services, Part F, HCFA.
    (3) Parts 2 and 3 of the Part A

Intermediary Manual (Provider Services under Medicare HCFA Pub. 13-2 and 
13-3).
    (4) Parts 2 and 3 of the Part B Intermediary Manual (Physician and 
Supplier Services).
    (5) Intermediary Letters Related to Parts 2 and 3 of the Part A and 
Part B Intermediary Manuals.
    (6) State Buy-In Handbook (State Enrollment of Eligible Individuals 
under the Supplementary Medical Insurance Program) and Letters.
    (7) Group Practice Prepayment Plan Manual (HIM-8) and Letters.
    (8) State Operations Manual (HIM-7).
    (9) HCFA Letters to State Agencies on Medicare.
    (10) Skilled Nursing Facility Manual (HCFA Pub. 12).
    (11) Hearing Officers Handbook (Supplementary Medical Insurance 
Program--HIM-21).
    (12) Hospital Manual (HIM-10).
    (13) Home Health Agency Manual (HIM-11).
    (14) Outpatient Physical Therapy Provider Manual (HIM-9).
    (15) Provider Reimbursement Manual (HIM-15).
    (16) Audit Program Manuals for Hospital (HIM-16), Home Health Agency 
(HIM-17), and Extended Care Facilities (HIM-18).
    (17) Statements of deficiencies based upon survey reports of health 
care institutions or facilities prepared after January 31, 1973, by a 
State agency, and such reports (including pertinent written statements 
furnished by such institution or facility on such statements of 
deficiencies), as set forth in Sec. 401.133(a). Except as otherwise 
provided for at Secs. 401.133 and 488.325 of this chapter for SNFs, such 
statements of deficiencies, reports, and pertinent written statements 
shall be available or made available only at the social security 
district office and regional office servicing the area in which the 
institution or facility is located, except that such statements of 
deficiencies and pertinent written statements shall also be available at 
the local public assistance offices servicing such area.
    (18) Indexes to the materials listed in paragraph (a) of this 
section and in this paragraph (b) and an index to the Bureau of Hearings 
and Appeals Handbook.

[46 FR 55696, Nov. 12, 1981, as amended at 59 FR 56232, Nov. 10, 1994]



Sec. 401.132  Materials in field offices of the Office of Hearings and Appeals, SSA.

    (a) Materials available for inspection. The following materials are 
available for inspection in the field offices of the Office of Hearings 
and Appeals, SSA.
    (1) Title 45 of the Code of Federal Regulations (including the 
public information regulation of the Department of Health and Human 
Services).
    (2) Regulations of the Social Security Administration and HCFA.
    (3) Title 5, United States Code.
    (4) Compilation of the Social Security Laws.
    (5) HCFA Rulings.
    (6) Social Security Handbook.
    (b) Handbook available for inspection and copying. The Office of 
Hearings and Appeals Handbook is available for inspection and copying in 
the field offices of the Office of Hearings and Appeals.



Sec. 401.133  Availability of official reports on providers and suppliers of services, State agencies, intermediaries, and carriers under Medicare.

    Except as otherwise provided for in Sec. 488.325 of this chapter for 
SNFs, the following must be made available to the public under the 
conditions specified:
    (a) Statements of deficiencies and survey reports on providers of 
services prepared by State agencies. (1) Statements

[[Page 15]]

of deficiencies based upon official survey reports prepared after 
January 31, 1973, by a State agency pursuant to its agreement entered 
into under section 1864 of the Social Security Act and furnished to 
HCFA, which relate to a State agency's findings on the compliance of a 
health care institution or facility with the applicable provisions in 
section 1861 of the Act and with the regulations, promulgated pursuant 
to those provisions, dealing with health and safety of patients in those 
institutions and facilities; and (2) State agency survey reports. The 
statement of deficiencies or report and any pertinent written statements 
furnished by the institution or facility on the statement of 
deficiencies shall be disclosed within 90 days following the completion 
of the survey by the State agency, but not to exceed 30 days following 
the receipt of the report by HCFA. (See Sec. 401.130(b)(17)) for places 
where statements of deficiencies, reports, and pertinent written 
statements will be available.)
    (b) HCFA reports on providers of services. Upon request in writing, 
official reports and other formal evaluations (including followup 
reviews), excluding references to internal tolerance rules and practices 
contained therein, internal working papers or other informal memoranda, 
prepared and completed after January 31, 1973, which relate to the 
performance of providers of services under Medicare: Provided, That no 
information identifying individual patients, physicians, or other 
practitioners, or other individuals shall be disclosed under this 
paragraph. Those reports and other evaluations shall be disclosed within 
30 days following the final preparation thereof by HCFA during which 
time the providers of services shall be afforded a reasonable 
opportunity to offer comments, and there shall be disclosed with those 
reports and evaluations any pertinent written statements furnished HCFA 
by those providers on those reports and evaluations.
    (c) Contractor performance review reports. Upon request in writing, 
official contractor performance review reports and other formal 
evaluations (including followup reviews), excluding references to 
internal tolerance rules and practices contained therein, internal 
working papers or other informal memoranda, prepared and completed after 
January 31, 1973, which relate to the evaluation of the performance of 
(1) intermediaries and carriers under their agreements entered into 
pursuant to sections 1816 and 1842 of the Social Security Act and (2) 
State agencies under their agreements entered into pursuant to section 
1864 of the Act (including comparative evaluations of the performance of 
those intermediaries, carriers, and State agencies). The latest Contract 
Performance Review Report pertaining to a particular intermediary or 
carrier, prepared prior to February 1, 1973, may also be disclosed to 
any person upon request in writing. Those reports and evaluations shall 
be disclosed within 30 days following their final preparation by HCFA 
(or 30 days following the request therefor, in the case of the contract 
performance review report prepared prior to February 1, 1973), during 
which time those intermediaries, carriers, and State agencies, as the 
case may be, shall be afforded a reasonable opportunity to offer 
comments, and there shall be disclosed with those reports and 
evaluations any pertinent written statements furnished HCFA by those 
intermediaries, carriers, on State agencies or those reports and 
evaluations.
    (d) Accreditation surveys. Upon written request, HCFA will release 
the accreditation survey and related information from an accreditation 
organization meeting the requirements of Sec. 488.5, Sec. 488.6 or 
Sec. 493.506 of this chapter to the extent the survey and information 
relate to an enforcement action taken (for example, denial of payment 
for new admission, civil money penalties, temporary management and 
termination) by HCFA;
    (e) Upon written request, HCFA will release the accreditation survey 
of any home health agency.

[46 FR 55696, Nov. 12, 1981; 46 FR 59249, Dec. 4, 1981, as amended at 58 
FR 61838, Nov. 23, 1993; 59 FR 56232, Nov. 10, 1994]



Sec. 401.134  Release of Medicare information to State and Federal agencies.

    (a) Except as provided in paragraph (b) of this section, the 
following information may be released to an officer or

[[Page 16]]

employee of an agency of the Federal or a State government lawfully 
charged with the administration of a program receiving grants-in-aid 
under title V and XIX of the Social Security Act for the purpose of 
administration of those titles, or to any officer or employee of the 
Department of Army, Department of Defense, solely for the administration 
of its Civilian Health and Medical Program of the Uniformed Services 
(CHAMPUS):
    (1) Information, including the identification number, concerning 
charges made by physicians, other practitioners, or suppliers, and 
amounts paid under Medicare for services furnished to beneficiaries by 
such physicians, other practioners, or suppliers, to enable the agency 
to determine the proper amount of benefits payable for medical services 
performed in accordance with those programs; or
    (2) Information as to physicians or other practioners that has been 
disclosed under Sec. 401.105.
    (3) Information relating to the qualifications and certification 
status of hospitals and other health care facilities obtained in the 
process of determining whether, and certifying as to whether, 
institutions or agencies meet or continue to meet the conditions of 
participation of providers of services or whether other entities meet or 
continue to meet the conditions for coverage of services they furnish.
    (b) The release of such information shall not be authorized by a 
fiscal intermediary or carrier.
    (c) The following information may be released to any officer or 
employee of an agency of the Federal or a State government lawfully 
charged with the duty of conducting an investigation or prosecution with 
respect to possible fraud or abuse against a program receiving grants-
in-aid under Medicaid, but only for the purpose of conducting such an 
investigation or prosecution, or to any officer or employee of the 
Department of the Army, Department of Defense, solely for the 
administration of its Civilian Health and Medical Program of the 
Uniformed Services (CHAMPUS), provided that the agency has filed an 
agreement with HCFA that the information will be released only to the 
agency's enforcement branch and that the agency will preserve the 
confidentiality of the information received and will not disclose that 
information for other than program purposes:
    (1) The name and address of any provider of medical services, 
organization, or other person being actively investigated for possible 
fraud in connection with Medicare, and the nature of such suspected 
fraud. An active investigation exists when there is significant evidence 
supporting an initial complaint but there is need for further 
investigation.
    (2) The name and address of any provider of medical services, 
organization, or other person found, after consultation with an 
appropriate professional association or a program review team, to have 
provided unnecessary services, or of any physician or other individual 
found to have violated the assignment agreement on at least three 
occasions.
    (3) The name and address of any provider of medical services, 
organization or other person released under paragraph (c)(1) or (2) of 
this section concerning which an active investigation is concluded with 
a finding that there is no fraud or other prosecutable offense.



Sec. 401.135  Release of Medicare information to the public.

    The following shall be made available to the public under the 
conditions specified:
    (a) Information as to amounts paid to providers and other 
organizations and facilities for services to beneficiaries under title 
XVIII of the Act: Provided, That no information identifying any 
particular beneficiaries shall be disclosed under this paragraph.
    (b) The name of any provider of services or other person furnishing 
services to Medicare beneficiaries who--
    (1) Has been found by a Federal court to have been guilty of 
submitting false claims in connection with Medicare; or
    (2) Has been found by a carrier or intermediary, after consultation 
with a professional medical association functioning external to program 
administration or, if appropriate, the State

[[Page 17]]

medical authority, to have been engaged in a pattern of furnishing 
services to beneficiaries which are substantially in excess of their 
medical needs; except that the name of any provider or other person 
shall not be disclosed pursuant to a finding under this paragraph (b)(2) 
of this section, unless that provider or other person has first been 
afforded a reasonable opportunity to offer evidence on his behalf.
    (c) Upon request in writing, cost reports submitted by providers of 
services pursuant to section 1815 of the Act to enable the Secretary to 
determine amounts due the providers.



Sec. 401.136  Requests for information or records.

    (a) A request should reasonably identify the requested record by 
brief description. Requesters who have detailed information which would 
assist in identifying the records requested are urged to provide such 
information in order to expedite the handling of the request. Envelopes 
in which written requests are submitted should be clearly identified as 
Freedom of Information requests. The request should include the fee or 
request determination of the fee. When necessary, a written request will 
be promptly forwarded to the proper office, and the requester will be 
advised of the date of the receipt and identification and address of the 
proper office.
    (b) Determinations of whether records will be released or withheld 
will be made within 10 working days from date of receipt of the request 
in the office listed in Sec. 401.128 except where HCFA extends this time 
and sends notice of such extension to the requester. Such extension may 
not exceed 10 additional working days and shall apply only where the 
following unusual circumstances exist:
    (1) The need to search for and collect the requested records from 
field facilities or other establishments that are separate from the 
office processing the requests;
    (2) The need to search for, collect, and appropriately examine a 
voluminous amount of separate and distinct records which are requested 
in a single request; or
    (3) The need for consultation, which shall be conducted with all 
practicable speed, with another agency having a substantial interest in 
the request or among two or more components of HCFA having a substantial 
interest in the subject matter of the request.
    (c) If an extension is made, the requester will be notified in 
writing before the expiration of 10 working days from receipt of the 
request and will be given an explanation of why the extension was 
necessary and the date on which a determination will be made.
    (d) Authority to extend the time limit with respect to any request 
for information or records is granted to the Director, Office of Public 
Affairs, HCFA and to the Director of Public Affairs in any HHS Regional 
Office. Those officers and employees of HCFA who are listed in 
Sec. 401.144(a) as having authority to deny requests for information 
from records maintained on individuals are granted authority to extend 
the time limit for responding to requests for information from such 
records.



Sec. 401.140  Fees and charges.

    (a) Statement of policy. It is HCFA's policy to comply with certain 
requests for information services without charge. Except as otherwise 
determined pursuant to paragraph (c) of this section, fees will be 
charged for the following services with respect to all other requests 
for information from records which are reasonably identified by the 
requesters:
    (1) Reproduction, duplication, or copying of records;
    (2) Searches for records; and
    (3) Certification or authentication of records.
    (b) Fee schedules. The fee schedule is as follows:
    (1) Search for records. Three dollars per hour: Provided, however, 
That no charge will be made for the first half hour.
    (2) Reproduction, duplication, or copying of records. Ten cents per 
page where such reproduction can be made by commonly available 
photocopying machines. The cost of reproducing records which cannot be 
so photocopied will be determined on an individual basis at actual cost.

[[Page 18]]

    (3) Certification or authentication of records. Three dollars per 
certification or authentication.
    (4) Forwarding materials to destination. Any special arrangements 
for forwarding which are requested shall be charged at actual cost; 
however, no charge will be made for postage.
    (5) No charge will be made when the total amount does not exceed 
five dollars.
    (c) Waiver or reduction of fees. Waiver or reduction of the fees in 
paragraph (b) of this section may be made upon a determination that such 
waiver or reduction is in the public interest because furnishing the 
information can be considered as primarily benefiting the general 
public. Such determination may be made by the appropriate officer or 
employee identified in Sec. 401.144.
    (d) Sale of documents. On occasion, a previously printed document 
may be available for sale to the public; the cost of supplying the 
document is one cent per page unless the document is available for sale 
from the Superintendent of Documents, in which case the price shall be 
that determined by the Superintendent.



Sec. 401.144  Denial of requests.

    (a) General authority. Only the Director, Office of Public Affairs, 
HCFA, and the Regional Directors of Public Affairs, HHS, are authorized 
to deny written requests to obtain, inspect or copy any HCFA information 
or record.
    (b) Forms of denials. (1) Oral requests may be dealt with orally, 
but the requester should be advised that the oral response is not an 
official determination and that an official determination may be 
obtained only by submitting the request in writing. Appropriate 
available assistance will be offered.
    (2) Written Requests--Denials of written requests will be in writing 
and will contain the reasons for the denial including, as appropriate, a 
statement that a document requested is nonexistent or not reasonably 
described or is subject to one or more clearly described exemption(s). 
Denials will also provide the requester with appropriate information on 
how to exercise the right of appeal.



Sec. 401.148  Administrative review.

    (a) Review by the Administrator. A person whose request has been 
denied may initiate a review by filing a request for review with the 
Administrator of HCFA, 700 East High Rise Building, 6401 Security 
Boulevard, Baltimore, Maryland 21235, within 30 days of receipt of the 
determination to deny or within 30 days of receipt of records which are 
in partial response to his request if a portion of a request is granted 
and a portion denied, whichever is later. Upon receipt of a timely 
request for review, the Administrator will review the decision in 
question and the findings upon which it was based. Upon the basis of the 
data considered in connection with the decision and whatever other 
evidence and written argument is submitted by the person requesting the 
review or which is otherwise obtained, the Administrator or his designee 
will affirm or revise in whole or in part the findings and decision in 
question. A decision to affirm the denial will be made only upon 
concurrence of the Assistant Secretary for Public Affairs, or his 
designee, after consultation with the General Counsel or his or her 
designee, and the appropriate program policy official. Written notice of 
the decision of the Administrator will be mailed to the person who 
requested the review. A written decision will be made within 20 working 
days from receipt of the request for review. Extension of the time limit 
may be granted under the circumstances listed in Sec. 401.136(b) to the 
extent that the maximum 10 days limit on extensions has not been 
exhausted on the initial determination. The decision will include the 
basis for it and will advise the requester of his right to judicial 
review.
    (b) Failure of the Administrator to comply with the time limits. 
Failure of the Administrator to comply with the time limits set forth in 
Sec. 401.136 and this section constitutes an exhaustion of the 
requester's administrative remedies.



Sec. 401.152  Court review.

    Where the Administrator upon review affirms the denial of a request 
for records, in whole or in part, the requester may seek court review in 
the district court of the United States pursuant to 5 U.S.C. 
552(a)(4)(B).

[[Page 19]]



                        Subparts C-E--[Reserved]



               Subpart F--Claims Collection and Compromise

    Source: 48 FR 39064, Aug. 29, 1983, unless otherwise noted.



Sec. 401.601  Basis and scope.

    (a) Basis. This subpart implements for HCFA the Federal Claims 
Collection Act (FCCA) of 1966 (31 U.S.C. 3711), and conforms to the 
regulations (4 CFR parts 101-105) issued jointly by the General 
Accounting Office and the Department of Justice that generally prescribe 
claims collection standards and procedures under the FCCA for the 
Federal government.
    (b) Scope. Except as provided in paragraphs (c) through (f) of this 
section, the regulations in this subpart describe HCFA's procedures and 
standards for the collection of claims in any amount, and the compromise 
of, or the suspension or termination of collection action on, all claims 
for money or property that do not exceed $100,000 or such higher amount 
as the Attorney General may from time to time prescribe, exclusive of 
interest, arising under any functions delegated to HCFA by the 
Secretary.
    (c) Amount of claim. HCFA refers all claims that exceed $100,000 or 
such higher amount as the Attorney General may from time to time 
prescribe, exclusive of interest, to the Department of Justice or the 
General Accounting Office for the compromise of claims, or the 
suspension or termination of collection action.
    (d) Related regulations--(1) Department regulations. DHHS 
regulations applicable to HCFA that generally implement the FCCA for the 
Department are located at 45 CFR part 30. These regulations apply only 
to the extent HCFA regulations do not address a situation.
    (2) HCFA regulations. The following regulations govern specific debt 
management situations encountered by HCFA and supplement this subpart:
    (i) Claims against Medicare beneficiaries for the recovery of 
overpayments are covered in 20 CFR 404.515.
    (ii) Adjustments in Railroad Retirement or Social Security benefits 
to recover Medicare overpayments to individuals are covered in 
Secs. 405.350--405.358 of this chapter.
    (iii) Claims against providers, physicians, or other suppliers of 
services for overpayments under Medicare and for assessment of interest 
are covered in Secs. 405.377 and 405.378 of this chapter, respectively.
    (iv) Claims against beneficiaries for unpaid hospital insurance or 
supplementary medical insurance premiums under Medicare are covered in 
Sec. 408.110 of this chapter.
    (v) State repayment of Medicaid funds by installments is covered in 
Sec. 430.48 of this chapter.
    (e) Collection and compromise under other statutes and at common 
law. The regulations in this subpart do not--
    (1) Preclude disposition by HCFA of claims under statutes, other 
than the FCCA, that provide for the collection or compromise of a claim, 
or suspension or termination of collection action.
    (2) Affect any rights that HCFA may have under common law as a 
creditor.
    (f) Fraud. The regulations in this subpart do not apply to claims in 
which there is an indication of fraud, the presentation of a false 
claim, or misrepresentation on the part of a debtor or any other party 
having an interest in the claim. HCFA forwards these claims to the 
Department of Justice for disposition under 4 CFR 105.1.
    (g) Enforced collection. HCFA refers claims to the Department of 
Justice for enforced collection through litigation in those cases which 
cannot be compromised or on which collection action cannot be suspended 
or terminated in accordance with this subpart or the regulations issued 
jointly by the Attorney General and the Comptroller General.

[48 FR 39064, Aug. 29, 1983, as amended at 52 FR 48123, Dec. 18, 1987; 
57 FR 56998, Dec. 2, 1992; 61 FR 49271, Sept. 19, 1996; 61 FR 63748, 
Dec. 2, 1996]



Sec. 401.603  Definitions.

    For purposes of this subpart--
    Claim means any debt owed to HCFA.
    Debtor means any individual, partnership, corporation, estate, trust 
or other legal entity against which HCFA has a claim.

[[Page 20]]



Sec. 401.605  Omissions not a defense.

    The failure of HCFA to comply with the regulations in this subpart, 
or with the related regulations listed in Sec. 401.601(d), is not 
available as a defense to a debtor against whom HCFA has a claim for 
money or property.



Sec. 401.607  Claims collection.

    (a) General policy. HCFA recovers amounts of claims due from 
debtors, including interest where appropriate, by--
    (1) Direct collections in lump sums or in installments; or
    (2) Offsets against monies owed to the debtor by the Federal 
government where possible.
    (b) Collection in lump sums. Whenever possible, HCFA attempts to 
collect claims in full in one lump sum. However, if HCFA determines that 
a debtor is unable to pay the claim in one lump sum, HCFA may instead 
enter into an agreement to accept regular installment payments.
    (c) Collection in installments. Generally, HCFA requires that all 
claims to be satisfied by installment payments must be liquidated in 
three years or less. If unusual circumstances exist, such as the 
possibility of debtor insolvency, an installment agreement that extends 
beyond three years may be approved.
    (1) Debtor request. If a debtor desires to repay a claim in 
installments, the debtor must submit--
    (i) A request to HCFA; and
    (ii) Any information required by HCFA to make a decision regarding 
the request.
    (2) HCFA decision. HCFA will determine the number, amount and 
frequency of installment payments based on the information submitted by 
the debtor and on other factors such as--
    (i) Total amount of the claim;
    (ii) Debtor's ability to pay; and
    (iii) Cost to HCFA of administering an installment agreement.
    (d) Collection by offset. (1) HCFA may offset, where possible, the 
amount of a claim against the amount of pay, compensation, benefits or 
other monies that a debtor is receiving or is due from the Federal 
government.
    (2) Under regulations at Sec. 405.350--405.358 of this chapter, HCFA 
may initiate adjustments in program payments to which an individual is 
entitled under title II of the Act (Federal Old Age, Survivors, and 
Disability Insurance Benefits) or under the Railroad Retirement Act of 
1974 (45 U.S.C. 231) to recover Medicare overpayments.

[48 FR 39064, Aug. 29, 1983, as amended at 61 FR 49271, Sept. 19, 1996; 
61 FR 63748, Dec. 2, 1996]



Sec. 401.613  Compromise of claims.

    (a) Amount of compromise. HFCA requires that the amount to be 
recovered through a compromise of a claim must--
    (1) Bear a reasonable relation to the amount of the claim; and
    (2) Be recoverable through enforced collection procedures.
    (b) General factors. After considering the bases for a decision to 
compromise a claim under paragraph (c) of this section, HCFA may further 
consider factors such as--
    (1) The age and health of the debtor if the debtor is an individual;
    (2) Present and potential income of the debtor; and
    (3) Whether assets have been concealed or improperly transferred by 
the debtor.
    (c) Basis for compromise. Bases on which HCFA may compromise a claim 
include the following--
    (1) Inability to pay. HCFA may compromise a claim if it determines 
that the debtor, or the estate of a deceased debtor, does not have the 
present or prospective ability to pay the full amount of the claim 
within a reasonable time.
    (2) Litigative probabilities. HCFA may compromise a claim if it 
determines that it would be difficult to prevail in a case before a 
court of law as a result of the legal issues involved or inability of 
the parties to agree to the facts of the case. The amount that HCFA 
accepts in compromise under this provision will reflect--
    (i) The likelihood that HCFA would have prevailed on the legal 
question(s) involved;
    (ii) Whether and to what extent HCFA would have obtained a full or 
partial recovery of a judgment, depending on the availability of 
witnesses, or

[[Page 21]]

other evidentiary support for HCFA's claim; and
    (iii) The amount of court costs that would be assessed to HCFA.
    (3) Cost of collecting the claim. HCFA may compromise a claim if it 
determines that the cost of collecting the claim does not justify the 
enforced collection of the full amount. In this case, HCFA may adjust 
the amount it accepts as a compromise to allow an appropriate discount 
for the costs of collection it would have incurred but for the 
compromise.
    (d) Enforcement policy. HCFA may compromise statutory penalties, 
forfeitures, or debts established as an aid to enforcement or to compel 
compliance, if it determines that its enforcement policy, in terms of 
deterrence and securing compliance both present and future, is 
adequately served by acceptance of the compromise amount.



Sec. 401.615  Payment of compromise amount.

    (a) Time and manner of compromise. Payment by the debtor of the 
amount that HCFA has agreed to accept as a compromise in full settlement 
of a claim must be made within the time and in the manner prescribed by 
HCFA. Accordingly, HCFA will not settle a claim until the full payment 
of the compromise amount has been made.
    (b) Effect of failure to pay compromise amount. Failure of the 
debtor to make payment, as provided by the compromise agreement, 
reinstates the full amount of the claim, less any amounts paid prior to 
the default.
    (c) Prohibition against grace periods. HCFA will not agree to 
inclusion of a provision in an installment agreement that would permit 
grace periods for payments that are late under the terms of the 
agreement.



Sec. 401.617  Suspension of collection action.

    (a) General conditions. HCFA may temporarily suspend collection 
action on a claim if the following general conditions are met--
    (1) Amount of future recovery. HCFA determines that future 
collection action may result in a recovery of an amount sufficient to 
justify periodic review and action on the claim by HCFA during the 
period of suspension.
    (2) Statute of limitations. HCFA determines that--
    (i) The applicable statute of limitations has been tolled, waived or 
has started running anew; or
    (ii) Future collections may be made by HCFA through offset despite 
an applicable statute of limitations.
    (b) Basis for suspension. Bases on which HCFA may suspend collection 
action on a particular claim include the following--
    (1) A debtor cannot be located; or
    (2) A debtor--
    (i) Owns no substantial equity in property;
    (ii) Is unable to make payment on HCFA's claim or is unable to 
effect a compromise; and
    (iii) Has future prospects that justify retention of the claim.
    (c) Locating debtors. HCFA will make every reasonable effort to 
locate missing debtors sufficiently in advance of the bar of an 
applicable statute of limitations to permit timely filing of a lawsuit 
to recover the amount of the claim.
    (d) Effect of suspension on liquidation of security. HCFA will 
liquidate security, obtained in partial recovery of a claim, despite a 
decision under this section to suspend collection action against the 
debtor for the remainder of the claim.



Sec. 401.621  Termination of collection action.

    (a) General factors. After considering the bases for a decision to 
terminate collection action under paragraph (b) of this section, HCFA 
may further consider factors such as--
    (1) The age and health of the debtor if the debtor is an individual;
    (2) Present and potential income of the debtor; and
    (3) Whether assets have been concealed or improperly transferred by 
the debtor.
    (b) Basis for termination of collection action. Bases on which HCFA 
may terminate collection action on a claim include the following--
    (1) Inability to collect a substantial amount of the claim. HCFA may 
terminate collection action if it determines

[[Page 22]]

that it is unable to collect, or to enforce collection, of a significant 
amount of the claim. In making this determination, HCFA will consider 
factors such as--
    (i) Judicial remedies available;
    (ii) The debtor's future financial prospects; and
    (iii) Exemptions available to the debtor under State or Federal law.
    (2) Inability to locate debtor. In cases involving missing debtors, 
HCFA may terminate collection action if--
    (i) There is no security remaining to be liquidated;
    (ii) The applicable statute of limitations has run; or
    (iii) The prospects of collecting by offset, whether or not an 
applicable statute of limitations has run, are considered by HCFA to be 
too remote to justify retention of the claim.
    (3) Cost of collection exceeds recovery. HCFA may terminate 
collection action if it determines that the cost of further collection 
action will exceed the amount recoverable.
    (4) Legal insufficiency. HCFA may terminate collection action if it 
determines that the claim is legally without merit.
    (5) Evidence unavailable. HCFA may terminate collection action if--
    (i) Efforts to obtain voluntary payment are unsuccessful; and
    (ii) Evidence or witnesses necessary to prove the claim are 
unavailable.



Sec. 401.623  Joint and several liability.

    (a) Collection action. HCFA will liquidate claims as quickly as 
possible. In cases of joint and several liability among two or more 
debtors, HCFA will not allocate the burden of claims payment among the 
debtors. HCFA will proceed with collection action against one debtor 
even if other liable debtors have not paid their proportionate shares.
    (b) Compromise. Compromise with one debtor does not release a claim 
against remaining debtors. Furthermore, HCFA will not consider the 
amount of a compromise with one debtor to be a binding precedent 
concerning the amounts due from other debtors who are jointly and 
severally liable on the claim.



Sec. 401.625  Effect of HCFA claims collection decisions on appeals.

    Any action taken under this subpart regarding the compromise of a 
claim, or suspension or termination of collection action on a claim, is 
not an initial determination for purposes of HCFA appeal procedures.

                          PART 402--[RESERVED]



PART 403--SPECIAL PROGRAMS AND PROJECTS--Table of Contents




                          Subpart A--[Reserved]

                Subpart B--Medicare Supplemental Policies

Sec.
403.200  Basis and scope.

                           General Provisions

403.201  State regulation of insurance policies.
403.205  Medicare supplement policy.
403.206  General standards for Medicare supplemental policies.
403.210  NAIC model standards.
403.215  Loss ratio standards.

                        State Regulatory Programs

403.220  Supplemental Health Insurance Panel.
403.222  State with an approved regulatory program.

           Voluntary Certification Program: General Provisions

403.231  Emblem.
403.232  Requirements and procedures for obtaining certification.
403.235  Review and certification of policies.
403.239  Submittal of material to retain certification.
403.245  Loss of certification.
403.248  Administrative review of HCFA determinations.

         Voluntary Certification Program: Loss Ratio Provisions

403.250  Loss ratio calculations: General provisions.
403.251  Loss ratio date and time frame provisions.
403.253  Calculation of benefits.
403.254  Calculation of premiums.
403.256  Loss ratio supporting data.
403.258  Statement of actuarial opinion.

[[Page 23]]

      Subpart C--Recognition of State Reimbursement Control Systems

403.300  Basis and purpose.
403.302  Definitions.
403.304  Minimum requirements for State systems--discretionary approval.
403.306  Additional requirements for State systems--mandatory approval.
403.308  State systems under demonstration projects--mandatory approval.
403.310  Reduction in payments.
403.312  Submittal of application.
403.314  Evaluation of State systems.
403.316  Reconsideration of certain denied applications.
403.318  Approval of State systems.
403.320  HCFA review and monitoring of State systems.
403.321  State systems for hospital outpatient services.
403.322  Termination of agreements for Medicare recognition of State 
          systems.

                          Subpart D--[Reserved]

         Subpart E--Beneficiary Counseling and Assistance Grants

403.500  Basis, scope, and definition.
403.501  Eligibility for grants.
403.502  Availability of grants.
403.504  Number and size of grants.
403.508  Limitations.
403.510  Reporting requirements.
403.512  Administration.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).



                          Subpart A--[Reserved]



                Subpart B--Medicare Supplemental Policies

    Source: 47 FR 32400, July 26, 1982, unless otherwise noted.



Sec. 403.200  Basis and scope.

    (a) Provisions of the legislation. This subpart implements, in part, 
section 1882 of the Social Security Act. The intent of that section is 
to enable Medicare beneficiaries to identify Medicare supplemental 
policies that do not duplicate Medicare, and that provide adequate, 
fairly priced protection against expenses not covered by Medicare. The 
legislation establishes certain standards for Medicare supplemental 
policies and provides two methods for informing Medicare beneficiaries 
which policies meet those standards:
    (1) Through a State approved program, that is, a program that a 
Supplemental Health Insurance Panel determines to meet certain minimum 
requirements for the regulation of Medicare supplemental policies; and
    (2) In a State without an approved program, through certification by 
the Secretary of policies voluntarily submitted by insuring 
organizations for review against the standards.
    (b) Scope of subpart. This subpart sets forth the standards and 
procedures HCFA will use to implement the voluntary certification 
program.

                           General Provisions



Sec. 403.201  State regulation of insurance policies.

    (a) The provisions of this subpart do not affect the right of a 
State to regulate policies marketed in that State.
    (b) Approval of a policy under the voluntary certification program, 
as provided for in Sec. 403.235(b), does not authorize the insuring 
organization to market a policy that does not conform to applicable 
State laws and regulations.



Sec. 403.205  Medicare supplemental policy.

    (a) Except as specified in paragraph (d) of this section, Medicare 
supplemental policy (policy) means a health insurance policy or other 
health benefit plan--
    (1) That a private entity offers to a Medicare beneficiary; and
    (2) That is primarily designed, or is advertised, marketed, or 
otherwise purported to provide payment for expenses incurred for 
services and items that are not reimbursed under the Medicare program 
because of deductibles, coinsurance, or other limitations under 
Medicare.
    (b) Unless otherwise specified in this subpart, the term policy 
includes both policy form and policy.
    (1) Policy form means the form of health insurance contract that is 
approved by and on file with the State agency for the regulation of 
insurance.
    (2) Policy means the contract--
    (i) Issued under the policy form; and
    (ii) Held by the policyholder.
    (c) Medicare supplemental policy includes the following--

[[Page 24]]

    (1) An individual policy.
    (2) A group policy.
    (d) Medicare supplemental policy does not include a Medicare+Choice 
plan or any of the following health insurance policies or health benefit 
plans:
    (1) A policy or plan of one or more employers for employees, former 
employees, or any combination thereof.
    (2) A policy or plan of one or more labor organizations for members, 
former members, or any combination thereof.
    (3) A policy or plan of the trustees of a fund established by one or 
more labor organizations, one or more employers, or any combination, for 
any one or combination of the following--
    (i) Employees.
    (ii) Former employees.
    (iii) Members.
    (iv) Former members.
    (4) A policy or plan of a profession, trade, or occupational 
association, if the association--
    (i) Is composed of individuals all of whom are actively engaged in 
the same profession, trade, or occupation;
    (ii) Has been maintained in good faith for a purpose other than 
obtaining insurance; and
    (iii) Has been in existence for at least two years before the date 
of its initial offering of a Medicare supplemental health insurance 
policy to its members.
    (5) For purposes of the voluntary certification program, a policy 
issued to an employee or to a member of a labor organization as an 
addition to a franchise plan (a plan that enables members of the same 
entity to purchase an individual policy marketed to them under group 
underwriting procedures), if the plan is in existence on July 1, 1982.

[47 FR 32400, July 26, 1982, as amended at 63 FR 35066, June 26, 1998]



Sec. 403.206  General standards for Medicare supplemental policies.

    (a) For purposes of the voluntary certification program described in 
this subpart, a policy must meet--
    (1) The National Association of Insurance Commissioners (NAIC) model 
standards as defined in Sec. 405.210; and
    (2) The loss ratio standards specified in Sec. 403.215.
    (b) Except as specified in paragraph (c) of this section, the 
standards specified in paragraph (a) of this section must be met in a 
single policy.
    (c) In the case of a nonprofit hospital or a medical association 
where State law prohibits the inclusion of all benefits in a single 
policy, the standards specified in paragraph (a) of the section must be 
met in two or more policies issued in conjunction with one another.



Sec. 403.210  NAIC model standards.

    (a) NAIC model standards means the National Association of Insurance 
Commissioners (NAIC) ``Model Regulation to Implement the Individual 
Accident and Insurance Minimum Standards Act'' (as amended and adopted 
by the NAIC on June 6, 1979, as it applies to Medicare supplemental 
policies). Copies of the NAIC model standards can be purchased from the 
National Association of Insurance Commissioners at 350 Bishops Way, 
Brookfield, Wisconsin 53004, and from the NIARS Corporation, 318 
Franklin Avenue, Minneapolis, Minnesota 55404.
    (b) The policy must comply with the provisions of the NAIC model 
standards, except as follows--
    (1) Policy, for purposes of this paragraph, means individual and 
group policy, as specified in Sec. 403.205. The NAIC model standards 
limit ``policy'' to individual policy.
    (2) The policy must meet the loss ratio standards specified in 
Sec. 403.215.

[47 FR 32400, July 26, 1982; 49 FR 44472, Nov. 7, 1984]



Sec. 403.215  Loss ratio standards.

    (a) The policy must be expected to return to the policyholders, in 
the form of aggregate benefits provided under the policy--
    (1) At least 75 percent of the aggregate amount of premiums in the 
case of group policies; and
    (2) At least 60 percent of the aggregate amount of premiums in the 
case of individual policies.
    (b) For purposes of loss ratio requirements, policies issued as a 
result of solicitation of individuals through the mail or by mass media 
advertising are considered individual policies.

[[Page 25]]

                        State Regulatory Programs



Sec. 403.220  Supplemental Health Insurance Panel.

    (a) Membership. The Supplemental Health Insurance Panel (Panel) 
consists of--
    (1) The Secretary or a designee, who serves as chairperson, and
    (2) Four State Commissioners or Superintendents of Insurance 
appointed by the President. (The terms Commissioner or Superintendent of 
Insurance include persons of similar rank.)
    (b) Functions. (1) The Panel determines whether or not a State 
regulatory program for Medicare supplemental health insurance policies 
meets and continues to meet minimum requirements specified in section 
1882 of the Social Security Act.
    (2) The chairperson of the Panel informs the State Commissioners and 
Superintendents of Insurance of all determinations made under paragraph 
(b)(1) of this section.



Sec. 403.222  State with an approved regulatory program.

    (a) A State has an approved regulatory program if the Panel 
determines that the State has in effect under State law a regulatory 
program that provides for the application of standards, with respect to 
each Medicare supplemental policy issued in that State, that are equal 
to or more stringent than those specified in section 1882 of the Social 
Security Act.
    (b) Policy issued in that State means--
    (1) A group policy, if the holder of the master policy resides in 
that State; and
    (2) An individual policy, if the policy is--
    (i) Issued in that State; or
    (ii) Issued for delivery in that State.
    (c) A policy issued in a State with an approved regulatory program 
is considered to meet the NAIC model standards in Sec. 403.210 and loss 
ratio standards in Sec. 403.215.

           Voluntary Certification Program: General Provisions



Sec. 403.231  Emblem.

    (a) The emblem is a graphic symbol, approved by HHS, that indicates 
that HCFA has certified a policy as meeting the requirements of the 
voluntary certification program, specified in Sec. 403.232.
    (b) Unless prohibited by the State in which the policy is marketed, 
the insuring organization may display the emblem on policies certified 
under the voluntary certification program.
    (c) The manner in which the emblem may be displayed and the 
conditions and restrictions relating to its use will be stated in the 
letter with which HCFA notifies the insuring organization that a policy 
has been certified. The insuring organization must comply with these 
conditions and restrictions.
    (d) If a certified policy is issued in a State that later has an 
approved regulatory program, as provided for in Sec. 403.222, the 
insuring organization may display the emblem on the policy until the 
earliest of the following--
    (1) When prohibited by State law or regulation.
    (2) When the policy no longer meets the requirements for Medicare 
supplemental policies specified in Sec. 403.206.
    (3) The date the insuring organization would be required to submit 
material to HCFA for annual review in order to retain certification, if 
the State did not have an approved program (see Sec. 403.239).



Sec. 403.232  Requirements and procedures for obtaining certification.

    (a) To be certified by HCFA, a policy must meet--
    (1) The NAIC model standards specified in Sec. 403.210;
    (2) The loss ratio standards specified in Sec. 403.215; and
    (3) Any State requirements applicable to a policy--
    (i) Issued in that State; or
    (ii) Marketed in that State.
    (b) An insuring organization requesting certification of a policy 
must submit the following to HCFA for review--
    (1) A copy of the policy form (including all the documents that 
would constitute the contract of insurance that is proposed to be 
marketed as a certified policy).
    (2) A copy of the application form including all attachments.
    (3) A copy of the uniform certificate issued under a group policy.

[[Page 26]]

    (4) A copy of the outline of coverage, in the form prescribed by the 
NAIC model standards.
    (5) A copy of the Medicare supplement buyers' guide to be provided 
to all applicants if the buyers' guide is not the HCFA/NAIC buyers' 
guide.
    (6) A statement of when and how the outline of coverage and the 
buyers' guide will be delivered and copies of applicable receipt forms.
    (7) A copy of the notice of replacement and statement as to when and 
how that notice will be delivered.
    (8) A list of States in which the policy is authorized for sale. If 
the policy was approved under a deemer provision in any State, the 
conditions involved must be specified.
    (9) A copy of the loss ratio calculations, as specified in 
Sec. 403.250.
    (10) Loss ratio supporting data, as specified in Sec. 403.256.
    (11) A statement of actuarial opinion, as specified in Sec. 403.258.
    (12) A statement that the insuring organization will notify the 
policyholders in writing, within the period of time specified in 
Sec. 403.245(c), if the policy is identified as a certified policy at 
the time of sale and later loses certification.
    (13) A signed statement in which the president of the insuring 
organization, or a designee, attests that--
    (i) The policy meets the requirements specified in paragraph (a) of 
this section; and
    (ii) The information submitted to HCFA for review is accurate and 
complete and does not misrepresent any material fact.



Sec. 403.235  Review and certification of policies.

    (a) HCFA will review policies that the insuring organization 
voluntarily submits, except that HCFA will not review a policy issued in 
a State with an approved regulatory program under Sec. 403.222.
    (b) If the requirements specified in Sec. 403.232 are met, HCFA 
will--
    (1) Certify the policy; and
    (2) Authorize the insuring organization to display the emblem on the 
policy, as provided for in Sec. 403.231.
    (c) If HCFA certifies a policy, it will inform all State 
Commissioners and Superintendents of Insurance of that fact.



Sec. 403.239  Submittal of material to retain certification.

    (a) HCFA certification of a policy that continues to meet the 
standards will remain in effect, if the insuring organization files the 
following material with HCFA no later than the date specified in 
paragraph (b) or (c) of this section--
    (1) Any changes in the material, specified in Sec. 403.232(b), that 
was submitted for previous certification.
    (2) The loss ratio supporting data specified in Sec. 403.256(b).
    (3) A signed statement in which the president of the insuring 
organization, or a designee, attests that--
    (i) The policy continues to meet the requirements specified in 
Sec. 403.232(a); and
    (ii) The information submitted to HCFA for review is accurate and 
complete and does not misrepresent any material fact.
    (b) Except as specified in paragraph (c) of this section, the 
insuring organization must file the material with HCFA no later than 
June 30 of each year. The first time the insuring organization must file 
the material is no later than June 30 of the calendar year that follows 
the year in which HCFA--
    (1) Certifies a new policy; or
    (2) Certifies a policy that lost certification as provided in 
Sec. 403.245.
    (c) If the loss ratio calculation period, used to calculate the 
expected loss ratio for the last actuarial certification submitted to 
HCFA, ends before the June 30 date of paragraph (b) of this section, the 
insuring organization must file the material with HCFA no later then the 
last day of that rate calculation period.



Sec. 403.245  Loss of certification.

    (a) A policy loses certification if--
    (1) The insuring organization withdraws the policy from the 
voluntary certification program; or
    (2) HCFA determines that--
    (i) The policy fails to meet the requirements specified in 
Sec. 403.232(a); or
    (ii) The insuring organization has failed to meet the requirements 
for

[[Page 27]]

submittal of material specified in Sec. 403.239.
    (b) If a policy loses its certification, HCFA will inform all State 
Commissioners and Superintendents of Insurance of that fact.
    (c) If a policy that displays the emblem, or that has been marketed 
as a certified policy without the emblem, loses certification, the 
insuring organization must notify each holder of the policy, or of a 
certificate issued under the policy, of that fact. The notice must be in 
writing and sent by the earlier of--
    (1) The date of the first regular premium notice after the date the 
policy loses its certification; or
    (2) 60 days after the date the policy loses its certification.



Sec. 403.248  Administrative review of HCFA determinations.

    (a) This section provides for administrative review if HCFA 
determines--
    (1) Not to certify a policy; or
    (2) That a policy no longer meets the standards for certification.
    (b) If HCFA makes a determination specified in paragraph (a) of this 
section, it will send a notice to the insuring organization containing 
the following information:
    (1) That HCFA has made such a determination.
    (2) The reasons for the determination.
    (3) That the insuring organization has 30 days from the date of the 
notice to--
    (i) Request, in writing, an administrative review of the HCFA 
determination; and
    (ii) Submit additional information to HCFA for review.
    (4) That, if the insuring organization requests an administrative 
review, HCFA will conduct the review, as provided for in paragraph (c) 
of this section.
    (5) That, in a case involving loss of certification, the HCFA 
determination will go into effect 30 days from the date of the notice, 
unless the insuring organization requests an administrative review. If 
the insuring organization requests an administrative review, the policy 
retains its certification until HCFA makes a final determination.
    (c) If the insuring organization requests an administrative review, 
HCFA will conduct the review as follows--
    (1) A HCFA official, not involved in the initial HCFA determination, 
will initiate and complete an administrative review within 90 days of 
the date of the notice provided for in paragraph (b) of this section.
    (2) The official will consider--
    (i) The original material submitted to HCFA for review, as specified 
in Sec. 403.232(b) or Sec. 403.239(a); and
    (ii) Any additional information, that the insuring organization 
submits to HCFA.
    (3) Within 15 days after the administrative review is completed, 
HCFA will inform the insuring organization in writing of the final 
decision, with an explanation of the final decision.
    (4) If the final decision is that a policy lose its certification, 
the loss of certification will go into effect 15 days after the date of 
HCFA's notice informing the insuring organization of the final decision.

         Voluntary Certification Program: Loss Ratio Provisions



Sec. 403.250  Loss ratio calculations: General provisions.

    (a) Basic formula. The expected loss ratio is calculated by 
determining the ratio of benefits to premiums.
    (b) Calculations. The insuring organization must calculate loss 
ratios according to the provisions of Secs. 403.251, 403.253, and 
403.254.



Sec. 403.251  Loss ratio date and time frame provisions.

    (a) Initial calculation date means the first date of the period that 
the insuring organization uses to calculate the policy's expected loss 
ratio.
    (1) The initial calculation date may be before, the same as, or 
after the date the insuring organization sends the policy to HCFA for 
review, except--
    (2) The initial calculation date must not be earlier than January 1 
of the calendar year in which the policy is sent to HCFA.
    (b) Loss ratio calculation period means the period beginning with 
the initial calculation date and ending with the

[[Page 28]]

last day of the period for which the insuring organization calculates 
the policy's scale of premiums.
    (c) To calculate ``present values'', the insuring organization may 
ignore discounting (an actuarial procedure that provides for the impact 
of a variety of factors, such as lapse of policies) for loss ratio 
calculation periods not exceeding 12 months.



Sec. 403.253  Calculation of benefits.

    (a) General provisions. (1) Except as provided for in paragraph 
(a)(2) of this section, calculate the amount of ``benefits'' by--
    (i) Adding the present values on the initial calculation date of--
    (A) Expected incurred benefits in the loss ratio calculation period, 
to--
    (B) The total policy reserve at the last day of the loss ratio 
calculation period: and
    (ii) Subtracting the total policy reserve on the initial calculation 
date from the sum of these values.
    (2) To calculate the amount of ``benefits'' in the case of community 
or pool rated individual or group policies rerated on an annual basis, 
calculate the expected incurred benefits in the loss ratio calculation 
period.
    (b) Calculation of total policy reserve--(1) Option for calculation. 
The insuring organization must calculate ``total policy reserve'' 
according to the provisions of paragraph (b) (2) or (3) of this section.
    (2) Total policy reserve: Federal provisions. (i) ``Total policy 
reserve'' means the sum of--
    (A) Additional reserve; and
    (B) The reserve for future contingent benefits.
    (ii) Additional reserve means the amount calculated on a net level 
reserve basis, using appropriate values to account for lapse, mortality, 
morbidity, and interest, that on the valuation date represents--
    (A) The present value of expected incurred benefits over the loss 
ratio calculation period; less--
    (B) The present value of expected net premiums over the loss ratio 
calculation period.
    (iii) Net premium means the level portion of the gross premium used 
in calculating the additional reserve. On the day the policy is issued, 
the present value of the series of those portions equals the present 
value of the expected incurred claims over the period that the gross 
premiums are computed to provide coverage.
    (iv) Reserve for future contingent benefits means the amounts, not 
elsewhere included, that provide for the extension of benefits after 
insurance coverage terminates. These benefits--
    (A) Are predicated on a health condition existing on the date 
coverage ends;
    (B) Accrue after the date coverage ends; and
    (C) Are payable after the valuation date.
    (3) Total policy reserve: State provisions. ``Total policy reserve'' 
means the total policy reserve calculated according to appropriate State 
law or regulation.



Sec. 403.254  Calculation of premiums.

    (a) General provisions. To calculate the amount of ``premiums'', 
calculate the present value on the initial calculation date of expected 
earned premiums for the loss ratio calculation period.
    (b) Specific provisions. (1) Earned premium for a given period 
means--
    (i) Written premiums for the period; plus--
    (ii) The total premium reserve at the beginning of the period; 
less--
    (iii) The total premium reserve at the end of the period.
    (2) Written premiums in a period means--
    (i) Premiums collected in that period; plus--
    (ii) Premiums due and uncollected at the end of that period; less--
    (iii) Premiums due and uncollected at the beginning of that period.
    (3) Total premium reserve means the sum of--
    (i) The unearned premium reserve;
    (ii) The advance premium reserve; and
    (iii) The reserve for rate credits.
    (4) Unearned premium reserve means the portion of gross premiums due 
that provide for days of insurance coverage after the valuation date.

[[Page 29]]

    (5) Advance premium reserve means premiums received by the insuring 
organization that are due after the valuation date.
    (6) Reserve for rate credits means rate credits on a group policy 
that--
    (i) Accrue by the valuation date of the policy; and
    (ii) Are paid or credited after the valuation date.



Sec. 403.256  Loss ratio supporting data.

    (a) For purposes of requesting HCFA certification under 
Sec. 403.232, the insuring organization must submit the following loss 
ratio data to HCFA for review--
    (1) A statement of why the policy is to be considered, for purposes 
of the loss ratio standards, an individual or a group policy.
    (2) The earliest age at which policyholders can purchase the policy.
    (3) The general marketing method and the underwriting criteria used 
for the selection of applicants to whom coverage is offered.
    (4) What policies are to be included under the one policy form, by 
the dates the policies are issued.
    (5) The loss ratio calculation period.
    (6) The scale of premiums for the loss ratio calculation period.
    (7) The expected level of earned premiums in the loss ratio 
calculation period.
    (8) The expected level of incurred claims in the loss ratio 
calculation period.
    (9) A description of how the following assumptions were used in 
calculating the loss ratio.
    (i) Morbidity.
    (ii) Mortality.
    (iii) Lapse.
    (iv) Assumed increases in the Medicare deductible.
    (v) Impact of inflation on reimbursement per service.
    (vi) Interest.
    (vii) Expected distribution, by age and sex, of persons who will 
purchase the policy in the coming year.
    (viii) Expected impact on morbidity by policy duration of--
    (A) The process used to select insureds from among those that apply 
for a policy; and
    (B) Pre-existing condition clauses in the policy.
    (b) For purposes of requesting continued HCFA certification under 
Sec. 403.239(a), the insuring organization must submit the following to 
HCFA--
    (1) A description of all changes in the loss ratio data, specified 
in paragraph (a) of this section, that occurred since HCFA last reviewed 
the policy.
    (2) The past loss ratio experience for the policy, including the 
experience of all riders and endorsements issued under the policy. The 
loss ratio experience data must include earned premiums, incurred 
claims, and total policy reserves that the insuring organization 
calculates--
    (i) For all years of issue combined; and
    (ii) Separately for each calendar year since HCFA first certified 
the policy.



Sec. 403.258  Statement of actuarial opinion.

    (a) For purposes of certification requests submitted under 
Sec. 403.232(b) and subsequent review as specified in Sec. 403.239(a), 
statement of actuarial opinion means a signed declaration in which a 
qualified actuary states that the assumptions used in calculating the 
expected loss ratio are appropriate and reasonable, taking into account 
actual policy experience, if any, and reasonable expectations.
    (b) Qualified actuary means--
    (1) A member in good standing of the American Academy of Actuaries; 
or
    (2) A person who has otherwise demonstrated his or her actuarial 
competence to the satisfaction of the Commissioner or Superintendent of 
Insurance of the domiciliary State of the insuring organization.



      Subpart C--Recognition of State Reimbursement Control Systems

    Source: 51 FR 15492, Apr. 24, 1986, unless otherwise noted.



Sec. 403.300  Basis and purpose.

    (a) Basis. This subpart implements section 1886(c) of the Act, which 
authorizes payment for Medicare inpatient hospital services in 
accordance with a State's reimbursement control system rather than under 
the Medicare

[[Page 30]]

reimbursement principles as described in HCFA's regulations and 
instructions.
    (b) Purpose. Contained in this subpart are--
    (1) The basic requirements that a State reimbursement control system 
must meet in order to be approved by HCFA;
    (2) A description of HCFA's review and evaluation procedures; and
    (3) The conditions that apply if the system is approved.



Sec. 403.302  Definitions.

    For purposes of this subpart--
    Chief executive officer of a State means the Governor of the State 
or the Governor's designee.
    Existing demonstration project refers to demonstration projects 
approved by HCFA under the authority of section 402(a) of the Social 
Security Amendments of 1967 (42 U.S.C. 1395b-1) or section 222(a) of the 
Social Security Amendments of 1972 (42 U.S.C. 1395b-1 (note)) and in 
effect on April 20, 1983 (the date of the enactment of Pub. L. 98-21 
(Social Security Amendments of 1983)).
    Federal hospital means a hospital that is administered by, or that 
is under exclusive contract with, the Department of Defense, the 
Veterans Administration, or the Indian Health Service.
    State system or system refers to a State reimbursement control 
system that is approved by HCFA under the authority of section 1886(c) 
of the Act and that satisfies the requirements described in this 
subpart.



Sec. 403.304  Minimum requirements for State systems--discretionary approval.

    (a) Discretionary approval by HCFA. HCFA may approve Medicare 
payments under a State system, if HCFA determines that the system meets 
the requirements in paragraphs (b) and (c) of this section and, if 
applicable paragraph (d) of this section.
    (b) Requirements for State system. (1) An application for approval 
of the system must be submitted to HCFA by the Chief Executive Officer 
of the State.
    (2) The State system must apply to substantially all non-Federal 
acute care hospitals in the State.
    (3) All hospitals covered by the system must have and maintain a 
utilization and quality control review agreement with a Peer Review 
Organization, as required under section 1866(a)(1)(F) of the Act and 
Sec. 466.78(a) of this chapter.
    (4) Federal hospitals must be excluded from the State system.
    (5) Nonacute care or specialty hospital (such as rehabilitation, 
psychiatric, or children's hospitals) may, at the option of the State, 
be excluded from the State system.
    (6) The State system must apply to at least 75 percent of all 
revenues or expenses--
    (i) For inpatient hospital services in the State; and
    (ii) For inpatient hospital services under the State's Medicaid 
plan.
    (7) Under the system, HMOs and competitive medical plans (CMPs), as 
defined by section 1876(b) of the Act and part 417 of this chapter, must 
be allowed to negotiate payment rates with hospitals.
    (8) The system must limit hospital charges for Medicare 
beneficiaries to deductibles, coinsurance or non-covered services.
    (9) Unless a waiver is granted by HCFA under Sec. 489.23 of this 
chapter, the system must prohibit payment, as required under section 
1862(a)(14) of the Act and Sec. 405.310(m) of this chapter, for 
nonphysician services provided to hospital inpatients under Part B of 
Medicare.
    (10) The system must require hospitals to submit Medicare cost 
reports or approved reports in lieu of Medicare cost reports as 
required.
    (11) The system must require--
    (i) Preparation, collection, or retention by the State of reports 
(such as financial, administrative, or statistical reports) that may be 
necessary, as determined by HCFA, to review and monitor the State's 
assurances; and
    (ii) Submission of the reports to HCFA upon request.
    (12) The system must provide hospitals an opportunity to appeal 
errors that they believe have been made in the determination of their 
payment rates. The system, if it is prospective may not permit providers 
to file administrative appeals that would result

[[Page 31]]

in a retroactive revision of prospectively determined payment rates.
    (c) Satisfactory assurances. The State must provide to HCFA 
satisfactory assurance as to the following:
    (1) The system provides for equitable treatment of hospital patients 
and hospital employees.
    (2) The system provides for equitable treatment of all entities that 
pay hospitals for inpatient hospital services, including Federal and 
State programs. Under the requirement, the following conditions must be 
met:
    (i) Both the Medicare and Medicaid programs must participate under 
the system.
    (ii) The State must assure equitable and uniform treatment under the 
system of third-party payors of inpatient hospital services in terms of 
opportunity. Equitable opportunity must include, but need not be limited 
to, participation in the system and availability of discounts. Criteria 
under which discounts are made available must be equitably and uniformly 
applied to all payors, except for discounts negotiated by HMOs and CMPs. 
Discounts available to HMOs and CMPs as result of their statutory right 
to negotiate payment rates independently of a State system, as described 
in paragraph (b)(7) of this section, need not be available to other 
payors.
    (iii) The State must assure that all third-party payors that 
participate under the system share in the system's risks and benefits.
    (3) The amount of Medicare payments made under the system over 36-
month periods may not exceed the amount of Medicare payment that would 
otherwise have been made under the Medicare principles of reimbursement 
for Medicare items and services had the State system not been in effect. 
States must submit the assurance and supporting data as required by 
Sec. 403.320 to document that the payment limit is not exceeded. States 
that have an existing Medicare demonstration project in effect on April 
20, 1983, and that have requested approval of a State system under 
section 1886(c)(4) of the Act, may elect to have the effectiveness of 
the State system under this paragraph judged on the basis of the State 
system's rate of increase or inflation in Medicare inpatient hospital 
payments as compared to the national rate of increase or inflation for 
such payments during the three cost reporting periods of the hospitals 
in the State beginning on or after October 1, 1983.
    (d) Additional cost-effectiveness assurance. If the assurances and 
supporting data required under paragraph (c)(3) of this section are 
insufficient to provide assurance satisfactory to HCFA regarding the 
cost-effectiveness of a State system, the State may additionally submit 
one of the following assurances in order to meet the cost-effectiveness 
test:
    (1) State responsibility for excess payments. The State must agree 
that each month Medicare intermediaries will disburse to the State's 
hospital Federal funds that in the aggregate equal no more than would 
have been disbursed in the absence of the State system. Any additional 
funds necessary to pay hospitals for Medicare services required by the 
State system will be paid to the intermediaries by the State. These 
additional amounts will be refunded to the State by the intermediaries 
to the extent that, in subsequent months, the State system requires a 
smaller aggregate payment for Medicare services than would have been 
paid in the absence of the State system.
    (2) Limitations on payments. (i) The State must agree that if its 
projections exceed what Medicare would pay in any particular period, the 
State and HCFA will establish and agreed upon payment schedule that will 
limit payments under the State system based on a predetermined 
percentage relationship between projected State payments and what 
payments would have been under Medicare.
    (ii) If deviation from the predetermined relationship described in 
paragraph (d)(2)(i) of this section occurs, the State must further agree 
that--
    (A) Medicare payments would be capped automatically at payment 
levels based on the rates used for the Medicare prospective payment 
system and the State would be required to pay the difference to 
individual hospitals in its system; or
    (B) The State may provide by legislation or legally binding 
regulations that

[[Page 32]]

any reduced payments to hospitals under the system that result from this 
cost-effectiveness assurance will constitute full and final payment for 
hospital services furnished to Medicare beneficiaries for the period 
covered by these reduced payments.



Sec. 403.306  Additional requirements for State systems--mandatory approval.

    (a) General policy--(1) Mandatory approval. HFCA will approve an 
application for Medicare reimbursement under a State system if the 
system meets all of the requirements of Sec. 403.304 and of paragraph 
(b) of this section.
    (2) Exception. HCFA may approve an application if the State system 
meets all of the requirements of Sec. 403.304 but only some of the 
requirements of paragraph (b) of this section.
    (b) Additional requirements--(1) Operation of system. The system 
must--
    (i) Be operated directly by the State or by entity designated under 
State law;
    (ii) Provide for payments to hospitals using a methodology under 
which--
    (A) Prospectively determined payment rates are established; and
    (B) Exceptions, adjustments, and methods for changes in methodology 
are set forth;
    (iii) Provide that a change by the State in the system that has the 
effect of materially changing payments to hospitals can take effect only 
upon 60 days notice to HCFA and to the hospitals likely to be materially 
affected by the change and upon HCFA's approval of the change.
    (2) Satisfactory assurances--(i) Admissions practice. The State must 
assure that the operation of the system will not result in any change in 
hospital admission practices that result in--
    (A) A significant reduction in the proportion of patients receiving 
hospital services covered under the system who have no third-party 
coverage and who are unable to pay for hospital services;
    (B) A significant reduction in the proportion of individuals 
admitted to hospitals for inpatient hospital services for which payment 
is less, or is likely to be less, than the anticipated charges for or 
cost of the services;
    (C) A refusal to admit patients who would be expected to require 
unusually costly or prolonged treatment for reasons other than those 
related to the appropriateness of the care available at the hospital; or
    (D) A refusal to provide emergency services to any person who is in 
need of emergency services, if the hospital provides the services.
    (ii) Consultation with local government officials. The State must 
provide documentation that it has consulted with local government 
officials concerning the impact of the system on publicly owned or 
operated hospitals.



Sec. 403.308  State systems under demonstration projects--mandatory approval.

    HCFA will approve an application from a State for a State system 
if--
    (a) The system was in effect prior to April 20, 1983 under an 
existing demonstration project; and
    (b) The minimum requirements and assurances for approval of a State 
system are met under Sec. 403.304 (b)(1)-(10) and Sec. 403.304(c), and, 
if appropriate Sec. 403.304(d).



Sec. 403.310  Reduction in payments.

    (a) General rule. If HCFA determines that the satisfactory 
assurances required of a State under Sec. 403.304(c) and, if applicable, 
Sec. 403.304(d) have not been met, or will not be met, with respect to 
any 36-month period, HCFA will reduce Medicare payments to individual 
hospitals being reimbursed under the State's system or, if applicable, 
under the Medicare payment system, in an amount equal to the amount by 
which the Medicare payments under the system exceed the amount of 
Medicare payments to such hospitals that otherwise would have been made 
not using the State system. The amount of the recoupment will include, 
when appropriate, interest charges computed in accordance with 
Sec. 405.378 of this chapter.
    (b) Recoupment procedures. The amount of the overpayment will be 
recouped on a proportionate basis from each of those hospitals that 
received payments under the State system that exceeded the payments they 
would

[[Page 33]]

have received under the Medicare payment system. Each hospital's share 
of the aggregate excess payment will be determined on the basis of a 
comparison of the hospital's proportionate share of the aggregate 
payment received under the State system that is in excess of what the 
aggregate payment would have been under the Medicare payment system. 
Recoupments may be accomplished by a hospital's direct payment to the 
Medicare program or by offsets to future payments made to the hospital.
    (c) Alternative recoupment procedures. As an alternative to the 
recoupment procedures described in paragraph (b) of this section and 
subject to HCFA's acceptance, the State may provide, by legislation or 
legally binding regulations, procedures for the recoupment of the amount 
of payments that exceed the amount of payments that otherwise would have 
been paid by Medicare if the State system had not been in effect.
    (d) Rule for existing Medicare demonstration projects. In cases of 
existing Medicare demonstration projects where the expenditure test is 
to be applied by a rate of increase factor, the amount of the excess 
payment will be determined, for the three hospital cost reporting 
periods beginning before October 1, 1986, by a comparison of the State 
system's rate of increase to the national rate of increase. Recoupment 
of excessive payments will be assessed and recouped as described in this 
section.

[51 FR 15492, Apr. 24, 1986, as amended at 61 FR 63748, Dec. 2, 1996]



Sec. 403.312  Submittal of application.

    The Chief Executive Officer of the State is responsible for--
    (a) Submittal of the application to HCFA for approval; and
    (b) Supplying the assurances and necessary documentation as required 
under Secs. 403.304 through 403.308.



Sec. 403.314  Evaluation of State systems.

    HCFA will evaluate all State applications for approval of State 
systems and notify the State of its determination within 60 days.



Sec. 403.316  Reconsideration of certain denied applications.

    (a) Request for reconsideration. If HCFA denies an application for a 
State system, the State may request that HCFA reconsider the denial if 
the State believes that its system meets all of the requirements for 
mandatory approval under Secs. 403.304 and 403.306 or, in the case of a 
State with a system operating under an existing demonstration project, 
the applicable requirements of Secs. 403.304 and 403.308.
    (b) Time limit. (1) The State must submit its request for 
reconsideration within 60 days after the date of HCFA's notice that the 
application was denied.
    (2) HCFA will notify the State of the results of its reconsideration 
within 60 days after it receives the request for reconsideration.



Sec. 403.318  Approval of State systems.

    (a) Approval agreement. If HCFA approves a State system, a written 
agreement will be executed between HCFA and the Chief Executive Officer 
of the State. The agreement must incorporate any terms of the State's 
application for approval of the system as agreed to by the parties and, 
as a minimum, must contain provisions that require the following:
    (1) The system is operated directly by the State or an entity 
designated by State law.
    (2) For purposes of the Medicare program, the State's system applies 
only to Medicare payments for inpatient, and if applicable, outpatient 
hospital services.
    (3) The system conforms to applicable Medicare law and regulations 
other than those relating to the amount of reimbursement for inpatient 
hospital services, or for inpatient and outpatient services, whichever 
the State system covers. Applicable regulations include, for example, 
those describing Medicare benefits and entitlement requirements for 
program beneficiaries, as explained in parts 406 and 409 of this 
chapter; the requirements at part 405, subpart J of this chapter 
specifying conditions of participation for hospitals; the requirements 
at part 405, subparts A, G, and S of this chapter on Medicare program 
administration; and

[[Page 34]]

all applicable fraud and abuse regulations contained in titles 42 and 45 
of the CFR.
    (4) The State must obtain HCFA's approval of the State's reporting 
forms and of provider cost reporting forms or other forms that have not 
been approved by HCFA but that are necessary for the collection of 
required information.
    (b) Effective date. An approved State system may not be effective 
earlier than the date of the approval agreement, which may not be 
retroactive.



Sec. 403.320  HCFA review and monitoring of State systems.

    (a) General rule. The State must submit an assurance and detailed 
and quantitative studies of provider cost and financial data and 
projections to support the effectiveness of its system, as required by 
paragraphs (b) and (c) of this section.
    (b) Required information. (1) Under Sec. 403.304(c)(3) an assurance 
is required that the system will not result in greater payments over a 
36-month period than would have otherwise been made under Medicare not 
using such system. If a State that has an existing demonstration project 
in effect on April 20, 1983 elects under Sec. 403.304(c)(3) to have the 
effectiveness of its system judged on the basis of a rate of increase 
factor, the State must submit an assurance that its rate of increase or 
inflation in inpatient hospital payments does not exceed, for that 
portion of the 36-month period that is subject to this test, the 
national rate of increase or inflation in Medicare inpatient hospital 
payments. The election of the rate of increase test applies only to the 
three cost reporting periods beginning on or after October 1, 1983. At 
the end of these cost reporting periods, the State must assure, 
beginning with the first month after the expiration of the third cost 
reporting period beginning after October 1, 1983, that payments under 
its system will not exceed over the remainder of the 36-month period 
what Medicare payments would have been.
    (2) Estimates and data are required to support the State's 
assurance, required under Sec. 403.304(c)(3), that expenditures under 
the State system will not exceed what Medicare would have paid over a 
36-month period. The estimates and projections of what Medicare would 
have otherwise paid must take into account all the Medicare 
reimbursement principles in effect at the time and, for any period in 
which payments either exceed or are less than Medicare levels, the 
values of interest the Medicare Trust Fund earned, or would have earned, 
on these amounts. Upon application for approval, the State must submit 
projections for each hospital for the first 12-month period covered by 
the assurance, in both the aggregate and on a per discharge basis, of 
Medicare inpatient expenditures under Medicare principles of 
reimbursement and parallel projections of Medicare inpatient 
expenditures under the State's system and the resulting cost or savings 
to Medicare. The State must also submit separate statewide projections 
for each year of the 36-month period, in both the aggregate and on a 
weighted average discharge basis, of inpatient expenditures under the 
State system and under the Medicare principles of reimbursement.
    (3) The projection submitted under paragraph (b)(2) of this section 
must include a detailed description of the methodology and assumptions 
used to derive the expenditure amounts under both systems. In instances 
where the assumptions are different under the projections cited in 
paragraph (b)(2) of this section, the State must provide a detailed 
explanation of the reasons for the differences. At a minimum, the 
following separate data and assumptions are to be included in the 
projections for the Medicare principles and for the State's system.
    (i) The State system base year and the Medicare allowable and 
reimbursable cost of each hospital that the State used to develop the 
projections, including the amount of estimated pass through costs.
    (ii) The categories of costs that are included in the State system 
and are reimbursed differently under the State system than under the 
Medicare system.
    (iii) The number of Medicare and total base year discharges and 
admissions for each hospital.

[[Page 35]]

    (iv) The rate of change factor (and the method of application of 
this factor) used to project the base year costs over the 36-month 
period to which the assurance would apply.
    (v) Any allowance for anticipated growth in the amount of services 
from the base year (if applicable, the allowance must be presented in 
separate estimates for population increases or for increases in rates of 
admissions or both).
    (vi) Any adjustment in which the State is permitted by HCFA to take 
into account previous reductions in the Medicare payment amounts that 
were the result of the effectiveness of the State's system even though 
Medicare was not a part of that system.
    (vii) Appropriate recognition and projection of the time value of 
trust fund expenditures for the period the State system expenditures 
were either less than or exceeded the Medicare system payments.
    (viii) States applying under a rate of increase effectiveness test 
under Sec. 403.304(c)(3) must also submit data projecting the parallel 
rates of increase during the requisite period.
    (4) The projections must include both the aggregate payments and the 
payments per discharge for the individual hospitals and for the State as 
a whole.
    (5) On a case-by-case basis. HCFA may require additional data and 
documentation as needed to complete its review and monitoring.
    (6) For existing Medicare demonstration projects in effect on April 
20, 1983, the assurance and data as required by paragraphs (a) and (b) 
of this section, if appropriate, may be based on aggregate payments or 
payments per inpatient admission or discharge. HCFA will judge the 
effectiveness of these systems on the basis of the rate of increase or 
inflation in Medicare inpatient hospital payments compared to the 
national rate of increase or inflation for such payments during the 
State's hospitals' three cost reporting periods beginning on or after 
October 1, 1983. The data submitted by the State for the period subject 
to the rate of increase test must include the rate of increase 
projection for that particular period of time. For the subsequent period 
of time, the State must assure that payments under its system will not 
exceed what Medicare payments would have been, as described in 
Sec. 403.304(c)(3).
    (7) If the amount of Medicare payments under the State system 
exceeds what would have been paid under the Medicare reimbursement 
principles in any given year, the State must also submit quantitative 
evidence that the system will result in expenditures that do not exceed 
what Medicare expenditures would have been over the 36 month period 
beginning with the first month that the State system is operating. For a 
State that has an existing demonstration project in effect on April 20, 
1983, and that elects under Sec. 403.304(c)(3) to have a rate of 
increase test apply, if the State's rate of increase or inflation 
exceeds the national rate of increase or inflation in a given year, the 
State must submit quantitative evidence that, over 36 months, its 
payments will not exceed the national rate of increase or inflation. 
Furthermore, if payments under the State's system must be compared to 
actual Medicare expenditures, at the end of the third cost reporting 
period, as described in paragraph (b)(1) of this section, and payments 
under the State's system exceed what Medicare would have paid in a given 
year, the State must submit quantitative evidence that, over 36 months, 
payments under its system will not exceed what Medicare would have paid.
    (c) Review of assurances regarding expenditures. HCFA will review 
the State's assurances and data submitted under this section, as a 
prerequisite to the approval of the State's system. HCFA will compare 
the State's projections of payment amounts to HCFA data in order to 
determine if the State's assurance is reasonable and fully supportable. 
If the HCFA data indicate that the State's system would result in 
payment amounts that would be more then that which would have been paid 
under the Medicare principles, the State's assurances would not be 
acceptable. For States applying in accordance with Sec. 403.308, if HCFA 
data indicate that the State's system would result in a rate of increase 
or inflation that would be more than the national rate of increase or 
inflation,

[[Page 36]]

the State's assurances would not be acceptable.
    (d) Medicaid upper limit. In accordance with Sec. 447.253 of this 
chapter, the State system may not result in aggregate payments for 
Medicaid inpatient hospital services that would exceed the amount that 
would have otherwise have been paid under the Medicare principles as 
applied through the State system.
    (e) Monitoring of Medicare expenditures. HCFA will monitor on a 
quarterly basis expenditures under the State's system as compared to 
what Medicare expenditures would have been if the system had not been in 
effect. If HCFA determines at any time that the payments made under the 
State's system exceed the States' projections, as established by the 
satisfactory assurances required under Sec. 403.304(c) and, if 
appropriate, the predetermined percentage relationship of the payments 
as required under Sec. 403.304(d). HCFA will--
    (1) Conclude that payments under the State system over a 36-month 
period will exceed what Medicare would have paid:
    (2) Terminate the waiver; and
    (3) Recoup overpayments to the affected hospitals in accordance with 
the procedures described in Sec. 403.310.



Sec. 403.321  State systems for hospital outpatient services.

    HCFA may approve a State's application for approval of an outpatient 
system if the following conditions are met:
    (a) The State's inpatient system is approved.
    (b) The State's outpatient application meets the requirements and 
assurances for an inpatient system described in Sec. 403.304 (b) and 
(c), and Sec. 403.306 (b)(1) and (b)(2)(ii).
    (c) The State submits a separate application that provides separate 
assurances and estimates and data in further support of its assurance 
submitted under paragraph (b)(1) of Sec. 403.320, as follows:
    (1) Upon application for approval, the State must submit estimates 
and data that include, but are not limited to, projections for the first 
12-month period covered by the assurance for each hospital, in both the 
aggregate and on an average cost per service and payment basis, of 
Medicare outpatient expenditures under Medicare principles of 
reimbursement; parallel projections of Medicare outpatient expenditures 
under the State system; and the resulting cost or savings to Medicare 
independent of the State system for hospital inpatient services.
    (2) The State must submit separate statewide projections for each 
year of the 36-month period of the aggregate outpatient expenditures for 
each system. The projections submitted under this paragraph must--
    (i) Comply with the requirements of paragraphs (b) (3) and (5) of 
Sec. 403.320 regarding a detailed description of the methodology used to 
derive the expenditure amounts:
    (ii) Include the data and assumptions set forth in paragraphs (b)(3) 
(i), (ii), (iii), (iv), and (v) of Sec. 403.320; and
    (iii) Include any assumption the State has adopted for establishing 
the number of Medicare and total base year outpatient services for each 
hospital.
    (3) The State must provide a detailed explanation of the reasons for 
any difference between the data or assumptions used for the separate 
projections.



Sec. 403.322  Termination of agreements for Medicare recognition of State systems.

    (a) Termination of agreements. (1) HCFA may terminate any approved 
agreement if it finds, after the procedures described in this paragraph 
are followed that the State system does not satisfactorily meet the 
requirements of section 1886(c) of the Act or the regulations in this 
subpart. A termination must be effective on the last day of a calendar 
quarter.
    (2) HCFA will give the State reasonable notice of the proposed 
termination of an agreement and of the reasons for the termination at 
least 90 days before the effective date of the termination.
    (3) HCFA will give the State the opportunity to present evidence to 
refute the finding.
    (4) HCFA will issue a final notice of termination upon a final 
review and determination on the State's evidence.
    (b) Termination by State. A State may voluntarily terminate a State 
system

[[Page 37]]

by giving HCFA notice of its intent to terminate. A termination must be 
effective on the last day of a calendar quarter. The State must notify 
HCFA of its intent to terminate at least 90 days before the effective 
date of the termination.



                          Subpart D--[Reserved]



         Subpart E--Beneficiary Counseling and Assistance Grants

    Source: 59 FR 51128, Oct. 7, 1994, unless otherwise noted.



Sec. 403.500  Basis, scope, and definition.

    (a) Basis. This subpart implements, in part, the provisions of 
section 4360 of Public Law 101-508 by establishing a minimum level of 
funding for grants made to States for the purpose of providing 
information, counseling, and assistance relating to obtaining adequate 
and appropriate health insurance coverage to individuals eligible to 
receive benefits under the Medicare program.
    (b) Scope of subpart. This subpart sets forth the following:
    (1) Conditions of eligibility for the grant.
    (2) Minimum levels of funding for those States qualifying for the 
grants.
    (3) Reporting requirements.
    (c) Definition. For purposes of this subpart, the term ``State'' 
includes (except where otherwise indicated by the context) the 50 
States, the District of Columbia, the Commonwealth of Puerto Rico, the 
Virgin Islands, Guam, and American Samoa.



Sec. 403.501  Eligibility for grants.

    To be eligible for a grant under this subpart, the State must have 
an approved Medicare supplemental regulatory program under section 1882 
of the Act and submit a timely application to HCFA that meets the 
requirements of--
    (a) Section 4360 of Public Law 101-508 (42 USC 1395b-4);
    (b) This subpart; and
    (c) The applicable solicitation for grant applications issued by 
HCFA.



Sec. 403.502  Availability of grants.

    HCFA awards funds to States subject to congressional appropriations 
of funds and, if applicable, subject to the satisfactory progress in the 
State's project during the preceding grant period. The criteria by which 
progress is evaluated and the performance standards for determining 
whether satisfactory progress has been made is specified in the notice 
of grant award sent to each State. HCFA advises each State as to when to 
make application and provides information as to the timing of the grant 
award and the duration of the grant award. HCFA also provides an 
estimate of the amount of funds that may be available to the State.



Sec. 403.504  Number and size of grants.

    (a) General. HCFA awards the following types of grants:
    (1) New program grants.
    (2) Existing program enhancement grants.
    (b) Grant Award. Each eligible State that submits an acceptable 
application receives a grant including a fixed amount (minimum funding 
level) and a variable amount.
    (1) A fixed portion is awarded to States in the following amounts:
    (i) Each of the 50 States, $75,000.
    (ii) The District of Columbia, $75,000.
    (iii) Puerto Rico, $75,000.
    (iv) American Samoa, $25,000.
    (v) Guam, $25,000.
    (vi) The Virgin Islands, $25,000.
    (2) A variable portion, which is based on the number and location of 
Medicare beneficiaries residing in the State is awarded to each State. 
The variable amount a particular State receives is determined as set 
forth in paragraph (c) of this section.
    (c) Calculation of variable portion of the grant. (1) HCFA bases the 
variable portion of the grant on--
    (i) The amount of available funds, and
    (ii) A comparison of each State with the average of all of the 
States (except the State being compared) with respect to three factors 
that relate to the size of the State's Medicare population and where 
that population resides.
    (2) The factors HCFA uses to compare States' Medicare populations 
comprise separate components of the variable

[[Page 38]]

amount. These factors, and the extent to which they each contribute to 
the variable amount, are as follows:
    (i) Approximately 75 percent of the variable amount is based on the 
number of Medicare beneficiaries living in the State as a percentage of 
all Medicare beneficiaries nationwide.
    (ii) Approximately 10 percent of the variable amount is based on the 
percentage of the State's total population who are Medicare 
beneficiaries.
    (iii) Approximately 15 percent of the variable amount is based on 
the percentage of the State's Medicare beneficiaries that reside in 
rural areas (``rural areas'' are defined as all areas not included 
within a Metropolitan Statistical Area).
    (3) Based on the foregoing four factors (that is, the amount of 
available funds and the three comparative factors), HCFA determines a 
variable rate for each participating State for each grant period.
    (d) Submission of revised budget. A State that receives an amount of 
grant funds under this subpart that differs from the amount requested in 
the budget submitted with its application must submit a revised budget 
to HCFA, along with its acceptance of the grant award, that reflects the 
amount awarded.



Sec. 403.508  Limitations.

    (a) Use of grants. Except as specified in paragraph (b) of this 
section, a State that receives a grant under this subpart may use the 
grant for any reasonable expenses incurred in planning, developing, 
implementing, and/or operating the program for which the grant is made.
    (b) Maintenance of effort. A State that receives a grant to 
supplement an existing program (that is, an existing program enhancement 
grant)--
    (1) Must not use the grant to supplant funds for activities that 
were conducted immediately preceding the date of the initial award of a 
grant made under this subpart and funded through other sources 
(including in-kind contributions).
    (2) Must maintain the activities of the program at least at the 
level that those activities were conducted immediately preceding the 
initial award of a grant made under this subpart.



Sec. 403.510  Reporting requirements.

    A State that receives a grant under this subpart must submit at 
least one annual report to HCFA and any additional reports as HCFA may 
prescribe in the notice of grant award. HCFA advises the State of the 
requirements concerning the frequency, timing, and contents of reports 
in the notice of grant award that it sends to the State.



Sec. 403.512  Administration.

    (a) General. Administration of grants will be in accordance with the 
provisions of this subpart, 45 CFR part 92 (``Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State and Local 
Governments''), 45 CFR 74.4, the terms of the solicitation, and the 
terms of the notice of grant award. Except for the minimum funding 
levels established by Sec. 403.504(b)(1), in the event of conflict 
between a provision of the notice of grant award, any provision of the 
solicitation, or of any regulation enumerated in 45 CFR 74.4 or in part 
92, the terms of the notice of grant award control.
    (b) Notice. HCFA provides notice to each applicant regarding HCFA's 
decision on an application for grant funding under Sec. 403.504.
    (c) Appeal. Any applicant for a grant under this subpart has the 
right to appeal HCFA's determination regarding its application. Appeal 
procedures are governed by the regulations at 45 CFR part 16 (Procedures 
of the Departmental Grant Appeals Board).

[[Page 39]]



                     SUBCHAPTER B--MEDICARE PROGRAM


PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED--Table of Contents




                          Subpart A--[Reserved]

  Subpart B--Medical Services Coverage Decisions That Relate to Health 
                             Care Technology

Sec.
405.201  Scope of subpart and definitions.
405.203  FDA categorization of investigational devices.
405.205  Coverage of a non-experimental/investigational (Category B) 
          device.
405.207  Services related to a noncovered device.
405.209  Payment for a non-experimental/investigational (Category B) 
          device.
405.211  Procedures for Medicare contractors in making coverage 
          decisions for a non-experimental/investigational (Category B) 
          device.
405.213  Re-evaluation of a device categorization.
405.215  Confidential commercial and trade secret information.

    Subpart C--Suspension of Payment, Recovery of Overpayments, and 
                   Repayment of Scholarships and Loans

                           General Provisions

405.301  Scope of subpart.

   Liability for Payments to Providers and Suppliers, and Handling of 
                           Incorrect Payments

405.350  Individual's liability for payments made to providers and other 
          persons for items and services furnished the individual.
405.351  Incorrect payments for which the individual is not liable.
405.352  Adjustment of title XVIII incorrect payments.
405.353  Certification of amount that will be adjusted against 
          individual title II or railroad retirement benefits.
405.354  Procedures for adjustment or recovery--title II beneficiary.
405.355  Waiver of adjustment or recovery.
405.356  Principles applied in waiver of adjustment or recovery.
405.357  Notice of right to waiver consideration.
405.358  When waiver of adjustment or recovery may be applied.
405.359  Liability of certifying or disbursing officer.

  Suspension and Recoupment of Payment to Providers and Suppliers and 
                Collection and Compromise of Overpayments

405.370  Definitions.
405.371   Suspension, offset, and recoupment of Medicare payments to 
          providers and suppliers of services.
405.372   Proceeding for suspension of payment.
405.373  Proceeding for offset or recoupment.
405.374  Opportunity for rebuttal.
405.375  Time limits for, and notification of, administrative 
          determination after receipt of rebuttal statement.
405.376  Suspension and termination of collection action and compromise 
          of claims for overpayment.
405.377  Withholding Medicare payments to recover Medicaid overpayments.
405.378  Interest charges on overpayment and underpayments to providers, 
          suppliers, and other entities.

                   Repayment of Scholarships and Loans

405.380  Collection of past-due amounts on scholarship and loan 
          programs.

                          Subpart D--[Reserved]

         Subpart E--Criteria for Determining Reasonable Charges

405.500  Basis.
405.501  Determination of reasonable charges.
405.502  Criteria for determining reasonable charges.
405.503  Determining customary charges.
405.504  Determining prevailing charges.
405.505  Determination of locality
405.506  Charges higher than customary or prevailing charges or lowest 
          charge levels.
405.507  Illustrations of the application of the criteria for 
          determining reasonable charges.
405.508  Determination of comparable circumstances; limitation.
405.509  Determining the inflation-indexed charge.
405.511  Reasonable charges for medical services, supplies, and 
          equipment.
405.512  Carriers' procedural terminology and coding systems.
405.515  Reimbursement for clinical laboratory services billed by 
          physicians.
405.517  Payment for drugs that are not paid on a cost or prospective 
          payment basis.
405.534  Limitation on payment for screening mammography services.
405.535  Special rules for nonparticipating physicians and suppliers 
          furnishing screening mammography services.

[[Page 40]]

                          Subpart F--[Reserved]

      Subpart G--Reconsiderations and Appeals Under Medicare Part A

405.701  Basis, purpose and definitions.
405.702  Notice of initial determination.
405.704  Actions which are initial determinations.
405.705  Actions which are not initial determinations.
405.706  Decisions of utilization review committees.
405.708  Effect of initial determination.
405.710  Right to reconsideration.
405.711  Time and place of filing request for reconsideration.
405.712  Extension of time to request reconsideration.
405.714  Withdrawal of request for reconsideration.
405.715  Reconsidered determination.
405.716  Notice of reconsidered determination.
405.717  Effect of a reconsidered determination.
405.718  Expedited appeals process.
405.720  Hearing; right to hearing.
405.722  Time and place of filing request for a hearing.
405.724  Departmental Appeals Board (DAB) review.
405.730  Court review.
405.732  Review of national coverage decisions (NCDs).
405.740  Principles for determining the amount in controversy.
405.745  Amount in controversy ascertained after reconsideration.
405.747  Dismissal of request for hearing; amount in controversy less 
          than $100.
405.750  Time period for reopening initial, revised, or reconsidered 
          determinations and decisions or revised decisions of an ALJ or 
          the Departmental Appeals Board (DAB); binding effect of 
          determination and decisions.
405.753  Appeal of a categorization of a device.

          Subpart H--Appeals Under the Medicare Part B Program

405.801  Part B appeals--general description.
405.802  Definitions.
405.803  Initial determination.
405.804  Notice of initial determination.
405.805  Parties to the initial determination.
405.806  Effect of initial determination.
405.807  Review of initial determination.
405.808  Parties to the review.
405.809  Opportunity to submit evidence.
405.810  Review determination.
405.811  Notice of review determination.
405.812  Effect of review determination.
405.815  Amount in controversy for carrier hearing, ALJ hearing and 
          judicial review.
405.817  Principles for determining amount in controversy.
405.821  Request for carrier hearing.
405.822  Parties to a carrier hearing.
405.823  Carrier hearing officer.
405.824  Disqualification of carrier hearing officer.
405.825  Location of carrier hearing.
405.826  Notice of carrier hearing.
405.830  Conduct of the carrier hearing.
405.831  Waiver of right to appear at carrier hearing and present 
          evidence.
405.832  Dismissal of request for carrier hearing.
405.833  Record of carrier hearing.
405.834  Carrier hearing officer's decision.
405.835  Effect of carrier hearing officer's decision.
405.836  Authority of the carrier hearing officer.
405.841  Reopening initial or review determination of the carrier, and 
          decision of a carrier hearing officer.
405.842  Notice of reopening and revision.
405.850  Change of ruling or legal precedent.
405.853  Expedited appeals process.
405.855  ALJ hearing.
405.856  Departmental Appeals Board (DAB) review.
405.857  Court review.
405.860  Review of national coverage decisions (NCDs).
405.870  Appointment of representative.
405.871  Qualifications of representatives.
405.872  Authority of representatives.
405.874  Appeals of carrier decisions that supplier standards are not 
          met.
405.877  Appeal of a categorization of a device.

                        Subparts I-Q--[Reserved]

      Subpart R--Provider Reimbursement Determinations and Appeals

405.1801  Introduction.
405.1803  Intermediary determination and notice of amount of program 
          reimbursement.
405.1804  Matters not subject to administrative or judicial review under 
          prospective payment.
405.1805  Parties to intermediary determination.
405.1807  Effect of intermediary determination.
405.1809  Intermediary hearing procedures.
405.1811  Right to intermediary hearing; time, place, form, and content 
          of request for intermediary hearing.
405.1813  Failure to timely request an intermediary hearing.
405.1815  Parties to the intermediary hearing.

[[Page 41]]

405.1817  Hearing officer or panel of hearing officers authorized to 
          conduct intermediary hearing; disqualification of officers.
405.1819  Conduct of intermediary hearing.
405.1821  Prehearing discovery and other proceedings prior to the 
          intermediary hearing.
405.1823  Evidence at intermediary hearing.
405.1825  Witnesses at intermediary hearing.
405.1827  Record of intermediary hearing.
405.1829  Authority of hearing officer(s) at intermediary hearing.
405.1831  Intermediary hearing decision and notice.
405.1833  Effect of intermediary hearing decision.
405.1835  Right to Board hearing.
405.1837  Group appeal.
405.1839  Amount in controversy.
405.1841  Time, place, form, and content of request for Board hearing.
405.1842  Expediting Board proceedings.
405.1843  Parties to Board hearing.
405.1845  Composition of Board.
405.1847  Disqualification of Board members.
405.1849  Establishment of time and place of hearing by the Board.
405.1851  Conduct of Board hearing.
405.1853  Prehearing discovery and other proceedings prior to the Board 
          hearing.
405.1855  Evidence at Board hearing.
405.1857  Subpoenas.
405.1859  Witnesses.
405.1861  Oral argument and written allegations.
405.1863  Administrative policy at issue.
405.1865  Record of Board hearing.
405.1867  Sources of Board's authority.
405.1869  Scope of Board's decision-making authority.
405.1871  Board hearing decision and notice.
405.1873  Board's jurisdiction.
405.1875  Administrator's review.
405.1877  Judicial review.
405.1881  Appointment of representative.
405.1883  Authority of representative.
405.1885  Reopening a determination or decision.
405.1887  Notice of reopening.
405.1889  Effect of a revision.

                        Subparts S-T--[Reserved]

   Subpart U--Conditions for Coverage of Suppliers of End-Stage Renal 
                         Disease (ESRD) Services

405.2100  Scope of subpart.
405.2101  Objectives of end-stage renal disease (ESRD) program.
405.2102  Definitions.
405.2110  Designation of ESRD networks.
405.2111  [Reserved]
405.2112  ESRD network organizations.
405.2113  Medical review board.
405.2114  [Reserved]
405.2120  Minimum utilization rates: general.
405.2121  Basis for determining minimum utilization rates.
405.2122  Types and duration of classification according to utilization 
          rates.
405.2123  Reporting of utilization rates for classification.
405.2124  Calculation of utilization rates for comparison with minimal 
          utilization rates(s) and notification of status.
405.2130  Condition: Minimum utilization rates.
405.2131  Condition: Provider status: Renal transplantation center or 
          renal dialysis center.
405.2132  [Reserved]
405.2133  Condition: Furnishing data and information for ESRD program 
          administration.
405.2134  Condition: Participation in network activities.
405.2135  Condition: Compliance with Federal, State, and local laws and 
          regulations.
405.2136  Condition: Governing body and management.
405.2137  Condition: Patient long-term program and patient care plan.
405.2138  Condition: Patients' rights and responsibilities.
405.2139  Condition: Medical records.
405.2140  Condition: Physical environment.
405.2150  Condition: Reuse of hemodialyzers and other dialysis supplies.
405.2160  Condition: Affiliation agreement or arrangement.
405.2161  Condition: Director of a renal dialysis facility or renal 
          dialysis center.
405.2162  Condition: Staff of a renal dialysis facility or renal 
          dialysis center.
405.2163  Condition: Minimal service requirements for a renal dialysis 
          facility or renal dialysis center.
405.2164  Conditions for coverage of special purpose renal dialysis 
          facilities.
405.2170  Condition: Director of a renal transplantation center.
405.2171  Condition: Minimal service requirements for a renal 
          transplantation center.
405.2180  Termination of Medicare coverage.
405.2181  Alternative sanctions.
405.2182  Notice of sanction and appeal rights: Termination of coverage.
405.2184  Notice of appeal rights: Alternative sanctions.

                        Subparts V-W--[Reserved]

  Subpart X--Rural Health Clinic and Federally Qualified Health Center 
                                Services

405.2400  Basis.
405.2401  Scope and definitions.
405.2402  Basic requirements.
405.2403  Content and terms of the agreement with the Secretary.
405.2404  Terminations of agreements.

[[Page 42]]

405.2410  Application of Part B deductible and coinsurance.
405.2411  Scope of benefits.
405.2412  Physicians' services.
405.2413  Services and supplies incident to a physician's services.
405.2414  Nurse practitioner and physician assistant services.
405.2415  Services and supplies incident to nurse practitioner and 
          physician assistant services.
405.2416  Visiting nurse services.
405.2417  Visiting nurse services: Determination of shortage of 
          agencies.

               Federally Qualified Health Center Services

405.2430  Basic requirements.
405.2434  Content and terms of the agreement.
405.2436  Termination of agreement.
405.2440  Conditions for reinstatement after termination by HCFA.
405.2442  Notice to the public.
405.2444  Change of ownership.
405.2446  Scope of services.
405.2448  Preventive primary services.
405.2450  Clinical psychologist and clinical social worker services.
405.2452  Services and supplies incident to clinical psychologist and 
          clinical social worker services.

 Payment for Rural Health Clinic and Federally Qualified Health Center 
                                Services

405.2460  Applicability of general payment exclusions.
405.2462  Payment for rural health clinic and Federally qualified health 
          center services.
405.2463  What constitutes a visit.
405.2464  All-inclusive rate.
405.2466  Annual reconciliation.
405.2468  Allowable costs.
405.2470  Reports and maintenance of records.
405.2472  Beneficiary appeals.

    Authority: Secs. 1102, 1861, 1862(a), 1871, 1874, 1881, and 1886(k) 
of the Social Security Act (42 U.S.C. 1302, 1395x, 1395y(a), 1395hh, 
1395kk, 1395rr and 1395ww(k)), and sec. 353 of the Public Health Service 
Act (42 U.S.C. 263a).



                          Subpart A--[Reserved]



  Subpart B--Medical Services Coverage Decisions That Relate to Health 
                             Care Technology

    Authority: Secs. 1102, 1862 and 1871 of the Social Security Act as 
amended (42 U.S.C.1302, 1395y, and 1395hh).


    Source: 60 FR 48423, Sept. 19, 1995, unless otherwise noted.



Sec. 405.201  Scope of subpart and definitions.

    (a) Scope. This subpart establishes that--
    (1) HCFA uses the FDA categorization of a device as a factor in 
making Medicare coverage decisions; and
    (2) HCFA may consider for Medicare coverage certain devices with an 
FDA-approved investigational device exemption (IDE) that have been 
categorized as non-experimental/investigational (Category B).
    (b) Definitions. As used in this subpart--
    Class I refers to devices for which the general controls of the 
Food, Drug, and Cosmetic Act, such as adherence to good manufacturing 
practice regulations, are sufficient to provide a reasonable assurance 
of safety and effectiveness.
    Class II refers to devices that, in addition to general controls, 
require special controls, such as performance standards or postmarket 
surveillance, to provide a reasonable assurance of safety and 
effectiveness.
    Class III refers to devices that cannot be classified into Class I 
or Class II because insufficient information exists to determine that 
either special or general controls would provide reasonable assurance of 
safety and effectiveness. Class III devices require premarket approval.
    Contractors refers to carriers, fiscal intermediaries, and other 
entities that contract with HCFA to review and adjudicate claims for 
Medicare services.
    Experimental/investigational (Category A) device refers to an 
innovative device believed to be in Class III for which ``absolute 
risk'' of the device type has not been established (that is, initial 
questions of safety and effectiveness have not been resolved and the FDA 
is unsure whether the device type can be safe and effective).
    IDE stands for investigational device exemption. An FDA-approved IDE 
application permits a device, which would otherwise be subject to 
marketing clearance, to be shipped lawfully for the purpose of 
conducting a clinical

[[Page 43]]

trial in accordance with 21 U.S.C. 360j(g) and 21 CFR parts 812 and 813.
    Non-experimental/investigational (Category B) device refers to a 
device believed to be in Class I or Class II, or a device believed to be 
in Class III for which the incremental risk is the primary risk in 
question (that is, underlying questions of safety and effectiveness of 
that device type have been resolved), or it is known that the device 
type can be safe and effective because, for example, other manufacturers 
have obtained FDA approval for that device type.
    PMA stands for ``premarket approval'' and refers to a marketing 
application for a Class III device, which includes all information 
submitted with or incorporated by reference in the application in 
accordance with 21 U.S.C. 360e and 360j and 21 CFR 814.3(e).
    Sponsor refers to a person or entity that initiates, but does not 
conduct, an investigation under an IDE.



Sec. 405.203  FDA categorization of investigational devices.

    (a) The FDA assigns a device with an FDA-approved IDE to one of two 
categories:
    (1) Experimental/Investigational (Category A) Devices.
    (2) Non-Experimental/Investigational (Category B) Devices.
    (b) The FDA notifies HCFA, when it notifies the sponsor, that the 
device is categorized by FDA as experimental/investigational (Category 
A) or non-experimental/investigational (Category B).
    (c) HCFA uses the categorization of the device as a factor in making 
Medicare coverage decisions.



Sec. 405.205  Coverage of a non-experimental/investigational (Category B) device.

    (a) For any device that meets the requirements of the exception at 
Sec. 411.15(o) of this chapter, the following procedures apply:
    (1) The FDA notifies HCFA, when it notifies the sponsor, that the 
device is categorized by FDA as non-experimental/investigational 
(Category B).
    (2) HCFA uses the categorization of the device as a factor in making 
Medicare coverage decisions.
    (b) If the FDA becomes aware that a categorized device no longer 
meets the requirements of the exception at Sec. 411.15(o) of this 
chapter, the FDA notifies the sponsor and HCFA and the procedures 
described in paragraph (a)(2) of this section apply.



Sec. 405.207  Services related to a noncovered device.

    (a) When payment is not made. Medicare payment is not made for 
medical and hospital services that are related to the use of a device 
that is not covered because HCFA determines the device is not 
``reasonable'' and ``necessary'' under section 1862(a)(1)(A) of the Act 
or because it is excluded from coverage for other reasons. These 
services include all services furnished in preparation for the use of a 
noncovered device, services furnished contemporaneously with and 
necessary to the use of a noncovered device, and services furnished as 
necessary after-care that are incident to recovery from the use of the 
device or from receiving related noncovered services.
    (b) When payment is made. Medicare payment may be made for services, 
ordinarily covered by Medicare, to treat a condition or complication 
that arises because of the use of a noncovered device or from the 
furnishing of related noncovered services.



Sec. 405.209  Payment for a non-experimental/investigational (Category B) device.

    Payment under Medicare for a non-experimental/investigational 
(Category B) device is based on, and may not exceed, the amount that 
would have been paid for a currently used device serving the same 
medical purpose that has been approved or cleared for marketing by the 
FDA.



Sec. 405.211  Procedures for Medicare contractors in making coverage decisions for a non-experimental/investigational (Category B) device.

    (a) General rule. In their review of claims for payment, Medicare 
contractors are bound by the statute, regulations, and all HCFA 
administrative issuances, including all national coverage decisions.

[[Page 44]]

    (b) Potentially covered non-experimental/investigational (Category 
B) devices. Medicare contractors may approve coverage for any device 
with an FDA-approved IDE categorized as a non-experimental/
investigational (Category B) device if all other coverage requirements 
are met.
    (c) Other considerations. Medicare contractors must consider whether 
any restrictions concerning site of service, indications for use, or any 
other list of conditions for coverage have been placed on the device's 
use.



Sec. 405.213  Re-evaluation of a device categorization.

    (a) General rules. (1) Any sponsor that does not agree with an FDA 
decision that categorizes its device as experimental/investigational 
(Category A) may request re-evaluation of the categorization decision.
    (2) A sponsor may request review by HCFA only after the requirements 
of paragraph (b) of this section are met.
    (3) No reviews other than those described in paragraphs (b) and (c) 
of this section are available to the sponsor.
    (4) Neither the FDA original categorization or re-evaluation 
(described in paragraph (b) of this section) nor HCFA's review 
(described in paragraph (c) of this section) constitute an initial 
determination for purposes of the Medicare appeals processes under part 
405, subpart G or subpart H, or parts 417, 473, or 498 of this chapter.
    (b) Request to FDA. A sponsor that does not agree with the FDA's 
categorization of its device may submit a written request to the FDA at 
any time requesting re-evaluation of its original categorization 
decision, together with any information and rationale that it believes 
support recategorization. The FDA notifies both HCFA and the sponsor of 
its decision.
    (c) Request to HCFA. If the FDA does not agree to recategorize the 
device, the sponsor may seek review from HCFA. A device sponsor must 
submit its request in writing to HCFA. HCFA obtains copies of relevant 
portions of the application, the original categorization decision, and 
supplementary materials. HCFA reviews all material submitted by the 
sponsor and the FDA's recommendation. HCFA reviews only information in 
the FDA record to determine whether to change the categorization of the 
device. HCFA issues a written decision and notifies the sponsor of the 
IDE and the FDA.



Sec. 405.215  Confidential commercial and trade secret information.

    To the extent that HCFA relies on confidential commercial or trade 
secret information in any judicial proceeding, HCFA will maintain 
confidentiality of the information in accordance with Federal law.



    Subpart C--Suspension of Payment, Recovery of Overpayments, and 
                   Repayment of Scholarships and Loans

    Authority: Secs. 1102, 1815, 1833, 1842, 1866, 1870, 1871, 1879, and 
1892 of the Social Security Act (42 U.S.C. 1302, 1395g, 1395l, 1395u, 
1395cc, 1395gg, 1395hh, 1395pp, and 1395ccc) and 31 U.S.C. 3711.

    Source: 31 FR 13534, Oct. 20, 1966, unless otherwise noted. 
Redesignated at 42 FR 52826, Sept. 30, 1977.

                           General Provisions



Sec. 405.301  Scope of subpart.

    This subpart sets forth the policies and procedures for handling of 
incorrect payments and recovery of overpayments.

[54 FR 41733, Oct. 11, 1989]

    Liability for Payments To Providers or Suppliers and Handling of 
                           Incorrect Payments



Sec. 405.350  Individual's liability for payments made to providers and other persons for items and services furnished the individual.

    Any payment made under title XVIII of the Act to any provider of 
services or other person with respect to any item or service furnished 
an individual shall be regarded as a payment to the individual, and 
adjustment shall be made pursuant to Secs. 405.352 through 405.358 
where:
    (a) More than the correct amount is paid to a provider of services 
or other person and the Secretary determines that:

[[Page 45]]

    (1) Within a reasonable period of time, the excess over the correct 
amount cannot be recouped from the provider of services or other person, 
or
    (2) The provider of services or other person was without fault with 
respect to the payment of such excess over the correct amount, or
    (b) A payment has been made under the provisions described in 
section 1814(e) of the Act, to a provider of services for items and 
services furnished the individual.
    (c) For purposes of paragraph (a)(2) of this section, a provider of 
services or other person shall, in the absence of evidence to the 
contrary, be deemed to be without fault if the determination of the 
carrier, the intermediary, or the Health Care Financing Administration 
that more than the correct amount was paid was made subsequent to the 
third year following the year in which notice was sent to such 
individual that such amount had been paid.

[41 FR 1492, Jan. 8, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 61 FR 49271, Sept. 19, 1996]



Sec. 405.351  Incorrect payments for which the individual is not liable.

    Where an incorrect payment has been made to a provider of services 
or other person, the individual is liable only to the extent that he has 
benefited from such payment.



Sec. 405.352  Adjustment of title XVIII incorrect payments.

    Where an individual is liable for an incorrect payment (i.e., a 
payment made under Sec. 405.350(a) or Sec. 405.350(b)) adjustment is 
made (to the extent of such liability) by:
    (a) Decreasing any payment under title II of the Act, or under the 
Railroad Retirement Act of 1937, to which the individual is entitled; or
    (b) In the event of the individual's death before adjustment is 
completed, by decreasing any payment under title II of the Act, or under 
the Railroad Retirement Act of 1937 payable to the estate of the 
individual or to any other person, that are based on the individual's 
earnings record (or compensation).

[31 FR 13534, Oct. 20, 1966, as amended by 41 FR 1492, Jan. 8, 1976. 
Redesignated at 42 FR 52826, Sept. 30, 1977]



Sec. 405.353  Certification of amount that will be adjusted against individual title II or railroad retirement benefits.

    As soon as practicable after any adjustment is determined to be 
necessary, the Secretary, for purposes of this subpart, shall certify 
the amount of the overpayment or payment (see Sec. 405.350) with respect 
to which the adjustment is to be made. If the adjustment is to be made 
by decreasing subsequent payments under the Railroad Retirement Act of 
1937, such certification shall be made to the Railroad Retirement Board.



Sec. 405.354  Procedures for adjustment or recovery--title II beneficiary.

    The procedures applied in making an adjustment or recovery in the 
case of a title II beneficiary are the applicable procedures of 20 CFR 
404.502.

[31 FR 13534, Oct. 20, 1966, as amended at 32 FR 18027, Dec. 16, 1967. 
Redesignated at 42 FR 52826, Sept. 30, 1977]



Sec. 405.355  Waiver of adjustment or recovery.

    (a) The provisions of Sec. 405.352 may not be applied and there may 
be no adjustment or recovery of an incorrect payment (i.e., a payment 
made under Sec. 405.350(a) or Sec. 405.350(b)) in any case where such 
incorrect payment has been made with respect to an individual who is 
without fault, or where such adjustment or recovery would be made by 
decreasing payments to which another person who is without fault is 
entitled as provided in section 1870(b) of the Act where such adjustment 
or recovery would defeat the purpose of title II or title XVIII of the 
Act or would be against equity and good conscience. (See 20 CFR 404.509 
and 404.512.)
    (b) Adjustment or recovery of an incorrect payment (or only such 
part of an incorrect payment as may be determined to be inconsistent 
with the purposes of Title XVIII of the Act) against an individual who 
is without fault shall be deemed to be against equity and

[[Page 46]]

good conscience if the determination that such payment was incorrect was 
made subsequent to the third year following the year in which notice of 
such payment was sent to such individual. (See Secs. 405.330-405.332 for 
conditions under which payment may be made for items or services 
furnished after October 30, 1972 which are noncovered by reasons of 
Sec. 405.310 (g) and (k).)

[41 FR 1493, Jan. 8, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977]



Sec. 405.356  Principles applied in waiver of adjustment or recovery.

    The principles applied in determining waiver of adjustment or 
recovery (Sec. 405.355) are the applicable principles of Sec. 405.358 
and 20 CFR 404.507-404.509, 404.510a, and 404.512.

[61 FR 49271, Sept. 19, 1996]



Sec. 405.357  Notice of right to waiver consideration.

    Whenever an initial determination is made that more than the correct 
amount of payment has been made, notice of the provisions of section 
1870(c) of the Act regarding waiver of adjustment or recovery shall be 
sent to the overpaid individual and to any other individual against whom 
adjustment or recovery of the overpayment is to be effected (see 
Sec. 405.358).

[61 FR 49271, Sept. 19, 1996]



Sec. 405.358  When waiver of adjustment or recovery may be applied.

    Section 1870(c) of the Act provides that there shall be no 
adjustment or recovery in any case where an incorrect payment under 
title XVIII (hospital and supplementary medical insurance benefits) has 
been made (including a payment under section 1814(e) of the Act with 
respect to an individual:
    (a) Who is without fault, and
    (b) Adjustment or recovery would either:
    (1) Defeat the purposes of title II or title XVIII of the Act, or
    (2) Be against equity and good conscience.

[61 FR 49271, Sept. 19, 1996]



Sec. 405.359  Liability of certifying or disbursing officer.

    No certifying or disbursing officer shall be held liable for any 
amount certified or paid by him to any provider of services or other 
person:
    (a) Where the adjustment or recovery of such amount is waived (see 
Sec. 405.355), or
    (b) Where adjustment (see Sec. 405.352) or recovery is not completed 
prior to the death of all persons against whose benefits such adjustment 
is authorized.

  Suspension and Recoupment of Payment to Providers and Suppliers and 
                Collection and Compromise of Overpayments



Sec. 405.370   Definitions.

    For purposes of this subpart, the following definitions apply:
    Offset. The recovery by Medicare of a non-Medicare debt by reducing 
present or future Medicare payments and applying the amount withheld to 
the indebtedness. (Examples are Public Health Service debts or Medicaid 
debts recovered by HCFA).
    Recoupment. The recovery by Medicare of any outstanding Medicare 
debt by reducing present or future Medicare payments and applying the 
amount withheld to the indebtedness.
    Suspension of payment. The withholding of payment by an intermediary 
or carrier from a provider or supplier of an approved Medicare payment 
amount before a determination of the amount of the overpayment exists.

[61 FR 63745, Dec. 2, 1996]



Sec. 405.371   Suspension, offset, and recoupment of Medicare payments to providers and suppliers of services.

    (a) General. Medicare payments to providers and suppliers, as 
authorized under this subchapter (excluding payments to beneficiaries), 
may be--
    (1) Suspended, in whole or in part, by HCFA, an intermediary, or a 
carrier if HCFA, the intermediary, or the carrier possesses reliable 
information that an overpayment or fraud or willful misrepresentation 
exists or that the payments to be made may not be correct, although 
additional evidence may be needed for a determination; or

[[Page 47]]

    (2) Offset or recouped, in whole or in part, by an intermediary or a 
carrier if the intermediary, carrier, or HCFA has determined that the 
provider or supplier to whom payments are to be made has been overpaid.
    (b) Steps necessary for suspension of payment, offset, and 
recoupment. Except as provided in paragraph (c) of this section, HCFA, 
the intermediary, or carrier suspends payments only after it has 
complied with the procedural requirements set forth at Sec. 405.372. The 
intermediary or carrier offsets or recoups payments only after it has 
complied with the procedural requirements set forth at Sec. 405.373.
    (c) Suspension of payment in the case of unfiled cost reports. If a 
provider has failed to timely file an acceptable cost report, payment to 
the provider is immediately suspended until a cost report is filed and 
determined by the intermediary to be acceptable. In the case of an 
unfiled cost report, the provisions of Sec. 405.372 do not apply. (See 
Sec. 405.372(a)(2) concerning failure to furnish other information.)

[61 FR 63746, Dec. 2, 1996]



Sec. 405.372   Proceeding for suspension of payment.

    (a) Notice of intention to suspend--(1) General rule. Except as 
provided in paragraphs (a)(2) through (a)(4) of this section, if the 
intermediary, carrier, or HCFA has determined that a suspension of 
payments under Sec. 405.371(a)(1) should be put into effect, the 
intermediary or carrier must notify the provider or supplier of the 
intention to suspend payments, in whole or in part, and the reasons for 
making the suspension.
    (2) Failure to furnish information. The notice requirement of 
paragraph (a)(1) of this section does not apply if the intermediary or 
carrier suspends payments to a provider or supplier in accordance with 
section 1815(a) or section 1833(e) of the Act, respectively, because the 
provider or supplier has failed to submit information requested by the 
intermediary or carrier that is needed to determine the amounts due the 
provider or supplier. (See Sec. 405.371(c) concerning failure to file 
timely acceptable cost reports.)
    (3) Harm to Trust Funds. A suspension of payment may be imposed 
without prior notice if HCFA, the intermediary, or carrier determines 
that the Medicare Trust Funds would be harmed by giving prior notice. 
HCFA may base its determination on an intermediary's or carrier's belief 
that giving prior notice would hinder the possibility of recovering the 
money.
    (4) Fraud or misrepresentation. If the intended suspension of 
payment involves suspected fraud or misrepresentation, HCFA determines 
whether to impose the suspension and if prior notice is appropriate. 
HCFA directs the intermediary or carrier as to the timing and content of 
the notification to the provider or supplier. HCFA is the real party in 
interest and is responsible for the decision. HCFA may base its decision 
on information from the intermediary, carrier, law enforcement agencies, 
or other sources. HCFA determines whether the information is reliable.
    (b) Rebuttal--(1) If prior notice is required. If prior notice is 
required under paragraph (a) of this section, the intermediary or 
carrier must give the provider or supplier an opportunity for rebuttal 
in accordance with Sec. 405.374. If a rebuttal statement is received 
within the specified time period, the suspension of payment goes into 
effect on the date stated in the notice, and the procedures and 
provisions set forth in Sec. 405.375 apply. If by the end of the period 
specified in the notice no statement has been received, the suspension 
goes into effect automatically, and the procedures set forth in 
paragraph (c) of this section are followed.
    (2) If prior notice is not required. If, under the provisions of 
paragraphs (a)(2) through (a)(4) of this section, a suspension of 
payment is put into effect without prior notice to the provider or 
supplier, the intermediary or carrier must, once the suspension is in 
effect, give the provider or supplier an opportunity to submit a 
rebuttal statement as to why the suspension should be removed.
    (c) Subsequent action. If a suspension of payment is put into 
effect, the intermediary, carrier, or HCFA takes timely action after the 
suspension to obtain the additional evidence it may need to

[[Page 48]]

make a determination as to whether an overpayment exists or the payments 
may be made. The intermediary, carrier, or HCFA makes all reasonable 
efforts to expedite the determination. As soon as the determination is 
made, the intermediary or carrier informs the provider or supplier and, 
if appropriate, the suspension is rescinded or any existing recoupment 
or offset is adjusted to take into account the determination.
    (d) Duration of suspension of payment--(1) General rule. Except as 
provided in paragraphs (d)(2) and (d)(3) of this section, a suspension 
of payment is limited to 180 days, starting with the date the suspension 
begins.
    (2) 180-day extension. (i) An intermediary, a carrier, or, in cases 
of fraud and misrepresentation, OIG or a law enforcement agency, may 
request a one-time only extension of the suspension period for up to 180 
additional days if it is unable to complete its examination of the 
information or investigation, as appropriate, within the 180-day time 
limit. The request must be submitted in writing to HCFA.
    (ii) Upon receipt of a request for an extension, HCFA notifies the 
provider or supplier of the requested extension. HCFA then either 
extends the suspension of payment for up to an additional 180 days or 
determines that the suspended payments are to be released to the 
provider or supplier.
    (3) Exceptions to the time limits. (i) The time limits specified in 
paragraphs (d)(1) and (d)(2) of this section do not apply if the case 
has been referred to, and is being considered by, the OIG for 
administrative action (for example, civil money penalties).
    (ii) HCFA may grant an extension in addition to the extension 
provided under paragraph (d)(2) of this section if the Department of 
Justice submits a written request to HCFA that the suspension of payment 
be continued based on the ongoing investigation and anticipated filing 
of criminal and/or civil actions. At a minimum, the request must include 
the following:
    (A) Identification of the entity under suspension.
    (B) The amount of time needed for continued suspension in order to 
implement the criminal and/or civil proceedings.
    (C) A statement of why and/or how criminal and/or civil actions may 
be affected if the requested extension is not granted.
    (e) Disposition of suspended payments. Payments suspended under the 
authority of Sec. 405.371(b) are first applied to reduce or eliminate 
any overpayments determined by the intermediary, carrier, or HCFA, 
including any interest assessed under the provisions of Sec. 405.378, 
and then applied to reduce any other obligation to HCFA or to HHS. In 
the absence of a legal requirement that the excess be paid to another 
entity, the excess is released to the provider or supplier.

[61 FR 63746, Dec. 2, 1996]



Sec. 405.373  Proceeding for offset or recoupment.

    (a) General rule. Except as specified in paragraph (b) of this 
section, if the intermediary, carrier, or HCFA has determined that an 
offset or recoupment of payments under Sec. 405.371(a)(2) should be put 
into effect, the intermediary or carrier must--
    (1) Notify the provider or supplier of its intention to offset or 
recoup payment, in whole or in part, and the reasons for making the 
offset or recoupment; and
    (2) Give the provider or supplier an opportunity for rebuttal in 
accordance with Sec. 405.374.
    (b) Paragraph (a) of this section does not apply if the 
intermediary, after furnishing a provider a written notice of the amount 
of program reimbursement in accordance with Sec. 405.1803, recoups 
payment under paragraph (c) of Sec. 405.1803. (For provider rights in 
this circumstance, see Secs. 405.1809, 405.1811, 405.1815, 405.1835, and 
405.1843.)
    (c) Actions following receipt of rebuttal statement. If a provider 
or supplier submits, in accordance with Sec. 405.374, a statement as to 
why an offset or recoupment should not be put into effect on the date 
specified in the notice, the intermediary or carrier must comply with 
the time limits and notification requirements of Sec. 405.375.
    (d) No rebuttal statement received. If, by the end of the time 
period specified in the notice, no statement has been

[[Page 49]]

received, the recoupment or offset goes into effect automatically.
    (e) Duration of recoupment or offset. If a recoupment or offset is 
put into effect, it remains in effect until the earliest of the 
following:
    (1) The overpayment and any assessed interest are liquidated.
    (2) The intermediary or carrier obtains a satisfactory agreement 
from the provider or supplier for liquidation of the overpayment.
    (3) The intermediary or carrier, on the basis of subsequently 
acquired evidence or otherwise, determines that there is no overpayment.

[61 FR 63747, Dec. 2, 1996]



Sec. 405.374  Opportunity for rebuttal.

    (a) General rule. If prior notice of the suspension of payment, 
offset, or recoupment is given under Sec. 405.372 or Sec. 405.373, the 
intermediary or carrier must give the provider or supplier an 
opportunity, before the suspension, offset, or recoupment takes effect, 
to submit any statement (to include any pertinent information) as to why 
it should not be put into effect on the date specified in the notice. 
Except as provided in paragraph (b) of this section, the provider or 
supplier has at least 15 days following the date of notification to 
submit the statement.
    (b) Exception. The intermediary or carrier may for cause--
    (1) Impose a shorter period for rebuttal; or
    (2) Extend the time within which the statement must be submitted.

[61 FR 63747, Dec. 2, 1996]



Sec. 405.375  Time limits for, and notification of, administrative determination after receipt of rebuttal statement.

    (a) Submission and disposition of evidence. If the provider or 
supplier submits a statement, under Sec. 405.374, as to why a suspension 
of payment, offset, or recoupment should not be put into effect, or, 
under Sec. 405.372(b)(2), why a suspension should be terminated, HCFA, 
the intermediary, or carrier must within 15 days, from the date the 
statement is received, consider the statement (including any pertinent 
evidence submitted), together with any other material bearing upon the 
case, and determine whether the facts justify the suspension, offset, or 
recoupment or, if already initiated, justify the termination of the 
suspension, offset, or recoupment. Suspension, offset, or recoupment is 
not delayed beyond the date stated in the notice in order to review the 
statement.
    (b) Notification of determination. The intermediary or carrier must 
send written notice of the determination made under paragraph (a) of 
this section to the provider or supplier. The notice must--
    (1) In the case of offset or recoupment, contain rationale for the 
determination; and
    (2) In the case of suspension of payment, contain specific findings 
on the conditions upon which the suspension is initiated, continued, or 
removed and an explanatory statement of the determination.
    (c) Determination is not appealable. A determination made under 
paragraph (a) of this section is not an initial determination and is not 
appealable.

[61 FR 63747, Dec. 2, 1996]



Sec. 405.376  Suspension and termination of collection action and compromise of claims for overpayment.

    (a) Basis and purpose. This section contains requirements and 
procedures for the compromise of, or suspension or termination of 
collection action on, claims for overpayments against a provider or a 
supplier under the Medicare program. It is adopted under the authority 
of the Federal Claims Collection Act (31 U.S.C. 3711). Collection and 
compromise of claims against Medicare beneficiaries are explained at 20 
CFR 404.515.
    (b) Definitions. As used in this section, debtor means a provider of 
services or a physician or other supplier of services that has been 
overpaid under title XVIII of the Social Security Act. It includes an 
individual, partnership, corporation, estate, trust, or other legal 
entity.
    (c) Basic conditions. A claim for recovery of Medicare overpayments 
against a debtor may be compromised, or collection action on it may be 
suspended or terminated, by the Health Care Financing Administration 
(HCFA) if;

[[Page 50]]

    (1) The claim does not exceed $100,000, or such higher amount as the 
Attorney General may from time to time prescribe, exclusive of interest; 
and
    (2) There is no indication of fraud, the filing of a false claim, or 
misrepresentation on the part of the debtor or any director, partner, 
manager, or other party having an interest in the claim.
    (d) Basis for compromise. A claim may be compromised for one or more 
of the following reasons:
    (1) The debtor, or the estate of a deceased debtor, does not have 
the present or prospective ability to pay the full amount within a 
reasonable time;
    (2) The debtor refuses to pay the claim in full and the United 
States is unable to collect the full amount within a reasonable time by 
legal proceedings;
    (3) There is real doubt the United States can prove its case in 
court; or
    (4) The cost of collecting the claim does not justify enforced 
collection of the full amount.
    (e) Basis for termination of collection action.  Collection action 
may be terminated for one or more of the following reasons:
    (1) The United States cannot enforce collection of any significant 
sum;
    (2) The debtor cannot be located, there is no security to be 
liquidated, the statute of limitations has run, and the prospects of 
collecting by offset are too remote to justify retention of the claim;
    (3) The cost of further collection action is likely to exceed any 
recovery;
    (4) It is determined the claim is without merit; or
    (5) Evidence to substantiate the claim is no longer available.
    (f) Basis for suspension of collection action. Collection action may 
be suspended for either of the following reasons if future collection 
action is justified based on potential productivity, including 
foreseeable ability to pay, and size of claim:
    (1) The debtor cannot be located; or
    (2) The debtor is unable to make payments on the claim or to fulfill 
an acceptable compromise.
    (g) Factors considered. In determining whether a claim will be 
compromised, or collection action terminated or suspended, HCFA will 
consider the following factors:
    (1) Age and health of the debtor, present and potential income, 
inheritance prospects, possible concealment or fraudulent transfer of 
assets, and the availability of assets which may be reached by enforced 
collection proceedings, for compromise under paragraph (d)(1) of this 
section, termination under paragraph (e)(1) of this section, and 
suspension under paragraph (f)(2) of this section;
    (2) Applicable exemptions available to a debtor and uncertainty 
concerning the price of the property in a forced sale, for compromise 
under paragraph (d)(2) of this section and termination under paragraph 
(e)(1) of this section; and
    (3) The probability of proving the claim in court, the probability 
of full or partial recovery, the availability of necessary evidence, and 
related pragmatic considerations, for compromise under paragraph (d)(3) 
of this section.
    (h) Amount of compromise. The amount accepted in compromise will be 
reasonable in relation to the amount that can be recovered by enforced 
collection proceedings.

Consideration shall be given to the following:
    (1) The exemptions available to the debtor under State or Federal 
law;
    (2) The time necessary to collect the overpayment;
    (3) The litigative probabilities involved; and
    (4) The administrative and litigative costs of collection where the 
cost of collecting the claim is a basis for compromise.
    (i) Payment of compromise--(1) Time and manner. Payment of the 
amount that HCFA has agreed to accept as a compromise in full settlement 
of a Medicare overpayment claim must be made within the time and in the 
manner prescribed by HCFA. An overpayment claim is not compromised or 
settled until the full payment of the compromised amount has been made 
within the time and in the manner prescribed by HCFA.
    (2) Failure to pay compromised amount. Failure of the debtor or the 
estate to

[[Page 51]]

make payment as provided by the comprise reinstates the full amount of 
the overpayment claim, less any amounts paid prior to the default.
    (j) Effect of compromise, or suspension, or termination of 
collection action. Any action taken by HCFA under this section regarding 
the compromise of an overpayment claim, or termination or suspension of 
collection action on an overpayment claim, is not an initial 
determination for purposes of the appeal procedures under subparts G, H, 
and R of this part.

[43 FR 59381, Dec. 20, 1978, as amended at 57 56998, Dec. 2, 1992. 
Redesignated and amended at 61 FR 63745, 63747, Dec. 2, 1996]



Sec. 405.377  Withholding Medicare payments to recover Medicaid overpayments.

    (a) Basis and purpose. This section implements section 1885 of the 
Act, which provides for withholding Medicare payments to certain 
Medicaid providers that have not arranged to repay Medicaid overpayments 
as determined by the Medicaid State agency or have failed to provide 
information necessary to determine the amount (if any) of overpayments.
    (b) When withholding may be used. HCFA may withhold Medicare payment 
to offset Medicaid overpayments that a Medicaid agency has been unable 
to collect if--
    (1) The Medicaid agency has followed the procedure specified in 
Sec. 447.31 of this chapter; and
    (2) The institution or person is one described in paragraph (c) of 
this section and either--
    (i) Has not made arrangements satisfactory to the Medicaid agency to 
repay the overpayment; or
    (ii) Has not provided information to the Medicaid agency necessary 
to enable the agency to determine the existence or amount of Medicaid 
overpayment.
    (c) Institutions or persons affected. Withholding under paragraph 
(b) of this section may be made with respect to any of the following 
entities that has or had in effect an agreement with a Medicaid agency 
to furnish services under an approved Medicaid State plan:
    (1) An institutional provider that has in effect an agreement under 
section 1866 of the Act. (Part 489 (Provider and Supplier Agreements) 
implements section 1866 of the Act.)
    (2) A physician or supplier that has accepted payment on the basis 
of an assignment under section 1842(b)(3)(B)(ii) of the Act. (Section 
424.55 sets forth the conditions a supplier agrees to in accepting 
assignment.)
    (d) Amount to be withheld. (1) HCFA contacts the appropriate 
intermediary or carrier to determine the amount of Medicare payment to 
which the institution or person is entitled.
    (2) HCFA may require the intermediary or carrier to withhold 
Medicare payments to the institution or person by the lesser of the 
following amounts:
    (i) The amount of the Medicare payments to which the institution or 
person would otherwise be entitled.
    (ii) The total Medicaid overpayment to the institution or person.
    (e) Notice of withholding. If HCFA intends to withhold payments 
under this section, it notifies by certified mail, return receipt 
requested, the institution or person and the appropriate intermediary or 
carrier of the intention to withhold Medicare payments and follows the 
procedure in Sec. 405.374. The notice includes--
    (1) Identification of the institution or person; and
    (2) The amount of Medicaid overpayment to be withheld from payments 
to which the institution or person would otherwise be entitled under 
Medicare.
    (f) Termination of withholding. HCFA terminates the withholding if--
    (1) The Medicaid overpayment is completely recovered;
    (2) The institution or person enters into an agreement satisfactory 
to the Medicaid agency to repay the overpayment; or
    (3) The Medicaid agency determines that there is no overpayment 
based on newly acquired evidence or a subsequent audit.
    (g) Disposition of funds withheld. HCFA releases amounts withheld 
under this section to the Medicaid agency to be applied against the 
Medicaid overpayment made by the State agency.

[61 FR 63747, Dec. 2, 1996]

[[Page 52]]



Sec. 405.378  Interest charges on overpayment and underpayments to providers, suppliers, and other entities.

    (a) Basis and purpose. This section, which implements sections 
1815(d) and 1833(j) of the common law and Act, and authority granted 
under the Federal Claims Collection Act, provides for the charging and 
payment of interest on overpayments and underpayments to Medicare 
providers, suppliers, HMOs, competitive medical plans (CMPs), and health 
care prepayment plans (HCPPs).
    (b) Basic rules. (1) HCFA will charge interest on overpayments, and 
pay interest on underpayments, to providers and suppliers of services 
(including physicians and other practitioners), except as specified in 
paragraphs (f) and (h) of this section.
    (2) Interest will accrue from the date of the final determination as 
defined in paragraph (c) of this section, and will either be charged on 
the overpayment balance or paid on the underpayment balance for each 30-
day period that payment is delayed. (Periods of less than 30 days will 
be treated as a full 30-day period, and the 30-day interest charge will 
be applied to any balance.)
    (c) Definition of final determination. (1) For purposes of this 
section, any of the following constitutes a final determination:
    (i) A Notice of Amount of Program Reimbursement (NPR) is issued, as 
discussed in Secs. 405.1803, 417.576, and 417.810, and either--
    (A) A written demand for payment is made; or
    (B) A written determination of an underpayment is made by the 
intermediary after a cost report is filed.
    (ii) In cases in which an NPR is not used as a notice of 
determination (that is, primarily under part B), one of the following 
determinations is issued--
    (A) A written determination that an overpayment exists and a written 
demand for payment;
    (B) A written determination of an underpayment; or
    (C) An Administrative Law Judge (ALJ) decision that reduces the 
amount of an overpayment below the amount that HCFA has already 
collected.
    (iii) Other examples of cases in which an NPR is not used are 
carrier reasonable charge determinations under subpart E of this part, 
interim cost settlements made for HMOs, CMPs, and HCPPs under 
Secs. 417.574 and 417.810(e) of this chapter, and initial retroactive 
adjustment determinations under Sec. 413.64(f)(2) of this chapter. In 
the case of interim cost settlements and initial retroactive adjustment 
determinations, if the debtor does not dispute the adjustment 
determination within the timeframe designated in the notice of the 
determination (generally at least 15 days), a final determination is 
deemed to have been made. If the provider or supplier does dispute 
portions of the determination, a final determination is deemed to have 
been made on those portions when the intermediary issues a new 
determination in response to the dispute.
    (iv) The due date of a timely-filed cost report that indicates an 
amount is due HCFA, and is not accompanied by payment in full. (If an 
additional overpayment or underpayment is determined by the carrier or 
intermediary, a final determination on the additional amount is made in 
accordance with paragraphs (c)(1)(i), (c)(1)(ii), or (c)(1)(iii), of 
this section.)
    (v) With respect to a cost report that is not filed on time, the day 
following the date the cost report was due (plus a single extension of 
time not to exceed 30 days if granted for good cause), until the time as 
a cost report is filed. (When the cost report is subsequently filed, 
there is an additional determination as specified in paragraphs (c)(1) 
(i), (ii), (iii), or (iv) of this section.)
    (2) Except as required by any subsequent administrative or judicial 
reversal, interest accrues from the date of final determination as 
specified in this subsection.
    (d) Rate of interest. (1) The interest rate on overpayments and 
underpayments is the higher of--
    (i) The rate as fixed by the Secretary of the Treasury after taking 
into consideration private consumer rates of interest prevailing on the 
date of final determination as defined in paragraph (c) of this section 
(this rate is published quarterly in the Federal Register by the 
Department under 45 CFR 30.13(a)); or

[[Page 53]]

    (ii) The current value of funds rate (this rate is published 
annually in the Federal Register by the Secretary of the Treasury, 
subject to quarterly revisions).
    (2) [Reserved]
    (e) Accrual of interest. (1) If a cost report is filed that does not 
indicate an amount is due HCFA but the intermediary makes a final 
determination that an overpayment exists, or if a carrier makes a final 
determination that an overpayment to a physician or supplier exists, 
interest will accrue beginning with the date of such final 
determination. Interest will continue to accrue during periods of 
administrative and judicial appeal and until final disposition of the 
claim.
    (2)(i) If a cost report is filed and indicates that an amount is due 
HCFA, interest on the amount due will accrue from the due date of the 
cost report unless--
    (A) Full payment on the amount due accompanies the cost report; or
    (B) The provider and the intermediary agree in advance to liquidate 
the overpayment through a reduction in interim payments over the next 
30-day period.
    (ii) If the intermediary determines an additional overpayment during 
the cost settlement process, interest will accrue from the date of each 
determination.
    (iii) The interest rate on each of the final determinations of an 
overpayment will be the rate of interest in effect on the date the 
determination is made.
    (3) In the case of a cost report that is not filed on time, interest 
also will accrue on a determined overpayment from the day following the 
due date of the report (plus a single extension of time not to exceed 30 
days if granted for good cause, as specified in Sec. 413.24(f)) of this 
chapter, to the time the cost report is filed.
    (4) If an intermediary or a carrier makes a final determination that 
an underpayment exists, interest to the provider or the supplier will 
accrue from the date of notification of the underpayment.
    (f) Waiver of interest charges. (1) When an intermediary or a 
carrier makes a final determination that an overpayment or underpayment 
exists, as specified in paragraphs (e)(1), (e)(2)(ii), and (e)(4)--
    (i) Interest charges will be waived if the overpayment or 
underpayment is completely liquidated within 30 days from the date of 
the final determination.
    (ii) HCFA may waive interest charges if it determines that the 
administrative cost of collecting them exceeds the interest charges.
    (2) Interest will not be waived for that period of time during which 
the cost report was due but remained unfiled for more than 30 days, as 
specified in paragraph (e)(3) of this section.
    (g) Rules applicable to partial payments. If an overpayment is 
repaid in installments or recouped by withholding from several payments 
due the provider or supplier of services--
    (1) Each payment or recoupment will be applied first to accrued 
interest and then to the principal; and
    (2) After each payment or recoupment, interest will accrue on the 
remaining unpaid balance.
    (h) Exceptions to applicability. (1) The provisions of this section 
do not apply to the time period for which interest is payable under 
Sec. 413.64(j) of this chapter because the provider seeks judicial 
review of a decision of the Provider Reimbursement Review Board, or a 
subsequent reversal, affirmance, or modification of that decision by the 
Administrator. Prior to that time, until the provider seeks judicial 
review, interest accrues at the rate specified in this section on 
outstanding unpaid balances resulting from final determinations as 
defined in paragraph (c) of this section.
    (2) If an overpayment or an underpayment determination is reversed 
administratively or judicially, and the reversal is no longer subject to 
appeal, appropriate adjustments will be made with respect to the 
overpayment or underpayment and the amount of interest charged.
    (i) Nonallowable cost. As specified in Secs. 412.113 and 413.153 of 
this chapter, interest accrued on overpayments and interest on funds 
borrowed specifically to repay overpayments are not considered allowable 
costs, up to the amount of the overpayment, unless the provider

[[Page 54]]

had made a prior commitment to borrow funds for other purposes (for 
example, capital improvements).

(See Sec. 413.153(a)(2) of this chapter for exceptions based on 
administrative or judicial reversal.)

[47 FR 54814, Dec. 6, 1982, as amended at 49 FR 36102, Sept. 14, 1984; 
49 FR 44472, Nov. 7, 1984; 51 FR 34792, Sept. 30, 1986; 56 FR 31336, 
July 10, 1991. Redesignated at 61 FR 63745, Dec. 2, 1996]

                   Repayment of Scholarships and Loans



Sec. 405.380  Collection of past-due amounts on scholarship and loan programs.

    (a) Basis and purpose. This section implements section 1892 of the 
Act, which authorizes the Secretary to deduct from Medicare payments for 
services amounts considered as past-due obligations under the National 
Health Service Corps Scholarship program, the Physician Shortage Area 
Scholarship program, and the Health Education Assistance Loan program.
    (b) Offsetting against Medicare payment. (1) Medicare carriers and 
intermediaries offset against Medicare payments in accordance with the 
signed repayment agreement between the Public Health Service and 
individuals who have breached their scholarship or loan obligations and 
who--
    (i) Accept Medicare assignment for services;
    (ii) Are employed by or affiliated with a provider, HMO, or 
Competitive Medical Plan (CMP) that receives Medicare payment for 
services; or
    (iii) Are members of a group practice that receives Medicare payment 
for services.
    (2) For purposes of this section, ``provider'' includes all entities 
eligible to receive Medicare payment in accordance with an agreement 
under section 1866 of the Act.
    (c) Beginning of offset. (1) The Medicare carrier offsets Medicare 
payments beginning six months after it notifies the individual or the 
group practice of the amount to be deducted and the particular 
individual to whom the deductions are attributable.
    (2) The Medicare intermediary offsets payments beginning six months 
after it notifies the provider, HMO, CMP or group practice of the amount 
to be deducted and the particular individuals to whom the deductions are 
attributable. Offset of payments is made in accordance with the terms of 
the repayment agreement. If the individual ceases to be employed by the 
provider, HMO, or CMP, or leaves the group practice, no deduction is 
made.
    (d) Refusal to offset against Medicare payment. If the individual 
refuses to enter into a repayment agreement, or breaches any provision 
of the agreement, or if Medicare payment is insufficient to maintain the 
offset collection according to the agreed upon formula, then--
    (1) The Department, within 30 days if feasible, informs the Attorney 
General; and
    (2) The Department excludes the individual from Medicare until the 
entire past due obligation has been repaid, unless the individual is a 
sole community practitioner or the sole source of essential specialized 
services in a community and the State requests that the individual not 
be excluded.

[57 FR 19092, May 4, 1992]



                          Subpart D--[Reserved]



         Subpart E--Criteria for Determining Reasonable Charges

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 32 FR 12599, Aug. 31, 1967, unless otherwise noted. 
Redesignated at 42 FR 52826, Sept. 30, 1977.



Sec. 405.500  Basis.

    Subpart E is based on the provisions of the following sections of 
the Act: Section 1814(b) provides for Part A payment on the basis of the 
lesser of a provider's reasonable costs or customary charges. Section 
1832 establishes the scope of benefits provided under the Part B 
supplementary medical insurance program. Section 1833(a) sets forth the 
amounts of payment for supplementary medical insurance services on the 
basis of the lesser of a provider's reasonable costs or customary 
charges. Section 1834(a) specifies how payments are made for the 
purchase or rental of

[[Page 55]]

new and used durable medical equipment for Medicare beneficiaries. 
Section 1834(b) provides for payment for radiologist services on a fee 
schedule basis. Section 1834(c) provides for payments and standards for 
screening mammography. Section 1842(b) sets forth the provisions for a 
carrier to enter into a contract with the Secretary and to make 
determinations with respect to Part B claims. Section 1842(h) sets forth 
the requirements for a physician or supplier to voluntarily enter into 
an agreement with the Secretary to become a participating physician or 
supplier. Section 1842(i) sets forth the provisions for the payment of 
Part B claims. Section 1848 establishes a fee schedule for payment of 
physician services. Section 1861(b) sets forth the inpatient hospital 
services covered by the Medicare program. Section 1861(s) sets forth 
medical and other health services covered by the Medicare program. 
Section 1861(v) sets forth the general authority under which HCFA may 
establish limits on provider costs recognized as reasonable in 
determining Medicare program payments. Section 1861(aa) sets forth the 
rural health clinic services and Federally qualified health center 
services covered by the Medicare program. Section 1861(jj) defines the 
term ``covered osteoporosis drug.'' Section 1862(a)(14) lists services 
that are excluded from coverage. Section 1866(a) specifies the terms for 
provider agreements. Section 1881 authorizes special rules for the 
coverage of and payment for services furnished to patients with end-
stage renal disease. Section 1886 sets forth the requirements for 
payment to hospitals for inpatient hospital services. Section 1887 sets 
forth requirements for payment of provider-based physicians and payment 
under certain percentage arrangements. Section 1889 provides for 
Medicare and Medigap information by telephone.

[60 FR 63175, Dec. 8, 1995]



Sec. 405.501  Determination of reasonable charges.

    (a) Except as specified in paragraphs (b), (c), and (d) of this 
section, Medicare pays no more for Part B medical and other health 
services than the ``reasonable charge'' for such service. The reasonable 
charge is determined by the carriers (subject to any deductible and 
coinsurance amounts as specified in Secs. 410.152 and 410.160 of this 
chapter).
    (b) Part B of Medicare pays on the basis of ``reasonable cost'' (see 
part 413 of this chapter) for certain institutional services, certain 
services furnished under arrangements with institutions, and services 
furnished by entities that elect to be paid on a cost basis (including 
health maintenance organizations, rural health clinics, Federally 
qualified health centers and end-stage renal disease facilities).
    (c) Carriers will determine the reasonable charge on the basis of 
the criteria specified in Sec. 405.502, and the customary and prevailing 
charge screens in effect when the service was furnished. (Also see 
Secs. 415.55 through 415.70 and Secs. 415.100 through 415.130 of this 
chapter, which pertain to the determination of reimbursement for 
services performed by hospital-based physicians.) However, when services 
are furnished more than 12 months before the beginning of the fee screen 
year (January 1 through December 30) in which a request for payment is 
made, payment is based on the customary and prevailing charge screens in 
effect for the fee screen year that ends immediately preceding the fee 
screen year in which the claim or request for payment is made.
    (d) Payment under Medicare Part B for durable medical equipment and 
prosthetic and orthotic devices is determined in accordance with the 
provisions of subpart D of part 414 of this chapter.

[47 FR 63274, Dec. 31, 1981, as amended at 51 FR 34978, Oct. 1, 1986; 51 
FR 37911, Oct. 27, 1986; 54 FR 9003, Mar. 2, 1989; 57 FR 24975, June 12, 
1992; 57 FR 33896, July 31, 1992; 57 FR 57688, Dec. 7, 1992; 60 FR 
63176, Dec. 8, 1995]



Sec. 405.502  Criteria for determining reasonable charges.

    (a) Criteria. The law allows for flexibility in the determination of 
reasonable charges to accommodate reimbursement to the various ways in 
which health services are furnished and charged for. The criteria for 
determining what charges are reasonable include:

[[Page 56]]

    (1) The customary charges for similar services generally made by the 
physician or other person furnishing such services.
    (2) The prevailing charges in the locality for similar services.
    (3) In the case of physicians' services, the prevailing charges 
adjusted to reflect economic changes as provided under Sec. 405.504 of 
this subpart.
    (4) In the case of medical services, supplies, and equipment that 
are reimbursed on a reasonable charge basis (excluding physicians' 
services), the inflation-indexed charge as determined under 
Sec. 405.509.
    (5) [Reserved]
    (6) In the case of medical services, supplies, and equipment 
(including equipment servicing) that the Secretary judges do not 
generally vary significantly in quality from one supplier to another, 
the lowest charge levels at which such services, supplies, and equipment 
are widely and consistently available in a locality.
    (7) Other factors that may be found necessary and appropriate with 
respect to a category of service to use in judging whether the charge is 
inherently reasonable. This includes special reasonable charge limits 
(which may be either upper or lower limits) established by HCFA or a 
carrier if it determines that the standard rules for calculating 
reasonable charges set forth in this subpart result in the grossly 
deficient or excessive charges. The determination of these limits is 
described in paragraphs (g) and (h) of this section.
    (8) In the case of laboratory services billed by a physician but 
performed by an outside laboratory, the payment levels established in 
accordance with the criteria stated in Sec. 405.515.
    (9) Except as provided in paragraph (a)(10) of this section, in the 
case of services of assistants-at-surgery as defined in Sec. 405.580 in 
teaching and non-teaching settings, charges that are not more than 16 
percent of the prevailing charge in the locality, adjusted by the 
economic index, for the surgical procedure performed by the primary 
surgeon. Payment is prohibited for the services of an assistant-at-
surgery in surgical procedures for which HCFA has determined that 
assistants-at-surgery on average are used in less than 5 percent of such 
procedures nationally.
    (10) In the case of services of assistants at surgery that meet the 
exception under Sec. 415.190(c)(2) or (c)(3) of this chapter because the 
physician is performing a unique, necessary, specialized medical service 
in the total care of a patient during surgery, reasonable charges 
consistent with prevailing practice in the carrier's service area rather 
than the special assistant at surgery rate.
    (b) Comparable services limitation. The law also specifies that the 
reasonable charge cannot be higher than the charge applicable for a 
comparable service under comparable circumstances to the carriers' own 
policyholders and subscribers.
    (c) Application of criteria. In applying these criteria, the 
carriers are to exercise judgment based on factual data on the charges 
made by physicians to patients generally and by other persons to the 
public in general and on special factors that may exist in individual 
cases so that determinations of reasonable charge are realistic and 
equitable.
    (d) Responsibility of Administration and carriers. Determinations by 
carriers of reasonable charge are not reviewed on a case-by-case basis 
by the Health Care Financing Administration, although the general 
procedures and performance of functions by carriers are evaluated. In 
making determinations, carriers apply the provisions of the law under 
broad principles issued by the Health Care Financing Administration. 
These principles are intended to assure overall consistency among 
carriers in their determinations of reasonable charge. The principles in 
Secs. 405.503 through 405.507 establish the criteria for making such 
determinations in accordance with the statutory provisions.
    (e) Determination of reasonable charges under the End-Stage Renal 
Disease (ESRD) Program--(1) General. Reasonable charges for renal-
related items and services (furnished in connection with transplantation 
or dialysis) must be related to costs and allowances that are reasonable 
when the treatments are furnished in an effective and economical manner.
    (2) Nonprovider (independent) dialysis facilities. Reasonable 
charges for renal-

[[Page 57]]

related items and services furnished before August 1, 1983 must be 
determined related to costs and charges prior to July, 1973, in 
accordance with the regulations at Sec. 405.541. Items and services 
related to outpatient maintenance dialysis that are furnished after that 
date are paid for in accordance with Secs. 405.544 and 413.170 of this 
chapter.
    (3) Provider services and (hospital-based) dialysis facilities. 
Renal-related items and services furnished by providers, or by ESRD 
facilities based in hospitals, before August 1, 1983 are paid for under 
the provider reimbursement provisions found generally in part 413 of 
this chapter. Items and services related to outpatient maintenance 
dialysis that are furnished after that date are paid for in accordance 
with Secs. 405.544 and 413.170 of this chapter.
    (4) Physicians' services. Reasonable charges for renal-related 
physicians' services must be determined considering charges made for 
other services involving comparable physicians' time and skill 
requirements, in accordance with regulations at Secs. 405.542 and 
405.543.
    (5) Health maintenance organizations (HMOs). For special rules 
concerning the reimbursement of ESRD services furnished by risk-basis 
HMOs, or by facilities owned or operated by or related to such HMOs by 
common ownership or control, see Secs. 405.2042(b)(14) and 405.2050(c).
    (f) Determining payments for certain physician services furnished in 
outpatient hospital settings--(1) General rule. If physician services of 
the type routinely furnished in physicians' offices are furnished in 
outpatient hospital settings before January 1, 1992, carriers determine 
the reasonable charge for those services by applying the limits 
described in paragraph (f)(5) of this section.
    (2) Definition. As used in this paragraph (f), outpatient settings 
means--
    (i) Hospital outpatient departments, including clinics and emergency 
rooms; and
    (ii) Comprehensive outpatient rehabilitation facilities.
    (3) Services covered by limits. The carrier establishes a list of 
services routinely furnished in physicians' offices in the area. The 
carrier has the discretion to determine which professional services are 
routinely furnished in physicians' offices, based on current medical 
practice in the area. Listed below are some examples of routine services 
furnished by office-based physicians.

                                Examples

    Review of recent history, determination of blood pressure, 
ausculation of heart and lungs, and adjustment of medication.
    Brief history and examination, and initiation of diagnostic and 
treatment programs.
    Treatment of an acute respiratory infection.

    (4) Services excluded from limits. The limits established under this 
paragraph do not apply to the following:
    (i) Rural health clinic services.
    (ii) Surgical services included on the ambulatory surgical center 
list of procedures published under Sec. 416.65(c) of this chapter.
    (iii) Services furnished in a hospital emergency room after the 
sudden onset of a medical condition manifesting itself by acute symptoms 
of sufficient severity (including severe pain) such that the absence of 
immediate medical attention could reasonably be expected to result in--
    (A) Placing the patient's health in serious jeopardy;
    (B) Serious impairment to bodily functions; or
    (C) Serious dysfunction of any bodily organ or part.
    (iv) Anesthesiology services and diagnostic and therapeutic 
radiology services.
    (v) Federally qualified health center services paid under the rules 
in part 405 subpart X.
    (5) Methodology for developing limits--(i) Development of a charge 
base. The carrier establishes a charge base for each service identified 
as a routine office-based physician service. The charge base consists of 
the prevailing charge in the locality for each such service adjusted by 
the economic index. The carrier uses the prevailing charges that apply 
to services by nonspecialists in office practices in the locality in 
which the outpatient setting is located.
    (ii) Calculation of the outpatient limits. The carrier calculates 
the charge limit

[[Page 58]]

for each service by multiplying the charge base amount for each service 
by .60.
    (6) Application of limits. The reasonable charge for physician 
services of the type described in paragraph (f)(3) of this section that 
are furnished in an outpatient setting is the lowest of the actual 
charges, the customary charges in accordance with Sec. 405.503, the 
prevailing charges applicable to these services in accordance with 
Sec. 405.504, or the charge limits calculated in paragraph (f)(5)(ii) of 
this section.
    (g) Determination of payment amounts in special circumstances--(1) 
General. (i) For purposes of this paragraph, a ``category of items or 
services'' may consist of a single item or service or any number of 
items or services.
    (ii) HCFA or a carrier may determine that the standard rules for 
calculating Part B payment amounts for a category of items or services 
identified in section 1861(s) of the Act (other than physician services 
paid under section 1848 of the Act) will result in grossly deficient or 
excessive amounts.
    (iii) If HCFA or the carrier determines that the standard rules for 
calculating payment amounts for a category of items or services set 
forth in this subpart will result in grossly deficient or excessive 
amounts, HCFA or the carrier may establish special payment limits that 
are realistic and equitable for a category of items or services.
    (iv) The limit on the payment amount is either an upper limit to 
correct a grossly excessive payment amount or a lower limit to correct a 
grossly deficient payment amount.
    (v) The limit is either a specific dollar amount or is based on a 
special method to be used in determining the payment amount.
    (vi) Except as provided in paragraph (h) of this section, a payment 
limit for a given year may not vary by more than 15 percent from the 
payment amount established for the preceding year.
    (vii) Examples of excessive or deficient payment amounts. Examples 
of the factors that may result in grossly deficient or excessive payment 
amounts include, but are not limited to, the following:
    (A) The marketplace is not competitive. This includes circumstances 
in which the marketplace for a category of items or services is not 
truly competitive because a limited number of suppliers furnish the item 
or service.
    (B) Medicare and Medicaid are the sole or primary sources of payment 
for a category of items or services.
    (C) The payment amounts for a category of items or services do not 
reflect changing technology, increased facility with that technology, or 
changes in acquisition, production, or supplier costs.
    (D) The payment amounts for a category of items or services in a 
particular locality are grossly higher or lower than payment amounts in 
other comparable localities for the category of items or services, 
taking into account the relative costs of furnishing the category of 
items or services in the different localities.
    (E) Payment amounts for a category of items or services are grossly 
higher or lower than acquisition or production costs for the category of 
items or services.
    (F) There have been increases in payment amounts for a category of 
items or services that cannot be explained by inflation or technology.
    (G) The payment amounts for a category of items or services are 
grossly higher or lower than the payments made for the same category of 
items or services by other purchasers in the same locality.
    (2) Establishing a limit. In establishing a payment limit for a 
category of items or services, HCFA or a carrier considers the available 
information that is relevant to the category of items or services and 
establishes a payment amount that is realistic and equitable. The 
factors HCFA or a carrier consider in establishing a specific dollar 
amount or special payment method for a category of items or services may 
include, but are not limited to, the following:
    (i) Price markup. This is the relationship between the retail and 
wholesale prices or manufacturer's costs of a category of items or 
services. If information on a particular category of items or services 
is not available, HCFA or a carrier may consider the markup on a similar 
category of items or services

[[Page 59]]

and information on general industry pricing trends.
    (ii) Differences in charges. HCFA or a carrier may consider the 
differences in charges for a category of items or services made to non-
Medicare and Medicare patients or to institutions and other large volume 
purchasers.
    (iii) Costs. HCFA or a carrier may consider resources (for example, 
overhead, time, acquisition costs, production costs, and complexity) 
required to produce a category of items or services.
    (iv) Utilization. HCFA or a carrier may impute a reasonable rate of 
use for a category of items or services and consider unit costs based on 
efficient utilization.
    (v) Payment amounts in other localities. HCFA or a carrier may 
consider payment amounts for a category of items or services furnished 
in another locality.
    (3) Notification of limits--(i) National limits. HCFA publishes in 
the Federal Register proposed and final notices announcing a special 
payment limit described in this paragraph (g) before it adopts the 
limit. The notices set forth the criteria and circumstances, if any, 
under which a carrier may grant an exception to a payment limit for a 
category of items or services.
    (ii) Carrier-level limits. A carrier proposing to establish a 
special payment limit for a category of items or services must inform 
the affected suppliers and State Medicaid agencies of the factors it 
considered in determining and in establishing the limit, as described in 
paragraphs (g)(1) through (g)(3) of this section, and solicit comments. 
The carrier must evaluate the comments it receives and inform the 
affected suppliers, State Medicaid agencies, and HCFA of any final 
limits it establishes. HCFA acknowledges in writing to the carrier that 
it received the carrier's notification. After the carrier has received 
HCFA's acknowledgement, the limit may be effective for services 
furnished at least 30 days after the date of the carrier's notification.
    (h) Special payment limit adjustments greater than 15 percent of the 
payment amount. In addition to applying the general rules under 
paragraphs (g)(1) through (g)(3) of this section, HCFA applies the 
following rules in determining and establishing a payment adjustment 
greater than 15 percent of the payment amount for a category of items or 
services within a year:
    (1) Potential impact of special limit. HCFA considers the potential 
impact on quality, access, beneficiary liability, assignment rates, and 
participation of suppliers.
    (2) Supplier consultation. Before making a determination that a 
payment amount for a category of items or services is not inherently 
reasonable by reason of its grossly excessive or deficient amount, HCFA 
consults with representatives of the suppliers likely to be affected by 
the change in the payment amount.
    (3) Publication of national limits. If HCFA determines under this 
paragraph (h) to establish a special payment limit for a category of 
items or services, it publishes in the Federal Register proposed and 
final notices of a special payment limit before it adopts the limit. The 
notice sets forth the criteria and circumstances, if any, under which a 
carrier may grant an exception to the limit for the category of items or 
services.
    (i) Proposed notice. The proposed notice--
    (A) Explains the factors and data that HCFA considered in 
determining that the payment amount for a category of items or services 
is grossly excessive or deficient;
    (B) Specifies the proposed payment amount or methodology to be 
established with respect to a category of items or services;
    (C) Explains the factors and data that HCFA considered in 
determining the payment amount or methodology, including the economic 
justification for a uniform fee or payment limit if it is proposed;
    (D) Explains the potential impacts of a limit on a category of items 
or services as described in paragraph (h)(1) of this section; and
    (E) Allows no less than 60 days for public comment on the proposed 
payment limit for the category of items or services.
    (ii) Final notice. The final notice--
    (A) Explains the factors and data that HCFA considered, including 
the

[[Page 60]]

economic justification for any uniform fee or payment limit established; 
and
    (B) Responds to the public comments.

(Secs. 1102, 1814(b), 1833(a), 1842(b), and (h), and 1871, 1903(i)(1) of 
the Social Security Act; 49 Stat. 647, as amended, 79 Stat. 296, 302, 
310, 331; 86 Stat. 1395, 1454; 42 U.S.C. 1302, 1395u(b), 1395hh, 
1396b(i)(1).

[32 FR 12599, Aug. 31, 1967]

    Editorial Note: For Federal Register citations affecting 
Sec. 405.502, see the List of CFR Sections Affected in the Finding Aids 
section of this volume.



Sec. 405.503  Determining customary charges.

    (a) Customary charge defined. The term ``customary charges'' will 
refer to the uniform amount which the individual physician or other 
person charges in the majority of cases for a specific medical procedure 
or service. In determining such uniform amount, token charges for 
charity patients and substandard charges for welfare and other low 
income patients are to be excluded. The reasonable charge cannot, except 
as provided in Sec. 405.506, be higher than the individual physician's 
or other person's customary charge. The customary charge for different 
physicians or other persons may, of course, vary. Payment for covered 
services would be based on the actual charge for the service when, in a 
given instance, that charge is less than the amount which the carrier 
would otherwise have found to be within the limits of acceptable charges 
for the particular service. Moreover, the income of the individual 
beneficiary is not to be taken into account by the carrier in 
determining the amount which is considered to be a reasonable charge for 
a service rendered to him. There is no provision in the law for a 
carrier to evaluate the reasonableness of charges in light of an 
individual beneficiary's economic status.
    (b) Variation of charges. If the individual physician or other 
person varies his charges for a specific medical procedure or service, 
so that no one amount is charged in the majority of cases, it will be 
necessary for the carrier to exercise judgment in the establishment of a 
``customary charge'' for such physician or other person. In making this 
judgment, an important guide, to be utilized when a sufficient volume of 
data on the physician's or other person's charges is available, would be 
the median or midpoint of his charges, excluding token and substandard 
charges as well as exceptional charges on the high side. A significant 
clustering of charges in the vicinity of the median amount might 
indicate that a point of such clustering should be taken as the 
physician's or other person's ``customary'' charge. Use of relative 
value scales will help in arriving at a decision in such instances.
    (c) Use of relative value scales. If, for a particular medical 
procedure or service, the carrier is unable to determine the customary 
charge on the basis of reliable statistical data (for example, because 
the carrier does not yet have sufficient data or because the performance 
of the particular medical procedure or service by the physician or other 
person is infrequent), the carrier may use appropriate relative value 
scales to determine the customary charge for such procedure or service 
in relation to customary charges of the same physician or person for 
other medical procedures and services.
    (d) Revision of customary charge. A physician's or other person's 
customary charge is not necessarily a static amount. Where a physician 
or other person alters his charges, a revised pattern of charges for his 
services may develop. Where on the basis of adequate evidence, the 
carrier finds that the physician or other person furnishing services has 
changed his charge for a service to the public in general, the customary 
charge resulting from the revised charge for the service should be 
recognized as the customary charge in making determinations of 
reasonable charges for such service when rendered thereafter to 
supplementary insurance beneficiaries. If the new customary charge is 
not above the top of the range of prevailing charges (see 
Sec. 405.504(a)), it should be deemed to be reasonable by the carrier, 
subject to the provisions of Sec. 405.508.



Sec. 405.504  Determining prevailing charges.

    (a) Ranges of charges. (1) In the case of physicians' services 
furnished beginning January 1, 1987, the prevailing

[[Page 61]]

charges for a nonparticipating physician as defined in this paragraph 
will be no higher than the same level that was set for services 
furnished during the previous calendar year for a physician who was a 
participating physician during that year. A nonparticipating physician 
is a physician who has not entered into an agreement with the Medicare 
program to accept payment on an assignment-related basis (in accordance 
with Sec. 424.55 of this chapter) for all items and services furnished 
to individuals enrolled under Part B of Medicare during a given calendar 
year.
    (2) No charge for Part B medical or other health services may be 
considered to be reasonable if it exceeds the higher of:
    (i) The prevailing charge for similar services in the same locality 
in effect on December 31, 1970, provided such prevailing charge had been 
found acceptable by HCFA; or
    (ii) The prevailing charge that, on the basis of statistical data 
and methodology acceptable to HCFA, would cover:
    (A) 75 percent of the customary charges made for similar services in 
the same locality during the 12-month period of July 1 through June 30 
preceding the fee screen year (January 1 through December 31) in which 
the service was furnished; or
    (B) In the case of services furnished more than 12 months before the 
beginning of the fee screen year (January 1 through December 31) in 
which the claim or request for payment is submitted, 75 percent of the 
customary charges made for similar services in the same locality during 
the 12 month period of July 1 through June 30 preceding the fee screen 
year that ends immediately preceding the fee screen year in which the 
claim or request for payment is submitted.
    (3)(i) In the case of physicians' services, furnished before January 
1, 1992, each prevailing charge in each locality may not exceed the 
prevailing charge determined for the FY ending June 30, 1973 (without 
reference to the adjustments made in accordance with the economic 
stabilization program then in effect), except on the basis of 
appropriate economic index data that demonstrate the higher prevailing 
charge level is justified by:
    (A) Changes in general earnings levels of workers that are 
attributable to factors other than increases in their productivity; and
    (B) changes in expenses of the kind incurred by physicians in office 
practice. The office-expense component and the earnings component of 
such index shall be given the relative weights shown in data on self-
employed physicians' gross incomes.

    Example. The available data indicate the office-expense and earnings 
components of the index should be given relative weights of 40 percent 
and 60 percent, respectively, and it is calculated that the aggregate 
increase in expenses of practice for a particular July through June 
period was 112 percent over the expenses of practice for calendar year 
1971 and the increase in earnings (less increases in workers' 
productivity was 110 percent over the earnings for calendar year 1971. 
The allowable increase in any prevailing charge that could be recognized 
during the next fee screen year would be 110.8 percent 
((.40 x 112)+(.60) x 110)=110.8) above the prevailing charge recognized 
for fiscal year 1973.

    (ii)(A) If the increase in the prevailing charge in a locality for a 
particular physician service resulting from an aggregate increase in 
customary charges for that service does not exceed the index determined 
under paragraph (a)(3)(i) of this section, the increase is permitted and 
any portion of the allowable increase not used is carried forward and is 
a basis for justifying increases in that prevailing charge in the 
future. However, if the increase in the prevailing charge exceeds the 
allowable increase, the increase will be reduced to the allowable 
amount. Further increases will be justified only to the degree that they 
do not exceed further rises in the economic index. The prevailing charge 
for physicians' services furnished during the 15-month period beginning 
July 1, 1984 may not exceed the prevailing charge for physicians' 
services in effect for the 12-month period beginning July 1, 1983. The 
increase in prevailing charges for physicians' services for subsequent 
fee screen years similarly may not reflect the rise in the economic 
index that would have otherwise been provided for the period beginning 
July 1, 1984, and

[[Page 62]]

must be treated as having fully provided for the rise in the economic 
index which would have been otherwise taken into account.
    (B) Notwithstanding the provisions of paragraphs (a)(3)(i) and 
(ii)(A) of this section, the prevailing charge in the case of a 
physician service in a particular locality determined pursuant to 
paragraphs (a)(2) and (3)(i) of this section for the fiscal year 
beginning July 1, 1975, and for any subsequent fee screen years, if 
lower than the prevailing charge for the fiscal year ending June 30, 
1975, by reason of the application of economic index data, must be 
raised to such prevailing charge which was in effect for the fiscal year 
ending June 30, 1975. (If the amount paid on any claim processed by a 
carrier after the original reasonable charge update for the fiscal year 
beginning July 1, 1975, and prior to the adjustments required by the 
preceding sentence, was at least $1 less than the amount due pursuant to 
the preceding sentence, the difference between the amount previously 
paid and the amount due shall be paid within 6 months after December 31, 
1975; however, no payment shall be made on any claim where the 
difference between the amount previously and the amount due shall be 
paid within 6 months after December 31, 1975; however, no payment shall 
be made on any claim where the difference between the amount previously 
paid and the amount due is less than $1.)
    (iii) If, for any reason, a prevailing charge for a service in a 
locality has no precise counterpart in the carrier's charge data for 
calendar year 1971 (the data on which the prevailing charge calculations 
for fiscal year 1973 were based), the limit on the prevailing charge 
will be estimated, on the basis of data and methodology acceptable to 
HCFA, to seek to produce the effect intended by the economic index 
criterion. The allowance or reduction of an increase in a prevailing 
charge for any individual medical item or service may affect the 
allowance or reduction of an increase in the prevailing charges for 
other items or services if, for example, the limit on the prevailing 
charge is estimated, or if the prevailing charges for more than one item 
or service are established through the use of a relative value schedule 
and dollar conversion factors.
    (b) Variation in range of prevailing charges. The range of 
prevailing charges in a locality may be different for physicians or 
other persons who engage in a specialty practice or service than for 
others. Existing differentials in the level of charges between different 
kinds of practice or service could, in some localities, lead to the 
development of more than one range of prevailing charges for application 
by the carrier in its determinations of reasonable charges. Carrier 
decisions in this respect should be responsive to the existing patterns 
of charges by physicians and other persons who render covered services, 
and should establish differentials in the levels of charges between 
different kinds of practice or service only where in accord with such 
patterns.
    (c) Re-evaluation and adjustment of prevailing charges. 
Determinations of prevailing charges by the carrier are to be re-
evaluated and adjusted from time to time on the basis of factual 
information about the charges made by physicians and other persons to 
the public in general. This information should be obtained from all 
possible sources including a carrier's experience with its own programs 
as well as with the supplementary medical insurance program.
    (d) Computation and issuance of the MEI after CY 1992--(1) For 
update years after CY 1992, the MEI is a physician input price index, in 
which the annual percent changes for the direct-labor price components 
are adjusted by an annual percent change in a 10-year moving average 
index of labor productivity in the nonfarm business sector.
    (2) The MEI is constructed, using as a base year, CY 1989 weights 
and annual percent changes in the economic price proxies as shown on the 
following chart:

[[Page 63]]



   Medicare Economic Index Expenditure Categories, Weights, and Price
                                 Proxies
------------------------------------------------------------------------
                                   1989 weights
        Expense category             \1\,\2\          Price proxy \3\
                                    (percent)
------------------------------------------------------------------------
    Total......................            100.0
1. Physician's Own Time (net                54.2
 income, general earnings).
    a. Wages and Salaries......             45.3  Average hourly
                                                   earnings, total
                                                   private non-farm.\4\
    b. Fringe Benefits.........              8.8  Employment Cost Index,
                                                   fringe benefits,
                                                   private non-farm.\4\
2. Physician Practice Expense..             45.8
    a. Non-physician Employee               16.3
     Compensation.
        (1) Wages and Salaries.             13.8  Employment Cost Index,
                                                   wages and salaries
                                                   weighted for
                                                   occupational mix of
                                                   non-physician
                                                   employees.\4\
        (2) Fringe Benefits....              2.5  Employment Cost Index,
                                                   fringe benefits,
                                                   white collar.\4\
    b. Office Expense..........             10.3  CPI-U, housing.
    c. Medical Materials and                 5.2  PPI, ethical drugs;
     Supplies.                                     PPI, surgical
                                                   appliances and
                                                   supplies; and CPI-U
                                                   medical equipment and
                                                   supplies (equally
                                                   weighted).
    d. Professional Liability                4.8  HCFA survey of change
     Insurance.                                    in average liability
                                                   premiums for $100,000/
                                                   $300,000 liability
                                                   coverage among 9
                                                   major insurers.
    e. Medical Equipment.......              2.3  PPI, medical
                                                   instruments and
                                                   equipment.
    f. Other Professional                    6.9
     Expense.
        (1) Professional Car...              1.4  CPI-U, private
                                                   transportation.
        (2) Other..............              5.5  CPI-U, all items less
                                                   food and energy.
------------------------------------------------------------------------
\1\ Sources: Martin L. Gonzalez, ed.: Physician Marketplace Statistics,
  Fall, 1990. Center for Health Policy Research, Chicago, American
  Medical Association, 1990; Mark Holoweiko, ``Practice Expenses Take
  the Leap of the Decade,'' Medical Economics, November 12, 1990; and
  HCFA, OACT special study.
\2\ Due to rounding, weights may not sum to 100.0%
\3\ All price proxies are for annual percent changes for the 12 months
  ending June 30th.
\4\ Annual percent change values for Physicians' Own Time and Non-
  physician Employee Compensation are net of the change in the 10-year
  moving average of output per man-hour to exclude changes in non-farm
  business sector labor productivity.

    (3) If there is no methodological change, HCFA publishes a notice in 
the Federal Register to announce the annual increase in the MEI before 
the beginning of the update year to which it applies. If there are 
changes in the base year weights or price proxies, or if there are any 
other MEI methodological changes, they are published in the Federal 
Register with an opportunity for public comment.

[32 FR 12600, Aug. 31, 1967, as amended at 40 FR 25447, June 16, 1975; 
42 FR 18275, Apr. 6, 1977. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 43 FR 4430, Feb. 2, 1978; 47 FR 63274, Dec. 31, 1982; 51 
FR 34978, Oct. 1, 1986; 53 FR 6648, Mar. 2, 1988; 57 FR 55912, Nov. 25, 
1992]



Sec. 405.505  Determination of locality.

    ``Locality'' is the geographical area for which the carrier is to 
derive the reasonable charges or fee schedule amounts for services or 
items. Usually, a locality may be a State (including the District of 
Columbia, a territory, or a Commonwealth), a political or economic 
subdivision of a State, or a group of States. It should include a cross 
section of the population with respect to economic and other 
characteristics. Where people tend to gravitate toward certain 
population centers to obtain medical care or service, localities may be 
recognized on a basis constituting medical services areas (interstate or 
otherwise), comparable in concept to ``trade areas.'' Localities may 
differ in population density, economic level, and other major factors 
affecting charges for services. Carriers therefore shall delineate 
localities on the basis of their knowledge of local conditions. However, 
distinctions between localities are not to be so finely made that a 
locality includes only a very limited geographic area whose population 
has distinctly similar income characteristics (e.g., a very rich or very 
poor neighborhood within a city).

[57 FR 27305, June 18, 1992]



Sec. 405.506  Charges higher than customary or prevailing charges or lowest charge levels.

    A charge which exceeds the customary charge of the physician or 
other person who rendered the medical

[[Page 64]]

or other health service, or the prevailing charge in the locality, or an 
applicable lowest charge level may be found to be reasonable, but only 
where there are unusual circumstances, or medical complications 
requiring additional time, effort or expense which support an additional 
charge, and only if it is acceptable medical or medical service practice 
in the locality to make an extra charge in such cases. The mere fact 
that the physician's or other person's customary charge is higher than 
prevailing would not justify a determination that it is reasonable.

(Secs. 1102, 1842(b) and 1871, 1903(i)(1) of the Social Security Act; 49 
Stat. 647, 79 Stat. 302, 310, 331; 86 Stat. 1395, 1454; (42 U.S.C. 1302, 
1395u(b), 1395hh, 1396b(i)(1)))

[43 FR 32300, July 26, 1978]



Sec. 405.507  Illustrations of the application of the criteria for determining reasonable charges.

    The following examples illustrate how the general criteria on 
customary charges and prevailing charges might be applied in determining 
reasonable charges under the supplementary medical insurance program. 
Basically, these examples demonstrate that, except where the actual 
charge is less, reasonable charges will reflect current customary 
charges of the particular physician or other person within the ranges of 
the current prevailing charges in the locality for that type and level 
of service:

    The prevailing charge for a specific medical procedure ranges from 
$80 to $100 in a certain locality.
    Doctor A's bill is for $75 although he customarily charges $80 for 
the procedure.
    Doctor B's bill is his customary charge of $85
    Doctor C's bill is his customary charge of $125
    Doctor D's bill is for $100, although he customarily charges $80, 
and there are no special circumstances in the case.
    The reasonable charge for Doctor A would be limited to $75 since 
under the law the reasonable charge cannot exceed the actual charge, 
even if it is lower than his customary charge and below the prevailing 
charges for the locality.
    The reasonable charge for Doctor B would be $85, because it is his 
customary charge and it falls within the range of prevailing charges for 
that locality.
    The reasonable charge for Doctor C could not be more than $100, the 
top of the range of prevailing charges.
    The reasonable charge for Doctor D would be $80, because that is his 
customary charge. Even though his actual charge of $100 falls within the 
range of prevailing charges, the reasonable charge cannot exceed his 
customary charge in the absence of special circumstances.



Sec. 405.508  Determination of comparable circumstances; limitation.

    (a) Application of limitation. The carrier may not in any case make 
a determination of reasonable charge which would be higher than the 
charge upon which it would base payment to its own policyholders for a 
comparable service in comparable circumstances. The charge upon which it 
would base payment, however, does not necessarily mean the amount the 
carrier would be obligated to pay. Under certain circumstances, some 
carriers pay amounts on behalf of individuals who are their 
policyholders, which are below the customary charges of physicians or 
other persons to other individuals. Payment under the supplementary 
medical insurance program would not be limited to these lower amounts.
    (b) When comparability exists. ``Comparable circumstances,'' as used 
in the Act and this subpart, refers to the circumstances under which 
services are rendered to individuals and the nature of the carrier's 
health insurance programs and the method it uses to determine the 
amounts of payments under these programs. Generally, comparability would 
exist where:
    (1) The carrier bases payment under its program on the customary 
charges, as presently constituted, of physicians or other persons and on 
current prevailing charges in a locality, and
    (2) The determination does not preclude recognition of factors such 
as speciality status and unusual circumstances which affect the amount 
charged for a service.
    (c) Responsibility for determining comparability. Responsibility for 
determining whether or not a carrier's program has comparability will in 
the first instance fall upon the carrier in reporting pertinent 
information about its programs to the Health Care Financing

[[Page 65]]

Administration. When the pertinent information has been reported, the 
Health Care Financing Administration will advise the carrier whether any 
of its programs have comparability.



Sec. 405.509  Determining the inflation-indexed charge.

    (a) Definition. For purposes of this section, inflation-indexed 
charge means the lowest of the fee screens used to determine reasonable 
charges (as determined in Sec. 405.503 for the customary charge, 
Sec. 405.504 for the prevailing charge, this section for the inflation-
indexed charge, and Sec. 405.511 for the lowest charge level) for 
services, supplies, and equipment reimbursed on a reasonable charge 
basis (excluding physicians' services), that is in effect on December 31 
of the previous fee screen year, updated by the inflation adjustment 
factor, as described in paragraph (b) of this section.
    (b) Application of inflation adjustment factor to determine 
inflation-indexed charge. (1) For fee screen years beginning on or after 
January 1, 1987, the inflation-indexed charge is determined by updating 
the fee screen used to determine the reasonable charges in effect on 
December 31 of the previous fee screen year by application of an 
inflation adjustment factor, that is, the annual change in the level of 
the consumer price index for all urban consumers, as compiled by the 
Bureau of Labor Statistics, for the 12-month period ending on June 30 of 
each year.
    (2) For services, supplies, and equipment furnished from October 1, 
1985 through December 31, 1986 the inflation adjustment factor is zero.
    (c) The inflation-indexed charge does not apply to any services, 
supplies, or equipment furnished after December 31, 1991, that are 
covered under or limited by the fee schedule for physicians' services 
established under section 1848 of the Act and part 415 of this chapter. 
These services are subject to the Medicare Economic Index described in 
Sec. 415.30 of this chapter.

[51 FR 34979, Oct. 1, 1986; 51 FR 37911, Oct. 27, 1986, as amended at 56 
FR 59621, Nov. 25, 1991]



Sec. 405.511  Reasonable charges for medical services, supplies, and equipment.

    (a) General rule. (1) A charge for any medical service, supply, or 
equipment (including equipment servicing) that in the judgment of HCFA 
generally does not vary significantly in quality from one supplier to 
another (and that is identified by a notice published in the Federal 
Register) may not be considered reasonable if it exceeds:
    (i) The customary charge of the supplier (see Sec. 405.503);
    (ii) The prevailing charge in the locality (see Sec. 405.504);
    (iii) The charge applicable for a comparable service and under 
comparable circumstances to the policyholders or subscribers of the 
carrier (see Sec. 405.508);
    (iv) The lowest charge level at which the item or service is widely 
and consistently available in the locality (see paragraph (c) of this 
section); or
    (v) The inflation-indexed charge, as determined under Sec. 405.509, 
in the case of medical services, supplies, and equipment that are 
reimbursed on a reasonable charge basis (excluding physicians' 
services).
    (2) In the case of laboratory services, paragraph (a)(1) of this 
section is applicable to services furnished by physicians in their 
offices, by independent laboratories (see Sec. 405.1310(a)) and to 
services furnished by a hospital laboratory for individuals who are 
neither inpatients nor outpatients of a hospital. Allowance of 
additional charges exceeding the lowest charge level can be approved by 
the carrier on the basis of unusual circumstances or medical 
complications in accordance with Sec. 405.506.
    (b) Public notice of items and services subject to the lowest charge 
level rule. Before the Secretary determines that lowest charge levels 
should be established for an item or service, notice of the proposed 
determination will be published with an opportunity for public comment. 
The descriptions or specifications of items or services in the notice 
will be in sufficient detail to permit a determination that items or 
services conforming to the descriptions will not vary significantly in 
quality.
    (c) Calculating the lowest charge level. The lowest charge level at 
which an

[[Page 66]]

item or service is widely and consistently available in a locality is 
calculated by the carrier in accordance with instructions from HCFA as 
follows:
    (1) For items or services furnished on or before December 31, 1986.
    (i) A lowest charge level is calculated for each identified item or 
service in January and July of each year.
    (ii) The lowest charge level for each identified item or service is 
set at the 25th percentile of the charges (incurred or submitted on 
claims processed by the carrier) for that item or service, in the 
locality designated by the carrier for this purpose, during the second 
calendar quarter preceding the determination date. Accordingly, the 
January calculations will be based on charges for the July through 
September quarter of the previous calendar year, and the July 
calculations will be based on charges for the January through March 
quarter of the same calendar year.
    (2) For items or services furnished on or after January 1, 1987.
    (i) A lowest charge level is calculated for each identified item or 
service in January of each year.
    (ii) The lowest charge level for each identified item or service is 
set at the 25th percentile of the charges (incurred or submitted on 
claims processed by the carrier) for that item or service, in the 
locality designated by the carrier for this purpose, during the 3-month 
period of July 1 through September 30 preceding the fee screen year 
(January 1 through December 31) for which the item or service was 
furnished.
    (3) Lowest charge levels for laboratory services. In setting lowest 
charge levels for laboratory services, the carrier will consider only 
charges made for laboratory services performed by physicians in their 
offices, by independent laboratories which meet coverage requirements, 
and for services furnished by a hospital laboratory for individuals who 
are neither inpatients nor outpatients of a hospital.
    (d) Locality. Subject to the approval of the Secretary, the carrier 
may designate its entire service area as the locality for purposes of 
this section, or may otherwise modify the localities used for 
calculating prevailing charges. (The modified locality for an item or 
service will also be used for calculating the prevailing charge for that 
item or service.)

(Secs. 1102, 1842(b) and 1871, 1903(i)(1) of the Social Security Act; 49 
Stat. 647, 79 Stat. 302, 310, 331, 86 Stat. 1395, 1454 (42 U.S.C. 1302, 
1395u(b), 1395hh, 1396b(i)(1)))

[43 FR 32300, July 26, 1978, as amended at 50 FR 40174, Oct. 1, 1985; 51 
FR 34979, Oct. 1, 1986]



Sec. 405.512  Carriers' procedural terminology and coding systems.

    (a) General. Procedural terminology and coding systems are designed 
to provide physicians and third party payers with a common language that 
accurately describes the kinds and levels of services provided and that 
can serve as a basis for coverage and payment determinations.
    (b) Modification of terminology and/or coding systems. A carrier 
that wishes to modify its system of procedural terminology and coding 
shall submit its request to the Health Care Financing Administration 
with all pertinent data and information for approval before the revision 
is implemented. The Health Care Financing Administration will evaluate 
the proposal in the light of the guidelines specified in paragraph (c) 
of this section and such other considerations as may be pertinent, and 
consult with the Assistant Secretary for Health. The Health Care 
Financing Administration will approve such a revision if it determines 
that the potential advantages of the proposed new system, outweigh the 
disadvantages.
    (c) Guidelines. The following considerations and guidelines are 
taken into account in evaluating a carrier's proposal to change its 
system of procedural terminology and coding:
    (1) The rationale for converting to the new terminology and coding;
    (2) The estimated short-run and long-run impact on the cost of the 
health insurance program, other medical care costs, administrative 
expenses, and the reliability of the estimates;
    (3) The degree to which the conversion to the proposed new 
terminology and coding can be accomplished in a way that permits full 
implementation of the reasonable charge criteria in accordance with the 
provisions of this subpart;

[[Page 67]]

    (4) The degree to which the proposed new terminology and coding are 
accepted by physicians in the carrier's area (physician acceptance is 
assumed only if a majority of the Medicare and non-Medicare bills and 
claims completed by physicians in the area and submitted to the carrier 
can reasonably be expected to utilize the proposed new terminology and 
coding);
    (5) The extent to which the proposed new terminology and coding 
system is used by the carrier in its non-Medicare business;
    (6) The clarity with which the proposed system defines its 
terminology and whether the system lends itself to:
    (i) Accurate determinations of coverage;
    (ii) Proper assessment of the appropriate level of payment; and
    (iii) Meeting the carrier's or Professional Standards Review 
Organizations' review needs and such other review needs as may be 
appropriate;
    (7) Compatibility of the new terminology and coding system with 
other systems that the carrier and other carriers may utilize in the 
administration of the Medicare program--e.g., its compatibility with 
systems and statistical requirements and with the historical data in the 
carrier's processing system; and
    (8) Compatibility of the proposed system with the carriers methods 
for determining payment under the fee schedule for physicians' services 
for services which are identified by a single element of terminology but 
which may vary in content.

[40 FR 7639, Feb. 21, 1975. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 59 FR 10298, Mar. 4, 1994]



Sec. 405.515  Reimbursement for clinical laboratory services billed by physicians.

    This section implements section 1842(h) of the Social Security Act, 
which places a limitation on reimbursement for markups on clinical 
laboratory services billed by physicians. If a physician's bill, or a 
request for payment for a physician's services, includes a charge for a 
laboratory test for which payment may be made under this part, the 
amount payable with respect to the test shall be determined as follows 
(subject to the coinsurance and deductible provisions at Secs. 410.152 
and 410.160 of this chapter):
    (a) If the bill or request for payment indicates that the test was 
personally performed or supervised either by the physician who submitted 
the bill (or for whose services the request for payment was made), or by 
another physician with whom that physician shares his or her practice, 
the payment will be based on the physician's reasonable charge for the 
test (as determined in accordance with Sec. 405.502).
    (b) If the bill or request for payment indicates that the test was 
performed by an outside laboratory, and identifies both the laboratory 
and the amount the laboratory charged, payment for the test will be 
based on the lower of--
    (1) The laboratory's reasonable charge for the service (as 
determined in accordance with Sec. 405.502), or
    (2) The amount that the laboratory charged the physician for the 
service.
    (c) If the bill or request for payment does not indicate that the 
conditions specified in paragraph (a) of this section were met, and does 
not identify both the laboratory and the amount the laboratory charged, 
payment will be based on the lowest charge at which the carrier 
estimates the test could have been secured from a laboratory serving the 
physician's locality. The carrier will estimate this lowest amount twice 
a year by (i) obtaining lists of charges laboratories make to physicians 
from as many commercial laboratories serving the carrier's area as 
possible (including laboratories in other States from which tests may be 
obtained by physicians in the carrier's service area) and (ii) 
establishing a schedule of lowest prices based on this information. The 
carrier will take into consideration specific circumstances, such as a 
need for emergency services that may be costlier than routine services, 
in making the estimate in a particular case. However, in no case may 
this estimate be higher than the lowest customary charge for commercial 
laboratories, or when applicable to the laboratory service, the lowest 
charge level determined in accordance with Sec. 405.511, in the 
carrier's service area.
    (d) When a physician bills, in accordance with paragraph (b) or (c) 
of this

[[Page 68]]

section, for a laboratory test and indicates that it was performed by an 
independent laboratory, a nominal payment will also be made to the 
physician for collecting, handling, and shipping the specimen to the 
laboratory, if the physician bills for such a service.

[46 FR 42672, Aug. 24, 1981, as amended at 51 FR 41351, Nov. 14, 1986]



Sec. 405.517  Payment for drugs that are not paid on a cost or prospective payment basis.

    (a) Applicability. Payment for a drug that is not paid on a cost or 
prospective payment basis is determined by the standard methodology 
described in paragraph (b) of this section. Examples of when this 
procedure applies includes a drug furnished incident to a physician's 
service and a drug furnished by an independent dialysis facility that is 
not included in the ESRD composite rate set forth in Sec. 413.170(c) of 
this chapter.
    (b) Methodology. Payment for a drug described in paragraph (a) of 
this section is based on the lower of the estimated acquisition cost or 
the national average wholesale price of the drug. The estimated 
acquisition cost is determined based on surveys of the actual invoice 
prices paid for the drug. In calculating the estimated acquisition cost 
of a drug, the carrier may consider factors such as inventory, waste, 
and spoilage.
    (c) Multiple-Source drugs. For multiple-source drugs, payment is 
based on the lower of the estimated acquisition cost described in 
paragraph (b) of this section or the wholesale price that, for this 
purpose, is defined as the median price for all sources of the generic 
form of the drug.

[56 FR 59621, Nov. 25, 1991]



Sec. 405.534  Limitation on payment for screening mammography services.

    (a) Basis and scope. This section implements section 1834(c) of the 
Act by establishing a limit on payment for screening mammography 
examinations. There are three categories of billing for screening 
mammography services. Those categories and the payment limitations on 
each are set forth in paragraphs (b) through (d) of this section.
    (b) Global or complete service billing representing both the 
professional and technical components of the procedure. If a fee is 
billed for a global service, the amount of payment subject to the 
deductible is equal to 80 percent of the least of the following:
    (1) The actual charge for the service.
    (2) The amount established for the global procedure for a diagnostic 
bilateral mammogram under the fee schedule for physicians' services set 
forth at part 414, subpart A.
    (3) The payment limit for the procedure. For screening mammography 
services furnished in CY 1994, the payment limit is $59.63. On January 1 
of each subsequent year, the payment limit is updated by the percentage 
increase in the Medicare Economic Index (MEI) and reflects the 
relationship between the relative value units for the professional and 
technical components of a diagnostic bilateral mammogram under the fee 
schedule for physicians' services.
    (c) Professional component billing representing only the physician's 
interpretation for the procedure. If the professional component of 
screening mammography services is billed separately, the amount of 
payment for that professional component, subject to the deductible, is 
equal to 80 percent of the least of the following:
    (1) The actual charge for the professional component of the service.
    (2) The amount established for the professional component of a 
diagnostic bilateral mammogram under the fee schedule for physicians' 
services.
    (3) The professional component of the payment limit for screening 
mammography services described in paragraph (b)(3) of this section.
    (d) Technical component billing representing other resources 
involved in furnishing the procedure. If the technical component of 
screening mammography services is billed separately, the amount of 
payment, subject to the deductible, is equal to 80 percent of the least 
of the following:
    (1) The actual charge for the technical component of the service.
    (2) The amount established for the technical component of a 
diagnostic bilateral mammogram under the fee schedule for physicians' 
services.

[[Page 69]]

    (3) The technical component of the payment limit for screening 
mammography services described in paragraph (b)(3) of this section.

[55 FR 53521, Dec. 31, 1990, as amended at 59 FR 49833, Sept. 30, 1994]



Sec. 405.535  Special rules for nonparticipating physicians and suppliers furnishing screening mammography services.

    If screening mammography services are furnished to a beneficiary by 
a nonparticipating physician or supplier that does not accept 
assignment, a limiting charge applies to the charges billed to the 
beneficiary. The limiting charge is the lesser of the following:
    (a) 115 percent of the payment limit set forth in 
Sec. 405.534(b)(3), (c)(3), and (d)(3) (limitations on the global 
service, professional component, and technical component of screening 
mammography services, respectively).
    (b) The limiting charge for the global service, professional 
component, and technical component of a diagnostic bilateral mammogram 
under the fee schedule for physicians' services set forth at 
Sec. 414.48(b) of this chapter.

[59 FR 49833, Sept. 30, 1994, as amended at 62 FR 59098, Oct. 31, 1997]



                          Subpart F--[Reserved]



      Subpart G--Reconsiderations and Appeals Under Medicare Part A

    Authority: Secs. 1102, 1155, 1869(b), 1871, 1872, and 1879 of the 
Social Security Act (42 U.S.C. 1302, 1320c-4, 1395ff(b), 1395hh, 1395ii, 
and 1395pp).

    Source: 37 FR 5814, Mar. 22, 1972, unless otherwise noted. 
Redesignated at 42 FR 52826, Sept. 30, 1977.



Sec. 405.701  Basis, purpose and definitions.

    (a) This subpart implements section 1869 of the Social Security Act. 
Section 1869(a) provides that the Secretary will make determinations 
about the following matters, and section 1869(b) provides for a hearing 
for an individual who is dissatisfied with the Secretary's determination 
as to:
    (1) Whether the individual is entitled to hospital insurance (part 
A) or supplementary medical insurance (part B) under title XVIII of the 
Act; or
    (2) The amount payable under hospital insurance.
    (b) This subpart establishes the procedures governing initial 
determinations, reconsidered determinations, hearings, and final agency 
review, and the reopening of determinations and decisions that are 
applicable to matters arising under paragraph (a) of this section.
    (c) Subparts J and R of 20 CFR part 404 (dealing with 
determinations, the administrative review process and representation of 
parties) are also applicable to matters arising under paragraph (a) of 
this section, except to the extent that specific provisions are 
contained in this subpart.
    (d) Definitions. As used in subpart G of this part, the term--
    Appellant designates the beneficiary, provider or other person or 
entity that has filed an appeal concerning a particular determination of 
benefits under Medicare part A. Designation as an appellant does not in 
itself convey standing to appeal the determination in question.
    Common issues of law and fact, with respect to the aggregation of 
claims by two or more appellants to meet the minimum amount in 
controversy needed for a hearing, occurs when the claims sought to be 
aggregated are denied or reduced for similar reasons and arise from a 
similar fact pattern material to the reason the claims are denied.
    Delivery of similar or related services, with respect to the 
aggregation of claims by two or more provider appellants to meet the 
minimum amount in controversy needed for a hearing, means like or 
coordinated services or items provided to the same beneficiary by the 
appellants.

[55 FR 11020, Mar. 26, 1990, as amended at 59 FR 12181, Mar. 16, 1994]



Sec. 405.702  Notice of initial determination.

    After a request for payment under part A of title XVIII of the Act 
is filed with the intermediary by or on behalf of the individual who 
received inpatient hospital services, extended care services, or home 
health services, and

[[Page 70]]

the intermediary has ascertained whether the items and services 
furnished are covered under part A of title XVIII, and where 
appropriate, ascertained and made payment of amounts due or has 
ascertained that no payments were due, the individual will be notified 
in writing of the initial determination in his case. In addition, if the 
items or services furnished such individual are not covered under part A 
of title XVIII by reason of Sec. 411.15(g) or Sec. 411.15(k) and payment 
may not be made for such items or services under Sec. 411.400 only 
because the requirements of Sec. 411.400(a)(2) are not met, the provider 
of services which furnished such items or services will be notified in 
writing of the initial determination in such individual's case. These 
notices shall be mailed to the individual and the provider of services 
at their last known addresses and shall state in detail the basis for 
the determination. Such written notices shall also inform the individual 
and the provider of services of their right to reconsideration of the 
determination if they are dissatisfied with the determination.

[55 FR 11020, Mar. 26, 1990]



Sec. 405.704  Actions which are initial determinations.

    (a) Applications and entitlement of individuals. An initial 
determination with respect to an individual includes the following--
    (1) A determination with respect to entitlement to hospital 
insurance or supplementary medical insurance;
    (2) A disallowance of an individual's application for entitlement to 
hospital or supplementary medical insurance, if the individual fails to 
submit evidence requested by SSA to support the application. (SSA will 
specify in the initial determination the conditions of entitlement that 
the applicant failed to establish by not submitting the requested 
evidence);
    (3) A denial of a request for withdrawal of an application for 
hospital or supplementary medical insurance;
    (4) A denial of a request for cancellation of a ``request for 
withdrawal''; and
    (5) A determination as to whether an individual, previously 
determined to be entitled to hospital or supplementary medical 
insurance, is no longer entitled to such benefits, including a 
determination based on nonpayment of premiums.
    (b) Requests for payment by or on behalf of individuals. An initial 
determination with respect to an individual includes any determination 
made on the basis of a request for payment by or on behalf of the 
individual under part A of Medicare, including a determination with 
respect to:
    (1) The coverage of items and services furnished;
    (2) The amount of an applicable deductible;
    (3) The application of the coinsurance feature;
    (4) The number of days of inpatient hospital benefits utilized 
during a spell of illness or for purposes of the inpatient psychiatric 
hospital 190-day lifetime maximum;
    (5) The number of days of the 60-day lifetime reserve utilized for 
inpatient hospital coverage;
    (6) The number of days of posthospital extended care benefits 
utilized;
    (7) The number of home health visits utilized;
    (8) The physician certification requirement;
    (9) The request for payment requirement;
    (10) The beginning and ending of a spell of illness, including a 
determination made under the presumptions established under 
Sec. 409.60(c)(2) of this chapter, as specified in Sec. 409.60(c)(4) of 
this chapter.
    (11) The medical necessity of services (See parts 466 and 473 of 
this chapter for provisions pertaining to initial and reconsidered 
determinations made by a PRO);
    (12) When services are excluded from coverage as custodial care 
(Sec. 411.15(g)) or as not reasonable and necessary (Sec. 411.15(k)), 
whether the individual or the provider of services who furnished the 
services, or both, knew or could reasonably have been expected to know 
that the services were excluded from coverage (see Sec. 411.402);
    (13) Any other issues having a present or potential effect on the 
amount of benefits to be paid under part A of Medicare, including a 
determination as to whether there has been

[[Page 71]]

an overpayment or underpayment of benefits paid under part A, and if so, 
the amount thereof; and
    (14) Whether a waiver of adjustment or recovery under sections 1870 
(b) and (c) of the Act is appropriate when an overpayment of hospital 
insurance benefits or supplementary medical insurance benefits 
(including a payment under section 1814(e) of the Act) has been made 
with respect to an individual.
    (c) Initial determination with respect to a provider of services. An 
initial determination with respect to a provider of services shall be a 
determination made on the basis of a request for payment filed by the 
provider under part A of Medicare on behalf of an individual who was 
furnished items or services by the provider, but only if the 
determination involves the following:
    (1) A finding by the intermediary that such items or services are 
not covered by reason of Sec. 411.15(g) or Sec. 411.15(k); and
    (2) A finding by the intermediary that either such individual or 
such provider of services, or both, knew or could reasonably have been 
expected to know that such items or services were excluded from coverage 
under the program.

[55 FR 11020, Mar. 26, 1990]



Sec. 405.705  Actions which are not initial determinations.

    An initial determination under Part A of Medicare does not include 
determinations relating to:
    (a) The reasonable cost of items or services furnished under Part A 
of Medicare;
    (b) Whether an institution or agency meets the conditions for 
participation in the program;
    (c) Whether an individual is qualified for use of the expedited 
appeals process as provided in Sec. 405.718;
    (d) An action regarding compromise of a claim arising under the 
Medicare program, or termination or suspension of collection action on 
such a claim under the Federal Claims Collection Act of 1966 (31 U.S.C. 
3711). See 20 CFR 404.515 for overpayment claims against an individual, 
Sec. 405.376 for overpayment claims against a provider, physician or 
other supplier, and Sec. 408.110 for claims concerning unpaid Medicare 
premiums;
    (e) The transfer or discharge of residents of skilled nursing 
facilities in accordance with Sec. 483.12 of this chapter; or
    (f) The preadmission screening and annual resident review processes 
required by part 483 subparts C and E of this chapter.

[45 FR 73932, Nov. 7, 1980; 46 FR 24565, May 1, 1981, as amended at 52 
FR 22454, June 12, 1987; 52 FR 48123, Dec. 18, 1987; 57 FR 56504, Nov. 
30, 1992; 61 FR 63749, Dec. 2, 1996]



Sec. 405.706  Decisions of utilization review committees.

    (a) General rule. A decision of a utilization review committee is a 
medical determination by a staff committee of the provider or a group 
similarly composed and does not constitute a determination by the 
Secretary within the meaning of section 1869 of the Act. The decision of 
a utilization review committee may be considered by HCFA along with 
other pertinent medical evidence in determining whether or not an 
individual has the right to have payment made under Part A of title 
XVIII.
    (b) Applicability under the prospective payment system. HCFA may 
consider utilization review committee decisions related to inpatient 
hospital services paid for under the prospective payment system (see 
part 412 of this chapter) only as those decisions concern:
    (1) The appropriateness of admissions resulting in payments under 
subparts D, E and G of part 412 of this chapter.
    (2) The covered days of care involved in determinations of outlier 
payments under Sec. 412.80(a)(1)(i) of this chapter; and
    (3) The necessity of professional services furnished in high cost 
outliers under Sec. 412.80(a)(1)(ii) of this chapter.

[48 FR 39831, Sept. 1, 1983]



Sec. 405.708  Effect of initial determination.

    (a) The initial determination under Sec. 405.704 (a) or (b) shall be 
binding upon the individual on whose behalf payment under part A has 
been requested or, if such individual is deceased, upon the 
representative of such individual's estate, unless it is reconsidered in 
accordance with Secs. 405.710 through 405.717

[[Page 72]]

or revised in accordance with Sec. 405.750. Such individual (or the 
representative of such individual's estate if the individual is 
deceased) shall be the party to such initial determination.
    (b) The initial determination under Sec. 405.704(c) shall be binding 
upon the provider of services unless it is reconsidered in accordance 
with Secs. 405.710 through 405.717 or revised in accordance with 
Sec. 405.750. Such provider of services shall be the party to such 
initial determination.

[55 FR 11021, Mar. 26, 1990, as amended at 62 FR 25855, May 12, 1997]



Sec. 405.710  Right to reconsideration.

    (a) An individual who is a party to an initial determination, as 
specified in Sec. 405.704 (a) and (b), (or if such individual is 
deceased, the representative of such individual's estate) and who is 
dissatisfied with the initial determination may request a 
reconsideration of such determination in accordance with Sec. 405.711 
regardless of the amount in controversy.
    (b) A provider of services who is a party to an initial 
determination (as specified in Sec. 405.704(c)) and who is dissatisfied 
with such initial determination may request a reconsideration of such 
determination in accordance with Sec. 405.711, regardless of the amount 
in controversy, but only if the individual on whose behalf the request 
for payment was made has indicated in writing that he does not intend to 
request reconsideration of the intermediary's initial determination on 
such request for payment, or if the intermediary has made a finding (see 
Sec. 405.704(c)) that such individual did not know or could not 
reasonably have been expected to know that the expenses incurred for the 
items or services for which such request for payment was made were not 
reimbursable by reason of Sec. 411.15(g) or Sec. 411.15(k).

[55 FR 11021, Mar. 26, 1990]



Sec. 405.711  Time and place of filing request for reconsideration.

    The request for reconsideration shall be made in writing and filed 
at an office of the SSA or the HCFA or, in the case of a qualified 
railroad retirement beneficiary (see 20 CFR 404.368) filed at an office 
of the Railroad Retirement Board, within 60 days after the date of 
receipt of notice of initial determination, unless such time is extended 
as provided in Sec. 405.712. A request for reconsideration which is 
filed with the intermediary which received the request for payment 
submitted on behalf of the individual is considered to have been filed 
with the HCFA as of the date it is filed with the intermediary. For 
purposes of this section, the date of receipt of notice of the initial 
determination shall be presumed to be 5 days after the date of such 
notice, unless there is a reasonable showing to the contrary.

[41 FR 47917, Nov. 1, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 62 FR 25855, May 12, 1997]



Sec. 405.712  Extension of time to request reconsideration.

    If a party to an initial determination desires to file a request for 
reconsideration after the time for filing such request in accordance 
with Sec. 405.711 has passed, such party may file a petition with the 
SSA or the HCFA or, in the case of a qualified railroad retirement 
beneficiary, with the Railroad Retirement Board, for an extension of 
time for the filing of such request. Such petition shall be in writing 
and shall state the reasons why the request for reconsideration was not 
filed within the required time. For good cause shown, the HCFA may 
extend the time for filing the request for reconsideration.

[37 FR 5814, Mar. 22, 1972. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 62 FR 25855, May 12, 1997]



Sec. 405.714  Withdrawal of request for reconsideration.

    A request for reconsideration may be withdrawn by the party to the 
initial determination who filed the request or by his representative 
provided that the withdrawal is made in writing and filed at an office 
of the SSA or the HCFA or, in the case of a qualified railroad 
retirement beneficiary, with the Railroad Retirement Board prior to the 
date of the mailing of the notice of reconsidered determination. A 
withdrawal filed with the intermediary which received the request for 
payment submitted on

[[Page 73]]

behalf of the individual is considered to have been filed with the HCFA 
as of the date it is filed with the intermediary.

[40 FR 1025, Jan. 6, 1975. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 62 FR 25855, May 12, 1997]



Sec. 405.715  Reconsidered determination.

    (a) In reconsidering an initial determination, the HCFA shall review 
such initial determination, the evidence and findings upon which such 
determination was based, and any additional evidence submitted to the 
SSA or the HCFA or otherwise obtained by the intermediary or the HCFA; 
and shall make a determination affirming or revising, in whole or in 
part, such initial determination.
    (b) If the request for reconsideration is filed by an individual 
with respect to an initial determination specified in 
Sec. 405.704(b)(12), the provider of services who furnished the items or 
services shall, prior to the making of the reconsidered determination, 
be made a party thereto. If pursuant to Sec. 405.710(b) a request for 
reconsideration is filed by a provider of services with respect to an 
individual determination under Sec. 405.704(c), the individual who was 
furnished the items or services shall, prior to the making of the 
reconsidered determination, be made a party thereto.

[55 FR 11021, Mar. 26, 1990, as amended at 62 FR 25855, May 12, 1997]



Sec. 405.716  Notice of reconsidered determination.

    Written notice of the reconsidered determination shall be mailed by 
the HCFA to the parties and their representatives at their last known 
addresses. Such notice shall state the specific reasons for the 
reconsidered determination and shall advise the parties of their right 
to a hearing if the amount in controversy is $100 or more, or, if 
appropriate, advise them of the requirements for use of the expedited 
appeals process (see Sec. 405.718).

[40 FR 53387, Nov. 18, 1975. Redesignated at 42 FR 52826, Sept. 30, 
1977, as amended at 62 FR 25855, May 12, 1997]



Sec. 405.717  Effect of a reconsidered determination.

    The reconsidered determination is binding upon all parties unless--
    (a) A request for a hearing is filed with SSA or HCFA within 60 days 
after the date of receipt of notice of the reconsidered determination by 
the parties (for purposes of this section, the date of receipt of notice 
of the reconsidered determination is presumed to be 5 days after the 
date of the notice, unless it is shown that the notice was received 
earlier or later); or
    (b) The reconsidered determination is revised in accordance with 
Sec. 405.750; or
    (c) The expedited appeals process is used in accordance with 
Sec. 405.718.

[62 FR 25852, May 12, 1997]



Sec. 405.718  Expedited appeals process.

    (a) Conditions for use of expedited appeals process (EAP). A party 
may use the EAP to request court review in place of an administrative 
law judge (ALJ) hearing or Departmental Appeals Board (DAB) review if 
the following conditions are met:
    (1) HCFA has made a reconsideration determination; an ALJ has made a 
hearing decision; or DAB review has been requested, but a final decision 
has not been issued.
    (2) The filing entity is a party referred to in Sec. 405.718(d).
    (3) The party has filed a request for an ALJ hearing in accordance 
with Sec. 405.722, or DAB review in accordance with 20 CFR 404.968.
    (4) The amount remaining in controversy is $1,000 or more.
    (5) If there is more than one party to the reconsideration 
determination or hearing decision, each party concurs, in writing, with 
the request for the EAP.
    (b) Content of the request for EAP. The request for the EAP:
    (1) Alleges that there are no material issues of fact in dispute; 
and
    (2) Asserts that the only factor precluding a decision favorable to 
the party is a statutory provision that is unconstitutional or a 
regulation, national coverage decision under section 1862(a)(1) of the 
Act, or HCFA Ruling that is invalid.

[[Page 74]]

    (c) Place and time for requesting an EAP--(1) Place for filing 
request. The person must file a written request--
    (i) At an office of SSA or HCFA; or
    (ii) If the person is in the Philippines, at the Veterans 
Administration Regional Office or with an ALJ; or
    (iii) If the person is a qualified railroad retirement beneficiary, 
at an office of the Railroad Retirement Board.
    (2) Time of filing request. The party may file a request for the 
EAP--
    (i) If the party has requested a hearing, at any time prior to 
receipt of the notice of the ALJ's decision;
    (ii) Within 60 days after the date of receipt of notice of the ALJ's 
decision or dismissal, unless the time is extended in accordance with 
the standards set out in 20 CFR 404.925(c). For purposes of this 
section, the date of receipt of the notice is presumed to be 5 days 
after the date on the notice, unless it is shown that the notice was 
received later; or
    (iii) If the party has requested DAB review, at any time prior to 
receipt of notice of the Board's decision.
    (d) Parties to the EAP. The parties to the EAP are the persons who 
were parties to the reconsideration determination and, if appropriate, 
to the hearing.
    (e) Determination on request for EAP. (1) For EAP requests initiated 
at the ALJ level, an ALJ determines whether all conditions of paragraphs 
(a) and (b) of this section are met.
    (2) If a hearing decision has been issued, the DAB determines 
whether all conditions of paragraphs (a) and (b) of this section are 
met.
    (f) ALJ or DAB certification for the EAP. If the party meets the 
requirements for the EAP, the ALJ or the DAB, as appropriate, certifies 
the case in writing stating that:
    (1) The facts involved in the claim are not in dispute;
    (2) Except as indicated in paragraph (f)(3) of this section, HCFA's 
interpretation of the law is not in dispute;
    (3) The sole issue(s) in dispute is the constitutionality of a 
statutory provision or the validity of a regulation, HCFA Ruling, or 
national coverage decision based on section 1862(a)(1) of the Act.
    (4) Except for the provision challenged, the right(s) of the party 
is established; and
    (5) The determination or decision made by the ALJ or DAB is final 
for purposes of seeking judicial review.
    (g) Effect of ALJ or DAB certification. (1) Following the issuance 
of the certification described in paragraph (f) of this section, the 
party waives completion of the remaining steps of the administrative 
appeals process.
    (2) The 60-day period for filing a civil suit in a Federal district 
court begins on the date of receipt of the ALJ or DAB certification.
    (h) Effect of a request for EAP that does not result in 
certification. If a request for the EAP does not meet all the conditions 
for use of the process, the ALJ or DAB so advises the party and treats 
the request as a request for hearing or DAB review, as appropriate.

[62 FR 25852, May 12, 1997]



Sec. 405.720  Hearing; right to hearing.

    A person has a right to a hearing regarding any initial 
determination made under Sec. 405.704 if:
    (a) Such initial determination has been reconsidered by the HCFA;
    (b) Such person was a party to the reconsidered determination;
    (c) Such person or his representative has filed a written request 
for a hearing in accordance with the procedure described in 
Sec. 405.722; and
    (d) The amount in controversy is $100 or more.

[40 FR 1025, Jan. 6, 1975. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 62 FR 25855, May 12, 1997]



Sec. 405.722  Time and place of filing request for a hearing.

    The request for a hearing shall be made in writing and filed at an 
office of the SSA or the HCFA or with a ALJ, or, in the case of a 
qualified railroad retirement beneficiary, at an office of the Railroad 
Retirement Board. Such request must be filed within 60 days after the 
date of receipt of notice of the reconsidered determination by such 
individual, except where the time is extended as provided in 20 CFR 
404.933(c). For purposes of this section, the date of receipt of notice 
of the reconsidered determination shall be presumed to be

[[Page 75]]

5 days after the date of such notice, unless there is a reasonable 
showing to the contrary.

[45 FR 73933, Nov. 7, 1980, as amended at 62 FR 25855, May 12, 1997]



Sec. 405.724  Departmental Appeals Board (DAB) review.

    Regulations beginning at 20 CFR 404.967 regarding SSA Appeals 
Council Review are also applicable to DAB review of matters addressed by 
this subpart.

[62 FR 25852, May 12, 1997]



Sec. 405.730  Court review.

    (a) To the extent authorized by sections 1869, 1876(c)(5)(B), and 
1879(d) of the Act, a party to a Departmental Appeals Board (DAB) 
decision or an ALJ decision if the DAB does not review the ALJ decision, 
may obtain a court review if the amount remaining in controversy is 
$1,000 or more. A party may obtain court review by filing a civil action 
in a district court of the United States in accordance with the 
provisions of section 205(g) of the Act. The filing procedure is set 
forth at 20 CFR 422.210.
    (b) A party to a reconsidered determination or an ALJ hearing 
decision may obtain a court review if the amount in controversy is 
$1,000 or more, and he or she requests and meets the conditions for the 
expedited appeals process set forth in Sec. 405.718.

[62 FR 25852, May 12, 1997]



Sec. 405.732  Review of national coverage decisions (NCDs).

    (a) General. (1) HCFA makes NCDs either granting, limiting, or 
excluding Medicare coverage for a specific medical service, procedure or 
device. NCDs are made under section 1862(a)(1) of the Act or other 
applicable provisions of the Act. An NCD is binding on all Medicare 
carriers, fiscal intermediaries, PROs, HMOs, CMPs, and HCPPs when 
published in HCFA program manuals or the Federal Register.
    (2) Under section 1869(b)(3) of the Act, only NCDs made under 
section 1862(a)(1) of the Act are subject to the conditions of 
paragraphs (b) through (d) of this section.
    (b) Review by ALJ. (1) An ALJ may not disregard, set aside, or 
otherwise review an NCD.
    (2) An ALJ may review the facts of a particular case to determine 
whether an NCD applies to a specific claim for benefits and, if so, 
whether the NCD has been applied correctly to the claim.
    (c) Review by Court. (1) A court's review of an NCD is limited to 
whether the record is incomplete or otherwise lacks adequate information 
to support the validity of the decision, unless the case has been 
remanded to the Secretary to supplement the record regarding the NCD. 
The court may not invalidate an NCD except upon review of the 
supplemented record.
    (2) A Federal court may not hold unlawful or set aside an NCD 
because it was not issued in accordance with the notice and comment 
procedures of the Administrative Procedure Act (5 U.S.C. 553) or section 
1871(b) of the Act.
    (d) Remands--(1) Secretary's action. When a court remands an NCD 
matter to the Secretary because the record in support of the NCD is 
incomplete or otherwise lacks adequate information, the Secretary 
remands the case to HCFA in order to supplement the record.
    (2) Remand to HCFA. HCFA supplements the record with new or updated 
evidence, including additional information from other sources, and may 
issue a revised NCD.
    (3) Final Actions. (i) The proceedings to supplement the record are 
expedited.
    (ii) When HCFA does not issue a revised NCD, it returns the 
supplemented record to the court for review.
    (iii) When HCFA issues a revised NCD, it forwards the case to an ALJ 
who issues a new decision applying the revised NCD to the facts of the 
claim(s) under consideration. The ALJ's decision is subject to DAB 
review and, ultimately, judicial review.

[62 FR 25852, May 12, 1997]



Sec. 405.740  Principles for determining the amount in controversy.

    (a) Individual appellants. For the purpose of determining whether an 
individual appellant meets the minimum amount in controversy needed for 
a

[[Page 76]]

hearing ($100), the following rules apply:
    (1) The amount in controversy is computed as the actual amount 
charged the individual for the items and services in question, less any 
amount for which payment has been made by the intermediary and less any 
deductible and coinsurance amounts applicable in the particular case.
    (2) A single beneficiary may aggregate claims from two or more 
providers to meet the $100 hearing threshold and a single provider may 
aggregate claims for services provided to one or more beneficiaries to 
meet the $100 hearing threshold.
    (3) In either of the circumstances specified in paragraph (a)(2) of 
this section, two or more claims may be aggregated by an individual 
appellant only if the claims have previously been reconsidered and a 
request for hearing has been made within 60 days after receipt of the 
reconsideration determination(s).
    (4) When requesting a hearing, the appellant must specify in his or 
her appeal request the specific claims to be aggregated.
    (b) Two or more appellants. As specified below, under section 
1869(b)(2) of the Act, two or more appellants may aggregate their claims 
together to meet the minimum amount in controversy needed for a hearing 
($100). The right to aggregate under this statutory provision applies to 
claims for items and services furnished on or after January 1, 1987.
    (1) The aggregate amount in controversy is computed as the actual 
amount charged the individual(s) for the items and services in question, 
less any amount for which payment has been made by the intermediary and 
less any deductible and coinsurance amounts applicable in the particular 
case.
    (2) In determining the amount in controversy, two or more appellants 
may aggregate their claims together under the following circumstances:
    (i) Two or more beneficiaries may combine claims representing 
services from the same or different provider(s) if the claims involve 
common issues of law and fact;
    (ii) Two or more providers may combine their claims if the claims 
involve the delivery of similar or related services to the same 
beneficiary; or
    (iii) Two or more providers may combine their claims if the claims 
involve common issues of law and fact with respect to services furnished 
to two or more beneficiaries.
    (iv) In any of the circumstances specified in paragraphs (b)(2)(i) 
through (b)(2)(iii) of this section, the claims may be aggregated only 
if the claims have previously been reconsidered and a request for 
hearing has been made within 60 days after receipt of the 
reconsideration determination(s). Moreover, in the request for hearing, 
the appellants must specify the claims that they seek to aggregate.
    (c) The determination as to whether the amount in controversy is 
$100 or more is made by the administrative law judge (ALJ).
    (d) In determining the amount in controversy under paragraph (b) of 
this section, the ALJ also makes the determination as to what 
constitutes ``similar or related services'' or ``common issues of law 
and fact.''
    (e) When a civil action is filed by either an individual appellant 
or two or more appellants, the Secretary may assert that the aggregation 
principles contained in this subpart may be applied to determine the 
amount in controversy for judicial review ($1000).
    (f) Notwithstanding the provisions of paragraphs (a)(1) and (b)(1) 
of this section, when payment is made for certain excluded services 
under Sec. 411.400 of this chapter or the liability of the beneficiary 
for those services is limited under Sec. 411.402 of this chapter, the 
amount in controversy is computed as the amount that would have been 
charged the beneficiary for the items or services in question, less any 
deductible and coinsurance amounts applicable in the particular case, 
had such expenses not been paid pursuant to Sec. 411.400 of this chapter 
or had such liability not been limited pursuant to Sec. 411.402 of this 
chapter.
    (g) Under this subpart, an appellant may not combine part A and part 
B claims together to meet the requisite amount in controversy for a 
hearing. HMO, CMP and HCPP appellants under

[[Page 77]]

part 417 of this chapter may combine part A and part B claims together 
to meet the requisite amounts in controversy for a hearing.

[59 FR 12181, Mar. 16, 1994]



Sec. 405.745  Amount in controversy ascertained after reconsideration.

    For the purpose of determining whether a party to a reconsidered 
determination is entitled to a hearing, the amount in controversey after 
the reconsideration action rather than the amount in controversy 
initially at issue shall be controlling.

[40 FR 1026, Jan. 6, 1975. Redesignated at 42 FR 52826, Sept. 30, 1977]



Sec. 405.747  Dismissal of request for hearing; amount in controversy less than $100.

    The ALJ shall, without holding a hearing, dismiss the request for 
hearing if the request for hearing plainly shows that less than $100 is 
in controversy. If a hearing is held and the ALJ finds that the amount 
in controversy is less than $100, the ALJ shall dismiss the request for 
hearing and will not rule on the substantive issues involved in the 
appeal.

[37 FR 5814, Mar. 23, 1972. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 62 FR 25855, May 12, 1997]



Sec. 405.750  Time period for reopening initial, revised, or reconsidered determinations and decisions or revised decisions of an ALJ or the Departmental 
          Appeals Board (DAB); binding effect of determination and 
          decisions.

    (a) Reopenings concerning applications and entitlement. A 
determination, or decision, or revised determination or decision made by 
the SSA concerning any matter under Sec. 405.704(a), may be reopened and 
revised under 20 CFR 404.988 (Conditions for reopening).
    (b) Reopenings concerning a request for payment. An initial, 
revised, or reconsidered determination of HCFA, or a decision or revised 
decision of an ALJ or of the DAB, with respect to an individual's right 
concerning a request for payment under Medicare Part A, which is 
otherwise binding under 20 CFR 404.955 or 404.981 and Secs. 405.708 or 
405.717 of this subpart may be reopened:
    (1) Within 12 months from the date of the notice of the initial or 
reconsidered determination to the party to such determination;
    (2) After such 12-month period, but within 4 years after the date of 
the notice of the initial determination to the individual, upon 
establishment of good cause for reopening such determination or decision 
(see 20 CFR 404.988(b) and 404.989); or
    (3) At any time, when:
    (i) Such initial, revised, or reconsidered determination or such 
decision or revised decision is unfavorable, in whole or in part, to the 
party thereto, but only for the purpose of correcting clerical error or 
error on the face of the evidence on which such determination or 
decision was based; or
    (ii) Such initial, revised, or reconsidered determination or such 
decision or revised decision was procured by fraud or similar fault of 
the beneficiary or some other person.

[45 FR 73933, Nov. 7, 1980, as amended at 61 FR 32348, June 24, 1996; 62 
FR 25853, 25855, May 12, 1997]



Sec. 405.753  Appeal of a categorization of a device.

    (a) HCFA's acceptance of the FDA categorization of a device as an 
experimental/investigational (Category A) device under Sec. 405.203 is a 
national coverage decision under section 1862(a)(1) of the Act.
    (b) HCFA's acceptance of the FDA categorization of a device as an 
experimental/investigational (Category A) device under Sec. 405.203 is 
an aspect of an initial determination that, under section 1862 of the 
Act, payment may not be made.
    (c) In accordance with section 1869(b)(3)(A) of the Act, HCFA's 
acceptance of the FDA categorization of a device as an experimental/
investigational (Category A) device under Sec. 405.203 may not be 
reviewed by an administrative law judge.

[60 FR 48424, Sept. 19, 1995]

[[Page 78]]



          Subpart H--Appeals Under the Medicare Part B Program

    Authority: Secs. 1102, 1842(b)(3)(C), and 1869(b) of the Social 
Security Act (42 U.S.C. 1302, 1395u(b)(3)(C), 1395ff(b)).

    Source: 32 FR 18028, Dec. 16, 1967, unless otherwise noted. 
Redesignated at 42 FR 52826, Sept. 30, 1977.



Sec. 405.801  Part B appeals--general description.

    (a) The Medicare carrier makes an initial determination when a 
request for payment for Part B benefits is submitted. If an individual 
beneficiary is dissatisfied with the initial determination, he or she 
may request, and the carrier will perform, a review of the claim. 
Following the carrier's review determination, the beneficiary may obtain 
a carrier hearing if the amount remaining in controversy is at least 
$100. The beneficiary is also entitled to a carrier hearing without the 
benefit of a review determination when the initial request for payment 
is not being acted upon with reasonable promptness (as defined in 
Sec. 405.802). Following the carrier hearing, the beneficiary may obtain 
a hearing before an ALJ if the amount remaining in controversy is at 
least $500. If the beneficiary is dissatisfied with the decision of the 
ALJ, he or she may request the Departmental Appeals Board (DAB) to 
review the case. Following the action of the DAB, the beneficiary may 
file suit in Federal district court if the amount remaining in 
controversy is at least $1,000.
    (b) The rights of a beneficiary under paragraph (a) of this section 
to appeal the carrier's initial determination are granted also to--
    (1) A physician or supplier that furnishes services to a beneficiary 
and that accepts an assignment from the beneficiary, or
    (2) A physician who meets the conditions of section 1842(l)(1)(A) of 
the Act pertaining to refund requirements for nonparticipating 
physicians who have not taken assignment on the claim(s) at issue.
    (c) Procedures governing the determinations by SSA as to whether an 
individual has met basic Part B entitlement requirements are covered in 
subpart G of this part and 20 CFR part 404, subpart J. Subparts J and R 
of 20 CFR part 404 are also applicable to ALJ, DAB, and judicial review 
conducted under subpart H, except to the extent that specific provisions 
are contained in this subpart.

[62 FR 25853, May 12, 1997]



Sec. 405.802  Definitions.

    As used in subpart H of this part, the term--
    After receipt of the notice means 5 days after the date on the 
notice, unless it is shown that the notice was received earlier or 
later.
    Appellant designates the beneficiary, assignee or other person or 
entity that has filed an appeal concerning a particular determination of 
benefits under Medicare part B. Designation as an appellant does not in 
itself convey standing to appeal the determination in question.
    Assignee means a physician or supplier who furnishes services to a 
beneficiary under Medicare part B and who has accepted a valid 
assignment executed by the beneficiary.
    Assignment means the transfer by the assignor of his or her claim 
for payment to the assignee in return for the latter's promise not to 
charge more for his or her services than the carrier finds to be the 
reasonable charge or other approved amount.
    Assignor means a beneficiary under Medicare part B whose physician 
or supplier has taken assignment of a claim.
    Carrier means an organization which has entered into a contract with 
the Secretary pursuant to section 1842 of the Act and which is 
authorized to make determinations with respect to part B of title XVIII 
of the Act. For purposes of this subpart, the term carrier also refers 
to an intermediary that has entered into a contract with the Secretary 
under section 1816 of the Act and is authorized to make determinations 
with respect to part B provider services, as specified in Sec. 421.5(c) 
of this chapter.
    Common issues of law and fact, with respect to the aggregation of 
claims by two or more appellants to meet the minimum amount in 
controversy needed for an ALJ hearing, occurs when the

[[Page 79]]

claims sought to be aggregated are denied or reduced for similar reasons 
and arise from a similar fact pattern material to the reason the claims 
are denied.
    Delivery of similar or related services, with respect to the 
aggregation of claims by two or more physician/supplier appellants to 
meet the minimum amount in controversy needed for an ALJ hearing, means 
like or coordinated services or items provided to the same beneficiary 
by the appellants.
    Representative means an individual meeting the conditions described 
in Secs. 405.870 through 405.871.
    With reasonable promptness means within a period of 60 consecutive 
days after the receipt by the carrier of a request for payment.

[59 FR 12182, Mar. 16, 1994, as amended at 62 FR 25853, May 12, 1997]



Sec. 405.803  Initial determination.

    (a) Carriers make initial determinations regarding claims for 
benefits under Medicare Part B.
    (b) An initial determination for purposes of this subpart includes 
determinations such as the following:
    (1) Whether services furnished are covered.
    (2) Whether the deductible has been met.
    (3) Whether the receipted bill or other evidence of payment is 
acceptable.
    (4) Whether the charges for services furnished are reasonable.
    (5) If the services furnished to a beneficiary by a physician or a 
supplier pursuant to an assignment under Sec. 424.55 of this chapter are 
not covered because they are determined to be not reasonable and 
necessary under Sec. 411.15(k) of this chapter, whether the beneficiary, 
physician or supplier, or a physician who meets the requirements of 
Sec. 411.408, knew or could reasonably have been expected to know at the 
time the services were furnished that the services were not covered.
    (c) The following are not initial determinations for purposes of 
this subpart:
    (1) Any issue or factor for which SSA or HCFA has sole 
responsibility, for example, whether an independent laboratory meets the 
conditions for coverage of services; whether a Medicare overpayment 
claim should be compromised, or collection action terminated or 
suspended.
    (2) Any issue or factor which relates to hospital insurance benefits 
under Medicare Part A.

[62 FR 25853, May 12, 1997]



Sec. 405.804  Notice of initial determination.

    After a carrier has made an initial determination on a request for 
payment written notice of this determination shall be mailed to each 
party to the determination at his last known address. The notice of the 
determination shall inform each party to the determination of his right 
to have such determination reviewed.



Sec. 405.805  Parties to the initial determination.

    The parties to the initial determination (see Sec. 405.803) may be 
any party described in Sec. 405.802(b).

[39 FR 12097, Apr. 3, 1974. Redesignated at 42 FR 52826, Sept. 30, 1977]



Sec. 405.806  Effect of Initial Determination.

    The initial determination is binding upon all parties to the claim 
for benefits unless the determination is--
    (a) Reviewed in accordance with Secs. 405.810 through 405.812; or
    (b) Revised as a result of a reopening in accordance with 
Sec. 405.841.

[62 FR 25853, May 12, 1997]



Sec. 405.807  Review of initial determination.

    (a) General. A party to an initial determination by a carrier, who 
is dissatisfied with such initial determination, may request that the 
carrier review such determination. If a review is requested, such action 
shall not constitute a waiver of the right to hearing (see Sec. 405.820) 
subsequent to such review.
    (b) Place of filing request. A request for a carrier to review the 
initial determination is to be made in writing and filed at an office of 
the carrier or at an office of the SSA or the HCFA.
    (c) Time of filing request. The carrier shall provide a period of 6 
months after

[[Page 80]]

the date of the notice of its initial determination within which a party 
to the initial determination may request review. The carrier may, upon 
request by the party affected, extend the period for requesting the 
review.
    (d) Request for review. Any clear expression in writing by a party 
to an initial determination which indicates, in effect, that he is 
dissatisfied with such determination by the carrier and wants to appeal 
the matter further constitutes a request for review.

[39 FR 12097, Apr. 3, 1974. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 62 FR 25855, May 12, 1997]



Sec. 405.808  Parties to the review.

    The parties to the review (as provided for in Sec. 405.807(a)) shall 
be the persons who were parties to the carrier's initial determination 
as described in Sec. 405.805, and any other party whose rights with 
respect to the particular claim being reviewed may be affected by such 
review.

[39 FR 12097, Apr. 3, 1974. Redesignated at 42 FR 52826, Sept. 30, 1977]



Sec. 405.809  Opportunity to submit evidence.

    The parties to the review (as provided for in Sec. 405.807(a)) shall 
have a reasonable opportunity to submit written evidence and contentions 
as to fact or law relative to the claim at issue.

[39 FR 12097, Apr. 3, 1974. Redesignated at 42 FR 52826, Sept. 30, 1977]



Sec. 405.810  Review determination.

    Subject to the provisions of Secs. 405.807 through 405.809, the 
carrier shall review the claim in dispute and, upon the basis of the 
evidence of record, shall make a separate determination affirming or 
revising in whole or in part the findings and determination in question.

[39 FR 12097, Apr. 3, 1974. Redesignated at 42 FR 52826, Sept. 30, 1977]



Sec. 405.811  Notice of review determination.

    Written notice of the review determination is mailed to a party at 
his or her last known address. The review determination states the basis 
of the determination and advises the party of his or her right to a 
carrier hearing when the amount in controversy is $100 or more as 
determined in accordance with Sec. 405.817. The notice states the place 
and manner of requesting a carrier hearing as well as the time limit 
under which a hearing must be requested (see Sec. 405.821).

[59 FR 12182, Mar. 16, 1994]



Sec. 405.812  Effect of review determination.

    The review determination is binding upon all parties to the review 
unless a carrier hearing decision is issued pursuant to a request for 
hearing made in accordance with Sec. 405.821 or is revised as a result 
of reopening in accordance with Sec. 405.841.

[59 FR 12182, Mar. 16, 1994, as amended at 62 FR 25855, May 12, 1997]



Sec. 405.815  Amount in controversy for carrier hearing, ALJ hearing and judicial review.

    Any party designated in Sec. 405.822 is entitled to a carrier 
hearing after a review determination has been made by the carrier if the 
amount remaining in controversy is $100 or more and the party meets the 
requirements of Sec. 405.821 of this subpart. To be entitled to a 
hearing before an ALJ following the carrier hearing, the amount 
remaining in controversy must be $500 or more, and for judicial review 
following the ALJ hearing and Departmental Appeals Board Review, the 
amount remaining in controversy must be $1000 or more.

[59 FR 12182, Mar. 16, 1994, as amended at 61 FR 32348, June 24, 1996]



Sec. 405.817  Principles for determining amount in controversy.

    (a) Individual appellants. For the purpose of determining whether an 
individual appellant meets the minimum amount in controversy needed for 
a carrier hearing ($100) or ALJ hearing ($500), the following rules 
apply:
    (1) The amount in controversy is computed as the actual amount 
charged the individual for the items and services in question, less any 
amount for which payment has been made by the carrier and less any 
deductible and coinsurance amounts applicable in the particular case.

[[Page 81]]

    (2) A single beneficiary may aggregate claims from two or more 
physicians/suppliers to meet the $100 or $500 thresholds. A single 
physician/supplier may aggregate claims from two or more beneficiaries 
to meet the $100 or $500 threshold levels of appeal.
    (3) In either of the circumstances specified in paragraph (a)(2) of 
this section, two or more claims may be aggregated by an individual 
appellant to meet the amount in controversy for a carrier hearing only 
if the claims have previously been reviewed and a request for hearing 
has been made within six months after the date of the review 
determination(s).
    (4) In either of the circumstances specified in paragraph (a)(2) of 
this section, two or more claims may be aggregated by an individual 
appellant to meet the amount in controversy for an ALJ hearing only if 
the claims have previously been decided by a carrier hearing officer and 
a request for an ALJ hearing has been made within 60 days after receipt 
of the carrier hearing officer decision(s).
    (5) When requesting a carrier hearing or an ALJ hearing, the 
appellant must specify in his or her appeal request the specific claims 
to be aggregated.
    (b) Two or more appellants. As specified in this paragraph, under 
section 1869(b)(2) of the Act, two or more appellants may aggregate 
their claims together to meet the minimum amount in controversy needed 
for an ALJ hearing ($500). The right to aggregate under this statutory 
provision applies to claims for items and services furnished on or after 
January 1, 1987.
    (1) The aggregate amount in controversy is computed as the actual 
amount charged the individual(s) for the items and services in question, 
less any amount for which payment has been made by the carrier and less 
any deductible and coinsurance amounts applicable in the particular 
case.
    (2) In determining the amount in controversy, two or more appellants 
may aggregate their claims together under the following circumstances:
    (i) Two or more beneficiaries may combine claims representing 
services from the same or different physician(s) or supplier(s) if the 
claims involve common issues of law and fact;
    (ii) Two or more physicians/suppliers may combine their claims if 
the claims involve the delivery of similar or related services to the 
same beneficiary;
    (iii) Two or more physicians/suppliers may combine their claims if 
the claims involve common issues of law and fact with respect to 
services furnished to two or more beneficiaries.
    (iv) In any of the circumstances specified in paragraphs (b)(2)(i) 
through (b)(2)(iii) of this section, the claims may be aggregated only 
if the claims have previously been decided by a carrier hearing 
officer(s) and a request for ALJ hearing has been made within 60 days 
after receipt of the carrier hearing officer decision(s). Moreover, in a 
request for ALJ hearing, the appellants must specify the claims that 
they seek to aggregate.
    (c) The determination as to whether the amount in controversy is 
$100 or more is made by the carrier hearing officer. The determination 
as to whether the amount in controversy is $500 or more is made by the 
ALJ.
    (d) In determining the amount in controversy under paragraph (b) of 
this section, the ALJ will also make the determination as to what 
constitutes ``similar or related services'' or ``common issues of law 
and fact.''
    (e) When a civil action is filed by either an individual appellant 
or two or more appellants, the Secretary may assert that the aggregation 
principles contained in this subpart may be applied to determine the 
amount in controversy for judicial review ($1000).
    (f) Notwithstanding the provisions of paragraphs (a)(1) and (b)(1) 
of this section, when payment is made for certain excluded services 
under Sec. 411.400 of this chapter or the liability of the beneficiary 
for those services is limited under Sec. 411.402 of this chapter, the 
amount in controversy is computed as the amount that would have been 
charged the beneficiary for the items or services in question, less any 
deductible and coinsurance amounts applicable in the particular case, 
had such expenses not been paid under Sec. 411.400 of this chapter or 
had such liability not been limited under Sec. 411.402 of this chapter.
    (g) Under this subpart, an appellant may not combine part A and part 
B

[[Page 82]]

claims together to meet the requisite amount in controversy for a 
carrier hearing or ALJ hearing. HMO, CMP and HCPP appellants under part 
417 of this chapter may combine part A and part B claims together to 
meet the requisite amount in controversy for a hearing.

[59 FR 12182, Mar. 16, 1994]



Sec. 405.821  Request for carrier hearing.

    (a) A request for a carrier hearing is any clear expression in 
writing by a claimant asking for a hearing to adjudicate a claim when 
not acted upon with reasonable promptness or by a party to a review 
determination who states, in effect, that he or she is dissatisfied with 
the carrier's review determination and wants further opportunity to 
appeal the matter to the carrier.
    (b) The hearing request must be filed at an office of the carrier or 
at an office of SSA or HCFA.
    (c) Except when a carrier hearing is held because the carrier did 
not act upon a claim with reasonable promptness, a party to the review 
determination may request a carrier hearing within six months after the 
date of the notice of the review determination. The carrier may, upon 
request by the party affected, extend the period for filing the request 
for hearing.

[59 FR 12183, Mar. 16, 1994, as amended at 62 FR 25855, May 12, 1997]



Sec. 405.822  Parties to a carrier hearing.

    The parties to a hearing shall be the persons who were parties to 
the carrier's review determination (Sec. 405.808) which is in question. 
Any other person may be made a party if that person's rights with 
respect to supplementary medical insurance benefits may be prejudiced by 
the decision.

[39 FR 12097, Apr. 3, 1974. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 59 FR 12183, Mar. 16, 1994]



Sec. 405.823  Carrier hearing officer.

    Any hearing provided for in this subpart shall be conducted by a 
hearing officer designated by the appropriate official of the carrier.

[39 FR 12097, Apr. 3, 1974. Redesignated at 42 FR 52826, Sept. 30, 1977, 
and amended at 59 FR 12183, Mar. 16, 1994]



Sec. 405.824  Disqualification of carrier hearing officer.

    A hearing officer shall not conduct a hearing in any case in which 
he is prejudiced or partial with respect to any party, or if he has any 
interest in the matter before him. Notice of any objection with respect 
to the hearing officer who will conduct the hearing shall be made by the 
objecting party at his earliest opportunity. The hearing officer shall 
consider such objection and shall, at his discretion, withdraw. If the 
hearing officer withdraws, the appropriate official of the carrier shall 
designate another hearing officer to conduct the hearing. If the hearing 
officer does not withdraw, the objecting party may present his 
objections to the carrier for consideration at any time prior to the 
issuance of a decision. The carrier shall review the request and take 
appropriate action. The fact that a hearing officer is an employee of 
the carrier may not serve as prima facie cause for disqualification.

[32 FR 18028, Dec. 16, 1967. Redesignated at 42 FR 52826, Sept. 30, 
1977, as amended at 59 FR 12183, Mar. 16, 1994]



Sec. 405.825  Location of carrier hearing.

    (a) Time and place. The hearing officer shall fix a time and place 
for the hearing reasonably convenient to the requesting party and not 
inconsistent with the public interest.
    (b) Adjournment or postponement. The hearing officer may, for a good 
and sufficient reason, fix a new time and/or place for the hearing; he 
may change the time and place for the hearing or adjourn the hearing on 
his own motion upon reasonable notification to the parties.

[32 FR 18028, Dec. 16, 1967. Redesignated at 42 FR 52826, Sept. 30, 
1977, as amended at 59 FR 12183, Mar. 16, 1994]



Sec. 405.826  Notice of carrier hearing.

    The notice of hearing is to include notice of the time and place of 
the hearing; information as to the specific

[[Page 83]]

issues to be determined; and the matters on which findings will be made 
and conclusions will be reached. The notice is to contain sufficient 
information about the hearing procedure (including the party's right to 
representation) for effective preparation for the hearing.

[32 FR 18028, Dec. 16, 1967. Redesignated at 42 FR 52826, Sept. 30, 
1977, as amended at 59 FR 12183, Mar. 16, 1994]



Sec. 405.830  Conduct of the carrier hearing.

    (a) General. Hearings shall be open to the parties and to such other 
persons as the hearing officer deems necessary and proper for the 
orderly and efficient conduct of the hearing. The hearing officer shall 
inquire fully into the matters at issue and shall receive in evidence 
the testimony of witnesses and any documents which are relevant and 
material to such matters. The parties shall be provided an opportunity 
to enter any objection to the inclusion of any document. The order in 
which evidence and allegations shall be presented and the procedure at 
the hearing, except as this subpart otherwise expressly provides, shall 
be at the discretion of the hearing officer and of such nature as to 
afford the parties a proper hearing.
    (b) Evidence. Evidence may be received at the hearing even though 
inadmissible under rules of evidence applicable to court procedures.
    (c) Witnesses. The hearing officer may examine the witnesses and 
shall allow the parties or their representatives to do so. If the 
hearing officer conducts the examination of a witness, he may allow the 
parties to suggest matters upon which they desire the witness to be 
questioned, and the hearing officer shall question the witness with 
respect to such matters if they are relevant and material to any issue 
pending for decision before him.
    (d) Oral argument and written allegations. The parties, upon their 
request shall be allowed a reasonable time for the presentation of oral 
argument or for the filing of briefs or other written statements or 
allegations of facts or law.
    (e) Consolidated issues. When one or more new issues are raised at 
any time after a request for hearing has been made, but before the 
mailing of notice of the decision, the hearing officer may, at his 
discretion, consider the issues along with the other issues pending 
before him on the same request for hearing.

[32 FR 18028, Dec. 16, 1967. Redesignated at 42 FR 52826, Sept. 30, 
1977, as amended at 59 FR 12183, Mar. 16, 1994]



Sec. 405.831  Waiver of right to appear at carrier hearing and present evidence.

    If all parties waive their right to appear before the hearing 
officer and present evidence and contentions personally or by 
representative, it shall not be necessary for the hearing officer to 
give notice of or conduct a formal hearing as provided in Secs. 405.825 
through 405.830. A waiver of the right to appear is to be in writing and 
filed with the hearing officer or the carrier. Such waiver may be 
withdrawn by a party at any time prior to the mailing of notice of the 
decision in the case. Even though all of the parties have filed a waiver 
of the right to appear and present evidence and contentions at a hearing 
before the hearing officer, the hearing officer may, nevertheless, give 
notice of a time and place and conduct a hearing as provided in 
Secs. 405.825 through 405.830, if he believes that the personal 
appearance and testimony of the party or parties would assist him to 
ascertain the facts at issue in the case. For purposes of this section, 
failure of the parties to appear shall not be cause for a finding of 
abandonment and the hearing officer shall make his decision on the basis 
of all evidence adduced.

[32 FR 18028, Dec. 16, 1967. Redesignated at 42 FR 52826, Sept. 30, 
1977, as amended at 62 FR 25855, May 12, 1997]



Sec. 405.832  Dismissal of request for carrier hearing.

    (a) By application of party. With the approval of the hearing 
officer, a request for a hearing may be withdrawn or dismissed at any 
time prior to the mailing of notice of the decision upon the application 
of the party or parties filing the request for such hearing. A party may 
request a dismissal by filing a written notice of such request with

[[Page 84]]

the carrier, the hearing officer or orally stating such request at the 
hearing. The dismissal of a request for hearing shall be binding unless 
vacated (see paragraph (d) of this section).
    (b) Dismissal by abandonment of party. A hearing officer may dismiss 
a request for hearing upon abandonment by the party or parties who filed 
the request. A party shall be deemed to have abandoned a request for 
hearing, other than where personal appearance is waived in accordance 
with Sec. 405.831, if neither the party nor his representative appears 
at the time and place fixed for the hearing and within 10 days after the 
mailing of a notice to him by the hearing officer to show cause, such 
party does not show good and sufficient cause for such failure to appear 
and failure to notify the hearing officer prior to the time fixed for 
hearing that he cannot appear.
    (c) Dismissal for cause. The hearing officer may, on his own motion, 
dismiss a hearing request, either entirely or as to any stated issue, 
under either of the following circumstances:
    (1) Where the party requesting a hearing is not a proper party under 
Sec. 405.822 or does not otherwise have a right to a hearing under 
section 1842(b)(3)(C) of the Act; or
    (2) Where the party who filed the hearing request dies and there is 
no information before the hearing officer showing that an individual who 
is not a party may be prejudiced by the carrier's determination.
    (d) Dismissal without prejudice. The hearing officer may on his own 
motion dismiss without prejudice a hearing request where the amount in 
controversy is less than $100.
    (e) Vacation of dismissal. A hearing officer may, on request of a 
party and for good and sufficient cause shown, vacate any dismissal of a 
request for hearing at any time within 6 months from the date of mailing 
notice of the dismissal to the party requesting the hearing at his last 
known address.

[32 FR 18028, Dec. 16, 1967, as amended at 39 FR 12098, Apr. 3, 1974. 
Redesignated at 42 FR 52826, Sept. 30, 1977, as amended at 59 FR 12183, 
Mar. 16, 1994; 62 FR 25855, May 12, 1997]



Sec. 405.833  Record of carrier hearing.

    A complete record of the proceedings at the carrier hearing is made. 
The testimony is transcribed and copies of other documentary evidence 
are reproduced in any case when directed by the hearing officer, the 
carrier, or HCFA. The record will also be transcribed and reproduced at 
the request of any party to the hearing provided the requesting party 
bears the cost.

[62 FR 25853, May 12, 1997]



Sec. 405.834  Carrier hearing officer's decision.

    (a) As soon as practicable after the close of a carrier hearing, the 
carrier hearing officer issues a decision in the case based upon the 
evidence presented at the hearing or otherwise included in the hearing 
record. The decision is issued as a written notice to the parties and 
contains--
    (1) Findings of fact,
    (2) A statement of reasons, and
    (3) Notification to the parties of their right to an ALJ hearing 
when the amount remaining in controversy is at least $500.
    (b) A copy of the decision is mailed to the parties to the hearing 
at their last known addresses.

[62 FR 25854, May 12, 1997]



Sec. 405.835  Effect of carrier hearing officer's decision.

    The carrier hearing officer's decision is binding upon all parties 
to the hearing unless--
    (a) A request for an ALJ hearing is filed in accordance with 
Sec. 405.855, or
    (b) The decision is revised in accordance with Sec. 405.841.

[62 FR 25854, May 12, 1997]



Sec. 405.836  Authority of the carrier hearing officer.

    The carrier hearing officer, in adjudicating Medicare Part B claims, 
complies with all of the provisions of, and regulations issued under, 
title XVIII of the Act, as well as with HCFA Rulings, national coverage 
decisions, and other policy statements, instructions, and guides issued 
by HCFA.

[62 FR 25854, May 12, 1997]

[[Page 85]]



Sec. 405.841  Reopening initial or review determination of the carrier, and decision of a carrier hearing officer.

    An initial or review determination of a carrier or a decision of a 
hearing officer may be reopened by such carrier or hearing officer:
    (a) Within 12 months from the date of the notice of such initial or 
review determination or decision to the party to such determination or 
decision; or
    (b) After such 12-month period, but within 4 years from the date of 
the notice of the initial determination to the party to such 
determination, upon establishment of good cause for reopening such 
determination or decision (see 20 CFR 404.988(b) and 404.989); or
    (c) At any time, when:
    (1) Such initial or review determination or decision was procured by 
fraud or similar fault of the beneficiary or some other person, or
    (2) Such initial or review determination or decision is unfavorable, 
in whole or in part, to the party thereto, but only for the purpose of 
correcting a clerical error or error on the face of the evidence on 
which such determination or decision was based.

[39 FR 12098, Apr. 3, 1974. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 59 FR 12183, Mar. 16, 1994; 62 FR 25855, May 12, 1997]



Sec. 405.842  Notice of reopening and revision.

    (a) Notice. When any determination or decision is reopened as 
provided in Sec. 405.841, notice of such reopening shall be mailed to 
the parties to such determination or decision at their last known 
addresses. A notice of revision following a reopening of a decision, 
shall be mailed to the parties and shall state the basis for the revised 
determination or decision.
    (b) Effect of revised determination. The revision of a determination 
(see Sec. 405.841) shall be binding upon all parties thereto unless a 
party files a written request for a hearing with respect to a revised 
determination when the amount in controversy is $100 or more.

[32 FR 18028, Dec. 16, 1967, as amended at 39 FR 12098, Apr. 3, 1974. 
Redesignated at 42 FR 52826, Sept. 30, 1977; 62 FR 25855, May 12, 1997]



Sec. 405.850  Change of ruling or legal precedent.

    Change of a legal interpretation or administrative ruling upon which 
a determination or decision was made shall not be considered as good and 
sufficient reason for reopening the determination or decision.



Sec. 405.853  Expedited appeals process.

    (a) Conditions for use of expedited appeals process (EAP). A party 
may use the EAP set forth in Sec. 405.718 of this chapter to request 
court review in place of the ALJ hearing or Departmental Appeals Board 
(DAB) review if the following conditions are met:
    (1) The carrier hearing officer has made a decision; an ALJ has made 
a hearing decision; or DAB review has been requested, but a final 
decision has not been issued.
    (2) The filing entity is a party referred to in Sec. 405.718(d) of 
this chapter.
    (3) The party has filed a request for an ALJ hearing in accordance 
with Sec. 405.855, or DAB review in accordance with 20 CFR 404.968.
    (4) The amount remaining in controversy is $1,000 or more.
    (5) If there is more than one party to the hearing decision, each 
party concurs, in writing, with the request for an EAP.
    (b) Content of the request for EAP. The request for an EAP:
    (1) Alleges that there are no material issues of fact in dispute; 
and
    (2) Asserts that the only factor precluding a decision favorable to 
the party is a statutory provision that is unconstitutional or a 
regulation, national coverage decision under section 1862(a)(1) of the 
Act, or HCFA Ruling that is invalid.

[62 FR 25854, May 12, 1997]



Sec. 405.855  ALJ hearing.

    (a) Right to hearing. A party to the carrier hearing has a right to 
a hearing before an ALJ if--
    (1) The party files a written request for an ALJ hearing within 60 
days after receipt of the notice of the carrier hearing decision; and
    (2) The amount remaining in controversy is $500 or more.

[[Page 86]]

    (b) Place of filing hearing request. The request for an ALJ hearing 
must be made in writing and filed with the carrier that issued the 
decision, a Social Security office, or, in the case of a qualified 
railroad retirement beneficiary, an office of the Railroad Retirement 
Board.
    (c) Effect of ALJ hearing decision. (1) An ALJ's decision is binding 
on all parties to the hearing unless--
    (i) The DAB reviews the ALJ decision;
    (ii) The DAB does not review the ALJ decision, and the party 
requests judicial review;
    (iii) The decision is revised by the DAB or an ALJ in accordance 
with the provisions of Sec. 405.750 of this chapter; or
    (iv) The expedited appeals process is used.

[62 FR 25854, May 12, 1997]



Sec. 405.856  Departmental Appeals Board (DAB) review.

    Regulations beginning at 20 CFR 404.967 regarding SSA Appeals 
Council Review are applicable to DAB review of matters addressed by this 
subpart.

[62 FR 25854, May 12, 1997]



Sec. 405.857  Court review.

    (a) General rule. To the extent authorized by sections 1869, 
1876(c)(5)(B), and 1879(d) of the Act, a party to a DAB decision, or an 
ALJ decision if the DAB does not review the ALJ's decision, may obtain a 
court review if the amount remaining in controversy is $1,000 or more. A 
party may obtain court review by filing a civil action in a district 
court of the United States in accordance with the provisions of section 
205(g) of the Act. The filing procedure is set forth in 20 CFR 422.210.
    (b) Prohibition against court review of certain Part B regulations 
or instructions. Under section 1869(b)(4) of the Act, a court may not 
review a regulation or instruction that relates to a method of payment 
under Part B if the regulation was promulgated, or the instruction 
issued, before January 1, 1981.

[62 FR 25854, May 12, 1997]



Sec. 405.860  Review of national coverage decisions (NCDs).

    (a) General. (1) HCFA makes NCDs either granting, limiting, or 
excluding Medicare coverage for a specific medical service, procedure or 
device. NCDs are made under section 1862(a)(1) of the Act or other 
applicable provisions of the Act. An NCD is binding on all Medicare 
carriers, fiscal intermediaries, PROs, HMOs, CMPs, and HCPPs when 
published in HCFA program manuals or the Federal Register.
    (2) Under section 1869(b)(3) of the Act, only NCDs made under 
section 1862(a)(1) of the Act are subject to the conditions of 
paragraphs (b) through (d) of this section.
    (b) Review by ALJ. (1) An ALJ may not disregard, set aside, or 
otherwise review an NCD.
    (2) An ALJ may review the facts of a particular case to determine 
whether an NCD applies to a specific claim for benefits and, if so, 
whether the NCD has been applied correctly to the claim.
    (c) Review by Court. (1) A court's review of an NCD is limited to 
whether the record is incomplete or otherwise lacks adequate information 
to support the validity of the decision, unless the case has been 
remanded to the Secretary to supplement the record regarding the NCD. 
The court may not invalidate an NCD except upon review of the 
supplemented record.
    (2) A Federal court may not hold unlawful or set aside an NCD 
because it was not issued in accordance with the notice and comment 
procedures of the Administrative Procedure Act (5 U.S.C. 553) or section 
1871(b) of the Act.
    (d) Remands--(1) Secretary's action. When a court remands an NCD 
matter to the Secretary because the record in support of the NCD is 
incomplete or otherwise lacks adequate information, the Secretary 
remands the case to HCFA in order to supplement the record.
    (2) Remand to HCFA. HCFA supplements the record with new or updated 
evidence, including additional information from other sources, and may 
issue a revised NCD.

[[Page 87]]

    (3) Final Actions. (i) The proceedings to supplement the record, are 
expedited.
    (ii) When HCFA does not issue a revised NCD, it returns the 
supplemented record to the court for review.
    (iii) When HCFA issues a revised NCD, it forwards the case to an ALJ 
who issues a new decision applying the revised NCD to the facts of the 
claim(s) under consideration. The ALJ's decision is subject to DAB 
review and, ultimately, judicial review.

[62 FR 25854, May 12, 1997]



Sec. 405.870  Appointment of representative.

    A party to an initial determination, informal review or hearing as 
provided in Secs. 405.803 through 405.934, may appoint as his 
representative in any such proceeding any person qualified under 
Sec. 405.871. Where the representative is an attorney, in the absence of 
information to the contrary, his representation that he has such 
authority shall be accepted as evidence of the attorney's authority to 
represent a party.



Sec. 405.871  Qualifications of representatives.

    Any individual may be appointed to act as representative in 
accordance with Sec. 405.870, unless he is disqualified or suspended 
from acting as a representative in proceedings before the SSA or the 
HCFA or unless otherwise prohibited by law.

[39 FR 12098, Apr. 3, 1974. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 62 FR 25855, May 12, 1997]



Sec. 405.872  Authority of representatives.

    A representative, appointed and qualified as provided in 
Secs. 405.870 and 405.871, may make or give, on behalf of the party he 
represents, any request or notice relative to any proceeding before the 
carrier including review and hearing. A representative shall be entitled 
to present evidence and allegations as to facts and law in any 
proceeding affecting the party he represents and to obtain information 
with respect to the claim of such party to the same extent as such 
party. Notice to any party or any action, determination, or decision, or 
request to any party for the production of evidence, shall be sent to 
the representative of such party.



Sec. 405.874  Appeals of carrier decisions that supplier standards are not met.

    (a) An entity serving as a National Supplier Clearinghouse must act 
promptly to determine if any entity submitting a request for a billing 
number as a Medicare supplier of part B items meets the standards set 
forth in part 424. Effective July 1, 1993, the National Supplier 
Clearinghouse must accept, reject or request additional information 
within 15 days of the receipt of an enrollment application.
    (b) If the National Supplier Clearinghouse disallows an entity's 
request for a billing number or revokes, with the concurrence of HCFA, 
an entity's billing number, the National Supplier Clearinghouse notifies 
the entity by certified mail. Revocation is effective 15 days after the 
National Supplier Clearinghouse mails notice of its determination. The 
carrier disallows payment for items furnished by the supplier beginning 
with that effective date. The notice must inform the entity of the 
reason for the rejection or revocation, its right to appeal, the date by 
which it must file that appeal (90 days after the postmark of the 
notice) and the address to which the appeal must be sent in writing.
    (c) A fair hearing officer not involved in the original 
determination to disallow an entity's request for a billing number, or 
to revoke an entity's billing number, must schedule a hearing to be held 
within one week of receipt of an appeal, or later at the request of the 
entity. Both the entity and carrier may offer evidence. The hearing 
officer issues notice of his/her decision within 2 weeks of the hearing. 
The notice is sent by certified letter to HCFA, the carrier, and the 
appealing entity. This notice must include information about the 
supplier's further right to appeal, the carrier's right to appeal, the 
date by which the appeal must be filed (90 days after the postmark of 
the notice) and the address to which the appeals must be sent in 
writing. Either the carrier or entity may appeal the hearings officer's 
decision to HCFA.

[[Page 88]]

    (d) A HCFA official, designated by the Administrator of HCFA, must 
make an appeal decision based on the evidence presented to the fair 
hearing officer and his or her decision. The HCFA official requests any 
additional information he or she deems necessary from either the carrier 
or the entity within two weeks of receipt by the HCFA of the appeal. 
Notice of the HCFA official's decision--
    (1) Is issued within two weeks of when the last information is 
received is received by the HCFA official, or four weeks of when the 
information is requested, whichever is shorter, unless the party 
appealing the fair hearing decision requests a delay;
    (2) Is sent by the HCFA official by certified mail to both the 
carrier and the entity; and
    (3) Contains information on any further appeals the entity and 
carrier may have.
    (e) A billing number is not issued, or remains revoked, and payment 
is not made, for items or services furnished by any entity which a 
carrier determines does not qualify for a billing number, until the 
carrier (upon reapplication of the entity), a fair hearing officer, or a 
HCFA official designated to hear such appeals, determines that the 
entity qualifies for a billing number. Any claims for items or services 
furnished after revocation of the supplier's billing number and 
submitted by the entity during the appeals period are held and not 
processed, i.e., are neither approved, denied or developed, until all 
administrative appeals have been exhausted. If an entity is determined 
not to have qualified for a billing number in one period but to have 
qualified in another, the carrier pays for claims for items sold or 
rented to beneficiaries during the period the entity qualified as a 
supplier. If there is evidence of an overpayment, see subpart C of part 
405 of this Chapter.
    (f) A billing number may be reinstated after revocation when an 
entity completes a corrective action plan, to which HCFA has agreed, and 
provided sufficient assurance of its intent to comply fully with the 
supplier standards.

[57 FR 27305, June 18, 1992]



Sec. 405.877  Appeal of a categorization of a device.

    (a) HCFA's acceptance of the FDA categorization of a device as an 
experimental/investigational (Category A) device under Sec. 405.203 is a 
national coverage decision under section 1862(a)(1) of the Act.
    (b) HCFA's acceptance of the FDA categorization of a device as an 
experimental/investigational (Category A) device under Sec. 405.203 is 
an aspect of an initial determination that, under section 1862 of the 
Act, payment may not be made.
    (c) In accordance with section 1869(b)(3)(A) of the Act, HCFA's 
acceptance of the FDA categorization of a device as an experimental/
investigational (Category A) device under Sec. 405.203 may not be 
reviewed by an administrative law judge.

[60 FR 48424, Sept. 19, 1995]



                        Subparts I-Q--[Reserved]



      Subpart R--Provider Reimbursement Determinations and Appeals

    Authority: Secs. 205, 1102, 1814(b), 1815(a), 1833, 1861(v), 1871, 
1872, 1878, and 1886 of the Social Security Act (42 U.S.C. 405, 1302, 
1395f(b), 1395g(a), 1395l, 1395x(v), 1395hh, 1395ii, 1395oo, and 
1395ww).

    Source: 39 FR 34515, Sept. 26, 1974, unless otherwise noted. 
Redesignated at 42 FR 52826, Sept. 30, 1977.



Sec. 405.1801  Introduction.

    (a) Definitions. As used in this subpart:
    Administrator means the Administrator or Deputy Administrator of 
HCFA.
    Administrator's review means that review provided for in section 
1878(f) of the Act (42 U.S.C. 1395oo(f)) and Sec. 405.1875.
    Board means the Provider Reimbursement Review Board established in 
accordance with section 1878 of the Act (42 U.S.C. 1395oo) and 
Sec. 405.1845.
    Board hearing means that hearing provided for in section 1878(a) of 
the Act (42 U.S.C. 1395oo(a)), and Sec. 405.1835.
    Date of filing and date of submission of materials mean the day of 
the mailing

[[Page 89]]

(as evidenced by the postmark) or hand-delivery of materials, unless 
otherwise defined in this subpart.
    Date of receipt means the date on the return receipt of ``return 
receipt requested'' mail, unless otherwise defined in this subpart.
    Intermediary determination means the following:
    (1) With respect to a provider of services that has filed a cost 
report under Secs. 413.20 and 413.24(f) of this chapter, the term means 
a determination of the amount of total reimbursement due the provider, 
pursuant to Sec. 405.1803 following the close of the provider's cost 
reporting period, for items and services furnished to beneficiaries for 
which reimbursement may be made on a reasonable cost basis under 
Medicare for the period covered by the cost report.
    (2) With respect to a hospital that receives payments for inpatient 
hospital services under the prospective payment system (part 412 of this 
chapter), the term means a determination of the total amount of payment 
due the hospital, pursuant to Sec. 405.1803 following the close of the 
hospital's cost reporting period, under that system for the period 
covered by the determination.
    (3) For purposes of appeal to the Provider Reimbursement Review 
Board, the term is synonymous with the phrases ``intermediary's final 
determination'' and ``final determination of the Secretary'', as those 
phrases are used in section 1878(a) of the Act.
    (4) For purposes of Sec. 405.376 concerning claims collection 
activities, the term does not include an action by HCFA with respect to 
a compromise of a Medicare overpayment claim, or termination or 
suspension of collection action on an overpayment claim, against a 
provider or physician or other supplier.
    Intermediary hearing means that hearing provided for in 
Sec. 405.1809.
    (b) General rule--(1) Providers. The principles of reimbursement for 
determining reasonable cost and prospective payment are contained in 
parts 413 and 412, respectively, of this chapter. In order to be 
reimbursed for covered services furnished to Medicare beneficiaries, 
providers of services are obliged to file cost reports with their 
intermediaries as specified in Sec. 413.24(f) of this chapter. Where the 
term ``provider'' appears in this subpart, it includes hospitals paid 
under the prospective payment system for purposes of applying the appeal 
procedures described in this subpart to those hospitals.
    (2) Other entities participating in Medicare Part A. In addition to 
providers of services whose status as such is indicated in the Act, 
there are entities (such as health maintenance organizations) that do 
not meet the statutory test for providers of services, which may also 
participate in Medicare. These entities are required to file periodic 
cost reports and are reimbursed on the basis of information furnished in 
the reports. Although the entities do not qualify for Board review, the 
rules as set forth in this subpart with respect to intermediary hearings 
are applicable to the entities to the maximum extent possible, for cost-
reporting periods ending on or after December 31, 1971, where the amount 
of program reimbursement in controversy is at least $1,000.
    (c) Effective dates. (1) Except as provided in paragraphs (c)(2) and 
(c)(3) of this section or in Sec. 405.1885(e), this subpart applies to 
all cost reporting periods ending on or after December 31, 1971, for 
which reimbursement may be made on a reasonable cost basis.
    (2) Sections 405.1835 to 405.1877 apply only to cost reporting 
periods ending on or after June 30, 1973, for which reimbursement may be 
made on a reasonable cost basis.
    (3) With respect to hospitals under the prospective payment system 
(see part 412 of this chapter), the appeals procedures in Secs. 405.1811 
to 405.1877 that apply become applicable with the hospital's first cost 
reporting period beginning on or after October 1, 1983.

[39 FR 34515, Sept. 26, 1974. Redesignated at 42 FR 52826, Sept. 30, 
1977, as amended at 48 FR 39834, Sept. 1, 1983; 48 FR 45773, Oct. 7, 
1983; 49 FR 322, Jan. 3, 1984; 49 FR 23013, June 1, 1984; 51 FR 34793, 
Sept. 30, 1986; 61 FR 63749, Dec. 2, 1996]



Sec. 405.1803  Intermediary determination and notice of amount of program reimbursement.

    (a) General requirement. Upon receipt of a provider's cost report, 
or amended

[[Page 90]]

cost report where permitted or required, the intermediary must within a 
reasonable period of time (see Sec. 405.1835(b)), furnish the provider 
and other parties as appropriate (see Sec. 405.1805) a written notice 
reflecting the intermediary's determination of the total amount of 
reimbursement due the provider. The intermediary must include the 
following information in the notice, as appropriate:
    (1) Reasonable cost. The notice must--
    (i) Explain the intermediary's determination of total program 
reimbursement due the provider on the basis of reasonable cost for the 
reporting period covered by the cost report or amended cost report; and
    (ii) Relate this determination to the provider's claimed total 
program reimbursement due the provider for this period.
    (2) Prospective payment. With respect to a hospital that receives 
payments for inpatient hospital services under the prospective payment 
system (see part 412 of this chapter), the intermediary must include in 
the notice its determination of the total amount of the payments due the 
hospital under that system for the cost reporting period covered by the 
notice. The notice must explain (with appropriate use of the applicable 
money amounts) any difference in the amount determined to be due, and 
the amounts received by the hospital during the cost reporting period 
covered by the notice.
    (b) Requirements for intermediary notices. The intermediary must 
include in each notice appropriate references to law, regulations, HCFA 
Rulings, or program instructions to explain why the intermediary's 
determination of the amount of program reimbursement for the period 
differs from the amount the provider claimed. The notice must also 
inform the provider of its right to an intermediary or Board hearing 
(see Secs. 405.1809, 405.1811, 405.1815, 405.1835, and 405.1843) and 
that the provider must request the hearing within 180 days after the 
date of the notice.
    (c) Use of notice as basis for recoupment of overpayments. The 
intermediary's determination contained in its notice is the basis for 
making the retroactive adjustment (required by Sec. 413.64(f) of this 
chapter) to any program payments made to the provider during the period 
to which the determination applies, including recoupment under 
Sec. 405.373 from ongoing payments to the provider of any overpayments 
to the provider identified in the determination. Recoupment is made 
notwithstanding any request for hearing on the determination the 
provider may make under Sec. 405.1811 or Sec. 405.1835.

[48 FR 39834, Sept. 1, 1983, as amended at 49 FR 322, Jan 3, 1984; 51 FR 
34793, Sept. 30, 1986; 61 FR 63748, Dec. 2, 1996]



Sec. 405.1804  Matters not subject to administrative and judicial review under prospective payment.

    Neither administrative nor judicial review is available for 
controversies about the following matters:
    (a) The determination of the requirement, or the proportional 
amount, of any budget neutrality adjustment in the prospective payment 
rates.
    (b) The establishment of--
    (1) Diagnosis related groups (DRGs);
    (2) The methodology for the classification of inpatient discharges 
within the DRGs; or
    (3) Appropriate weighting factors that reflect the relative hospital 
resources used with respect to discharge within each DRG.

[49 FR 322, Jan. 1, 1984]



Sec. 405.1805  Parties to intermediary determination.

    The parties to the intermediary's determination are the provider and 
any other entity found by the intermediary to be a related organization 
of the provider under Sec. 413.17 of this chapter.

[48 FR 39835, Sept. 1, 1983, as amended at 51 FR 34793, Sept. 30, 1986]



Sec. 405.1807  Effect of intermediary determination.

    The determination shall be final and binding on the party or parties 
to such determination unless:
    (a) An intermediary hearing is requested in accordance with 
Sec. 405.1811 and an intermediary hearing decision rendered in 
accordance with Sec. 405.1831; or
    (b) The intermediary determination is revised in accordance with 
Sec. 405.1885; or

[[Page 91]]

    (c) A Board hearing is requested in accordance with Sec. 405.1835 
and a hearing decision rendered pursuant thereto.



Sec. 405.1809  Intermediary hearing procedures.

    (a) Hearings. Each intermediary must establish and maintain written 
procedures for intermediary hearings, in accordance with the regulations 
in this subpart, for resolving issues that may arise between the 
intermediary and a provider concerning the amount of reasonable cost 
reimbursement, or prospective payment due the provider (except as 
provided in Sec. 405.1804) under the Medicare program. The procedures 
must provide for a hearing on the intermediary determination contained 
in the notice of program reimbursement (Sec. 405.1803), if the provider 
files a timely request for a hearing.
    (b) Amount in controversy. In order for an intermediary to grant a 
hearing, the following dates and amounts in controversy apply:
    (1) For cost reporting periods ending prior to June 30, 1973, the 
amount of program reimbursement in controversy must be at least $1000.
    (2) For cost reporting periods ending on or after June 30, 1973, the 
amount of program reimbursement in controversy must be at least $1000 
but less than $10,000.

[48 FR 39835, Sept. 1, 1983, as amended at 49 FR 323, Jan. 1, 1984]



Sec. 405.1811  Right to intermediary hearing; time, place, form, and content of request for intermediary hearing.

    (a) A provider that has been furnished a notice of amount of program 
reimbursement may request an intermediary hearing if it is dissatisfied 
with the intermediary's determination contained in the notice and the 
amount in controversy requirement described in Sec. 405.1809 is met. The 
request must be in writing and be filed with the intermediary within 180 
calendar days after the date of the notice. (See Sec. 405.1835(c)). No 
other individual, entity, or party has the right to an intermediary 
hearing.
    (b) The request must (1) identify the aspect(s) of the determination 
with which the provider is dissatisfied, and (2) explain why the 
provider believes the determination on these matters is incorrect, and 
(3) be submitted with any documentary evidence the provider considers 
necessary to support its position.
    (c) Following the timely filing of the request for hearing, the 
provider may identify in writing, prior to the onset of the hearing 
proceedings, additional aspects of the determination with which it is 
dissatisfied and furnish any documentary evidence in support thereof. If 
such additional aspects are submitted, the hearing officer may postpone 
the hearing to allow for his examination of such additional aspects.

[39 FR 34515, Sept. 26, 1974. Redesignated at 42 FR 52826, Sept. 30, 
1977, as amended at 48 FR 39835, Sept. 1, 1983]



Sec. 405.1813  Failure to timely request an intermediary hearing.

    If a provider requests an intermediary hearing on an intermediary's 
determination after the time limit prescribed in Sec. 405.1811, the 
designated intermediary hearing officer or panel of hearing officers 
will dismiss the request and furnish the provider a written notice that 
explains the time limitation, except that for good cause shown, the time 
limit prescribed in Sec. 405.1811 may be extended. However, an extension 
may not be granted if the extension request is filed more than 3 years 
after the date of the original notice of the intermediary determination.

[48 FR 39835, Sept. 1, 1983]



Sec. 405.1815  Parties to the intermediary hearing.

    The parties to the intermediary hearing shall be the parties to the 
intermediary determination and any other entity determined by the 
intermediary to be a related organization of such provider. Said parties 
shall be given reasonable notice of the time, date, and place of such 
hearing. Neither the intermediary nor the Health Care Financing 
Administration are parties (see Sec. 405.1819).

[[Page 92]]



Sec. 405.1817  Hearing officer or panel of hearing officers authorized to conduct intermediary hearing; disqualification of officers.

    The intermediary hearing provided for in Sec. 405.1809 shall be 
conducted by a hearing officer or panel of hearing officers designated 
by the intermediary. Such hearing officer or officers shall be persons 
knowledgeable in the field of health care reimbursement. The hearing 
officer or officers shall not have had any direct responsibility for the 
program reimbursement determination with respect to which a request for 
hearing is filed; no hearing officer (or officers) shall conduct a 
hearing in a case in which he is prejudiced or partial with respect to 
any party, or where he has any interest in the matter pending for 
determination before him. Notice of any objection which a party may have 
with respect to a hearing officer shall be presented in writing to such 
officer by the objecting party at the party's earliest opportunity. The 
hearing officer shall consider the objection and shall, at his 
discretion, either proceed in the conduct of the hearing or withdraw. If 
the hearing officer does not withdraw, the objecting party may, after 
the hearing, present his objections to an executive official of the 
intermediary, who shall rule promptly on the objection.



Sec. 405.1819  Conduct of intermediary hearing.

    The hearing shall be open to all parties thereto (see Sec. 405.1815) 
and to representatives of the intermediary and of the Health Care 
Financing Administration (see Sec. 405.1815). The hearing officer(s) 
shall inquire fully into all of the matters at issue and shall receive 
into evidence the testimony and any documents which are relevant and 
material to such matters. If the hearing officer(s) believes that there 
is relevant and material evidence available which has not been presented 
at the hearing, he (they) may, at any time prior to the mailing of 
notice of the decision, reopen the hearing record for the receipt of 
such evidence. The order in which the evidence and the allegations shall 
be presented and the conduct of the hearing shall be at the discretion 
of the hearing officer(s).



Sec. 405.1821  Prehearing discovery and other proceedings prior to the intermediary hearing.

    (a) Prehearing discovery shall be permitted upon timely request of 
any party. To be timely, a request for discovery and inspection shall be 
made before the beginning of the hearing. A reasonable time for 
inspection and reproduction of documents shall be provided by order of 
the hearing officer(s).
    (b) If, in the discretion of the hearing officer(s), the purpose of 
defining the issues more clearly would be served, the hearing officer(s) 
may schedule a prehearing conference. For this purpose, a single member 
of a panel of hearing officers, when such is the case, may be appointed 
to act for the panel with respect to prehearing activities.



Sec. 405.1823  Evidence at intermediary hearing.

    Evidence may be received at the intermediary hearing even though 
inadmissible under the rules of evidence applicable to court procedure. 
The hearing officer(s) shall give the parties opportunity for submission 
and consideration of facts and arguments, and during the course of the 
hearing, should in ruling upon admissibility of evidence, exclude 
irrelevant, immaterial, or unduly repetitious evidence. The hearing 
officer(s) shall render a final ruling on the admissibility of evidence.



Sec. 405.1825  Witnesses at intermediary hearing.

    The hearing officer(s) may examine the witnesses and shall allow the 
parties and their representatives to do so. Parties to the proceedings 
may also cross-examine witnesses.



Sec. 405.1827  Record of intermediary hearing.

    A complete recordation of the proceedings at the intermediary 
hearing shall be made and transcribed in all cases. It shall be made 
available to any party upon request. The record will not be closed until 
a decision (see Sec. 405.1831) has been issued.

[[Page 93]]



Sec. 405.1829  Authority of hearing officer(s) at intermediary hearing.

    (a) The hearing officer(s) in exercising his authority must comply 
with all the provisions of title XVIII of the Act and regulations issued 
thereunder, as well as with HCFA Rulings issued under the authority of 
the Administrator of the Health Care Financing Administration (see 42 
CFR 401.108), and with the general instructions issued by the Health 
Care Financing Administration in accordance with the Secretary's 
agreement with the intermediary.
    (b) The determination of a fiscal intermediary that no payment may 
be made under title XVIII of the Act for any expense incurred for items 
and services furnished to an individual because such items and services 
are excluded from coverage pursuant to section 1862 of the Act, 42 
U.S.C. 1395y (see subpart C of this part), shall not be reviewed by the 
hearing officer(s). Such determination shall be reviewed only in 
accordance with the applicable provisions of subparts G and H of this 
part.



Sec. 405.1831  Intermediary hearing decision and notice.

    The hearing officer(s) shall, on a timely basis, render a decision 
in writing based on the evidence in the record; such decision shall 
constitute the final determination of the intermediary. In such 
decision, he will cite applicable law, regulations, HCFA Rulings, and 
general instructions of the Health Care Financing Administration, as 
well as findings on all the matters in issue at the hearing. A copy of 
the decision will be mailed to all parties to the hearing at their last 
known addresses.



Sec. 405.1833  Effect of intermediary hearing decision.

    The intermediary hearing decision provided for in Sec. 405.1831 
shall be final and binding upon all parties to the hearing unless such 
intermediary determination is revised in accordance with Sec. 405.1885.



Sec. 405.1835  Right to Board hearing.

    (a) Criteria. The provider (but no other individual, entity, or 
party) has a right to a hearing before the Board about any matter 
designated in Sec. 405.1801(a)(1), if:
    (1) An intermediary determination has been made with respect to the 
provider; and
    (2) The provider has filed a written request for a hearing before 
the Board under the provisions described in Sec. 405.1841(a)(1); and
    (3) The amount in controversy (as determined in Sec. 405.1839(a)) is 
$10,000 or more.
    (b) Prospective payment exceptions. Except with respect to matters 
for which administrative or judicial review is not permitted as 
specified in Sec. 405.1804, hospitals that are paid under the 
prospective payment system are entitled to hearings before the Board 
under this section if they otherwise meet the criteria described in 
paragraph (a) of this section.
    (c) Right to hearing based on late intermediary determination about 
reasonable cost. Notwithstanding the provisions of paragraph (a)(1) of 
this section, the provider also has a right to a hearing before the 
Board if an intermediary's determination concerning the amount of 
reasonable cost reimbursement due a provider is not rendered within 12 
months after receipt by the intermediary of a provider's perfected cost 
report or amended cost report (as permitted or as required to furnish 
sufficient data for purposes of making such determination--see 
Sec. 405.1803(a)) provided such delay was not occasioned by the fault of 
the provider.

[48 FR 39835, Sept. 1, 1983]



Sec. 405.1837  Group appeal.

    (a) Criteria for group appeals. Subject to paragraph (b) of this 
section, a group of providers may bring an appeal before the Board but 
only if--
    (1) Each provider in the group is identified as one which would, 
upon the filing of a request for a hearing before the Board, but without 
regard to the $10,000 amount in controversy requirement, be entitled to 
a hearing under Sec. 405.1835;
    (2) The matters at issue involve a common question of fact or of 
interpretation of law, regulations or HCFA Rulings; and
    (3) The amount in controversy is, in the aggregate, $50,000 or more.

[[Page 94]]

    (b) Providers under common ownership or control. Effective April 20, 
1983, any appeal filed by providers that are under common ownership or 
control must be brought by the providers as a group appeal in accordance 
with the provisions of paragraph (a) of this section with respect to any 
matters involving an issue common to the providers and for which the 
amount in controversy is, in the aggregate, $50,000 or more (see 
Sec. 405.1841(a)(2)). A single provider involved in a group appeal that 
also wishes to appeal issues that are not common to the other providers 
in the group must file a separate hearing request (see 
Sec. 405.1841(a)(1)) and must separately meet the requirements in 
Sec. 405.1811 or Sec. 405.1835, as applicable.

[48 FR 39836, Sept. 1, 1983]



Sec. 405.1839  Amount in controversy.

    (a) Single appeals. The $1,000 amount in controversy required under 
Sec. 405.1809 for an intermediary hearing and the $10,000 amount in 
controversy required under Sec. 405.1835 for a Board hearing is, as 
applicable to the matters for which the provider has requested a 
hearing, the combined total of the amounts computed as follows:
    (1) Providers under prospective payment. For providers that are paid 
under the prospective payment system, by deducting--
    (i) The total of the payment due the provider on other than a 
reasonable cost basis under the prospective payment system from the 
total amount that would be payable after a recomputation that takes into 
account any exclusion, exception, adjustment, or additional payment 
denied the provider under part 412 of this chapter, as applicable;
    (ii) The total of the payment due the provider on a reasonable cost 
basis under the prospective payment system from the total reimbursable 
costs claimed by the provider; and
    (iii) The adjusted total reimbursable costs due the provider on a 
reasonable cost basis under other than the prospective payment system 
from the total reimbursable costs claimed by the provider.
    (2) Providers not under prospective payment. For providers that are 
not paid under the prospective payment system, by deducting the adjusted 
total reimbursable program costs due the provider on a reasonable cost 
basis from the total reimbursable costs claimed by the provider.
    (b) Group appeals. The $50,000 amount in controversy required under 
Sec. 405.1837 for group appeals to the Board is, as applicable to the 
common matters for which the group of providers have requested a 
hearing, the combined total of the amounts computed as follows:
    (1) Providers under prospective payment. For providers that are paid 
under the prospective payment system, by deducting--
    (i) The total of the payment due the providers (in the aggregate) on 
other than a reasonable cost basis under the prospective payment system 
from the total amount that would be payable to the providers (in the 
aggregate) after a recomputation that takes into account any applicable 
exception, exclusion, adjustment, or additional payment denied the 
providers under part 412 of this chapter.
    (ii) The total of the payment due the providers (in the aggregate) 
on a reasonable cost basis under the prospective payment system from the 
total reimbursable costs claimed in the aggregate by the providers; and
    (iii) The adjusted total reimbursable costs due the providers (in 
the aggregate) on a reasonable cost basis under other than the 
prospective payment system from the total reimbursable costs claimed in 
the aggregate by the providers.
    (2) Providers not under prospective payment. For providers that are 
not paid under the prospective payment system, by deducting the adjusted 
total reimbursable program costs due the providers (in the aggregate) on 
a reasonable cost basis from the total reimbursable costs claimed in the 
aggregate by the providers.

[49 FR 323, Jan. 3, 1984]



Sec. 405.1841  Time, place, form, and content of request for Board hearing.

    (a) General requirements. (1) The request for a Board hearing must 
be filed in writing with the Board within 180 days of the date the 
notice of the intermediary's determination was mailed to the provider 
or, where notice

[[Page 95]]

of the determination was not timely rendered, within 180 days after the 
expiration of the period specified in Sec. 405.1835(c). Such request for 
Board hearing must identify the aspects of the determination with which 
the provider is dissatisfied, explain why the provider believes the 
determination is incorrect in such particulars, and be accompanied by 
any documenting evidence the provider considers necessary to support its 
position. Prior to the commencement of the hearing proceedings, the 
provider may identify in writing additional aspects of the 
intermediary's determination with which it is dissatisfied and furnish 
any documentary evidence in support thereof.
    (2) Effective April 20, 1983, any request for a Board hearing by 
providers that are under common ownership or control (see Sec. 413.17 of 
this chapter) must be brought by the providers as a group appeal (see 
Sec. 405.1837(b)) with respect to any matters at issue involving a 
question of fact or of interpretation of law, regulations, or HCFA 
Rulings common to the providers and for which the amount in controversy 
is $50,000 or more in the aggregate. If a group appeal is filed, the 
provider seeking the appeal must be separately identified in the request 
for hearing, which must be prepared and filed consistently with the 
requirements of paragraph (a)(1) of this section.
    (b) Extension of time limit for good cause. A request for a Board 
hearing filed after the time limit prescribed in paragraph (a) of this 
section shall be dismissed by the Board, except that for good cause 
shown, the time limit may be extended. However, no such extension shall 
be granted by the Board if such request is filed more than 3 years after 
the date the notice of the intermediary's determination is mailed to the 
provider.

[48 FR 39836, Sept. 1, 1983, as amended at 51 FR 34793, Sept. 30, 1986]



Sec. 405.1842  Expediting Board proceedings.

    (a) Basis and purpose. This section implements section 1878(f)(1) of 
the Social Security Act, as amended by section 955 of Public Law 96-499 
(42 U.S.C. 1395oo(f)(1)). The amendment provides an opportunity for 
providers to obtain expedited administrative review when the Board 
determines that it does not have the authority to decide a question of 
law, regulation, or HCFA Ruling relevant to the case (see 
Sec. 405.1867).
    (b) Basic rule. (1) Except as provided in paragraph (b)(4) of this 
section, a provider may submit a written request to the Board, with 
supporting documentation, to determine whether the Board has the 
authority to decide a question of law, regulations, or HCFA Rulings 
relevant to and controlling upon an issue to be reviewed by the Board. 
The Board is required to make an expedited review determination in 
writing, either denying or granting the request, within 30 days after 
the date of receipt of the request, as defined in paragraph (1) of this 
section. The Board may also issue a determination on its own motion that 
it lacks authority to decide a question of law, regulations or HCFA 
Rulings.
    (2) The Board must determine that the provider (including each 
provider in a group appeal) is entitled to a hearing under section 
1878(a) of the Act before making the determination described in 
paragraph (b)(1) of this section. Thus, the provider must file (or have 
already filed) a written request for a Board hearing that meets the 
requirements in Sec. 405.1841. The information and documentation 
required with respect to the filing of a request for a hearing is used 
by the Board to determine jurisdiction under section 1878(a) of the Act.
    (3) A provider's request for an expedited review determination 
cannot be considered to be filed with the Board, nor can the 30-day time 
period during which the Board is required to make an expedited review 
determination begin, until such time as the Board accepts jurisdiction 
of the case.
    (4) Proceedings conducted by the Board under an authority other than 
section 1878(a) of the Act and Secs. 405.1835 through 405.1873 of this 
subpart are not hearings for purposes of this section and are not 
subject to the expedited Board proceedings set forth in this section. 
For example, proceedings concerning reimbursement for capital 
expenditures conducted under section 1122(f) of the Act and 
Sec. 405.1890 of this

[[Page 96]]

subpart are not hearings for purposes of this section. (Section 1122(f) 
specifically bars any administrative or judicial review.)
    (c) ``Own motion'' review. If the Board is considering issuing a 
determination on its own motion that it lacks the authority to decide a 
question of law, regulations, or HCFA Rulings, it will notify the 
provider and intermediary of its proposed determination and allow them a 
reasonable period of time to file evidence or arguments either to 
support or oppose the proposed determination.
    (d) Provider requests. (1) If a provider seeks an expedited Board 
proceeding, it must--(i) File its appropriately documented request in 
writing with the Board; and
    (ii) Send a copy of the request and documentation simultaneously to 
the intermediary.
    (2) The request to the Board for an expedited review determination 
must--(i) Identify the issues and the controlling law, regulation or 
HCFA Ruling for which the Board is to make a determination;
    (ii) Allege and demonstrate that there are no factual issues in 
dispute;
    (iii) Contain an explanation of why the provider believes the Board 
cannot decide the legal issue or issues that are in dispute; and
    (iv) Include all other information or details that support the 
request.
    (3) If the information in the provider request is insufficient for 
the Board to determine whether it has the authority to decide an issue, 
the Board will request more information from the provider. Such a 
request will affect the 30-day time limit as provided in paragraph (i) 
of this section. If the provider does not send more information or sends 
inadequate information, the Board will determine that it has the 
authority to decide the issue and will begin the regular procedure for a 
hearing.
    (e) Intermediary participation. (1) After receiving a copy of the 
provider's request for an expedited review determination, the 
intermediary may send comments to the Board on the provider's request 
and supporting documentation. The intermediary will send a copy of its 
comments to the provider simultaneously.
    (2) If the intermediary's comments raise questions about the 
provider's request for expedited review, the Board may request 
additional information from the provider as provided in paragraph (d)(3) 
of this section.
    (f) Criteria for a Board determination. The Board will review all 
documentation forwarded by the provider and the intermediary relevant to 
the request for a Board determination concerning the Board's authority 
to decide an issue. In its review, the Board will consider--
    (1) The controlling facts in the case;
    (2) The applicability of law, regulations, or HCFA rulings;
    (3) Whether there are factual issues for the Board to resolve; and
    (4) Whether there are legal issues within the authority of the Board 
to decide.
    (g) Board determination. (1) Within 30 days after the date of 
receipt (as defined in paragraph (i) of this section) of a provider's 
request and all necessary documentation the Board will issue a 
determination concerning its authority to decide the question of law, 
regulations, or HCFA Rulings relevant to the issues identified by the 
provider in its request.
    (2) If there are factual or legal issues in dispute on an issue 
within the authority of the Board to decide, the Board will not make an 
expedited review determination on the particular issue but will proceed 
with a hearing. The Board has the authority to decide when two or more 
issues are sufficiently related to preclude separation for purposes of 
an expedited review determination on one or more of them and a hearing 
on the other or others.
    (3) The Board will promptly notify the provider in writing of its 
determination and will send a copy of the determination to the 
intermediary.
    (4) The Board's determination concerning its authority or its lack 
of a determination is not subject to the Secretary's review under 
Sec. 405.1875.
    (h) Effect of a Board decision. (1) The Board's determination, 
issued on its own motion or at the request of a provider, that it lacks 
authority to decide a question of law, regulations or HCFA

[[Page 97]]

Rulings is a final decision permitting a provider to seek judicial 
review with respect to the matter or matters in controversy contained in 
the determination, within 60 days of the date of the Board's 
determination.
    (2) After the Board has determined that it does not have the 
authority to decide an issue, the provider will not be granted a hearing 
on the same issue.
    (3) If the Board fails to issue an expedited review determination 
within 30 days of the date of receipt of a complete request (as 
determined under paragraph (i) of this section), the provider may, 
within 60 days from the end of that period, seek judicial review of the 
matters for which it requested the Board's determination.
    (4) If the Board fails to make an expedited review determination 
within the required 30 days, it will begin regular hearing procedures as 
though it has the authority to decide the issue.
    (5) If the provider seeks judicial review because the Board fails to 
make a determination as provided in paragraph (g)(1) of this section, it 
should notify the Board at the time it files for judicial review. The 
Board will not hold a hearing, even if one has been scheduled, on the 
matter or matters for which the provider is seeking judicial review.
    (6) The Board's determination does not affect the right of the 
provider to a Board hearing for issues for which the provider did not 
request expedited review, or for which the Board determines it does have 
the authority to decide, or for which the Board did not make a 
determination and the provider did not request judicial review.
    (i) Date of receipt. For purposes of this section, the date of 
receipt of the provider's request is the later of--
    (1) The actual date of receipt by the Board of the information 
required under paragraph (d)(2) of this section, or of additional 
information requested by the Board under paragraph (d)(3) of this 
section, whichever the Board receives later; or
    (2) The date indicated on the Board's written notification to the 
provider that the Board has accepted jurisdiction of the case.
    (j) Examples. Below are examples showing when a provider may expect 
to receive an expedited review determination, in relation to various 
circumstances affecting its request for the determination.
    (1) The provider requests a hearing and expedited review at or about 
the same time. If all information is complete, the Board could send 
notification that it has accepted jurisdiction of the case and the 
expedited review determination simultaneously.
    (2) The provider requests both a hearing and an expedited review 
determination, and supplies complete information. The Board accepts 
jurisdiction but, for example, because of the complexity of the case, 
the Board makes its expedited review determination within 30 days after 
it has accepted jurisdiction.
    (3) The provider requests both a hearing and an expedited review 
determination, but the request for a hearing does not contain enough 
information for the Board to determine jurisdiction. The Board would 
request more information to determine jurisdiction and would make its 
expedited review determination within 30 days after it has accepted 
jurisdiction.
    (4) The provider requests both a hearing and an expedited review 
determination, but does not send enough information for the Board to 
make an expedited review determination. Assuming the Board accepts 
jurisdiction, the Board would request more information about the request 
for expedited review and make its determination within 30 days after it 
receives the additional information.
    (5) The provider requests an expedited review determination after 
the Board has accepted jurisdiction. The Board would make its 
determination within 30 days after receipt of an appropriately 
documented request for an expedited review determination.

[47 FR 31690, July 22, 1982, as amended at 48 FR 22925, May 23, 1983]



Sec. 405.1843  Parties to Board hearing.

    (a) The parties to the Board hearing shall be the provider, the 
intermediary (including the Health Care Financing Administration when 
acting directly as intermediary) that rendered the determination being 
appealed (see Sec. 405.1833), and any other entity found by the

[[Page 98]]

intermediary to be a related organization of such provider.
    (b) Except as provided in paragraph (a), neither the Secretary nor 
the Health Care Financing Administration may be made a party to the 
hearing. However, the Board may call as a witness any employee or 
officer of the Department of Health and Human Services having personal 
knowledge of the facts and the issues in controversy in a hearing 
pending before the Board and may call as a consultant to the Board in 
connection with any such hearing any individual designated by the 
Secretary for such purpose. (See Sec. 405.1863.)



Sec. 405.1845  Composition of Board.

    (a) The Board will consist of five members appointed by the 
Secretary. All shall be knowledgeable in the field of cost 
reimbursement. At least one shall be a certified public accountant. Two 
Board members shall be representative of providers of services.
    (b) The term of office for Board members shall be 3 years, except 
that initial appointments may be for such shorter terms as the Secretary 
may designate to permit staggered terms of office. No member shall serve 
more than two consecutive 3-year terms of office. The Secretary shall 
have the authority to terminate a Board member's term of office for good 
cause.
    (c) One member of the Board shall be designated by the Secretary as 
Chairman thereof and shall coordinate and direct the administrative 
activities of the Board, and shall have such other authority which may 
be granted to him by the Board.
    (d) A quorum shall be required for the rendering of Board decisions. 
Three members, at least one of whom is representative of providers of 
services, shall be required to constitute a quorum. The Chairman of the 
Board, with approval of the provider, may designate one or more Board 
members to conduct any hearing and to prepare a recommended decision 
(where less than a quorum conducts the hearing). (See Sec. 405.1869.)

[39 FR 34515, Sept. 26, 1974, as amended at 41 FR 52051, Nov. 26, 1976. 
Redesignated at 42 FR 52826, Sept. 30, 1977]



Sec. 405.1847  Disqualification of Board members.

    No Board member shall join in the conduct of a hearing in a case in 
which he is prejudiced or partial with respect to any party or in which 
he has any interest in the matter pending for decision before him. 
Notice of any objection which a party may have with respect to a Board 
member shall be presented in writing to such Board member by the 
objecting party at its earliest opportunity. The Board member shall 
consider the objection and shall, in his discretion, either proceed to 
join in the conduct of the hearing or withdraw. If he does not withdraw, 
the objecting party may petition the Board, presenting its objection and 
reasons therefor, and be entitled to a ruling thereon before the hearing 
can proceed.



Sec. 405.1849  Establishment of time and place of hearing by the Board.

    The Board shall fix the time and place for the hearing and shall 
mail written notice thereof to the parties at their last known 
addresses, not less than 30 days prior to the scheduled time. Either on 
its own motion or for good cause shown by a party, the Board may, as 
appropriate, reschedule, adjourn, postpone, or reopen the hearing, 
provided that reasonable written notice is given to the parties.



Sec. 405.1851  Conduct of Board hearing.

    The Board hearing shall be open to the parties, to representatives 
of the Health Care Financing Administration, and to such other persons 
as the Board deems necessary and proper. The Board shall inquire fully 
into all of the matters at issue and shall receive into evidence the 
testimony of witnesses and any documents which are relevant and material 
to such matters. If the Board believes that there is relevant and 
material evidence available which has not been presented at the hearing, 
it may at any time prior to the mailing of notice of the decision, 
reconvene the hearing for the receipt of such evidence. The order in 
which the evidence and the allegations shall be presented and the 
conduct of the hearing shall be at the discretion of the Board.

[[Page 99]]



Sec. 405.1853  Prehearing discovery and other proceedings prior to the Board hearing.

    (a) Upon notification that a request for Board hearing has been 
filed, the intermediary shall forthwith review the materials submitted 
by the provider in accordance with Sec. 405.1841. Simultaneously, the 
intermediary shall review the information which formed the basis for its 
determination of the amount of program reimbursement. Based on the 
findings of such review, the intermediary shall expeditiously attempt to 
join with the provider in written stipulations setting forth the issues 
that said review has resolved and designating the issues that remain for 
Board resolution. Having obtained such stipulations and being satisfied 
that no further agreements can be negotiated, the intermediary shall 
ensure that all available documentary evidence in support of each 
party's position is part of the record. Such evidence will ordinarily 
include a position paper from the provider, a position paper from the 
intermediary, and any documents which support the issues addressed in 
the stipulations. These materials, in addition to all relevant documents 
which formed the basis for its determination of the amount of program 
reimbursement, shall be forwarded to the Board within 60 days after the 
date of the provider's request for Board review.
    (b) Prehearing discovery shall be permitted upon timely request of a 
party. To be timely, a request for discovery and inspection shall be 
made before the beginning of the hearing. A reasonable time for 
inspection and reproduction of documents shall be provided by order of 
the Board. The Board's order on all discovery matters shall be final.
    (c) If, in the discretion of the Board, the purpose of defining the 
issues more clearly would be served, the Board may schedule a prehearing 
conference. For this purpose, a single member of the Board may be 
appointed to act for the Board with respect to prehearing activities.



Sec. 405.1855  Evidence at Board hearing.

    Evidence may be received at the Board hearing even though 
inadmissible under the rules of evidence applicable to court procedure. 
The Board shall give the parties opportunity for submission and 
consideration of facts and arguments and during the course of the 
hearing should, in ruling upon admissibility of evidence, exclude 
irrelevant, immaterial, or unduly repetitious evidence. The Board shall 
render a final ruling on the admissibility of evidence.



Sec. 405.1857  Subpoenas.

    When reasonably necessary for the full presentation of a case, the 
Board may, either upon its own motion or upon the request of a party, 
issue subpoenas for the attendance and testimony of witnesses and for 
the production of books, records, correspondence, papers, or other 
documents which are relevant and material to any matter in issue at the 
hearing. Parties who desire the issuance of a subpoena shall, not less 
than 10 days prior to the time fixed for the hearing, file with the 
Board a written request therefor, designating the witnesses or documents 
to be produced, and describing the address, or location thereof with 
sufficient particularity to permit such witnesses or documents to be 
found. The request for a subpoena shall state the pertinent facts which 
the party expects to establish by such witnesses or documents and 
whether such facts could be established by other evidence without the 
use of a subpoena. Subpoenas, as provided for above, shall be issued in 
the name of the Board, and the Health Care Financing Administration 
shall assume the cost of the issuance and the fees and mileage of any 
witness so subpoenaed, as provided in section 205(d) of the Act, 42 
U.S.C. 405(d).



Sec. 405.1859  Witnesses.

    Witnesses at the hearing shall testify under oath or affirmation, 
unless excused by the Board for cause. The Board may examine the 
witnesses and shall allow the parties or their representatives to do so. 
Parties to the proceeding may also cross-examine witnesses.



Sec. 405.1861  Oral argument and written allegations.

    The parties, upon their request, shall be allowed a reasonable time 
for the

[[Page 100]]

presentation of oral argument or for the filing of briefs or other 
written statements of allegations as to facts or law. Copies of any 
brief or other written statement shall be filed in sufficient number 
that they may be made available to all parties and to the Health Care 
Financing Administration.



Sec. 405.1863  Administrative policy at issue.

    Where a party to the Board hearing puts into issue an administrative 
policy which is interpretative of the law or regulations, the Board will 
promptly notify to the Health Care Financing Administration.



Sec. 405.1865  Record of Board hearing.

    A complete record of the proceedings at the hearing shall be made 
and transcribed in all cases. It shall be made available to the parties 
upon request. The record will not be closed until a decision has been 
issued.



Sec. 405.1867  Sources of Board's authority.

    In exercising its authority to conduct the hearings described 
herein, the Board must comply with all the provisions of title XVIII of 
the Act and regulations issued thereunder, as well as HCFA Rulings 
issued under the authority of the Administrator of the Health Care 
Financing Administration (see Sec. 401.108 of this subchapter). The 
Board shall afford great weight to interpretive rules, general 
statements of policy, and rules of agency organization, procedure, or 
practice established by HCFA.

[48 FR 22925, May 23, 1983]



Sec. 405.1869  Scope of Board's decision-making authority.

    The Board shall have the power to affirm, modify, or reverse a 
determination of an intermediary with respect to a cost report and to 
make any other modifications on matters covered by such cost report 
(including modifications adverse to the provider or other parties) even 
though such matters were not considered in the intermediary's 
determination. The opinion of the majority of those Board members 
deciding the case will constitute the Board's decision.



Sec. 405.1871  Board hearing decision and notice.

    (a) The Board shall, as soon as practicable after the conclusion of 
its hearing, render a written decision based upon the record made at 
such hearing, the record established in support of the determination of 
the intermediary (see Sec. 405.1803), and such other evidence as may be 
obtained or received by the Board. Such Board decision shall be 
supported by substantial evidence when the record of the Board hearing 
is viewed as a whole and shall cite applicable law, regulations, and 
HCFA Rulings. A copy of the decision shall be mailed to all parties to 
the hearing at their last known addresses and, at the same time, to the 
Administrator and HCFA.
    (b) The decision of the Board provided for in paragraph (a) of this 
section shall be final and binding upon all parties to the hearing 
before the Board unless it is reviewed by the Secretary in accordance 
with Sec. 405.1875, or revised in accordance with Sec. 405.1885.

[39 FR 34515, Sept. 26, 1974, as amended at 41 FR 52051, Nov. 26, 1976. 
Redesignated at 42 FR 52826, Sept. 30, 1977, as amended at 48 FR 45773, 
Oct. 7, 1983]



Sec. 405.1873  Board's jurisdiction.

    (a) Board decides jurisdiction. The Board decides questions relating 
to its jurisdiction to grant a hearing, including (1) the timeliness of 
an intermediary determination (see Sec. 405.1835(c)), and (2) the right 
of a provider to a hearing before the Board when the amount in 
controversy is in issue (see Secs. 405.1835(a)(3) and 405.1837).
    (b) Matters not subject to board review. (1) The determination of a 
fiscal intermediary that no payment may be made under title XVIII of the 
Act for any expenses incurred for items and services furnished to an 
individual because such items and services are excluded from coverage 
pursuant to section 1862 of the Act, 42 U.S.C. 1395y (see subpart C of 
this part), may not be reviewed by the Board. (Such determination shall 
be reviewed only in accordance with the applicable provisions of subpart 
G or H of this part.)

[[Page 101]]

    (2) The Board may not review certain matters affecting payments to 
hospitals under the prospective payment system as provided in 
Sec. 405.1804.

[48 FR 39836, Sept. 1, 1983]



Sec. 405.1875  Administrator's review.

    (a) General rule. (1) Except for a Board determination under 
Sec. 405.1842 that it lacks the authority to decide an issue, the 
Administrator, at his or her discretion, may review any final decision 
of the Board, including a decision under Sec. 405.1873 about the Board's 
jurisdiction to grant a hearing. The Administrator may exercise this 
discretion on his or her own motion, in response to a request from a 
party to a Board hearing or in response to a request from HCFA.
    (2) The Office of the Attorney Advisory will examine the Board's 
decisions, the requests made by a party or HCFA and any submission made 
in accordance with the provisions of this section in order to assist the 
Administrator in deciding whether to exercise this review authority.
    (b) Request for review. A party or HCFA requesting the Administrator 
to review a Board decision must file a written request with the 
Administrator within 15 days of the receipt of the Board decision.
    (c) Criteria for deciding whether to review. In deciding whether to 
review a Board decision, either on his or her own motion or in response 
to a request from a party to the hearing or HCFA, the Administrator will 
normally consider whether it appears that:
    (1) The Board made an erroneous interpretation of law, regulation or 
HCFA Ruling;
    (2) The Board's decision is not supported by substantial evidence; 
or
    (3) The case presents a significant policy issue having a basis in 
law and regulations, and review is likely to lead to the issuance of a 
HCFA Ruling or other directive needed to clarify a statutory or 
regulatory provision;
    (4) The Board has incorrectly assumed or denied jurisdiction or 
extended its authority to a degree not provided for by statute, 
regulation or HCFA Ruling; and
    (5) The decision of the Board requires clarification, amplification, 
or an alternative legal basis for the decision.
    (d) Decision to review. (1) Whether or not a party or HCFA has 
requested review, the Administrator will promptly notify the parties and 
HCFA whether he or she has decided to review a decision of the Board 
and, if so, will indicate the particular issues he or she will consider.
    (2) The Administrator may decline to review a case or any issue in a 
case even if a party has filed a written request for review under 
paragraph (b) of this section.
    (e) Written submissions. (1) Within 15 days of receipt of a notice 
that the Administrator has decided to review a Board decision, a party 
or HCFA may submit to the Administrator, in writing:
    (i) Proposed findings and conclusions;
    (ii) Supporting views or exceptions to the Board decision;
    (iii) Supporting reasons for the exceptions and proposed findings; 
and
    (iv) A rebuttal of the other party's request for review or other 
submissions already filed with the Administrator.
    (2) These submissions shall be limited to issues the Administrator 
has decided to review and confined to the record of the Board hearing.
    (3) A party or HCFA, within 15 days of receipt of a notice that the 
Administrator has decided to review a decision, may also request that 
the decision be remanded and state reasons for doing so. Reasons for a 
request to remand may include new, substantial evidence concerning--
    (i) Issues presented to the Board; and
    (ii) New issues that have arisen since the case was presented to the 
Board.
    (4) A copy of any written submission made under this paragraph shall 
be sent simultaneously to each other party to the Board hearing and to 
HCFA, if HCFA has previously--
    (i) Requested that the Administrator review a Board decision or 
filed a written submission in response to a party's request for review.
    (ii) Responded to a party's request for review; or
    (iii) Submitted material after the Administrator has announced that 
he or she will review a Board decision.

[[Page 102]]

    (f) Ex parte communications prohibited. All communications from any 
of the parties or HCFA about a Board decision being reviewed by the 
Administrator must be in writing and must contain a certification that 
copies have been served on the parties and HCFA, as appropriate. The 
Administrator will not consider any communication that does not meet 
these requirements or is not submitted within the required time limits.
    (g) Administrator's decision. (1) If the Administrator has notified 
the parties and HCFA that he or she has decided to review a Board 
decision, the Administrator will affirm, reverse, modify or remand the 
case.
    (2) The Administrator will make this decision within 60 days after 
the provider received notification of the Board decision and will 
promptly mail a copy of the decision to each party and to HCFA.
    (3) Any decision other than to remand will be confined to--
    (i) The record of the Board, as forwarded by the Board;
    (ii) Any materials submitted under paragraphs (b) or (e) of this 
section; and
    (iii) Generally known facts that are not subject to reasonable 
dispute.
    (4) The Administrator may rely on prior decisions of the Board, the 
Administrator and the courts, and other applicable law, whether or not 
cited by the parties and HCFA.
    (h) Remand. (1) A remand to the Board by the Administrator vacates 
the Board's decision.
    (2) The Administrator may direct the Board to take further action 
with respect to the development of additional facts or new issues, or to 
consider the applicability of laws or regulations other than those 
considered by the Board. The following are not acceptable bases for 
remand--
    (i) Presentation of evidence existing at the time of the Board 
hearing that was known or reasonably could have been known;
    (ii) Introduction of a favorable court case that was either not 
available in print at the time of the Board hearing or was decided after 
the Board hearing;
    (iii) Change of a party's representation before the Board;
    (iv) Presentation of an alternative legal basis concerning an issue 
in dispute; or
    (v) Attempted retraction of a waiver of a right made before or at 
the Board hearing.
    (3) After remand, the Board will take the action requested in the 
remand action and issue a new decision.
    (4) The new decision will be final unless the Administrator 
reverses, affirms, modifies, or again remands the decision in accordance 
with the provisions of the section.

[48 FR 45773, Oct. 7, 1983]



Sec. 405.1877  Judicial review.

    (a) General rule. Section 1878(f) of the Act permits a provider to 
obtain judicial review of a final decision of the Board, or of a 
reversal, affirmation, or modification by the Administrator of a Board 
decision, by filing a civil action pursuant to the Federal Rules of 
Civil Procedure within 60 days of the date on which the provider 
received notice of--
    (1) A final decision by the Board; or
    (2) Any reversal, affirmance, or modification by the Administrator.

The Board's decision is not final if the Administrator reverses, affirms 
or modifies the decision within 60 days of the date on which the 
provider received notice of the decision.
    (b) Administrator declines to review a Board decision. If the 
Administrator declines to review a Board decision, the provider must 
file its appeal within 60 days of receipt of the decision of the Board.
    (c) Administrator does not act after reviewing a Board decision. If 
the Administrator notifies the parties that he or she has decided to 
review a Board decision and then does not make a decision within the 60 
days allotted for his or her review, this subsequent inaction 
constitutes an affirmance allowing a provider an additional 60 days in 
which to file for judicial review, beginning with the date the 
Administrator's time expires for taking action under 
Sec. 405.1875(g)(2).
    (d) Matters not subject to judicial review. Certain matters 
affecting payments to hospital under the prospective payment system are 
not subject to

[[Page 103]]

judicial review, as provided in section 1886(d)(7) of the Act and 
Sec. 405.1804.
    (e) Group appeals. Any action under this section by providers that 
are under common ownership or control (see Sec. 413.17 of this chapter) 
must be brought by the providers as a group with respect to any matter 
involving an issue common to the providers.
    (f) Venue for appeals. An action for judicial review must be brought 
in the District Court of the United States for the judicial district in 
which the provider is located (or, effective April 20, 1983, in an 
action brought jointly by several providers, the judicial district in 
which the greatest number of such providers are located) or in the 
District Court for the District of Columbia. Effective April 20, 1983, 
any action for judicial review by providers under common ownership or 
control (Sec. 413.17 of this chapter), must be brought by such providers 
as a group with respect to any matter involving an issue common to the 
providers.
    (g) Service of process. Process must be served as described under 45 
CFR part 4.

[48 FR 39836, Sept. 1, 1983, as amended at 48 FR 45774, Oct. 7, 1983; 51 
FR 34793, Sept. 30, 1986]



Sec. 405.1881  Appointment of representative.

    A provider or other party may be represented by legal counsel or any 
other person it appoints to act as its representative at the 
proceedings, conducted in accordance with Secs. 405.1819 and 405.1851.



Sec. 405.1883  Authority of representative.

    A representative appointed by a provider or other party may accept 
or give on behalf of the provider or other party any request or notice 
relative to any proceeding before a hearing officer or the Board. A 
representative shall be entitled to present evidence and allegations as 
to facts and law in any proceeding affecting the party he represents and 
to obtain information with respect to a request for an intermediary 
hearing or a Board hearing made in accordance with Secs. 405.1811, 
405.1835, or 405.1837 to the same extent as the party he represents. 
Notice to a provider or other party of any action, determination, or 
decision, or a request for the production of evidence by a hearing 
officer or the Board sent to the representative of the provider or other 
party shall have the same force and effect as if it had been sent to the 
provider or other party.



Sec. 405.1885  Reopening a determination or decision.

    (a) A determination of an intermediary, a decision by a hearing 
officer or panel of hearing officers, a decision by the Board, or a 
decision of the Secretary may be reopened with respect to findings on 
matters at issue in such determination or decision, by such intermediary 
officer or panel of hearing officers, Board, or Secretary, as the case 
may be, either on motion of such intermediary officer or panel of 
hearing officers, Board, or Secretary, or on the motion of the provider 
affected by such determination or decision to revise any matter in issue 
at any such proceedings. Any such request to reopen must be made within 
3 years of the date of the notice of the intermediary or Board hearing 
decision, or where there has been no such decision, any such request to 
reopen must be made within 3 years of the date of notice of the 
intermediary determination. No such determination or decision may be 
reopened after such 3-year period except as provided in paragraphs (d) 
and (e) of this section.
    (b) A determination or a hearing decision rendered by the 
intermediary shall be reopened and revised by the intermediary if, 
within the aforementioned 3-year period, the Health Care Financing 
Administration notifies the intermediary that such determination or 
decision is inconsistent with the applicable law, regulations, or 
general instructions issued by the Health Care Financing Administration 
in accordance with the Secretary's agreement with the intermediary.
    (c) Jurisdiction for reopening a determination or decision rests 
exclusively with that administrative body that rendered the last 
determination or decision.

[[Page 104]]

    (d) Notwithstanding the provisions of paragraph (a) of this section, 
an intermediary determination or hearing decision, a decision of the 
Board, or a decision of the Secretary shall be reopened and revised at 
any time if it is established that such determination or decision was 
procured by fraud or similar fault of any party to the determination or 
decision.
    (e) Paragraphs (a) and (b) of this section apply to determinations 
on cost reporting periods ending on or after December 31, 1971. (See 
Sec. 405.1801(c).) However, the 3-year period described shall also apply 
to determinations with respect to cost reporting periods ending prior to 
December 31, 1971, but only if the reopening action was undertaken after 
May 27, 1972 (the effective date of regulations which, prior to the 
publication of this subpart R, governed the reopening of such 
determinations).



Sec. 405.1887  Notice of reopening.

    (a) All parties to any reopening described above shall be given 
written notice of the reopening. When such reopening results in any 
revision in the prior decision notice of said revision or revisions will 
be mailed to the parties with a complete explanation of the basis for 
the revision or revisions. Notices of reopenings by the Board shall also 
be sent to the Secretary.
    (b) In any such reopening, the parties to the prior decision shall 
be allowed a reasonable period of time in which to present any 
additional evidence or argument in support of their position.



Sec. 405.1889  Effect of a revision.

    Where a revision is made in a determination or decision on the 
amount of program reimbursement after such determination or decision has 
been reopened as provided in Sec. 405.1885, such revision shall be 
considered a separate and distinct determination or decision to which 
the provisions of Secs. 405.1811, 405.1835, 405.1875 and 405.1877 are 
applicable. (See Sec. 405.1801(c) for applicable effective dates.)



                        Subparts S-T--[Reserved]



   Subpart U--Conditions for Coverage of Suppliers of End-Stage Renal 
                         Disease (ESRD) Services

    Authority: Secs. 1102, 1138, 1861, 1862(a), 1871, 1874, and 1881 of 
the Social Security Act (42 U.S.C. 1302, 1320b-8, 1395x, 1395y(a), 
1395hh, 1395kk, and 1395rr), unless otherwise noted.

    Source: 41 FR 22511, June 3, 1976, unless otherwise noted. 
Redesignated at 42 FR 52826, Sept. 30, 1977.



Sec. 405.2100  Scope of subpart.

    (a) The regulations in this subpart prescribe the role which End-
Stage Renal Disease (ESRD) networks have in the ESRD program, establish 
the mechanism by which minimal utilization rates are promulgated and 
applied, under section 1881(b)(1) of the Act, and describe the health 
and safety requirements that facilities furnishing ESRD care to 
beneficiaries must meet. These regulations further prescribe the role of 
ESRD networks in meeting the requirements of section 1881(c) of the Act.
    (b) The general objectives of the ESRD program are contained in 
Sec. 405.2101, and general definitions are contained in Sec. 405.2102. 
The provisions of Secs. 405.2110, 405.2112 and 405.2113 discuss the 
establishment and activities of ESRD networks, network organizations and 
membership requirements and restrictions for members of the medical 
review boards. Sections 405.2120 through 405.2124 discuss the 
establishment of minimal utilization rates and the requirements for 
approval of facilities with respect to such rates. Sections 405.2130 
through 405.2140 discuss general requirements for, and description of, 
all facilities furnishing ESRD services. Sections 405.2160 through 
405.2164 discuss specific requirements for facilities which furnish ESRD 
dialysis services. Sections 405.2170 and 405.2171 discuss specific 
requirements for facilities which furnish ESRD transplantation services.

[51 FR 30361, Aug. 26, 1986]

[[Page 105]]



Sec. 405.2101  Objectives of the end-stage renal disease (ESRD) program.

    The objectives of the end-stage renal disease program are:
    (a) To assist beneficiaries who have been diagnosed as having end-
stage renal disease (ESRD) to receive the care they need;
    (b) To encourage proper distribution and effective utlization of 
ESRD treatment resources while maintaining or improving the quality of 
care;
    (c) To provide the flexibility necessary for the efficient delivery 
of appropriate care by physicians and facilities; and
    (d) To encourage self-dialysis or transplantation for the maximum 
practical number of patients who are medically, socially, and 
psychologically suitable candidates for such treatment.

[43 FR 48950, Oct. 19, 1979]



Sec. 405.2102  Definitions.

    As used in this subpart, the following definitions apply:
    Agreement. A written document executed between an ESRD facility and 
another facility in which the other facility agrees to assume 
responsibility for furnishing specified services to patients and for 
obtaining reimbursement for those services.
    Arrangement. A written document executed between an ESRD facility 
and another facility in which the other facility agrees to furnish 
specified services to patients but the ESRD facility retains 
responsibility for those services and for obtaining reimbursement for 
them.
    Dialysis. A process by which dissolved substances are removed from a 
patient's body by diffusion from one fluid compartment to another across 
a semipermeable membrane. The two types of dialysis that are currently 
in common use are hemodialysis and peritoneal dialysis.
    End-Stage Renal Disease (ESRD). That stage of renal impairment that 
appears irreversible and permanent, and requires a regular course of 
dialysis or kidney transplantation to maintain life.
    ESRD facility. A facility which is approved to furnish at least one 
specific ESRD service (see definition of ``ESRD service''). Such 
facilities are:
    (a) Renal Transplantation Center. A hospital unit which is approved 
to furnish directly transplantation and other medical and surgical 
specialty services required for the care of the ESRD transplant 
patients, including inpatient dialysis furnished directly or under 
arrangement. A Renal Transplantation Center may also be a Renal Dialysis 
Center.
    (b) Renal dialysis center. A hospital unit which is approved to 
furnish the full spectrum of diagnostic, therapeutic, and rehabilitative 
services required for the care of ESRD dialysis patients (including 
inpatient dialysis furnished directly or under arrangement). A hospital 
need not provide renal transplantation to qualify as a renal dialysis 
center.
    (c) Renal dialysis facility. A unit which is approved to furnish 
dialysis service(s) directly to ESRD patients.
    (d) Self-dialysis unit. A unit that is part of an approved renal 
transplantation center, renal dialysis center, or renal dialysis 
facility, and furnishes self-dialysis services.
    (e) Special purpose renal dialysis facility. A renal dialysis 
facility which is approved under Sec. 405.2164 to furnish dialysis at 
special locations on a short-term basis to a group of dialysis patients 
otherwise unable to obtain treatment in the geographical area. The 
special locations must be either special rehabilitative (including 
vacation) locations serving ESRD patients temporarily residing there, or 
locations in need of ESRD facilities under emergency circumstances.
    ESRD service. The type of care or services furnished to an ESRD 
patient. Such types of care are:
    (a) Transplantation service. A process by which (1) a kidney is 
excised from a live or cadaveric donor, (2) that kidney is implanted in 
an ESRD patient, and (3) supportive care is furnished to the living 
donor and to the recipient following implantation.
    (b) Dialysis service--(1) Inpatient dialysis. Dialysis which, 
because of medical necessity, is furnished to an ESRD patient on a 
temporary inpatient basis in a hospital;

[[Page 106]]

    (2) Outpatient dialysis. Dialysis furnished on an outpatient basis 
at a renal dialysis center or facility. Outpatient dialysis includes:
    (i) Staff-assisted dialysis. Dialysis performed by the staff of the 
center or facility.
    (ii) Self-dialysis. Dialysis performed, with little or no 
professional assistance, by an ESRD patient who has completed an 
appropriate course of training.
    (3) Home dialysis. Dialysis performed by an appropriately trained 
patient at home.
    (c) Self-dialysis and home dialysis training. A program that trains 
ESRD patients to perform self-dialysis or home dialysis with little or 
no professional assistance, and trains other individuals to assist 
patients in performing self-dialysis or home dialysis.
    Furnishes directly. The ESRD facility provides the service through 
its own staff and employees, or through individuals who are under direct 
contract to furnish such services personally for the facility (i.e., not 
through ``agreements'' or ``arrangements'').
    Furnishes on the premises. The ESRD facility furnishes services on 
its main premises; or on its other premises that are (a) contiguous with 
or in immediate proximity to the main premises, and under the direction 
of the same professional staff and governing body as the main premises, 
or (b) approved on a time-limited basis as a special purpose renal 
dialysis facility.
    Histocompatibility testing. Laboratory test procedures which 
determine compatibility between a potential organ donor and a potential 
organ transplant recipient.
    Medical care criteria. Predetermined elements against which aspects 
of the quality of a medical service may be compared. They are developed 
by professionals relying on professional expertise and on the 
professional literature.
    Medical care norms. Numerical or statistical measures of usual 
observed performance. Norms are derived from aggregate information 
related to the health care provided to a large number of patients over a 
period of time.
    Medical care standards. Professionally developed expressions of the 
range of acceptable variation from a norm or criterion.
    Medical care evaluation study (MCE). Review of health care services, 
usually performed retrospectively, in which an indepth assessment of the 
quality and/or utilization of such services is made.
    Network, ESRD. All Medicare-approved ESRD facilities in a designated 
geographic area specified by HCFA.
    Network organization. The administrative governing body to the 
network and liaison to the Federal government.
    Organ procurement. The process of acquiring donor kidneys. (See 
definition of Organ procurement organization in Sec. 485.302 of this 
chapter.)
    Qualified personnel. Personnel that meet the requirements specified 
in this paragraph.
    (a) Chief executive officer. A person who:
    (1) Holds at least a baccalaureate degree or its equivalent and has 
at least 1 year of experience in an ESRD unit; or
    (2) Is a registered nurse or physician director as defined in this 
definition; or
    (3) As of September 1, 1976, has demonstrated capability by acting 
for at least 2 years as a chief executive officer in a dialysis unit or 
transplantation program.
    (b) Dietitian. A person who:
    (1) Is eligible for registration by the American Dietetic 
Association under its requirements in effect on June 3, 1976, and has at 
least 1 year of experience in clinical nutrition; or
    (2) Has a baccalaureate or advanced degree with major studies in 
food and nutrition or dietetics, and has at least 1 year of experience 
in clinical nutrition.
    (c) Medical record practitioner. A person who:
    (1) Has graduated from a program for Medical Record Administrators 
accredited by the Council on Medical Education of the American Medical 
Association and the American Medical Record Association, and is eligible 
for certification as a Registered Record Administrator (RRA) by the 
American Medical Record Association under its requirements in effect on 
June 3, 1976.
    (2) Has graduated from a program for Medical Record Technicians 
approved

[[Page 107]]

jointly by the Council on Medical Education of the American Medical 
Association and the American Medical Record Association, and is eligible 
for certification as an Accredited Record Technician (ART) by the 
American Medical Record Association under its requirements in effect 
June 3, 1976, or
    (3) Has successfully completed and received a satisfactory grade in 
the American Medical Record Association's Correspondence Course for 
Medical Record Personnel approved by the Accrediting Commission of the 
National Home Study Council, and is eligible for certification as an 
Accredited Record Technician by the American Medical Record Association 
under its requirements in effect June 3, 1976.
    (d) Nurse responsible for nursing service. A person who is licensed 
as a registered nurse by the State in which practicing, and (1) has at 
least 12 months of experience in clinical nursing, and an additional 6 
months of experience in nursing care of the patient with permanent 
kidney failure or undergoing kidney transplantation, including training 
in and experience with the dialysis process; or
    (2) Has 18 months of experience in nursing care of the patient on 
maintenance dialysis, or in nursing care of the patient with a kidney 
transplant, including training in and experience with the dialysis 
process;
    (3) If the nurse responsible for nursing service is in charge of 
self-care dialysis training, at least 3 months of the total required 
ESRD experience is in training patients in self-care.
    (e) Physician-director. A physician who:
    (1) Is board eligible or board certified in internal medicine or 
pediatrics by a professional board, and has had at least 12 months of 
experience or training in the care of patients at ESRD facilities; or
    (2) During the 5-year period prior to September 1, 1976, served for 
at least 12 months as director of a dialysis or transplantation program;
    (3) In those areas where a physician who meets the definition in 
paragraph (1) or (2) of this definition is not available to direct a 
participating dialysis facility, another physician may direct the 
facility, subject to the approval of the Secretary.
    (f) Social worker. A person who is licensed, if applicable, by the 
State in which practicing, and
    (1) Has completed a course of study with specialization in clinical 
practice at, and holds a masters degree from, a graduate school of 
social work accredited by the Council on Social Work Education; or
    (2) Has served for at least 2 years as a social worker, 1 year of 
which was in a dialysis unit or transplantation program prior to 
September 1, 1976, and has established a consultative relationship with 
a social worker who qualifies under paragraph (f)(1) of this definition.
    (g) Transplantation surgeon. A person who:
    (1) Is board eligible or board certified in general surgery or 
urology by a professional board; and
    (2) Has at least 12 months training or experience in the performance 
of renal transplantation and the care of patients with renal 
transplants.

[41 FR 22511, June 3, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 43 FR 48950, Oct. 19, 1978; 51 FR 30361, Aug. 26, 1986; 53 
FR 6547, Mar. 1, 1988; 55 FR 9575, Mar. 14, 1990]



Sec. 405.2110  Designation of ESRD networks.

    HCFA designated ESRD networks in which the approved ESRD facilities 
collectively provide the necessary care for ESRD patients.
    (a) Effect on patient choice of facility. The designation of 
networks does not require an ESRD patient to seek care only through the 
facilities in the designated network where the patient resides, nor does 
the designation of networks limit patient choice of physicians or 
facilities, or preclude patient referral by physicians to a facility in 
another designated network.
    (b) Redesignation of networks. HCFA will redesignate networks, as 
needed, to ensure that the designations are consistent with ESRD program 
experience, consistent with ESRD program objectives specified in 
Sec. 405.2101, and compatible with efficient program administration.

[51 FR 30361, Aug. 26, 1986]

[[Page 108]]



Sec. 405.2111  [Reserved]



Sec. 405.2112  ESRD network organizations.

    HCFA will designate an administrative governing body (network 
organization) for each network. The functions of a network organization 
include but are not limited to the following:
    (a) Developing network goals for placing patients in settings for 
self-care and transplantation.
    (b) Encouraging the use of medically appropriate treatment settings 
most compatible with patient rehabilitation and the participation of 
patients, providers of services, and renal disease facilities in 
vocational rehabilitation programs.
    (c) Developing criteria and standards relating to the quality and 
appropriateness of patient care and, with respect to working with 
patients, facilities, and providers of services, for encouraging 
participation in vocational rehabilitation programs.
    (d) Evaluating the procedures used by facilities in the network in 
assessing patients for placement in appropriate treatment modalities.
    (e) Making recommendations to member facilities as needed to achieve 
network goals.
    (f) On or before July 1 of each year, submitting to HCFA an annual 
report that contains the following information:
    (1) A statement of the network goals.
    (2) The comparative performance of facilities regarding the 
placement of patients in appropriate settings for--
    (i) Self-care;
    (ii) Transplants; and
    (iii) Vocational rehabilitation programs.
    (3) Identification of those facilities that consistently fail to 
cooperate with the goals specified under paragraph (f)(1) of this 
section or to follow the recommendations of the medical review board.
    (4) Identification of facilities and providers that are not 
providing appropriate medical care.
    (5) Recommendations with respect to the need for additional or 
alternative services in the network including self-dialysis training, 
transplantation and organ procurement.
    (g) Evaluating and resolving patient grievances.
    (h) Appointing a network council and a medical review board (each 
including at least one patient representative) and supporting and 
coordinating the activities of each.
    (i) Conducting on-site reviews of facilities and providers as 
necessary, as determined by the medical review board or HCFA, using 
standards of care as specified under paragraph (c) of this section.
    (j) Collecting, validating, and analyzing such data as necessary to 
prepare the reports required under paragraph (f) of this section and the 
Secretary's report to Congress on the ESRD program and to assure the 
maintenance of the registry established under section 1881(c)(7) of the 
Act.

[53 FR 1620, Jan. 21, 1988]



Sec. 405.2113  Medical review board.

    (a) General. The medical review board must be composed of 
physicians, nurses, and social workers engaged in treatment relating to 
ESRD and qualified to evaluate the quality and appropriateness of care 
delivered to ESRD patients, and at least one patient representative.
    (b) Restrictions on medical review board members. (1) A medical 
review board member must not review or provide advice with respect to 
any case in which he or she has, or had, any professional involvement, 
received reimbursement or supplied goods.
    (2) A medical review board member must not review the ESRD services 
of a facility in which he or she has a direct or indirect financial 
interest (as described in section 1126(a)(1) of the Act).

[51 FR 30361, Aug. 26, 1986, as amended at 53 FR 1620, Jan. 21, 1988]



Sec. 405.2114  [Reserved]



Sec. 405.2120  Minimum utilization rates: general.

    Section 1881(b)(1) of the Social Security Act (42 U.S.C. 
1395rr(b)(1)) authorizes the Secretary to limit payment for ESRD care to 
those facilities that meet the requirements that the Secretary may 
prescribe, including minimum utilization rates for covered

[[Page 109]]

transplantations. The minimum utilization rates, which are explained and 
specified in Secs. 405.2121 through 405.2130, may be changed from time 
to time in accordance with program experience. Changes will be published 
as amendments to these regulations.

[55 FR 23440, June 8, 1990]



Sec. 405.2121  Basis for determining minimum utilization rates.

    In developing minimum utilization rates, the Secretary takes into 
account the performance of ESRD facilities, the availability of care, 
the quality of care, and the efficient utilization of equipment and 
personnel, based on the following evidence:
    (a) Information on the geographic distribution of ESRD patients and 
facilities;
    (b) Information on quality of care; and
    (c) Information on operational and management efficiency.

[41 FR 22511, June 3, 1976. Redesignated at 42 FR 52826, Sept 30, 1977, 
as amended at 51 FR 30362, Aug. 26, 1986; 55 FR 23440, June 8, 1990]



Sec. 405.2122  Types and duration of classification according to utilization rates.

    A renal transplantation center that meets all the other conditions 
for coverage of ESRD services will be classified according to its 
utilization rate(s) as follows: Unconditional status, conditional 
status, exception status, or not eligible for reimbursement for that 
ESRD service. Such classification will be based on previously reported 
utilization data (see Sec. 405.2124, except as specified in paragraph 
(a) of this section), and will be effective until notification of 
subsequent classification occurs. (See Sec. 405.2123 for reporting 
requirements; Sec. 405.2124 for method of calculating rates: 
Sec. 405.2130 for specific standards.)
    (a) Initial classification. (1) A renal transplantation center that 
has not previously participated in the ESRD program will be granted 
conditional status if it submits a written plan, detailing how it will 
achieve the utilization rates for conditional status by the end of the 
second calendar year of its operation under the ESRD program, and the 
rates required for unconditional status by the end of its fourth 
calendar year of operation.
    (2) The renal transplantation center's performance will be evaluated 
at the end of the first calendar year to ascertain whether it is 
properly implementing the plan.
    (b) Exception status. (1) A renal transplantation center that does 
not meet the minimum utilization rate for unconditional or conditional 
status may be approved by the Secretary for a time limited exception 
status if:
    (i) It meets all other conditions for coverage under this subpart;
    (ii) It is unable to meet the minimum utilization rate because it 
lacks a sufficient number of patients and is located in an area without 
a sufficient population base to support a center or facility which would 
meet the rate; and
    (iii) Its absence would adversely affect the achievement of ESRD 
program objectives.
    (2) A hospital that furnishes renal transplantation services 
primarily to pediatric patients and is approved as a renal dialysis 
center under this subpart, but does not meet the utilization standards 
prescribed in Sec. 405.2130(a), may be approved by the Secretary for a 
time limited exception status if:
    (i) It meets all other conditions for coverage as a renal 
transplantation center;
    (ii) The surgery is performed under the direct supervision of a 
qualified transplantation surgeon (Sec. 405.2102) who is also performing 
renal transplantation surgery at an approved renal transplantation 
center that is primarily oriented to adult nephrology;
    (iii) It has an agreement, with the other hospital serviced by the 
surgeon, for sharing limited resources that are needed for kidney 
transplantation; and
    (iv) There are pediatric patients who need the surgery and who 
cannot obtain it from any other hospital located within a reasonable 
distance.

[43 FR 48951, Oct. 19, 1978, as amended at 45 FR 58124, Sept. 2, 1980; 
51 FR 30362, Aug. 26, 1986; 55 FR 23440, June 8, 1990]



Sec. 405.2123  Reporting of utilization rates for classification.

    Each hospital furnishing renal transplantation services must submit 
an annual report to HCFA on its utilization

[[Page 110]]

rates. The report must include both the number of transplants performed 
during the most recent year of operation and the number performed during 
each of the preceding 2 calendar years.

[55 FR 23441, June 8, 1990]



Sec. 405.2124  Calculation of utilization rates for comparison with minimal utilization rate(s) and notification of status.

    For purposes of classification the Secretary will use either the 
utilization rate for the preceding 12 months or the average utilization 
rate of the preceding 2 calendar years, whichever is higher. The 
Secretary will inform each ESRD facility and the network coordinating 
council of the network area in which the ESRD facility is located of the 
results of this classification.



Sec. 405.2130  Condition: Minimum utilization rates.

    Unless a renal transplantation center is granted an exception under 
Sec. 405.2122(b), the center must meet the following minimum utilization 
rate(s) for unconditional or conditional status:
    (a) Unconditional status: 15 or more transplants performed annually.
    (b) Conditional status: 7 to 14 transplants performed annually.

[55 FR 23441, June 8, 1990]



Sec. 405.2131  Condition: Provider status: Renal transplantation center or renal dialysis center.

    A renal transplantation center or a renal dialysis center 
(Sec. 405.2102(e) (1) or (2)) operated by a hospital may qualify for 
approval and be reimbursed under the ESRD program only if the hospital 
is otherwise an approved provider in the Medicare program.



Sec. 405.2132  [Reserved]



Sec. 405.2133  Condition: Furnishing data and information for ESRD program administration.

    The ESRD facility, laboratory performing histocompatibility testing, 
and organ procurement organization furnishes data and information in the 
manner and at the intervals specified by the Secretary, pertaining to 
its ESRD patient care activities and costs, for inclusion in a national 
ESRD medical information system and in compilations relevant to program 
administration, including claims processing and reimbursement. Such 
information is treated as confidential when it pertains to individual 
patients and is not disclosed except as authorized by Department 
regulations on confidentiality and disclosure (see 45 CFR parts 5, 5b, 
and part 401 of this chapter).

[53 FR 6548, Mar. 1, 1988]



Sec. 405.2134  Condition: Participation in network activities.

    Each facility must participate in network activities and pursue 
network goals.

[51 FR 30362, Aug. 26, 1986]



Sec. 405.2135  Condition: Compliance with Federal, State and local laws and regulations.

    The ESRD facility is in compliance with applicable Federal, State 
and local laws, and regulations.
    (a) Standard: licensure. Where State or applicable local law 
provides for the licensing of ESRD facilities, the facility is:
    (1) Licensed pursuant to such law; or
    (2) Approved by the agency of such State or locality responsible for 
such licensing as meeting the standards established for such licensing.
    (b) Standard: licensure or registration of personnel. Each staff 
member is currently licensed or registered in accordance with applicable 
law.
    (c) Standard: conformity with other laws. The facility is in 
conformity with applicable laws and regulations pertaining to fire 
safety, equipment, and other relevant health and safety requirements.



Sec. 405.2136  Condition: Governing body and management.

    The ESRD facility is under the control of an identifiable governing 
body, or designated person(s) so functioning, with full legal authority 
and responsibility for the governance and operation of the facility. The 
governing body adopts and enforces rules and regulations relative to its 
own governance

[[Page 111]]

and to the health care and safety of patients, to the protection of the 
patients' personal and property rights, and to the general operation of 
the facility. The governing body receives and acts upon recommendations 
from the network organization. The governing body appoints a chief 
executive officer who is responsible for the overall management of the 
facility.
    (a) Standard: disclosure of ownership. The ESRD facility supplies 
full and complete information to the State survey agency 
(Sec. 405.1902(a)) as to the identity of:
    (1) Each person who has any direct or indirect ownership interest of 
10 per centum or more in the facility, or who is the owner (in whole or 
in part) of any mortgage, deed of trust, note, or other obligation 
secured (in whole or in part) by the facility or any of the property or 
assets of the facility;
    (2) Each officer and director of the corporation, if the facility is 
organized as a corporation; and
    (3) Each partner, if the facility is organized as a partnership; and 
promptly reports to the State survey agency any changes which would 
affect the current accuracy of the information so required to be 
supplied.
    (b) Standard: Operational objectives. The operational objectives of 
the ESRD facility, including the services that it provides, are 
established by the governing body and delineated in writing. The 
governing body adopts effective administrative rules and regulations 
that are designed to safeguard the health and safety of patients and to 
govern the general operations of the facility, in accordance with legal 
requirements. Such rules and regulations are in writing and dated. The 
governing body ensures that they are operational, and that they are 
reviewed at least annually and revised as necessary. If the ESRD 
facility is engaged in the practice of hemodialyzer reuse, the governing 
body ensures that there are written policies and procedures with respect 
to reuse, to assure that recommended standards and conditions are being 
followed, and requires that patients be informed of the policies and 
procedures.
    (1) The objectives of the facility are formulated in writing and 
clearly stated in documents appropriate for distribution to patients, 
facility personnel, and the public.
    (2) A description of the services provided by the facility, together 
with a categorical listing of the types of diagnostic and therapeutic 
procedures that may be performed, is readily available upon request to 
all concerned.
    (3) Admission criteria that insure equitable access to services are 
adopted by the facility and are readily available to the public. Access 
to the self-dialysis unit is available only to patients for whom the 
facility maintains patient care plans (see Sec. 405.2137).
    (4) The operational objectives and administrative rules and 
regulations of the facility are reviewed at least annually and revised 
as necessary by the administrative staff, medical director, and other 
appropriate personnel of the facility, and are adopted when approved by 
the governing body.
    (c) Standard: chief executive officer. The governing body appoints a 
qualified chief executive officer who, as the ESRD facility's 
administrator: Is responsible for the overall management of the 
facility; enforces the rules and regulations relative to the level of 
health care and safety of patients, and to the protection of their 
personal and property rights; and plans, organizes, and directs those 
responsibilities delegated to him by the governing body. Through 
meetings and periodic reports, the chief executive officer maintains on-
going liaison among the governing body, medical and nursing personnel, 
and other professional and supervisory staff of the facility, and acts 
upon recommendations made by the medical staff and the governing body. 
In the absence of the chief executive officer, a qualified person is 
authorized in writing to act on the officer's behalf.
    (1) The governing body delineates in writing the responsibilities of 
the chief executive officer, and ensures that he/she is sufficiently 
free from other duties to provide effective direction and management of 
the operations and fiscal affairs of the facility.
    (2) The chief executive officer serves on a full-time or part-time 
basis, in accordance with the scope of the facility's operations and 
administrative needs, and devotes sufficient time to the conduct of such 
responsibilities.

[[Page 112]]

    (3) The responsibilities of the chief executive officer include but 
are not limited to:
    (i) Implementing the policies of the facility and coordinating the 
provision of services, in accordance with delegations by the governing 
body.
    (ii) Organizing and coordinating the administrative functions of the 
facility, redelegating duties as authorized, and establishing formal 
means of accountability for those involved in patient care.
    (iii) Authorizing expenditures in accordance with established 
policies and procedures.
    (iv) Familiarizing the staff with the facility's policies, rules, 
and regulations, and with applicable Federal, State, and local laws and 
regulations.
    (v) Maintaining and submitting such records and reports, including a 
chronological record of services provided to patients, as may be 
required by the facility's internal committees and governing body, or as 
required by the Secretary.
    (vi) Participating in the development, negotiation, and 
implementation of agreements or contracts into which the facility may 
enter, subject to approval by the governing body of such agreements or 
contracts.
    (vii) Participating in the development of the organizational plan 
and ensuring the development and implementation of an accounting and 
reporting system, including annual development of a detailed budgetary 
program, maintenance of fiscal records, and quarterly submission to the 
governing body of reports of expenses and revenues generated through the 
facility's operation.
    (viii) Ensuring that the facility employs the number of qualified 
personnel needed; that all employees have appropriate orientation to the 
facility and their work responsibilities upon employment; and that they 
have an opportunity for continuing education and related development 
activities.
    (d) Standard: personnel policies and procedures. The governing body, 
through the chief executive officer of the ESRD facility, is responsible 
for maintaining and implementing written personnel policies and 
procedures that support sound patient care and promote good personnel 
practices. These policies and procedures ensure that:
    (1) All members of the facility's staff are qualified to perform the 
duties and responsibilities assigned to them and meet such Federal, 
State, and local professional requirements as may apply.
    (2) A safe and sanitary environment for patients and personnel 
exists, and reports of incidents and accidents to patients and personnel 
are reviewed to identify health and safety hazards. Health supervision 
of personnel is provided, and they are referred for periodic health 
examinations and treatments as necessary or as required by Federal, 
State, and local laws. Procedures are established for routine testing to 
ensure detection of hepatitis and other infectious diseases.
    (3) If the services of trainees are utilized in providing ESRD 
services, such trainees are under the direct supervision of qualified 
professional personnel.
    (4) Complete personnel records are maintained on all personnel. 
These include health status reports, resumes of training and experience, 
and current job descriptions that reflect the employees' 
responsibilities and work assignments.
    (5) Personnel policies are written and made available to all 
personnel in the facility. The policies provide for an effective 
mechanism to handle personnel grievances.
    (6) All personnel of the facility participate in educational 
programs on a regular basis. These programs cover initial orientation, 
and continuing inservice training, including procedures for infection 
control. Records are maintained showing the content of training sessions 
and the attendance at such sessions.
    (7) Personnel manuals are maintained, periodically updated, and made 
available to all personnel involved in patient care.
    (e) Standard: use of outside resources. If the ESRD facility makes 
arrangements for the provision of a specific service as authorized in 
this subpart, the responsibilities, functions, objectives, and the terms 
of each arrangement, including financial provisions

[[Page 113]]

and charges, are delineated in a document signed by an authorized 
representative of the facility and the person or agency providing the 
service. The chief executive officer when utilizing outside resource, as 
a consultant, assures that he is apprised of recommendations, plans for 
implementation, and continuing assessment through dated, signed reports, 
which are retained by the chief executive officer for follow-up action 
and evaluation of performance.
    (f) Standard: patient care policies. The ESRD facility has written 
policies, approved by the governing body, concerning the provision of 
dialysis and other ESRD services to patients. The governing body reviews 
implementation of policies periodically to ensure that the intent of the 
policies is carried out. These policies are developed by the physician 
responsible for supervising and directing the provision of ESRD 
services, or the facility's organized medical staff (if there is one), 
with the advice of (and with provision for review of such policies from 
time to time, but at least annually, by) a group of professional 
personnel associated with the facility, including, but not limited to, 
one or more physicians and one or more registered nurses experienced in 
rendering ESRD care.
    (1) The patient care policies cover the following:
    (i) Scope of services provided by the facility (either directly or 
under arrangement).
    (ii) Admission and discharge policies (in relation to both in-
facility care and home care).
    (iii) Medical supervision and physician services.
    (iv) Patient long term programs, patient care plans and methods of 
implementation.
    (v) Care of patients in medical and other emergencies.
    (vi) Pharmaceutical services.
    (vii) Medical records (including those maintained in the ESRD 
facility and in the patients' homes, to ensure continuity of care).
    (viii) Administrative records.
    (ix) Use and maintenance of the physical plant and equipment.
    (x) Consultant qualifications, functions, and responsibilities.
    (xi) The provision of home dialysis support services, if offered 
(see Sec. 405.2163(e)).
    (2) The physician-director of the facility is designated in writing 
to be responsible for the execution of patient care policies. If the 
responsibility for day-to-day execution of patient care policies has 
been delegated by a physican director to (or, in the case of a self-
dialysis unit, to another licensed health practitioner) a registered 
nurse, the physican-director provides medical guidance in such matters.
    (3) The facility policy provides that, whenever feasible, hours for 
dialysis are scheduled for patient convenience and that arrangements are 
made to accommodate employed patients who wish to be dialyzed during 
their non-working hours.
    (4) The governing body adopts policies to ensure there is evaluation 
of the progress each patient is making toward the goals stated in the 
patient's long term program and patient's care plan (see 
Sec. 405.2137(a)). Such evaluations are carried out through regularly 
scheduled conferences, with participation by the staff involved in the 
patient's care.
    (g) Standard: medical supervision and emergency coverage. The 
governing body of the ESRD dialysis and/or transplant facility ensures 
that the health care of every patient is under the continuing 
supervision of a physician and that a physician is available in 
emergency situations.
    (1) The physician responsible for the patient's medical supervision 
evaluates the patient's immediate and long-term needs and on this basis 
prescribes a planned regimen of care which covers indicated dialysis and 
other ESRD treatments, services, medications, diet, special procedures 
recommended for the health and safety of the patient, and plans for 
continuing care and discharge. Such plans are made with input from other 
professional personnel involved in the care of the patient.
    (2) The governing body ensures that there is always available 
medical care for emergencies, 24 hours a day, 7 days a week. There is 
posted at the nursing/monitoring station a roster with the names of the 
physicians to be called, when they are available for emergencies, and 
how they can be reached.

[[Page 114]]

    (h) Standard: medical staff. The governing body of the ESRD facility 
designates a qualified physician (see Sec. 405.2102) as director of the 
ESRD services; the appointment is made upon the recommendation of the 
facility's organized medical staff, if there is one. The governing body 
establishes written policies regarding the development, negotiation, 
consummation, evaluation, and termination of appointments to the medical 
staff.

[41 FR 22511, June 3, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977, 
and amended at 43 FR 48952, Oct. 19, 1978; 51 FR 30362, Aug. 26, 1986; 
52 FR 36934, Oct. 2, 1987]



Sec. 405.2137  Condition: Patient long-term program and patient care plan.

    Each facility maintains for each patient a written long-term program 
and a written patient care plan to ensure that each patient receives the 
appropriate modality of care and the appropriate care within that 
modality. The patient, or where appropriate, parent or legal guardian is 
involved with the health team in the planning of care. A copy of the 
current program and plan accompany the patient on interfacility 
transfer.
    (a) Standard: patient long-term program. There is a written long-
term program representing the selection of a suitable treatment modality 
(i.e., dialysis or transplantation) and dialysis setting (e.g., home, 
self-care) for each patient.
    (1) The program is developed by a professional team which includes 
but is not limited to the physician director of the dialysis facility or 
center where the patient is currently being treated, a physician 
director of a center or facility which offers self-care dialysis 
training (if not available at the location where the patient is being 
treated), a transplant surgeon, a qualified nurse responsible for 
nursing services, a qualified dietitian and a qualified social worker.
    (2) The program is formally reviewed and revised in writing as 
necessary by a team which includes but is not limited to the physician 
director of the dialysis facility or center where the patient is 
presently being treated, in addition to the other personnel listed in 
paragraph (a)(1) of this section at least every 12 months or more often 
as indicated by the patient's response to treatment (see 
Sec. 405.2161(b)(1) and Sec. 405.2170(a)).
    (3) The patient, parent, or legal guardian, as appropriate, is 
involved in the development of the patient's long-term program, and due 
consideration is given to his preferences.
    (4) A copy of the patient's long-term program accompanies the 
patient on interfacility transfer or is sent within 1 working day.
    (b) Standard: patient care plan. There is a written patient care 
plan for each patient of an ESRD facility (including home dialysis 
patients under the supervision of the ESRD facility; see 
Sec. 405.2163(e)), based upon the nature of the patient's illness, the 
treatment prescribed, and an assessment of the patient's needs.
    (1) The patient care plan is personalized for the individual, 
reflects the psychological, social, and functional needs of the patient, 
and indicates the ESRD and other care required as well as the 
individualized modifications in approach necessary to achieve the long-
term and short-term goals.
    (2) The plan is developed by a professional team consisting of at 
least the physician responsible for the patient's ESRD care, a qualified 
nurse responsible for nursing services, a qualified social worker, and a 
qualified dietitian.
    (3) The patient, parent, or legal guardian, as appropriate, is 
involved in the development of the care plan, and due consideration is 
given to his preferences.
    (4) The care plan for patients whose medical condition has not 
become stabilized is reviewed at least monthly by the professional 
patient care team described in paragraph (b)(2) of this section. For 
patients whose condition has become stabilized, the care plan is 
reviewed every 6 months. The care plan is revised as necessary to insure 
that it provides for the patients ongoing needs.
    (5) If the patient is transferred to another facility, the care plan 
is sent with the patient or within 1 working day.
    (6) For a home-dialysis patient whose care is under the supervision 
of the

[[Page 115]]

ESRD facility, the care plan provides for periodic monitoring of the 
patient's home adaptation, including provisions for visits to the home 
by qualified facility personnel to the extent appropriate. (See 
Sec. 405.2163(e).)
    (7) Beginning July 1, 1991, for a home dialysis patient, and 
beginning January 1, 1994, for any dialysis patient, who uses EPO in the 
home, the plan must provide for monitoring home use of EPO that includes 
the following:
    (i) Review of diet and fluid intake for indiscretions as indicated 
by hyperkalemia and elevated blood pressure secondary to volume 
overload.
    (ii) Review of medications to ensure adequate provision of 
supplemental iron.
    (iii) Ongoing evaluations of hematocrit and iron stores.
    (iv) A reevaluation of the dialysis prescription taking into account 
the patient's increased appetite and red blood cell volume.
    (v) A method for physician followup on blood tests and a mechanism 
(such as a patient log) for keeping the physician informed of the 
results.
    (vi) Training of the patient to identify the signs and symptoms of 
hypotension and hypertension.
    (vii) The decrease or discontinuance of EPO if hypertension is 
uncontrollable.

[41 FR 22511, June 3, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 43 FR 48952, Oct. 19, 1978; 59 FR 1284, Jan. 10, 1994; 59 
FR 26958, May 25, 1994]



Sec. 405.2138  Condition: Patients' rights and responsibilities.

    The governing body of the ESRD facility adopts written policies 
regarding the rights and responsibilities of patients and, through the 
chief executive officer, is responsible for development of, and 
adherence to, procedures implementing such policies. These policies and 
procedures are made available to patients and any guardians, next of 
kin, sponsoring agency(ies), representative payees (selected pursuant to 
section 205(j) of the Social Security Act and subpart Q of 20 CFR part 
404), and to the public. The staff of the facility is trained and 
involved in the execution of such policies and procedures. The patients' 
rights policies and procedures ensure at least the following:
    (a) Standard: informed patients. All patients in the facility:
    (1) Are fully informed of these rights and responsibilities, and of 
all rules and regulations governing patient conduct and 
responsibilities;
    (2) Are fully informed of services available in the facility and of 
related charges including any charges for services not covered under 
title XVIII of the Social Security Act;
    (3) Are fully informed by a physician of their medical condition 
unless medically contraindicated (as documented in their medical 
records);
    (4) Are fully informed regarding the facility's reuse of dialysis 
supplies, including hemodialyzers. If printed materials such as 
brochures are utilized to describe a facility and its services, they 
must contain a statement with respect to reuse; and
    (5) Are fully informed regarding their suitability for 
transplantation and home dialysis.
    (b) Standard: participation in planning. All patients treated in the 
facility:
    (1) Are afforded the opportunity to participate in the planning of 
their medical treatment and to refuse to participate in experimental 
research;
    (2) Are transferred or discharged only for medical reasons or for 
the patient's welfare or that of other patients, or for nonpayment of 
fees (except as prohibited by title XVIII of the Social Security Act), 
and are given advance notice to ensure orderly transfer or discharge.
    (c) Standard: respect and dignity. All patients are treated with 
consideration, respect, and full recognition of their individuality and 
personal needs, including the need for privacy in treatment. Provision 
is made for translators where a significant number of patients exhibit 
language barriers.
    (d) Standard: confidentiality. All patients are ensured confidential 
treatment of their personal and medical records, and may approve or 
refuse release of such records to any individual outside the facility, 
except in case of their transfer to another health care institution or 
as required by Federal, State, or local law and the Secretary for proper 
administration of the program.

[[Page 116]]

    (e) Standard: grievance mechanism. All patients are encouraged and 
assisted to understand and exercise their rights. Grievances and 
recommended changes in policies and services may be addressed to 
facility staff, administration, the network organization, and agencies 
or regulatory bodies with jurisdiction over the facility, through any 
representative of the patient's choice, without restraint or 
interference, and without fear of discrimination or reprisal.

[41 FR 22511, June 3, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 51 FR 30362, Aug. 26, 1986; 52 FR 36934, Oct. 2, 1987]



Sec. 405.2139  Condition: Medical records.

    The ESRD facility maintains complete medical records on all patients 
(including self-dialysis patients within the self-dialysis unit and home 
dialysis patients whose care is under the supervision of the facility) 
in accordance with accepted professional standards and practices. A 
member of the facility's staff is designated to serve as supervisor of 
medical records services, and ensures that all records are properly 
documented, completed, and preserved. The medical records are completely 
and accurately documented, readily available, and systematically 
organized to facilitate the compilation and retrieval of information.
    (a) Standard: medical record. Each patient's medical record contains 
sufficient information to identify the patient clearly, to justify the 
diagnosis and treatment, and to document the results accurately. All 
medical records contain the following general categories of information: 
Documented evidence of assessment of the needs of the patient, whether 
the patient is treated with a reprocessed hemodialyzer, of establishment 
of an appropriate plan of treatment, and of the care and services 
provided (see Sec. 405.2137(a) and (b)); evidence that the patient was 
informed of the results of the assessment described in 
Sec. 405.2138(a)(5); identification and social data; signed consent 
forms referral information with authentication of diagnosis; medical and 
nursing history of patient; report(s) of physician examination(s); 
diagnostic and therapeutic orders; observations, and progress notes; 
reports of treatments and clinical findings; reports of laboratory and 
other diagnostic tests and procedures; and discharge summary including 
final diagnosis and prognosis.
    (b) Standard: protection of medical record information. The ESRD 
facility safeguards medical record information against loss, 
destruction, or unauthorized use. The ESRD facility has written policies 
and procedures which govern the use and release of information contained 
in medical records. Written consent of the patient, or of an authorized 
person acting in behalf of the patient, is required for release of 
information not provided by law. Medical records are made available 
under stipulation of confidentiality for inspection by authorized agents 
of the Secretary, as required for administration of the ESRD program 
under Medicare.
    (c) Standard: medical records supervisor. A member of the ESRD 
facility's staff is designated to serve as supervisor of the facility's 
medical records service. The functions of the medical records supervisor 
include, but are not limited to, the following: Ensuring that the 
records are documented, completed, and maintained in accordance with 
accepted professional standards and practices; safeguarding the 
confidentiality of the records in accordance with established policy and 
legal requirements; ensuring that the records contain pertinent medical 
information and are filed for easy retrieval. When necessary, 
consultation is secured from a qualified medical record practitioner.
    (d) Standard: Completion of medical records and centralization of 
clinical information. Current medical records and those of discharged 
patients are completed promptly. All clinical information pertaining to 
a patient is centralized in the patient's medical record. Provision is 
made for collecting and including in the medical record medical 
information generated by self-dialysis patients. Entries concerning the 
daily dialysis process may either be completed by staff, or be completed 
by trained self-dialysis patients, trained home dialysis patients or 
trained assistants and countersigned by staff.

[[Page 117]]

    (e) Standard: retention and preservation of records. Medical records 
are retained for a period of time not less than that determined by the 
State statute governing records retention or statute of limitations; or 
in the absence of a State statute, 5 years from the date of discharge; 
or, in the case of a minor, 3 years after the patient becomes of age 
under State law, whichever is longest.
    (f) Standard: location and facilities. The facility maintains 
adequate facilities, equipment, and space conveniently located, to 
provide efficient processing of medical records (e.g., reviewing, 
filing, and prompt retrieval) and statistical medical information (e.g., 
required abstracts, reports, etc.).
    (g) Standard: transfer of medical information. The facility provides 
for the interchange of medical and other information necessary or useful 
in the care and treatment of patients transferred between treating 
facilities, or in determining whether such patients can be adequately 
cared for otherwise than in either of such facilities.

[41 FR 22511, June 3, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 43 FR 48952, Oct. 19, 1978; 52 FR 36934, Oct. 2, 1987]



Sec. 405.2140  Condition: Physical environment.

    The physical environment in which ESRD services are furnished 
affords a functional, sanitary, safe, and comfortable setting for 
patients, staff, and the public.
    (a) Standard: building and equipment. The physical structure in 
which ESRD services are furnished is constructed, equipped, and 
maintained to insure the safety of patients, staff, and the public.
    (1) Fire extinguishers are conveniently located on each floor of the 
facility and in areas of special hazard. Fire regulations and fire 
management procedures are prominently posted and properly followed.
    (2) All electrical and other equipment used in the facility is 
maintained free of defects which could be a potential hazard to patients 
or personnel. There is established a planned program of preventive 
maintenance of equipment used in dialysis and related procedures in the 
facility.
    (3) The areas used by patients are maintained in good repair and 
kept free of hazards such as those created by damaged or defective parts 
of the building.
    (4)  [Reserved]
    (5)(i) The ESRD facility must employ the water quality requirements 
listed in paragraph (a)(5)(ii) of this section developed by the 
Association for the Advancement of Medical Instrumentation (AAMI) and 
published in ``Hemodialysis Systems,'' second edition, which is 
incorporated by reference.
    (ii) Required water quality requirements are those listed in 
sections 3.2.1, Water Bacteriology; 3.2.2, Maximum Level of Chemical 
Contaminants; and in Appendix B: Guideline for Monitoring Purity of 
Water Used for Hemodialysis as B1 through B5.
    (iii) Incorporation by reference of the AAMI's ``Hemodialysis 
Systems,'' second edition, 1992, was approved by the Director of the 
Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 
51.1 If any changes in ``Hemodialysis Systems,'' second 
edition, are also to be incorporated by reference, a notice to that 
effect will be published in the Federal Register.
---------------------------------------------------------------------------

    \1\ The publication entitled ``Hemodialysis Systems,'' second 
edition, 1992, is available for inspection at the HCFA Information 
Resource Center, 7500 Security Boulevard, Baltimore, MD 21244-1850 and 
the Office of the Federal Register, 800 North Capitol Street, NW., Suite 
700, Washington, DC. Copies may be purchased from the Association for 
the Advancement of Medical Instrumentation, 3300 Washington Boulevard, 
Suite 400, Arlington, VA 22201-4598.
---------------------------------------------------------------------------

    (b) Standard: favorable environment for patients. The facility is 
maintained and equipped to provide a functional sanitary, and 
comfortable environment with an adequate amount of well-lighted space 
for the service provided.
    (1) There are written policies and procedures in effect for 
preventing and controlling hepatitis and other infections. These 
policies include, but are not limited to, appropriate procedures for 
surveillance and reporting of infections, housekeeping, handling and 
disposal of waste and contaminants, and sterilization and disinfection, 
including the sterilization and maintenance of equipment where dialysis 
supplies

[[Page 118]]

are reused, there are written policies and procedures covering the 
rinsing, cleaning, disinfection, preparation and storage of reused items 
which conform to requirements for reuse in Sec. 405.2150.
    (2) Treatment areas are designed and equipped to provide adequate 
and safe dialysis therapy, as well as privacy and comfort for patients. 
The space for treating each patient is sufficient to accomodate 
medically needed emergency equipment and staff and to ensure that such 
equipment and staff can reach the patient in an emergency. There is 
sufficient space in units for safe storage of self-dialysis supplies.
    (3) There is a nursing/monitoring station from which adequate 
surveillance of patients receiving dialysis services can be made.
    (4) Heating and ventilation systems are capable of maintaining 
adequate and comfortable temperatures.
    (5) Each ESRD facility utilizing a central-batch delivery system 
provides, either on the premises or through affiliation agreement or 
arrangement (see Sec. 405.2160) sufficient individual delivery systems 
for the treatment of any patient requiring special dialysis solutions.
    (c) Standard contamination prevention. The facility employs 
appropriate techniques to prevent cross-contamination between the unit 
and adjacent hospital or public areas including, but not limited to, 
food service areas, laundry, disposal of solid waste and blood-
contaminated equipment, and disposal of contaminants into sewage 
systems. Waste storage and disposal are carried out in accordance with 
applicable local laws and accepted public health procedures. The written 
patient care policies (see Sec. 405.2136(f)(1)) specify the functions 
that are carried out by facility personnel and by the self-dialysis 
patients with respect to contamination prevention. Where dialysis 
supplies are reused, records are maintained that can be used to 
determine whether established procedures covering the rinsing, cleaning, 
disinfection, preparation and storage of reused items, conform to 
requirements for reuse in Sec. 405.2150.
    (d) Standard: emergency preparedness. Written policies and 
procedures specifically define the handling of emergencies which may 
threaten the health or safety of patients. Such emergencies would exist 
during a fire or natural disaster or during functional failures in 
equipment. Specific emergency preparedness procedures exist for 
different kinds of emergencies. These are reviewed and tested at least 
annually and revised as necessary by, or under the direction of, the 
chief executive officer. All personnel are knowledgeable and trained in 
their respective roles in emergency situations.
    (1) There is an established written plan for dealing with fire and 
other emergencies which, when necessary, is developed in cooperation 
with fire and other expert personnel.
    (2) All personnel are trained, as part of their employment 
orientation, in all aspects of preparedness for any emergency or 
disaster. The emergency preparedness plan provides for orientation and 
regular training and periodic drills for all personnel in all procedures 
so that each person promptly and correctly carries out a specified role 
in case of an emergency.
    (3) There is available at all times on the premises a fully equipped 
emergency tray, including emergency drugs, medical supplies, and 
equipment, and staff are trained in its use.
    (4) The staff is familiar with the use of all dialysis equipment and 
procedures to handle medical emergencies.
    (5) Patients are trained to handle medical and nonmedical 
emergencies. Patients must be fully informed regarding what to do, where 
to go, and whom to contact if a medical or nonmedical emergency occurs.

(Secs. 1102, 1871, 1881(b), Social Security Act; 42 U.S.C. 1302, 1395hh, 
1395rr(b))

[41 FR 22511, June 3, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 43 FR 48952, Oct. 19, 1978; 45 FR 24839, Apr. 10, 1980; 52 
FR 36934, Oct. 2, 1987; 60 FR 48043, Sept. 18, 1995]



Sec. 405.2150  Condition: Reuse of hemodialyzers and other dialysis supplies.

    An ESRD facility that reuses hemodialyzers and other dialysis 
supplies meets the requirements of this section. Failure to meet any of 
paragraphs (a) through (c) of this section

[[Page 119]]

constitutes grounds for denial of payment for the dialysis treatment 
affected and termination from participation in the Medicare program.
    (a) Standard: Hemodialyzers. If the ESRD facility reuses 
hemodialyzers, it conforms to the following:
    (1) Reuse guidelines. Voluntary guidelines adopted by the AAMI 
(``Reuse of Hemodialyzers,'' second edition). Incorporation by reference 
of the AAMI's ``Reuse of Hemodialyzers,'' second edition, 1993, was 
approved by the Director of the Federal Register in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51.1 If any changes in ``Reuse 
of Hemodialyzers,'' second edition, are also to be incorporated by 
reference, a notice to that effect will be published in the Federal 
Register.
---------------------------------------------------------------------------

    \1\ The publication entitled ``Reuse of Hemodialyzers,'' second 
edition, 1993, is available for inspection at the HCFA Information 
Resources Center, 7500 Security Boulevard, Baltimore, MD 21244-1850 and 
the Office of the Federal Register, 800 North Capitol Street, NW., Suite 
700, Washington, DC. Copies may be purchased from the Association for 
the Advancement of Medical Instrumentation, 3300 Washington Boulevard, 
Suite 400, Arlington, VA 22201-4598.
---------------------------------------------------------------------------

    (2) Procedure for chemical germicides. To prevent any risk of 
dialyzer membrane leaks due to the combined action of different chemical 
germicides, dialyzers are exposed to only one chemical germicide during 
the reprocessing procedure. If a dialyzer is exposed to a second 
germicide, the dialyzer must be discarded.
    (3) Surveillance of patient reactions. In order to detect bacteremia 
and to maintain patient safety when unexplained events occur, the 
facility--
    (i) Takes appropriate blood cultures at the time of a febrile 
response in a patient; and
    (ii) If pyrogenic reactions, bacteremia, or unexplained reactions 
associated with ineffective reprocessing are identified, terminates 
reuse of hemodialyzers in that setting and does not continue reuse until 
the entire reprocessing system has been evaluated.
    (b) Standard: Transducer filters. To control the spread of 
hepatitis, transducer filters are changed after each dialysis treatment 
and are not reused.
    (c) Standard: Bloodlines. If the ESRD facility reuses bloodlines, it 
must--
    (1) Limit the reuse of bloodlines to the same patient;
    (2) Not reuse bloodlines labeled for ``single use only'';
    (3) Reuse only bloodlines for which the manufacturer's protocol for 
reuse has been accepted by the Food and Drug Administration (FDA) 
pursuant to the premarket notification (section 510(k)) provision of the 
Food, Drug, and Cosmetic Act; and
    (4) Follow the FDA-accepted manufacturer's protocol for reuse of 
that bloodline.

[52 FR 36935, Oct. 2, 1987, as amended at 55 FR 18335, May 2, 1990; 60 
FR 48044, Sept. 18, 1995]



Sec. 405.2160  Condition: Affiliation agreement or arrangement.

    (a) A renal dialysis facility and a renal dialysis center (see 
Sec. 405.2102(e)(2)) have in effect an affiliation agreement or 
arrangement with each other, in writing, for the provision of inpatient 
care and other hospital services.
    (b) The affiliation agreement or arrangement provides the basis for 
effective working relationships under which inpatient hospital care or 
other hospital services are available promptly to the dialysis 
facility's patients when needed. The dialysis facility has in its files 
documentation from the renal dialysis center to the effect that patients 
from the dialysis facility will be accepted and treated in emergencies. 
There are reasonable assurances that:
    (1) Transfer or referral of patients will be effected between the 
renal dialysis center and the dialysis facility whenever such transfer 
or referral is determined as medically appropriate by the attending 
physician, with timely acceptance and admission;
    (2) There will be interchange, within 1 working day, of the patient 
long-term program and patient care plan, and of medical and other 
information necessary or useful in the care and treatment of patients 
transferred or referred between the facilities, or in determining 
whether such patients can be adequately cared for otherwise than in 
either of such facilities; and
    (3) Security and accountability for patients' personal effects are 
assured.

[[Page 120]]



Sec. 405.2161  Condition: Director of a renal dialysis facility or renal dialysis center.

    Treatment is under the general supervision of a Director who is a 
physician. The physician-director need not devote full time as Director 
but is responsible for planning, organizing, conducting, and directing 
the professional ESRD services and must devote sufficient time to 
carrying out these responsibilities. The director may also serve as the 
Chief Executive Officer of the facility.
    (a) Standard: qualifications. The director of a dialysis facility is 
a qualified physician-director. (See Sec. 405.2102.)
    (b) Standard: responsibilities. The responsibilities of the 
physician-director include but are not limited to the following:
    (1) Participating in the selection of a suitable treatment modality, 
i.e., transplantation or dialysis, and dialysis setting, for all 
patients;
    (2) Assuring adequate training of nurses and technicians in dialysis 
techniques;
    (3) Assuring adequate monitoring of the patient and the dialysis 
process, including, for self-dialysis patients, assuring periodic 
assessment of patient performance of dialysis tasks;
    (4) Assuring the development and availability of a patient care 
policy and procedures manual and its implementation. As a minimum, the 
manual describes the types of dialysis used in the facility and the 
procedures followed in performance of such dialysis; hepatitis 
prevention and procedures for handling an individual with hepatitis; and 
a disaster preparedness plan (e.g., patient emergency, fire, flood); and
    (5) When self-dialysis training or home dialysis training is 
offered, assuring that patient teaching materials are available for the 
use of all trainees during training and at times other than during the 
dialysis procedure.

[41 FR 22511, June 3, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 43 FR 48952, Oct. 19, 1978; 51 FR 30362, Aug. 26, 1986]



Sec. 405.2162  Condition: Staff of a renal dialysis facility or renal dialysis center.

    Properly trained personnel are present in adequate numbers to meet 
the needs of the patients, including those arising from medical and 
nonmedical emergencies.
    (a) Standard: Registered nurse. The dialysis facility employs at 
least one full time qualified nurse responsible for nursing service. 
(See Sec. 405.2102.)
    (b) Standard: On-duty personnel. Whenever patients are undergoing 
dialysis:
    (1) One currently licensed health professional (e.g., physician, 
registered nurse, or licensed practical nurse) experienced in rendering 
ESRD care is on duty to oversee ESRD patient care;
    (2) An adequate number of personnel are present so that the patient/
staff ratio is appropriate to the level of dialysis care being given and 
meets the needs of patients; and
    (3) An adequate number of personnel are readily available to meet 
medical and nonmedical needs.
    (c) Standard: Self-care dialysis training personnel. If the facility 
offers self-care dialysis training, a qualified nurse is in charge of 
such training (see Sec. 405.2102.)

[41 FR 22511, June 3, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 43 FR 48953, Oct. 19, 1978; 51 FR 30362, Aug. 26, 1986]



Sec. 405.2163  Condition: Minimal service requirements for a renal dialysis facility or renal dialysis center.

    The facility must provide dialysis services, as well as adequate 
laboratory, social, and dietetic services to meet the needs of the ESRD 
patient.
    (a) Standard: Outpatient dialysis services--(1) Staff-assisted 
dialysis services. The facility must provide all necessary institutional 
dialysis services and staff required in performing the dialysis.
    (2) Self-dialysis services. If the facility offers self-dialysis 
services, it must provide all medically necessary supplies and equipment 
and any other service specified in the facility's patient care policies.
    (b) Standard: Laboratory services. The dialysis facility makes 
available laboratory services (other than the specialty of tissue 
pathology and histocompatibility testing), to meet the needs of the ESRD 
patient. All laboratory services must be performed by an appropriately 
certified laboratory in

[[Page 121]]

accordance with part 493 of this chapter. If the renal dialysis facility 
furnishes its own laboratory services, it must meet the applicable 
requirements established for certification of laboratories found in part 
493 of this chapter. If the facility does not provide laboratory 
services, it must make arrangements to obtain these services from a 
laboratory certified in the appropriate specialties and subspecialties 
of service in accordance with the requirements of part 493 of this 
chapter.
    (c) Standard: Social services. Social services are provided to 
patients and their families and are directed at supporting and 
maximizing the social functioning and adjustment of the patient. Social 
services are furnished by a qualified social worker (Sec. 405.2102) who 
has an employment or contractual relationship with the facility. The 
qualified social worker is responsible for conducting psychosocial 
evaluations, participating in team review of patient progress and 
recommending changes in treatment based on the patient's current 
psychosocial needs, providing casework and groupwork services to 
patients and their families in dealing with the special problems 
associated with ESRD, and identifying community social agencies and 
other resources and assisting patients and families to utilize them.
    (d) Standard: Dietetic services. Each patient is evaluated as to his 
nutritional needs by the attending physician and by a qualified 
dietician (Sec. 405.2102) who has an employment or contractual 
relationship with the facility. The dietician, in consultation with the 
attending physician, is responsible for assessing the nutritional and 
dietetic needs of each patient, recommending therapeutic diets, 
counseling patients and their families on prescribed diets, and 
monitoring adherence and response to diets.
    (e) Standard: Self-dialysis support services. The renal dialysis 
facility or center furnishing self-dialysis training upon completion of 
the patient's training, furnishes (either directly, under agreement or 
by arrangement with another ESRD facility) the following services:
    (1) Surveillance of the patient's home adaptation, including 
provisions for visits to the home or the facility;
    (2) Consultation for the patient with a qualified social worker and 
a qualified dietitian;
    (3) A recordkeeping system which assures continuity of care;
    (4) Installation and maintenance of equipment;
    (5) Testing and appropriate treatment of the water; and
    (6) Ordering of supplies on an ongoing basis.
    (f) Standard: Participation in recipient registry. The dialysis 
facility or center participates in a patient registry program with an 
OPO designated or redesignated under part 486, subpart G of this 
chapter, for patients who are awaiting cadaveric donor transplantation.
    (g) Use of EPO at home: Patient selection. The dialysis facility, or 
the physician responsible for all dialysis-related services furnished to 
the patient, must make a comprehensive assessment that includes the 
following:
    (1) Pre-selection monitoring. The patient's hematocrit (or 
hemoglobin), serum iron, transferrin saturation, serum ferritin, and 
blood pressure must be measured.
    (2) Conditions the patient must meet. The assessment must find that 
the patient meets the following conditions:
    (i) On or after July 1, 1991, is a home dialysis patient or, on or 
after January 1, 1994, is a dialysis patient;
    (ii) Has a hematocrit (or comparable hemoglobin level) that is as 
follows:
    (A) For a patient who is initiating EPO treatment, no higher than 30 
percent unless there is medical documentation showing the need for EPO 
despite a hematocrit (or comparable hemoglobin level) higher than 30 
percent. (Patients with severe angina, severe pulmonary distress, or 
severe hypertension may require EPO to prevent adverse symptoms even if 
they have higher hematocrit or hemoglobin levels.)
    (B) For a patient who has been receiving EPO from the facility or 
the physician, between 30 and 33 percent.
    (iii) Is under the care of--
    (A) A physician who is responsible for all dialysis-related services 
and who

[[Page 122]]

prescribes the EPO and follows the drug labeling instructions when 
monitoring the EPO home therapy; and
    (B) A renal dialysis facility that establishes the plan of care and 
monitors the progress of the home EPO therapy.
    (3) Conditions the patient or the patient's caregiver must meet. The 
assessment must find that the patient or a caregiver who assists the 
patient in performing self-dialysis meets the following conditions:
    (i) Is trained by the facility to inject EPO and is capable of 
carrying out the procedure.
    (ii) Is capable of reading and understanding the drug labeling.
    (iii) Is trained in, and capable of observing, aseptic techniques.
    (4) Care and storage of drug. The assessment must find that EPO can 
be stored in the patient's residence under refrigeration and that the 
patient is aware of the potential hazard of a child's having access to 
the drug and syringes.
    (h) Use of EPO at home: Responsibilities of the physician or the 
dialysis facility. The patient's physician or dialysis facility must--
    (1) Develop a protocol that follows the drug label instructions;
    (2) Make the protocol available to the patient to ensure safe and 
effective home use of EPO; and
    (3) Through the amounts prescribed, ensure that the drug ``on hand'' 
at any time does not exceed a 2-month supply.

[43 FR 48953, Oct. 19, 1978, as amended at 51 FR 30362, Aug. 26, 1986; 
57 FR 7134, Feb. 28, 1992; 59 FR 1284, Jan. 10, 1994; 59 FR 26958, May 
25, 1994; 59 FR 46513, Sept. 8, 1994; 61 FR 19743, May 2, 1996]



Sec. 405.2164  Conditions for coverage of special purpose renal dialysis facilities.

    (a) A special purpose renal dialysis facility must comply with all 
conditions for coverage for renal dialysis facilities specified in 
Secs. 405.2130 through 405.2164, with the exception of Secs. 405.2134, 
and 405.2137 that relate to participation in the network activities and 
patient long-term programs.
    (b) A special purpose renal dialysis facility must consult with a 
patient's physician to assure that care provided in the special purpose 
dialysis facility is consistent with the patient's long-term program and 
patient care plan required under Sec. 405.2137.
    (c) The period of approval for a special purpose renal dialysis 
facility may not exceed 8 calendar months in any calendar year.
    (d) A special purpose renal dialysis facility may provide services 
only to those patients who would otherwise be unable to obtain 
treatments in the geographical areas served by the facility.

[48 FR 21283, May 11, 1983, as amended at 51 FR 30362, Aug. 26, 1986]



Sec. 405.2170  Condition: Director of a renal transplantation center.

    The renal transplantation center is under the general supervision of 
a qualified transplantation surgeon (Sec. 405.2102) or a qualified 
physician-director (Sec. 405.2102), who need not serve full time. This 
physician is responsible for planning, organizing, conducting, and 
directing the renal transplantation center and devotes sufficient time 
to carry out these responsibilities, which include but are not limited 
to the following:
    (a) Participating in the selection of a suitable treatment modality 
for each patient.
    (b) Assuring adequate training, of nurses in the care of transplant 
patients.
    (c) Assuring that tissue typing and organ procurement services are 
available either directly or under arrangement.
    (d) Assuring that transplantation surgery is performed under the 
direct supervision of a qualified transplantation surgeon.

[41 FR 22511, June 3, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 51 FR 30362, Aug. 26, 1986; 59 FR 46514, Sept. 8, 1994]



Sec. 405.2171  Condition: Minimal service requirements for a renal transplantation center.

    Kidney transplantation is furnished directly by a hospital that is 
participating as a provider of services in the Medicare program and is 
approved by HCFA as a renal transplantation center. The renal 
transplantation center is under the overall direction of a hospital 
administrator and medical staff;

[[Page 123]]

if operated by an organizational subsidiary, it is under the direction 
of an administrator and medical staff member (or committee) who are 
directly responsible to the hospital administrator and medical staff, 
respectively. Patients are accepted for transplantation only on the 
order of a physician and their care continues under the supervision of a 
physician.
    (a) Standard: participation in recipient registry. The renal 
transplantation center participates in a patient registry program with 
an OPO certified or recertified under part 485, subpart D of this 
chapter for patients who are awaiting cadaveric donor transplantation.
    (b) Standard: social services. Social services are provided to 
patients and their families and are directed at supporting and 
maximizing the social functioning and adjustment of the patient. Social 
services are furnished by a qualified social worker (Sec. 405.2102) who 
has an employment or contractual relationship with the facility. The 
qualified social worker is responsible for conducting psychosocial 
evaluations, participating in team review of patient progress and 
recommending changes in treatment based on the patient's current 
psychosocial needs, providing casework and groupwork services to 
patients and their families in dealing with the special problems 
associated with ESRD, and identifying community social agencies and 
other resources and assisting patients and families to utilize them.
    (c) Standard: dietetic services. Each patient is evaluated as to his 
nutritional needs by the attending physician and a qualified dietician 
(Sec. 405.2102) who has an employment or contractual relationship with 
the facility. The dietician, in consultation with the attending 
physician, is responsible for assessing the nutritional and dietetic 
needs of each patient, recommending therapeutic diets, counseling 
patients and their families on prescribed diets, and monitoring 
adherence and response to diets.
    (d) Standard: Laboratory services: (1) The renal transplantation 
center makes available, directly or under arrangements, laboratory 
services to meet the needs of ESRD patients. Laboratory services are 
performed in a laboratory facility certified in accordance with part 493 
of this chapter.
    (2) Laboratory services for crossmatching of recipient serum and 
donor lymphocytes for pre-formed antibodies by an acceptable technique 
are available on a 24-hour emergency basis.
    (e) Standard: Organ procurement. A renal transplantation center 
using the services of an organ procurement organization designated or 
redesignated under part 485, subpart D of this chapter to obtain donor 
organs has a written agreement covering these services. The renal 
transplantation center agrees to notify HCFA in writing within 30 days 
of the termination of the agreement.

[41 FR 22511, June 3, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977, 
as amended at 51 FR 30362, Aug. 26, 1986; 53 FR 6548, Mar. 1, 1988; 57 
FR 7134, Feb. 28, 1992; 59 FR 46514, Sept. 8, 1994]



Sec. 405.2180  Termination of Medicare coverage.

    (a) Except as provided in Sec. 405.2181, failure of a supplier of 
ESRD services to meet one or more of the conditions for coverage set 
forth in this subpart U will result in termination of Medicare coverage 
of the services furnished by that supplier.
    (b) If termination of coverage is based solely on a supplier's 
failure to participate in network activities and pursue network goals, 
as required by Sec. 405.2134, coverage may be reinstated when HCFA 
determines that the supplier is making reasonable and appropriate 
efforts to meet that condition.
    (c) If termination of coverage is based on failure to meet any of 
the other conditions specified in this subpart, coverage will not be 
reinstated until HCFA finds that the reason for termination has been 
removed and there is reasonable assurance that it will not recur.

[53 FR 36277, Sept. 19, 1988]



Sec. 405.2181  Alternative sanctions.

    (a) Basis for application of alternative sanctions. HCFA may, as an 
alternative to termination of Medicare coverage, impose one of the 
sanctions specified in paragraph (b) of this section if HCFA finds 
that--

[[Page 124]]

    (1) The supplier fails to participate in the activities and pursue 
the goals of the ESRD network that is designated to encompass its 
geographic area; and
    (2) This failure does not jeopardize patient health and safety.
    (b) Alternative sanctions. The alternative sanctions that HCFA may 
apply in the circumstances specified in paragraph (a) of this section 
include the following:
    (1) Denial of payment for services furnished to patients first 
accepted for care after the effective date of sanction as specified in 
the sanction notice.
    (2) Reduction of payments, for all ESRD services furnished by the 
supplier, by 20 percent for each 30-day period after the effective date 
of sanction.
    (3) Withholding of all payments, without interest, for all ESRD 
services furnished by the supplier to Medicare beneficiaries.
    (c) Duration of sanction. An alternative sanction remains in effect 
until HCFA finds that the supplier is in substantial compliance with the 
requirement to cooperate in the network plans and goals, or terminates 
coverage of the supplier's services for lack of compliance.

[53 FR 36277, Sept. 19, 1988]



Sec. 405.2182  Notice of sanction and appeal rights: Termination of coverage.

    (a) Notice of sanction. HCFA gives the supplier and the general 
public notice of sanction and of the effective date of the sanction. The 
effective date of the sanction is at least 30 days after the date of the 
notice.
    (b) Appeal rights. Termination of Medicare coverage of a supplier's 
ESRD services because the supplier no longer meets the conditions for 
coverage of its services is an initial determination appealable under 
part 498 of this chapter.

[53 FR 36277, Sept. 19, 1988]



Sec. 405.2184  Notice of appeal rights: Alternative sanctions.

    If HCFA proposes to apply a sanction specified in Sec. 405.2181(b), 
the following rules apply:
    (a) HCFA gives the facility notice of the proposed sanction and 15 
days in which to request a hearing.
    (b) If the facility requests a hearing, HCFA provides an informal 
hearing by a HCFA official who was not involved in making the appealed 
decision.
    (c) During the informal hearing, the facility--
    (1) May be represented by counsel;
    (2) Has access to the information on which the allegation was based; 
and
    (3) May present, orally or in writing, evidence and documentation to 
refute the finding of failure to participate in network activities and 
pursue network goals.
    (d) If the written decision of the informal hearing supports 
application of the alternative sanction, HCFA provides the facility and 
the public, at least 30 days before the effective date of the sanction, 
with a written notice that specifies the effective date and the reasons 
for the sanction.

[53 FR 36277, Sept. 19, 1988]



                        Subparts V-W--[Reserved]



  Subpart X--Rural Health Clinic and Federally Qualified Health Center 
                                Services

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 43 FR 8261, Mar. 1, 1978, unless otherwise noted.



Sec. 405.2400  Basis.

    Subpart X is based on the provisions of the following sections of 
the Act: Section 1833 sets forth the amounts of payment for 
supplementary medical insurance services. Section 1861(aa) sets forth 
the rural health clinic services and Federally qualified health center 
services covered by the Medicare program.

[60 FR 63176, Dec. 8, 1995]



Sec. 405.2401  Scope and definitions.

    (a) Scope. This subpart establishes the requirements for coverage 
and reimbursement of rural health clinic and Federally qualified health 
center services under Medicare.

[[Page 125]]

    (b) Definitions. As used in this subpart, unless the context 
indicates otherwise:
    Act means the Social Security Act.
    Allowable costs means costs that are incurred by a clinic or center 
and are reasonable in amount and proper and necessary for the efficient 
delivery of rural health clinic and Federally qualified health center 
services.
    Beneficiary means an individual enrolled in the Supplementary 
Medical Insurance program for the Aged and Disabled (part of title XVIII 
of the Act).
    Coinsurance means that portion of the clinic's charge for covered 
services for which the beneficiary is liable in addition to the 
deductible.
    Carrier means an organization that has a contract with the Secretary 
to administer the benefits covered by this subpart.
    Covered services means items or services for which the beneficiary 
is entitled to have payment made on his or her behalf under this 
subpart.
    Deductible means:
    (1) The first $100 of expenses incurred by the beneficiary during 
any calendar year for items and services covered under Part B of title 
XVIII; and
    (2) The expenses incurred for the first 3 pints of blood or 3 units 
of packed red blood cells furnished to a beneficiary during any calendar 
year. (See Secs. 410.160 and 410.161 of this chapter for greater 
detail.)
    Federally qualified health center (FQHC) means an entity that has 
entered into an agreement with HCFA to meet Medicare program 
requirements under Secs. 405.2434 and--
    (1) Is receiving a grant under section 329, 330, or 340 of the 
Public Health Service Act, or is receiving funding from such a grant 
under a contract with the recipient of such a grant and meets the 
requirements to receive a grant under section 329, 330 or 340 of the 
Public Health Service Act;
    (2) Based on the recommendation of the PHS, is determined by HCFA to 
meet the requirements for receiving such a grant;
    (3) Was treated by HCFA, for purposes of part B, as a comprehensive 
federally funded health center (FFHC) as of January 1, 1990; or
    (4) Is an outpatient health program or facility operated by a tribe 
or tribal organizations under the Indian Self-Determination Act or by an 
Urban Indian organization receiving funds under title V of the Indian 
Health Care Improvement Act.
    HCFA stands for Health Care Financing Administration.
    Intermittent nursing care means a medically predictable need for 
nursing care from time to time, but usually not less frequently than 
once every 60 days.
    Nurse-midwife means a registered professional nurse who meets the 
following requirements:
    (1) Is currently licensed to practice in the State as a registered 
professional nurse.
    (2) Is legally authorized under State law or regulations to practice 
as a nurse-midwife.
    (3) Except as provided in paragraph (b)(10)(iv) of this section, has 
completed a program of study and clinical experience for nurse-midwives, 
as specified by the State.
    (4) If the State does not specify a program of study and clinical 
experience that nurse-midwives must complete to practice in that State, 
meets one of the following conditions:
    (i) Is currently certified as a nurse-midwife by the American 
College of Nurse-Midwives.
    (ii) Has satisfactorily completed a formal education program (of at 
least one academic year) that, upon completion, qualifies the nurse to 
take the certification examination offered by the American College of 
Nurse-Midwives.
    (iii) Has successfully completed a formal educational program for 
preparing registered nurses to furnish gynecological and obstetrical 
care to women during pregnancy, delivery, and the postpartum period, and 
care to normal newborns, and was practicing as a nurse-midwife for a 
total of 12 months during any 18-month period from August 8, 1976 to 
July 16, 1982.
    Nurse practitioner and physician assistant means individuals who 
meet the applicable education, training experience and other 
requirements of Sec. 491.2 of this chapter.
    Part-time nursing care means nursing care that is required on less 
than a

[[Page 126]]

full-time basis, that is, less than 8 hours a day or 40 hours a week.
    Physician means the following:
    (1) A doctor of medicine or osteopathy legally authorized to 
practice medicine and surgery by the State in which the function is 
performed.
    (2) Within limitations as to the specific services furnished, a 
doctor of dentistry or dental or oral surgery, a doctor of optometry, a 
doctor of podiatry or surgical chiropody or a chiropractor. (See section 
1861(r) of the Act for specific limitations.)
    (3) A resident (including residents as defined in Sec. 415.152 of 
this chapter who meet the requirements in Sec. 415.206(b) of this 
chapter for payment under the physician fee schedule).
    Reporting period means a period of 12 consecutive months specified 
by the intermediary as the period for which a clinic or center must 
report its costs and utilization. The first and last reporting periods 
may be less than 12 months.
    Rural health clinic means a facility that:
    (1) Has been determined by the Secretary to meet the requirements of 
section 1861(aa)(2) of the Act and part 491 of this chapter; and
    (2) Has filed an agreement with the Secretary in order to provide 
rural health clinic services under Medicare. (See Sec. 405.2402.)
    Secretary means the Secretary of Health and Human Services or his 
delegate.
    Visiting nurse services means part-time or intermittent nursing care 
and related medical supplies (other than drugs or biologicals) furnished 
by a registered nurse or licensed practical nurse to a homebound 
patient.

(Secs. 1102, 1833, 1861(aa), 1871, 1902(a)(13), Social Security Act; 49 
Stat. 647, 79 Stat. 302, 322, and 331, 91 Stat. 1485 (42 U.S.C. 1302, 
1395l, 1395hh, 1395x(aa), and 1396(a)(13))

[43 FR 8261, Mar. 1, 1978, as amended at 43 FR 30526, July 14, 1978; 47 
FR 21049, May 17, 1982; 47 FR 23448, May 28, 1982; 51 FR 41351, Nov. 14, 
1986; 57 FR 24975, June 12, 1992; 59 FR 26958, May 25, 1994; 60 FR 
63176, Dec. 8, 1995; 61 FR 14657, Apr. 3, 1996]



Sec. 405.2402  Basic requirements.

    (a) Certification by the State survey agency. The rural health 
clinic must be certified in accordance with part 491 of this chapter.
    (b) Acceptance of the clinic as qualified to furnish rural health 
clinic services. If the Secretary, after reviewing the survey agency 
recommendation and other evidence relating to the qualifications of the 
rural health clinic, determines that it meets the requirements of this 
subpart and of part 491 of this chapter, he will send the clinic:
    (1) Written notice of the determination; and
    (2) Two copies of the agreement to be filed as required by section 
1861(aa)(1) of the Act.
    (c) Filing of agreement by the rural health clinic. If the rural 
health clinic wishes to participate in the program, it must:
    (1) Have both copies of the agreement signed by an authorized 
representative; and
    (2) File them with the Secretary.
    (d) Acceptance by the Secretary. If the Secretary accepts the 
agreement filed by the rural health clinic, he will return to the clinic 
one copy of the agreement, with a notice of acceptance specifying the 
effective date.
    (e) Duration of agreement. The agreement shall be for a term of one 
year and may be renewed annually by mutual consent of the Secretary and 
the rural health clinic.
    (f) Appeal rights. If the Secretary does not certify a rural health 
clinic, or refuses to enter into or renew an agreement, the facility is 
entitled to a hearing in accordance with part 498 of this chapter.

[43 FR 8261, Mar. 1, 1978, as amended at 52 FR 22454, June 12, 1987]



Sec. 405.2403  Content and terms of the agreement with the Secretary.

    (a) Under the agreement, the rural health clinic agrees to the 
following:
    (1) Maintaining compliance with conditions. The clinic agrees to 
maintain compliance with the conditions set forth in part 491 of this 
chapter and to report promptly to HCFA any failure to do so.
    (2) Charges to beneficiaries. The clinic agrees not to charge the 
beneficiary or any other person for items and services for which the 
beneficiary is entitled to

[[Page 127]]

have payment made under the provisions of this part (or for which the 
beneficiary would have been entitled if the rural health clinic had 
filed a request for payment in accordance with Sec. 410.165 of this 
chapter), except for any deductible or coinsurance amounts for which the 
beneficiary is liable under Sec. 405.2410.
    (3) Refunds to beneficiaries. (i) The clinic agrees to refund as 
promptly as possible any money incorrectly collected from beneficiaries 
or from someone on their behalf.
    (ii) As used in this section, money incorrectly collected means sums 
collected in excess of the amount for which the beneficiary was liable 
under Sec. 405.2410. It includes amounts collected at a time when the 
beneficiary was believed not to be entitled to Medicare benefits but:
    (A) The beneficiary is later determined to have been entitled to 
Medicare benefits; and
    (B) The beneficiary's entitlement period falls within the time the 
rural health clinic's agreement with the Secretary is in effect.
    (4) Beneficiary treatment. (i) The clinic agrees to accept 
beneficiaries for care and treatment; and
    (ii) The clinic agrees not to impose any limitations on the 
acceptance of beneficiaries for care and treatment that it does not 
impose on all other persons.
    (b) Additional provisions. The agreement may contain any additional 
provisions that the Secretary finds necessary or desirable for the 
efficient and effective administration of the Medicare program.

[43 FR 8261, Mar. 1, 1978, as amended at 51 FR 41351, Nov. 14, 1986]



Sec. 405.2404  Terminations of agreements.

    (a) Termination by rural health clinic. (1) Notice to Secretary. If 
the clinic wishes to terminate its agreement it shall file with the 
Secretary a written notice stating the intended effective date of 
termination.
    (2) Action by the Secretary. (i) The Secretary may approve the date 
proposed by the clinic, or set a different date no later than 6 months 
after the date of the clinic's notice.
    (ii) The Secretary may approve a date which is less than 6 months 
after the date of notice if he determines that termination on that date 
would not:
    (A) Unduly disrupt the furnishing of services to the community 
serviced by the clinic; or
    (B) Otherwise interfere with the effective and efficient 
administration of the Medicare program.
    (3) Cessation of business. If a clinic ceases to furnish services to 
the community, that shall be deemed to be a voluntary termination of the 
agreement by the clinic, effective on the last day of business.
    (b) Termination by the Secretary. (1) Cause for termination. The 
Secretary may terminate an agreement if he determines that the rural 
health clinic:
    (i) No longer meets the conditions for certification under part 491 
of this chapter; or
    (ii) Is not in substantial compliance with the provisions of the 
agreement, the requirements of this subpart, any other applicable 
regulations of this part, or any applicable provisions of title XVIII of 
the Act; or
    (iii) Has undergone a change of ownership.
    (2) Notice of termination. The Secretary will give notice of 
termination to the rural health clinic at least 15 days before the 
effective date stated in the notice.
    (3) Appeal by the rural health clinic. A rural health clinic may 
appeal the termination of its agreement in accordance with the 
provisions set forth in part 498 of this chapter.
    (c) Effect of termination. Payment will not be available for rural 
health clinic services furnished on or after the effective date of 
termination.
    (d) Notice to the public. Prompt notice of the date and effect of 
termination shall be given to the public, through publication in local 
newspapers:
    (1) By the clinic, after the Secretary has approved or set a 
termination date; or
    (2) By the Secretary, when he has terminated the agreement.
    (e) Conditions for reinstatement after termination of agreement by 
the Secretary. When an agreement with a rural health clinic is 
terminated by the Secretary, the rural health clinic may not file 
another agreement to participate

[[Page 128]]

in the Medicare program unless the Secretary:
    (1) Finds that the reason for the termination of the prior agreement 
has been removed; and
    (2) Is assured that the reason for the termination will not recur.

[43 FR 8261, Mar. 1, 1978, as amended at 52 FR 22454, June 12, 1987]



Sec. 405.2410  Application of Part B deductible and coinsurance.

    (a) Application of deductible. (1) Medicare payment for rural health 
clinic services begins only after the beneficiary has incurred the 
deductible.
    (2) Medicare payment for services covered under the Federally 
qualified health center benefit is not subject to the usual Part B 
deductible.
    (b) Application of coinsurance. (1) The beneficiary is responsible 
for a coinsurance amount which cannot exceed 20 percent of the clinic's 
reasonable customary charge for the covered service; and
    (2)(i) The beneficiary's deductible and coinsurance liability, with 
respect to any one item or service furnished by the rural health clinic, 
may not exceed a reasonable amount customarily charged by the clinic for 
that particular item or service.
    (ii) For any one item or service furnished by a Federally qualified 
health center, the coinsurance liability may not exceed 20 percent of a 
reasonable amount customarily charged by the center for that particular 
item or service.

[57 FR 24976, June 12, 1992]



Sec. 405.2411  Scope of benefits.

    (a) Rural health clinic services reimbursable under this subpart 
are:
    (1) The physicians' services specified in Sec. 405.2412;
    (2) Services and supplies furnished as an incident to a physician's 
professional service;
    (3) The nurse practitioner or physician assistant services specified 
in Sec. 405.2414;
    (4) Services and supplies furnished as an incident to a nurse 
practitioner's or physician assistant's services; and
    (5) Visiting nurse services.
    (b) Rural health clinic services are reimbursable when furnished to 
a patient at the clinic, at a hospital or other medical facility, or at 
the patient's place of residence.



Sec. 405.2412  Physicians' services.

    (a) Physicians' services are professional services that are 
performed by a physician at the clinic or are performed away from the 
clinic by a physician whose agreement with the clinic provides that he 
or she will be paid by the clinic for such services.



Sec. 405.2413  Services and supplies incident to a physician's services.

    (a) Services and supplies incident to a physician's professional 
service are reimbursable under this subpart if the service or supply is:
    (1) Of a type commonly furnished in physicians' offices;
    (2) Of a type commonly rendered either without charge or included in 
the rural health clinic's bill;
    (3) Furnished as an incidental, although integral, part of a 
physician's professional services;
    (4) Furnished under the direct, personal supervision of a physician; 
and
    (5) In the case of a service, furnished by a member of the clinic's 
health care staff who is an employee of the clinic.
    (b) Only drugs and biologicals which cannot be self-administered are 
included within the scope of this benefit.



Sec. 405.2414  Nurse practitioner and physician assistant services.

    (a) Professional services are reimbursable under this subpart if:
    (1) Furnished by a nurse practitioner, physician assistant, nurse 
midwife, or specialized nurse practitioner who is employed by, or 
receives compensation from, the rural health clinic;
    (2) Furnished under the medical supervision of a physician;
    (3) Furnished in accordance with any medical orders for the care and 
treatment of a patient prepared by a physician;
    (4) They are of a type which the nurse practitioner, physician 
assistant, nurse midwife or specialized nurse practitioner who furnished 
the service is legally permitted to perform by the

[[Page 129]]

State in which the service is rendered; and
    (5) They would be covered if furnished by a physician.
    (b) The physician supervision requirement is met if the conditions 
specified in Sec. 491.8(b) of this chapter and any pertinent 
requirements of State law are satisfied.
    (c) The services of nurse practitioners, physician assistants, nurse 
midwives or specialized nurse practitioners are not covered if State law 
or regulations require that the services be performed under a 
physician's order and no such order was prepared.



Sec. 405.2415  Services and supplies incident to nurse practitioner and physician assistant services.

    (a) Services and supplies incident to a nurse practitioner's or 
physician assistant's services are reimbursable under this subpart if 
the service or supply is:
    (1) Of a type commonly furnished in physicians' offices;
    (2) Of a type commonly rendered either without charge or included in 
the rural health clinic's bill;
    (3) Furnished as an incidental, although integral part of 
professional services furnished by a nurse practitioner, physician 
assistant, nurse midwife, or specialized nurse practitioner;
    (4) Furnished under the direct, personal supervision of a nurse 
practitioner, physician assistant, nurse midwife, specialized nurse 
practitioner or a physician; and
    (5) In the case of a service, furnished by a member of the clinic's 
health care staff who is an employee of the clinic.
    (b) The direct personal supervision requirement is met in the case 
of a nurse practitioner, physician assistant, nurse midwife, or 
specialized nurse practitioner only if such a person is permitted to 
supervise such services under the written policies governing the rural 
health clinic.
    (c) Only drugs and biologicals which cannot be self-administered are 
included within the scope of this benefit.



Sec. 405.2416  Visiting nurse services.

    (a) Visiting nurse services are covered if:
    (1) The rural health clinic is located in an area in which the 
Secretary has determined that there is a shortage of home health 
agencies;
    (2) The services are rendered to a homebound individual;
    (3) The services are furnished by a registered nurse, licensed 
practical nurse, or licensed vocational nurse who is employed by, or 
receives compensation for the services from the clinic; and
    (4) The services are furnished under a written plan of treatment 
that is:
    (i) Established and reviewed at least every 60 days by a supervising 
physician of the rural health clinic or established by a nurse 
practitioner, physician assistant, nurse midwife, or specialized nurse 
practitioner and reviewed at least every 60 days by a supervising 
physician; and
    (ii) Signed by the nurse practitioner, physician assistant, nurse 
midwife, specialized nurse practitioner, or the supervising physician of 
the clinic.
    (b) The nursing care covered by this section includes:
    (1) Services that must be performed by a registered nurse, licensed 
practical nurse, or licensed vocational nurse if the safety of the 
patient is to be assured and the medically desired results achieved; and
    (2) Personal care services, to the extent covered under Medicare as 
home health services. These services include helping the patient to 
bathe, to get in and out of bed, to exercise and to take medications.
    (c) This benefit does not cover household and housekeeping services 
or other services that would constitute custodial care.
    (d)  For  purposes  of  this  section, homebound means an individual 
who is permanently or temporarily confined to his or her place of 
residence because of a medical or health condition. The individual may 
be considered homebound if he or she leaves the place of residence 
infrequently. For this purpose, ``place of residence'' does not include 
a hospital or long term care facility.

[[Page 130]]



Sec. 405.2417  Visiting nurse services: Determination of shortage of agencies.

    A shortage of home health agencies exists if the Secretary 
determines that the rural health clinic:
    (a) Is located in a county, parish, or similar geographic area in 
which there is no participating home health agency or adequate home 
health services are not available to patients of the rural health 
clinic;
    (b) Has (or expects to have) patients whose permanent residences are 
not within the area serviced by a participating home health agency; or
    (c) Has (or expects to have) patients whose permanent residences are 
not within a reasonable traveling distance, based on climate and 
terrain, of a participating home health agency.

               Federally Qualified Health Center Services

    Source: 57 FR 24978, June 12, 1992, unless otherwise noted.



Sec. 405.2430  Basic requirements.

    (a) Filing procedures. (1) In response to a request from an entity 
that wishes to participate in the Medicare program, HCFA enters into an 
agreement with an entity when--
    (i) PHS recommends that the entity qualifies as a Federally 
qualified health center;
    (ii) The Federally qualified health center assures HCFA that it 
meets the Federally qualified health center requirements specified in 
this subpart and part 491, as described in Sec. 405.2434(a); and
    (iii) The FQHC terminates other provider agreements, unless the FQHC 
assures HCFA that it is not using the same space, staff and resources 
simultaneously as a physician's office or another type of provider or 
supplier. A corporate entity may own other provider types as long as the 
provider types are distinct from the FQHC.
    (2) HCFA sends the entity a written notice of the disposition of the 
request.
    (3) When the requirement of paragraph (a)(1) of this section is 
satisfied, HCFA sends the entity two copies of the agreement. The entity 
must sign and return both copies of the agreement to HCFA.
    (4) If HCFA accepts the agreement filed by the Federally qualified 
health center, HCFA returns to the center one copy of the agreement with 
the notice of acceptance specifying the effective date (see 
Sec. 489.11), as determined under Sec. 405.2434.
    (b) Recommendations by PHS about Federally qualified health centers. 
(1) An entity must--
    (i) Meet the applicable requirements of the PHS Act, as specified in 
Sec. 405.2401(b); and
    (ii) Be recommended by PHS to HCFA as a Federally qualified health 
center.
    (2) The PHS notifies HCFA of entities that meet the requirements 
specified in Sec. 405.2401(b).
    (c) Provider-based and freestanding Federally qualified health 
centers. The requirements and benefits under Medicare for provider-based 
or freestanding Federally qualified health centers are the same, except 
that payment methodologies differ, as described in Sec. 405.2462.
    (d) Appeals. An entity is entitled to a hearing in accordance with 
part 498 of this chapter when HCFA fails to enter into an agreement with 
the entity.

[57 FR 24978, June 12, 1992, as amended at 61 FR 14657, Apr. 3, 1996]



Sec. 405.2434  Content and terms of the agreement.

    Under the agreement, the Federally qualified health center must 
agree to the following:
    (a) Maintain compliance with the requirements. (1) The Federally 
qualified health center must agree to maintain compliance with the 
Federally qualified health center requirements set forth in this subpart 
and part 491, except that the provisions of Sec. 491.3 do not apply.
    (2) Centers must promptly report to HCFA any changes that result in 
noncompliance with any of these requirements.
    (b) Effective date of agreement. (1) Except as specified in 
paragraph (b)(2) of this section, the effective date of the agreement is 
the date HCFA accepts the signed agreement, which assures that all 
Federal requirements are met.
    (2) For facilities that met all requirements on October 1, 1991, the 
effective

[[Page 131]]

date of the agreement can be October 1, 1991.
    (c) Charges to beneficiaries. (1) The beneficiary is responsible for 
payment of a coinsurance amount which is 20 percent of the amount of 
Part B payment made to the Federally qualified health center for the 
covered services. There is no coinsurance for a second or third opinion 
obtained in accordance with section 1164 of the Act or for pneumococcal 
vaccine and its administration.
    (2) The beneficiary is responsible for blood deductible expenses, as 
specified in Sec. 410.161.
    (3) The Federally qualified health center agrees not to charge the 
beneficiary (or any other person acting on behalf of a beneficiary) for 
any Federally qualified health center services for which the beneficiary 
is entitled to have payment made on his or her behalf by the Medicare 
program (or for which the beneficiary would have been entitled if the 
Federally qualified health center had filed a request for payment in 
accordance with Sec. 410.165 of this chapter), except for coinsurance 
amounts.
    (4) The Federally qualified health center may charge the beneficiary 
for items and services that are not Federally qualified health center 
services. However, if the item or service is covered under Part B of 
Medicare, and the Federally qualified health center agrees to receive 
Part B payment under the assignment method, the Federally qualified 
health center may not charge the beneficiary more than 20 percent of the 
Part B payment.
    (d) Refunds to beneficiaries. (1) The Federally qualified health 
center must agree to refund as promptly as possible any money 
incorrectly collected from Medicare beneficiaries or from someone on 
their behalf.
    (2) As used in this section, ``money incorrectly collected'' means 
any amount for covered services that is greater than the amount for 
which the beneficiary was liable because of the coinsurance requirements 
specified in part 410, subpart E.
    (3) Amounts also are considered incorrectly collected if the 
Federally qualified health center believed the beneficiary was not 
entitled to Medicare benefits but--
    (i) The beneficiary was later determined to have been so entitled;
    (ii) The beneficiary's entitlement period fell within the time the 
Federally qualified health center's agreement with HCFA was in effect; 
and
    (iii) The amounts exceed the beneficiary's coinsurance liability.
    (e) Treatment of beneficiaries. (1) The Federally qualified health 
center must agree to accept Medicare beneficiaries for care and 
treatment.
    (2) The Federally qualified health center may not impose any 
limitations with respect to care and treatment of Medicare beneficiaries 
that it does not also impose upon all other persons seeking care and 
treatment from the Federally qualified health center. Failure to comply 
with this requirement is a cause for termination of the Federally 
qualified health center's agreement with HCFA in accordance with 
Sec. 405.2436(d).
    (3) If the Federally qualified health center does not furnish 
treatment for certain illnesses and conditions to patients who are not 
Medicare beneficiaries, it need not furnish such treatment to Medicare 
beneficiaries.



Sec. 405.2436  Termination of agreement.

    (a) Termination by Federally qualified health center. The Federally 
qualified health center may terminate its agreement by--
    (1) Filing with HCFA a written notice stating its intention to 
terminate the agreement; and
    (2) Notifying HCFA of the date on which the Federally qualified 
health center requests that the termination take effect.
    (b) Effective date. (1) Upon receiving a Federally qualified health 
center's notice of intention to terminate the agreement, HCFA will set a 
date upon which the termination takes effect. This effective date may 
be--
    (i) The date proposed by the Federally qualified health center in 
its notice of intention to terminate, if that date is acceptable to 
HCFA; or
    (ii) Except as specified in paragraph (2) of this section, a date 
set by HCFA, which is no later than 6 months after the date HCFA 
receives the Federally

[[Page 132]]

qualified health center's notice of intention to terminate.
    (2) The effective date of termination may be less than 6 months 
following HCFA's receipt of the Federally qualified health center's 
notice of intention to terminate if HCFA determines that termination on 
such a date would not--
    (i) Unduly disrupt the furnishing of Federally qualified health 
center services to the community; or
    (ii) Otherwise interfere with the effective and efficient 
administration of the Medicare program.
    (3) The termination is effective at the end of the last day of 
business as a Federally qualified health center.
    (c) Termination by HCFA. (1) HCFA may terminate an agreement with a 
Federally qualified health center if it finds that the Federally 
qualified health center--
    (i) No longer meets the requirements specified in this subpart; or
    (ii) Is not in substantial compliance with--
    (A) The provisions of the agreement; or
    (B) The requirements of this subpart, any other applicable 
regulations of this part, or any applicable provisions of title XVIII of 
the Act.
    (2) Notice by HCFA. HCFA will notify the Federally qualified health 
center in writing of its intention to terminate an agreement at least 15 
days before the effective date stated in the written notice.
    (3) Appeal. A Federally qualified health center may appeal HCFA's 
decision to terminate the agreement in accordance with part 498 of this 
chapter.
    (d) Effect of termination. When a Federally qualified health 
center's agreement is terminated whether by the Federally qualified 
health center or HCFA, payment will not be available for Federally 
qualified health center services furnished on or after the effective 
date of termination.



Sec. 405.2440  Conditions for reinstatement after termination by HCFA.

    When HCFA has terminated an agreement with a Federally qualified 
health center, HCFA will not enter into another agreement with the 
Federally qualified health center to participate in the Medicare program 
unless HCFA--
    (a) Finds that the reason for the termination no longer exists; and
    (b) Is assured that the reason for the termination of the prior 
agreement will not recur.



Sec. 405.2442  Notice to the public.

    (a) When the Federally qualified health center voluntarily 
terminates the agreement and an effective date is set for the 
termination, the Federally qualified health center must notify the 
public prior to a prospective effective date or on the actual day that 
business ceases, if no prospective date of termination has been set, 
through publication in at least one newspaper in general circulation in 
the area serviced by the Federally qualified health center of the--
    (1) Effective date of termination of the provision of services; and
    (2) Effect of termination of the agreement.
    (b) When HCFA terminates the agreement, HCFA will notify the public 
through publication in at least one newspaper in general circulation in 
the Federally qualified health center's service area.



Sec. 405.2444  Change of ownership.

    (a) What constitutes change of ownership--(1) Incorporation. The 
incorporation of an unincorporated FQHC constitutes change of ownership.
    (2) Merger. The merger of the center corporation into another 
corporation, or the consolidation of two or more corporations, one of 
which is the center corporation, resulting in the creation of a new 
corporation, constitutes a change of ownership. (The merger of another 
corporation into the center corporation does not constitute change of 
ownership.)
    (3) Leasing. The lease of all or part of an entity constitutes a 
change of ownership of the leased portion.
    (b) Notice to HCFA. A center which is contemplating or negotiating 
change of ownership must notify HCFA.
    (c) Assignment of agreement. When there is a change of ownership as 
specified in paragraph (a) of this section, the agreement with the 
existing center is automatically assigned to the new

[[Page 133]]

owner if it continues to meet the conditions to be a Federally qualified 
health center.
    (d) Conditions that apply to assigned agreements. An assigned 
agreement is subject to all applicable statutes and regulations and to 
the terms and conditions under which it was originally issued including, 
but not limited to, the following:
    (1) Compliance with applicable health and safety standards.
    (2) Compliance with the ownership and financial interest disclosure 
requirements of part 420, subpart C of this subchapter.



Sec. 405.2446  Scope of services.

    (a) For purposes of this section, the terms rural health clinic and 
clinic when they appear in the cross references in paragraph (b) of this 
section also mean Federally qualified health centers.
    (b) FQHC services that are paid for under this subpart are 
outpatient services that include the following:
    (1) Physician services specified in Sec. 405.2412.
    (2) Services and supplies furnished as an incident to a physician's 
professional services, as specified in Sec. 405.2413.
    (3) Nurse practitioner or physician assistant services specified in 
Sec. 405.2414.
    (4) Services and supplies furnished as an incident to a nurse 
practitioner or physician assistant services, as specified in 
Sec. 405.2415.
    (5) Clinical psychologist and clinical social worker services 
specified in Sec. 405.2450.
    (6) Services and supplies furnished as an incident to a clinical 
psychologist or clinical social worker services, as specified in 
Sec. 405.2452.
    (7) Visiting nurse services specified in Sec. 405.2416.
    (8) Nurse-midwife services specified in Sec. 405.2401.
    (9) Preventive primary services specified in Sec. 405.2448 of this 
subpart.
    (c) Federally qualified health center services are covered when 
provided in outpatient settings only, including a patient's place of 
residence, which may be a skilled nursing facility or a nursing facility 
or other institution used as a patient's home.
    (d) Federally qualified health center services are not covered in a 
hospital, as defined in section 1861(e)(1) of the Act.

[57 FR 24979, June 12, 1992, as amended at 61 FR 14657, Apr. 3, 1996]



Sec. 405.2448  Preventive primary services.

    (a) Preventive primary services are those health services that--
    (1) A center is required to provide as preventive primary health 
services under section 329, 330, and 340 of the Public Health Service 
Act;
    (2) Are furnished by or under the direct supervision of a nurse 
practitioner, physician assistant, nurse midwife, specialized nurse 
practitioner, clinical psychologist, clinical social worker, or a 
physician;
    (3) In the case of a service, are furnished by a member of the 
center's health care staff who is an employee of the center or by a 
physician under arrangements with the center; and
    (4) Except as specifically provided in section 1861(s) of the Act, 
include only drugs and biologicals that cannot be self-administered.
    (b) Preventive primary services which may be paid for when provided 
by Federally qualified health centers are the following:
    (1) Medical social services.
    (2) Nutritional assessment and referral.
    (3) Preventive health education.
    (4) Children's eye and ear examinations.
    (5) Prenatal and post-partum care.
    (6) Perinatal services.
    (7) Well child care, including periodic screening.
    (8) Immunizations, including tetanus-diptheria booster and influenza 
vaccine.
    (9) Voluntary family planning services.
    (10) Taking patient history.
    (11) Blood pressure measurement.
    (12) Weight.
    (13) Physical examination targeted to risk.
    (14) Visual acuity screening.
    (15) Hearing screening.
    (16) Cholesterol screening.
    (17) Stool testing for occult blood.
    (18) Dipstick urinalysis.
    (19) Risk assessment and initial counseling regarding risks.

[[Page 134]]

    (20) Tuberculosis testing for high risk patients.
    (21) For women only.
    (i) Clinical breast exam.
    (ii) Referral for mammography; and
    (iii) Thyroid function test.
    (c) Preventive primary services do not include group or mass 
information programs, health education classes, or group education 
activities, including media productions and publications.
    (d) Screening mammography is not considered a Federally qualified 
health center service, but may be provided at a Federally qualified 
health center if the center meets the requirements applicable to that 
service specified in Sec. 410.34 of this subchapter. Payment is made 
under applicable Medicare requirements.
    (e) Preventive primary services do not include eyeglasses, hearing 
aids, or preventive dental services.

[57 FR 24980, June 12, 1992, as amended at 61 FR 14657, Apr. 3, 1996]



Sec. 405.2450  Clinical psychologist and clinical social worker services.

    (a) For clinical psychologist or clinical social worker professional 
services to be payable under this subpart, the services must be--
    (1) Furnished by an individual who owns, is employed by, or 
furnishes services under contract to the FQHC;
    (2) Of a type that the clinical psychologist or clinical social 
worker who furnishes the services is legally permitted to perform by the 
State in which the service is furnished;
    (3) Performed by a clinical social worker or clinical psychologist 
who is legally authorized to perform such services under State law or 
the State regulatory mechanism provided by the law of the State in which 
such services are performed; and
    (4) Covered if furnished by a physician.
    (b) If State law prescribes a physician supervision requirement, it 
is met if the conditions specified in Sec. 491.8(b) of this chapter and 
any pertinent requirements of State law are satisfied.
    (c) The services of clinical psychologists or clinical social 
workers are not covered if State law or regulations require that the 
services be performed under a physician's order and no such order was 
prepared.

[57 FR 24980, June 12, 1992, as amended at 61 FR 14657, Apr. 3, 1996]



Sec. 405.2452  Services and supplies incident to clinical psychologist and clinical social worker services.

    (a) Services and supplies incident to a clinical psychologist's or 
clinical social worker's services are reimbursable under this subpart if 
the service or supply is--
    (1) Of a type commonly furnished in a physician's office;
    (2) Of a type commonly furnished either without charge or included 
in the Federally qualified health center's bill;
    (3) Furnished as an incidental, although integral part of 
professional services furnished by a clinical psychologist or clinical 
social worker;
    (4) Furnished under the direct, personal supervision of a clinical 
psychologist, clinical social worker or physician; and
    (5) In the case of a service, furnished by a member of the center's 
health care staff who is an employee of the center.
    (b) The direct personal supervision requirement in paragraph (a)(4) 
of this section is met only if the clinical psychologist or clinical 
social worker is permitted to supervise such services under the written 
policies governing the Federally qualified health center.

 Payment for Rural Health Clinic and Federally Qualified Health Center 
                                Services

    Source: 57 FR 24976, 24977, June 12, 1992, unless otherwise noted.



Sec. 405.2460  Applicability of general payment exclusions.

    The payment conditions, limitations, and exclusions set out in 
subpart C of this part, part 410 and part 411 of this chapter are 
applicable to payment for services provided by rural health clinics and 
Federally qualified health centers, except that preventive primary 
services, as defined in Sec. 405.2448, are covered in Federally 
qualified health centers and not excluded by the provisions of section 
1862(a) of the Act.

[[Page 135]]



Sec. 405.2462  Payment for rural health clinic and Federally qualified health center services.

    (a) Payment to provider-based rural health clinics and Federally 
qualified health centers. A rural health clinic or Federally qualified 
health center is paid in accordance with parts 405 and 413 of this 
subchapter, as applicable, if:
    (1) The clinic or center is an integral and subordinate part of a 
hospital, skilled nursing facility or home health agency participating 
in Medicare (i.e., a provider of services); and
    (2) The clinic or center is operated with other departments of the 
provider under common licensure, governance and professional 
supervision.
    (b) Payment to independent rural health clinics and freestanding 
Federally qualified health centers. (1) All other clinics and centers 
will be paid on the basis of an all-inclusive rate for each beneficiary 
visit for covered services. This rate will be determined by the 
intermediary, in accordance with this subpart and general instructions 
issued by HCFA.
    (2) The amount payable by the intermediary for a visit will be 
determined in accordance with paragraph (b)(3) and (4) of this section.
    (3) Federally qualified health centers. For Federally qualified 
health center visits, Medicare will pay 80 percent of the all-inclusive 
rate since no deductible is applicable to Federally qualified health 
center services.
    (4) Rural health clinics. (i) If the deductible has been fully met 
by the beneficiary prior to the rural health clinic visit, Medicare pays 
80 percent of the all-inclusive rate.
    (ii) If the deductible has not been fully met by the beneficiary 
before the visit, and the amount of the clinic's reasonable customary 
charge for the services that is applied to the deductible is--
    (A) Less than the all-inclusive rate, the amount applied to the 
deductible will be subtracted from the all-inclusive rate and 80 percent 
of the remainder, if any, will be paid to the clinic;
    (B) Equal to or exceeds the all-inclusive rate, no payment will be 
made to the clinic.
    (5) To receive payment, the clinic or center must follow the payment 
procedures specified in section 410.165 of this chapter.
    (6) Payment for treatment of mental psychoneurotic or personality 
disorders is subject to the limitations on payment in Sec. 410.155(c).



Sec. 405.2463  What constitutes a visit.

    (a) Visit. (1) A visit is a face-to-face encounter between a clinic 
or center patient and a physician, physician assistant, nurse 
practitioner, nurse-midwife, or visiting nurse.
    (2) For FQHCs, a visit also means a face-to-face encounter between a 
patient and a qualified clinical psychologist or clinical social worker.
    (3) Encounters with more than one health professional and multiple 
encounters with the same health professional that take place on the same 
day and at a single location constitute a single visit, except when one 
of the following conditions exist:
    (i) After the first encounter, the patient suffers illness or injury 
requiring additional diagnosis or treatment.
    (ii) For FQHCs, the patient has a medical visit and an other health 
visit, as defined in paragraphs (b) and (c) of this section.
    (4) Payment. (i) Medicare pays for two visits per day when the 
conditions in paragraph (a)(3) of this section are met.
    (ii) In all other cases, payment is limited to one visit per day.
    (b) Medical visit. For purposes of paragraph (a)(3) of this section, 
a medical visit is a face-to-face encounter between an FQHC patient and 
a physician, physician assistant, nurse practitioner, nurse-midwife, or 
visiting nurse.
    (c) Other health visit. For purposes of paragraph (a)(3) of this 
section, an other health visit is a face-to-face encounter between an 
FQHC patient and a clinical psychologist, clinical social worker, or 
other health professional for mental health services.

[61 FR 14657, Apr. 3, 1996]



Sec. 405.2464  All-inclusive rate.

    (a) Determination of rate. (1) An all-inclusive rate is determined 
by the intermediary at the beginning of the reporting period.
    (2) The rate is determined by dividing the estimated total allowable 
costs by

[[Page 136]]

estimated total visits for rural health clinic or Federally qualified 
health center services.
    (3) The rate determination is subject to any tests of reasonableness 
that may be established in accordance with this subpart.
    (b) Adjustment of rate. (1) The intermediary, during each reporting 
period, periodically reviews the rate to assure that payments 
approximate actual allowable costs and visits for rural health clinic or 
Federally qualified health center services and adjusts the rate if:
    (i) There is a significant change in the utilization of clinic or 
center services;
    (ii) Actual allowable costs vary materially from the clinic or 
center's allowable costs; or
    (iii) Other circumstances arise which warrant an adjustment.
    (2) The clinic or center may request the intermediary to review the 
rate to determine whether adjustment is required.



Sec. 405.2466  Annual reconciliation.

    (a) General. Payments made to a rural health clinic or a Federally 
qualified health center during a reporting period are subject to 
reconciliation to assure that those payments do not exceed or fall short 
of the allowable costs attributable to covered services furnished to 
Medicare beneficiaries during that period.
    (b) Calculation of reconciliation. (1) The total reimbursement 
amount due the clinic or center for covered services furnished to 
Medicare beneficiaries is based on the report specified in 
Sec. 405.2470(c)(2) and is calculated by the intermediary as follows:
    (i) The average cost per visit is calculated by dividing the total 
allowable cost incurred for the reporting period by total visits for 
rural health clinic or Federally qualified health center services 
furnished during the period. The average cost per visit is subject to 
tests of reasonableness which may be established in accordance with this 
subpart.
    (ii) The total cost of rural health clinic or Federally qualified 
health center services furnished to Medicare beneficiaries is calculated 
by multiplying the average cost per visit by the number of visits for 
covered rural health clinic or Federally qualified health center 
services by beneficiaries.
    (iii) For rural health clinics, the total reimbursement due the 
clinic is 80 percent of the amount calculated by subtracting the amount 
of deductible incurred by beneficiaries that is attributable to rural 
health clinic services from the cost of these services. The 
reimbursement computation for Federally qualified health centers does 
not include a reduction related to the deductible because Federally 
qualified health center services are not subject to a deductible.
    (iv) For rural health clinics and FQHCs, payment for pneumococcal 
and influenza vaccine and their administration is 100 percent of 
Medicare reasonable cost.
    (2) The total reimbursement amount due is compared with total 
payments made to the clinic or center for the reporting period, and the 
difference constitutes the amount of the reconciliation.
    (c) Notice of program reimbursement. The intermediary sends written 
notice to the clinic or center:
    (1) Setting forth its determination of the total reimbursement 
amount due the clinic or center for the reporting period and the amount, 
if any, of the reconciliation; and
    (2) Informing the clinic or center of its right to have the 
determination reviewed at a hearing under the procedures set forth in 
subpart R of this part.
    (d) Payment of reconciliation amount--(1) Underpayments. If the 
total reimbursement due the clinic or center exceeds the payments made 
for the reporting period, the intermediary makes a lump-sum payment to 
the clinic or center to bring total payments into agreement with total 
reimbursement due the clinic or center.
    (2) Overpayments. If the total payments made to a clinic or center 
for the reporting period exceed the total reimbursement due the clinic 
or center for the period, the intermediary arranges with the clinic or 
center for repayment through a lump-sum refund, or, if that poses a 
hardship for the clinic or center, through offset against

[[Page 137]]

subsequent payments or a combination of offset and refund. The repayment 
must be completed as quickly as possible, generally within 12 months 
from the date of the notice of program reimbursement. A longer repayment 
period may be agreed to by the intermediary if the intermediary is 
satisfied that unusual circumstances exist which warrant a longer 
period.

[57 FR 24976, June 12, 1992, as amended at 61 FR 14657, Apr. 3, 1996]



Sec. 405.2468  Allowable costs.

    (a) Applicability of general Medicare principles. In determining 
whether and to what extent a specific type or item of cost is allowable, 
such as interest, depreciation, bad debts and owner compensation, the 
intermediary applies the principles for reimbursement of provider costs, 
as set forth in part 413 of this subchapter.
    (b) Typical rural health clinic and Federally qualified health 
center costs. The following types and items of cost are included in 
allowable costs to the extent that they are covered and reasonable:
    (1) Compensation for the services of a physician, physician 
assistant, nurse practitioner, nurse-midwife, visiting nurse, qualified 
clinical psychologist, and clinical social worker who owns, is employed 
by, or furnishes services under contract to an FQHC. (RHCs are not paid 
for services furnished by contracted individuals other than physicians.)
    (2) Compensation for the duties that a supervising physician is 
required to perform under the agreement specified in Sec. 491.8 of this 
chapter.
    (3) Costs of services and supplies incident to the services of a 
physician, physician assistant, nurse practitioner, nurse-midwife, 
qualified clinical psychologist, or clinical social worker.
    (4) Overhead costs, including clinic or center administration, costs 
applicable to use and maintenance of the entity, and depreciation costs.
    (5) Costs of services purchased by the clinic or center.
    (c) Tests of reasonableness for rural health clinic cost and 
utilization. Tests of reasonableness authorized by sections 1833(a) and 
1861(v)(1)(A) of the Act may be established by HCFA or the carrier with 
respect to direct or indirect overall costs, costs of specific items and 
services, or costs of groups of items and services. Those tests include, 
but are not limited to, screening guidelines and payment limitations.
    (d) Screening guidelines. (1) Costs in excess of amounts established 
by the guidelines are not included unless the clinic or center provides 
reasonable justification satisfactory to the intermediary.
    (2) Screening guidelines are used to assess the costs of services, 
including the following:
    (i) Compensation for the professional and supervisory services of 
physicians and for the services of physician assistants, nurse 
practitioners, and nurse-midwives.
    (ii) Services of physicians, physician assistants, nurse 
practitioners, nurse-midwives, visiting nurses, qualified clinical 
psychologists, and clinical social workers.
    (iii) The level of administrative and general expenses.
    (iv) Staffing (for example, the ratio of other clinic or center 
personnel to physicians, physician assistants, and nurse practitioners).
    (v) The reasonableness of payments for services purchased by the 
clinic or center, subject to the limitation that the costs of physician 
services purchased by the clinic or center may not exceed amounts 
determined under the applicable provisions of subpart E of part 405 or 
part 415 of this chapter.
    (e) Payment limitations. Limits on payments may be set by HCFA, on 
the basis of costs estimated to be reasonable for the provision of such 
services.
    (f) Graduate medical education. (1) Effective for that portion of 
cost reporting periods occurring on or after January 1, 1999, if an RHC 
or an FQHC incurs ``all or substantially all'' of the costs for the 
training program in the nonhospital setting as defined in Sec. 413.86(b) 
of this chapter, the RHC or FQHC may receive direct graduate medical 
education payment for those residents.
    (2) Direct graduate medical education costs are not included as 
allowable cost under Sec. 405.2466(b)(1)(i); and therefore, are not 
subject to the limit

[[Page 138]]

on the all-inclusive rate for allowable costs.
    (3) Allowable graduate medical education costs must be reported on 
the RHC's or the FQHC's cost report under a separate cost center.
    (4) Allowable graduate medical education costs are non-reimbursable 
if payment for these costs are received from a hospital or a 
Medicare+Choice organization.
    (5) Allowable direct graduate medical education costs under 
paragraphs (f)(6) and (f)(7)(i) of this section, are subject to 
reasonable cost principles under part 413 and the reasonable 
compensation equivalency limits in Secs. 415.60 and 415.70 of this 
chapter.
    (6) The allowable direct graduate medical education costs are those 
costs incurred by the nonhospital site for the educational activities 
associated with patient care services of an approved program, subject to 
the redistribution and community support principles in Sec. 413.85(c).
    (i) The following costs are allowable direct graduate medical 
education costs to the extent that they are reasonable--
    (A) The costs of the residents' salaries and fringe benefits 
(including travel and lodging expenses where applicable).
    (B) The portion of teaching physicians' salaries and fringe benefits 
that are related to the time spent teaching and supervising residents.
    (C) Facility overhead costs that are allocated to direct graduate 
medical education.
    (ii) The following costs are not allowable graduate medical 
education costs--
    (A) Costs associated with training, but not related to patient care 
services.
    (B) Normal operating and capital-related costs.
    (C) The marginal increase in patient care costs that the RHC or FQHC 
experiences as a result of having an approved program.
    (D) The costs associated with activities described in Sec. 413.85(d) 
of this chapter.
    (7) Payment is equal to the product of--
    (i) The RHC's or the FQHC's allowable direct graduate medical 
education costs; and
    (ii) Medicare's share, which is equal to the ratio of Medicare 
visits to the total number of visits (as defined in Sec. 405.2463).
    (8) Direct graduate medical education payments to RHCs and FQHCs 
made under this section are made from the Federal Supplementary Medical 
Insurance Trust Fund.

[43 FR 8261, Mar. 1, 1978. Redesignated and amended at 57 FR 24977, June 
12, 1992; 60 FR 63176, Dec. 8, 1995; 61 FR 14658, Apr. 3, 1996; 63 FR 
41002, July 31, 1998]



Sec. 405.2470  Reports and maintenance of records.

    (a) Maintenance and availability of records. The rural health clinic 
or Federally qualified health center must:
    (1) Maintain adequate financial and statistical records, in the form 
and containing the data required by HCFA, to allow the intermediary to 
determine payment for covered services furnished to Medicare 
beneficiaries in accordance with this subpart;
    (2) Make the records available for verification and audit by HHS or 
the General Accounting Office;
    (3) Maintain financial data on an accrual basis, unless it is part 
of a governmental institution that uses a cash basis of accounting. In 
the latter case, appropriate depreciation on capital assets is allowable 
rather than the expenditure for the capital asset.
    (b) Adequacy of records. (1) The intermediary may suspend 
reimbursement if it determines that the clinic or center does not 
maintain records that provide an adequate basis to determine payments 
under Medicare.
    (2) The suspension continues until the clinic or center demonstrates 
to the intermediary's satisfaction that it does, and will continue to, 
maintain adequate records.
    (c) Reporting requirements--(1) Initial report. At the beginning of 
its initial reporting period, the clinic or center must submit an 
estimate of budgeted costs and visits for rural health clinic or 
Federally qualified health center services for the reporting period, in 
the form and detail required by HCFA, and

[[Page 139]]

such other information as HCFA may require to establish the payment 
rate.
    (2) Annual reports. Within 90 days after the end of its reporting 
period, the clinic or center must submit, in such form and detail as may 
be required by HCFA, a report of:
    (i) Its operations, including the allowable costs actually incurred 
for the period and the actual number of visits for rural health clinic 
or Federally qualified health center services furnished during the 
period; and
    (ii) The estimated costs and visits for rural health clinic services 
or Federally qualified health center services for the succeeding 
reporting period and such other information as HCFA may require to 
establish the payment rate.
    (3) Late reports. If the clinic or center does not submit an 
adequate annual report on time, the intermediary may reduce or suspend 
payments to preclude excess payment to the clinic or center.
    (4) Inadequate reports. If the clinic or center does not furnish a 
report or furnishes a report that is inadequate for the intermediary to 
make a determination of program payment, HCFA may deem all payments for 
the reporting period to be overpayments.
    (5) Postponement of due date. For good cause shown by the clinic or 
center, the intermediary may, with HCFA's approval, grant a 30-day 
postponement of the due date for the annual report.
    (6) Reports following termination of agreement or change of 
ownership. The report from a clinic or center which voluntarily or 
involuntarily ceases to participate in the Medicare program or 
experiences a change in ownership (see Secs. 405.2436-405.2438) is due 
no later than 45 days following the effective date of the termination of 
agreement or change of ownership.



Sec. 405.2472  Beneficiary appeals.

    A beneficiary may request a hearing by an intermediary (subject to 
the limitations and conditions set forth in subpart H of this part) if:
    (a) The beneficiary is dissatisfied with an intermediary's 
determination denying a request for payment made on his or her behalf by 
a rural health clinic or Federally qualified health center; or
    (b) The beneficiary is dissatisfied with the amount of payment; or
    (c) The beneficiary believes the request for payment is not being 
acted upon with reasonable promptness.

[43 FR 8261, Mar. 1, 1978. Redesignated and amended at 57 FR 24978, June 
12, 1992]



PART 406--HOSPITAL INSURANCE ELIGIBILITY AND ENTITLEMENT--Table of Contents




                      Subpart A--General Provisions

Sec.
406.1  Statutory basis.
406.2  Scope.
406.3  Definitions.
406.5  Basis of eligibility and entitlement.
406.6  Application or enrollment for hospital insurance.
406.7  Forms to apply for entitlement under Medicare Part A.

         Subpart B--Hospital Insurance Without Monthly Premiums

406.10  Individual age 65 or over who is entitled to social security or 
          railroad retirement benefits, or who is eligible for social 
          security benefits.
406.11  Individual age 65 or over who is not eligible as a social 
          security or railroad retirement benefits beneficiary, or on 
          the basis of government employment.
406.12  Individual under age 65 who is entitled to social security or 
          railroad retirement disability benefits.
406.13  Individual who has end-stage renal disease.
406.15  Special provisions applicable to Medicare qualified government 
          employment.

                  Subpart C--Premium Hospital Insurance

406.20  Basic requirements.
406.21  Individual enrollment.
406.22  Effect of month of enrollment on entitlement.
406.24  Special enrollment period.
406.26  Enrollment under State buy-in.
406.28  End of entitlement.
406.32  Monthly premiums.
406.33  Determination of months to be counted for premium increase: 
          Enrollment.
406.34  Determination of months to be counted for premium increase: 
          Reenrollment.
406.38  Prejudice to enrollment rights because of Federal Government 
          error.

  Subpart D--Special Circumstances That Affect Entitlement to Hospital 
                                Insurance

406.50  Nonpayment of benefits on behalf of certain aliens.
406.52  Conviction of certain offenses.


[[Page 140]]


    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 48 FR 12536, Mar. 25, 1983, unless otherwise noted. 
Redesignated at 51 FR 41338, Nov. 14, 1986.



                      Subpart A--General Provisions



Sec. 406.1  Statutory basis.

    Sections 226, 226A, 1818 and 1818A of the Social Security Act and 
section 103 of Public Law 89-97 establish the conditions for entitlement 
to hospital insurance benefits. Sections 202 (t) and (u) of the Act 
specify limitations that apply to certain aliens and to persons 
convicted of certain offenses.

[48 FR 12536, Mar. 25, 1983. Redesignated at 51 FR 41338, Nov. 14, 1986, 
as amended at 56 FR 38078, Aug. 12, 1991]



Sec. 406.2  Scope.

    Subparts A through D of this part specify the conditions of 
eligibility for hospital insurance and set forth certain specific 
conditions that affect entitlement to benefits. Hospital insurance is 
authorized under Part A of title XVIII and is also referred to as 
Medicare Part A. It includes inpatient hospital care, posthospital SNF 
care, home health services, and hospice care.

[48 FR 56026, Dec. 16, 1983, as amended at 50 FR 33033, Aug. 16, 1985. 
Redesignated and amended at 51 FR 41338, Nov. 14, 1986]



Sec. 406.3  Definitions.

    First month of eligibility means the first month in which an 
individual meets all the requirements for entitlement to hospital 
insurance except application or enrollment if that is required.
    First month of entitlement means the first month for which the 
individual meets all the requirements for entitlement to Part A 
benefits.
    Insured individual means an individual who has the number of 
quarters of coverage required for monthly social security benefits.
    Quarter of coverage means a calendar quarter that is counted toward 
the number of covered quarters required to make the individual eligible 
for monthly social security benefits. A quarter is counted if during 
that quarter (or that calendar year) the individual earned a required 
minimum amount of money. (For details, see 20 CFR part 404, subpart B.)



Sec. 406.5  Basis of eligibility and entitlement.

    (a) Hospital insurance without premiums. Hospital insurance is 
available to most individuals without payment of a premium if they:
    (1) Are age 65 or over, or
    (2) Have received social security or railroad retirement disability 
benefits for 25 months; or
    (3) Have end-stage renal disease. Subpart B of this part explains 
the requirements such individuals must meet to obtain hospital insurance 
without premiums.
    (b) Premium hospital insurance. Many individuals who are age 65 or 
over, but do not meet the requirements set forth in subpart B of this 
part, and certain individuals under age 65, may obtain the benefits by 
paying a premium. Section 406.20 of this part explains the requirements 
individuals must meet to obtain premium hospital insurance.

[48 FR 12536, Mar. 25, 1983, as amended at 50 FR 33033, Aug. 16, 1985; 
56 FR 38078, Aug. 12, 1991]



Sec. 406.6  Application or enrollment for hospital insurance.

    (a) Basic provision. In most cases, eligibility for Medicare Part A 
is a result of entitlement to monthly social security or railroad 
retirement cash benefits or eligibility for monthly social security cash 
benefits. This section specifies the individuals who need not file an 
application to become entitled to hospital insurance, those who must 
file an application, and those who must enroll.
    (b) Individuals who need not file an application for hospital 
insurance. An individual who meets any of the following conditions need 
not file an application for hospital insurance:
    (1) Is under age 65 and has been entitled, for more than 24 months, 
to monthly social security or railroad retirement benefits based on 
disability.
    (2) At the time of attainment of age 65, is entitled to monthly 
social security or railroad retirement benefits.

[[Page 141]]

    (3) Establishes entitlement to monthly social security or railroad 
retirement benefits at any time after attaining age 65.
    (c) Individuals who must file an application for hospital insurance. 
An individual must file an application for hospital insurance if he or 
she seeks entitlement to hospital insurance on the basis of--
    (1) The transitional provisions set forth in Sec. 406.11;
    (2) Deemed entitlement to disabled widow's or widower's benefit 
under certain circumstances as provided in Sec. 406.12;
    (3) A diagnosis of end-stage renal disease, as specified in 
Sec. 406.13;
    (4) Effective January 1, 1981, eligibility for social security cash 
benefits, as specified in Sec. 406.10(a)(3), if the individual has 
attained age 65 without applying for those benefits; or
    (5) The special provisions applicable to government employment as 
set forth in Sec. 406.15.
    (d) When application is deemed to be filed. (1) An application based 
on the transitional provisions or on ESRD is deemed to be filed in the 
first month of eligibility if it is filed not more than 3 months before 
the first month, and is retroactive to that month if filed within 12 
months after the first month. An application filed more than 12 months 
after the first month of eligibility is retroactive to the 12th month 
before the month it is filed.
    (2) An application for deemed entitlement to disabled widow's or 
widower's benefits, that is filed before the first month in which the 
individual meets all conditions of entitlement for this benefit, will be 
deemed a valid application if those conditions are met before an initial 
determination, reconsideration, or hearing decision is made on the 
application. If the conditions are met after the date of any hearing 
decision, a new application will have to be filed. An application 
validly filed within 12 months after the first month of eligibility is 
retroactive to that first month. If filed more than 12 months after that 
first month, it is retroactive to the 12th month before the month of 
filing.
    (3) Effective June 8, 1980, an application based on eligibility for 
social security benefits at or after age 65, that is filed before the 
first month in which the individual meets all eligibility conditions for 
this benefit, will be deemed a valid application if those conditions are 
met before an initial determination, reconsideration, or hearing 
decision is made on the application. If the conditions are met after the 
date of any hearing decision, a new application will have to be filed.
    (4) Effective March 1, 1981, an application under Sec. 406.10 that 
is validly filed within 6 months after the first month of eligibility is 
retroactive to that first month. If filed more than 6 months after that 
first month, it is retroactive to the 6th month before the month of 
filing.
    (e) Individuals who must enroll for hospital insurance. An 
individual who must pay a monthly premium for hospital insurance must 
enroll in accordance with the procedures set forth in Sec. 406.21.

[48 FR 12536, Mar. 25, 1983, as amended at 50 FR 33033, Aug. 16, 1985; 
53 FR 47202, Nov. 22, 1988; 61 FR 40345, Aug. 2, 1996]



Sec. 406.7  Forms to apply for entitlement under Medicare Part A.

    The following forms, available free of charge by mail from HCFA or 
at any Social Security branch or district office, are used to apply for 
Medicare entitlement under the circumstances indicated:

    HCFA-18-F-5--Application for Hospital Insurance Entitlement. (For 
use by individuals who are not eligible for retirement benefits under 
Title II of the Social Security Act or under the Railroad Retirement 
Act. This form may also be used for enrollment in the supplementary 
medical insurance program.)
    HCFA-43--Application for Health Insurance Benefits under Medicare 
for Individuals with End Stage Renal Disease (ESRD). (An initial 
application for entitlement by individuals with ESRD).


As an alternative, an individual may use the application for monthly 
social benefits to apply also for Medicare entitlement if he or she is 
eligible for hospital insurance at that time.

[53 FR 6633, Mar. 2, 1988]

[[Page 142]]



         Subpart B--Hospital Insurance Without Monthly Premiums



Sec. 406.10  Individual age 65 or over who is entitled to social security or railroad retirement benefits, or who is eligible for social security benefits.

    (a) Requirements. An individual is entitled to hospital insurance 
benefits under section 226 of the Act if he or she has attained aged 65 
and is:
    (1) Entitled to monthly social security benefits under section 202 
of the Social Security Act;
    (2) A qualified railroad retirement beneficiary who has been 
certified as such to the Social Security Administration by the Railroad 
Retirement Board in accordance with section 7(d) of the Railroad 
Retirement Act of 1974; or
    (3) Effective January 1, 1981, eligible for monthly social security 
benefits under section 202 of the Act and has filed an application for 
hospital insurance.
    (b) Beginning and end of entitlement. (1) Entitlement begins with 
the first day of the first month in which the individual meets the 
requirements of paragraph (a) of this section.
    (2) Entitlement continues until the individual dies or no longer 
meets the requirements of paragraph (a) of this section. An individual 
is not entitled to railroad retirement benefits and is neither entitled 
to, nor eligible for, monthly social security benefits in the month in 
which he or she dies. However, an individual who meets all other 
requirements for hospital insurance entitlement is entitled to hospital 
insurance in the month in which he or she dies if he or she--
    (i) Would have been entitled to monthly railroad retirement benefits 
or social security benefits in that month if he or she had not died; or
    (ii) Has filed an application for hospital insurance and would have 
been eligible for monthly social security benefits in that month if he 
or she had not died.



Sec. 406.11  Individual age 65 or over who is not eligible as a social security or railroad retirement benefits beneficiary, or on the basis of government 
          employment.

    (a) Basis. Section 103 of the law that established the Medicare 
program in 1965 (Pub. L. 89-97) provided for eligibility for certain 
individuals who were age 65 or would soon attain age 65 but would not be 
able to qualify for social security or railroad retirement benefits.
    (b) Requirements. Unless he or she is excluded under paragraph (c) 
of this section, an individual age 65 or over who does not meet the 
requirements of Sec. 406.10 or Sec. 406.15 (and who would not meet those 
requirements if he or she filed an application), is entitled to Medicare 
Part A benefits if he or she meets the following requirements:
    (1) Age and quarters of coverage. (i) He or she attained age 65 
before 1968; or
    (ii) If he or she attained age 65 in 1968 or later, he or she must 
have at least 3 quarters of coverage for each year that elapsed after 
1966 and before the year in which he or she attained age 65. (The 
quarters of coverage may have been acquired at any time, not necessarily 
during the elapsed years.)
    (2) Residence and citizenship. He or she is a resident of the United 
States and--
    (i) A citizen of the United States; or
    (ii) An alien lawfully admitted for permanent residence who has 
continuously resided in the United States for 5 years immediately 
preceding the first month in which he or she meets all other 
requirements for entitlement to hospital insurance.
    (3) Application. He or she has filed an application for Medicare 
Part A no earlier than the third month before the first month of 
eligibility.
    (c) Bases for exclusion. An individual who meets the requirements of 
paragraph (b) of this section is excluded from Medicare Part A if he or 
she--
    (1) Has been convicted of spying, sabotage, or treason, sedition, 
and subversive action under chapter 37, 105, or 115 of title 18 of the 
United States Code;

[[Page 143]]

    (2) Has been convicted of conspiracy to establish a dictatorship 
under section 4 of the Internal Security Act of 1950;
    (3) On February 16, 1965, was or could have been covered under the 
Federal Employees Health Benefits Act (FEHBA) of 1959; or
    (4) In his or her first month of eligibility;
    (i) Is covered by an enrollment under the FEHBA; or
    (ii) Could have been covered by an enrollment under that Act if he 
or she (or any other person who could provide him or her with coverage) 
was a Federal employee at any time after February 15, 1965, and had 
enrolled and retained coverage under that Act.
    (d) End of exclusion. An individual excluded under paragraph (c)(3) 
or (4) of this section can become entitled beginning with the first 
month in which he or she loses the right to FEHBA coverage solely 
because he or she or the other person leaves Federal employment.
    (e) Beginning and end of entitlement. (1) Entitlement begins--
    (i) In the first month of eligibility if the application is filed no 
later than 12 months after the first month of eligibility:
    (ii) In the 12th month before the month of application if the 
application is filed more than 12 months after the first month of 
eligibility.
    (2) Entitlement continues until death or until the month before the 
month in which the individual becomes entitled under Sec. 406.10 or 
Sec. 406.15.

[48 FR 12536, Mar. 25, 1983, as amended at 50 FR 33033, Aug. 16, 1985; 
53 FR 47202, Nov. 22, 1988]



Sec. 406.12  Individual under age 65 who is entitled to social security or railroad retirement disability benefits.

    (a) Basic requirements. An individual under age 65 is entitled to 
hospital insurance benefits if, for 25 months, he or she has been--
    (1) Entitled or deemed entitled to social security disability 
benefits as an insured individual, child, widow, or widower who is 
``under a disability'' or
    (2) A disabled qualified beneficiary certified under Section 7(d) of 
the Railroad Retirement Act.
    (b) Previous periods of disability benefits entitlement. Months of a 
previous period of entitlement or deemed entitlement to disability 
benefits count toward the 25-month requirement if any of the following 
conditions is met:
    (1) Entitlement was as an insured individual or a disabled qualified 
railroad retirement beneficiary, and the previous period ended within 
the 60 months preceding the month in which the current disability began.
    (2) Entitlement was as a disabled child, widow, or widower, and the 
previous period ended within the 84 months preceding the month in which 
the current disability began.
    (3) The previous period ended on or after March 1, 1988 and the 
current impairment is the same as, or directly related to, the 
impairment on which the previous period of entitlement was based.
    (c) Deemed entitlement to disabled widow's or widower's monthly 
benefits.
    (1) Purpose. The provisions of paragraphs (c) (2), (3), and (4) of 
this section are intended to enable individuals--
    (i) To meet the 25-month requirement of paragraph (a) of this 
section; or
    (ii) To retain hospital insurance entitlement when they are no 
longer entitled to monthly disability benefits.
    (2) Deemed entitlement for certain individuals entitled to old-age 
insurance benefits. An individual who becomes entitled to monthly old-
age insurance benefits before age 65, is, by law, precluded from 
establishing or retaining entitlement to disabled widow's or widower's 
monthly benefits. However, for purposes of meeting the 25-month 
requirement, a widow or widower who meets all other requirements for 
disability benefits and is excluded solely because of entitlement to 
old-age insurance benefits, shall be deemed to be (or to continue to be) 
entitled to disability benefits. A widow or widower who is not entitled 
to disability benefits for the month before attaining age 60 must file 
two applications, one for old-age insurance benefits and one for 
hospital insurance.
    (3) Deemed entitlement for certain individuals entitled to mother's 
benefits. An individual entitled to mother's insurance benefits under 
section 202(g) of the Social Security Act cannot at the

[[Page 144]]

same time be entitled to disabled widow's benefits. However, if she 
applies for hospital insurance, she will be deemed to be entitled to 
disabled widow's monthly benefits in the first month (of the 12 months 
before application) in which she would have been entitled to those 
benefits if she had filed an application for them.
    (4) Deemed entitlement for certain individuals entitled to father's 
benefits. An individual who is entitled to father's insurance benefits 
under section 202(g) of the Act cannot at the same time be entitled to 
disabled widower's benefits. However, if he applies for hospital 
insurance benefits, he will be deemed to be entitled to disabled 
widower's monthly benefits as follows:
    (i) If he applied for hospital insurance benefits before May 1984, 
he was deemed entitled to disabled widower's benefits for any month 
after April 1981 for which he would have been entitled to those benefits 
if he had filed an application for them.
    (ii) If he applies for hospital insurance benefits in or after May 
1984, he is deemed entitled to disabled widower's benefits for any 
month, up to 12 months before the month of application, for which he 
would have been entitled to those benefits if he had filed an 
application for them.
    (iii) Hospital insurance entitlement under this paragraph (c)(4) 
could not begin before May 1983.
    (5) Deemed retroactive entitlement for certain disabled widows and 
widowers. In some cases, disabled widows or widowers cannot become 
entitled to monthly cash benefits before the month in which they file 
application. However, for purposes of meeting the 25-month requirement, 
disability benefit entitlement will be deemed to have begun with the 
earliest month (of the 12 months before the application for cash 
benefits) in which the individual met all the requirements except the 
filing of an application. (This provision is effective for applications 
filed on or after January 1, 1978.)
    (d) When entitlement begins and ends. (1) Entitlement to hospital 
insurance begins with the 25th month of an individual's entitlement or 
deemed entitlement to disability benefits. Although an individual is not 
entitled to disability benefits for the month in which he or she dies, 
for purposes of this paragraph the individual will be deemed to be 
entitled for the month of death.
    (2) Except as provided in paragraph (e) of this section, entitlement 
to hospital insurance ends with the earliest of the following:
    (i) The last day of the last month in which he or she was entitled 
or deemed entitled to disability benefits or was qualified as a disabled 
railroad retirement beneficiary, if he or she was notified of the 
termination of entitlement before that month.
    (ii) The last day of the month following the month in which he or 
she is mailed a notice that his or her entitlement or deemed entitlement 
to disability benefits, or his or her status as a qualified disabled 
railroad retirement beneficiary, has ended.
    (iii) The last day of the month before the month he or she attains 
age 65. (An individual who is entitled to social security or railroad 
retirement cash benefits for the month of attainment of age 65 is 
automatically entitled to hospital insurance under Sec. 406.10.)
    (iv) The day of death.
    (e) Continuation of Medicare entitlement when disability benefit 
entitlement ends because of substantial gainful activity (SGA)--(1) 
Definitions. As used in this section--
    Trial work period means the 9-month period provided under title II 
of the Act and as defined 20 CFR 404.1592, during which the individual 
may test his or her ability to work and still receive disability cash 
benefits; and
    Reentitlement period means a period as defined in 20 CFR 404.1592a 
that begins with the first month after the trial work period and ends 
with the 36th month after the trial work period or, if earlier, with the 
first month in which the impairment no longer exists or is no longer 
disabling. (During the reentitlement period, benefits may be 
discontinued because of SGA. However, if SGA is later discontinued, 
benefits may be reinstated without a new application and a new 
disability determination.)
    (2) Duration of continued Medicare entitlement. Effective January 1, 
1988, if

[[Page 145]]

an individual's entitlement to disability benefits or status as a 
qualified disabled railroad retirement beneficiary ends because he or 
she engaged in, or demonstrated the ability to engage in, substantial 
gainful activity after the 36 months following the end of the trial work 
period, Medicare entitlement continues until the earlier of the 
following:
    (i) The last day of the 24th month following the first month of SGA 
occurring after the 15th month of the individual's reentitlement period 
or, if later, the end of the month following the month the individual's 
disability benefit entitlement ends.
    (ii) The last day of the month following the month in which notice 
is mailed to the individual indicating that he or she is no longer 
entitled to hospital insurance because of an event or circumstance (for 
example, there has been medical improvement, or the disabled widow has 
remarried) that would terminate disability benefit entitlement if it had 
not already been terminated because of substantial gainful activity.

[48 FR 12536, Mar. 25, 1983. Redesignated at 51 FR 41338, Nov. 14, 1986, 
as amended at 53 FR 47202, Nov. 22, 1988; 56 FR 38078, Aug. 12, 1991; 56 
FR 50058, Oct. 3, 1991; 61 FR 40345, Aug. 2, 1996]



Sec. 406.13  Individual who has end-stage renal disease.

    (a) Statutory basis and applicability. This section explains the 
conditions of entitlement to hospital insurance benefits on the basis of 
end-stage renal disease, and specifies the beginning and end of the 
period of entitlement. It implements section 226A of the Social Security 
Act.
    (b) Definitions. As used in this section:
    End-stage renal disease (ESRD) means that stage of kidney impairment 
that appears irreversible and permanent and requires a regular course of 
dialysis or kidney transplantation to maintain life.
    Child or spouse means a child or spouse whose relationship to the 
parent or spouse meets the relationship requirements for entitlement to 
child's monthly social security benefits or to wife's, husband's, 
widow's, widower's, mother's or father's monthly benefits, as set forth 
in 20 CFR part 404. However, the duration of relationship requirements 
apply only to divorced spouses. (See 20 CFR 404.331.)
    Dependent child means a person who, on the first day he or she has 
end-stage renal disease, is unmarried and meets the dependency 
requirements for entitlement to child's social security benefits on the 
basis of a parent's earnings (see 20 CFR 404.350-404.365) and who--
    (1) Is under age 22;
    (2) Is under a disability that began before age 22; or
    (3) Is under age 26, is receiving at least one-half support from 
that parent, and has continuously received at least one-half support 
from that parent since the day before attaining age 22.
    One-half support means regular contributions, in cash or in kind, 
that equals or exceeds one-half of the child's total support.
    (c) Requirements. An individual is entitled to hospital insurance 
benefits if--
    (1) He or she is medically determined to have ESRD;
    (2) He or she is:
    (i) Fully or currently insured under the social security program 
(title II of the Act) or would be fully or currently insured if his or 
her employment (after 1936) as defined under the Railroad Retirement Act 
were considered ``employment'' under the Social Security Act;
    (ii) Entitled to monthly social security or railroad retirement 
benefits; or
    (iii) The spouse or dependent child of a person who meets the 
requirements of paragraph (c)(2)(i) or (c)(2)(ii) of this section;
    (3) He or she has filed an application for Medicare Part A; and
    (4) He or she has satisfied the waiting period explained in 
paragraph (e) of this section.
    (d) Filing an application. (1) An individual may obtain an 
application form, and help in completing it, from any social security 
office.
    (2) An application is not valid if it is filed earlier than the 
third month before the month in which the individual meets the 
conditions of paragraphs (c)(1), (c)(2), and (c)(4) of this section.

[[Page 146]]

    (3) If an individual who has ESRD dies before he or she has filed an 
application, or is unable to file because of physical or mental 
condition, a relative or other person responsible for his or her affairs 
may file in his or her behalf. If a responsible person is not available, 
the hospital or dialysis facility that furnished treatment may file the 
application.
    (e) Beginning of entitlement--(1) Basic limitations. Entitlement can 
begin no earlier than the first month in which the individual meets the 
conditions specified in paragraph (c) of this section, or the 12th month 
before the month of application, whichever is later.
    (2) Waiting period. Entitlement begins on the first day of the third 
month after the month in which the individual initiates a regular course 
of renal dialysis, if the course is maintained throughout the waiting 
period, unless entitlement would begin earlier under paragraph (e) (3) 
or (4) of this section. This means that if dialysis began in January, 
entitlement would begin April 1.
    (3) Exceptions: Early kidney transplant. If the individual receives 
a transplant, entitlement begins with the first day of the month in 
which the transplant was performed. However, if the individual is 
admitted as an inpatient to a hospital that is an approved renal 
transplantation center or renal dialysis center (see Sec. 405.2102) for 
procedures preliminary to transplant surgery, entitlement begins--
    (i) On the first day of the month in which he or she initially 
enters the hospital, if the transplant is performed in that month or in 
either of the next 2 months; or
    (ii) On the first day of the second month before the month of kidney 
transplantation, if the transplant is delayed more than 2 months after 
the month of initial hospital stay.

For example, if an individual enters the hospital in January, and the 
transplant is performed in January, February, or March, entitlement 
would begin January 1. However, if the transplant is performed in April, 
entitlement would begin February 1.
    (4) Exceptions: Self-dialysis training. Entitlement begins on the 
first day of the month in which a regular course of renal dialysis began 
if:
    (i) Before the end of the waiting period, the individual 
participates in a self-dialysis training program offered by a 
participating Medicare facility that is approved to provide such 
training;
    (ii) The patient's physician has certified that it is reasonable to 
expect the individual will complete the training program and will self-
dialyze on a regular basis; and
    (iii) The regular course of dialysis is maintained throughout the 
time that would otherwise be the waiting period (unless it is terminated 
earlier because the individual dies).
    (f) End of entitlement. Entitlement ends with----
    (1) The end of the 12th month after the month in which a regular 
course of dialysis ends; or
    (2) The end of the 36th month after the month in which the 
individual has received a kidney transplant.
    (g) Resumption of entitlement. Entitlement is resumed under the 
following conditions:
    (1) An individual who initiates a regular course of renal dialysis 
or has a kidney transplant during the 12-month period after the previous 
course of dialysis ended is entitled to Part A benefits and eligible to 
enroll in Part B with the month the regular course of dialysis is 
resumed or the month the kidney is transplanted.
    (2) An individual who initiates a regular course of renal dialysis 
or has a kidney transplant during the 36-month period after an earlier 
kidney transplant is entitled to Part A benefits and eligible to enroll 
in Part B with the month the regular course of dialysis begins or with 
the month the subsequent kidney transplant occurs.
    (3) An individual who initiates a regular course of renal dialysis 
more than 12 months after the previous course of regular dialysis ended 
or more than 36 months after the month of a kidney transplant is 
eligible to enroll in Part A and Part B with the month in which the 
regular course of dialysis is resumed. If he or she is otherwise 
entitled under the conditions specified in paragraph (c) of this 
section, including

[[Page 147]]

the filing of an application, entitlement begins with the month in which 
dialysis is initiated or resumed, without a waiting period, subject to 
the limitations of paragraph (e)(1) of this section.

[48 FR 12536, Mar. 25, 1983, as amended at 60 FR 22535, May 8, 1995]



Sec. 406.15  Special provisions applicable to Medicare qualified government employment.

    (a) Definition. As used in this section, Medicare-qualified 
government employment means Federal, State, or local government 
employment that is subject only to the hospital insurance portion of the 
tax imposed by the Federal Insurance Contributions Act (F.I.C.A.). This 
includes--
    (1) Wages paid for Federal employment after December 1982.
    (2) Wages paid to State and local government employees hired after 
March 31, 1986.
    (3) Wages paid to State and local government employees hired before 
April 1, 1986 but whose employment after March 31, 1986 is covered, for 
Medicare purposes only, under an agreement under section 218 of the Act.
    (b) Crediting of wages that are taxable only for Medicare purposes. 
Medicare qualified government employment is credited in the same way and 
in the same amount as social security covered employment is credited for 
monthly social security cash benefit purposes. However, since only the 
Medicare portion (not the social security portion) of the F.I.C.A. tax 
is imposed, Medicare qualified government employment does not help 
qualify the individual for monthly Social Security cash benefits.
    (c) Required quarters of coverage. (1) To qualify for hospital 
insurance on the basis of Medicare qualified government employment, an 
individual must have the number of quarters of coverage necessary to 
qualify for hospital insurance under Sec. 406.10, Sec. 406.12, or 
Sec. 406.13.
    (2) An individual who has worked in Medicare qualified government 
employment may qualify for hospital insurance on the basis of Medicare 
qualified government employment exclusively, or a combination of 
Medicare qualified government employment and social security covered 
employment.
    (d) Transitional provision for Federal employment. Any individual 
who was a Federal employee at any time both during and before January 
1983 will receive credit for quarters of Federal employment before 
January 1983 without paying tax. This transitional provision applies 
even if the Federal employee did not receive Federal wages for January 
1983, for instance, because he or she was on approved leave without pay 
or on loan to a State or foreign agency.
    (e) Conditions of entitlement. An individual who has worked in 
Medicare qualified government employment (or any related individual who 
would be entitled to social security cash benefits on the employee's 
record if Medicare qualified government employment qualified for those 
benefits) is entitled to hospital insurance benefits if he or she--
    (1) Would meet the requirements of Sec. 406.10, Sec. 406.12, or 
Sec. 406.13 if Medicare qualified government employment were social 
security covered employment; and
    (2) Has filed an application for hospital insurance.

For purposes of this section not more than 12 months before the month of 
application may be counted towards the 25-month qualifying period 
specified in Sec. 406.12(a).
    (f) Beginning and end of entitlement--(1) Basic rule. Subject to the 
limitations specified in paragraph (f)(2) and (f)(3) of this section, 
entitlement begins and ends as specified in Sec. 406.10, Sec. 406.12 or 
Sec. 406.13, whichever is used to establish hospital insurance 
entitlement for the Federal, State, or local government employee or 
related individual.
    (2) Limitations: Federal government employment. (i) Hospital 
insurance entitlement based on Federal employment could not begin before 
January 1983.
    (ii) No months before January 1983 may be used to satisfy the 
qualifying period required for entitlement based on disability.
    (3) Limitations: State and local government employment. (i) Hospital 
insurance entitlement based on State or local government employment 
cannot begin before April 1986.

[[Page 148]]

    (ii) No months before April 1986 may be used to satisfy the 
qualifying period required for entitlement based on disability.

[53 FR 47202, Nov. 22, 1988]



                  Subpart C--Premium Hospital Insurance



Sec. 406.20  Basic requirements.

    (a) General provisions. Hospital insurance benefits are available to 
most individuals age 65 or over and to certain individuals under age 65 
who do not qualify for those benefits under subpart B of this part and 
are willing to pay a monthly premium. This is called premium hospital 
insurance.
    (b) Eligibility of individuals age 65 or over to enroll for premium 
hospital insurance. Any individual is eligible to enroll for Medicare 
Part A if he or she--
    (1) Has attained age 65;
    (2) Is a resident of the United States and is either--
    (i) A citizen of the United States; or
    (ii) An alien lawfully admitted for permanent residence who has 
resided in the United States continuously for the 5-year period 
immediately preceding the month in which he or she meets all other 
requirements;
    (3) Is not eligible for Part A benefits under subpart B of this 
part; and
    (4) Is entitled to supplementary medical insurance (Part B of 
Medicare) or is eligible and has enrolled for it during an enrollment 
period.
    (c) Eligibility of individuals under age 65 to enroll for premium 
hospital insurance. An individual who has not attained age 65 is 
eligible to enroll for Medicare Part A if he or she meets the following 
conditions:
    (1) Has been entitled to Medicare Part A (under Sec. 406.12 or 
Sec. 406.15) on the basis of entitlement or deemed entitlement to social 
security disability benefits, as provided under section 226(b) of the 
Act.
    (2) Continues to have a disabling physical or mental impairment.
    (3) Loses entitlement to disability benefits (and therefore also 
loses entitlement to Medicare Part A under Sec. 406.12) solely because 
his or her earnings exceed the amount allowed under the social security 
regulations pertaining to ``substantial gainful activity'' (20 CFR 
404.1571-404.1574); and
    (4) Is not otherwise entitled to Medicare Part A.

[56 FR 38078, Aug. 12, 1991; 56 FR 50058, Oct. 3, 1991]



Sec. 406.21  Individual enrollment.

    (a) Basic provision. An individual who meets the requirements of 
Sec. 406.20 (b) or (c) may enroll for premium hospital insurance only 
during his or her ``initial enrollment period'', a ``general enrollment 
period'', a ``special enrollment period'', or, for HMO/CMP enrollees, a 
``transfer enrollment period'', as set forth in paragraphs (b) through 
(f) of this section.
    (b) Initial enrollment periods--(1) Initial enrollment period for 
individual age 65 or over. The initial enrollment period extends for 7 
months, from the third month before the month the individual first meets 
the requirements of Sec. 406.20 (b)(1) through (b)(3) through the third 
month after that first month of eligibility.
    (2) Initial enrollment period of individual under age 65. The 
initial enrollment period begins with the month in which the individual 
receives notice that entitlement to Medicare Part A will end because he 
or she has lost entitlement to disability benefits solely because of 
earnings in excess of the amounts allowed under the social security 
regulations on substantial gainful activity (20 CFR 404.1571-404.1574). 
It continues for 7 full months after that month.
    (c) General enrollment period. (1) Except as specified in paragraph 
(c)(4) of this section, the general enrollment period extends from 
January 1 to March 31 of each calendar year.
    (2) General enrollment periods are for individuals who do not enroll 
during the special enrollment period, who failed to enroll during the 
initial enrollment period, or whose previous period of entitlement had 
terminated.
    (3) If the individual enrolls or reenrolls during a general 
enrollment period, his or her entitlement begins on July 1 of the 
calendar year.
    (4) During the period April 1 through September 30, 1981, the 
general enrollment period was any time after the end of the individual's 
initial enrollment period. Any eligible individual whose

[[Page 149]]

initial enrollment period has ended, or whose previous period of 
entitlement had terminated, could enroll or reenroll during that 6-month 
period.
    (d) ``Deemed'' initial enrollment period for individual age 65 or 
over. (1) If an individual who has attained age 65 fails to enroll 
during the initial enrollment period because of reliance on incorrect 
documentary information which led him or her to believe that he or she 
was not yet age 65, an initial enrollment period may be established for 
him or her as though he or she had attained age 65 on the date indicated 
by the incorrect documentary information.
    (2) The deemed initial enrollment period will be used to determine 
the individual's premium and right to enroll in a general enrollment 
period if such use is advantageous to the individual.
    (e)  [Reserved]
    (f) Transfer enrollment period for HMO/CMP enrollees. (1) 
Terminology. HMO or CMP means an eligible organization as defined in 
Sec. 417.401 which has a contract with HCFA under part 417, subpart L of 
this chapter.
    (2) Basic rule. Effective February 1, 1991, individuals enrolled in 
an HMO or CMP under part 417, subpart K of this chapter who meet the 
requirements of Sec. 406.20(b) may enroll in premium hospital insurance 
during a transfer enrollment period. This transfer enrollment period 
begins with any month or any part of a month in which the individual is 
enrolled in an HMO or CMP and ends with the last day of the 8th 
consecutive month in which the individual is no longer enrolled in the 
HMO or CMP.
    (3) Effective date of coverage. (i) If the individual enrolls in 
premium hospital insurance while still enrolled in an HMO or CMP, or 
during the first month that he or she is no longer enrolled in the HMO 
or CMP, part A coverage will begin on the first day of the month of part 
A enrollment, or, at the option of the individual, on the first day of 
any of the following 3 months.
    (ii) If the individual enrolls in premium hospital insurance during 
any of the last 7 months of the transfer enrollment period, coverage 
will begin on the first day of the month after the month of enrollment.

[48 FR 12536, Mar. 25, 1983. Redesignated at 51 FR 41338, Nov. 14, 1986, 
as amended at 53 FR 47203, Nov. 22, 1988; 56 FR 38079, Aug. 12, 1991; 57 
FR 36014, Aug. 12, 1992; 61 FR 40345, Aug. 2, 1996]



Sec. 406.22  Effect of month of enrollment on entitlement.

    (a) Individual age 65 or over. For an individual who has attained 
age 65, the following rules apply:
    (1) If the individual enrolls during the 3 months before the first 
month of eligibility, entitlement begins with the first month of 
eligibility.
    (2) If the individual enrolls in the first month of eligibility, 
entitlement begins with the following month.
    (3) If the individual enrolls during the month after the first month 
of eligibility, entitlement begins with the second month after the month 
of enrollment.
    (4) If the individual enrolls in either of the last 2 months of the 
enrollment period, entitlement begins with the third month after the 
month of enrollment.
    (b) Individual under age 65. For an individual who has not attained 
age 65, the following rules apply:
    (1) If the individual enrolls before the month in which he or she 
meets the requirements of Sec. 406.20(c), entitlement begins with the 
month in which the individual meets those requirements.
    (2) If the individual enrolls in the month in which he or she first 
meets the requirements of Sec. 406.20(c), entitlement begins with the 
following month.
    (3) If the individual enrolls in the month following the month in 
which he or she meets the requirements of Sec. 406.20(c), entitlement 
begins with the second month after the month of enrollment.
    (4) If the individual enrolls more than one month after the month in 
which he or she first meets the requirements of Sec. 406.20(c), 
entitlement begins with the third month after the month of enrollment.

[56 FR 38079, Aug. 12, 1991]

[[Page 150]]



Sec. 406.24  Special enrollment period.1
---------------------------------------------------------------------------

    \1\ Before August 1986, SEPs were available only for enrollment in 
supplementary medical insurance, not for enrollment in premium hospital 
insurance.
---------------------------------------------------------------------------

    (a) Terminology. As used in this subpart, the following terms have 
the indicated meanings.
    (1) Current employment status has the meaning given this term in 
Sec. 411.104 of this chapter.
    (2) Family member has the meaning given this term in Sec. 411.201 of 
this chapter.
    (3) Group health plan (GHP) and large group health plan (LGHP) have 
the meanings given those terms in Sec. 411.101 of this chapter, except 
that the ``former employee'' language of those definitions does not 
apply with respect to SEPs because--
    (i) Section 1837(i)(1)(A) of the Act explicitly requires that GHP 
coverage of an individual age 65 or older, be by reason of the 
individual's (or the individual's spouse's) current employment status; 
and
    (ii) The sentence following section 1837(i)(1)(B), of the Act refers 
to ``large group health plan''. Under section 1862(b)(1)(B)(i), as 
amended by OBRA '93, LGHP coverage of a disabled individual must be ``by 
virtue of the individual's or a family member's current employment 
status with an employer''.
    (4) Special enrollment period (SEP) is a period provided by statute 
to enable certain individuals to enroll in Medicare without having to 
wait for the general enrollment period.
    (b) Duration of SEP.2 (1) The SEP includes any month 
during any part of which--
---------------------------------------------------------------------------

    \2\ Before March 1995, SEPs began on the first day of the first 
month the individual was no longer covered under a GHP or LGHP by reason 
of current employment status.
---------------------------------------------------------------------------

    (i) An individual over age 65 is enrolled in a GHP by reason of the 
current employment status of the individual or the individual's spouse; 
or
    (ii) An individual under age 65 and disabled--
    (A) Is enrolled in a GHP by reason of the current employment status 
of the individual or the individual's spouse; or
    (B) Is enrolled in an LGHP by reason of the current employment 
status of the individual or a member of the individual's family.
    (2) The SEP ends on the last day of the eighth consecutive month 
during which the individual is at no time enrolled in a GHP or an LGHP 
by reason of current employment status.
    (c) Conditions for use of a SEP.3 In order to use a SEP, 
the individual must meet the following conditions:
---------------------------------------------------------------------------

    \3\ Before August 10, 1993, an individual under age 65 could qualify 
for a SEP only if he or she had LGHP coverage as an ``active 
individual'', which the statute defined as ``an employee, employer, 
self-employed individual (such as the employer), individual associated 
with the employer in a business relationship, or as a member of the 
family of any of those persons''.
---------------------------------------------------------------------------

    (1) When first eligible to enroll for premium hospital insurance 
under Sec. 406.20(b) or (c), the individual was--
    (i) Age 65 or over and covered under a GHP by reason of the current 
employment status of the individual or the individual's spouse;
    (ii) Under age 65 and covered under an LGHP by reason of the current 
employment status of the individual or a member of the individual's 
family ; or
    (iii) Under age 65 and covered under a GHP by reason of the current 
employment status of the individual or the individual's spouse.
    (2) For all the months thereafter, the individual has maintained 
coverage either under hospital insurance or a GHP or LGHP.
    (d) Special rule: Additional SEPs. (1) Generally, if an individual 
fails to enroll during any available SEP, he or she is not entitled to 
any additional SEPs.
    (2) However, if an individual fails to enroll during a SEP, because 
coverage under the same or a different GHP or LGHP was restored before 
the end of that particular SEP, that failure to enroll does not preclude 
additional SEPs.
    (e) Effective date of coverage. (1) If the individual enrolls in a 
month during any part of which he or she is covered under a GHP or LGHP 
on the basis of current employment status, or in the first full month 
when no longer so covered, coverage begins on the first day of the month 
of enrollment or, at the individual's option, on the first day of any of 
the three following months.

[[Page 151]]

    (2) If the individual enrolls in any month of the SEP other than the 
months specified in paragraph (e)(1) of this section, coverage begins on 
the first day of the month following the month of enrollment.

[61 FR 40346, Aug. 2, 1996]



Sec. 406.26  Enrollment under State buy-in.

    (a) Enrollment of QMBs under a State buy-in agreement--(1) Effective 
date. Beginning with calendar year 1990, a State may request and be 
granted a modification of its buy-in agreement to include enrollment and 
payment of Part A premiums for QMBs (as defined in section 1905(p)(1) of 
the Act) who can become entitled to Medicare Part A only by paying a 
premium.
    (2) Amount of premium. Premiums paid under State buy-in are not 
subject to increase because of late enrollment or reenrollment.
    (b) Beginning of coverage under buy-in. The coverage period begins 
with the latest of the following:
    (1) The third month following the month in which the agreement 
modification covering QMBs is effectuated.
    (2) The first month in which the individual is entitled to premium 
hospital insurance under Sec. 406.20(b) and has QMB status.
    (3) The date specified in the agreement modification.
    (c) End of coverage under buy-in. Buy-in coverage ends with the 
earlier of the following:
    (1) Death. Coverage ends on the last day of the month in which the 
QMB dies.
    (2) Loss of QMB status. If the individual loses eligibility for QMB 
status, coverage ends on the last day of the month in which HCFA 
receives the State's notice of ineligibility.
    (3) Termination of buy-in agreement. If the State's buy-in agreement 
is terminated, coverage ends on the last day of the last month for which 
the agreement is in effect.
    (4) Entitlement to premium-free Part A. If the individual becomes 
entitled to premium-free Part A, buy-in coverage ends on the last day of 
entitlement to premium Part A.
    (d) Continuation of coverage: Individual enrollment following 
termination of buy-in coverage--(1) Deemed enrollment. If coverage under 
a buy-in agreement ends because the agreement is terminated or the 
individual loses QMB status, the individual--
    (i) Is considered to have enrolled during his or her initial 
enrollment period; and
    (ii) Is entitled to Part A benefits and liable for Part A premiums 
beginning with the first month for which he or she is no longer covered 
under the buy-in agreement.
    (2) Voluntary termination. (i) An individual may voluntarily 
terminate entitlement acquired under paragraph (d)(1) of this section by 
filing, with SSA or HCFA, a request for disenrollment.
    (ii) Voluntary disenrollment is effective as follows:
    (A) If the individual files a request within 30 days after the date 
of HCFA's notice that buy-in coverage has ended, the individual's 
entitlement ends on the last day of the last month for which the State 
paid the premium.
    (B) If the individual files the request more than 30 days but not 
more than 6 months after buy-in coverage ends, entitlement ends on the 
last day of the month in which the request is filed.
    (C) If the individual files the request later than the 6th month 
after buy-in coverage ends, entitlement ends at the end of the month 
after the month in which request is filed.

[56 FR 38080, Aug. 12, 1991]



Sec. 406.28  End of entitlement.

    Any of the following actions or events ends entitlement to premium 
hospital insurance:
    (a) Filing of request for termination. The beneficiary may at any 
time give HCFA or the Social Security Administration written notice that 
he or she no longer wishes to participate in the premium hospital 
insurance program.
    (1) If he or she files the notice before entitlement begins, he or 
she will be deemed not to have enrolled.
    (2) If he or she files the notice after entitlement begins, that 
entitlement will end at the close of the month following the month in 
which he or she filed the notice.
    (b) Eligibility for hospital insurance without premiums. (1) If an 
individual

[[Page 152]]

meets the eligibility requirements for hospital insurance specified in 
Sec. 406.10, Sec. 406.11, Sec. 406.13 or Sec. 406.15, entitlement to 
premium hospital insurance ends with the month before the month in which 
he or she meets those requirements.
    (2) If an individual meets the requirements of Sec. 406.10, 
Sec. 406.11, Sec. 406.13, or Sec. 406.15, he or she will be deemed to 
have filed the required application for hospital insurance benefits in 
his or her first month of eligibility under that section.
    (c) End of entitlement to supplementary medical insurance (SMI) for 
individual who has attained age 65. In the case of an individual 
enrolled on the basis of Sec. 406.20(b), entitlement to premium hospital 
insurance ends on the same date that entitlement to SMI ends.
    (d) Nonpayment of premium. (1) If an individual fails to pay the 
premium bill, entitlement will end on the last day of the third month 
after the billing month.
    (2) HCFA may reinstate entitlement if the individual shows good 
cause for failure to pay on time, and pays all overdue premiums within 3 
calendar months after the date specified in paragraph (d)(1) of this 
section.
    (e) Death. Entitlement ends with the day of death. (A premium is due 
for the month of death.)
    (f) End of disabling impairment for individual under age 65. In the 
case of an individual enrolled on the basis of Sec. 406.20(c), 
entitlement to premium hospital insurance ends on the last day of the 
month after the month in which the individual is notified that he or she 
no longer has a disabling impairment.

[48 FR 12536, Mar. 25, 1983. Redesignated at 51 FR 41338, Nov. 14, 1986, 
as amended at 53 FR 47204, Nov. 22, 1988. Redesignated and amended at 56 
FR 38080, Aug. 12, 1991]



Sec. 406.32  Monthly premiums.

    (a) Promulgation and effective date. Beginning with 1984, premiums 
are promulgated each September, effective for the succeeding calendar 
year.
    (b) Monthly premiums: Determination of dollar amount.
    (1) Effective for calendar years beginning January 1989, the dollar 
amount is determined based on an estimate of one-twelfth of the average 
per capita costs for benefits and administrative costs that will be 
payable with respect to individuals age 65 or over from the Federal 
Hospital Insurance Trust Fund during the succeeding calendar year.
    (2) Before 1989, the dollar amount was determined by multiplying $33 
by the ratio of the next year's inpatient deductible to $76, which was 
the inpatient deductible determined for 1973. (Because of cost controls, 
the deductible actually charged for that year was $72.)
    (3) Effective for months beginning January 1994, if an individual 
meets the requirements in paragraph (c) of this section, the monthly 
premium determined under paragraph (b)(1) of this section is reduced in 
each month in which the individual meets the requirements by 25 percent 
in 1994, 30 percent in 1995, 35 percent in 1996, 40 percent in 1997 and 
45 percent in 1998 and thereafter.
    (4) The amount determined under paragraphs (b) (1), (2), or (3) of 
this section is rounded to the next nearest multiple of $1. (Fifty cents 
is rounded to the next higher dollar.)
    (c) Qualifying for a reduction in monthly premium. An individual who 
qualifies for the reduction described in paragraph (b)(3) of this 
section must be an individual who--
    (1) Has 30 or more quarters of coverage (QCs) as defined in 20 CFR 
404.140 through 404.146;
    (2) Has been married for at least the previous one year period to a 
worker who has 30 or more QCs;
    (3) Had been married to a worker who had 30 or more QCs for a period 
of at least one year before the death of the worker;
    (4) Is divorced from, after at least 10 years of marriage to, a 
worker who had 30 or more QCs at the time the divorce became final; or
    (5) Is divorced from, after at least 10 years of marriage to, a 
worker who subsequently died and who had 30 or more QCs at the time the 
divorce became final.
    (d) Monthly premiums: Increase for late enrollment and for 
reenrollment. For an individual who enrolls after the close of the 
initial enrollment period or reenrolls, the amount of the monthly 
premium, as determined under paragraph (b) of this section, is increased

[[Page 153]]

by 10 percent for each full 12 months in the periods described in 
Secs. 406.33 and 406.34. Effective beginning with premiums due for July 
1986, the premium increase is limited to 10 percent and is payable for 
twice the number of full 12-month periods determined under those 
sections.
    (e) Collection of monthly premiums. (1) HCFA will bill the enrollee 
on a monthly basis and include an addressed return envelope with the 
bill.
    (2) The enrollee must pay by check or money order that is payable to 
``HCFA Medicare Insurance,'' and shows his or her name and the claim 
number that appears on his or her Medicare card. He or she must return 
the bill with the check or money order.
    (f) Months for which payment is due. (1) A premium payment is due 
for each month beginning with the first month of coverage and continuing 
through the month of death or if earlier, the month in which coverage 
ends.
    (2) A premium is due for the month of death if coverage is still in 
effect, even if the individual dies on the first day of the month.
    (g) Option for group payments. A public or private organization may 
pay the premiums on behalf of one or more enrollees under a contract or 
other arrangement with HCFA if HCFA determines that this method of 
payment is administratively feasible. (The rules set forth in subpart E 
of part 408 of this chapter, for SMI premiums, also apply to group 
payment of Part A premiums.)

[48 FR 12536, Mar. 25, 1983. Redesignated at 51 FR 41338, Nov. 14, 1986, 
as amended at 53 FR 47203, Nov. 22, 1988; 56 FR 8839, Mar. 1, 1991. 
Redesignated and amended at 56 FR 38079, 38080, Aug. 12, 1991; 57 FR 
36014, Aug. 12, 1992; 57 FR 58717, Dec. 11, 1992; 59 FR 26959, May 25, 
1994]



Sec. 406.33  Determination of months to be counted for premium increase: Enrollment.

    (a) Enrollment before April 1, 1981, or after September 30, 1981. 
The months to be counted for premium increase are the months from the 
end of the initial enrollment period through the end of the general 
enrollment period, the special enrollment period, or the transfer 
enrollment period in which the individual enrolls, excluding the 
following:
    (1) Any months before September 1973.
    (2) For premiums due for months after May 1986, any months beginning 
with January 1983 during which the individual was enrolled in an 
employer group health plan based on the current employment of the 
individual or the individual's spouse.
    (3) Any months during the 7-month special enrollment period under 
Sec. 406.21(e) during which premium hospital insurance coverage is in 
effect.
    (4) Any months that the individual was enrolled in an HMO or CMP 
under part 417, subpart K of this chapter as described in 
Sec. 406.21(f).
    (b) Enrollment during the period April 1 through September 30, 1981. 
The months to be counted for premium increase are the months from the 
end of the initial enrollment period through the month in which the 
individual enrolled, excluding any months before September 1973.
    (c) Examples. (1) John F's initial enrollment period ended July 1979 
but he did not enroll until January 1980. The months to be counted are 
August 1979 through March 1980. Since only 8 months elapsed, there is no 
premium increase.
    (2) Mary T's initial enrollment period ended in April 1980 but she 
did not enroll until May 1981. The months to be counted are May 1980 
through May 1981. Since 13 months has elapsed, the premium would be 
increased by 10 percent.
    (3) Effective with July 1986, Mary T, in Example 2, would no longer 
have to pay an increased premium because she had paid it for twice the 
number of full 12-month periods during which she could have been, but 
was not, enrolled in the program.
    (4) Vincent C's initial enrollment period ended August 31, 1986. He 
was covered under his wife's employer group health plan until she 
retired on May 31, 1989. He enrolled during June 1989, the first month 
of the special enrollment period under Sec. 406.21(e). No months are 
countable for premium increase purposes because the exclusions of 
paragraph (a) of this section apply to all months.
    (5) Terry P enrolled in the 1987 general enrollment period, with 
coverage effective July 1987. There were 28

[[Page 154]]

months after the end of his initial enrollment period through the end of 
the 1987 general enrollment period. His premium is increased by 10 
percent. The increase will be eliminated after he has paid the 
additional 10 percent for 48 months.

[48 FR 12536, Mar. 25, 1983. Redesignated at 51 FR 41338, Nov. 14, 1986, 
as amended at 53 FR 47203, Nov. 22, 1988. Further redesignated and 
amended at 57 FR 36014, Aug. 12, 1992]



Sec. 406.34  Determination of months to be counted for premium increase: Reenrollment.

    (a) First reenrollment before April 1, 1981 or after September 30, 
1981. The months to be counted for premium increase are:
    (1) The months specified in Sec. 406.33(a) or (b); plus
    (2) The months from the end of the first period of entitlement 
through the end of the general enrollment period in which the individual 
reenrolled.
    (b) First reenrollment during the period April 1, 1981 through 
September 30, 1981. The months to be counted for premium increase are--
    (1) The months specified in Sec. 406.33(a); plus
    (2) The months from the end of the first period of entitlement 
through the month in which the individual reenrolled.
    (c) Subsequent reenrollment during the period April 1, 1981 through 
September 30, 1981. The months to be counted for premium increase are--
    (1) The months specified in paragraph (a) of this section; plus
    (2) The months from April 1981 through the month in which the 
individual reenrolled for the second time. (Since only one reenrollment 
was permitted before April 1981, any months from the end of the 
individual's first enrollment period of entitlement through March 1981 
are not counted.)
    (d) Subsequent reenrollment after September 30, 1981. The months to 
be counted for premium increase are--
    (1) The months specified in paragraph (a) or (b) of this section, 
for the first and second periods of coverage; plus
    (2) The months from the end of each subsequent period of entitlement 
through the end of the general enrollment period in which the individual 
reenrolled, excluding any months before April 1981.
    (e) Example. Peter M enrolled during his initial enrollment period, 
terminated his first coverage period in August 1979 and reenrolled for 
the first time in January 1980. The 7 months to be counted (September 
1979 through March, 1980) were not enough to require any increase in the 
premium. Peter terminated his second period of coverage in February 1981 
and reenrolled for the second time in July 1981. Since the 4 months 
(April through July 1981), when added to the previous 7 months, bring 
the total to only 11 months, no premium increase is required.

[48 FR 12536, Mar. 25, 1983. Redesignated at 51 FR 41338, Nov. 14, 1986. 
Further redesignated and amended at 57 FR 58717, Dec. 11, 1992]



Sec. 406.38  Prejudice to enrollment rights because of Federal Government error.

    (a) If an individual's enrollment or nonenrollment for premium 
hospital insurance is unintentional, inadvertent, or erroneous because 
of the error, misrepresentation, or inaction of a Federal employee, or 
any person authorized by the Federal Government to act on its behalf, 
the Social Security Administration or HCFA may take whatever action it 
determines is necessary to provide appropriate relief.
    (b) The action may include--
    (1) Designation of a special initial or general enrollment period;
    (2) Designation of an entitlement period;
    (3) Adjustment of premiums;
    (4) Any combination of the actions specified in paragraph (b) (1) 
through (3) of this section; or
    (5) Any other remedial action which may be necessary to correct or 
eliminate the effects of such error, misrepresentation, or inaction.

[48 FR 12536, Mar. 25, 1983. Redesignated at 51 FR 41338, Nov. 14, 1986. 
Further redesignated at 56 FR 38080, Aug. 12, 1991]

[[Page 155]]



  Subpart D--Special Circumstances That Affect Entitlement to Hospital 
                                Insurance



Sec. 406.50  Nonpayment of benefits on behalf of certain aliens.

    (a) Hospital insurance benefit payments may not be made for services 
furnished to an alien in any month in which his or her monthly social 
security benefits are suspended (or would be suspended if he or she were 
entitled to those benefits) because the alien remains outside the United 
States for more than 6 months.
    (b) Benefits will be payable beginning with services furnished in 
the first full calendar month the alien is back in the United States.

[48 FR 12536, Mar. 25, 1983. Redesignated at 51 FR 41338, Nov. 14, 1986. 
Further redesignated at 57 FR 58717, Dec. 11, 1992]



Sec. 406.52  Conviction of certain offenses.

    (a) Penalty that affects entitlement. (1) If an individual is 
convicted of any of the crimes listed in Sec. 406.11(c) (1) and (2), the 
court may impose, in addition to all other penalties, a penalty that 
affects entitlement to hospital insurance, beginning with the month of 
conviction.
    (2) The additional penalty is that the individual's income (or the 
income of the insured individual on whose earnings record he or she 
became or seeks to become entitled) for the year of conviction and any 
previous year may not be counted in determining the insured status 
necessary for entitlement to hospital insurance.
    (b) Effect of pardon. If the President of the United States pardons 
the convicted individual, that individual regains (or may again seek) 
entitlement effective with the month following the month in which the 
pardon is granted.

[48 FR 12536, Mar. 25, 1983. Redesignated at 51 FR 41338, Nov. 14, 1986. 
Further redesignated at 57 FR 58717, Dec. 11, 1992]



PART 407--SUPPLEMENTARY MEDICAL INSURANCE (SMI) ENROLLMENT AND ENTITLEMENT--Table of Contents




                      Subpart A--General Provisions

Sec.
407.1  Basis and scope.
407.2  General description of program.
407.4  Basic requirements for entitlement.

        Subpart B--Individual Enrollment and Entitlement for SMI

407.10  Eligibility to enroll.
407.11  Forms used to apply for enrollment under Medicare Part B.
407.12  General enrollment provisions.
407.14  Initial enrollment period.
407.15  General enrollment period.
407.17  Automatic enrollment.
407.18  Determining month of automatic enrollment.
407.20  Special enrollment period related to coverage under group health 
          plans.
407.22  Request for individual enrollment.
407.25  Beginning of entitlement: Individual enrollment.
407.27  Termination of entitlement: Individual enrollment.
407.30  Limitations on enrollment.
407.32  Prejudice to enrollment rights because of Federal Government 
          misrepresentation, inaction, or error.

                   Subpart C--State Buy-in Agreements

407.40  Enrollment under a State buy-in agreement.
407.42  Buy-in groups available to the 50 States, the District of 
          Columbia, and the Northern Mariana Islands.
407.43  Buy-in groups available to Puerto Rico, Guam, the Virgin 
          Islands, and American Samoa.
407.45  Termination of State buy-in agreements.
407.47  Beginning of coverage under a State buy-in agreement.
407.48  Termination of coverage under a State buy-in agreement.
407.50  Continuation of coverage: Individual enrollment following end of 
          coverage under a State buy-in agreement.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 53 FR 47204, Nov. 22, 1988, unless otherwise noted.

[[Page 156]]



                      Subpart A--General Provisions



Sec. 407.1  Basis and scope.

    (a) Statutory basis. The supplementary medical insurance (SMI) 
program is authorized by Part B of title XVIII of the Social Security 
Act.
    (1) Section 1831 of the Act establishes the program.
    (2) Sections 1836 and 1837 set forth the eligibility and enrollment 
requirements.
    (3) Section 1838 specifies the entitlement periods, which vary 
depending on the time and method of enrollment and on the basis for 
termination.
    (4) Section 1843 sets forth the requirements for State buy-in 
agreements under which States may enroll, and pay the SMI premiums for, 
eligible individuals who are also eligible for cash assistance or 
Medicaid.
    (5) Section 104(b) of the Social Security Amendments of 1965 (Pub. 
L. 89-87) specifies the limitations that apply to certain aliens and 
persons convicted of subversive activities.
    (b) Scope. This part sets forth the eligibility, enrollment, and 
entitlement requirements and procedures for supplementary medical 
insurance. (The rules about premiums are in part 408 of this chapter.)



Sec. 407.2  General description of program.

    Part B of Title XVIII of the Act provides for voluntary 
``supplementary medical insurance'' available to most individuals age 65 
or over and to disabled individuals who are under age 65 and entitled to 
hospital insurance. The SMI program is financed by premiums paid by (or 
for) each individual enrolled in the program, plus contributions from 
Federal funds. It covers certain physicians' services, outpatient 
services, home health services, services furnished by rural health 
clinics (RHCs), Federally qualified health centers (FQHCS), ambulatory 
surgical centers (ASCs), and comprehensive outpatient rehabilitation 
facilities (CORFs), and other medical and other health services.

[57 FR 24980, June 12, 1992]



Sec. 407.4  Basic requirements for entitlement.

    (a) An individual must meet the following requirements to be 
entitled to SMI:
    (1) Eligibility. The individual must meet the eligibility 
requirements specified in Sec. 407.10(a).
    (2) Enrollment. The individual must enroll for SMI, or must be 
enrolled by a State under a buy-in agreement as specified in 
Sec. 407.40.
    (b) SMI pays only for covered expenses incurred during an 
individual's period of entitlement.



        Subpart B--Individual Enrollment and Entitlement for SMI



Sec. 407.10  Eligibility to enroll.

    (a) Basic rule. Except as specified in paragraph (b) of this 
section, an individual is eligible to enroll for SMI if he or she--
    (1) Is entitled to hospital insurance under any of the rules set 
forth in Secs. 406.10 through 406.15 of this chapter; or
    (2) Meets the following requirements:
    (i) Has attained age 65. (An individual is considered to have 
attained age 65 on the day before the 65th anniversary of his or her 
birth.)
    (ii) Is a resident of the United States.
    (iii) Is a citizen of the United States, or an alien lawfully 
admitted for permanent residence who has resided continuously in the 
United States during the 5 years preceding the month in which he or she 
applies for enrollment.
    (b) Exception. An individual is not eligible to enroll for SMI if he 
or she has been convicted of--
    (1) Spying, sabotage, treason, or subversive activities under 
chapter 37, 105, or 115 of title 18 of the United States Code; or
    (2) Conspiracy to establish dictatorship under section 4 of the 
Internal Security Act of 1950.



Sec. 407.11  Forms used to apply for enrollment under Medicare Part B.

    The following forms, available free of charge by mail from HCFA, or 
at any Social Security branch or district office, are used to apply for 
enrollment under the supplementary medical insurance program.


[[Page 157]]


    HCFA-4040--Application for Enrollment in the Supplementary Medical 
Insurance Program. (This form is used for enrollment by individuals who 
are not eligible for monthly benefits or for hospital insurance.)
    HCFA-40-B--Application for Medical Insurance. (For general use by 
the SSA District Office in requesting medical insurance protection 
during the general enrollment period or during the initial enrollment 
period if the enrollee is not subject to automatic enrollment is SMI.)
    HCFA-40-D--Application for Enrollment in the Supplementary Medical 
Insurance Program. (This form is mailed to individuals who do not have 
current supplementary medical insurance because of prior refusals, 
voluntary withdrawal, or premium default from prior coverage. It is used 
during the annual general enrollment period.)
    HCFA-40-F--Application for Medical Insurance. (For use by 
beneficiaries residing outside the United States.)
    HCFA-18-F-5--Application for Hospital Insurance Entitlement. (For 
use by individuals who are not eligible for retirement benefits under 
Title II of the Social Security Act or under the Railroad Retirement 
Act. This form may also be used for enrollment in the supplementary 
medical insurance program.)


As an alternative, the individual may request enrollment by answering 
the Part B enrollment questions on an application for monthly Social 
Security benefits, or by signing a simple statement of request, if he or 
she is eligible to enroll at that time.



Sec. 407.12  General enrollment provisions.

    (a) Opportunity to enroll. (1) An individual who is eligible to 
enroll for SMI may do so during an initial enrollment period or a 
general enrollment period as specified in Secs. 407.14, and 407.15. An 
individual who meets the conditions specified in Sec. 407.20 may enroll 
during a special enrollment period, as provided in that section.
    (2) An individual who fails to enroll during his or her initial 
enrollment period or whose enrollment has been terminated may enroll or 
reenroll during a general enrollment period, or, if he or she meets the 
specified conditions, during a special enrollment period.
    (b) Enrollment periods ending on a nonworkday. (1) If an enrollment 
period ends on a Federal nonworkday, that period is automatically 
extended to the next succeeding workday.
    (2) A Federal nonworkday is any Saturday, Sunday, or Federal legal 
holiday or a day that is declared by statute or executive order to be a 
day on which Federal employees are not required to work.



Sec. 407.14  Initial enrollment period.

    (a) Duration. (1) The initial enrollment period is the 7-month 
period that begins 3 months before the month an individual first meets 
the eligibility requirements of Sec. 407.10 and ends 3 months after that 
first month of eligibility.
    (2) In determining the initial enrollment period of an individual 
who is age 65 or over and eligible for enrollment solely because of 
entitlement to hospital insurance, the individual is considered as first 
meeting the eligibility requirements for SMI on the first day he or she 
becomes entitled to hospital insurance or would have been entitled if he 
or she filed an application for that program.
    (b) Deemed initial enrollment period. (1) SSA or HCFA will establish 
a deemed initial enrollment period for an individual who fails to enroll 
during the initial enrollment period because of a belief, based on 
erroneous documentary evidence, that he or she had not yet attained age 
65. The period will be established as though the individual had attained 
age 65 on the date indicated by the incorrect information.
    (2) A deemed initial enrollment period established under paragraph 
(b)(1) of this section is used to determine the individual's premium and 
right to enroll in a general enrollment period if that is advantageous 
to the individual.



Sec. 407.15  General enrollment period.

    (a) Except as specified in paragraph (b) of this section, the 
general enrollment period is January through March of each calendar 
year.
    (b) An unlimited general enrollment period existed between April 1 
and September 30, 1981. Any eligible individual whose initial enrollment 
period had ended, or whose previous period of entitlement had 
terminated, could have enrolled or reenrolled during any month of that 
6-month period.

[[Page 158]]



Sec. 407.17  Automatic enrollment.

    (a) Who is automatically enrolled. An individual is automatically 
enrolled for SMI if he or she:
    (1) Resides in the United States, except in Puerto Rico;
    (2) Becomes entitled to hospital insurance under any of the 
provisions set forth in Secs. 406.10 through 406.15 of this chapter; and
    (3) Does not decline SMI enrollment.
    (b) Opportunity to decline automatic enrollment. (1) SSA will notify 
an individual that he or she is automatically enrolled under paragraph 
(a) of this section and grant the individual a specified period (at 
least 2 months after the month the notice is mailed) to decline 
enrollment.
    (2) The individual may decline enrollment by submitting to SSA or 
HCFA a signed statement that he or she does not wish SMI.
    (3) The statement must be submitted before entitlement begins, or if 
later, within the time limits set in the notice of enrollment.



Sec. 407.18  Determining month of automatic enrollment.

    (a) An individual who is automatically enrolled in SMI under 
Sec. 407.17 will have the month of enrollment determined in accordance 
with paragraphs (b) through (f) of this section. The month of enrollment 
determines the month of entitlement.
    (b) An individual is automatically enrolled in the third month of 
the initial enrollment period if he or she--
    (1) Is entitled to social security benefits under section 202 of the 
Act on the first day of the initial enrollment period;
    (2) Is entitled to hospital insurance based on end-stage renal 
disease; on entitlement to disability benefits as a social security or 
railroad retirement beneficiary; or on deemed entitlement to disability 
benefits on the basis of Medicare-qualified government employment; or
    (3) Establishes entitlement to hospital insurance by filing an 
application and meeting all other requirements (as set forth in subpart 
B of part 406 of this chapter) during the first 3 months of the initial 
enrollment period.
    (c) If an individual establishes entitlement to hospital insurance 
on the basis of an application filed in the last 4 months of the SMI 
initial enrollment period, he or she is automatically enrolled for SMI 
in the month in which the application is filed.
    (d) If an individual establishes entitlement to hospital insurance 
on the basis of an application filed after the SMI initial enrollment 
period but not during a general enrollment period in effect before April 
1, 1981, or after September 30, 1981, he or she is automatically 
enrolled for SMI on the first day of the next general enrollment period.
    (e) If the individual establishes entitlement to hospital insurance 
on the basis of an application filed during a SMI general enrollment 
period in effect before April 1, 1981 or after September 30, 1981, he or 
she is automatically enrolled on the first day of that period.
    (f) If an individual established entitlement to hospital insurance 
on the basis of an application filed during the general enrollment 
period of April 1, 1981, through September 30, 1981, he or she was 
automatically enrolled for SMI on the first day of the month in which 
the application was filed.



Sec. 407.20  Special enrollment period related to coverage under group health plans.

    (a) Terminology--(1) Group health plan (GHP) and large group health 
plan (LGHP). These terms have the meanings given them in Sec. 411.101 of 
this chapter except that the ``former employee'' language of those 
definitions does not apply with respect to SEPs for the reasons 
specified in Sec. 406.24(a)(3) of this chapter.
    (2) Special enrollment period (SEP). This term has the meaning set 
forth in Sec. 406.24(a)(4) of this chapter. In order to use a SEP, an 
individual must meet the conditions of paragraph (b) and of paragraph 
(c) or (d) of this section, as appropriate.
    (b) General rule. All individuals must meet the following 
conditions:
    (1) They are eligible to enroll for SMI on the basis of age or 
disability, but not on the basis of end-stage renal disease.

[[Page 159]]

    (2) When first eligible for SMI coverage (4th month of their initial 
enrollment period), they were covered under a GHP or LGHP on the basis 
of current employment status or, if not so covered, they enrolled in SMI 
during their initial enrollment period; and
    (3) For all months thereafter, they maintained coverage under either 
SMI or a GHP or LGHP. (Generally, if an individual fails to enroll in 
SMI during any available SEP, he or she is not entitled to any 
additional SEPs. However, if an individual fails to enroll during a SEP 
because coverage under the same or a different GHP or LGHP was restored 
before the end of that particular SEP, that failure to enroll does not 
preclude additional SEPs.)
    (c) Special rule: Individual age 65 or over. For an individual who 
is or was covered under a GHP, coverage must be by reason of the current 
employment status of the individual or the individual's spouse.
    (d) Special rules: Disabled individual.4 Individuals 
entitled on the basis of disability (but not on the basis of end-stage 
renal disease) must meet conditions that vary depending on whether they 
were covered under a GHP or an LGHP.
---------------------------------------------------------------------------

    \4\ Under the current statute, the SEP provision applicable to 
disabled individuals covered under an LGHP expires on September 1998. 
Unless Congress changes that date, the last SEP available under those 
provisions will begin with June 1998.
---------------------------------------------------------------------------

    (1) For a disabled individual who is or was covered under a GHP, 
coverage must be on the basis of the current employment status of the 
individual or the individual's spouse.
    (2) For a disabled individual who is or was covered under an LGHP, 
coverage must be as follows:
    (i) Before August 10, 1993, as an ``active individual'', that is, as 
an employee, employer, self-employed individual (such as the employer), 
individual associated with the employer in a business relationship, or 
as a member of the family of any of those persons.
    (ii) On or after August 10, 1993, by reason of current employment 
status of the individual or a member of the individual's family.
    (e) Effective date of coverage. The rule set forth in Sec. 406.24(d) 
for Medicare Part A applies equally to Medicare Part B.

[61 FR 40346, Aug. 2, 1996]



Sec. 407.22  Request for individual enrollment.

    (a) A request for enrollment is required of an individual who meets 
the eligibility requirements of Sec. 407.10 and desires SMI, if the 
individual--
    (1) Is not entitled to hospital insurance;
    (2) Has previously declined enrollment in SMI;
    (3) Has had a previous period of SMI entitlement which terminated;
    (4) Resides in Puerto Rico or outside the United States; or
    (5) Is enrolling or reenrolling during a special enrollment period 
under Sec. 407.20.
    (b) A request for enrollment under paragraph (a) of this section 
must:
    (1) Be signed by the individual or someone acting in his or her 
behalf; and
    (2) Be filed with SSA or HCFA during the initial enrollment period, 
a general enrollment period, or a special enrollment period as provided 
in Sec. 407.20.



Sec. 407.25  Beginning of entitlement: Individual enrollment.

    The following apply whether an individual is self-enrolled or 
automatically enrolled in SMI:
    (a) Enrollment during initial enrollment period. (1) If an 
individual enrolls during the first three months of the initial 
enrollment period, entitlement begins with the first month of 
eligibility.
    (2) If an individual enrolls during the fourth month of the initial 
enrollment period, entitlement begins with the following month.
    (3) If an individual enrolls during the fifth month of the initial 
enrollment period, entitlement begins with the second month after the 
month of enrollment.
    (4) If an individual enrolls in either of the last two months of the 
initial enrollment period, entitlement begins with the third month after 
the month of enrollment.
    (5) Example. An individual first meets the eligibility requirements 
for

[[Page 160]]

enrollment in April. The initial enrollment period is January through 
July. The month in which the individual enrolls determines the month 
that begins the period of entitlement, as follows:

------------------------------------------------------------------------
 Enrolls in initial enrollment period        Entitlement begins on--
------------------------------------------------------------------------
January...............................  April 1 (month eligibility
                                         requirements first met).
February..............................  April 1.
March.................................  April 1.
April.................................  May 1 (month following month of
                                         enrollment).
May...................................  July 1 (second month after month
                                         of enrollment).
June..................................  September 1 (third month after
                                         month of enrollment).
July..................................  October 1 (third month after
                                         month of enrollment).
------------------------------------------------------------------------

    (b) Enrollment on reenrollment during general enrollment period. (1) 
if an individual enrolls or reenrolls during a general enrollment period 
before April 1, 1981 or after September 30, 1981, entitlement begins on 
July 1 of that calendar year.
    (2) If an individual enrolled or reenrolled during the general 
enrollment period between April 1, 1981 and September 20, 1981, 
entitlement began with the third month after the month in which the 
enrollment request was filed.
    (c) Enrollment or reenrollment during a SEP. The rules set forth in 
Sec. 406.24(d) of this chapter apply.

[53 FR 47204, Nov. 22, 1988, as amended at 61 FR 40347, Aug. 2, 1996]



Sec. 407.27  Termination of entitlement: Individual enrollment.

    An individual's entitlement will terminate for any of the following 
reasons:
    (a) Death. Entitlement to SMI ends on the last day of the month in 
which the individual dies.
    (b) Termination of hospital insurance benefits. If an individual's 
entitlement to hospital insurance ends before the month in which he or 
she attains age 65, entitlement to SMI will end on the same day unless 
it has been previously terminated in accordance with paragraph (c) or 
(d) of this section.
    (c) Request by individual. An individual may at any time give HCFA 
or SSA written notice that he or she no longer wishes to participate in 
SMI, and request disenrollment.
    (1) Before July 1987, entitlement ended at the end of the calendar 
quarter after the quarter in which the individual filed the 
disenrollment request.
    (2) For disenrollment requests filed in or after July 1987, 
entitlement ends at the end of the month after the month in which the 
individual files the disenrollment request.
    (d) Nonpayment of premiums. If an individual fails to pay the 
premiums, entitlement will end as provided in the rules for SMI 
premiums, set forth in part 408 of this chapter.



Sec. 407.30  Limitations on enrollment.

    (a) Initial enrollment periods--(1) Individual under age 65. An 
individual who has not attained age 65 may have one or more periods of 
entitlement to hospital insurance, based on disability. Since each 
period of disability entitlement entitles the individual to hospital 
insurance and since entitlement to hospital insurance makes the 
individual eligible for SMI enrollment, an individual may have an SMI 
initial enrollment period for each continous period of entitlement to 
hospital insurance.
    (2) Individuals who have attained age 65. An individual who has 
attained age 65 may not have more than one initial enrollment period on 
the basis of age. However, if the individual develops ESRD after age 65, 
he or she may have another initial enrollment period based on meeting 
the requirements of Sec. 406.13 of this chapter.
    (b) Number of enrollments. There is no limitation on the number of 
enrollments.
    (c) Coverage under buy-in agreements. For purposes of paragraph (a) 
of this section, the continued enrollment of an individual following the 
end of coverage under a State buy-in agreement in considered an initial 
enrollment.



Sec. 407.32  Prejudice to enrollment rights because of Federal Government misrepresentation, inaction, or error.

    If an individual's enrollment or nonenrollment in SMI is 
unintentional, inadvertent, or erroneous because of the error, 
misrepresentation, on inaction of a Federal employee or any person 
authorized by the Federal Government to act in its behalf, the Social 
Security

[[Page 161]]

Administration or HCFA may take whatever action it determines is 
necessary to provide appropriate relief. The action may include:
    (a) Designation of a special initial or general enrollment period;
    (b) Designation of an entitlement period based on that enrollment 
period;
    (c) Adjustment of premiums;
    (d) Any combination of actions under paragraphs (a) through (c) of 
this section; or
    (e) Any other remedial action that may be necessary to correct or 
eliminate the effects of the error, misrepresentation, or inaction.



                   Subpart C--State Buy-In Agreements



Sec. 407.40  Enrollment under a State buy-in agreement.

    (a) Statutory basis. (1) Section 1843 of the Act, as amended through 
1969, permitted a State to enter into an agreement with the Secretary to 
enroll in the SMI program certain individuals who are eligible for SMI 
and who are members of the buy-in group specified in the agreement. A 
buy-in group could include certain individuals receiving Federally-aided 
State cash assistance (with the option of excluding individuals also 
entitled to social security benefits or railroad retirement benefits) or 
could include all individuals eligible for Medicaid. Before 1981, 
December 31, 1969 was the last day on which a State could request a buy-
in agreement or a modification to include a coverage group broader than 
the one originally selected.
    (2) Section 945(e) of the Omnibus Reconciliation Act of 1980 (Pub. 
L. 96-499) further amended section 1843 to provide that, during calendar 
year 1981, a State could request a buy-in agreement if it did not 
already have one, or request a broader coverage group for an existing 
agreement.
    (3) Several laws enacted during 1980-1987 had the effect of 
requiring that the buy-in groups available under section 1843 of the Act 
be expanded to include certain individuals who lose eligibility for cash 
assistance payments but are treated as if they were cash assistance 
recipients for Medicaid eligibility purposes.
    (4) Section 301(e)(1) of the Medicare Catastrophic Coverage Act of 
1988 (Pub. L. 100-360) amends section 1843 of the Act to restore the 
1981 provisions on a permanent basis, effective ``after 1988.''
    (5) The same section 301, as amended by section 608(d)(14)(H) of the 
Family Support Act of 1988 (Pub. L. 100-485), further amended section 
1843 of the Act, beginning January 1, 1989, to establish a new buy-in 
category consisting of Qualified Medicare Beneficiaries and to provide 
that a State may request a buy-in agreement if it does not already have 
one, or request a broader buy-in group for the existing agreement.
    (b) Definitions. As used in this section, unless the context 
indicates otherwise--
    Cash assistance means any of the following kinds of monthly cash 
benefits, authorized by specified titles of the Act and, for 
convenience, represented by initials, as follows:
    AABD stands for aid to the aged, blind or disabled under the first 
title XVI of the Act in effect until December 31, 1973.
    AB stands for aid to the blind under title X of the Act.
    AFDC stands for aid to families with dependent children under Part A 
of title IV of the Act.
    APTD stands for aid to the permanently and totally disabled under 
title XIV of the Act.
    OAA stands for old-age assistance under title I of the Act.
    SSI stands for supplemental security income for the aged, blind, and 
disabled under the second title XVI of the Act, effective January 1, 
1974.
    SSP stands for State supplementary payments, whether mandatory or 
optional, to an aged, blind, or disabled individual under the second 
title XVI or the Act.
    Qualified Medicare Beneficiary or QMB means an individual who meets 
the definition in Sec. 400.200 of this chapter and, therefore, is 
eligible to have the State Medicaid agency pay Medicare cost sharing 
amounts on his or her behalf.
    Railroad retirement beneficiary means an individual entitled to 
receive an annuity under the Railroad Retirement Act of 1974.

[[Page 162]]

    State means one of the 50 States, the District of Columbia, Guam, 
Puerto Rico, the Virgin Islands, American Samoa, or the Northern Mariana 
Islands, except when reference is made to ``the 50 States''.
    State buy-in agreement or buy-in agreement means an agreement 
authorized by section 1843 of the Act, under which a State secures SMI 
or premium HI coverage for individuals who are members of the buy-in 
group specified in the agreement, by enrolling them and paying the 
premiums on their behalf.
    (c) Basic rules.
    (1) A State that has a buy-in agreement in effect must enroll any 
individual who is eligible to enroll in SMI under Sec. 407.10.
    (2) Any State that does not have a buy-in agreement in effect may 
request buy-in for any one of the groups specified in Secs. 407.42 and 
407.43.
    (3) Any State that does have an agreement may request a modification 
to cover a broader buy-in group or cancel its current agreement and 
request a new agreement to cover a narrower group.

[56 FR 38080, Aug. 12, 1991; 56 FR 50058, Oct. 3, 1991]



Sec. 407.42  Buy-in groups available to the 50 States, the District of Columbia, and the Northern Mariana Islands.

    (a) Categories included in the buy-in groups. The buy-in groups that 
are available to the 50 States, the District of Columbia, and the 
Northern Mariana Islands are specified in paragraph (b) of this section 
in terms of the following categories:
    (1) Category A: Individuals who--
    (i) Receive SSI or SSP or both; and
    (ii) Are covered under the State's Medicaid plan as categorically 
needy.
    (2) Category B: Individuals who--
    (i) Under the Act or any other provision of Federal law are treated, 
for Medicaid eligibility purposes, as though they were receiving SSI or 
SSP; and
    (ii) Are covered under the State's Medicaid plan as categorically 
needy.
    (3) Category C: Individuals who are receiving AFDC.
    (4) Category D: Individuals who, under the Act or any other 
provision of Federal law, are treated, for Medicaid eligibility 
purposes, as though they were receiving AFDC.
    (5) Category E: Individuals who, in accordance with Sec. 435.114 or 
Sec. 435.134 of this chapter, are covered under the State's Medicaid 
plan despite the increase in social security benefits provided by Public 
Law 92-336.
    (6) Category F: Individuals who are Qualified Medicare 
Beneficiaries.1
---------------------------------------------------------------------------

    \1\ Rules for buy-in for premium hospital insurance for QMBs are set 
forth in Sec. 406.26 of this chapter.
---------------------------------------------------------------------------

    (7) Category G: All other individuals who are eligible for Medicaid.
    (b) Buy-in groups available. Any of the 50 States, the District of 
Columbia, and the Northern Mariana Islands may buy-in for one of the 
following groups:
    (1) Group 1: Categories A through G.
    (2) Group 2: Categories A through F.
    (3) Group 3: Categories A through E.
    (4) Group 4: Categories A, B, and F, individuals in categories C and 
D who are not social security or railroad retirement beneficiaries, and 
individuals in category E who are included in that category (in 
accordance with Sec. 435.134 of this chapter) because they received OAA, 
AB, APTD, or AABD in August 1972 or would have been eligible to receive 
such cash assistance for that month if they had applied or had not been 
institutionalized.
    (5) Group 5: Categories A and B, individuals in categories C and D 
who are not social security or railroad retirement beneficiaries, and 
individuals in category E who are included in that category (in 
accordance with Sec. 435.134 of this chapter) because they received OAA, 
AB, APTD, or AABD in August 1972 or would have been eligible to receive 
such cash assistance for that month if they had applied or had not been 
institutionalized.
    (6) Group 6: Categories A, B, and F, and individuals in category E 
who are included in that category (in accordance with Sec. 435.134 of 
this chapter) because they received AABD in August 1972 or would have 
been eligible to receive AABD for that month if they had applied or had 
not been institutionalized. This option is available only to those 
States that had an AABD program as of December 31, 1973.

[[Page 163]]

    (7) Group 7: Categories A and B, and individuals in category E who 
are included in that category (in accordance with Sec. 435.134 of this 
chapter) because they received AABD in August 1972 or would have been 
eligible to receive AABD for that month if they had applied or had not 
been institutionalized. This option is available only to those States 
that had an AABD program as of December 31, 1973.

[56 FR 38081, Aug. 12, 1991]



Sec. 407.43  Buy-in groups available to Puerto Rico, Guam, the Virgin Islands, and American Samoa.

    (a) Categories included in buy-in groups. The buy-in groups that are 
available to Puerto Rico, Guam, the Virgin Islands, and American Samoa, 
which are not covered by the SSI program, are described in paragraph (b) 
of this section in terms of the following categories:
    (1) Category A: Individuals receiving OAA, AB, APTD, or AFDC.
    (2) Category B: Individuals who, under the Act or any other 
provision of Federal law, are treated, for Medicaid eligibility 
purposes, as though they were receiving AFDC.
    (3) Category C: Individuals who, in accordance with Sec. 436.112 of 
this chapter, are covered under the State's Medicaid plan despite the 
increase in social security benefits provided by Public Law 92-336.
    (4) Category D: Individuals who are Qualified Medicare 
Beneficiaries.1
---------------------------------------------------------------------------

    \1\ Rules for buy-in for premium hospital insurance for QMBs are set 
forth in Sec. 406.26 of this chapter.
---------------------------------------------------------------------------

    (5) Category E: All other individuals who are eligible for Medicaid.
    (b) Buy-in groups available. Puerto Rico, Guam, the Virgin Islands, 
and American Samoa may choose any of the following coverage groups:
    (1) Group 1: Categories A through E.
    (2) Group 2: Categories A through D.
    (3) Group 3: Categories A through C.
    (4) Group 4: Individuals in category D, and individuals in 
categories A and B who are not social security or railroad retirement 
beneficiaries.
    (5) Group 5: Individuals in categories A and B who are not social 
security or railroad retirement beneficiaries.
    (6) Group 6: Individuals in category D, individuals in category A 
who are receiving OAA, and individuals in category C who are included in 
that category (in accordance with Sec. 436.112 of this chapter) because 
they received OAA for August 1972 or would have been eligible to receive 
OAA for that month if they had applied or had not been 
institutionalized.
    (7) Group 7: Individuals in category A who are receiving OAA, and 
individuals in category C who are included in that category (in 
accordance with Sec. 436.112 of this chapter) because they received OAA 
for August 1972 or would have been eligible to receive OAA for that 
month if they had applied or had not been institutionalized.
    (8) Group 8: Individuals in category D and individuals in category A 
who are receiving OAA and are not social security or railroad retirement 
beneficiaries.
    (9) Group 9: Individuals in category A who are receiving OAA and are 
not social security or railroad retirement beneficiaries.

[56 FR 38082, Aug. 12, 1991]



Sec. 407.45  Termination of State buy-in agreements.

    (a) Termination by the State--(1) Termination after advance notice. 
A State may terminate its buy-in agreement after giving HCFA 3 months, 
advance notice.
    (2) Termination without advance notice. A State may terminate its 
buy-in agreement without advance notice if--
    (i) The State gives HCFA written certification to the effect that it 
is no longer legally able to comply with one or more of the provisions 
of the agreement; and
    (ii) Submits a supporting opinion from the appropriate State legal 
officer, if HCFA requests such an opinion.
    (b) Termination by HCFA. If HCFA, after giving the State notice and 
opportunity for hearing, finds that the State has failed to comply 
substantially with one or more of the provisions of the agreement, other 
than the requirement for timely payment of premiums, HCFA will give the 
State written notice to the effect that the agreement will terminate on 
the date indicated in the notice unless, before that

[[Page 164]]

date, HCFA finds that there is no longer that failure to comply. (Rules 
for collection of overdue premiums, including assessment of interest and 
offset against FFP due the State, are those set forth in the Notice 
published on September 30, 1985 at 50 FR 39784.)



Sec. 407.47  Beginning of coverage under a State buy-in agreement.

    (a) General rule. The beginning of an individual's coverage period 
depends on two factors:
    (1) The individual's meeting the SMI eligibility requirements and 
the requirements for being a member of the buy-in group; and
    (2) The effective date of the buy-in agreement or agreement 
modification that covers the group to which the individual belongs, and 
which may not be earlier than the third month after the month in which 
the agreement or modification is executed.
    (b) Application of general rule: Medicaid eligibles who are, or are 
treated as, cash assistance recipients. For Medicaid eligibles who are, 
or are treated as, cash assistance recipients (that is, are members of 
categories A through E of Sec. 407.42(a) or categories A through C of 
Sec. 407.43(a)), coverage begins with the later of the following:
    (1) The first month in which the individual--
    (i) Meets the SMI eligibility requirements specified in Sec. 407.10; 
and
    (ii) Is a member of one of those categories.
    (2) The month in which the buy-in agreement is effective.
    (c) Application of general rule: Qualified Medicare Beneficiaries. 
For individuals who are QMBs (that is, are members of category F of 
Sec. 407.42 or category D of Sec. 407.43(a)), coverage begins with the 
later of the following:
    (1) The first month in which the individual meets the SMI 
eligibility requirements specified in Sec. 407.10, and has QMB status.
    (2) The month in which the buy-in agreement or agreement 
modification covering QMBs is effective.
    (d) Application of general rule: Other individuals eligible for 
Medicaid. For individuals who are members of category G of 
Sec. 407.42(a) or category E of Sec. 407.43(a), coverage begins with the 
later of the following:
    (1) The second month after the month in which the individual--
    (i) Meets the SMI eligibility requirements specified in Sec. 407.10; 
and
    (ii) Is determined to be eligible for Medicaid.
    (2) The month in which the buy-in agreement or agreement 
modification is effective.
    (e) Coverage based on erroneous report. If the State erroneously 
reports to SSA that an individual is a member of its coverage group, the 
rules of paragraphs (a) through (d) of this section apply, and coverage 
begins as though the individual were in fact a member of the group. 
Coverage will end only as provided in Sec. 407.48.

[56 FR 38082, Aug. 12, 1991]



Sec. 407.48  Termination of coverage under a State buy-in agreement.

    An individual's coverage under a buy-in agreement terminates with 
the earliest of the following events:
    (a) Death. Coverage ends on the last day of the month in which the 
individual dies.
    (b) Loss of entitlement to hospital insurance benefits before age 
65. If an individual loses entitlement to hospital insurance benefits 
before attaining age 65, coverage ends on the last day of the last month 
for which he or she is entitled to hospital insurance.
    (c) Loss of eligibility for the buy-in group. If an individual loses 
eligibility for inclusion in the buy-in group, buy-in coverage ends as 
follows:
    (1) On the last day of the last month for which he or she is 
eligible for inclusion in the group, if HCFA determines ineligibility or 
receives a State ineligibility notice by the 25th day of the second 
month after the month in which the individual becomes ineligible for 
inclusion in the group.
    (2) On the last day of the second month before the month in which 
HCFA receives a State ineligibility notice later than the time specified 
in paragraph (c)(1) of this section. A notice received by HCFA after the 
25th day of the month is considered to have been received in the 
following month.
    (d) Termination or modification of buy-in agreement. If the State's 
buy-in

[[Page 165]]

agreement is terminated, or modified to substitute a narrower buy-in 
group, coverage ends on the last day of the last month for which the 
agreement was in effect, or covered the broader buy-in group.

[53 FR 47204, Nov. 22, 1988, as amended at 56 FR 38082, Aug. 12, 1991]



Sec. 407.50  Continuation of coverage: Individual enrollment following end of coverage under a State buy-in agreement.

    (a) Deemed enrollment. When coverage under a buy-in agreement ends 
because the agreement terminates, or is modified to substitute a 
narrower buy-in group, or because the individual is no longer eligible 
for inclusion in the buy-in group, the individual--
    (1) Is considered to have enrolled during his or her initial 
enrollment period; and
    (2) Will be entitled to SMI on this basis and liable for SMI 
premiums beginning with the first month for which he or she is no longer 
covered under the buy-in agreement.
    (b) Voluntary termination. (1) An individual may voluntarily 
terminate entitlement acquired under paragraph (a) of this section by 
filing, with SSA or HCFA, a request for disenrollment.
    (2) Voluntary disenrollment is effective as follows:
    (i) If the individual files a request within 30 days after the date 
of HCFA's notice that buy-in coverage has ended, the individual's 
entitlement ends on the last day of the last month for which the State 
paid the premium.
    (ii) If the individual files the request more than 30 days but not 
more than 6 months after buy-in coverage ends, entitlement ends on the 
last day of the month in which the request is filed.
    (iii) If the individual files the request later than the 6th month 
after buy-in coverage ends, entitlement ends at the end of the month 
after the month in which request is filed.1
---------------------------------------------------------------------------

    \1\ For requests filed before July 1987, entitlement ended on the 
last day of the calendar quarter after the quarter in which the 
disenrollment request was filed.

[53 FR 47204, Nov. 22, 1988, as amended at 56 FR 38082, Aug. 12, 1991]



PART 408--PREMIUMS FOR SUPPLEMENTARY MEDICAL INSURANCE--Table of Contents




                      Subpart A--General Provisions

Sec.
408.1  Statutory basis.
408.2  Scope and purpose.
408.3  Definitions.
408.4  Payment obligations.
408.6  Methods and priorities for payment.
408.8  Grace period and termination date.
408.10  Claim for monthly benefits pending concurrently with request for 
          SMI enrollment.

                  Subpart B--Amount of Monthly Premium

408.20  Monthly premiums.
408.22  Increased premiums for late enrollment and for reenrollment.
408.24  Individuals who enrolled or reenrolled before April 1, 1981 or 
          after September 30, 1981.
408.25  Individuals who enrolled or reenrolled between April 1 and 
          September 30, 1981.
408.26  Examples.
408.27  Rounding the monthly premium.

               Subpart C--Deduction From Monthly Benefits

408.40  Deduction from monthly benefits: Basic rules.
408.42  Deduction from railroad retirement benefits.
408.43  Deduction from social security benefits.
408.44  Deduction from civil service annuities.
408.45  Deduction from age 72 special payments.
408.46  Effect of suspension of social security benefits.
408.47  [Reserved]
408.50  When premiums are considered paid.
408.52  Change from direct remittance to deduction.
408.53  Change from partial direct remittance to full deduction.

            Subpart D--Direct Remittance; Individual Payment

408.60  Direct remittance: Basic rules.
408.62  Initial and subsequent billings.
408.63  Billing procedures when monthly benefits are less than monthly 
          premiums.
408.65  Payment options.
408.68  When premiums are considered paid.
408.70  Change from quarterly to monthly payments.
408.71  Change from deduction or State payment to direct remittance.

[[Page 166]]

               Subpart E--Direct Remittance: Group Payment

408.80  Basic rules.
408.82  Conditions for group billing.
408.84  Billing and payment procedures.
408.86  Responsibilities under group billing arrangement.
408.88  Refund of group payments.
408.90  Termination of group billing arrangement.
408.92  Change from group payment to deduction or individual payment.

          Subpart F--Termination and Reinstatement of Coverage

408.100  Termination of coverage for nonpayment of premiums.
408.102  Reconsideration of termination.
408.104  Reinstatement procedures.

  Subpart G--Collection of Unpaid Premiums; Refund of Excess Premiums 
                     After the Death of the Enrollee

408.110  Collection of unpaid premiums.
408.112  Refund of excess premiums after the enrollee dies.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 52 FR 48115, Dec. 18, 1987, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 408.1  Statutory basis.

    (a) This part implements certain provisions of sections 1837 through 
1840 and 1881(d) of the Social Security Act (the Act) and conforms to 
other regulations that implement section 1843 of the Act. Section 
1838(b) requires regulations to establish when an individual's coverage 
ends because of nonpayment of premiums. It also specifies that those 
regulations may provide a grace period for payment of overdue premiums 
without loss of coverage. Section 1839 sets forth the specific 
procedures for determining the amount of the monthly premium and section 
1840 establishes the rules for payment of premiums. Section 1843 
provides that a State may enter into a buy-in agreement to secure SMI 
coverage for certain individuals by enrolling them in the SMI program 
and paying the premiums on their behalf. Section 1881(d) provides that 
Medicare payment, for the reasonable charges incurred in connection with 
a kidney donation, shall be made (without regard to deductible, premium, 
or coinsurance provisions of title XVIII) as prescribed in regulations.
    (b) The Federal Claims Collection Act (31 U.S.C. 3711), as 
implemented by 4 CFR parts 101-105, provides the basic authority for 
recovery of debts owed the United States government and specifies the 
conditions for the suspension or termination of collection action. 
Departmental regulations at 45 CFR part 30, updated by a final rule 
published on January 5, 1987 (52 FR 260) set forth procedures for the 
exercise of the Department's authority to collect and dispose of debts 
and were intended to complement rules applicable to particular programs. 
HCFA rules are set forth at 42 CFR part 401, subpart F.

[52 FR 48115, Dec. 18, 1987; 53 FR 4158, Feb. 12, 1988, as amended at 56 
FR 48112, Sept. 24, 1991]



Sec. 408.2  Scope and purpose.

    (a) This part sets forth the policies and procedures for determining 
the amount of monthly supplementary medical insurance (SMI) premiums, 
for the payment, collection, or refund of premiums, for termination of 
coverage because of nonpayment of premiums, and for reinstatement of 
coverage if certain conditions are met. It conforms to subpart C of part 
407 of this chapter, which sets forth the requirements for State buy-in 
agreements. These policies are intended to protect enrollee coverage to 
the maximum degree compatible with maintaining the integrity of the SMI 
program.
    (b) Policies that apply to premiums that certain individuals must 
pay in order to become entitled to Medicare Part A hospital insurance 
benefits, are set forth in part 406 of this chapter.

[52 FR 48115, Dec. 18, 1987; 53 FR 4159, Feb. 12, 1988]



Sec. 408.3  Definitions.

    As used in this part, unless the context indicates otherwise--
    Enrollee means an individual who is enrolled in the SMI program 
under Medicare Part B.
    Taxable year means the 12-month period (calendar or fiscal year) for 
which

[[Page 167]]

the individual files his or her income tax return.



Sec. 408.4  Payment obligations.

    (a) Month for which payment is due. (1) A payment is due for each 
month, beginning with the first month of SMI coverage and continuing 
through the month of death or, if earlier, the month in which coverage 
terminates.
    (2) A premium is due for the month of death, if SMI coverage is 
still in effect, even though the individual dies on the first day of the 
month.
    (b) Overdue premiums. (1) Overdue premiums constitute an obligation 
enforceable against the enrollee or the enrollee's estate.
    (2) Overdue premiums are collected--
    (i) By deduction from social security or railroad retirement 
benefits or Federal civil service annuities;
    (ii) Directly from the enrollee or the enrollee's estate; or
    (iii) By offset against any SMI payments payable to the enrollee or 
the enrollee's estate.
    (3) Interest is not charged on overdue premiums, except under a 
State buy-in agreement, as provided in Sec. 408.6(c)(4).
    (c) Premiums not required for certain kidney donors. (1) No premiums 
are required for SMI benefits related to the donation of a kidney if the 
donor is not an enrollee.
    (2) A kidney donor who is an enrollee is not relieved of the 
obligation for premiums.

[52 FR 48115, Dec. 18, 1987; 53 FR 4159, Feb. 12, 1988]



Sec. 408.6  Methods and priorities for payment.

    (a) Methods of payment--(1) General rules. Premiums are paid by one 
of the following four methods:
    (i) Payment by a State under a buy-in agreement.
    (ii) Deduction from monthly railroad retirement of social security 
cash benefits or Federal civil service annuities.
    (iii) Direct remittance on an individual basis, by or on behalf of 
the enrollee.
    (iv) Direct remittance on a group basis, by an employer, union, 
lodge or other organization, or by an entity of State or local 
government.
    (2) Special situations. (i) If the monthly social security benefit 
or age 72 special benefit is less than the monthly premium, the benefit 
is withheld and the enrollee is required to pay the balance through 
direct remittance. (This situation may arise if the individual first 
becomes eligible for social security benefits after December 31, 1981, 
and is, therefore, not eligible for the fixed minimum, or receives age 
72 special benefits that are reduced because the individual receives a 
government pension.)
    (ii) If the monthly railroad retirement benefit or civil service 
annuity payment is less than the premium, the monthly payment is not 
withheld and the enrollee is required to pay the total premium by direct 
remittance.
    (b) Priorities for payment. (1) If an enrollee is enrolled under a 
State buy-in agreement--
    (i) SMI premiums may not be deducted from monthly cash benefits or 
annuities; and
    (ii) The enrollee may not be required to pay by direct remittance.
    (2) If an enrollee is not covered under a State buy-in agreement, 
but is receiving a monthly benefit or an annuity specified in paragraph 
(a)(1)(ii) of this section--
    (i) The premiums are deducted from that benefit or annuity; or
    (ii) If the monthly benefit or payment is less than the monthly 
premium, the rules of paragraph (a)(2) of this section apply.
    (3) If an enrollee is neither covered under a State buy-in 
agreement, nor receiving monthly benefits or annuity payments, the 
premiums must be paid totally by direct remittance.
    (c) Payment by a State under a buy-in agreement. (1) A buy-in 
agreement is an agreement under which a State, through enrollment and 
payment of SMI premiums, secures SMI benefits for individuals who are 
eligible for that program and also eligible for certain other cash or 
medical benefits. (Policies on enrollment under State buy-in agreements 
are contained in subpart C of part 407 of this chapter.)
    (2) The State pays the premiums for each month for which an 
individual is covered under the agreement.

[[Page 168]]

    (3) If an individual's coverage under a State buy-in agreement 
terminates, his coverage continues on an individual enrollment basis. 
The premiums are then deducted from benefits, as set forth in subpart C 
of this part, or paid by direct remittance in accordance with subpart D 
or subpart E of this part.
    (4) Policy on collection of premiums from buy-in States is set forth 
in a Federal Register notice published on September 30, 1985 at 50 FR 
39784.



Sec. 408.8  Grace period and termination date.

    (a) Grace period. (1) For all initial premium payments (monthly or 
quarterly), and subsequent monthly or quarterly payments, the grace 
period ends with the last day of the third month after the billing 
month.
    (2) For payments required because the monthly benefit is less than 
the monthly premium, the grace period ends on April 30 of the year 
following the calendar year which the premiums are due.
    (b) Extension of grace period: Last day is nonwork day. If the last 
day of the grace period is a Saturday, Sunday, legal holiday, or a day 
that, by statute or executive order, is a nonwork day for Federal 
employees, the grace period is extended to the next succeeding work day.
    (c) Termination date. The end of the grace period is the termination 
date for SMI coverage if overdue premiums have not been paid by that 
date in accordance with Sec. 408.68.
    (d) Extension of grace period for good cause. (1) HCFA may reinstate 
entitlement, without interruption of coverage, if the individual shows 
good cause for failure to pay within the initial grace period, and pays 
all overdue premiums within three calendar months after the termination 
date.
    (2) Good cause will be found if the individual establishes, by a 
credible statement, that failure to pay premiums within the initial 
grace period was due to conditions over which he or she had no control, 
or which he or she could not reasonably have been expected to foresee.

[52 FR 48115, Dec. 18, 1987, as amended at 56 FR 48112, Sept. 24, 1991]



Sec. 408.10  Claim for monthly benefits pending concurrently with request for SMI enrollment.

    (a) If it is clear that an individual who applies for social 
security or railroad retirement benefits and for SMI will be entitled to 
monthly benefits, the application for monthly benefits is processed 
simultaneously with the request for SMI enrollment.
    (1) If monthly benefits are paid, the SMI premiums are deducted from 
those benefits.
    (2) If monthly benefits are suspended (for instance, because the 
individual's earnings exceed the maximum allowed by law), the enrollee 
is billed for direct remittance.
    (b) If it is clear that an individual will be entitled to SMI, but 
there is substantial question as to eligibility for monthly benefits, 
the request for SMI enrollment is processed separately.
    (1) When SMI enrollment is approved, the enrollee is billed for 
direct remittance.
    (2) When the application for monthly benefits is adjudicated, the 
following rules apply:
    (i) If monthly benefits are paid, the SMI premiums are deducted from 
those benefits, with appropriate adjustments for any premiums already 
paid by direct remittance.
    (ii) If the application for monthly benefits is approved but the 
benefits are suspended, the grace period is as set forth in 
Sec. 408.8(a).
    (iii) If the application for monthly benefits is denied, the grace 
period is as set forth in Sec. 408.8(a)(1).

[52 FR 48115, Dec. 18, 1987, as amended at 56 FR 48112, Sept. 24, 1991]



                  Subpart B--Amount of Monthly Premiums



Sec. 408.20  Monthly premiums.

    (a) Statutory provisions. (1) The law established a monthly premium 
of $3 for the initial period of the program. It also set forth criteria 
and procedures for the Secretary to follow each December, beginning with 
December 1968, to determine and promulgate the standard monthly premium 
for the 12-

[[Page 169]]

month period beginning with July of the following year.
    (2) The law was amended in 1983 to require that the Secretary 
promulgate the standard monthly premium in September of that year, and 
each year thereafter, to be effective for the 12 months beginning with 
the following January.
    (3) The standard monthly premium applies to individuals who enroll 
during their initial enrollment periods. In other situations, that 
premium may be increased or decreased as specified in this subpart.
    (4) The law was further amended in 1984 to include a temporary 
``hold harmless'' provision (set forth in paragraph (e) of this 
section), that was subsequently extended and finally made permanent in 
1988.
    (b) Criteria and procedures for the period from July 1976 through 
December 1983, the period from January 1991 through December 1995, and 
for periods after December 1998. (1) For periods from July 1976 through 
December 1983 and after December 1998, the Secretary determines and 
promulgates as the standard monthly premium (for disabled as well as 
aged enrollees) the lower of the following:
    (i) The actuarial rate for the aged.
    (ii) The monthly premium promulgated the previous December for the 
year beginning July 1, increased by a percentage that is the same as the 
latest cost-of-living increase in old age insurance benefits that 
occurred before the current promulgation. (Because of the change in the 
effective dates of the premium amount (under paragraph (a)(2) of this 
section), there was no increase in the standard monthly premium for the 
period July 1983 through December 1983.)
    (2) For periods after December 1998, the Secretary determines the 
standard monthly premium in the manner specified in paragraph (b)(1) of 
this section, but promulgates it in September for the following calendar 
year.
    (3) The premiums for calendar years 1991 through 1995 are those 
amounts as specified by section 1839(e)(1)(B) of the Act as follows:
    (i) In 1991, $29.90;
    (ii) In 1992, $31.80;
    (iii) In 1993, $36.60;
    (iv) In 1994, $41.10; and
    (v) In 1995, $46.10.
    (c) Premiums for calendar years 1984 through 1990 and 1996 through 
1998. For calendar years 1984 through 1990 and 1996 through 1998, the 
standard monthly premium for all enrollees--
    (1) Is equal to 50 percent of the actuarial rate for enrollees age 
65 or over, that is, is calculated on the basis of 25 percent of program 
costs without regard to any cost-of-living increase in old age insurance 
benefits; and
    (2) Is promulgated in the preceding September.
    (d) Limitation on increase of standard premium: 1987 and 1988. If 
there is no cost-of-living increase in old age or disability benefits 
for December 1985 or December 1986, the standard monthly premiums for 
1987 and 1988 (promulgated in September 1986 and September 1987, 
respectively) may not be increased.
    (e) Nonstandard premiums for certain cases--(1) Basic rule. A 
nonstandard premium may be established in individual cases only if the 
individual is entitled to old age or disability benefits for the months 
of November and December, and actually receives the corresponding 
benefit checks in December and January.
    (2) Special rules: Calendar years 1987 and 1988. For calendar years 
1987 and 1988, the following rules apply:
    (i) A nonstandard premium may be established if there is a cost-of-
living increase in old age or disability benefits but, because the 
increase in the standard premium is greater than the cost-of-living 
increase, the beneficiary would receive a lower cash benefit in January 
than he or she received in December.
    (ii) A nonstandard premium may not be established if the reduction 
in the individual's benefit would result, in whole or in part, from any 
circumstance other than the circumstance described in paragraph 
(e)(2)(i) of this section.
    (3) Special rule: Calendar years after 1988. (i) Beginning with 
calendar year 1989, a premium increase greater than the cost-of-living 
increase is still a prerequisite for a nonstandard premium.
    (ii) However, a nonstandard premium is not precluded solely because 
the

[[Page 170]]

cash benefit is further reduced as a result of government pension offset 
or workers' compensation payment.
    (4) Amount of nonstandard premium. The nonstandard premium is the 
greater of the following:
    (i) The premium paid for December.
    (ii) The standard premium promulgated for January, reduced as 
necessary to compensate for--
    (A) The fact that the cost-of-living increase was less than the 
increase in the standard premium; or
    (B) The further reduction in benefit because of government pension 
offset or workers' compensation payments.
    (5) Effective dates of nonstandard premium. A nonstandard premium 
established under this paragraph (e) continues in effect for the rest of 
the calendar year even if later there are retroactive adjustments in 
benefit payments. (The nonstandard premium could be affected by a 
determination that the individual had not established, or had lost, 
entitlement to monthly benefits for November or December, or both.)
    (6) Effect of late enrollment or reenrollment. A nonstandard premium 
is subject to increase for late enrollment or reenrollment as required 
under other sections of this subpart. The increase is computed on the 
basis of the standard premium and added to the nonstandard premium.

[56 FR 8839, Mar. 1, 1991, as amended at 59 FR 26959, May 25, 1994]



Sec. 408.22  Increased premiums for late enrollment and for reenrollment.

    For an individual who enrolls after expiration of his or her initial 
enrollment period or reenrolls after termination of a coverage period, 
the standard monthly premium determined under Sec. 408.20 is increased 
by ten percent for each full twelve months in the periods specified in 
Secs. 408.24 and 408.25.



Sec. 408.24  Individuals who enrolled or reenrolled before April 1, 1981 or after September 30, 1981.

    (a) Enrollment. For an individual who first enrolled before April 1, 
1981 or after September 30, 1981, the period includes the number of 
months elapsed between the close of the individual's initial enrollment 
period and the close of the enrollment period in which he or she first 
enrolled, and excludes the following:
    (1) The three months of January through March 1968, if the 
individual first enrolled before April 1968.
    (2) Any months before January 1973 during which the individual was 
precluded from enrolling or reenrolling by the 3-year limitation on 
enrollment or reenrollment that was in effect before October 30, 1972.
    (3) Any months in or before a period of coverage under a State buy-
in agreement.
    (4) For an individual under age 65, any month before his or her 
current continuous period of entitlement to hospital insurance.
    (5) For an individual age 65 or older, any month before the month he 
or she attained age 65.
    (6) For premiums due for months beginning with September 1984 and 
ending with May 1986, the following:
    (i) Any months after December 1982 during which the individual was--
    (A) Age 65 to 69;
    (B) Entitled to hospital insurance (Medicare Part A); and
    (C) Covered under a group health plan (GHP) by reason of current 
employment status.
    (ii) Any months of SMI coverage for which the individual enrolled 
during a special enrollment period as provided in Sec. 407.20 of this 
chapter.
    (7) For premiums due for months beginning with June 1986, the 
following:
    (i) Any months after December 1982 during which the individual was:
    (A) Age 65 or over; and
    (B) Covered under a GHP by reason of current employment status.
    (ii) Any months of SMI coverage for which the individual enrolled 
during a special enrollment period as provided in Sec. 407.20 of this 
chapter.
    (8) For premiums due for months beginning with January 1987, the 
following:
    (i) Any months after December 1986 and before October 1998 during 
which the individual was:
    (A) A disabled Medicare beneficiary under age 65;
    (B) Not eligible for Medicare on the basis of end stage renal 
disease, under Sec. 406.13 of this chapter; and

[[Page 171]]

    (C) Covered under an LGHP as described in Sec. 407.20 of this 
chapter.
    (ii) Any months of SMI coverage for which the individual enrolled 
during a special enrollment period as provided in Sec. 407.20 of this 
chapter.
    (9) For premiums due for months beginning with July 1990, the 
following:
    (i) Any months after December 1986 during which the individual met 
the conditions of paragraphs (a)(8)(i)(A) and (a)(8)(i)(B) of this 
section, and was covered under a GHP by reason of the current employment 
status of the individual or the individual's spouse.
    (ii) Any months of SMI coverage for which the individual enrolled 
during a special enrollment period as provided in Sec. 407.20 of this 
chapter.
    (b) Reenrollment. For an individual who reenrolled before April 1, 
1981 or after September 30, 1981, the period:
    (1) Includes the following:
    (i) The number of months elapsed between the close of the 
individual's initial enrollment period and the close of the enrollment 
period in which he or she first enrolled; plus
    (ii) The number of months elapsed between the individual's initial 
period of coverage and the close of the enrollment period in which he or 
she reenrolled; plus
    (iii) The number of months elapsed between each subsequent period of 
coverage and the close of the enrollment period in which he or she 
reenrolled.
    (2) Excludes the following:
    (i) The periods specified in paragraphs (a)(1) through (a)(9) of 
this section; and
    (ii) Any month before April 1981 during which the individual was 
precluded from reenrolling by the two-enrollment limitation in effect 
before that date.

[52 FR 48118, Dec. 18, 1987, as amended at 53 FR 6648, Mar. 2, 1988; 61 
FR 40347, Aug. 2, 1996]



Sec. 408.25  Individuals who enrolled or reenrolled between April 1 and September 30, 1981.

    (a) Basic rules. Except as specified in paragraph (b) of this 
section, the rules set forth in Sec. 408.24 apply to an individual who 
enrolled or reenrolled between April 1 and September 30, 1981.
    (b) Exception. For an individual who enrolled or reenrolled between 
April 1 and September 30, 1981, the months to be counted ran through the 
month in which he or she reenrolled. (During those 6 months, continuous 
open enrollment was in effect and there was no 3-month ``general 
enrollment period''.)



Sec. 408.26  Examples.

    Example 1. Mr. J, who became age 65 and otherwise eligible for 
enrollment in November 1965, first enrolls in March 1968. The months to 
be included in determining the amount of the increase in Mr. J's 
premiums begin with June 1966 (the first month after the close of his 
initial enrollment period) and extend through December 1967 (the period 
January through March of 1968 is excluded in determining the total 
months) for a total of 19 months. Since there is only one full 12-month 
period in 19 months, Mr. J's premiums will be 10 percent greater than if 
he had enrolled in his initial enrollment period.
    Example 2. Mr. V, who enrolled in December 1965, voluntarily 
terminates his enrollment effective midnight December 31, 1967. He 
enrolls for a second time in January 1969. The months to be included in 
determining the amount of the increase in Mr. V's premiums are January 
1968 through March 1969, a total of 15 months. Since this totals one 
full 12-month period. Mr. V's monthly premium, will be increased by 10 
percent.
    Example 3. Ms. N becomes age 65 in July 1965 and first enrolls in 
December 1967. She pays premiums increased by 10 percent above the 
regular rate, beginning July 1968, the first month of her SMI coverage. 
Ms. N fails to pay the premiums for the calendar quarter ending June 30, 
1970, and her coverage is terminated on that date, the end of her grace 
period. Ms. N enrolls for a second time in January 1971. The months to 
be included in determining the amount of the increase in Ms. N's 
premiums are June 1966 through December 1967, a total of 19 months, and 
July 1970 through March 1971, a total of 9 months, for a grand total of 
28 months. Since this totals two full 12-month periods, Ms. N's monthly 
premium will be increased by 20 percent.
    Example 4. Mr. X attained age 65 in August 1966 and enrolled during 
his initial enrollment period. His coverage was terminated effective 
June 30, 1968,

[[Page 172]]

for nonpayment of premiums. He reenrolls in March 1973. For purposes of 
computing any applicable premium increase, he will not be charged any 
months between March 1971 (the end of the last general enrollment period 
during which he was eligible to reenroll under the law in effect before 
October 30, 1972) and January 1973. Therefore, he will be charged 36 
months (July 1968-March 1971 plus January 1973-March 1973) and his 
premiums for his second period of coverage will be increased 30 percent.
    Example 5. Ms. C, who attained age 65 in August 1973, had two 
periods of supplementary medical insurance coverage, both of which were 
terminated because of nonpayment of premiums: August 1973 through April 
1975 and July 1977 through August 1978. She reenrolls in July 1981. The 
months to be included in determining the amount of premium increase are 
May 1975 through March 1977 (23 months) and April 1981 through July 1981 
(4 months) for a total of 27 months. The 31 months from September 1978 
through March 1981 may not be counted because Ms. C was prevented from 
reenrolling by the two-enrollment limitation in effect before April 1, 
1981. For Ms. C, the standard monthly premium would be increased by 20 
percent.

[52 FR 48115, Dec. 18, 1987; 53 FR 4159, Feb. 12, 1988]



Sec. 408.27  Rounding the monthly premium.

    Any monthly premium that is not a multiple of 10 cents is rounded to 
the nearest multiple of 10 cents, and any odd mulitple of 5 cents is 
rounded to the next higher multiple of 10 cents.

[52 FR 48115, Dec. 18, 1987; 53 FR 4159, Feb. 12, 1988]



               Subpart C--Deduction From Monthly Benefits



Sec. 408.40  Deduction from monthly benefits: Basic rules.

    (a) Deduction from monthly benefits. (1) Enrollees who are receiving 
monthly benefits do not have the option of paying by direct remittance 
to avoid deduction.
    (2) If the enrollee is entitled to more than one type of monthly 
benefit, the order of priority for deduction is as follows:
    (i) Railroad retirement benefits.
    (ii) Social security benefits.
    (iii) Civil service annuities.
    (b) Deduction from initial or reinstated benefits. When an enrollee 
receives a monthly benefit check after an initial award or after a 
period of suspension, that check is, if administratively feasible, 
reduced or increased to deduct unpaid premiums or refund premiums paid 
in advance by direct remittance.
    (c) Ongoing deductions. The premium for each month is deducted from 
the cash benefit for the preceding month, e.g., the premium for March is 
deducted from the benefit for February, which is paid at the beginning 
of March.



Sec. 408.42  Deduction from railroad retirement benefits.

    (a) Responsibility for deductions. If an enrollee is entitled to 
railroad retirement benefits, his or her SMI premiums are deducted from 
those benefits by the Railroad Retirement Board (RRB) even though he or 
she is also entitled to social security benefits or a civil service 
annuity, or both.
    (b) Action when benefits are suspended. If the railroad retirement 
benefits are suspended, the RRB sends premium notices requesting direct 
remittance, to be made in accordance with the rules set forth in Subpart 
D of this part.



Sec. 408.43  Deduction from social security benefits.

    SSA, acting as HCFA's agent, deducts the premiums from the monthly 
social security benefits if the enrollee is not entitled to railroad 
retirement benefits. (If the benefit is less than the monthly premium, 
the benefit is withheld and the enrollee is required to pay the balance 
through direct remittance.)



Sec. 408.44  Deduction from civil service annuities.

    (a) Responsibility for deductions. If an enrollee is not entitled to 
railroad retirement benefits or social security benefits, and is 
receiving a civil service annuity, the premiums are deducted

[[Page 173]]

from that annuity by the Office of Personnel Management (OPM) on the 
basis of a notice from SSA indicating that the annuitant is entitled to 
SMI.
    (b) Deduction of spouse's premiums. If the annuitant's spouse is 
also enrolled for SMI and is not entitled to a civil service annuity or 
to social security or railroad retirement benefits, and the annuitant 
gives written consent, OPM also deducts the spouse's premium from the 
annuitant's monthly check.
    (c) Withdrawal of annuitant's consent. (1) If an annuitant wishes to 
withdraw consent for deduction of the spouse's premium, he or she must 
send written notice of withdrawal to OPM.
    (2) The withdrawal notice is effective with the third month after 
the month in which it is received, or with the month specified in the 
notice, whichever is later.



Sec. 408.45  Deduction from age 72 special payments.

    (a) Deduction of premiums. SMI premiums are deducted from age 72 
special payments made under section 228 of the Act or the payments are 
withheld under procedures that correspond to the rules set forth in 
Secs. 408.40 and 408.43.
    (b) Collection of premiums while age 72 special payments are 
suspended. If the age 72 special payments are suspended, HCFA or its 
agent notifies the enrollee to pay premiums by direct remittance, in 
accordance with the rules set forth in Sec. 408.60.
    (c) Grace period. The grace period ends with the last day of the 
third month after the billing month.
    (d) Resumption of age 72 special payments. (1) If age 72 special 
payments are resumed before the end of the grace period and all premium 
arrears can be deducted from those special payments, SMI coverage 
continues and the enrollee need not pay by direct remittance.
    (2) Subsequent special payments are reduced by the amount of the 
premium for as long as the enrollee receives special payments.



Sec. 408.46  Effect of suspension of social security benefits.

    (a) Benefit payments to be resumed during the taxable year. (1) If 
social security benefit payments are scheduled to be resumed during the 
enrollee's current taxable year, the enrollee is not billed.
    (2) The enrollee may, if he or she wishes, pay the premiums during 
suspension of benefits.
    (b) Benefit payments not to be resumed during the enrollee's current 
taxable year. (1) If social security benefits are suspended for a period 
that will not permit collection of all premiums due from monthly 
benefits payable in the enrollee's current taxable year, HCFA or its 
agents bill the enrollee and require direct remittance in accordance 
with subpart D of this part.
    (2) The first billing is for whatever premiums are necessary to 
place the enrollee in a quarterly cycle.
    (3) Thereafter, the billing is on a quarterly basis. (Quarters for 
different enrollees are staggered throughout the year.)
    (4) The enrollee has the option of paying premiums for more than one 
quarter at the same time.



Sec. 408.47  [Reserved]



Sec. 408.50  When premiums are considered paid.

    (a) Actual deduction. A premium is considered paid if it is actually 
deducted from a monthly benefit check. Therefore--
    (1) The premium is ``paid'' even if SSA later finds that the benefit 
was paid in error; but
    (2) A finding that a monthly benefit was erroneously withheld does 
not constitute payment of the premium for that month. Since there was no 
payment, there was no deduction. The enrollee is billed and continuance 
of coverage depends on payment of premiums before the end of the grace 
period or extended grace period.
    (b) Payment within the grace period. Overdue premiums are considered 
paid within the grace period in the following situations:
    (1) Benefits are resumed during the grace period. (i) Monthly cash 
benefit payments are payable for the last month of the initial grace 
period or for earlier months on the basis of a notice filed by the 
enrollee before the initial grace period ends; and

[[Page 174]]

    (ii) Those payments are sufficient to permit deduction of all 
overdue premiums.
    (2) Annual earnings report or other report submitted during the 
grace period shows a benefit is due. (i) Before the end of the grace 
period, the enrollee submits a report clearly showing that monthly cash 
benefits, previously withheld, are payable; and
    (ii) Those benefits are sufficient to permit deduction of the full 
amount of the overdue premiums.
    (3) Premium arrears are paid by direct remittance. The enrollee 
makes a direct remittance payment of all overdue premiums before the end 
of the grace period.

[52 FR 48115, Dec. 18, 1987; 53 FR 4159, Feb. 12, 1988; 56 FR 48112, 
Sept. 24, 1991]



Sec. 408.52  Change from direct remittance to deduction.

    If a direct remittance enrollee becomes entitled to monthly 
benefits--
    (a) The SMI premiums are deducted from those benefits; and
    (b) The enrollee is notified of the deduction and of any adjustment 
of the initial benefit check that is required to collect overdue 
premiums or refund premiums paid in advance.



Sec. 408.53  Change from partial direct remittance to full deduction.

    If a benefit that was less than the premium (and therefore required 
direct remittance of the difference) is increased to an amount equal to, 
or greater than, the premium--
    (a) The full premium is paid from the benefit; and
    (b) Any amounts the enrollee had paid toward premiums not yet due 
are refunded.



            Subpart D--Direct Remittance: Individual Payment



Sec. 408.60  Direct remittance: Basic rules.

    (a) Premiums not deducted from monthly benefits under Subpart C of 
this part or paid by a State buy-in agreement must be paid by direct 
remittance to HCFA or its agents, by or on behalf of the enrollee.
    (b) Quarterly payment is preferred as more cost-effective, but 
monthly payment is accepted if the enrollee is unwilling or unable to 
make quarterly payments or is also paying hospital insurance premiums, 
which must be paid every month.
    (c) HCFA, directly or through its agents, sends quarterly or monthly 
premium bills and includes an addressed return envelope with the bill.
    (d) The individual must--
    (1) Send a check or money order that is drawn payable to ``HCFA 
Medicare Insurance'' and show the enrollee's name and claim number as it 
appears on the Medicare card; and
    (2) Return the bill with the check or money order in the 
preaddressed envelope.



Sec. 408.62  Initial and subsequent billings.

    (a) Monthly billing. (1) The first premium bill is for the period 
from the first month of coverage (or the first month of change from 
deduction or State buy-in payment) through the end of the first month 
after the month of billing.
    (2) Subsequent billings are for periods of one month.
    (b) Quarterly billing. (1) The first premium bill is for the period 
from the first month of coverage (or of change from deduction or State 
buy-in payment) through the third month after the month of billing.
    (2) Subsequent billings are for periods of three months.



Sec. 408.63  Billing procedures when monthly benefits are less than monthly premiums.

    If monthly benefits are less than monthly premiums, the following 
procedures apply:
    (a) Notice of amount due. At the beginning of SMI entitlement, and 
at the beginning of each succeeding calendar year, SSA--
    (1) Notifies the enrollee of the amount of benefits payable for the 
rest of the year and the total premiums due for those same months; and
    (2) Bills the enrollee for the difference.
    (b) Notice of amount overdue. At the beginning of each succeeding 
calendar year, SSA--

[[Page 175]]

    (1) Notifies the enrollee of any amounts overdue for premiums for 
the preceding calendar year; and
    (2) Indicates that if the amount still overdue on April 30 is equal 
to or greater than the premium for 3 months, SMI coverage will terminate 
on that date.



Sec. 408.65  Payment options.

    (a) The enrollee is not asked to pay premiums at the time of 
enrollment but is instructed to pay them upon receipt of a premium bill 
from HCFA or its agents.
    (b) However, if the enrollee wishes, he or she may pay from one to 
12 months or from one to four quarters at the time of enrollment.



Sec. 408.68  When premiums are considered paid.

    (a) Payment by check. The premium is considered paid if the check is 
paid by the bank the first or second time it is presented for payment.
    (b) Payment within the grace period. (1) A premium is considered 
paid within the grace period if it is delivered personally, or mailed on 
or before the last day of that period.
    (2) A premium payment is considered to have been mailed 7 days 
before it is received by HCFA.



Sec. 408.70  Change from quarterly to monthly payments.

    If an enrollee requests change from quarterly to monthly payment--
    (a) If the enrollee is paid up under the quarterly cycle, the first 
monthly bill is for one month.
    (b) If the enrollee is not paid up under the quarter system, the 
first bill includes all premiums due.



Sec. 408.71  Change from deduction or State payment to direct remittance.

    (a) Basis for change. An SMI enrollee is required to pay by direct 
remittance in any of the following circumstances:
    (1) The enrollee's entitlement to social security or railroad 
retirement benefits ends for any reason other than death.
    (2) The premiums can no longer be deducted from the civil service 
annuity of the enrollee or the enrollee's spouse.
    (3) The enrollee no longer qualifies for coverage under a State buy-
in agreement, and is not entitled to social security or railroad 
retirement monthly benefits.
    (b) Billing. When any of the events specified in paragraph (a) of 
this section occurs (or as soon thereafter as possible), HCFA or its 
agents bill the enrollee for direct remittance, in accordance with this 
subpart.



               Subpart E--Direct Remittance: Group Payment



Sec. 408.80  Basic rules.

    (a) Sources of group payment. An employer, a lodge, union, or other 
organization may pay SMI premiums on behalf of one or more enrollees.
    (b) Informal arrangement. Enrollees may turn over their premium 
notices to their employer, union, lodge, or other organization and that 
organization may send a single payment (with the premium notices 
attached so that the payments can readily be identified with the 
appropriate enrollees) to the HCFA Premium Collection Center. Prompt 
payment is essential since SMI coverage terminates if premiums are not 
paid by the end of the grace period.
    (c) Group billing arrangement. HCFA may send a single notice for the 
premiums due from a group of enrollees if the following conditions are 
met:
    (1) The group payer--
    (i) Uses funds other than the enrollees' to pay all or a substantial 
part of the premiums; or
    (ii) Deducts the premiums from periodic payments it makes to the 
enrollees in the group.
    (2) The enrollee's rights are protected and enrollees are not 
required to pay the costs of having their premiums paid on a group 
basis.



Sec. 408.82  Conditions for group billing.

    HCFA agrees to a group billing arrangement only if the following 
conditions are met:
    (a) Conditions the group payer must meet. The group payer submits a 
written request for group billing--
    (1) Showing that all or part of the payments are made from the 
payer's funds or from funds due the enrollees and in the payer's 
possession; and

[[Page 176]]

    (2) Agreeing not to charge the enrollees for the service of paying 
the premiums or for the administrative costs such as recordkeeping and 
postage.
    (b) Enrollees eligible for group payment. (1) Group payment may be 
made only on behalf of individuals who are already enrolled and are 
being billed for direct remittance.
    (2) Group payment may not be made for enrollees whose premiums are 
being deducted from monthly benefits in accordance with Subpart C of 
this part or being paid by the State under a buy-in agreement.
    (c) Protection of enrollee's rights. The use of group billing must 
not jeopardize the enrollees' right--
    (1) To confidentiality of personal information;
    (2) To terminate enrollment;
    (3) To resume individual payment of premiums if he or she wishes; 
and
    (4) To receive notice of any action that affects the SMI benefits.
    (d) Authorization by the enrollee. (1) To ensure maximum feasible 
protection of the rights specified in paragraph (c) of this section, 
each enrollee must give written authorization as specified in 
Sec. 408.84(a)(2).
    (2) A group payer that is not an entity of State or local government 
must submit all enrollee authorizations to HCFA.
    (3) A group payer that is an entity of State or local government may 
retain the authorizations and certify to HCFA that it has on file an 
authorization for each enrollee included in the group.
    (4) It is on the basis of the enrollee's authorization that HCFA 
sends the group payer information about each enrollee, as necessary to 
carry out the group payment function.
    (e) Size of group. The number of enrollees must be at least 20, 
which is the minimum size sufficient to make group billing efficient. 
(Smaller groups may use the informal procedure described in 
Sec. 408.80(b).)



Sec. 408.84  Billing and payment procedures.

    (a) Initial premium notice. (1) HCFA or its agent always sends the 
initial premium notice to the enrollee.
    (2) An enrollee who wishes to have the premiums paid on a group 
basis must give the notice to the group payer, along with written 
authorization for sending subsequent notices to the group payer and for 
release of the information required for the group payment process.
    (b) Monthly billings. Group premiums are billed on a monthly basis. 
However, the group payer may pay up to 12 months in advance.
    (c) Group payers must make their payments within 30 days after 
billing, to avoid infringing on the 90-day grace period during which the 
premiums may be paid by the enrollee if he or she is dropped from the 
group.
    (d) Effect of group payment. Payment by a group payer is considered 
payment by the enrollee.



Sec. 408.86  Responsibilities under group billing arrangement.

    (a) Enrollee responsibilities. (1) The enrollee is still responsible 
for premium payments; the group payer simply acts as his agent. If the 
agent fails to pay, or identifies the payment incorrectly, SSA notifies 
both the agent and the enrollee that the enrollee's account is 
delinquent. If an enrollee fails to take action on that notice, 
entitlement is terminated for nonpayment of premiums.
    (2) The enrollee must promptly notify both SSA and the group payer 
of any change of address.
    (b) Group payer's responsibilities. The group payer must--
    (1) Make premium payments promptly upon receipt of notices;
    (2) Promptly notify both HCFA and the enrollee when it drops an 
enrollee from the group;
    (3) Make payments in a way that facilitates efficient and economical 
processing; and
    (4) Maintain the confidentiality of the personal information 
obtained from HCFA for the group payment process.
    (c) HCFA responsibilities. HCFA--
    (1) Sends the bill to the group payer upon authorization from the 
enrollee;
    (2) Notifies both the payer and the enrollee if the payer fails to 
make timely payments; and
    (3) Refunds excess premiums in accordance with Sec. 408.88.

[[Page 177]]



Sec. 408.88  Refund of group payments.

    (a) Basis for refund. Group payments are refunded only in the 
following circumstances:
    (1) The premium was for a month after the month in which the 
enrollee's SMI coverage terminated or the enrollee died.
    (2) The premium was for a month after the month in which the group 
payer gave notice (before the 26th day of that month) that the enrollee 
was no longer eligible for group payment and was being dropped from the 
group.
    (b) Example. F is the wife of J who is a retiree of Corporation X. 
That corporation pays premiums on behalf of all of its retirees and 
their dependents. F obtains a divorce from J on October 20 and thus 
disqualifies herself for further premium payments by the corporation. 
The corporation gives notice on November 10 that a refund is due because 
F has been dropped from the list of persons for whom it has agreed to 
pay premiums. The premium paid for December would be refunded to the 
group payer.
    (c) To whom refund is made. (1) HCFA ordinarily refunds to the group 
payer the premiums specified in paragraph (a) of this section.
    (2) However, if HCFA has information that clearly shows those 
premiums were paid from the enrollee's funds, it sends the refund to the 
enrollee.



Sec. 408.90  Termination of group billing arrangement.

    (a) A group billing arrangement may be terminated either by the 
group payer or by HCFA upon 30 days' notice.
    (b) HCFA may terminate the arrangement if it finds that the group 
payer is not acting in the best interest of the enrollees or that, for 
any other reason, the arrangement has proved inconvenient for HCFA.



Sec. 408.92  Change from group payment to deduction or individual payment.

    (a) Enrollee excluded from group payment arrangement because of 
entitlement to monthly benefits. (1) When an enrollee becomes entitled 
to monthly benefits from which premiums can be deducted as specified in 
subpart C of this part, HCFA notifies the group payer to discontinue 
payment for that enrollee.
    (2) In order to maintain confidentiality, HCFA does not explain to 
the group payer the reason for excluding the enrollee from the group 
payment arrangement.
    (3) The enrollee's premiums are thereafter deducted from the monthly 
benefits, in accordance with subpart C of this part.
    (b) Enrollee no longer eligible for the group. (1) When an enrollee 
is no longer eligible to be included in the group (for instance because 
he or she is no longer employed by the group payer or has terminated 
union or lodge membership), the group payer must promptly notify HCFA 
and the enrollee.
    (2) HCFA or its agents resume sending individual bills to the 
enrollee, for direct remittance subject to the grace period and 
termination dates specified in Sec. 408.8.



          Subpart F--Termination and Reinstatement of Coverage



Sec. 408.100  Termination of coverage for nonpayment of premiums.

    (a) Effective date of termination. Termination is effective on the 
last day of the grace period. The determination is not made until 15 
days after that day to allow for processing of remittances mailed late 
in the grace period, as provided in Sec. 408.68.
    (b) Notice of termination. (1) SSA sends the enrollee notice of 
termination between 15 and 30 days after the end of the grace period and 
includes information regarding the enrollee's right of appeal.
    (2) HCFA notifies any intermediary or carrier that had previously 
been informed that the enrollee had met the SMI deductible for the year 
in which the termination is effective.



Sec. 408.102  Reconsideration of termination.

    (a) Basic rules. Coverage may be reinstated without interruption of 
benefits if the following conditions are met:
    (1) The enrollee appeals the termination by the end of the month 
following the month in which SSA sent the notice of termination.
    (2) The enrollee alleges and it is found that the enrollee did not 
receive

[[Page 178]]

timely and adequate notice that the premiums were overdue.
    (3) The enrollee pays, within 30 days after SSA's subsequent request 
for payment, all premiums due through the month in which he or she 
appealed the termination.
    (b) Basis for reinstating coverage. Coverage may be reinstated if 
the evidence establishes one of the following:
    (1) The enrollee acted diligently to pay the premiums or to request 
relief upon receiving a premium notice very late in the grace period or 
shortly after its end, and the delayed notice was not the enrollee's 
fault. (For example, if the billing notice was misaddressed or lost in 
the mail, it would not be the enrollee's fault; if the enrollee had 
moved and not notified SSA of the new address, he or she would be 
responsible for the delay.)
    (2) On the basis of information given by SSA, the enrollee could 
reasonably have believed that the premiums were being paid by deduction 
from benefits or by some other means. (An example would be a notice 
indicating that premiums would be paid by a State Medicaid agency or a 
group payer or would be deducted from the spouse's civil service 
annuity.)
    (c) No basis for reinstating coverage. Coverage may not be 
reinstated if the enrollee--
    (1) Received timely and adequate notice but failed to pay within the 
grace period, for example because of insufficient income or resources; 
or
    (2) Appealed the termination more than one month after the month in 
which SSA sent the termination notice.



Sec. 408.104  Reinstatement procedures.

    (a) Request for payment. If the conditions of Sec. 408.102(a) (1) 
and (2) are met, SSA sends written notice requesting the enrollee to 
pay, within 30 days, all premiums due through the month in which the 
enrollee appealed the termination.
    (b) Reinstatement of coverage. If SSA receives the requested payment 
within 30 days, it sets aside the termination and reinstates the 
enrollee's coverage without interruption.



  Subpart G--Collection of Unpaid Premiums; Refund of Excess Premiums 
                     After the Death of the Enrollee



Sec. 408.110  Collection of unpaid premiums.

    (a) Basis and scope--(1) Basis. Under the Federal Claims Collection 
Act of 1966 (31 U.S.C. 3711), HCFA is required to collect any debts due 
it but is authorized to suspend or terminate collection action on debts 
of less than $20,000 when certain conditions are met. (See 4 CFR, parts 
101-105 for general rules implementing the Federal Claims Collection 
Act.) As indicated in Sec. 408.4, unpaid premiums are debts owed the 
Federal government by the enrollee or the enrollee's estate.
    (2) Scope. This section sets forth the methods of collection used by 
HCFA and the circumstances under which HCFA terminates or renews 
collection action. The regulations in this section apply to hospital 
insurance premiums as well as SMI premiums.
    (b) Collection of unpaid premiums. Generally, HCFA will attempt to 
collect unpaid premiums by one of the following methods:
    (1) By billing enrollees who pay the premiums directly to HCFA or to 
a designated agent in accordance with Sec. 408.60.
    (2) By deduction from any benefits payable to the enrollee or the 
estate of a deceased enrollee under Title II or XVIII of the Social 
Security Act, the Railroad Retirement Act or any act administered by the 
Office of Personnel Management in accordance with Sec. 408.4(b) and 
Subpart C of this part (Deduction from Monthly Benefits); or
    (3) By billing the estate of a deceased enrollee.
    (c) Termination of collection action. HCFA terminates collection 
action on unpaid premiums under either of the following circumstances, 
if the cost of collection exceeds the amount of overdue premiums:
    (1) The individual is not entitled to benefits under the Acts listed 
in paragraph (b)(2) of this section, is not currently enrolled for SMI 
or premium hospital insurance, and demonstrates, to HCFA's satisfaction, 
that he or she

[[Page 179]]

is unable to pay the debt within a reasonable time.
    (2) The individual has been dead more than 27 months (the maximum 
time allowed for claiming SMI benefits), and the legal representative of 
his or her estate demonstrates, to HCFA's satisfaction, that the estate 
is unable to pay the debt within a reasonable time.
    (d) Renewal of collection efforts. HCFA renews collection efforts in 
either of the following circumstances, if the cost of collection does 
not exceed the amount of the overdue premiums:
    (1) The individual enrolls again for premium hospital insurance or 
SMI. (Payment of overdue premiums is not a prerequisite for 
reenrollment.)
    (2) The individual becomes entitled or reentitled to social security 
or railroad retirement benefits or a Federal civil service annuity.



Sec. 408.112  Refund of excess premiums after the enrollee dies.

    If HCFA has received premiums for months after the enrollee's death, 
HCFA refunds those premiums as follows:
    (a) To the person or persons who paid the premiums or, if the 
premiums were paid by the enrollee, to the representative of the 
enrollee's estate, if any.
    (b) If refund cannot be made under paragraph (a) of this section, 
HCFA refunds the premiums to the enrollee's survivors in the following 
order of priority:
    (1) The surviving spouse, if he or she was either living in the same 
household with the deceased at the time of death, or was, for the month 
of death, entitled to monthly social security or railroad retirement 
benefits on the basis of the same earnings record as the deceased 
beneficiary;
    (2) The child or children who were, for the month of death, entitled 
to monthly social security or railroad retirement benefits on the basis 
of the same earnings record as the deceased (and, if there is more than 
one child, in equal parts to each child);
    (3) The parent or parents who were, for the month of death, entitled 
to monthly social security or railroad retirement benefits on the basis 
of the same earnings record as the deceased (and, if there is more than 
one parent, in equal parts to each parent);
    (4) The surviving spouse who was not living in the same household 
with the deceased at the time of death and was not, for the month of 
death, entitled to monthly social security or railroad retirement 
benefits on the basis of the same earnings record as the deceased 
beneficiary;
    (5) The child or children who were not entitled to monthly social 
security or railroad retirement benefits on the basis of the same 
earnings record as the deceased (and, if there is more than one child, 
in equal parts to each child);
    (6) The parent or parents who were not entitled to monthly social 
security or railroad retirement benefits on the basis of the same 
earnings record as the deceased (and, if there is more than one parent, 
in equal parts to each parent).

If none of the listed relatives survives, no refund can be made.



PART 409--HOSPITAL INSURANCE BENEFITS--Table of Contents




       Subpart A--Hospital Insurance Benefits: General Provisions

Sec.
409.1  Statutory basis.
409.2  Scope.
409.3  Definitions.
409.5  General description of benefits.

  Subpart B--Inpatient Hospital Services and Inpatient Critical Access 
                            Hospital Services

409.10  Included services.
409.11  Bed and board.
409.12  Nursing and related services; medical social services; use of 
          hospital or CAH facilities.
409.13  Drugs and biologicals.
409.14  Supplies, appliances, and equipment.
409.15  Services furnished by an intern or a resident-in-training.
409.16  Other diagnostic or therapeutic services.
409.18  Services related to kidney transplantations.
409.19  Services related to cardiac pacemakers and pacemaker leads.

                    Subpart C--Posthospital SNF Care

409.20  Coverage of services.
409.21  Nursing care.
409.22  Bed and board.

[[Page 180]]

409.23  Physical, occupational, and speech therapy.
409.24  Medical social services.
409.25  Drugs, biologicals, supplies, appliances, and equipment.
409.26  Transfer agreement hospital services.
409.27  Other services generally provided by (or under arrangements made 
          by) SNFs.

      Subpart D--Requirements for Coverage of Posthospital SNF Care

409.30  Basic requirements.
409.31  Level of care requirement.
409.32  Criteria for skilled services and the need for skilled services.
409.33  Examples of skilled nursing and rehabilitation services.
409.34  Criteria for ``daily basis''.
409.35  Criteria for ``practical matter''.
409.36  Effect of discharge from posthospital SNF care.

        Subpart E--Home Health Services Under Hospital Insurance

409.40  Basis, purpose, and scope.
409.41  Requirement for payment.
409.42  Beneficiary qualifications for coverage of services.
409.43  Plan of care requirements.
409.44  Skilled services requirements.
409.45  Dependent services requirements.
409.46  Allowable administrative costs.
409.47  Place of service requirements.
409.48  Visits.
409.49  Excluded services.
409.50  Coinsurance for durable medical equipment (DME) furnished as a 
          home health service.

             Subpart F--Scope of Hospital Insurance Benefits

409.60  Benefit periods.
409.61  General limitations on amounts of benefits.
409.62  Lifetime maximum on inpatient psychiatric care.
409.63  Reduction of inpatient psychiatric benefit days available in the 
          initial benefit period.
409.64  Services that are counted toward allowable amounts.
409.65  Lifetime reserve days.
409.66  Revocation of election not to use lifetime reserve days.
409.68  Guarantee of payment for inpatient hospital or inpatient CAH 
          services furnished before notification of exhaustion of 
          benefits.

        Subpart G--Hospital Insurance Deductibles and Coinsurance

409.80  Inpatient deductible and coinsurance: General provisions
409.82  Inpatient hospital deductible.
409.83  Inpatient hospital coinsurance.
409.85  Skilled nursing facility (SNF) care coinsurance.
409.87  Blood deductible.
409.89  Exemption of kidney donors from deductible and coinsurance 
          requirements.

           Subpart H--Payments of Hospital Insurance Benefits

409.100  To whom payment is made.
409.102  Amounts of payment.

    Authority: Secs. 1102 and 1871 of the Social Security Act (U.S.C. 
1302 and 1895hh).

    Editorial Note: Nomenclature changes to part 409 appear at 62 FR 
46037, Aug. 29, 1997.

    Source: 48 FR 12541, Mar. 25, 1983, unless otherwise noted.



       Subpart A--Hospital Insurance Benefits: General Provisions



Sec. 409.1  Statutory basis.

    This part is based on the identified provisions of the following 
sections of the Social Security Act:
    (a) Sections 1812 and 1813 establish the scope of benefits of the 
hospital insurance program under Medicare Part A and set forth 
deductible and coinsurance requirements.
    (b) Sections 1814 and 1815 establish conditions for, and limitations 
on, payment for services furnished by providers.
    (c) Section 1820 establishes the critical access hospital program.
    (d) Section 1861 describes the services covered under Medicare Part 
A, and benefit periods.
    (e) Section 1862(a) specifies exclusions from coverage; and section 
1862(h) requires a registry of pacemakers.
    (f) Section 1881 sets forth the rules for individuals who have end-
stage renal disease (ESRD), for organ donors, and for dialysis, 
transplantation, and other services furnished to ESRD patients.

[60 FR 50441, Sept. 29, 1995]



Sec. 409.2  Scope.

    Subparts A through G of this part describe the benefits available 
under Medicare Part A and set forth the limitations on those benefits, 
including

[[Page 181]]

certain amounts of payment for which beneficiaries are responsible.

[48 FR 12541, Mar. 25, 1983, as amended at 50 FR 33033, Aug. 16, 1985]



Sec. 409.3  Definitions.

    As used in this part, unless the context indicates otherwise--
    Arrangements means arrangements which provide that Medicare payment 
made to the provider that arranged for the services discharges the 
liability of the beneficiary or any other person to pay for those 
services.
    Covered refers to services for which the law and the regulations 
authorize Medicare payment.
    Nominal charge provider means a provider that furnishes services 
free of charge or at a nominal charge and is either a public provider, 
or another provider that (1) demonstrates to HCFA's satisfaction that a 
significant portion of its patients are low-income, and (2) requests 
that payment for its services be determined accordingly.
    Participating refers to a hospital or other facility that meets the 
conditions of participation and has in effect a Medicare provider 
agreement.
    Qualified hospital means a facility that--
    (a) Is primarily engaged in providing, by or under the supervision 
of doctors of medicine or osteopathy, inpatient services for the 
diagnosis, treatment, and care or rehabilitation of persons who are 
sick, injured, or disabled;
    (b) Is not primarily engaged in providing skilled nursing care and 
related services for inpatients who require medical or nursing care;
    (c) Provides 24-hour nursing service in accordance with Sec. 
1861(e)(5) of the Act;
    (d) If it is a U.S. hospital, is licensed, or approved as meeting 
the standards for licensing, by the State or local licensing agency; and
    (e) If it is a foreign hospital, is licensed, or approved as meeting 
the standard for licensing, by the appropriate Canadian or Mexican 
licensing agency, and for purposes of furnishing non-emergency services 
to U.S. residents, is accredited by the Joint Commission on 
Accreditation of Hospitals (JCAH), or by a Canadian or Mexican program 
under standards that HCFA finds to be equivalent to those of the JCAH.

[48 FR 12541, Mar. 25, 1983, as amended at 50 FR 33033, Aug. 16, 1985; 
51 FR 41338, Nov. 14, 1986]



Sec. 409.5  General description of benefits.

    Hospital insurance (Part A of Medicare) helps pay for inpatient 
hospital or inpatient CAH services and posthospital SNF care. It also 
pays for home health services and hospice care. There are limitations on 
the number of days of care that Medicare can pay for and there are 
deductible and coinsurance amounts for which the beneficiary is 
responsible. For each type of service, certain conditions must be met as 
specified in the pertinent sections of this subpart and in part 418 of 
this chapter regarding hospice care. The special conditions for 
inpatient hospital services furnished by a qualified U.S., Canadian, or 
Mexican hospital are set forth in subparts G and H of part 424 of this 
chapter.

[48 FR 56026, Dec. 16, 1983, as amended at 53 FR 6648, Mar. 2, 1988; 53 
FR 12945, Apr. 20, 1988; 58 FR 30666, May 26, 1993]



  Subpart B--Inpatient Hospital Services and Inpatient Critical Access 
                            Hospital Services



Sec. 409.10  Included services.

    (a) Subject to the conditions, limitations, and exceptions set forth 
in this subpart, the term ``inpatient hospital or inpatient CAH 
services'' means the following services furnished to an inpatient of a 
participating hospital or of a participating CAH or, in the case of 
emergency services or services in foreign hospitals, to an inpatient of 
a qualified hospital:
    (1) Bed and board;
    (2) Nursing services and other related services;
    (3) Use of hospital or CAH facilities;
    (4) Medical social services;
    (5) Drugs, biologicals, supplies, appliances, and equipment;
    (6) Certain other diagnostic or therapeutic services; and
    (7) Medical or surgical services provided by certain interns or 
residents-in-training.

[[Page 182]]

    (b) Inpatient hospital services does not include SNF-type care 
furnished by a hospital or a CAH that has a swing-bed approval, or any 
nursing facility-type care that may be furnished as a Medicaid service 
under title XIX of the Act.

[48 FR 12541, Mar. 25, 1983, as amended at 50 FR 33033, Aug. 16, 1985; 
58 FR 30666, May 26, 1993]



Sec. 409.11  Bed and board.

    (a) Semiprivate and ward accommodations. Except for applicable 
deductible and coinsurance amounts, Medicare Part A pays in full for bed 
and board and semiprivate (2 to 4 beds), or ward (5 or more beds) 
accommodations.
    (b) Private accommodations--(1) Conditions for payment in full. 
Except for applicable deductible and coinsurance amounts, Medicare Part 
A pays in full for a private room if--
    (i) The patient's condition requires him or her to be isolated;
    (ii) The hospital or CAH has no semiprivate or ward accommodations; 
or
    (iii) The hospital's or CAH's semiprivate and ward accommodations 
are fully occupied by other patients, were so occupied at the time the 
patient was admitted to the hospital or CAH, respectively, for treatment 
of a condition that required immediate inpatient hospital or inpatient 
CAH care, and have been so occupied during the interval.
    (2) Period of payment. In the situations specified in paragraph 
(b)(1) (i) and (iii) of this section, Medicare pays for a private room 
until the patient's condition no longer requires isolation or until 
semiprivate or ward accommodations are available.
    (3) Conditions for patient's liability. The hospital or CAH may 
charge the patient the difference between its customary charge for the 
private room and its most prevalent charge for a semiprivate room if--
    (i) None of the conditions of paragraph (b)(1) of this section is 
met; and
    (ii) The private room was requested by the patient or a member of 
the family, who, at the time of the request, was informed what the 
hospital's or CAH's charge would be.

[48 FR 12541, Mar. 25, 1983, as amended at 58 FR 30666, May 26, 1993]



Sec. 409.12  Nursing and related services, medical social services; use of hospital or CAH facilities.

    (a) Except as provided in paragraph (b) of this section, Medicare 
pays for nursing and related services, use of hospital or CAH 
facilities, and medical social services as inpatient hospital or 
inpatient CAH services only if those services are ordinarily furnished 
by the hospital or CAH, respectively, for the care and treatment of 
inpatients.
    (b) Exception. Medicare does not pay for the services of a private 
duty nurse or attendant. An individual is not considered to be a private 
duty nurse or attendant if he or she is a hospital or CAH employee at 
the time the services are furnished.

[48 FR 12541, Mar. 25, 1983, as amended at 50 FR 33033, Aug. 16, 1985; 
58 FR 30666, 30667, May 26, 1993]



Sec. 409.13  Drugs and biologicals.

    (a) Except as specified in paragraph (b) of this section, Medicare 
pays for drugs and biologicals as inpatient hospital or inpatient CAH 
services only if--
    (1) They represent a cost to the hospital or CAH;
    (2) They are ordinarily furnished by the hospital or CAH for the 
care and treatment of inpatients; and
    (3) They are furnished to an inpatient for use in the hospital or 
CAH.
    (b) Exception. Medicare pays for a limited supply of drugs for use 
outside the hospital or CAH if it is medically necessary to facilitate 
the beneficiary's departure from the hospital and required until he or 
she can obtain a continuing supply.

[48 FR 12541, Mar. 25, 1983, as amended at 58 FR 30666, May 26, 1993]



Sec. 409.14  Supplies, appliances, and equipment.

    (a) Except as specified in paragraph (b) of this section, Medicare 
pays for supplies, appliances, and equipment as inpatient hospital or 
inpatient CAH services only if--
    (1) They are ordinarily furnished by the hospital or CAH to 
inpatients; and
    (2) They are furnished to inpatients for use in the hospital or CAH.

[[Page 183]]

    (b) Exceptions. Medicare pays for items to be used beyond the 
hospital or CAH stay if--
    (1) The item is one that the beneficiary must continue to use after 
he or she leaves the hospital or CAH, for example, heart valves or a 
heart pacemaker, or
    (2) The item is medically necessary to permit or facilitate the 
beneficiary's departure from the hospital or CAH and is required until 
the beneficiary can obtain a continuing supply. Tracheostomy or draining 
tubes are examples.

[48 FR 12541, Mar. 25, 1983, as amended at 58 FR 30666, May 26, 1993]



Sec. 409.15  Services furnished by an intern or a resident-in-training.

    Medical or surgical services provided by an intern or a resident-in-
training are included as ``inpatient hospital or inpatient CAH 
services'' if they are provided--
    (a) By an intern or a resident-in-training under a teaching program 
approved by the Council on Medical Education of the American Medical 
Association, or the Bureau of Professional Education of the American 
Osteopathic Association;
    (b) By an intern or a resident-in-training in the field of dentistry 
under a teaching program approved by the Council on Dental Education of 
the American Dental Association; or
    (c) By an intern or a resident-in-training in the field of podiatry 
under a teaching program approved by the Council on Podiatry Education 
of the American Podiatry Association.

[48 FR 12541, Mar. 25, 1983, as amended at 58 FR 30666, May 26, 1993]



Sec. 409.16  Other diagnostic or therapeutic services.

    Diagnostic or therapeutic services other than those provided for in 
Secs. 409.12, 409.13, and 409.14 are considered as inpatient hospital or 
inpatient CAH services if--
    (a) They are furnished by the hospital or CAH, or by others under 
arrangements made by the hospital or CAH;
    (b) Billing for those services is through the hospital or CAH; and
    (c) The services are of a kind ordinarily furnished to inpatients 
either by the hospital or CAH or under arrangements made by the hospital 
or CAH.

[48 FR 12541, Mar. 25, 1983, as amended at 58 FR 30666, May 26, 1993]



Sec. 409.18  Services related to kidney transplantations.

    (a) Kidney transplants. Medicare pays for kidney transplantation 
surgery only if performed in a renal transplantation center approved 
under subpart U of part 405 of this chapter.
    (b) Services in connection with kidney donations. Medicare pays for 
services related to the evaluation or preparation of a potential or 
actual donor, to the donation of the kidney, or to postoperative 
recovery services directly related to the kidney donation--
    (1) If the kidney is intended for an individual who has ESRD and is 
entitled to Medicare benefits or can be expected to become so entitled 
within a reasonable time; and
    (2) Regardless of whether the donor is entitled to Medicare.



Sec. 409.19  Services related to cardiac pacemakers and pacemaker leads.

    (a) Requirement. (1) Providers that request or receive Medicare 
payment for the implantation, removal, or replacement of permanent 
cardiac pacemakers and pacemaker leads must submit to HCFA the 
information required for the pacemaker registry.
    (2) The required information is set forth under 21 CFR part 805 of 
the FDA regulations and must be submitted in accordance with general 
instructions issued by HCFA.
    (b) Denial of payment. If HCFA finds that a provider has failed to 
comply with paragraph (a) of this section, HCFA denies payment for the 
implantation, removal, or replacement of any permanent cardiac pacemaker 
or pacemaker lead, effective 45 days after sending the provider written 
notice in accordance with paragraph (c) of this section.
    (c) Notice of denial of payment. The notice of denial of payment--
    (1) States the reasons for the determination;

[[Page 184]]

    (2) Grants the provider 45 days from the date of the notice to 
submit the information or evidence showing that the determination is in 
error; and
    (3) Informs the provider of its right to hearing.
    (d) Right to hearing. If the denial of payment determination goes 
into effect at the expiration of the 45-day period, it constitutes an 
``initial determination'' subject to administrative and judicial review 
under part 498 of this chapter.

[56 FR 8840, Mar. 1, 1991; 56 FR 23022, May 20, 1991]



                    Subpart C--Posthospital SNF Care



Sec. 409.20  Coverage of services.

    (a) Included services. Subject to the conditions and limitations set 
forth in this subpart and subpart D of this part, ``posthospital SNF 
care'' means the following services furnished to an inpatient of a 
participating SNF, or of a participating hospital or critical access 
hospital (CAH) that has a swing-bed approval.
    (1) Nursing care provided by or under the supervision of a 
registered professional nurse;
    (2) Bed and board in connection with the furnishing of that nursing 
care;
    (3) Physical, occupational, or speech therapy;
    (4) Medical social services;
    (5) Drugs, biologicals, supplies, appliances, and equipment;
    (6) Services furnished by a hospital with which the SNF has a 
transfer agreement in effect under Sec. 483.75(n) of this chapter; and
    (7) Other services that are generally provided by (or under 
arrangements made by) SNFs.
    (b) Excluded services--(1) Services that are not considered 
inpatient hospital services. No service is included as posthospital SNF 
care if it would not be included as an inpatient hospital service under 
Secs. 409.11 through 409.18.
    (2) Services not generally provided by (or under arrangements made 
by) SNFs. Except as specifically listed in Secs. 409.21 through 409.27, 
only those services generally provided by (or under arrangements made 
by) SNFs are considered as posthospital SNF care. For example, a type of 
medical or surgical procedure that is ordinarily performed only on an 
inpatient basis in a hospital is not included as ``posthospital SNF 
care,'' because such procedures are not generally provided by (or under 
arrangements made by) SNFs.
    (c) Terminology. In Secs. 409.22 through 409.36--
    (1) The terms SNF and swing-bed hospital are used when the context 
applies to the particular facility.
    (2) The term facility is used to mean both SNFs and swing-bed 
hospitals.
    (3) The term ``swing-bed hospital'' includes a CAH with swing-bed 
approval under subpart F of part 485 of this chapter.

[48 FR 12541, Mar. 25, 1983, as amended at 50 FR 33033, Aug. 16, 1985; 
58 FR 30667, May 26, 1993; 63 FR 26306, May 12, 1998]



Sec. 409.21  Nursing care.

    (a) Basic rule. Medicare pays for nursing care as posthospital SNF 
care when provided by or under the supervision of a registered 
professional nurse.
    (b) Exception. Medicare does not pay for the services of a private 
duty nurse or attendant. An individual is not considered to be a private 
duty nurse or attendant if he or she is an SNF employee at the time the 
services are furnished.

[63 FR 26306, May 12, 1998]



Sec. 409.22  Bed and board.

    (a) Semiprivate and ward accommodations. Except for applicable 
deductible and coinsurance amounts Medicare Part A pays in full for 
semiprivate (2 to 4 beds), or ward (5 or more beds) accommodations.
    (b) Private accommodations--(1) Conditions for payment in full. 
Except for applicable coinsurance amounts, Medicare pays in full for a 
private room if--
    (i) The patient's condition requires him to be isolated;
    (ii) The SNF has no semiprivate or ward accommodations; or
    (iii) The SNF semiprivate and ward accommodations are fully occupied 
by other patients, were so occupied at the time the patient was admitted 
to the SNF for treatment of a condition that required immediate 
inpatient SNF care, and have been so occupied during the interval.

[[Page 185]]

    (2) Period of payment. In the situations specified in paragraph 
(b)(1) (i) and (iii) of this section. Medicare pays for a private room 
until the patient's condition no longer requires isolation or until 
semiprivate or ward accommodations are available.
    (3) Conditions for patient's liability. The facility may charge the 
patient the difference between its customary charge for the private room 
furnished and its most prevalent charge for a semiprivate room if:
    (i) None of the conditions of paragraph (b)(1) of this section is 
met, and
    (ii) The private room was requested by the patient or a member of 
the family who, at the time of request was informed what the charge 
would be.



Sec. 409.23  Physical, occupational, and speech therapy.

    Medicare pays for physical, occupational, or speech therapy as 
posthospital SNF care if--
    (a) It is furnished by the facility or under arrangements made by 
the facility, and
    (b) Billing for the therapy is by or through the facility.



Sec. 409.24  Medical social services.

    Medicare pays for medical social services as posthospital SNF care, 
including--
    (a) Assessment of the social and emotional factors related to the 
beneficiary's illness, need for care, response to treatment, and 
adjustment to care in the facility;
    (b) Case work services to assist in resolving social or emotional 
problems that may have an adverse effect on the beneficiary's ability to 
respond to treatment; and
    (c) Assessment of the relationship of the beneficiary's medical and 
nursing requirements to his or her home situation, financial resources, 
and the community resources available upon discharge from facility care.

[63 FR 26306, May 12, 1998]



Sec. 409.25  Drugs, biologicals, supplies, appliances, and equipment.

    (a) Drugs and biologicals. Except as specified in paragraph (b) of 
this section, Medicare pays for drugs and biologicals as posthospital 
SNF care only if--
    (1) They represent a cost to the facility;
    (2) They are ordinarily furnished by the facility for the care and 
treatment of inpatients; and
    (3) They are furnished to an inpatient for use in the facility.
    (b) Exception. Medicare pays for a limited supply of drugs for use 
outside the facility if it is medically necessary to facilitate the 
beneficiary's departure from the facility and required until he or she 
can obtain a continuing supply.
    (c) Supplies, appliances, and equipment. Except as specified in 
paragraph (d) of this section, Medicare pays for supplies, appliances, 
and equipment as posthospital SNF care only if they are--
    (1) Ordinarily furnished by the facility to inpatients; and
    (2) Furnished to inpatients for use in the facility.
    (d) Exception. Medicare pays for items to be used after the 
individual leaves the facility if--
    (1) The item is one that the beneficiary must continue to use after 
leaving, such as a leg brace; or
    (2) The item is necessary to permit or facilitate the beneficiary's 
departure from the facility and is required until he or she can obtain a 
continuing supply, for example, sterile dressings.

[63 FR 26307, May 12, 1998]



Sec. 409.26  Transfer agreement hospital services.

    (a) Services furnished by an intern or a resident-in-training. 
Medicare pays for medical services that are furnished by an intern or a 
resident-in-training (under a hospital teaching program approved in 
accordance with the provisions of Sec. 409.15) as posthospital SNF care, 
if the intern or resident is in--
    (1) A participating hospital with which the SNF has in effect an 
agreement under Sec. 483.75(n) of this chapter for the transfer of 
patients and exchange of medical records; or
    (2) A hospital that has a swing-bed approval, and is furnishing 
services to an SNF-level inpatient of that hospital.

[[Page 186]]

    (b) Other diagnostic or therapeutic services. Medicare pays for 
other diagnostic or therapeutic services as posthospital SNF care if 
they are provided--
    (1) By a participating hospital with which the SNF has in effect a 
transfer agreement as described in paragraph (a)(1) of this section; or
    (2) By a hospital or a CAH that has a swing-bed approval, to its own 
SNF-level inpatient.

[63 FR 26307, May 12, 1998]



Sec. 409.27  Other services generally provided by (or under arrangements made by) SNFs.

    In addition to those services specified in Secs. 409.21 through 
409.26, Medicare pays as posthospital SNF care for such other diagnostic 
and therapeutic services as are generally provided by (or under 
arrangements made by) SNFs, including--
    (a) Medical and other health services as described in subpart B of 
part 410 of this chapter, subject to any applicable limitations or 
exclusions contained in that subpart or in Sec. 409.20(b); and
    (b) Respiratory therapy services prescribed by a physician for the 
assessment, diagnostic evaluation, treatment, management, and monitoring 
of patients with deficiencies and abnormalities of cardiopulmonary 
function.

[63 FR 26307, May 12, 1998]



      Subpart D--Requirements for Coverage of Posthospital SNF Care



Sec. 409.30  Basic requirements.

    Posthospital SNF care, including SNF-type care furnished in a 
hospital or CAH that has a swing-bed approval, is covered only if the 
beneficiary meets the requirements of this section and only for days 
when he or she needs and receives care of the level described in 
Sec. 409.31. A beneficiary in an SNF is also considered to meet the 
requirements of this section and of Sec. 409.31 when assigned to one of 
the Resource Utilization Groups that is designated (in the annual 
publication of Federal prospective payment rates described in 
Sec. 413.345 of this chapter) as representing the required level of 
care.
    (a) Pre-admission requirements. The beneficiary must--
    (1) Have been hospitalized in a participating or qualified hospital 
or participating CAH, for medically necessary inpatient hospital or 
inpatient CAH care, for at least 3 consecutive calendar days, not 
counting the date of discharge; and
    (2) Have been discharged from the hospital or CAH in or after the 
month he or she attained age 65, or in a month for which he or she was 
entitled to hospital or CAH insurance benefits on the basis of 
disability or end-stage renal disease, in accordance with part 406 of 
this chapter.
    (b) Date of admission requirements.1 (1) Except as 
specified in paragraph (b)(2) of this section, the beneficiary must be 
in need of posthospital SNF care, be admitted to the facility, and 
receive the needed care within 30 calendar days after the date of 
discharge from a hospital or CAH.
---------------------------------------------------------------------------

    1 Before December 5, 1980, the law required that 
admission and receipt of care be within 14 days after discharge from the 
hospital or CAH and permitted admission up to 28 days after discharge if 
a SNF bed was not available in the geographic area in which the patient 
lived, or at the time it would be medically appropriate to begin an 
active course of treatment, if SNF care would not be medically 
appropriate within 14 days after discharge.
---------------------------------------------------------------------------

    (2) Exception. A beneficiary for whom posthospital SNF care would 
not be medically appropriate within 30 days after discharge from the 
hospital or CAH may be admitted at the time it would be medically 
appropriate to begin an active course of treatment.

[48 FR 12541, Mar. 25, 1983, as amended at 51 FR 41338, Nov. 14, 1986; 
58 FR 30666, 30667, May 26, 1993; 62 FR 46025, Aug. 29, 1997; 63 FR 
26307, May 12, 1998]



Sec. 409.31  Level of care requirement.

    (a) Definition. As used in this section, skilled nursing and skilled 
rehabilitation services means services that:
    (1) Are ordered by a physician;
    (2) Require the skills of technical or professional personnel such 
as registered nurses, licensed practical (vocational) nurses, physical 
therapists, occupational therapists, and speech pathologists or 
audiologists; and

[[Page 187]]

    (3) Are furnished directly by, or under the supervision of, such 
personnel.
    (b) Specific conditions for meeting level of care requirements. (1) 
The beneficiary must require skilled nursing or skilled rehabilitation 
services, or both, on a daily basis.
    (2) Those services must be furnished for a condition--
    (i) For which the beneficiary received inpatient hospital or 
inpatient CAH services; or
    (ii) Which arose while the beneficiary was receiving care in a SNF 
or swing-bed hospital for a condition for which he or she received 
inpatient hospital or inpatient CAH services.
    (3) The daily skilled services must be ones that, as a practical 
matter, can only be provided in a SNF, on an inpatient basis.

[48 FR 12541, Mar. 25, 1983, as amended at 58 FR 30666, May 26, 1993]



Sec. 409.32  Criteria for skilled services and the need for skilled services.

    (a) To be considered a skilled service, the service must be so 
inherently complex that it can be safely and effectively performed only 
by, or under the supervision of, professional or technical personnel.
    (b) A condition that does not ordinarily require skilled services 
may require them because of special medical complications. Under those 
circumstances, a service that is usually nonskilled (such as those 
listed in Sec. 409.33(d)) may be considered skilled because it must be 
performed or supervised by skilled nursing or rehabilitation personnel. 
For example, a plaster cast on a leg does not usually require skilled 
care. However, if the patient has a preexisting acute skin condition or 
needs traction, skilled personnel may be needed to adjust traction or 
watch for complications. In situations of this type, the complications, 
and the skilled services they require, must be documented by physicians' 
orders and nursing or therapy notes.
    (c) The restoration potential of a patient is not the deciding 
factor in determining whether skilled services are needed. Even if full 
recovery or medical improvement is not possible, a patient may need 
skilled services to prevent further deterioration or preserve current 
capabilities. For example, a terminal cancer patient may need some of 
the skilled services described in Sec. 409.33.

[48 FR 12541, Mar. 25, 1983, as amended at 59 FR 65493, Dec. 20, 1994]



Sec. 409.33  Examples of skilled nursing and rehabilitation services.

    (a) Services that qualify as skilled nursing services. (1) 
Intravenous or intramuscular injections and intravenous feeding.
    (2) Enteral feeding that comprises at least 26 per cent of daily 
calorie requirements and provides at least 501 milliliters of fluid per 
day.
    (3) Nasopharyngeal and tracheostomy aspiration;
    (4) Insertion and sterile irrigation and replacement of catheters;
    (5) Application of dressings involving prescription medications and 
aseptic techniques;
    (6) Treatment of extensive decubitus ulcers or other widespread skin 
disorder;
    (7) Heat treatments which have been specifically ordered by a 
physician as part of active treatment and which require observation by 
nurses to adequately evaluate the patient's progress;
    (8) Initial phases of a regimen involving administration of medical 
gases;
    (9) Rehabilitation nursing procedures, including the related 
teaching and adaptive aspects of nursing, that are part of active 
treatment, e.g., the institution and supervision of bowel and bladder 
training programs.
    (b) Services which would qualify as skilled rehabilitation services. 
(1) Ongoing assessment of rehabilitation needs and potential: Services 
concurrent with the management of a patient care plan, including tests 
and measurements of range of motion, strength, balance, coordination, 
endurance, functional ability, activities of daily living, perceptual 
deficits, speech and language or hearing disorders;
    (2) Therapeutic exercises or activities: Therapeutic exercises or 
activities which, because of the type of exercises employed or the 
condition of the patient, must be performed by or under the supervision 
of a qualified physical

[[Page 188]]

therapist or occupational therapist to ensure the safety of the patient 
and the effectiveness of the treatment;
    (3) Gait evaluation and training: Gait evaluation and training 
furnished to restore function in a patient whose ability to walk has 
been impaired by neurological, muscular, or skeletal abnormality;
    (4) Range of motion exercises: Range of motion exercises which are 
part of the active treatment of a specific disease state which has 
resulted in a loss of, or restriction of, mobility (as evidenced by a 
therapist's notes showing the degree of motion lost and the degree to be 
restored);
    (5) Maintenance therapy; Maintenance therapy, when the specialized 
knowledge and judgment of a qualified therapist is required to design 
and establish a maintenance program based on an initial evaluation and 
periodic reassessment of the patient's needs, and consistent with the 
patient's capacity and tolerance. For example, a patient with 
Parkinson's disease who has not been under a rehabilitation regimen may 
require the services of a qualified therapist to determine what type of 
exercises will contribute the most to the maintenance of his present 
level of functioning.
    (6) Ultrasound, short-wave, and microwave therapy treatment by a 
qualified physical therapist;
    (7) Hot pack, hydrocollator, infrared treatments, paraffin baths, 
and whirlpool; Hot pack hydrocollator, infrared treatments, paraffin 
baths, and whirlpool in particular cases where the patient's condition 
is complicated by circulatory deficiency, areas of desensitization, open 
wounds, fractures, or other complications, and the skills, knowledge, 
and judgment of a qualified physical therapist are required; and
    (8) Services of a speech pathologist or audiologist when necessary 
for the restoration of function in speech or hearing.
    (c) Personal care services. Personal care services which do not 
require the skills of qualified technical or professional personnel are 
not skilled services except under the circumstances specified in 
Sec. 409.32(b). Personal care services include, but are not limited to, 
the following:
    (1) Administration of routine oral medications, eye drops, and 
ointments;
    (2) General maintenance care of colostomy and ileostomy;
    (3) Routine services to maintain satisfactory functioning of 
indwelling bladder catheters;
    (4) Changes of dressings for noninfected postoperative or chronic 
conditions;
    (5) Prophylactic and palliative skin care, including bathing and 
application of creams, or treatment of minor skin problems;
    (6) Routine care of the incontinent patient, including use of 
diapers and protective sheets;
    (7) General maintenance care in connection with a plaster cast;
    (8) Routine care in connection with braces and similar devices;
    (9) Use of heat as a palliative and comfort measure, such as 
whirlpool and hydrocollator;
    (10) Routine administration of medical gases after a regimen of 
therapy has been established;
    (11) Assistance in dressing, eating, and going to the toilet;
    (12) Periodic turning and positioning in bed; and
    (13) General supervision of exercises which have been taught to the 
patient; including the actual carrying out of maintenance programs, 
i.e., the performance of the repetitive exercises required to maintain 
function do not require the skills of a therapist and would not 
constitute skilled rehabilitation services (see paragraph (c) of this 
section). Similarly, repetitious exercises to improve gait, maintain 
strength, or endurance; passive exercises to maintain range of motion in 
paralyzed extremities, which are not related to a specific loss of 
function; and assistive walking do not constitute skilled rehabilitation 
services.

[48 FR 12541, Mar. 25, 1983, as amended at 63 FR 26307, May 12, 1998]



Sec. 409.34  Criteria for ``daily basis''.

    (a) To meet the daily basis requirement specified in 
Sec. 409.31(b)(1), the following frequency is required:
    (1) Skilled nursing services or skilled rehabilitation services must 
be needed and provided 7 days a week; or

[[Page 189]]

    (2) As an exception, if skilled rehabilitation services are not 
available 7 days a week those services must be needed and provided at 
least 5 days a week.
    (b) A break of one or two days in the furnishing of rehabilitation 
services will not preclude coverage if discharge would not be practical 
for the one or two days during which, for instance, the physician has 
suspended the therapy sessions because the patient exhibited extreme 
fatigue.



Sec. 409.35  Criteria for ``practical matter''.

    (a) General considerations. In making a ``practical matter'' 
determination, as required by Sec. 409.31(b)(3), consideration must be 
given to the patient's condition and to the availability and feasibility 
of using more economical alternative facilities and services. However, 
in making that determination, the availability of Medicare payment for 
those services may not be a factor. Example: The beneficiary can obtain 
daily physical therapy from a physical therapist in independent 
practice. However, Medicare pays only the appropriate portion (after 
deduction of applicable deductible and coinsurance amounts) of the first 
$500 of services furnished by such a practitioner in a year. This 
limitation on payment may not be a basis for finding that the needed 
care can only be provided in a SNF.
    (b) Examples of circumstances that meet practical matter criteria. 
(1) Beneficiary's condition. Inpatient care would be required ``as a 
practical matter'' if transporting the beneficiary to and from the 
nearest facility that furnishes the required daily skilled services 
would be an excessive physical hardship.
    (2) Economy and efficiency. Even if the beneficiary's condition does 
not preclude transportation, inpatient care might be more efficient and 
less costly if, for instance, the only alternative is daily 
transportation by ambulance.

[48 FR 12541, Mar. 25, 1983, as amended at 50 FR 33033, Aug. 16, 1985]



Sec. 409.36  Effect of discharge from posthospital SNF care.

    If a beneficiary is discharged from a facility after receiving 
posthospital SNF care, he or she is not entitled to additional services 
of this kind in the same benefit period unless--
    (a) He or she is readmitted to the same or another facility within 
30 calendar days following the day of discharge (or, before December 5, 
1980, within 14 calendar days after discharge); or
    (b) He or she is again hospitalized for at least 3 consecutive 
calendar days.



        Subpart E--Home Health Services Under Hospital Insurance



Sec. 409.40  Basis, purpose, and scope.

    This subpart implements sections 1814(a)(2)(C), 1835(a)(2)(A), and 
1861(m) of the Act with respect to the requirements that must be met for 
Medicare payment to be made for home health services furnished to 
eligible beneficiaries.

[59 FR 65493, Dec. 20, 1994]



Sec. 409.41  Requirement for payment.

    In order for home health services to qualify for payment under the 
Medicare program the following requirements must be met:
    (a) The services must be furnished to an eligible beneficiary by, or 
under arrangements with, an HHA that--
    (1) Meets the conditions of participation for HHAs at part 484 of 
this chapter; and
    (2) Has in effect a Medicare provider agreement as described in part 
489, subparts A, B, C, D, and E of this chapter.
    (b) The physician certification and recertification requirements for 
home health services described in Sec. 424.22.
    (c) All requirements contained in Secs. 409.42 through 409.47.

[59 FR 65494, Dec. 20, 1994]



Sec. 409.42  Beneficiary qualifications for coverage of services.

    To qualify for Medicare coverage of home health services, a 
beneficiary must meet each of the following requirements:
    (a) Confined to the home. The beneficiary must be confined to the 
home or in an institution that is not a hospital, SNF or nursing 
facility as defined in section 1861(e)(1), 1819(a)(1) or 1919(a)(1) of 
the Act, respectively.

[[Page 190]]

    (b) Under the care of a physician. The beneficiary must be under the 
care of a physician who establishes the plan of care. A doctor of 
podiatric medicine may establish a plan of care only if that is 
consistent with the functions he or she is authorized to perform under 
State law.
    (c) In need of skilled services. The beneficiary must need at least 
one of the following skilled services as certified by a physician in 
accordance with the physician certification and recertification 
requirements for home health services under Sec. 424.22 of this chapter.
    (1) Intermittent skilled nursing services that meet the criteria for 
skilled services and the need for skilled services found in Sec. 409.32. 
(Also see Sec. 409.33(a) and (b) for a description of examples of 
skilled nursing and rehabilitation services.)
    (2) Physical therapy services that meet the requirements of 
Sec. 409.44(c).
    (3) Speech-language pathology services that meet the requirements of 
Sec. 409.44(c).
    (4) Continuing occupational therapy services that meet the 
requirements of Sec. 409.44(c) if the beneficiary's eligibility for home 
health services has been established by virtue of a prior need for 
intermittent skilled nursing care, speech-language pathology services, 
or physical therapy in the current or prior certification period.
    (d) Under a plan of care. The beneficiary must be under a plan of 
care that meets the requirements for plans of care specified in 
Sec. 409.43.
    (e) By whom the services must be furnished. The home health services 
must be furnished by, or under arrangements made by, a participating 
HHA.

[59 FR 65494, Dec. 20, 1994; 60 FR 39122, Aug. 1, 1995]



Sec. 409.43  Plan of care requirements.

    (a) Contents. The plan of care must contain those items listed in 
Sec. 484.18(a) of this chapter that specify the standards relating to a 
plan of care that an HHA must meet in order to participate in the 
Medicare program.
    (b) Physician's orders. The physician's orders for services in the 
plan of care must specify the medical treatments to be furnished as well 
as the type of home health discipline that will furnish the ordered 
services and at what frequency the services will be furnished. Orders 
for services to be provided ``as needed'' or ``PRN'' must be accompanied 
by a description of the beneficiary's medical signs and symptoms that 
would occasion the visit and a specific limit on the number of those 
visits to be made under the order before an additional physician order 
would have to be obtained. Orders for care may indicate a specific range 
in frequency of visits to ensure that the most appropriate level of 
services is furnished. If a range of visits is ordered, the upper limit 
of the range is considered the specific frequency.
    (c) Physician signature. The plan of care must be signed and dated 
by a physician who meets the certification and recertification 
requirements of Sec. 424.22 of this chapter. The plan of care must be 
signed by the physician before the bill for services is submitted. Any 
changes in the plan must be signed and dated by the physician.
    (d) Oral (verbal) orders. If any services are provided based on a 
physician's oral orders, the orders must be put in writing and be signed 
and dated with the date of receipt by the registered nurse or qualified 
therapist (as defined in Sec. 484.4 of this chapter) responsible for 
furnishing or supervising the ordered services. Oral orders may only be 
accepted by personnel authorized to do so by applicable State and 
Federal laws and regulations as well as by the HHA's internal policies. 
The oral orders must also be countersigned and dated by the physician 
before the HHA bills for the care.
    (e) Frequency of review. The plan of care must be reviewed by the 
physician (as specified in Sec. 409.42(b)) in consultation with agency 
professional personnel at least every 62 days. Each review of a 
beneficiary's plan of care must contain the signature of the physician 
who reviewed it and the date of review.
    (f) Termination of the plan of care. The plan of care is considered 
to be terminated if the beneficiary does not receive at least one 
covered skilled nursing, physical therapy, speech-language pathology 
services, or occupational therapy visit in a 62-day period unless the 
physician documents that the interval without such care is appropriate

[[Page 191]]

to the treatment of the beneficiary's illness or injury.

[59 FR 65494, Dec. 20, 1994]



Sec. 409.44  Skilled services requirements.

    (a) General. The intermediary's decision on whether care is 
reasonable and necessary is based on information provided on the forms 
and in the medical record concerning the unique medical condition of the 
individual beneficiary. A coverage denial is not made solely on the 
basis of the reviewer's general inferences about patients with similar 
diagnoses or on data related to utilization generally but is based upon 
objective clinical evidence regarding the beneficiary's individual need 
for care.
    (b) Skilled nursing care. (1) Skilled nursing care consists of those 
services that must, under State law, be performed by a registered nurse, 
or practical (vocational) nurse, as defined in Sec. 484.4 of this 
chapter, and meet the criteria for skilled nursing services specified in 
Sec. 409.32. See Sec. 409.33(a) and (b) for a description of skilled 
nursing services and examples of them.
    (i) In determining whether a service requires the skill of a 
licensed nurse, consideration must be given to the inherent complexity 
of the service, the condition of the beneficiary, and accepted standards 
of medical and nursing practice.
    (ii) If the nature of a service is such that it can safely and 
effectively be performed by the average nonmedical person without direct 
supervision of a licensed nurse, the service cannot be regarded as a 
skilled nursing service.
    (iii) The fact that a skilled nursing service can be or is taught to 
the beneficiary or to the beneficiary's family or friends does not 
negate the skilled aspect of the service when performed by the nurse.
    (iv) If the service could be performed by the average nonmedical 
person, the absence of a competent person to perform it does not cause 
it to be a skilled nursing service.
    (2) The skilled nursing care must be provided on a part-time or 
intermittent basis.
    (3) The skilled nursing services must be reasonable and necessary 
for the treatment of the illness or injury.
    (i) To be considered reasonable and necessary, the services must be 
consistent with the nature and severity of the beneficiary's illness or 
injury, his or her particular medical needs, and accepted standards of 
medical and nursing practice.
    (ii) The skilled nursing care provided to the beneficiary must be 
reasonable within the context of the beneficiary's condition.
    (iii) The determination of whether skilled nursing care is 
reasonable and necessary must be based solely upon the beneficiary's 
unique condition and individual needs, without regard to whether the 
illness or injury is acute, chronic, terminal, or expected to last a 
long time.
    (c) Physical therapy, speech-language pathology services, and 
occupational therapy. To be covered, physical therapy, speech-language 
pathology services, and occupational therapy must satisfy the criteria 
in paragraphs (c)(1) through (4) of this section. Occupational therapy 
services initially qualify for home health coverage only if they are 
part of a plan of care that also includes intermittent skilled nursing 
care, physical therapy, or speech-language pathology services as 
follows:
    (1) Speech-language pathology services and physical or occupational 
therapy services must relate directly and specifically to a treatment 
regimen (established by the physician, after any needed consultation 
with the qualified therapist) that is designed to treat the 
beneficiary's illness or injury. Services related to activities for the 
general physical welfare of beneficiaries (for example, exercises to 
promote overall fitness) do not constitute physical therapy, 
occupational therapy, or speech-language pathology services for Medicare 
purposes.
    (2) Physical and occupational therapy and speech-language pathology 
services must be reasonable and necessary. To be considered reasonable 
and necessary, the following conditions must be met:
    (i) The services must be considered under accepted standards of 
medical practice to be a specific, safe, and effective treatment for the 
beneficiary's condition.

[[Page 192]]

    (ii) The services must be of such a level of complexity and 
sophistication or the condition of the beneficiary must be such that the 
services required can safely and effectively be performed only by a 
qualified physical therapist or by a qualified physical therapy 
assistant under the supervision of a qualified physical therapist, by a 
qualified speech-language pathologist, or by a qualified occupational 
therapist or a qualified occupational therapy assistant under the 
supervision of a qualified occupational therapist (as defined in 
Sec. 484.4 of this chapter). Services that do not require the 
performance or supervision of a physical therapist or an occupational 
therapist are not considered reasonable or necessary physical therapy or 
occupational therapy services, even if they are performed by or 
supervised by a physical therapist or occupational therapist. Services 
that do not require the skills of a speech-language pathologist are not 
considered to be reasonable and necessary speech-language pathology 
services even if they are performed by or supervised by a speech-
language pathologist.
    (iii) There must be an expectation that the beneficiary's condition 
will improve materially in a reasonable (and generally predictable) 
period of time based on the physician's assessment of the beneficiary's 
restoration potential and unique medical condition, or the services must 
be necessary to establish a safe and effective maintenance program 
required in connection with a specific disease, or the skills of a 
therapist must be necessary to perform a safe and effective maintenance 
program. If the services are for the establishment of a maintenance 
program, they may include the design of the program, the instruction of 
the beneficiary, family, or home health aides, and the necessary 
infrequent reevaluations of the beneficiary and the program to the 
degree that the specialized knowledge and judgment of a physical 
therapist, speech-language pathologist, or occupational therapist is 
required.
    (iv) The amount, frequency, and duration of the services must be 
reasonable.

[59 FR 65494, Dec. 20, 1994]



Sec. 409.45  Dependent services requirements.

    (a) General. Services discussed in paragraphs (b) through (g) of 
this section may be covered only if the beneficiary needs skilled 
nursing care on an intermittent basis, as described in Sec. 409.44(b); 
physical therapy or speech-language pathology services as described in 
Sec. 409.44(c); or has a continuing need for occupational therapy 
services as described in Sec. 409.44(c) if the beneficiary's eligibility 
for home health services has been established by virtue of a prior need 
for intermittent skilled nursing care, speech-language pathology 
services, or physical therapy in the current or prior certification 
period; and otherwise meets the qualifying criteria (confined to the 
home, under the care of a physician, in need of skilled services, and 
under a plan of care) specified in Sec. 409.42. Home health coverage is 
not available for services furnished to a beneficiary who is no longer 
in need of one of the qualifying skilled services specified in this 
paragraph. Therefore, dependent services furnished after the final 
qualifying skilled service are not covered, except when the dependent 
service was not followed by a qualifying skilled service as a result of 
the unexpected inpatient admission or death of the beneficiary, or due 
to some other unanticipated event.
    (b) Home health aide services. To be covered, home health aide 
services must meet each of the following requirements:
    (1) The reason for the visits by the home health aide must be to 
provide hands-on personal care to the beneficiary or services that are 
needed to maintain the beneficiary's health or to facilitate treatment 
of the beneficiary's illness or injury. The physician's order must 
indicate the frequency of the home health aide services required by the 
beneficiary. These services may include but are not limited to:
    (i) Personal care services such as bathing, dressing, grooming, 
caring for hair, nail and oral hygiene that are needed to facilitate 
treatment or to

[[Page 193]]

prevent deterioration of the beneficiary's health, changing the bed 
linens of an incontinent beneficiary, shaving, deodorant application, 
skin care with lotions and/or powder, foot care, ear care, feeding, 
assistance with elimination (including enemas unless the skills of a 
licensed nurse are required due to the beneficiary's condition, routine 
catheter care, and routine colostomy care), assistance with ambulation, 
changing position in bed, and assistance with transfers.
    (ii) Simple dressing changes that do not require the skills of a 
licensed nurse.
    (iii) Assistance with medications that are ordinarily self-
administered and that do not require the skills of a licensed nurse to 
be provided safely and effectively.
    (iv) Assistance with activities that are directly supportive of 
skilled therapy services but do not require the skills of a therapist to 
be safely and effectively performed, such as routine maintenance 
exercises and repetitive practice of functional communication skills to 
support speech-language pathology services.
    (v) Routine care of prosthetic and orthotic devices.
    (2) The services to be provided by the home health aide must be--
    (i) Ordered by a physician in the plan of care; and
    (ii) Provided by the home health aide on a part-time or intermittent 
basis.
    (3) The services provided by the home health aide must be reasonable 
and necessary. To be considered reasonable and necessary, the services 
must--
    (i) Meet the requirement for home health aide services in paragraph 
(b)(1) of this section;
    (ii) Be of a type the beneficiary cannot perform for himself or 
herself; and
    (iii) Be of a type that there is no able or willing caregiver to 
provide, or, if there is a potential caregiver, the beneficiary is 
unwilling to use the services of that individual.
    (4) The home health aide also may perform services incidental to a 
visit that was for the provision of care as described in paragraphs 
(b)(3)(i) through (iii) of this section. For example, these incidental 
services may include changing bed linens, personal laundry, or preparing 
a light meal.
    (c) Medical social services. Medical social services may be covered 
if the following requirements are met:
    (1) The services are ordered by a physician and included in the plan 
of care.
    (2)(i) The services are necessary to resolve social or emotional 
problems that are expected to be an impediment to the effective 
treatment of the beneficiary's medical condition or to his or her rate 
of recovery.
    (ii) If these services are furnished to a beneficiary's family 
member or caregiver, they are furnished on a short-term basis and it can 
be demonstrated that the service is necessary to resolve a clear and 
direct impediment to the effective treatment of the beneficiary's 
medical condition or to his or her rate of recovery.
    (3) The frequency and nature of the medical social services are 
reasonable and necessary to the treatment of the beneficiary's 
condition.
    (4) The medical social services are furnished by a qualified social 
worker or qualified social work assistant under the supervision of a 
social worker as defined in Sec. 484.4 of this chapter.
    (5) The services needed to resolve the problems that are impeding 
the beneficiary's recovery require the skills of a social worker or a 
social work assistant under the supervision of a social worker to be 
performed safely and effectively.
    (d) Occupational therapy. Occupational therapy services that are not 
qualifying services under Sec. 409.44(c) are nevertheless covered as 
dependent services if the requirements of Sec. 409.44(c)(2)(i) through 
(iv), as to reasonableness and necessity, are met.
    (e) Durable medical equipment. Durable medical equipment in 
accordance with Sec. 410.38 of this chapter, which describes the scope 
and conditions of payment for durable medical equipment under Part B, 
may be covered under the home health benefit as either a Part A or Part 
B service. Durable medical equipment furnished by an HHA as a home 
health service is always covered by Part A if the beneficiary is 
entitled to Part A.
    (f) Medical supplies. Medical supplies (including catheters, 
catheter supplies,

[[Page 194]]

ostomy bags, and supplies relating to ostomy care but excluding drugs 
and biologicals) may be covered as a home health benefit. For medical 
supplies to be covered as a Medicare home health benefit, the medical 
supplies must be needed to treat the beneficiary's illness or injury 
that occasioned the home health care.
    (g) Intern and resident services. The medical services of interns 
and residents in training under an approved hospital teaching program 
are covered if the services are ordered by the physician who is 
responsible for the plan of care and the HHA is affiliated with or under 
the common control of the hospital furnishing the medical services.

Approved means--
    (1) Approved by the Accreditation Council for Graduate Medical 
Education;
    (2) In the case of an osteopathic hospital, approved by the 
Committee on Hospitals of the Bureau of Professional Education of the 
American Osteopathic Association;
    (3) In the case of an intern or resident-in-training in the field of 
dentistry, approved by the Council on Dental Education of the American 
Dental Association; or
    (4) In the case of an intern or resident-in-training in the field of 
podiatry, approved by the Council on Podiatric Medical Education of the 
American Podiatric Medical Association.

[59 FR 65495, Dec. 20, 1994; 60 FR 39122, 39123, Aug. 1, 1995]



Sec. 409.46  Allowable administrative costs.

    Services that are allowable as administrative costs but are not 
separately billable include, but are not limited to, the following:
    (a) Registered nurse initial evaluation visits. Initial evaluation 
visits by a registered nurse for the purpose of assessing a 
beneficiary's health needs, determining if the agency can meet those 
health needs, and formulating a plan of care for the beneficiary are 
allowable administrative costs. If a physician specifically orders that 
a particular skilled service be furnished during the evaluation in which 
the agency accepts the beneficiary for treatment and all other coverage 
criteria are met, the visit is billable as a skilled nursing visit. 
Otherwise it is considered to be an administrative cost.
    (b) Visits by registered nurses or qualified professionals for the 
supervision of home health aides. Visits by registered nurses or 
qualified professionals for the purpose of supervising home health aides 
as required at Sec. 484.36(d) of this chapter are allowable 
administrative costs. Only if the registered nurse or qualified 
professional visits the beneficiary for the purpose of furnishing care 
that meets the coverage criteria at Sec. 409.44, and the supervisory 
visit occurs simultaneously with the provision of covered care, is the 
visit billable as a skilled nursing or therapist's visit.
    (c) Respiratory care services. If a respiratory therapist is used to 
furnish overall training or consultative advice to an HHA's staff and 
incidentally provides respiratory therapy services to beneficiaries in 
their homes, the costs of the respiratory therapist's services are 
allowable as administrative costs. Visits by a respiratory therapist to 
a beneficiary's home are not separately billable. However, respiratory 
therapy services that are furnished as part of a plan of care by a 
skilled nurse or physical therapist and that constitute skilled care may 
be separately billed as skilled visits.
    (d) Dietary and nutrition personnel. If dieticians or nutritionists 
are used to provide overall training or consultative advice to HHA staff 
and incidentally provide dietetic or nutritional services to 
beneficiaries in their homes, the costs of these professional services 
are allowable as administrative costs. Visits by a dietician or 
nutritionist to a beneficiary's home are not separately billable.

[59 FR 65496, Dec. 20, 1994]



Sec. 409.47  Place of service requirements.

    To be covered, home health services must be furnished in either the 
beneficiary's home or an outpatient setting as defined in this section.
    (a) Beneficiary's home. A beneficiary's home is any place in which a 
beneficiary resides that is not a hospital, SNF, or nursing facility as 
defined in sections 1861(e)(1), 1819(a)(1), of 1919(a)(1) of the Act, 
respectively.

[[Page 195]]

    (b) Outpatient setting. For purposes of coverage of home health 
services, an outpatient setting may include a hospital, SNF or a 
rehabilitation center with which the HHA has an arrangement in 
accordance with the requirements of Sec. 484.14(h) of this chapter and 
that is used by the HHA to provide services that either--
    (1) Require equipment that cannot be made available at the 
beneficiary's home; or
    (2) Are furnished while the beneficiary is at the facility to 
receive services requiring equipment described in paragraph (b)(1) of 
this section.

[59 FR 65496, Dec. 20, 1994]



Sec. 409.48  Visits.

    (a) Number of allowable visits under Part A. To the extent that all 
coverage requirements specified in this subpart are met, payment may be 
made on behalf of eligible beneficiaries under Part A for an unlimited 
number of covered home health visits. All Medicare home health services 
are covered under hospital insurance unless there is no Part A 
entitlement.
    (b) Number of visits under Part B. To the extent that all coverage 
requirements specified in this subpart are met, payment may be made on 
behalf of eligible beneficiaries under Part B for an unlimited number of 
covered home health visits. Medicare home health services are covered 
under Part B only when the beneficiary is not entitled to coverage under 
Part A.
    (c) Definition of visit. A visit is an episode of personal contact 
with the beneficiary by staff of the HHA or others under arrangements 
with the HHA, for the purpose of providing a covered service.
    (1) Generally, one visit may be covered each time an HHA employee or 
someone providing home health services under arrangements enters the 
beneficiary's home and provides a covered service to a beneficiary who 
meets the criteria of Sec. 409.42 (confined to the home, under the care 
of a physician, in need of skilled services, and under a plan of care).
    (2) If the HHA furnishes services in an outpatient facility under 
arrangements with the facility, one visit may be covered for each type 
of service provided.
    (3) If two individuals are needed to provide a service, two visits 
may be covered. If two individuals are present, but only one is needed 
to provide the care, only one visit may be covered.
    (4) A visit is initiated with the delivery of covered home health 
services and ends at the conclusion of delivery of covered home health 
services. In those circumstances in which all reasonable and necessary 
home health services cannot be provided in the course of a single visit, 
HHA staff or others providing services under arrangements with the HHA 
may remain at the beneficiary's residence between visits (for example, 
to provide non-covered services). However, if all covered services could 
be provided in the course of one visit, only one visit may be covered.

[59 FR 65497, Dec. 20, 1994]



Sec. 409.49  Excluded services.

    (a) Drugs and biologicals. Drugs and biologicals are excluded from 
payment under the Medicare home health benefit.
    (1) A drug is any chemical compound that may be used on or 
administered to humans or animals as an aid in the diagnosis, treatment 
or prevention of disease or other condition or for the relief of pain or 
suffering or to control or improve any physiological pathologic 
condition.
    (2) A biological is any medicinal preparation made from living 
organisms and their products including, but not limited to, serums, 
vaccines, antigens, and antitoxins.
    (b) Transportation. The transportation of beneficiaries, whether to 
receive covered care or for other purposes, is excluded from home health 
coverage. Costs of transportation of equipment, materials, supplies, or 
staff may be allowable as administrative costs, but no separate payment 
is made for them.
    (c) Services that would not be covered as inpatient services. 
Services that would not be covered if furnished as inpatient hospital 
services are excluded from home health coverage.
    (d) Housekeeping services. Services whose sole purpose is to enable 
the

[[Page 196]]

beneficiary to continue residing in his or her home (for example, 
cooking, shopping, Meals on Wheels, cleaning, laundry) are excluded from 
home health coverage.
    (e) Services covered under the End Stage Renal Disease (ESRD) 
program. Services that are covered under the ESRD program and are 
contained in the composite rate reimbursement methodology, including any 
service furnished to a Medicare ESRD beneficiary that is directly 
related to that individual's dialysis, are excluded from coverage under 
the Medicare home health benefit.
    (f) Prosthetic devices. Items that meet the requirements of 
Sec. 410.36(a)(2) of this chapter for prosthetic devices covered under 
Part B are excluded from home health coverage. Catheters, catheter 
supplies, ostomy bags, and supplies relating to ostomy care are not 
considered prosthetic devices if furnished under a home health plan of 
care and are not subject to this exclusion from coverage.
    (g) Medical social services provided to family members. Except as 
provided in Sec. 409.45(c)(2), medical social services provided solely 
to members of the beneficiary's family and that are not incidental to 
covered medical social services being provided to the beneficiary are 
not covered.

[59 FR 65497, Dec. 20, 1994; 60 FR 39123, Aug. 1, 1995]



Sec. 409.50  Coinsurance for durable medical equipment (DME) furnished as a home health service.

    The coinsurance liability of the beneficiary or other person for DME 
furnished as a home health service is 20 percent of the customary 
(insofar as reasonable) charge for the services.

[51 FR 41339, Nov. 14, 1986. Redesignated at 59 FR 65496, Dec. 20, 1994]



             Subpart F--Scope of Hospital Insurance Benefits



Sec. 409.60  Benefit periods.

    (a) When benefit periods begin. The initial benefit period begins on 
the day the beneficiary receives inpatient hospital, inpatient CAH, or 
SNF services for the first time after becoming entitled to hospital 
insurance. Thereafter, a new benefit period begins whenever the 
beneficiary receives inpatient hospital, inpatient CAH, or SNF services 
after he or she has ended a benefit period as described in paragraph (b) 
of this section.
    (b) When benefit periods end--(1) A benefit period ends when a 
beneficiary has, for at least 60 consecutive days not been an inpatient 
in any of the following:
    (i) A hospital that meets the requirements of section 1861(e)(1) of 
the Act.
    (ii) A CAH that meets the requirements of section 1820 of the Act.
    (iii) A SNF that meets the requirements of sections 1819(a)(1) or 
1861(y) of the Act.
    (2) For purposes of ending a benefit period, a beneficiary was an 
inpatient of a SNF if his or her care in the SNF met the skilled level 
of care requirements specified in Sec. 409.31(b) (1) and (3).
    (c) Presumptions. (1) For purposes of determining whether a 
beneficiary was an inpatient of a SNF under paragraph (b)(2) of this 
section--
    (i) A beneficiary's care met the skilled level of care requirements 
if inpatient SNF claims were paid for those services under Medicare or 
Medicaid, unless:
    (A) Such payments were made under Sec. 405.330 or Medicaid 
administratively necessary days provisions which result in payment for 
care not meeting the skilled level of care requirements, or
    (B) A Medicare denial and a Medicaid payment are made for the same 
period, in which case the presumption in paragraph (c)(2)(ii) of this 
section applies;
    (ii) A beneficiary's care met the skilled level of care requirements 
if a SNF claim was paid under section 1879(e) of the Social Security 
Act;
    (iii) A beneficiary's care did not meet the skilled level of care 
requirements if a SNF claim was paid for the services under 
Sec. 405.330;
    (iv) A beneficiary's care did not meet the skilled level of care 
requirements if a Medicaid SNF claim was denied on the grounds that the 
services were not at the skilled level of care (even if paid under 
applicable Medicaid administratively necessary days provisions which 
result in payment for care not meeting the skilled level of care 
requirements);

[[Page 197]]

    (2) For purposes of determining whether a beneficiary was an 
inpatient of a SNF under paragraph (b)(2) of this section a 
beneficiary's care in a SNF is presumed--
    (i) To have met the skilled level of care requirements during any 
period for which the beneficiary was assigned to one of the Resource 
Utilization Groups designated as representing the required level of 
care, as provided in Sec. 409.30.
    (ii) To have met the skilled level of care requirements if a 
Medicaid or Medicare claim was denied on grounds other than that the 
services were not at the skilled level of care;
    (iii) Not to have met the skilled level of care requirements if a 
Medicare SNF claim was denied on the grounds that the services were not 
at the skilled level of care and payment was not made under 
Sec. 405.330; or
    (iv) Not to have met the skilled level of care requirements if no 
Medicare or Medicaid claim was submitted by the SNF.
    (3) If information upon which to base a presumption is not readily 
available, the intermediary may, at its discretion review the 
beneficiary's medical records to determine whether he or she was an 
inpatient of a SNF as set forth under paragraph (b)(2) of this section.
    (4) When the intermediary makes a benefit period determination based 
upon paragraph (c)(1) of this section, the beneficiary may seek to 
reverse the benefit period determination by timely appealing the prior 
Medicare SNF claim determination under part 405, subpart G of this 
chapter, or the prior Medicaid SNF claim under part 431, subpart E of 
this chapter.
    (5) When the intermediary makes a benefit period determination under 
paragraph (c)(2) of this section, the beneficiary will be notified of 
the basis for the determination, and of his or her right to present 
evidence to rebut the determination that the skilled level of care 
requirements specified in Sec. 409.31 (b)(1) and (b)(3) were or were not 
met on reconsideration and appeal under 42 CFR, part 405, subpart G of 
this chapter.
    (d) Limitation on benefit period determinations. When the 
intermediary considers the same prior SNF stay of a particular 
beneficiary in making benefit period determinations for more than one 
inpatient Medicare claim--
    (1) Medicare will recognize only the initial level of care 
characterization for that prior SNF stay (or if appealed under 42 CFR 
part 405, subpart G of this chapter, the level of care determined under 
appeal); or
    (2) If part of a prior SNF stay has one level of care 
characterization and another part has another level of care 
characterization, Medicare will recognize only the initial level of care 
characterization for a particular part of a prior SNF stay (or if 
appealed under 42 CFR part 405, subpart G of this chapter, the level of 
care determined under appeal).
    (e) Relation of benefit period to benefit limitations. The 
limitations specified in Secs. 409.61 and 409.64, and the deductible and 
coinsurance requirements set forth in subpart G of this part apply for 
each benefit period. The limitations of Sec. 409.63 apply only to the 
initial benefit period.

[52 FR 22645, June 15, 1987; 52 FR 28824, Aug. 4, 1987, as amended at 58 
FR 30667, May 26, 1993; 63 FR 26307, May 12, 1998]



Sec. 409.61  General limitations on amount of benefits.

    (a) Inpatient hospital or inpatient CAH services. (1) Regular 
benefit days. Up to 90 days are available in each benefit period, 
subject to the limitations on days for psychiatric hospital services set 
forth in Secs. 409.62 and 409.63.
    (i) For the first 60 days (referred to in this subpart as full 
benefit days), Medicare pays the hospital or CAH for all covered 
services furnished the beneficiary, except for a deductible which is the 
beneficiary's responsibility. (Section 409.82 specifies the requirements 
for the inpatient hospital deductible.)
    (ii) For the next 30 days (referred to in this subpart as 
coinsurance days), Medicare pays for all covered services except for a 
daily coinsurance amount, which is the beneficiary's responsibility. 
(Section 409.83 specifies the inpatient hospital coinsurance amounts.)
    (2) Lifetime reserve days. Each beneficiary has a non-renewable 
lifetime reserve of 60 days of inpatient hospital or inpatient CAH 
services that he may draw upon whenever he is hospitalized

[[Page 198]]

for more than 90 days in a benefit period. Upon exhaustion of the 
regular benefit days, the reserve days will be used unless the 
beneficiary elects not to use them, as provided in Sec. 409.65. For 
lifetime reserve days, Medicare pays for all covered services except for 
a daily coinsurance amount that is the beneficiary's responsibility. 
(See Sec. 409.83.)
    (3) Order of payment for inpatient hospital or inpatient CAH 
services. Medicare pays for inpatient hospital services in the following 
order.
    (i) The 60 full benefit days;
    (ii) The 30 coinsurance days;
    (iii) The remaining lifetime reserve days.
    (b) Posthospital SNF care furnished by a SNF, or by a hospital or a 
CAH with a swing-bed approval. Up to 100 days are available in each 
benefit period after discharge from a hospital or CAH. For the first 20 
days, Medicare pays for all covered services. For the 21st through 100th 
day, Medicare pays for all covered services except for a daily 
coinsurance amount that is the beneficiary's responsibility.
    (c) Renewal of inpatient benefits. The beneficiary's full 
entitlement to the 90 inpatient hospital or inpatient CAH regular 
benefit days, and the 100 SNF benefit days, is renewed each time he or 
she begins a benefit period. However, once lifetime reserve days are 
used, they can never be renewed.
    (d) Home health services. Medicare Part A pays for all covered home 
health services1 with no deductible, and subject to the 
following limitations on payment for durable medical equipment (DME):
---------------------------------------------------------------------------

    \1\ Before July 1, 1981, Medicare Part A paid for not more than 100 
home health visits during one year following the beneficiary's most 
recent discharge from a hospital or a SNF.
---------------------------------------------------------------------------

    (1) For DME furnished by an HHA that is a nominal charge provider, 
Medicare Part A pays 80 percent of fair compensation.
    (2) For DME furnished by an HHA that is not a nominal charge 
provider, Medicare Part A pays the lesser of the following:
    (i) 80 percent of the reasonable cost of the service.
    (ii) The reasonable cost of, or the customary charge for, the 
service, whichever is less, minus 20 percent of the customary (insofar 
as reasonable) charge for the service.

[48 FR 12541, Mar. 25, 1983, as amended at 51 FR 41339, Nov. 14, 1986; 
54 FR 4027, Jan. 27, 1989; 58 FR 30666, 30667, May 26, 1993]



Sec. 409.62  Lifetime maximum on inpatient psychiatric care.

    There is a lifetime maximum of 190 days on inpatient psychiatric 
hospital services available to any beneficiary. Therefore, once an 
individual receives benefits for 190 days of care in a psychiatric 
hospital, no further benefits of that type are available to that 
individual.



Sec. 409.63  Reduction of inpatient psychiatric benefit days available in the initial benefit period.

    (a) Reduction rule. (1) If the individual was an inpatient in a 
psychiatric hospital on the first day of Medicare entitlement and for 
any of the 150 days immediately before that first day of entitlement, 
those days are subtracted from the 150 days (90 regular days plus 60 
lifetime reserve days) which would otherwise be available in the initial 
benefit period for inpatient psychiatric services in a psychiatric or 
general hospital.
    (2) Reduction is required only if the hospital was participating in 
Medicare as a psychiatric hospital on the individual's first day of 
entitlement.
    (3) The reduction applies only to the beneficiary's first benefit 
period. For subsequent benefit periods, the 90 benefit days, plus any 
remaining lifetime reserve days, subject to the 190 day lifetime limit 
on psychiatric hospital care, are available.
    (b) Application to general hospital days. (1) Days spent in a 
general hospital before entitlement are not subtracted under paragraph 
(a) of this section even if the stay was for diagnosis or treatment of 
mental illness.
    (2) After entitlement, all psychiatric care days, whether in a 
general or a psychiatric hospital, are counted toward the number of days 
available in the initial benefit period.
    (c) Examples: (1) The individual was an inpatient of a participating 
psychiatric hospital for 20 days before the first day of entitlement and 
remained

[[Page 199]]

there for another 6 months. Therefore, 130 days of benefits (150 minus 
20) are payable. Payment could be made for: 60 full benefit days, 30 
coinsurance days, and 40 lifetime reserve days.
    (2) During the 150-day period preceding Medicare entitlement, an 
individual had been a patient of a general hospital for 60 days of 
inpatient psychiatric care and had spent 90 days in a psychiatric 
hospital, ending with the first day of entitlement. During the initial 
benefit period, the beneficiary spent 90 days in a general hospital and 
received psychiatric care there. The 60 days spent in the general 
hospital for psychiatric treatment before entitlement do not reduce the 
benefits available in the first benefit period. Only the 90 days spent 
in the psychiatric hospital before entitlement reduce such benefits, 
leaving a total of 60 available psychiatric days. However, after 
entitlement, the reduction applies not only to days spent in a 
psychiatric hospital, but also to days of psychiatric treatment in a 
general hospital. Thus, Medicare payment could be made only for 60 of 
the 90 days spent in the general hospital.
    (3) An individual was admitted to a general hospital for a mental 
condition and, after 10 days, transferred to a participating psychiatric 
hospital. The individual remained in the psychiatric hospital for 78 
days before becoming entitled to hospital insurance benefits and for 130 
days after entitlement. The beneficiary was then transferred to a 
general hospital and received treatment of a medical condition for 20 
days. The 10 days spent in the general hospital during the 150-day pre-
entitlement period have no effect on the inpatient hospital benefit days 
available to the individual for psychiatric care in the first benefit 
period, even though the general hospital stay was for a mental 
condition. Only the 78 days spent in the psychiatric hospital during the 
pre-entitlement period are subtracted from the 150 benefit days. 
Accordingly, the individual has 72 days of psychiatric care (150 days 
less 78 days) available in the first benefit period. Benefits could be 
paid for the individual's hospitalization during the first benefit 
period in the following manner. For the 130-day psychiatric hospital 
stay, 72 days (60 full benefit days and 12 coinsurance days), and for 
the general hospital stay, 20 days (18 coinsurance and 2 lifetime 
reserve days).



Sec. 409.64  Services that are counted toward allowable amounts.

    (a) Except as provided in paragraph (b) of this section for lifetime 
reserve days, all covered inpatient days and home health visits are 
counted toward the allowable amounts specified in Secs. 409.61 through 
409.63 if--
    (1) They are paid for by Medicare; or
    (2) They would be paid for by Medicare if the following requirements 
had been met:
    (i) A proper and timely request for payment had been filed; and
    (ii) The hospital, CAH, SNF, or home health agency had submitted all 
necessary evidence, including physician certification of need for 
services when such certification was required; or
    (3) They could not be paid for because the total payment due was 
equal to, or less than, the applicable deductible and coinsurance 
amounts.
    (b) Exception. Even though the requirements of paragraph (a)(2) of 
this section are met, lifetime reserve days are not counted toward the 
allowable amounts if the beneficiary elected or is deemed to have 
elected not to use them as set forth in Sec. 409.65.

[48 FR 12541, Mar. 25, 1983, as amended at 58 FR 30667, May 26, 1993]



Sec. 409.65  Lifetime reserve days.

    (a) Election not to use lifetime reserve days. (1) Whenever a 
beneficiary has exhausted the 90 regular benefit days, the hospital or 
CAH may bill Medicare for lifetime reserve days unless the beneficiary 
elects not to use them or, in accordance with paragraph (b) of this 
section, is deemed to have elected not to use them.
    (2) It may be advantageous to elect not to use lifetime reserve days 
if the beneficiary has private insurance coverage that begins after the 
first 90 inpatient days in a benefit period, or if the daily charge is 
only slightly higher than the lifetime reserve days coinsurance amount. 
In such cases, the beneficiary may want to save the lifetime reserve 
days for future care that may be more expensive.

[[Page 200]]

    (3) If the beneficiary elects not to use lifetime reserve days for a 
particular hospital or CAH stay, they are still available for a later 
stay. However, once the beneficiary uses lifetime reserve days, they can 
never be renewed.
    (4) If the beneficiary elects not to use lifetime reserve days, the 
hospital or CAH may require him or her to pay for any services furnished 
after the regular days are exhausted.
    (b) Deemed election. A beneficiary will be deemed to have elected 
not to use lifetime reserve days if the average daily charges for such 
days is equal to or less than the applicable coinsurance amount 
specified in Sec. 409.83. A beneficiary would get no benefit from using 
the days under those circumstances.
    (c) Who may file an election. An election not to use reserve days 
may be filed by--
    (1) The beneficiary; or
    (2) If the beneficiary is physically or mentally unable to act, by 
the beneficiary's legal representative. In addition, if some other 
payment source is available, such as private insurance, any person 
authorized under Sec. 405.1664 of this chapter to execute a request for 
payment for the beneficiary may file the election.
    (d) Filing the election. (1) The beneficiary's election not to use 
lifetime reserve days must be filed in writing with the hospital or CAH.
    (2) The election may be filed at the time of admission to the 
hospital or CAH or at any time thereafter up to 90 days after the 
beneficiary's discharge.
    (3) A retroactive election (that is, one made after lifetime reserve 
days have been used because the regular days were exhausted), is not 
acceptable unless it is approved by the hospital or CAH.
    (e) Period covered by election--(1) General rule. Except as provided 
in paragraph (e)(2) of this section, an election not to use lifetime 
reserve days may apply to an entire hospital or CAH stay or to a single 
period of consecutive days in a stay, but cannot apply to selected days 
in a stay. For example, a beneficiary may restrict the election to the 
period covered by private insurance but cannot use individual lifetime 
reserve days within that period. If an election not to use reserve days 
is effective after the first day on which reserve days are available, it 
must remain in effect until the end of the stay, unless it is revoked in 
accordance with Sec. 409.66.
    (2) Exception. A beneficiary election not to use lifetime reserve 
days for an inpatient hospital or inpatient CAH stay for which payment 
may be made under the prospective payment system (part 412 of this 
chapter) is subject to the following rules:
    (i) If the beneficiary has one or more regular benefit days (see 
Sec. 409.61(a)(1) of this chapter) remaining in the benefit period upon 
entering the hospital or CAH, an election not to use lifetime reserve 
days will apply automatically to all days that are not outlier days. The 
beneficiary may also elect not to use lifetime reserve days for outlier 
days but this election must apply to all outlier days.
    (ii) If the beneficiary has no regular benefit days (see 
Sec. 409.61(a)(1) of this chapter) remaining in the benefit period upon 
entering the hospital or CAH, an election not to use lifetime reserve 
days must apply to the entire hospital or CAH stay.

[48 FR 12541, Mar. 25, 1983, as amended at 48 FR 39837, Sept. 1, 1983; 
49 FR 323, Jan. 3, 1984; 58 FR 30666, 30667, May 26, 1993]



Sec. 409.66  Revocation of election not to use lifetime reserve days.

    (a) Except as provided in paragraph (c) of this section, a 
beneficiary (or anyone authorized to execute a request for payment, if 
the beneficiary is incapacitated) may revoke an election not to use 
lifetime reserve days during hospitalization or within 90 days after 
discharge.
    (b) The revocation must be submitted to the hospital or CAH in 
writing and identify the stay or stays to which it applies.
    (c) Exceptions. A revocation of an election not to use lifetime 
reserve days may not be filed--
    (1) After the beneficiary dies; or
    (2) After the hospital or CAH has filed a claim under the 
supplementary medical insurance program (Medicare Part B), for medical 
and other health

[[Page 201]]

services furnished to the beneficiary on the days in question.

[48 FR 12541, Mar. 25, 1983, as amended at 58 FR 30666, May 26, 1993]



Sec. 409.68  Guarantee of payment for inpatient hospital or inpatient CAH services furnished before notification of exhaustion of benefits.

    (a) Conditions for payment. Payment may be made for inpatient 
hospital or inpatient CAH services furnished a beneficiary after he or 
she has exhausted the available benefit days if the following conditions 
are met:
    (1) The services were furnished before HCFA or the intermediary 
notified the hospital or CAH that the beneficiary had exhausted the 
available benefit days and was not entitled to have payment made for 
those services.
    (2) At the time the hospital or CAH furnished the services, it was 
unaware that the beneficiary had exhausted the available benefit days 
and could reasonably have assumed that he or she was entitled to have 
payment made for these services.
    (3) Payment would be precluded solely because the beneficiary has no 
benefit days available for the particular hospital or CAH stay.
    (4) The hospital or CAH claims reimbursement for the services and 
refunds any payments made for those services by the beneficiary or by 
another person on his or her behalf.
    (b) Limitations on payment. (1) If all of the conditions in 
paragraph (a) of this section are met, Medicare payment may be made for 
the day of admission, and up to 6 weekdays thereafter, plus any 
intervening Saturdays, Sundays, and Federal holidays.
    (2) Payment may not be made under this section for any day after the 
hospital or CAH is notified that the beneficiary has exhausted the 
available benefit days.
    (c) Recovery from the beneficiary. Any payment made to a hospital or 
CAH under this section is considered an overpayment to the beneficiary 
and may be recovered from him or her under the provisions set forth 
elsewhere in this chapter.

[48 FR 12541, Mar. 25, 1983, as amended at 50 FR 33033, Aug. 16, 1985; 
58 FR 30666, May 26, 1993]



        Subpart G--Hospital Insurance Deductibles and Coinsurance



Sec. 409.80  Inpatient deductible and coinsurance: General provisions.

    (a) What they are. (1) The inpatient deductible and coinsurance 
amounts are portions of the cost of covered hospital or CAH or SNF 
services that Medicare does not pay.
    (2) The hospital or CAH or SNF may charge these amounts to the 
beneficiary or someone on his or her behalf.
    (b) Changes in the inpatient deductible and coinsurance amounts. (1) 
The law requires the Secretary to adjust the inpatient hospital 
deductible each year to reflect changes in the average cost of hospital 
care. In adjusting the deductible, the Secretary must use a formula 
specified in section 1813(b)(2) of the Act. Under that formula, the 
inpatient hospital deductible is increased each year by about the same 
percentage as the increase in the average Medicare daily hospital costs. 
The result of the deductible increase is that the beneficiary continues 
to pay about the same proportion of the hospital bill.
    (2) Since the coinsurance amounts are, by statute, specific 
fractions of the deductible, they change when the deductible changes.

[48 FR 12541, Mar. 25, 1983, as amended at 58 FR 30666, May 26, 1993]



Sec. 409.82  Inpatient hospital deductible.

    (a) General provisions--(1) The inpatient hospital deductible is a 
fixed amount chargeable to the beneficiary when he or she receives 
covered services in a hospital or a CAH for the first time in a benefit 
period.
    (2) Although the beneficiary may be hospitalized several times 
during a benefit period, the deductible is charged only once during that 
period. If the beneficiary begins more than one benefit period in the 
same year, a deductible is charged for each of those periods.
    (3) For services furnished before January 1, 1982, the applicable 
deductible is the one in effect when the benefit period began.

[[Page 202]]

    (4) For services furnished after December 31, 1981, the applicable 
deductible is the one in effect during the calendar year in which the 
services were furnished.
    (b) Specific deductible amounts. The specific deductible amounts for 
each calendar year are published in the Federal Register no later than 
October 1 of the preceding year.
    (c) Exception to published amounts. If the total hospital or CAH 
charge is less than the deductible amount applicable for the calendar 
year in which the services were furnished, the amount of the charge is 
the deductible for the year.

[48 FR 12541, Mar. 25, 1983, as amended at 54 FR 4026, Jan. 27, 1989; 58 
FR 30666, 30667, May 26, 1993]



Sec. 409.83  Inpatient hospital coinsurance.

    (a) General provisions--(1) Inpatient hospital coinsurance is the 
amount chargeable to a beneficiary for each day after the first 60 days 
of inpatient hospital care or inpatient CAH care or both in a benefit 
period.
    (2) For each day from the 61st to the 90th day, the coinsurance 
amount is \1/4\ of the applicable deductible.
    (3) For each day from the 91st to the 150th day (lifetime reserve 
days), the coinsurance amount is \1/2\ of the applicable deductible.
    (4) For coinsurance days before January 1, 1982, the coinsurance 
amount is based on the deductible applicable for the calendar year in 
which the benefit period began. The coinsurance amounts do not change 
during a beneficiary's benefit period even though the coinsurance days 
may fall in a subsequent year for which a higher deductible amount has 
been determined.
    (5) For coinsurance days after December 31, 1981, the coinsurance 
amount is based on the deductible applicable for the calendar year in 
which the services were furnished. For example, if an individual starts 
a benefit period by being admitted to a hospital in 1981 and remains in 
the hospital long enough to use coinsurance days in 1982, the 
coinsurance amount charged for those days is based on the 1982 inpatient 
hospital deductible.
    (b) Specific coinsurance amounts. The specific coinsurance amounts 
for each calendar year are published in the Federal Register no later 
than October 1 of the preceding year.
    (c) Exceptions to published amounts. (1) If the actual charge to the 
patient for the 61st through the 90th day of inpatient hospital or 
inpatient CAH services is less than the coinsurance amount applicable 
for the calendar year in which the services were furnished, the actual 
charge per day is the daily coinsurance amount.
    (2) If the actual charge to the patient for the 91st through the 
150th day (lifetime reserve days) is less than the coinsurance amount 
applicable for the calendar year in which the services were furnished, 
the beneficiary is deemed to have elected not to use the days because he 
or she would not benefit from using them.

[48 FR 12541, Mar. 25, 1983, as amended at 54 FR 4026, Jan. 27, 1989; 58 
FR 30666, 30667, May 26, 1993]



Sec. 409.85  Skilled nursing facility (SNF) care coinsurance.

    (a) General provisions. (1) SNF care coinsurance is the amount 
chargeable to a beneficiary after the first 20 days of SNF care in a 
benefit period.
    (2) For each day from the 21st through the 100th day, the 
coinsurance is \1/8\ of the applicable inpatient hospital deductible.
    (3) For coinsurance days before January 1, 1982, the coinsurance 
amount is based on the deductible applicable for the year in which the 
benefit period began. The coinsurance amounts do not change during a 
beneficiary's benefit period even though the coinsurance days may fall 
in a subsequent year for which a higher deductible amount has been 
determined.
    (4) For coinsurance days after December 31, 1981, the coinsurance 
amount is based on the deductible applicable for the calendar year in 
which the services were furnished.
    (b) Specific coinsurance amounts. The specific SNF coinsurance 
amounts for each calendar year are published in the Federal Register no 
later than October 1 of the preceding year.
    (c) Exception to published amounts. If the actual charge to the 
patient is less than the coinsurance amount applicable for the calendar 
year in which the

[[Page 203]]

services were furnished, the actual charge per day is the daily 
coinsurance.

[48 FR 12541, Mar. 25, 1983, as amended at 54 FR 4026, Jan. 27, 1989]



Sec. 409.87  Blood deductible.

    (a) General provisions. (1) As used in this section, packed red 
cells means the red blood cells that remain after plasma is separated 
from whole blood.
    (2) A unit of packed red cells is treated as the equivalent of a 
unit of whole blood.
    (3) Medicare does not pay for the first 3 units of whole blood or 
units of packed red cells that a beneficiary receives, during a calendar 
year, as an inpatient of a hospital or CAH or SNF, or on an outpatient 
basis under Medicare Part B.
    (4) The deductible does not apply to other blood components such as 
platelets, fibrinogen, plasma, gamma globulin, and serum albumin, or to 
the cost of processing, storing, and administering blood.
    (5) The blood deductible is in addition to the inpatient hospital 
deductible and daily coinsurance.
    (6) The Part A blood deductible is reduced to the extent that the 
Part B blood deductible has been applied. For example, if a beneficiary 
had received one unit under Medicare Part B, and later in the same 
benefit period received three units under Medicare Part A, Medicare Part 
A would pay for the third of the latter units. (As specified in 
Sec. 410.161 of this chapter, the Part B blood deductible is reduced to 
the extent a blood deductible has been applied under Medicare Part A.)
    (b) Beneficiary's responsibility for the first 3 units of whole 
blood or packed red cells. (1) Basic rule. Except as specified in 
paragraph (b)(2) of this section, the beneficiary is responsible for the 
first 3 units of whole blood or packed red cells. He or she has the 
option of paying the hospital's or CAH's charges for the blood or packed 
red cells or arranging for it to be replaced.
    (2) Exception. The beneficiary is not responsible for the first 3 
units of whole blood or packed red cells if the provider obtained that 
blood or red cells at no charge other than a processing or service 
charge. In that case, the blood or red cells is deemed to have been 
replaced.
    (c) Provider's right to charge for the first 3 units of whole blood 
or packed red cells--(1) Basic rule. Except as specified in paragraph 
(c)(2) of this section, a provider may charge a beneficiary its 
customary charge for any of the first 3 units of whole blood or packed 
red cells.
    (2) Exception. A provider may not charge the beneficiary for the 
first 3 units of whole blood or packed red cells in any of the following 
circumstances:
    (i) The blood or packed red cells has been replaced.
    (ii) The provider (or its blood supplier) receives, from an 
individual or a blood bank, a replacement offer that meets the criteria 
specified in paragraph (d) of this section. The provider is precluded 
from charging even if it or its blood supplier rejects the replacement 
offer.
    (iii) The provider obtained the blood or packed red cells at no 
charge other than a processing or service charge and it is therefore 
deemed to have been replaced.
    (d) Criteria for replacement of blood. A blood replacement offer 
made by a beneficiary, or an individual or a blood bank on behalf of a 
beneficiary, discharges the beneficiary's obligation to pay for 
deductible blood or packed red cells if the replacement blood meets the 
applicable criteria specified in Food and Drug Administration 
regulations under 21 CFR part 640, i.e.--
    (1) The replacement blood would not endanger the health of a 
recipient; and
    (2) The prospective donor's health would not be endangered by making 
a blood donation.

[48 FR 12541, Mar. 25, 1983, as amended at 56 FR 8840, Mar. 1, 1991; 57 
FR 36014, Aug. 12, 1992; 58 FR 30666, 30667, May 26, 1993]



Sec. 409.89  Exemption of kidney donors from deductible and coinsurance requirements.

    The deductible and coinsurance requirements set forth in this 
subpart do not apply to any services furnished to an individual in 
connection with the donation of a kidney for transplant surgery.

[[Page 204]]



            Subpart H--Payment of Hospital Insurance Benefits

    Source: 53 FR 6633, Mar. 2, 1988, unless otherwise noted.



Sec. 409.100  To whom payment is made.

    (a) Basic rule. Except as provided in paragraph (b) of this section, 
Medicare pays hospital insurance benefits only to a participating 
provider.
    (b) Exceptions. Medicare may pay hospital insurance benefits as 
follows:
    (1) For emergency services furnished by a nonparticipating hospital, 
to the hospital or to the beneficiary, under the conditions prescribed 
in subpart G of part 424 of this chapter.
    (2) For services furnished by a Canadian or Mexican hospital, to the 
hospital or to the beneficiary, under the conditions prescribed in 
subpart H of part 424 of this chapter.



Sec. 409.102  Amounts of payment.

    (a) The amounts Medicare pays for hospital insurance benefits are 
generally determined in accordance with part 412 or part 413 of this 
chapter.
    (b) Except as provided in Secs. 409.61(d) and 409.89, hospital 
insurance benefits are subject to the deductible and coinsurance 
requirements set forth in subpart G of this part.



PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS--Table of Contents




                      Subpart A--General Provisions

Sec.
410.1  Basis and scope.
410.2  Definitions.
410.3  Scope of benefits.
410.5  Other applicable rules.

              Subpart B--Medical and Other Health Services

410.10  Medical and other health services: Included services.
410.12  Medical and other health services: Basic conditions and 
          limitations.
410.14  Special requirements for services furnished outside the United 
          States.
410.20  Physicians' services.
410.22  Limitations on services of a chiropractor.
410.23  Limitations on services of an optometrist.
410.24  Limitations on services of a doctor of dental surgery or dental 
          medicine.
410.25  Limitations on services of a podiatrist.
410.26  Services and supplies incident to a physician's professional 
          services: Conditions.
410.27  Outpatient hospital services and supplies incident to 
          physicians' services: Conditions.
410.28  Hospital or CAH diagnostic services furnished to outpatients: 
          Conditions.
410.29  Limitations on drugs and biologicals.
410.30  Prescription drugs used in immunosuppressive therapy.
410.31  Bone mass measurement: Conditions for coverage and frequency 
          standards.
410.32  Diagnostic X-ray tests, diagnostic laboratory tests, and other 
          diagnostic tests: Conditions.
410.33  Independent diagnostic testing facility.
410.34  Mammography services: Conditions for and limitations on 
          coverage.
410.35  X-ray therapy and other radiation therapy services: Scope.
410.36  Medical supplies, appliances, and devices: Scope.
410.37  Colorectal cancer screening tests: Conditions for and 
          limitations on coverage.
410.38  Durable medical equipment: Scope and conditions.
410.40  Ambulance services: Limitations.
410.43  Partial hospitalization services: Conditions and exclusions.
410.45  Rural health clinic services: Scope and conditions.
410.50  Institutional dialysis services and supplies: Scope and 
          conditions.
410.52  Home dialysis services, supplies, and equipment: Scope and 
          conditions.
410.55  Services related to kidney donations: Conditions.
410.56  Screening pelvic examinations.
410.57  Pneumococcal vaccine and flu vaccine.
410.58  Additional services to HMO and CMP enrollees.
410.60  Outpatient physical therapy services: Conditions.
410.61  Plan of treatment requirements for outpatient physical therapy 
          and speech pathology services.
410.62  Outpatient speech pathology services: Conditions and exclusions.
410.63  Hepatitis B vaccine and blood clotting factors: Conditions..
410.64  Services related to cardiac pacemakers and pacemaker leads.
410.66  Emergency outpatient services furnished by a nonparticipating 
          hospital and services furnished in Mexico or Canada.
410.68  Antigens: Scope and conditions.

[[Page 205]]

410.69  Services of a certified registered nurse anesthetist or an 
          anesthesiologist's assistant: Basic rule and definitions.
410.71  Clinical psychologist services and services and supplies 
          incident to clinical psychologist services.
410.73  Clinical social worker services.

                Subpart C--Home Health Services Under SMI

410.80  Applicable rules.

   Subpart D--Comprehensive Outpatient Rehabilitation Facility (CORF) 
                                Services

410.100  Included services.
410.102  Excluded services.
410.105  Requirements for coverage of CORF services.

  Subpart E--Community Mental Health Centers (CMHCs) Providing Partial 
                        Hospitalization Services

410.110  Requirements for coverage of partial hospitalization services 
          by CMHCs.

                        Subparts F-H--[Reserved]

                   Subpart I--Payment of SMI Benefits

410.150  To whom payment is made.
410.152  Amounts of payment.
410.155  Outpatient mental health treatment limitation.
410.160  Part B annual deductible.
410.161  Part B blood deductible.
410.163  Payment for services furnished to kidney donors.
410.165  Payment for rural health clinic services and ambulatory 
          surgical center services: Conditions.
410.170  Payment for home health services, for medical and other health 
          services furnished by a provider or an approved ESRD facility, 
          and for comprehensive outpatient rehabilitation facility 
          (CORF) services: Conditions.
410.172  Payment for partial hospitalization services in CMHCs: 
          Conditions.
410.175  Alien absent from the United States.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 51 FR 41339, Nov. 14, 1986, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 410 appear at 62 FR 
46037, Aug. 29, 1997.



                      Subpart A--General Provisions



Sec. 410.1  Basis and scope.

    (a) Statutory basis. Section 1832 of the Social Security Act 
establishes the scope of benefits provided under the Medicare Part B 
supplementary medical insurance (SMI) program. Sections 1833, 1834, 
1835, and 1862 set forth the amounts of payment for SMI services, the 
conditions for payment, and the exclusions from coverage. Section 1861 
defines the kinds of services that may be covered. Section 1881 provides 
for Medicare coverage for end stage renal disease patients.
    (b) Scope of part. This part sets forth the benefits available under 
Medicare Part B, the conditions for payment and the limitations on 
services, the percentage of incurred expenses that Medicare Part B pays, 
and the deductible and copayment amounts for which the beneficiary is 
responsible. (Exclusions applicable to these services are set forth in 
subpart C of part 405 of this chapter. General conditions for Medicare 
payment are set forth in part 424 of this chapter.)

[51 FR 41339, Nov. 14, 1986, as amended at 53 FR 6648, Mar. 2, 1988; 55 
FR 53521, Dec. 31, 1990; 59 FR 63462, Dec. 8, 1994]



Sec. 410.2  Definitions.

    As used in this part--
    Community mental health center (CMHC) means an entity that--(1) 
Provides outpatient services, including specialized outpatient services 
for children, the elderly, individuals who are chronically mentally ill, 
and residents of its mental health service area who have been discharged 
from inpatient treatment at a mental health facility;
    (2) Provides 24-hour-a-day emergency care services;
    (3) Provides day treatment or other partial hospitalization 
services, or psychosocial rehabilitation services;
    (4) Provides screening for patients being considered for admission 
to State mental health facilities to determine the appropriateness of 
such admission;
    (5) Provides consultation and education services; and
    (6) Meets applicable licensing or certification requirements for 
CMHCs in the State in which it is located.
    Nominal charge provider means a provider that furnishes services 
free of charge or at a nominal charge, and is either a public provider 
or another provider that (1) demonstrates to HCFA's satisfaction that a 
significant portion

[[Page 206]]

of its patients are low-income; and (2) requests that payment for its 
services be determined accordingly.
    Partial hospitalization services means a distinct and organized 
intensive ambulatory treatment program that offers less than 24-hour 
daily care and furnishes the services described in Sec. 410.43.
    Participating refers to a hospital, CAH, SNF, HHA, CORF, or hospice 
that has in effect an agreement to participate in Medicare; or a clinic, 
rehabilitation agency, or public health agency that has a provider 
agreement to participate in Medicare but only for purposes of providing 
outpatient physical therapy, occupational therapy, or speech pathology 
services; or a CMHC that has in effect a similar agreement but only for 
purposes of providing partial hospitalization services, and 
nonparticipating refers to a hospital, CAH, SNF, HHA, CORF, hospice, 
clinic, rehabilitation agency, public health agency, or CMHC that does 
not have in effect a provider agreement to participate in Medicare.

[59 FR 6577, Feb. 11, 1994, as amended at 62 FR 46025, Aug. 29, 1997]



Sec. 410.3  Scope of benefits.

    (a) Covered services. The SMI program helps pay for the following:
    (1) Medical and other health services such as physicians' services, 
outpatient services furnished by a hospital or a CAH, diagnostic tests, 
outpatient physical therapy and speech pathology services, rural health 
clinic services, Federally qualified health center services, and 
outpatient renal dialysis services.
    (2) Services furnished by ambulatory surgical centers (ASCs), home 
health agencies (HHAs), comprehensive outpatient rehabilitation 
facilities (CORFs), and partial hospitalization services provided by 
community mental health centers (CMHCs).
    (3) Other medicial services, equipment, and supplies that are not 
covered under Medicare Part A hospital insurance.
    (b) Limitations on amount of payment. (1) Medicare Part B does not 
pay the full reasonable costs or charges for all covered services. The 
beneficiary is responsible for an annual deductible and a blood 
deductible and, after the annual deductible has been satisfied, for 
coinsurance amounts specified for most of the services.
    (2) Specific rules on payment are set forth in subpart E of this 
part.

[51 FR 41339, Nov. 14, 1986, as amended at 57 FR 24981, June 12, 1992; 
58 FR 30668, May 26, 1993; 59 FR 6577, Feb. 11, 1994]



Sec. 410.5  Other applicable rules.

    The following other rules of this chapter set forth additional 
policies and procedures applicable to four of the kinds of services 
covered under the SMI program:
    (a) Part 405, subpart U: End-Stage Renal Disease services.
    (b) Part 405, Subpart X: Rural Health Clinic and Federally Qualified 
Health Center services.
    (c) Part 416: Ambulatory Surgical Center services.
    (d) Part 493: Laboratory Services.

[51 FR 41339, Nov. 14, 1986, as amended at 57 FR 7134, Feb. 28, 1992; 57 
FR 24981, June 12, 1992]



              Subpart B--Medical and Other Health Services



Sec. 410.10  Medical and other health services: Included services.

    Subject to the conditions and limitations specified in this subpart, 
``medical and other health services'' includes the following services:
    (a) Physicians' services.
    (b) Services and supplies furnished incident to a physician's 
professional services, of kinds that are commonly furnished in 
physicians' offices and are commonly either furnished without charge or 
included in the physicians' bills.
    (c) Services and supplies, including partial hospitalization 
services, that are incident to physician services and are furnished to 
outpatients by or under arrangements made by a hospital or a CAH.
    (d) Diagnostic services furnished to outpatients by or under 
arrangements made by a hospital or a CAH if the services are services 
that the hospital or CAH ordinarily furnishes to its outpatients for 
diagnostic study.
    (e) Diagnostic laboratory and X-ray tests (including diagnostic 
mammography that meets the conditions for

[[Page 207]]

coverage specified in Sec. 410.34(b) of this subpart) and other 
diagnostic tests.
    (f) X-ray therapy and other radiation therapy services.
    (g) Medical supplies, appliances, and devices.
    (h) Durable medical equipment.
    (i) Ambulance services.
    (j) Rural health clinic services.
    (k) Home dialysis supplies and equipment; on or after July 1, 1991, 
epoetin (EPO) for home dialysis patients, and, on or after January 1, 
1994, for dialysis patients, competent to use the drug; self-care home 
dialysis support services; and institutional dialysis services and 
supplies.
    (l) Pneumococcal vaccinations.
    (m) Outpatient physical therapy and speech pathology services.
    (n) Cardiac pacemakers and pacemaker leads.
    (o) Additional services furnished to enrollees of HMOs or CMPs, as 
described in Sec. 410.58.
    (p) Hepatitis B vaccine.
    (q) Blood clotting factors for hemophilia patients competent to use 
these factors without medical or other supervision.
    (r) Screening mammography services.
    (s) Federally qualified health center services.
    (t) Services of a certified registered nurse anesthetist or an 
anesthesiologist's assistant.
    (u) Prescription drugs used in immunosuppressive therapy.
    (v) Clinical psychologist services and services and supplies 
furnished as an incident to the services of a clinical psychologist, as 
provided in Sec. 410.71.
    (w) Clinical social worker services, as provided in Sec. 410.73.

[51 FR 41339, Nov. 14, 1986, as amended at 52 FR 27765, July 23, 1987; 
55 FR 22790, June 4, 1990; 55 FR 53522, Dec. 31, 1990; 56 FR 8841, Mar. 
1, 1991; 56 FR 43709, Sept. 4, 1991; 57 FR 24981, June 12, 1992; 57 FR 
33896, July 31, 1992; 58 FR 30668, May 26, 1993; 59 FR 26959, May 25, 
1994; 59 FR 49833, Sept. 30, 1994; 60 FR 8955, Feb. 16, 1995; 63 FR 
20128, Apr. 23, 1998]



Sec. 410.12  Medical and other health services: Basic conditions and limitations.

    (a) Basic conditions. The medical and other health services 
specified in Sec. 410.10 are covered by Medicare Part B only if they are 
not excluded under subpart A of part 411 of this chapter, and if they 
meet the following conditions:
    (1) When the services must be furnished. The services must be 
furnished while the individual is in a period of entitlement. (The rules 
on entitlement are set forth in part 406 of this chapter.)
    (2) By whom the services must be furnished. The services must be 
furnished by a facility or other entity as specified in Secs. 410.14 
through 410.69.
    (3) Physician certification and recertification requirements. If the 
services are subject to physician certification requirements, they must 
be certified as being medically necessary, and as meeting other 
applicable requirements, in accordance with subpart B of part 424 of 
this chapter.
    (b) Limitations on payment. Payment for medical and other health 
services is subject to limitations on the amounts of payment as 
specified in Secs. 410.152 and 410.155 and to the annual and blood 
deductibles as set forth in Secs. 410.160 and 410.161.

[51 FR 41339, Nov. 14, 1986, as amended at 53 FR 6648, Mar. 2, 1988; 57 
FR 33896, July 31, 1992]



Sec. 410.14  Special requirements for services furnished outside the United States.

    Medicare part B pays for physicians' services and ambulance services 
furnished outside the United States if the services meet the applicable 
conditions of Sec. 410.12 and are furnished in connection with covered 
inpatient hospital services that meet the specific requirements and 
conditions set forth in subpart H of part 424 of this chapter.

[51 FR 41339, Nov. 14, 1986, as amended at 53 FR 6648, Mar. 2, 1988]



Sec. 410.20  Physicians' services.

    (a) Included services. Medicare Part B pays for physicians' 
services, including diagnosis, therapy, surgery, consultations, and 
home, office, and institutional calls.
    (b) By whom services must be furnished. Medicare Part B pays for the 
services specified in paragraph (a) of this section if they are 
furnished by one of the following professionals who is legally 
authorized to practice by the State in

[[Page 208]]

which he or she performs the functions or actions, and who is acting 
within the scope of his or her license.
    (1) A doctor of medicine or osteopathy, including an osteopathic 
practitioner recognized in section 1101(a)(7) of the Act.
    (2) A doctor of dental surgery or dental medicine.
    (3) A doctor of podiatric medicine.
    (4) A doctor of optometry.
    (5) A chiropractor who meets the qualifications specified in 
Sec. 410.22
    (c) Limitations on services. The Services specified in paragraph (a) 
of this section may be covered under Medicare Part B if they are 
furnished within the limitations specified in Secs. 410.22 through 
410.25.



Sec. 410.22  Limitations on services of a chiropractor.

    (a) Qualifications for chiropractors. (1) A chiropractor licensed or 
authorized to practice before July 1, 1974, and an individual who began 
studies in a chiropractic college before that date, must have--
    (i) Had preliminary education equal to the requirements for 
graduation from an accredited high school or other secondary school;
    (ii) Graduated from a college of chiropractic approved by the 
State's chiropractic examiners after completing a course of study 
covering a period of not less than 3 school years of 6 months each year 
in actual continuous attendance and covering adequate courses of study 
in the subjects of anatomy, physiology, symptomatology and diagnosis, 
hygiene and sanitation, chemistry, histology, pathology, and principles 
and practice of chiropractic, including clinical instruction in 
vertebral palpation, nerve tracing and adjusting; and
    (iii) Passed an examination prescribed by the State's chiropractic 
examiners covering the subjects specified in paragraph (a)(1)(ii) of 
this section.
    (2) A chiropractor first licensed or authorized to practice after 
June 30, 1974, and an individual who begins studies in a chiropractic 
college after that date, must have--
    (i) Had preliminary education equal to the requirements for 
graduation from an accredited high school or other secondary school;
    (ii) Satisfactorily completed 2 years of pre-chiropractic study at 
the college level;
    (iii) Satisfactorily completed a 4-year course of 8 months each year 
offered by a college or school of chiropractic approved by the State's 
chiropractic examiners and including at least 4,000 hours in courses in 
anatomy, physiology, symptomatology and diagnosis, hygiene and 
sanitation, chemistry, histology, pathology, principles and practice of 
chiropractic, and clinical instruction in vertebral palpation, nerve 
tracing and adjusting, plus courses in the use and effect of X-ray and 
chiropractic analysis;
    (iv) Passed an examination prescribed by the State's chiropractic 
examiners covering the subjects specified in paragraph (a)(2)(iii) of 
this section; and
    (v) Attained 21 years of age.
    (b) Limitations on services. (1) Medicare Part B pays only for a 
chiropractor's manual manipulation of the spine to correct a 
subluxation, if X-ray demonstrates that a subluxation exists and if the 
subluxation has resulted in a neuromusculoskeletal condition for which 
manipulation is appropriate treatment.
    (2) Medicare Part B does not pay for X-rays or other diagnostic or 
therapeutic services furnished or ordered by a chiropractor.



Sec. 410.23  Limitations on services of an optometrist.

    The services of optometrists are covered only if related to the 
condition of aphakia (absence of the natural crystalline lens of the 
eye, regardless of whether an intraocular lens has been implanted). The 
following are examples of examination services that may be covered when 
furnished by optometrists:
    (a) Case history (the determination of changing visual performance 
as it relates to the condition of aphakia).
    (b) External examination (the inspection with illumination and 
magnification of eyelids and surrounding areas of the eye).

[[Page 209]]

    (c) Ophthalmoscopy (the inspection with illumination and 
magnification of the internal structure of the eye).
    (d) Biomicroscopy (the inspection of frontal tissues of the eye, 
using illumination and magnification).
    (e) Tonometry (the measurement of the internal pressure of the eye).
    (f) Evaluation of visual fields (central and peripheral fields of 
vision).
    (g) Evaluation of ocular motility (the determination of the ability 
of the eye to move efficiently).
    (h) Evaluation of binocular function (the ability of the eye to 
obtain single, clear, two-eyed vision).
    (i) Examination required to prescribe prosthetic lenses in 
connection with aphakia.



Sec. 410.24  Limitations on services of a doctor of dental surgery or dental medicine.

    Medicare Part B pays for services furnished by a doctor of dental 
surgery or dental medicine within the scope of his or her license, if 
the services would be covered as physicians' services when performed by 
a doctor of medicine or osteopathy.1
---------------------------------------------------------------------------

    \1\ For services furnished before July 1, 1981, Medicare Part B paid 
only for the following services of a doctor of dental surgery or dental 
medicine;
    Surgery on the jaw or any adjoining structure; and
    Reduction of a fracture of the jaw or other facial bone.

[51 FR 41339, Nov. 14, 1986, as amended at 56 FR 8852, Mar. 1, 1991]



Sec. 410.25  Limitations on services of a podiatrist.

    Medicare Part B pays for the services of a doctor of podiatric 
medicine, acting within the scope of his or her license, if the services 
would be covered as physicians' services when performed by a doctor of 
medicine or osteopathy.



Sec. 410.26  Services and supplies incident to a physician's professional services: Conditions.

    (a) Medicare Part B pays for services and supplies incident to a 
physician's professional services, including drugs and biologicals that 
cannot be self-administered, if the services or supplies are of the type 
that are commonly furnished in a physician's office or clinic, and are 
commonly furnished either without charge, or included in the physician's 
bill.
    (b) Drugs and biologicals are also subject to the limitations 
specified in Sec. 410.29.



Sec. 410.27  Outpatient hospital services and supplies incident to physicians' services: Conditions.

    (a) Medicare Part B pays for hospital services and supplies 
furnished incident to physicians' services to outpatients, including 
drugs and biologicals that cannot be self-administered, if--
    (1) They are furnished--
    (i) By or under arrangements made by a participating hospital, 
except in the case of an SNF resident as provided in Sec. 411.15(p) of 
this chapter; and
    (ii) As an integral though incidental part of a physician's 
services; and
    (2) In the case of partial hospitalization services, also meet the 
conditions of paragraph (d) of this section.
    (b) Drugs and biologicals are also subject to the limitations 
specified in Sec. 410.168.
    (c) Rules on emergency services furnished to outpatients by 
nonparticipating hospitals are specified in Sec. 410.168.
    (d) Medicare Part B pays for partial hospitalization services if 
they are--
    (1) Prescribed by a physician who certifies and recertifies the need 
for the services in accordance with subpart B of part 424 of this 
chapter; and
    (2) Furnished under a plan of treatment as required under subpart B 
of part 424 of this chapter.

[56 FR 8841, Mar. 1, 1991, as amended at 63 FR 26307, May 12, 1998]



Sec. 410.28  Hospital or CAH diagnostic services furnished to outpatients: Conditions.

    (a) Medicare Part B pays for hospital or CAH diagnostic services 
furnished to outpatients, including drugs and biologicals required in 
the performance of the services (even if those drugs or biologicals are 
self-administered), if those services meet the following conditions:
    (1) They are furnished by or under arrangements made by a 
participating hospital or participating CAH, except

[[Page 210]]

in the case of an SNF resident as provided in Sec. 411.15(p) of this 
chapter.
    (2) They are ordinarily furnished by, or under arrangements made by, 
the hospital or CAH to its outpatients for the purpose of diagnostic 
study.
    (3) They would be covered as inpatient hospital services if 
furnished to an inpatient.
    (4) If furnished under arrangements, they are furnished in the 
hospital or CAH or in other facilities operated by or under the 
supervision of the hospital or its organized medical staff.
    (b) Drugs and biologicals are also subject to the limitations 
specified in Sec. 410.29(b) and (c).
    (c) Rules on emergency services furnished to outpatients by 
nonparticipating hospitals are set forth in subpart G of part 424 of 
this chapter.

[51 FR 41339, Nov. 14, 1986, as amended at 58 FR 30668, May 26, 1993; 63 
FR 26307, May 12, 1998]



Sec. 410.29  Limitations on drugs and biologicals.

    Medicare part B does not pay for the following:
    (a) Except as provided in Sec. 410.28(a) for outpatient diagnostic 
services and Sec. 410.63(b) for blood clotting factors, and except for 
EPO, any drug or biological that can be self-administered.
    (b) Any drug product that meets all of the following conditions:
    (1) The drug product was approved by the Food and Drug 
Administration (FDA) before October 10, 1962.
    (2) The drug product is available only through prescription.
    (3) The drug product is the subject of a notice of opportunity for 
hearing issued under section 505(e) of the Federal Food, Drug, and 
Cosmetic Act and published in the Federal Register on a proposed order 
of FDA to withdraw its approval for the drug product because it has 
determined that the product is less than effective for all its labeled 
indications.
    (4) The drug product is presently not subject to a determination by 
FDA, made under its efficacy review program, that there is a compelling 
justification of the drug product's medical need. (21 CFR 310.6 contains 
an explanation of the efficacy review program.)
    (c) Any drug product that is identical, related, or similar, as 
defined in 21 CFR 310.6, to a drug product that meets the conditions of 
paragraph (b) of this section.

[51 FR 41339, Nov. 14, 1986, as amended at 55 FR 22790, June 4, 1990; 56 
FR 43709, Sept. 4, 1991]



Sec. 410.30  Prescription drugs used in immunosuppressive therapy.

    (a) Scope. Payment may be made for prescription drugs used in 
immunosuppressive therapy that have been approved for marketing by the 
FDA and that meet one of the following conditions:
    (1) The approved labeling includes the indication for preventing or 
treating the rejection of a transplanted organ or tissue.
    (2) The approved labeling includes the indication for use in 
conjunction with immunosuppressive drugs to prevent or treat rejection 
of a transplanted organ or tissue.
    (3) Have been determined by a carrier (in accordance with part 421, 
subpart C of this chapter), in processing a Medicare claim, to be 
reasonable and necessary for the specific purpose of preventing or 
treating the rejection of a patient's transplanted organ or tissue, or 
for use in conjunction with immunosuppressive drugs for the purpose of 
preventing or treating the rejection of a patient's transplanted organ 
or tissue. (In making these determinations, the carriers may consider 
factors such as authoritative drug compendia, current medical 
literature, recognized standards of medical practice, and professional 
medical publications.)
    (b) Period of eligibility. Coverage is available only for 
prescription drugs used in immunosuppressive therapy, furnished to an 
individual who receives an organ or tissue transplant for which Medicare 
payment is made, for the following periods:
    (1) For drugs furnished before 1995, for a period of up to 1 year 
beginning with the date of discharge from the hospital during which the 
covered transplant was performed.
    (2) For drugs furnished during 1995, within 18 months after the date 
of discharge from the hospital during which the covered transplant was 
performed.

[[Page 211]]

    (3) For drugs furnished during 1996, within 24 months after the date 
of discharge from the hospital during which the covered transplant was 
performed.
    (4) For drugs furnished during 1997, within 30 months after the date 
of discharge from the hospital during which the covered transplant was 
performed.
    (5) For drugs furnished after 1997, within 36 months after the date 
of discharge from the hospital during which the covered transplant was 
performed.
    (c) Coverage. Drugs are covered under this provision irrespective of 
whether they can be self-administered.

[60 FR 8955, Feb. 16, 1995. Redesignated at 63 FR 34327, June 24, 1998]



Sec. 410.31  Bone mass measurement: Conditions for coverage and frequency standards.

    (a) Definition. As used in this section unless specified otherwise, 
the following definition applies:
    Bone mass measurement means a radiologic, radioisotopic, or other 
procedure that meets the following conditions:
    (1) Is performed for the purpose of identifying bone mass, detecting 
bone loss, or determining bone quality.
    (2) Is performed with either a bone densitometer (other than dual-
photon absorptiometry) or with a bone sonometer system that has been 
cleared for marketing for this use by the FDA under 21 CFR part 807, or 
approved for marketing by the FDA for this use under 21 CFR part 814.
    (3) Includes a physician's interpretation of the results of the 
procedure.
    (b) Conditions for coverage. Medicare covers a medically necessary 
bone mass measurement if the following conditions are met:
    (1) Following an evaluation of the beneficiary's need for the 
measurement, including a determination as to the medically appropriate 
procedure to be used for the beneficiary, it is ordered by the physician 
or a qualified nonphysician practitioner (as these terms are defined in 
Sec. 410.32(a)) treating the beneficiary.
    (2) It is performed under the appropriate level of supervision of a 
physician (as set forth in Sec. 410.32(b)).
    (3) It is reasonable and necessary for diagnosing, treating, or 
monitoring the condition of a beneficiary who meets the conditions 
described in paragraph (d) of this section.
    (c) Standards on frequency of coverage--(1) General rule. Except as 
allowed under paragraph (c)(2) of this section, Medicare may cover a 
bone mass measurement for a beneficiary if at least 23 months have 
passed since the month the last bone mass measurement was performed.
    (2) Exception. If medically necessary, Medicare may cover a bone 
mass measurement for a beneficiary more frequently than allowed under 
paragraph (c)(1) of this section. Examples of situations where more 
frequent bone mass measurement procedures may be medically necessary 
include, but are not limited to, the following medical circumstances:
    (i) Monitoring beneficiaries on long-term glucocorticoid (steroid) 
therapy of more than 3 months.
    (ii) Allowing for a confirmatory baseline bone mass measurement 
(either central or peripheral) to permit monitoring of beneficiaries in 
the future if the initial test was performed with a technique that is 
different from the proposed monitoring method.
    (d) Beneficiaries who may be covered. The following categories of 
beneficiaries may receive Medicare coverage for a medically necessary 
bone mass measurement:
    (1) A woman who has been determined by the physician (or a qualified 
nonphysician practitioner) treating her to be estrogen-deficient and at 
clinical risk for osteoporosis, based on her medical history and other 
findings.
    (2) An individual with vertebral abnormalities as demonstrated by an 
x-ray to be indicative of osteoporosis, osteopenia, or vertebral 
fracture.
    (3) An individual receiving (or expecting to receive) glucocorticoid 
(steroid) therapy equivalent to 7.5 mg of prednisone, or greater, per 
day for more than 3 months.
    (4) An individual with primary hyperparathyroidism.
    (5) An individual being monitored to assess the response to or 
efficacy of an FDA-approved osteoporosis drug therapy.
    (e) Denial as not reasonable and necessary. If HCFA determines that 
a bone

[[Page 212]]

mass measurement does not meet the conditions for coverage in paragraphs 
(b) or (d) of this section, or the standards on frequency of coverage in 
paragraph (c) of this section, it is excluded from Medicare coverage as 
not ``reasonable'' and ``necessary'' under section 1862(a)(1)(A) of the 
Act and Sec. 411.15(k) of this chapter.

[63 FR 34327, June 24, 1998]



Sec. 410.32  Diagnostic x-ray tests, diagnostic laboratory tests, and other diagnostic tests: Conditions.

    (a) Ordering diagnostic tests. All diagnostic x-ray tests, 
diagnostic laboratory tests, and other diagnostic tests must be ordered 
by the physician who is treating the beneficiary, that is, the physician 
who furnishes a consultation or treats a beneficiary for a specific 
medical problem and who uses the results in the management of the 
beneficiary's specific medical problem. Tests not ordered by the 
physician who is treating the beneficiary are not reasonable and 
necessary (see Sec. 411.15(k)(1) of this chapter).
    (1) Chiropractic exception. A physician may order an x-ray to be 
used by a chiropractor to demonstrate the subluxation of the spine that 
is the basis for a beneficiary to receive manual manipulation treatments 
even though the physician does not treat the beneficiary.
    (2) Mammography exception. A physician who meets the qualification 
requirements for an interpreting physician under section 354 of the 
Public Health Service Act as provided in Sec. 410.34(a)(7) may order a 
diagnostic mammogram based on the findings of a screening mammogram even 
though the physician does not treat the beneficiary.
    (3) Application to nonphysician practitioners. Nonphysician 
practitioners (that is, clinical nurse specialists, clinical 
psychologists, clinical social workers, nurse-midwives, nurse 
practitioners, and physician assistants) who furnish services that would 
be physician services if furnished by a physician, and who are operating 
within the scope of their authority under State law and within the scope 
of their Medicare statutory benefit, may be treated the same as 
physicians treating beneficiaries for the purpose of this section.
    (b) Diagnostic x-ray and other diagnostic tests--(1) Basic rule. 
Except as indicated in paragraph (b)(2) of this section, all diagnostic 
x-ray and other diagnostic tests covered under section 1861(s)(3) of the 
Act and payable under the physician fee schedule must be furnished under 
the appropriate level of supervision by a physician as defined in 
section 1861(r) of the Act. Services furnished without the required 
level of supervision are not reasonable and necessary (see 
Sec. 411.15(k)(1) of this chapter).
    (2) Exceptions. The following diagnostic tests payable under the 
physician fee schedule are excluded from the basic rule set forth in 
paragraph (b)(1) of this section:
    (i) Diagnostic mammography procedures, which are regulated by the 
Food and Drug Administration.
    (ii) Diagnostic tests personally furnished by a qualified 
audiologist as defined in section 1861(ll)(3) of the Act.
    (iii) Diagnostic psychological testing services personally furnished 
by a clinical psychologist or a qualified independent psychologist as 
defined in program instructions.
    (iv) Diagnostic tests (as established through program instructions) 
personally performed by a physical therapist who is certified by the 
American Board of Physical Therapy Specialties as a qualified 
electrophysiologic clinical specialist and permitted to provide the 
service under State law.
    (3) Levels of supervision. Except where otherwise indicated, all 
diagnostic x-ray and other diagnostic tests subject to this provision 
and payable under the physician fee schedule must be furnished under at 
least a general level of physician supervision as defined in paragraph 
(b)(3)(i) of this section. In addition, some of these tests also require 
either direct or personal supervision as defined in paragraphs 
(b)(3)(ii) or (b)(3)(iii) of this section, respectively. When direct or 
personal supervision is required, physician supervision at the specified 
level is required throughout the performance of the test.

[[Page 213]]

    (i) General supervision means the procedure is furnished under the 
physician's overall direction and control, but the physician's presence 
is not required during the performance of the procedure. Under general 
supervision, the training of the nonphysician personnel who actually 
perform the diagnostic procedure and the maintenance of the necessary 
equipment and supplies are the continuing responsibility of the 
physician.
    (ii) Direct supervision in the office setting means the physician 
must be present in the office suite and immediately available to furnish 
assistance and direction throughout the performance of the procedure. It 
does not mean that the physician must be present in the room when the 
procedure is performed.
    (iii) Personal supervision means a physician must be in attendance 
in the room during the performance of the procedure.
    (c) Portable x-ray services. Portable x-ray services furnished in a 
place of residence used as the patient's home are covered if the 
following conditions are met:
    (1) These services are furnished under the general supervision of a 
physician, as defined in paragraph (b)(3)(i) of this section.
    (2) The supplier of these services meets the requirements set forth 
in part 486, subpart C of this chapter, concerning conditions for 
coverage for portable x-ray services.
    (3) The procedures are limited to--
    (i) Skeletal films involving the extremities, pelvis, vertebral 
column, or skull;
    (ii) Chest or abdominal films that do not involve the use of 
contrast media; and
    (iii) Diagnostic mammograms if the approved portable x-ray supplier, 
as defined in subpart C of part 486 of this chapter, meets the 
certification requirements of section 354 of the Public Health Service 
Act, as implemented by 21 CFR part 900, subpart B.
    (d) Diagnostic laboratory tests. Medicare Part B pays for covered 
diagnostic laboratory tests that are furnished by any of the following:
    (1) A participating hospital or participating RPCH.
    (2) A nonparticipating hospital that meets the requirements for 
emergency outpatient services specified in subpart G of part 424 of this 
chapter and the laboratory requirements specified in part 493 of this 
chapter.
    (3) The office of the patient's attending or consulting physician if 
that physician is a doctor of medicine, osteopathy, podiatric medicine, 
dental surgery, or dental medicine.
    (4) An RHC.
    (5) A laboratory, if it meets the applicable requirements for 
laboratories of part 493 of this chapter, including the laboratory of a 
nonparticipating hospital that does not meet the requirements for 
emergency outpatient services in subpart G of part 424 of this chapter.
    (6) An FQHC.
    (7) An SNF to its resident under Sec. 411.15(p) of this chapter, 
either directly (in accordance with Sec. 483.75(k)(1)(i) of this 
chapter) or under an arrangement (as defined in Sec. 409.3 of this 
chapter) with another entity described in this paragraph.

[62 FR 59098, Oct. 31, 1997, as amended at 63 FR 26308, May 12, 1998; 63 
FR 53307, Oct. 5, 1998]



Sec. 410.33  Independent diagnostic testing facility.

    (a) General rule. (1) Effective for diagnostic procedures performed 
on or after July 1, 1998, carriers will pay for diagnostic procedures 
under the physician fee schedule only when performed by a physician, a 
group practice of physicians, an approved supplier of portable x-ray 
services, or an independent diagnostic testing facility (IDTF). An IDTF 
may be a fixed location, a mobile entity, or an individual nonphysician 
practitioner. It is independent of a physician's office or hospital; 
however, these rules apply when an IDTF furnishes diagnostic procedures 
in a physician's office.
    (2) Exceptions. The following diagnostic tests that are payable 
under the physician fee schedule and furnished by a nonhospital testing 
entity are not required to be furnished in accordance with the criteria 
set forth in paragraphs (b) through (e) of this section:

[[Page 214]]

    (i) Diagnostic mammography procedures, which are regulated by the 
Food and Drug Administration.
    (ii) Diagnostic tests personally furnished by a qualified 
audiologist as defined in section 1861(ll)(3) of the Act.
    (iii) Diagnostic psychological testing services personally furnished 
by a clinical psychologist or a qualified independent psychologist as 
defined in program instructions.
    (iv) Diagnostic tests (as established through program instructions) 
personally performed by a physical therapist who is certified by the 
American Board of Physical Therapy Specialties as a qualified 
electrophysiologic clinical specialist and permitted to provide the 
service under State law.
    (b) Supervising physician. (1) An IDTF must have one or more 
supervising physicians who are responsible for the direct and ongoing 
oversight of the quality of the testing performed, the proper operation 
and calibration of the equipment used to perform tests, and the 
qualification of nonphysician personnel who use the equipment. This 
level of supervision is that required for general supervision set forth 
in Sec. 410.32(b)(3)(i).
    (2) The supervising physician must evidence proficiency in the 
performance and interpretation of each type of diagnostic procedure 
performed by the IDTF. The proficiency may be documented by 
certification in specific medical specialties or subspecialties or by 
criteria established by the carrier for the service area in which the 
IDTF is located. In the case of a procedure requiring the direct or 
personal supervision of a physician as set forth in 
Sec. 410.32(b)(3)(ii) or (b)(3)(iii), the IDTF's supervising physician 
must personally furnish this level of supervision whether the procedure 
is performed in the IDTF or, in the case of mobile services, at the 
remote location. The IDTF must maintain documentation of sufficient 
physician resources during all hours of operations to assure that the 
required physician supervision is furnished. In the case of procedures 
requiring direct supervision, the supervising physician may oversee 
concurrent procedures.
    (c) Nonphysician personnel. Any nonphysician personnel used by the 
IDTF to perform tests must demonstrate the basic qualifications to 
perform the tests in question and have training and proficiency as 
evidenced by licensure or certification by the appropriate State health 
or education department. In the absence of a State licensing board, the 
technician must be certified by an appropriate national credentialing 
body. The IDTF must maintain documentation available for review that 
these requirements are met.
    (d) Ordering of tests. All procedures performed by the IDTF must be 
specifically ordered in writing by the physician who is treating the 
beneficiary, that is, the physician who is furnishing a consultation or 
treating a beneficiary for a specific medical problem and who uses the 
results in the management of the beneficiary's specific medical problem. 
(Nonphysician practitioners may order tests as set forth in 
Sec. 410.32(a)(3).) The order must specify the diagnosis or other basis 
for the testing. The supervising physician for the IDTF may not order 
tests to be performed by the IDTF, unless the IDTF's supervising 
physician is in fact the beneficiary's treating physician. That is, the 
physician in question had a relationship with the beneficiary prior to 
the performance of the testing and is treating the beneficiary for a 
specific medical problem. The IDTF may not add any procedures based on 
internal protocols without a written order from the treating physician.
    (e) Multi-State entities. An IDTF that operates across State 
boundaries must maintain documentation that its supervising physicians 
and technicians are licensed and certified in each of the States in 
which it is furnishing services.
    (f) Applicability of State law. An IDTF must comply with the 
applicable laws of any State in which it operates.

[62 FR 59099, Oct. 31, 1997]



Sec. 410.34  Mammography services: Conditions for and limitations on coverage.

    (a) Definitions. As used in this section, the following definitions 
apply:
    (1) Diagnostic mammography means a radiologic procedure furnished to 
a man or woman with signs or symptoms of breast disease, or a personal 
history

[[Page 215]]

of breast cancer, or a personal history of biopsy-proven benign breast 
disease, and includes a physician's interpretation of the results of the 
procedure.
    (2) Screening mammography means a radiologic procedure furnished to 
a woman without signs or symptoms of breast disease, for the purpose of 
early detection of breast cancer, and includes a physician's 
interpretation of the results of the procedure.
    (3) Supplier of diagnostic mammography means a facility that is 
certified and responsible for ensuring that all diagnostic mammography 
services furnished to Medicare beneficiaries meet the conditions for 
coverage of diagnostic mammography services as specified in paragraph 
(b) of this section.
    (4) Supplier of screening mammography means a facility that is 
certified and responsible for ensuring that all screening mammography 
services furnished to Medicare beneficiaries meet the conditions and 
limitations for coverage of screening mammography services as specified 
in paragraphs (c) and (d) of this section.
    (5) Certificate means the certificate described in 21 CFR 900.2(b) 
that may be issued to, or renewed for, a facility that meets the 
requirements for conducting an examination or procedure involving 
mammography.
    (6) Provisional certificate means the provisional certificate 
described in 21 CFR 900.2(m) that may be issued to a facility to enable 
the facility to qualify to meet the requirements for conducting an 
examination or procedure involving mammography.
    (7) The term meets the certification requirements of section 354 of 
the Public Health Service (PHS) Act means that in order to qualify for 
coverage of its services under the Medicare program, a supplier of 
diagnostic or screening mammography services must meet the following 
requirements:
    (i) Must have a valid provisional certificate, or a valid 
certificate, that has been issued by FDA indicating that the supplier 
meets the certification requirements of section 354 of the PHS Act, as 
implemented by 21 CFR part 900, subpart B.
    (ii) Has not been issued a written notification by FDA that states 
that the supplier must cease conducting mammography examinations because 
the supplier is not in compliance with certain critical certification 
requirements of section 354 of the PHS Act, implemented by 21 CFR part 
900, subpart B.
    (iii) Must not employ for provision of the professional component of 
mammography services a physician or physicians for whom the facility has 
received written notification by FDA that the physician (or physicians) 
is (or are) in violation of the certification requirements set forth in 
section 354 of the PHS Act, as implemented by 21 CFR 900.12(a)(1)(i).
    (b) Conditions for coverage of diagnostic mammography services. 
Medicare Part B pays for diagnostic mammography services if they meet 
the following conditions:
    (1) They are ordered by a doctor of medicine or osteopathy (as 
defined in section 1861(r)(1) of the Act).
    (2) They are furnished by a supplier of diagnostic mammography 
services that meets the certification requirements of section 354 of the 
PHS Act, as implemented by 21 CFR part 900, subpart B.
    (c) Conditions for coverage of screening mammography services. 
Medicare Part B pays for screening mammography services if they are 
furnished by a supplier of screening mammography services that meets the 
certification requirements of section 354 of the PHS Act, as implemented 
by 21 CFR part 900, subpart B.
    (d) Limitations on coverage of screening mammography services. The 
following limitations apply to coverage of screening mammography 
services as described in paragraphs (c) and (d) of this section:
    (1) The service must be, at a minimum a two-view exposure (that is, 
a cranio-caudal and a medial lateral oblique view) of each breast.
    (2) Payment may not be made for screening mammography performed on a 
woman under age 35.
    (3) Payment may be made for only 1 screening mammography performed 
on a woman over age 34, but under age 40.
    (4) For an asymptomatic woman over 39 years of age, payment may be 
made for a screening mammography performed after at least 11 months have 
passed following the month in which

[[Page 216]]

the last screening mammography was performed.

[59 FR 49833, Sept. 30, 1994, as amended at 60 FR 14224, Mar. 16, 1995; 
60 FR 63176, Dec. 8, 1995; 62 FR 59100, Oct. 31, 1997; 63 FR 4596, Jan. 
30, 1998]



Sec. 410.35  X-ray therapy and other radiation therapy services: Scope.

    Medicare Part B pays for X-ray therapy and other radiation therapy 
services, including radium therapy and radioactive isotope therapy, and 
materials and the services of technicians administering the treatment.

[51 FR 41339, Nov. 14, 1986. Redesignated at 55 FR 53522, Dec. 31, 1990]



Sec. 410.36  Medical supplies, appliances, and devices: Scope.

    (a) Medicare Part B pays for the following medical supplies, 
appliances and devices:
    (1) Surgical dressings, and splints, casts, and other devices used 
for reduction of fractures and dislocations.
    (2) Prosthetic devices, other than dental, that replace all or part 
of an internal body organ, including colostomy bags and supplies 
directly related to colostomy care, including--
    (i) Replacement of prosthetic devices; and
    (ii) One pair of conventional eyeglasses or conventional contact 
lenses furnished after each cataract surgery during which an intraocular 
lens is inserted.
    (3) Leg, arm, back, and neck braces and artificial legs, arms, and 
eyes, including replacements if required because of a change in the 
individual's physical condition.
    (b) As a requirement for payment, HCFA may determine through carrier 
instructions, or carriers may determine, that an item listed in 
paragraph (a) of this section requires a written physician order before 
delivery of the item.

[51 FR 41339, Nov. 14, 1986, as amended at 57 FR 36014, Aug. 12, 1992; 
57 FR 57688, Dec. 7, 1992]



Sec. 410.37  Colorectal cancer screening tests: Conditions for and limitations on coverage.

    (a) Definitions. As used in this section, the following definitions 
apply:
    (1) Colorectal cancer screening tests means any of the following 
procedures furnished to an individual for the purpose of early detection 
of colorectal cancer:
    (i) Screening fecal-occult blood tests.
    (ii) Screening flexible sigmoidoscopies.
    (iii) In the case of an individual at high risk for colorectal 
cancer, screening colonoscopies.
    (iv) Screening barium enemas.
    (v) Other tests or procedures, and modifications to tests under this 
paragraph, with such frequency and payment limits as HCFA determines 
appropriate, in consultation with appropriate organizations.
    (2) Screening fecal-occult blood test means a guaiac-based test for 
peroxidase activity, testing two samples from each of three consecutive 
stools.
    (3) An individual at high risk for colorectal cancer means an 
individual with--
    (i) A close relative (sibling, parent, or child) who has had 
colorectal cancer or an adenomatous polyp;
    (ii) A family history of familial adenomatous polyposis;
    (iii) A family history of hereditary nonpolyposis colorectal cancer;
    (iv) A personal history of adenomatous polyps; or
    (v) A personal history of colorectal cancer; or
    (vi) Inflammatory bowel disease, including Crohn's Disease, and 
ulcerative colitis.
    (4) Screening barium enema means--
    (i) A screening double contrast barium enema of the entire 
colorectum (including a physician's interpretation of the results of the 
procedure); or
    (ii) In the case of an individual whose attending physician decides 
that he or she cannot tolerate a screening double contrast barium enema, 
a screening single contrast barium enema of the entire colorectum 
(including a physician's interpretation of the results of the 
procedure).
    (5) An attending physician for purposes of this provision is a 
doctor of medicine or osteopathy (as defined in section 1861(r)(1) of 
the Act) who is fully knowledgeable about the beneficiary's medical 
condition, and who would be

[[Page 217]]

responsible using the results of any examination performed in the 
overall management of the beneficiary's specific medical problem.
    (b) Condition for coverage of screening fecal-occult blood tests. 
Medicare Part B pays for a screening fecal-occult blood test if it is 
ordered in writing by the beneficiary's attending physician.
    (c) Limitations on coverage of screening fecal-occult blood tests. 
(1) Payment may not be made for a screening fecal-occult blood test 
performed for an individual under age 50.
    (2) For an individual 50 years of age or over, payment may be made 
for a screening fecal-occult blood test performed after at least 11 
months have passed following the month in which the last screening 
fecal-occult blood test was performed.
    (d) Condition for coverage of screening flexible sigmoidoscopies. 
Medicare Part B pays for a screening flexible sigmoidoscopy service if 
it is performed by a doctor of medicine or osteopathy (as defined in 
section 1861(r)(1) of the Act).
    (e) Limitations on coverage of screening flexible sigmoidoscopies. 
(1) Payment may not be made for a screening flexible sigmoidoscopy 
performed for an individual under age 50.
    (2) For an individual 50 years of age or over, payment may be made 
for a screening flexible sigmoidoscopy after at least 47 months have 
passed following the month in which the last screening flexible 
sigmoidoscopy or, as provided in paragraphs (h) and (i) of this section, 
the last screening barium enema was performed.
    (f) Condition for coverage of screening colonoscopies. Medicare Part 
B pays for a screening colonoscopy if it is performed by a doctor of 
medicine or osteopathy (as defined in section 1861(r)(1) of the Act).
    (g) Limitations on coverage of screening colonoscopies. (1) Payment 
may not be made for a screening colonoscopy for an individual who is not 
at high risk for colorectal cancer as described in paragraph (a)(3) of 
this section.
    (2) Payment may be made for a screening colonoscopy performed for an 
individual who is at high risk for colorectal cancer as described in 
paragraph (a)(3) of this section, after at least 23 months have passed 
following the month in which the last screening colonoscopy was 
performed, or as provided in paragraphs (h) and (i) of this section, the 
last screening barium enema was performed.
    (h) Conditions for coverage of screening barium enemas. Medicare 
Part B pays for a screening barium enema if it is ordered in writing by 
the beneficiary's attending physician.
    (i) Limitations on coverage of screening barium enemas. (1) In the 
case of an individual age 50 or over who is not at high risk of 
colorectal cancer, payment may be made for a screening barium enema 
examination performed after at least 47 months have passed following the 
month in which the last screening barium enema or screening flexible 
sigmoidoscopy was performed.
    (2) In the case of an individual who is at high risk for colorectal 
cancer, payment may be made for a screening barium enema examination 
performed after at least 23 months have passed following the month in 
which the last screening barium enema or the last screening colonoscopy 
was performed.

[62 FR 59100, Oct. 31, 1997]



Sec. 410.38  Durable medical equipment: Scope and conditions.

    (a) Medicare Part B pays for the rental or purchase of durable 
medical equipment, including iron lungs, oxygen tents, hospital beds, 
and wheelchairs, if the equipment is used in the patient's home or in an 
institution that is used as a home.
    (b) An institution that is used as a home may not be a hospital or a 
CAH or a SNF as defined in sections 1861(e)(1), 1861(mm)(1) and 
1819(a)(1) of the Act, respectively.
    (c) Wheelchairs may include a power-operated vehicle that may be 
appropriately used as a wheelchair, but only if the vehicle--
    (1) Is determined to be necessary on the basis of the individual's 
medical and physical condition;
    (2) Meets any safety requirements specified by HCFA; and
    (3) Except as provided in paragraph (c)(2) of this section, is 
ordered in writing by a specialist in physical medicine, orthopedic 
surgery, neurology, or

[[Page 218]]

rheumatology, the written order is furnished to the supplier before the 
delivery of the vehicle to the beneficiary, and the beneficiary requires 
the vehicle and is capable of using it.
    (4) A written prescription from the beneficiary's physician is 
acceptable for ordering a power-operated vehicle if a specialist in 
physical medicine, orthopedic surgery, neurology, or rheumatology is not 
reasonably accessible. For example, if travel to the specialist would be 
more than one day's trip from the beneficiary's home or if the 
beneficiary's medical condition precluded travel to the nearest 
available specialist, these circumstances would satisfy the ``not 
reasonably accessible'' requirement.
    (d) Medicare Part B pays for medically necessary equipment that is 
used for treatment of decubitus ulcers if--
    (1) The equipment is ordered in writing by the beneficiary's 
attending physician, or by a specialty physician on referral from the 
beneficiary's attending physician, and the written order is furnished to 
the supplier before the delivery of the equipment; and
    (2) The prescribing physician has specified in the prescription that 
he or she will be supervising the use of the equipment in connection 
with the course of treatment.
    (e) Medicare Part B pays for a medically necessary seat-lift if it--
    (1) Is ordered in writing by the beneficiary's attending physician, 
or by a specialty physician on referral from the beneficiary's attending 
physician, and the written order is furnished to the supplier before the 
delivery of the seat-lift;
    (2) Is for a beneficiary who has a diagnosis designated by HCFA as 
requiring a seat-lift; and
    (3) Meets safety requirements specified by HCFA.
    (f) Medicare Part B pays for transcutaneous electrical nerve 
stimulator units that are--
    (1) Determined to be medically necessary; and
    (2) Ordered in writing by the beneficiary's attending physician, or 
by a specialty physician on referral from the beneficiary's attending 
physician, and the written order is furnished to the supplier before the 
delivery of the unit to the beneficiary.
    (g) As a requirement for payment, HCFA may determine through carrier 
instructions, or carriers may determine that an item of durable medical 
equipment requires a written physician order before delivery of the 
item.

[51 FR 41339, Nov. 14, 1986, as amended at 57 FR 57688, Dec. 7, 1992; 58 
FR 30668, May 26, 1993]



Sec. 410.40  Ambulance services: Limitations.

    (a) Definitions. As used in this section--
    Ambulance means a vehicle that--
    (1) Is specially designed for transporting the sick or injured;
    (2) Contains a stretcher, linens, first aid supplies, oxygen 
equipment, and other lifesaving equipment required by State or local 
laws; and
    (3) Is staffed with personnel trained to provide first aid 
treatment.
    Appropriate hospital, CAH or SNF refers to a hospital, CAH or SNF 
that is capable of providing the required level and type of care for the 
patient's illness or injury and, in the case of a hospital, has 
available the type of physician or physician specialist needed to treat 
the patient's condition.
    Hospital inpatient or CAH inpatient means a beneficiary who has been 
formally admitted to a hospital or CAH and has not been formally 
discharged.
    Locality means the service area, surrounding a hospital or CAH or 
SNF, from which individuals normally come or are expected to come for 
hospital or CAH or SNF services.
    Outside supplier means a hospital or CAH or a nonhospital treatment 
facility, such as a clinic, therapy center, or physician's office, where 
a hospital or SNF inpatient may be taken to receive medically necessary 
diagnostic or therapeutic services not available at the hospital or SNF 
where he or she is an inpatient.
    (b) Limits on coverage of ambulance transportation. Medicare Part B 
pays for ambulance transportation only if--
    (1) Other means of transportation would endanger the beneficiary's 
health;
    (2) Medicare Part A payment is not available for the service;

[[Page 219]]

    (3) In the case of a hospital inpatient and CAH inpatient--
    (i) The transportation is furnished by, or under arrangements made 
by, the hospital or CAH; or
    (ii) The transportation is furnished by an ambulance service with 
which the hospital does not have an arrangement (as defined in 
Sec. 409.3 of this chapter), and the hospital has a waiver (in 
accordance with Sec. 489.23 of this chapter) under which Medicare Part B 
payment may be made to the ambulance service; and
    (4) In the case of an SNF resident (as defined in Sec. 411.15(p)(3) 
of this chapter), the transportation is furnished by, or under 
arrangements made by, the SNF.
    (c) Limits on origins and destinations. Medicare Part B pays for 
ambulance transportation of a beneficiary--
    (1) To a hospital or CAH or SNF, from any point of origin;
    (2) To his or her home, from a hospital or CAH or SNF; or
    (3) Round trip from a hospital or CAH or a participating SNF to an 
outside supplier to obtain medically necessary diagnostic or therapeutic 
services not available at the hospital or CAH or SNF where the 
beneficiary is an inpatient.
    (d) Specific limits on coverage of ambulance transportation outside 
the United States. In the case of services furnished outside the United 
States, Medicare Part B pays only for ambulance transportation to a 
foreign hospital and only in conjunction with the beneficiary's 
admission for medically necessary inpatient services as specified in 
subpart H of part 424 of this chapter.
    (e) Limitation on payments. Medicare payments for ambulance services 
within the United States are limited to the amounts that would be paid 
for transportation--
    (1) To an appropriate hospital or CAH or SNF in whose locality the 
beneficiary is located or, if the beneficiary is not in the locality of 
an appropriate hospital or CAH or SNF, to the nearest appropriate 
hospital or CAH or SNF;
    (2) To the beneficiary's home from a hospital or CAH or SNF in whose 
locality the home is located, or from the nearest appropriate hospital 
or CAH or SNF; or
    (3) Round trip to the nearest outside supplier capable of providing 
necessary diagnostic or therapeutic services not available at the 
hospital or CAH or SNF where the beneficiary is an inpatient.

[51 FR 41339, Nov. 14, 1986; 52 FR 4499, Feb. 12, 1987, as amended at 53 
FR 6648, Mar. 2, 1988; 58 FR 30668, May 26, 1993; 63 FR 26308, May 12, 
1998]



Sec. 410.43  Partial hospitalization services: Conditions and exclusions.

    (a) Partial hospitalization services are services that--
    (1) Are reasonable and necessary for the diagnosis or active 
treatment of the individual's condition;
    (2) Are reasonably expected to improve or maintain the individual's 
condition and functional level and to prevent relapse or 
hospitalization; and
    (3) Include any of the following:
    (i) Individual and group therapy with physicians or psychologists or 
other mental health professionals to the extent authorized under State 
law.
    (ii) Occupational therapy requiring the skills of a qualified 
occupational therapist.
    (iii) Services of social workers, trained psychiatric nurses, and 
other staff trained to work with psychiatric patients.
    (iv) Drugs and biologicals furnished for therapeutic purposes, 
subject to the limitations specified in Sec. 410.29.
    (v) Individualized activity therapies that are not primarily 
recreational or diversionary.
    (vi) Family counseling, the primary purpose of which is treatment of 
the individual's condition.
    (vii) Patient training and education, to the extent the training and 
educational activities are closely and clearly related to the 
individual's care and treatment.
    (viii) Diagnostic services.
    (b) The following services are separately covered and not paid as 
partial hospitalization services:
    (1) Physicians' services that meet the criteria of part 405, subpart 
F of this chapter for payment on a fee schedule basis in accordance with 
part 414 of this chapter.
    (2) Physician assistant services, as defined in section 
1861(s)(2)(K)(i) of the

[[Page 220]]

Act, that are furnished after December 31, 1990.
    (3) Clinical psychologist services, as defined in section 1861(ii) 
of the Act, that are furnished after December 31, 1990.

[59 FR 6577, Feb. 11, 1994]



Sec. 410.45  Rural health clinic services: Scope and conditions.

    (a) Medicare Part B pays for the following rural health clinic 
services, if they are furnished in accordance with the requirements and 
conditions specified in part 405, subpart X, and part 491 of this 
chapter:
    (1) Physicians' services.
    (2) Services and supplies furnished as an incident to physicians' 
professional services.
    (3) Nurse practitioner and physician assistant services.
    (4) Services and supplies furnished as an incident to nurse 
practitioners' or physician assistants' services.
    (5) Visiting nurse services.
    (b) Medicare pays for rural health clinic services when they are 
furnished at the clinic, at a hospital or other medical facility, or at 
the beneficiary's place of residence.



Sec. 410.50  Institutional dialysis services and supplies: Scope and conditions.

    Medicare Part B pays for the following institutional dialysis 
services and supplies if they are furnished in approved ESRD facilities:
    (a) All services, items, supplies, and equipment necessary to 
perform dialysis and drugs medically necessary in the treatment of the 
patient for ESRD.
    (b) Routine dialysis monitoring tests (i.e., hematocrit and clotting 
time) used by the facility to monitor the patients' fluids incident to 
each dialysis treatment, when performed by qualified staff of the 
facility under the direction of a physician, as provided in 
Sec. 405.2163(b) of this chapter, even if the facility does not meet the 
conditions for coverage of services of independent laboratories in 
subpart M of part 405 of this chapter.
    (c) Routine diagnostic tests.
    (d) Epoetin (EPO) and its administration.

[51 FR 41339, Nov. 14, 1986, as amended at 56 FR 43709, Sept. 4, 1991; 
59 FR 1285, Jan. 10, 1994]



Sec. 410.52  Home dialysis services, supplies, and equipment: Scope and conditions.

    (a) Medicare Part B pays for the following services, supplies, and 
equipment furnished to an ESRD patient in his or her home:
    (1) Purchase or rental, installation, and maintenance of all 
dialysis equipment necessary for home dialysis, and reconditioning of 
this equipment. Dialysis equipment includes, but is not limited to, 
artificial kidney and automated peritoneal dialysis machines, and 
support equipment such as blood pumps, bubble detectors, and other alarm 
systems.
    (2) Items and supplies required for dialysis, including (but not 
limited to) dialyzers, syringes and needles, forceps, scissors, scales, 
sphygmomanometer with cuff and stethoscope, alcohol wipes, sterile 
drapes, and rubber gloves.
    (3) Home dialysis support services furnished by an approved ESRD 
facility, including periodic monitoring of the patient's home 
adaptation, emergency visits by qualified provider or facility 
personnel, any of the tests specified in paragraphs (b) through (d) of 
Sec. 410.50, personnel costs associated with the installation and 
maintenance of dialysis equipment, testing and appropriate treatment of 
water, and ordering of supplies on an ongoing basis.
    (4) On or after July 1, 1991, epoetin (EPO) for use at home by a 
home dialysis patient and, on or after January 1, 1994, by a dialysis 
patient, if it has been determined, in accordance with Sec. 405.2163 of 
this chapter, that the patient is competent to use the drug safely and 
effectively.
    (b) Home dialysis support services specified in paragraph (a)(3) of 
this section must be furnished in accordance with a written treatment 
plan that is prepared and reviewed by a team consisting of the 
individual's physician

[[Page 221]]

and other qualified professionals. (Section 405.2137 of this chapter 
contains specific details.)

[51 FR 41339, Nov. 14, 1986, as amended at 56 FR 43709, Sept. 4, 1991; 
59 FR 26959, May 25, 1994]



Sec. 410.55  Services related to kidney donations: Conditions.

    Medicare Part B pays for medical and other health services covered 
under this subpart that are furnished in connection with a kidney 
donation--
    (a) If the kidney is intended for an individual who has end-stage 
renal disease and is entitled to Medicare benefits; and
    (b) Regardless of whether the donor is entitled to Medicare.



Sec. 410.56  Screening pelvic examinations.

    (a) Conditions for screening pelvic examinations. Medicare Part B 
pays for a screening pelvic examination (including a clinical breast 
examination) if it is performed by a doctor of medicine or osteopathy 
(as defined in section 1861(r)(1) of the Act), or by a certified nurse 
midwife (as defined in section 1861(gg) of the Act), or a physician 
assistant, nurse practitioner, or clinic nurse specialist (as defined in 
section 1861(aa) of the Act) who is authorized under State law to 
perform the examination.
    (b) Limits on coverage of screening pelvic examinations. The 
following limitations apply to coverage of screening pelvic examination 
services:
    (1) General rule. Except as specified in paragraphs (b)(2) and 
(b)(3) of this section, payment may be made for a pelvic examination 
performed on an asymptomatic woman only if the individual has not had a 
pelvic examination paid for by Medicare during the preceding 35 months 
following the month in which her last Medicare-covered screening pelvic 
examination was performed.
    (2) More frequent screening based on high-risk factors. Subject to 
the limitation as specified in paragraph (b)(4) of this section, payment 
may be made for a screening pelvic examination performed more frequently 
than once every 36 months if the test is performed by a physician or 
other practitioner specified in paragraph (a) of this section, and there 
is evidence that the woman is at high risk (on the basis of her medical 
history or other findings) of developing cervical cancer, or vaginal 
cancer, as determined in accordance with the following risk factors:
    (i) High risk factors for cervical cancer:
    (A) Early onset of sexual activity (under 16 years of age).
    (B) Multiple sexual partners (five or more in a lifetime).
    (C) History of a sexually transmitted disease (including HIV 
infection).
    (D) Absence of three negative or any Pap smears within the previous 
7 years.
    (ii) High risk factor for vaginal cancer: DES (diethylstilbestrol)-
exposed daughters of women who took DES during pregnancy.
    (3) More frequent screening for women of childbearing age. Subject 
to the limitation as specified in paragraph (b)(4) of this section, 
payment may be made for a screening pelvic examination performed more 
frequently than once every 36 months if the test is performed by a 
physician or other practitioner as specified in paragraph (a) of this 
section for a woman of childbearing age who has had such an examination 
that indicated the presence of cervical or vaginal cancer or other 
abnormality during any of the preceding 3 years. The term ``woman of 
childbearing age'' means a woman who is premenopausal, and has been 
determined by a physician, or qualified practitioner as specified in 
paragraph (a) of this section, to be of childbearing age, based on her 
medical history or other findings.
    (4) Limitation applicable to women at high risk and those of 
childbearing age. Payment is not made for a screening pelvic examination 
for women considered to be at high risk (under any of the criteria 
described in paragraph (b)(2) of this section), or who qualify for 
coverage under the childbearing provision (under the criteria described 
in paragraph (b)(3) of this section) more frequently than once every 11 
months after the month that the last screening pelvic examination 
covered by Medicare was performed.

[62 FR 59101, Oct. 31, 1997; 63 FR 4596, Jan. 30, 1998]

[[Page 222]]



Sec. 410.57  Pneumococcal vaccine and flu vaccine.

    (a) Medicare Part B pays for pneumococcal vaccine and its 
administration when reasonable and necessary for the prevention of 
disease, if the vaccine is ordered by a doctor of medicine or 
osteopathy.
    (b) Medicare Part B pays for the influenza virus vaccine and its 
administration.

[63 FR 35066, June 26, 1998]



Sec. 410.58  Additional services to HMO and CMP enrollees.

    Services not usually covered under Medicare Part B may be covered as 
medical and other health services if they are furnished to an enrollee 
of an HMO or a CMP and the following conditions are met:
    (a) The services are--
    (1) Furnished by a physician assistant or nurse practitioner as 
defined in Sec. 491.2 of this chapter, or are incident to services 
furnished by such a practitioner; or
    (2) Furnished by a clinical psychologist as defined in Sec. 417.416 
of this chapter to an enrollee of an HMO or CMP that participates in 
Medicare under a risk-sharing contract, or are incident to those 
services.
    (b) The services are services that would be covered under Medicare 
Part B if they were furnished by a physician or as incident to a 
physician's professional services.



Sec. 410.60  Outpatient physical therapy services: Conditions.

    (a) Basic rule. Medicare Part B pays for outpatient physical therapy 
services if they meet the following conditions:
    (1) They are furnished to a beneficiary while he or she is under the 
care of a physician who is a doctor of medicine, osteopathy, or 
podiatric medicine.
    (2) They are furnished under a written plan of treatment that meets 
the requirements of Sec. 410.61.
    (3) They are furnished--
    (i) By a provider, or by others under arrangements with, and under 
the supervision of, a provider; or
    (ii) By or under the direct supervision of a physical therapist in 
independent practice who is licensed by the State in which he or she 
practices and who meets the qualifications specified in Sec. 485.705(b) 
of this chapter.
    (b) Outpatient physical therapy services to certain inpatients of a 
hospital or a CAH or SNF. Medicare Part B pays for outpatient physical 
therapy services furnished to an inpatient of a hospital, CAH or SNF who 
requires them but who has exhausted or is otherwise ineligible for 
benefit days under Medicare Part A.
    (c) Special provisions for services furnished by physical therapists 
in independent practice--(1) Who is a physical therapist in independent 
practice. A physical therapist in independent practice is one who--
    (i) Engages in the practice of physical therapy on a regular basis;
    (ii) Furnishes services on his or her own responsibility without the 
administrative and professional control of an employer;
    (iii) Maintains, at his or her own expense, office space and the 
necessary equipment to provide an adequate program of physical therapy;
    (iv) Furnishes services only in office space maintained at his or 
her expense, or in the patient's home; and
    (v) Treats individuals who are his or her own patients and collects 
fees or other compensation for the services furnished.
    (2) Limitation on incurred expenses. (i) Before 1982, not more than 
$100 of reasonable charges incurred in a calendar year are recognized as 
incurred expenses.
    (ii) From 1982 through 1989, not more than $500 of reasonable 
charges incurred in a calendar year are recognized as incurred expenses.
    (iii) From 1990 through 1993, not more than $750 of reasonable 
charges incurred in a calendar year are recognized as incurred expenses.
    (iv) After 1993, not more than $900 of reasonable charges incurred 
in a calendar year are recognized as incurred expenses.
    (d) Excluded services. No service is included as an outpatient 
physical therapy service if it would not be included

[[Page 223]]

as an inpatient hospital service if furnished to a hospital or CAH 
inpatient.

[51 FR 41339, Nov. 14, 1986, as amended at 53 FR 6648, Mar. 2, 1988; 56 
FR 8852, Mar. 1, 1991; 56 FR 23022, May 20, 1991; 58 FR 30668, May 26, 
1993; 59 FR 26959, May 25, 1994; 60 FR 2329, Jan. 9, 1995]



Sec. 410.61  Plan of treatment requirements for outpatient physical therapy and speech pathology services.

    (a) Basic requirement. Outpatient physical therapy services 
(including services furnished by a qualified physical therapist in 
independent practice), and outpatient speech pathology services must be 
furnished under a written plan of treatment that meets the requirements 
of paragraphs (b) through (e) of this section.
    (b) Establishment of the plan. The plan is established before 
treatment is begun by one of the following:1
---------------------------------------------------------------------------

    \1\ Before January 1981, only a physician could establish a plan of 
treatment for physical therapy or speech pathology service. Speech 
pathologists were authorized to establish a plan effective January 1, 
1981; physical therapists, effective July 18, 1984.
---------------------------------------------------------------------------

    (1) A physician.
    (2) A physical therapist who will furnish the physical therapy 
services.
    (3) A speech pathologist who will furnish the speech pathology 
services.
    (c) Content of the plan. The plan prescribes the type, amount, 
frequency, and duration of the physical therapy or speech pathology 
services to be furnished to the individual, and indicates the diagnosis 
and anticipated goals.
    (d) Changes in the plan. Any changes in the plan--
    (1) Are made in writing and signed by one of the following:
    (i) The physician or the physical therapist or speech pathologist 
who furnishes the services.
    (ii) A registered professional nurse or a staff physician, in 
accordance with oral orders from the physician, physical therapist, or 
speech pathologist who furnishes the services.
    (2) The changes are incorporated in the plan immediately.
    (e) Review of the plan. (1) The physician reviews the plan as often 
as the individual's condition requires, but at least every 30 days.
    (2) Each review is dated and signed by the physician who performs 
it.

[53 FR 6638, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988, as amended at 54 
FR 38680, Sept. 20, 1989; 54 FR 46614, Nov. 6, 1989. Redesignated at 56 
FR 8854, Mar. 1, 1991; 56 FR 23022, May 20, 1991]



Sec. 410.62  Outpatient speech pathology services: Conditions and exclusions.

    (a) Basic rule. Medicare Part B pays for outpatient speech pathology 
services if they meet the following conditions:
    (1) They are furnished to a beneficiary while he or she is under the 
care of a physician who is a doctor of medicine or osteopathy.
    (2) They are furnished under a written plan of treatment that--
    (i) Is established by a physician or, effective January 1, 1982, by 
either a physician or the speech pathologist who will provide the 
services to the particular individual;
    (ii) Is periodically reviewed by a physician; and
    (iii) Meets the requirements of Sec. 410.63.
    (3) They are furnished by a provider or by others under arrangements 
with, and under the supervision of, a provider.
    (b) Outpatient speech pathology services to certain inpatients of a 
hospital, CAH, or SNF. Medicare Part B pays for outpatient speech 
pathology services furnished to an inpatient of a hospital, CAH, or SNF 
who requires them but has exhausted or is otherwise ineligible for 
benefit days under Medicare Part A.
    (c) Excluded services. No service is included as an outpatient 
speech pathology service if it would not be included as an inpatient 
hospital service if furnished to a hospital or CAH inpatient.

[51 FR 41339, Nov. 14, 1986, as amended at 53 FR 6648, Mar. 2, 1988; 56 
FR 8852, Mar. 1, 1991; 56 FR 23022, May 20. 1991; 58 FR 30668, May 26, 
1993]



Sec. 410.63  Hepatitis B vaccine and blood clotting factors: Conditions.

    Notwithstanding the exclusion from coverage of vaccines (see 
Sec. 405.310 of this chapter) and self-administered drugs (see 
Sec. 410.29), the following services are included as medical and other

[[Page 224]]

health services covered under Sec. 410.10, subject to the specified 
conditions:
    (a) Hepatitis B vaccine: Conditions. Effective September 1, 1984, 
hepatitis B vaccinations that are reasonable and necessary for the 
prevention of illness for those individuals who are at high or 
intermediate risk of contracting hepatitis B as listed below:
    (1) High risk groups. (i) End-Stage Renal Disease (ESRD) patients;
    (ii) Hemophiliacs who receive Factor VIII or IX concentrates;
    (iii) Clients of institutions for the mentally retarded;
    (iv) Persons who live in the same household as a hepatitis B 
carrier;
    (v) Homosexual men;
    (vi) Illicit injectable drug abusers; and
    (vii) Pacific Islanders (that is, those Medicare beneficiaries who 
reside on Pacific islands under U.S. jurisdiction, other than residents 
of Hawaii).
    (2) Intermediate risk groups. (i) Staff in institutions for the 
mentally retarded and classroom employees who work with mentally 
retarded persons;
    (ii) Workers in health care professions who have frequent contact 
with blood or blood-derived body fluids during routine work (including 
workers who work outside of a hospital and have frequent contact with 
blood or other infectious secretions); and
    (iii) Heterosexually active persons with multiple sexual partners 
(that is, those Medicare beneficiaries who have had at least two 
documented episodes of sexually transmitted diseases within the 
preceding 5 years).
    (3) Exception. Individuals described in paragraphs (a) (1) and (2) 
of this section are not considered at high or intermediate risk of 
contracting hepatitis B if they have undergone a prevaccination 
screening and have been found to be currently positive for antibodies to 
hepatitis B.
    (b) Blood clotting factors. Effective July 18, 1984, blood clotting 
factors to control bleeding for hemophilia patients competent to use 
these factors without medical or other supervision, and items related to 
the administration of those factors. The amount of clotting factors 
covered under this provision is determined by the carrier based on the 
historical utilization pattern or profile developed by the carrier for 
each patient, and based on consideration of the need for a reasonable 
reserve supply to be kept in the home in the event of emergency or 
unforeseen circumstance.

[55 FR 22790, Jun. 4, 1990; 55 FR 31186, Aug. 1, 1990]



Sec. 410.64  Services related to cardiac pacemakers and pacemaker leads.

    (a) Requirement. (1) Physicians or providers that request or receive 
payment for the implantation, removal, or replacement of permanent 
cardiac pacemakers and pacemaker leads, must submit to HCFA the 
information required for the pacemaker registry.
    (2) The required information is set forth under 21 CFR part 805 of 
the FDA regulations and must be submitted in accordance with general 
instructions issued by HCFA.
    (b) Denial of payment. If HCFA finds that a physician or provider 
has failed to comply with paragraph (a) of this section, HCFA will deny 
payment for the implantation, removal, or replacement of any permanent 
cardiac pacemaker or pacemaker lead, effective 45 days after sending the 
physician or provider written notice in accordance with paragraph (c) of 
this section.
    (c) Notice of denial of payment. The notice of denial of payment--
    (1) States the reasons for the determination;
    (2) Grants the physician or provider 45 days from the date of the 
notice to submit the information or evidence showing that the 
determination is in error; and
    (3) Informs the physician or provider of its right to hearing.
    (d) Right to hearing. If the denial of payment goes into effect at 
the expiration of the 45-day period, it constitutes an ``initial 
determination'' subject to administrative and judicial review under part 
498 of this chapter.

[56 FR 8841, Mar. 1, 1991]



Sec. 410.66  Emergency outpatient services furnished by a nonparticipating hospital and services furnished in Mexico or Canada.

    Conditions for payment of emergency outpatient services furnished by 
a nonparticipating U.S. hospital and for

[[Page 225]]

services furnished in Mexico or Canada are set forth in subparts G and H 
of part 424 of this chapter.

[53 FR 6634, Mar. 1, 1988; 53 FR 12945, Apr. 20, 1988]



Sec. 410.68  Antigens: Scope and conditions.

    Medicare Part B pays for--
    (a) Antigens that are furnished as services incident to a 
physician's professional services; or
    (b) A supply of antigen sufficient for not more than 12 weeks that 
is--
    (1) Prepared for a patient by a doctor of medicine or osteopathy who 
has examined the patient and developed a plan of treatment including 
dosage levels; and
    (2) Administered--
    (i) In accord with the plan of treatment developed by the doctor of 
medicine or osteopathy who prepared the antigen; and
    (ii) By a doctor of medicine or osteopathy or by a properly 
instructed person under the supervision of a doctor of medicine or 
osteopathy.

[54 FR 4026, Jan. 27, 1989]



Sec. 410.69  Services of a certified registered nurse anesthetist or an anesthesiologist's assistant: Basic rule and definitions.

    (a) Basic rule. Medicare Part B pays for anesthesia services and 
related care furnished by a certified registered nurse anesthetist or an 
anesthesiologist's assistant who is legally authorized to perform the 
services by the State in which the services are furnished.
    (b) Definitions. For purposes of this part--
    Anesthesiologist's assistant means a person who--
    (1) Works under the direction of an anesthesiologist;
    (2) Is in compliance with all applicable requirements of State law, 
including any licensure requirements the State imposes on nonphysician 
anesthetists; and
    (3) Is a graduate of a medical school-based anesthesiologist's 
assistant educational program that--
    (A) Is accredited by the Committee on Allied Health Education and 
Accreditation; and
    (B) Includes approximately two years of specialized basic science 
and clinical education in anesthesia at a level that builds on a 
premedical undergraduate science background.
    Anesthetist includes both an anesthesiologist's assistant and a 
certified registered nurse anesthetist.
    Certified registered nurse anesthetist means a registered nurse who:
    (1) Is licensed as a registered professional nurse by the State in 
which the nurse practices;
    (2) Meets any licensure requirements the State imposes with respect 
to non-physician anesthetists;
    (3) Has graduated from a nurse anesthesia educational program that 
meets the standards of the Council on Accreditation of Nurse Anesthesia 
Programs, or such other accreditation organization as may be designated 
by the Secretary; and
    (4) Meets the following criteria:
    (i) Has passed a certification examination of the Council on 
Certification of Nurse Anesthetists, the Council on Recertification of 
Nurse Anesthetists, or any other certification organization that may be 
designated by the Secretary; or
    (ii) Is a graduate of a program described in paragraph (3) of this 
definition and within 24 months after that graduation meets the 
requirements of paragraph (4)(i) of this definition.

[57 FR 33896, July 31, 1992]



Sec. 410.71  Clinical psychologist services and services and supplies incident to clinical psychologist services.

    (a) Included services. (1) Medicare Part B covers services furnished 
by a clinical psychologist, who meets the requirements specified in 
paragraph (d) of this section, that are within the scope of his or her 
State license, if the services would be covered if furnished by a 
physician or as an incident to a physician's services.
    (2) Medicare Part B covers services and supplies furnished as an 
incident to the services of a clinical psychologist if the following 
requirements are met:
    (i) The services and supplies would be covered if furnished by a 
physician or as an incident to a physician's services.
    (ii) The services or supplies are of the type that are commonly 
furnished in a

[[Page 226]]

physician's or clinical psychologist's office and are either furnished 
without charge or are included in the physician's or clinical 
psychologist's bill.
    (iii) The services are an integral, although incidental, part of the 
professional services performed by the clinical psychologist.
    (iv) The services are performed under the direct supervision of the 
clinical psychologist. For example, when services are performed in the 
clinical psychologist's office, the clinical psychologist must be 
present in the office suite and immediately available to provide 
assistance and direction throughout the time the service is being 
performed.
    (v) The individual performing the service must be an employee of 
either the clinical psychologist or the legal entity that employs the 
supervising clinical psychologist, under the common law control test of 
the Act as more fully set forth in 20 CFR 404.1007.
    (b) Application of mental health treatment limitation. The treatment 
services of a clinical psychologist and services and supplies furnished 
as an incident to those services are subject to the limitation on 
payment for outpatient mental health treatment services set forth in 
Sec. 410.155.
    (c) Payment for consultations. A clinical psychologist or an 
attending or primary care physician may not bill Medicare or the 
beneficiary for the consultation that is required under paragraph (e) of 
this section.
    (d) Qualifications. For purposes of this subpart, a clinical 
psychologist is an individual who--
    (1) Holds a doctoral degree in psychology; and
    (2) Is licensed or certified, on the basis of the doctoral degree in 
psychology, by the State in which he or she practices, at the 
independent practice level of psychology to furnish diagnostic, 
assessment, preventive, and therapeutic services directly to 
individuals.
    (e) Agreement to consult. A clinical psychologist who bills Medicare 
Part B must agree to meet the requirements of paragraphs (e)(1) through 
(e)(3) of this section. The clinical psychologist's signature on a 
Medicare provider/supplier enrollment form indicates his or her 
agreement.
    (1) Unless the beneficiary's primary care or attending physician has 
referred the beneficiary to the clinical psychologist, to inform the 
beneficiary that it is desirable for the clinical psychologist to 
consult with the beneficiary's attending or primary care physician (if 
the beneficiary has such a physician) to consider any conditions 
contributing to the beneficiary's symptoms.
    (2) If the beneficiary assents to the consultation, in accordance 
with accepted professional ethical norms and taking into consideration 
patient confidentiality--
    (i) To attempt, within a reasonable time after receiving the 
consent, to consult with the physician; and
    (ii) If attempts to consult directly with the physician are not 
successful, to notify the physician, within a reasonable time, that he 
or she is furnishing services to the beneficiary.
    (3) Unless the primary care or attending physician referred the 
beneficiary to the clinical psychologist, to document, in the 
beneficiary's medical record, the date the patient consented or declined 
consent to consultation, the date of consultation, or, if attempts to 
consult did not succeed, the date and manner of notification to the 
physician.

[63 FR 20128, Apr. 23, 1998]



Sec. 410.73  Clinical social worker services.

    (a) Definition: clinical social worker. For purposes of this part, a 
clinical social worker is defined as an individual who--
    (1) Possesses a master's or doctor's degree in social work;
    (2) After obtaining the degree, has performed at least 2 years of 
supervised clinical social work; and
    (3) Either is licensed or certified as a clinical social worker by 
the State in which the services are performed or, in the case of an 
individual in a State that does not provide for licensure or 
certification as a clinical social worker--
    (i) Is licensed or certified at the highest level of practice 
provided by the

[[Page 227]]

laws of the State in which the services are performed; and
    (ii) Has completed at least 2 years or 3,000 hours of post master's 
degree supervised clinical social work practice under the supervision of 
a master's degree level social worker in an appropriate setting such as 
a hospital, SNF, or clinic.
    (b) Covered clinical social worker services. Medicare Part B covers 
clinical social worker services.
    (1) Definition. ``Clinical social worker services'' means, except as 
specified in paragraph (b)(2) of this section, the services of a 
clinical social worker furnished for the diagnosis and treatment of 
mental illness that the clinical social worker is legally authorized to 
perform under State law (or the State regulatory mechanism provided by 
State law) of the State in which the services are performed. The 
services must be of a type that would be covered if they were furnished 
by a physician or as an incident to a physician's professional service 
and must meet the requirements of this section.
    (2) Exception. The following services are not clinical social worker 
services for purposes of billing Medicare Part B:
    (i) Services furnished by a clinical social worker to an inpatient 
of a Medicare-participating hospital.
    (ii) Services furnished by a clinical social worker to an inpatient 
of a Medicare-participating SNF.
    (iii) Services furnished by a clinical social worker to a patient in 
a Medicare-participating dialysis facility if the services are those 
required by the conditions for coverage for ESRD facilities under 
Sec. 405.2163 of this chapter.
    (c) Agreement to consult. A clinical social worker must comply with 
the consultation requirements set forth at Sec. 410.71(f) (reading 
``clinical psychologist'' as ``clinical social worker'').
    (d) Prohibited billing. (1) A clinical social worker may not bill 
Medicare for the services specified in paragraph (b)(2) of this section.
    (2) A clinical social worker or an attending or primary care 
physician may not bill Medicare or the beneficiary for the consultation 
that is required under paragraph (c) of this section.

[63 FR 20128, Apr. 23, 1998]



                Subpart C--Home Health Services Under SMI



Sec. 410.80  Applicable rules.

    Home health services furnished under Medicare Part B are subject to 
the rules set forth in subpart E of part 409 of this chapter.



   Subpart D--Comprehensive Outpatient Rehabilitation Facility (CORF) 
                                Services



Sec. 410.100  Included services.

    Subject to the conditions and limitations set forth in Secs. 410.102 
and 410.105, CORF services means the following services furnished to an 
outpatient of the CORF by personnel that meet the qualifications set 
forth in Sec. 485.70 of this chapter.
    (a) Physicians' services. The following services of the facility 
physician constitute CORF services: consultation with and medical 
supervision of non-physician staff, establishment and review of the plan 
of treatment, and other medical and facility administration activities. 
Those services are reimbursed on a reasonable cost basis under part 413 
of this chapter. Diagnostic and therapeutic services furnished to an 
individual patient are not CORF physician's services. If covered, 
payment for these services would be made by the carrier on a reasonable 
charge basis subject to the provisions of subpart E of part 405 of this 
chapter.
    (b) Physical therapy services. (1) These services include--
    (i) Testing and measurement of the function or dysfunction of the 
neuromuscular, musculoskeletal, cardiovascular and respiratory systems; 
and.
    (ii) Assessment and treatment related to dysfunction caused by 
illness or injury, and aimed at preventing or reducing disability or 
pain and restoring lost function.
    (2) The establishment of a maintenance therapy program for an 
individual whose restoration potential has been reached is a physical 
therapy service; however, maintenance therapy itself is not covered as 
part of these services.
    (c) Occupational therapy services. These services include--

[[Page 228]]

    (1) Teaching of compensatory techniques to permit an individual with 
a physical impairment or limitation to engage in daily activities.
    (2) Evaluation of an individual's level of independent functioning.
    (3) Selection and teaching of task-oriented therapeutic activities 
to restore sensory-integrative function; and
    (4) Assessment of an individual's vocational potential, except when 
the assessment is related solely to vocational rehabilitation.
    (d) Speech-language pathology services. These are services for the 
diagnosis and treatment of speech and language disorders that create 
difficulties in communication.
    (e) Respiratory therapy services. (1) These are services for the 
assessment, diagnostic evaluation, treatment, management, and monitoring 
of patients with deficiencies or abnormalities of cardiopulmonary 
function.
    (2) These services include--
    (i) Application of techniques for support of oxygenation and 
ventilation of the patient and for pulmonary rehabilitation.
    (ii) Therapeutic use and monitoring of gases, mists, and aerosols 
and related equipment;
    (iii) Bronchial hygiene therapy;
    (iv) Pulmonary rehabilitation techniques such as exercise 
conditioning, breathing retraining and patient education in the 
management of respiratory problems.
    (v) Diagnostic tests to be evaluated by a physician, such as 
pulmonary function tests, spirometry and blood gas analysis; and
    (vi) Periodic assessment of chronically ill patients and their need 
for respiratory therapy.
    (f) Prosthetic device services. These services include--
    (1) Prosthetic devices (excluding dental devices and renal dialysis 
machines), that replace all or part of an internal body organ or 
external body member (including contiguous tissue) or replace all or 
part of the function of a permanently inoperative or malfunctioning 
external body member or internal body organ; and
    (2) Services necessary to design the device, select materials and 
components, measure, fit, and align the device, and instruct the patient 
in its use.
    (g) Orthotic device services. These services include--
    (1) Orthopedic devices that support or align movable parts of the 
body, prevent or correct deformities, or improve functioning; and
    (2) Services necessary to design the device, select the materials 
and components, measure, fit, and align the device, and instruct the 
patient in its use.
    (h) Social services. These services include--
    (1) Assessment of the social and emotional factors related to the 
individual's illness, need for care, response to treatment, and 
adjustment to care furnished by the facility;
    (2) Casework services to assist in resolving social or emotional 
problems that may have an adverse effect on the beneficiary's ability to 
respond to treatment; and
    (3) Assessment of the relationship of the individual's medical and 
nursing requirements to his or her home situation, financial resources, 
and the community resources available upon discharge from facility care.
    (i) Psychological services. These services include--
    (1) Assessment, diagnosis and treatment of an individual's mental 
and emotional functioning as it relates to the individual's 
rehabilitation;
    (2) Psychological evaluations of the individual's response to and 
rate of progress under the treatment plan; and
    (3) Assessment of those aspects of an individual's family and home 
situation that affect the individual's rehabilitation treatment.
    (j) Nursing care services. These services include nursing services 
specified in the plan of treatment and any other nursing services 
necessary for the attainment of the rehabilitation goals.
    (k) Drugs and biologicals. These are drugs and biologicals that 
are--
    (1) Prescribed by a physician and administered by or under the 
supervision of a physician or a registered professional nurse; and
    (2) Not excluded from Medicare Part B payment for reasons specified 
in Sec. 410.29.

[[Page 229]]

    (l) Supplies, appliances, and equipment. These include--
    (1) Non-reusable supplies such as oxygen and bandages;
    (2) Medical equipment and appliances; and
    (3) Durable medical equipment of the type specified in Sec. 410.38, 
(except renal dialysis systems) for use outside the CORF, whether 
purchased or rented.
    (m) Home environment evaluation. This is a single home visit to 
evaluate the potential impact of the home situation on the 
rehabilitation goals.

[51 FR 41339, Nov. 14, 1986; 52 FR 4499, Feb. 12, 1987]



Sec. 410.102  Excluded services.

    None of the services specified in Sec. 410.100 is covered as a CORF 
service if the service--
    (a) Would not be covered as an inpatient hospital service if 
furnished to a hospital inpatient;
    (b) Is not reasonable and necessary for the diagnosis or treatment 
of illness or injury or to improve the functioning of a malformed body 
member. An example would be services furnished as part of a maintenance 
program involving repetitive activities that do not require the skilled 
services of nurses or therapists.



Sec. 410.105  Requirements for coverage of CORF services.

    Services specified in Sec. 410.100 and not excluded under 
Sec. 410.102 are covered as CORF services if they are furnished by a 
participating CORF (that is, a CORF that meets the conditions of subpart 
B of part 485 of this chapter, and has in effect a provider agreement 
under part 489 of this chapter) and if the following requirements are 
met:
    (a) Referral and medical history. The services must be furnished to 
an individual who is referred by a physician who certifies that the 
individual needs skilled rehabilitation services, and makes the 
following information available to the CORF before or at the time 
treatment is begun:
    (1) The individual's significant medical history.
    (2) Current medical findings.
    (3) Diagnosis(es) and contraindications to any treatment modality.
    (4) Rehabilitation goals, if determined.
    (b) When and where services are furnished. (1) All services must be 
furnished while the individual is under the care of a physician.
    (2) Except as provided in paragraph (b)(3) of this section, the 
services must be furnished on the premises of the CORF.
    (3) Exceptions. (i) Physical therapy, occupational therapy, and 
speech pathology services may be furnished away from the premises of the 
CORF.
    (ii) The single home visit specified in Sec. 410.100(m) is also 
covered.
    (c) Plan of treatment. (1) The services must be furnished under a 
written plan of treatment that--
    (i) Is established and signed by a physician before treatment is 
begun; and
    (ii) Prescribes the type, amount, frequency, and duration of the 
services to be furnished, and indicates the diagnosis and anticipated 
rehabilitation goals.
    (2) The plan must be reviewed at least every 60 days by a facility 
physician who, when appropriate, consults with the professional 
personnel providing the services.
    (3) The reviewing physician must certify or recertify that the plan 
is being followed, the patient is making progress in attaining the 
rehabilitation goals, and the treatment is having no harmful effects on 
the patient.

[51 FR 41339, Nov. 14, 1986, as amended at 56 FR 8841, Mar. 1, 1991]



  Subpart E--Community Mental Health Centers (CMHCs) Providing Partial 
                        Hospitalization Services



Sec. 410.110  Requirements for coverage of partial hospitalization services by CMHCs.

    Medicare part B covers partial hospitalization services furnished by 
or under arrangements made by a CMHC if they are provided by a CMHC as 
defined in Sec. 410.2 that has in effect a provider agreement under part 
489 of this chapter and if the services are--
    (a) Prescribed by a physician and furnished under the general 
supervision of a physician;

[[Page 230]]

    (b) Subject to certification by a physician in accordance with 
Sec. 424.24(e)(1) of this subchapter; and
    (c) Furnished under a plan of treatment that meets the requirements 
of Sec. 424.24(e)(2) of this subchapter.

[59 FR 6577, Feb. 11, 1994]



                        Subparts F-H--[Reserved]



                   Subpart I--Payment of SMI Benefits

    Source: 51 FR 41339, Nov. 14, 1986. Redesignated at 59 FR 6577, Feb. 
11, 1994.



Sec. 410.150  To whom payment is made.

    (a) General rules. (1) Any SMI enrollee is, subject to the 
conditions, limitations, and exclusions set forth in this part and in 
parts 405, 416 and 424 of this chapter, entitled to have payment made as 
specified in paragraph (b) of this section.
    (2) The services specified in paragraphs (b)(5) through (b)(14) of 
this section must be furnished by a facility that has in effect a 
provider agreement or other appropriate agreement to participate in 
Medicare.
    (b) Specific rules. Subject to the conditions set forth in paragraph 
(a) of this section, Medicare Part B pays as follows:
    (1) To the individual, or to a physician or other supplier on the 
individual's behalf, for medical and other health services furnished by 
the physician or other supplier.
    (2) To a nonparticipating hospital on the individual's behalf for 
emergency outpatient services furnished by the hospital, in accordance 
with subpart G of part 424 of this chapter.
    (3) To the individual, for emergency outpatient services furnished 
by a nonparticipating hospital, in accordance with Sec. 424.53 of this 
chapter.
    (4) To the individual, for physicians' services and ambulance 
services furnished outside the United States in accordance with 
Sec. 424.53 of this chapter.
    (5) To a provider on the individual's behalf for medical and other 
health services furnished by the provider (or by others under 
arrangements made with them by the provider).
    (6) To a home health agency on the individual's behalf for home 
health services furnished by the home health agency.
    (7) To a clinic, rehabilitation agency, or public health agency on 
the individual's behalf for outpatient physical therapy or speech 
pathology services furnished by the clinic or agency (or by others under 
arrangements made with them by the clinic or agency).
    (8) To a rural health clinic or Federally qualified health center on 
the individual's behalf for rural health clinic or Federally qualified 
health center services furnished by the rural health clinic or Federally 
qualified health center, respectively.
    (9) To an ambulatory surgical center (ASC) on the individual's 
behalf for covered ambulatory surgical center facility services that are 
furnished in connection with surgical procedures performed in an ASC, as 
provided in part 416 of this chapter.
    (10) To a comprehensive outpatient rehabilitation facility (CORF) on 
the individual's behalf for comprehensive outpatient rehabilitation 
facility services furnished by the CORF.
    (11) To a renal dialysis facility, on the individual's behalf, for 
institutional or home dialysis services, supplies, and equipment 
furnished by the facility.
    (12) To a critical access hospital (CAH) on the individual's behalf 
for outpatient CAH services furnished by the CAH.
    (13) To a community mental health center (CMHC) on the individual's 
behalf, for partial hospitalization services furnished by the CMHC (or 
by others under arrangements made with them by the CMHC).
    (14) To an SNF for services (other than those described in 
Sec. 411.15(p)(2) of this chapter) that are furnished to a resident (as 
defined in Sec. 411.15(p)(3) of this chapter) of the SNF.
    (15)-(16) [Reserved]
    (17) To a clinical psychologist on the individual's behalf for 
clinical psychologist services and for services and supplies furnished 
as an incident to his or her services.

[[Page 231]]

    (18) To a clinical social worker on the individual's behalf for 
clinical social worker services.

[51 FR 41339, Nov. 14, 1986, as amended at 53 FR 6648, Mar. 2, 1988; 57 
FR 24981, June 12, 1992; 58 FR 30668, May 26, 1993; 59 FR 6577, Feb. 11, 
1994; 63 FR 20129, Apr. 23, 1998; 63 FR 26308, May 12, 1998]



Sec. 410.152  Amounts of payment.

    (a) General provisions--(1) Exclusion from incurred expenses. As 
used in this section, ``incurred expenses'' are expenses incurred by an 
individual, during his or her coverage period, for covered Part B 
services, excluding the following:
    (i) Expenses incurred for services for which the beneficiary is 
entitled to have payment made under Medicare Part A or would be so 
entitled except for the application of the Part A deductible and 
coinsurance requirements.
    (ii) Expenses incurred in meeting the Part B blood deductible 
(Sec. 410.161).
    (iii) In the case of services payable under a formula that takes 
into account reasonable charges, reasonable costs, customary charges, 
customary (insofar as reasonable) charges, charges related to reasonable 
costs, fair compensation, a pre-treatment prospective payment rate, or a 
standard overhead amount, or any combination of two or more of these 
factors, expenses in excess of any factor taken into account under that 
formula.
    (iv) Expenses in excess of the outpatient mental health treatment 
limitation described in Sec. 410.155.
    (v) In the case of expenses incurred for outpatient physical therapy 
furnished by therapists in independent practice, expenses in excess of 
$500 in reasonable charges incurred in a calendar year.
    (2) Other applicable provisions. Medicare Part B pays for incurred 
expenses the amounts specified in paragraphs (b) through (k) of this 
section, subject to the following:
    (i) The principles and procedures for determining reasonable costs 
and reasonable charges and the conditions for Medicare payment, as set 
forth in parts 405 (subparts E and X), 413, and 424 of this chapter.
    (ii) The Part B annual deductible (Sec. 410.160).
    (iii) The special rules for payment to health maintenance 
organizations (HMOs), health care prepayment plans (HCPPs), and 
competitive medical plans (CMPs) that are set forth in part 417 of this 
chapter. (A prepayment organization that does not qualify as an HMO, 
CMP, or HCPP is paid in accordance with paragraph (b)(4) of this 
section.)
    (b) Basic rules for payment. Except as specified in paragraphs (c) 
through (h) of this section, Medicare Part B pays the following amounts:
    (1) For services furnished by, or under arrangements made by, a 
provider other than a nominal charge provider, whichever of the 
following is less:
    (i) 80 percent of the reasonable cost of the services.
    (ii) The reasonable cost of, or the customary charges for, the 
services, whichever is less, minus 20 percent of the customary (insofar 
as reasonable) charges for the services.
    (2) For services furnished by, or under arrangements made by, a 
nominal charge provider, 80 percent of fair compensation.
    (3) For emergency outpatient hospital services furnished by a 
nonparticipating hospital that is eligible to receive payment for those 
services under subpart G of part 424 of this chapter, the amount 
specified in paragraph (b)(1) of this section.
    (4) For services furnished by a person or an entity other than those 
specified in paragraphs (b)(1) through (b)(3) of this section, 80 
percent of the reasonable charges or 80 percent of the payment amount 
computed on any other payment basis for the services.
    (c) Amount of payment: Home health services other than durable 
medical equipment (DME). For home health services other than DME 
furnished by, or under arrangements made by, a participating HHA, 
Medicare Part B pays the following amounts:
    (1) For services furnished by an HHA that is a nominal charge 
provider, 100 percent of fair compensation.
    (2) For services furnished by an HHA that is not a nominal charge 
provider, the lesser of the reasonable cost of the services and the 
customary charges for the services.

[[Page 232]]

    (d) Amount of payment: DME furnished as a home health service.
    (1) Basic rule. Except as specified in paragraph (d)(2) of this 
section--
    (i) For DME furnished by an HHA that is a nominal charge provider, 
Medicare Part B pays 80 percent of fair compensation.
    (ii) For DME furnished by an HHA that is not a nominal charge 
provider, Medicare Part B pays the lesser of the following:
    (A) 80 percent of the reasonable cost of the service.
    (B) The reasonable cost of, or the customary charge for, the 
service, whichever is less, minus 20 percent of the customary (insofar 
as reasonable) charge for the service.
    (2) Exception. If the DME is used DME purchased by or on behalf of 
the beneficiary at a price at least 25 percent less than the reasonable 
charge for new equipment--
    (i) For used DME furnished by an HHA that is a nominal charge 
provider, Medicare Part B pays 100 percent of fair compensation.
    (ii) For used DME furnished by an HHA that is not a nominal charge 
provider, Medicare Part B pays 100 percent of the reasonable cost of, or 
the customary charge for, the services, whichever is less.
    (e) Amount of payment: Renal dialysis services, supplies, and 
equipment. Effective for services furnished on or after August 1, 1983, 
Medicare Part B pays for the institutional dialysis services specified 
in Sec. 409.250 and the home dialysis services, supplies, and equipment 
specified in Sec. 409.252, as follows:
    (1) Except as provided in paragraph (d)(2) of this section, 80 
percent of the per treatment prospective reimbursement rate established 
under Sec. 413.170 of this chapter, for outpatient maintenance dialysis 
furnished by ESRD facilities approved in accordance with subpart U of 
part 405 of this chapter.
    (2) Exception. If a home dialysis patient elects to obtain home 
dialysis supplies or equipment (or both) from a party other than an 
approved ESRD facility, payment is in accordance with paragraph (b)(4) 
of this section.
    (f) Amount of payment: Rural health clinic and Federally qualified 
health center services. Medicare Part B pays, for services by a 
participating independent rural health clinic or Federally qualified 
health center, 80 percent of the costs determined under subpart X of 
part 405 of this chapter, to the extent those costs are reasonable and 
related to the cost of furnishing rural health clinic or Federally 
qualified health center services or reasonable on the basis of other 
tests specified by HCFA.
    (g) Amount of payment: Used durable medical equipment furnished by 
otherthan an HHA. Medicare Part B pays the following amounts for used 
DME purchased by or on behalf of the beneficiary at a price at least 25 
percent less than the reasonable charge for comparable new equipment:
    (1) For used DME furnished by, or under arrangements made by, a 
nominal charge provider, 100 percent of fair compensation.
    (2) For used DME furnished by or under arrangements made by a 
provider that is not a nominal charge provider, 100 percent of the 
reasonable cost of the service or the customary charge for the service, 
whichever is less.
    (3) For used DME furnished by other than a provider, 100 percent of 
the reasonable charge.
    (h) Amount of payment: Pneumococcal vaccine. Medicare Part B pays 
for pneumococcal vaccine and its administration as follows:
    (1) For services furnished by a nominal charge provider, 100 percent 
of fair compensation.
    (2) For services furnished by a provider that is not a nominal 
charge provider, the reasonable cost of the services or the customary 
charge for the service, whichever is less.
    (3) For services furnished by other than a provider, a rural health 
clinic or a Federally qualified health center, 100 percent of the 
reasonable charge.
    (4) For services furnished by a rural health clinic or a Federally 
qualified health center, 100 percent of the reasonable cost.
    (i) Amount of payment: ASC facility services. For ASC facility 
services that are furnished in connection with the surgical procedures 
specified in part 416 of this chapter, Medicare Part B pays 80 percent 
of a standard overhead

[[Page 233]]

amount, as specified in Sec. 416.120(c) of this chapter.1
---------------------------------------------------------------------------

    \1\ For services furnished before July 1, 1987, Medicare Part B paid 
100 percent of the standard amount.
---------------------------------------------------------------------------

    (j) Amount of payment: services of Federally funded health 
facilities prior to October 1, 1991. Medicare Part B pays 80 percent of 
charges related to the reasonable costs that a Federally funded health 
facility incurs in furnishing the services. See Sec. 411.8(b)(6) of this 
chapter.
    (k) Amount of payment: Outpatient CAH services. Payment for critical 
access hospital outpatient services is the reasonable cost of the CAH in 
providing these services, as determined in accordance with section 
1861(v)(1)(A) of the Act and with the applicable principles of cost 
reimbursement in part 413 and in part 415 of this chapter. Payment for 
CAH outpatient services is subject to the applicable Medicare Part B 
deductible and coinsurance amounts with Part B coinsurance being 
calculated as 20 percent of the customary (in so far as reasonable) 
charges of the CAH for the services.
    (l) Amount of payment: Flu vaccine. Medicare Part B pays 100 percent 
of the Medicare allowed charge.

[51 FR 41339, Nov. 14, 1986; 52 FR 4499, Feb. 12, 1987, as amended at 53 
FR 6648, Mar. 2, 1988; 56 FR 2138, Jan. 22, 1991; 56 FR 8841, Mar. 1, 
1991; 57 FR 24981, June 12, 1992; 58 FR 30668, May 26, 1993; 59 FR 
63462, Dec. 8, 1994; 62 FR 46025, Aug. 29, 1997; 63 FR 20129, Apr. 23, 
1998; 63 FR 26357, May 12, 1998; 63 FR 35066, June 26, 1998]



Sec. 410.155  Outpatient mental health treatment limitation.

    (a) Limitation. Only 62\1/2\ percent of the expenses incurred for 
services subject to the limit as specified in paragraph (b) of this 
section are considered incurred expenses under Medicare Part B when 
determining the amount of payment and deductible under Secs. 410.152 and 
410.160, respectively.
    (b) Application of the limitation--(1) Services subject to the 
limitation. Except as specified in paragraph (b)(2) of this section, the 
following services are subject to the limitation if they are furnished 
in connection with the treatment of a mental, psychoneurotic, or 
personality disorder (that is, any condition identified by a diagnosis 
code within the range of 290 through 319) and are furnished to an 
individual who is not an inpatient of a hospital:
    (i) Services furnished by physicians and other practitioners, 
whether furnished directly or as an incident to those practitioners' 
services.
    (ii) Services provided by a CORF.
    (2) Services not subject to the limitation. Services not subject to 
the limitation include the following:
    (i) Services furnished to a hospital inpatient.
    (ii) Brief office visits for the sole purpose of monitoring or 
changing drug prescriptions used in the treatment of mental, 
psychoneurotic, or personality disorders.
    (iii) Partial hospitalization services not directly provided by a 
physician.
    (iv) Diagnostic services, such as psychological testing, that are 
performed to establish a diagnosis.
    (v) Medical management, as opposed to psychotherapy, furnished to a 
patient diagnosed with Alzheimer's disease or a related disorder.
    (c) Examples. (1) A clinical psychologist submitted a claim for $200 
for outpatient treatment of a beneficiary's mental disorder. The 
Medicare approved amount was $180. Since clinical psychologists must 
accept assignment, the beneficiary is not liable for the $20 in excess 
charges. The beneficiary previously satisfied the $100 annual Part B 
deductible. The limitation reduces the amount of incurred expenses to 
62\1/2\ percent of the approved amount. After subtracting any unmet 
deductible, Medicare pays 80 percent of the remaining incurred expenses. 
Medicare payment and beneficiary liability are computed as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
1. Actual charges.............................................   $200.00
2. Medicare approved amount...................................    180.00
3. Medicare incurred expenses (0.625  x  line 2)..............    112.50
4. Unmet deductible...........................................      0.00
5. Remainder after subtracting deductible (line 3 minus line      112.50
 4)...........................................................
6. Medicare payment (0.80  x  line 5).........................     90.00
7. Beneficiary liability (line 2 minus line 6)................     90.00
------------------------------------------------------------------------

    (2) A clinical social worker submitted a claim for $135 for 
outpatient treatment of a beneficiary's mental disorder. The Medicare 
approved amount

[[Page 234]]

was $120. Since clinical social workers must accept assignment, the 
beneficiary is not liable for the $15 in excess charges. The beneficiary 
previously satisfied $70 of the $100 annual Part B deductible, leaving 
$30 unmet.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
1. Actual charges.............................................   $135.00
2. Medicare approved amount...................................    120.00
3. Medicare incurred expenses (0.625  x  line 2)..............     75.00
4. Unmet deductible...........................................     30.00
5. Remainder after subtracting deductible (line 3 minus line       45.00
 4)...........................................................
6. Medicare payment (0.80  x  line 5).........................     36.00
7. Beneficiary liability (line 2 minus line 6)................     84.00
------------------------------------------------------------------------

    (3) A physician who did not accept assignment submitted a claim for 
$780 for services in connection with the treatment of a mental disorder 
that did not require inpatient hospitalization. The Medicare approved 
amount was $750. Because the physician did not accept assignment, the 
beneficiary is liable for the $30 in excess charges. The beneficiary had 
not satisfied any of the $100 Part B annual deductible.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
1. Actual charges.............................................   $780.00
2. Medicare approved amount...................................    750.00
3. Medicare incurred expenses (0.625  x  line 2)..............    468.75
4. Unmet deductible...........................................    100.00
5. Remainder after subtracting deductible (line 3 minus line      368.75
 4)...........................................................
6. Medicare payment (0.80  x  line 5).........................    295.00
7. Beneficiary liability (line 1 minus line 6)................    485.00
------------------------------------------------------------------------

    (4) A beneficiary's only Part B expenses during 1995 were for a 
physician's services in connection with the treatment of a mental 
disorder that initially required inpatient hospitalization. The 
remaining services were furnished on an outpatient basis. The 
beneficiary had not satisfied any of the $100 annual Part B deductible 
in 1995. The physician, who accepted assignment, submitted a claim for 
$780. The Medicare-approved amount was $750. The beneficiary incurred 
$350 of the approved amount while a hospital inpatient and incurred the 
remaining $400 of the approved amount for outpatient services. Only $400 
of the approved amount is subject to the 62\1/2\ percent limitation 
because the statutory limitation does not apply to services furnished to 
hospital inpatients.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
1. Actual charges.............................................   $780.00
2. Medicare approved amount...................................   $750.00
  2A. Inpatient portion.......................................      $350
  2B. Outpatient portion......................................      $400
3. Medicare incurred expenses.................................   $600.00
  3A. Inpatient portion.......................................      $350
  3B. Outpatient portion (0.625  x  line 2B)..................      $250
4. Unmet deductible...........................................   $100.00
5. Remainder after subtracting deductible (line 3 minus line     $500.00
 4)...........................................................
6. Medicare payment (0.80  x  line 5).........................   $400.00
7. Beneficiary liability (line 2 minus line 6)................   $350.00
------------------------------------------------------------------------


[63 FR 20129, Apr. 23, 1998]



Sec. 410.160  Part B annual deductible.

    (a) Basic rule. Except as provided in paragraph (b) of this section, 
incurred expenses (as defined in Sec. 410.152) are subject to, and count 
toward meeting the annual deductible.
    (b) Exceptions. Expenses incurred for the following services are not 
subject to the Part B annual deductible and do not count toward meeting 
that deductible:
    (1) Home health services.
    (2) Pneumococcal vaccines and their administration.
    (3) Federally qualified health center services.
    (4) ASC facility services furnished before July 1987 and physician 
services furnished before April 1988 that met the requirements for 
payment of 100 percent of the reasonable charges.
    (5) Screening mammography services as described in Sec. 410.34 (c) 
and (d).
    (6) Screening pelvic examinations as described in Sec. 410.56.
    (c) Application of the Part B annual deductible. (1) Before payment 
is made under Sec. 410.152, an individual's incurred expenses for the 
calendar year are reduced by the Part B annual deductible.
    (2) The Part B annual deductible is applied to incurred expenses in 
the order in which claims for those expenses are processed by the 
Medicare program.
    (3) Only one Part B annual deductible may be imposed for any 
calendar year and it may be met by any combination of expenses incurred 
in that year.
    (d) Special rule for services reimbursable on a formula basis. (1) 
In applying the formula that takes into account reasonable costs, 
customary charges, and customary (insofar as reasonable)

[[Page 235]]

charges, and is used to determine payment for services furnished by a 
provider that is not a nominal charge provider, the Medicare 
intermediary takes the following steps:
    (i) Reduces the customary charges for the services by an amount 
equal to any unmet portion of the deductible for the calendar year, in 
accordance with paragraph (b) of this section. (The amount of this 
reduction is considered to be the amount of the deductible that is met 
on the basis of the services to which it is applied.)
    (ii) Determines 20 percent of any remaining portion of the customary 
(insofar as reasonable) charge.
    (iii) Determines the lesser of the reasonable cost of the services 
and the customary charges for the services.
    (iv) Reduces the amount determined under paragraph (c)(1)(iii) of 
this section by the sum of the reduction made under paragraph (c)(1)(i) 
of this section and the amount determined under parargaph (c)(1)(ii) of 
this section.
    (v) Reduces the reasonable cost of the services by the amount of the 
reduction made under paragraph (c)(1)(i) of this section and multiplies 
the result by 80 percent.
    (2) In accordance with Sec. 410.152(b)(1), the amount payable is the 
amount determined under paragraph (c)(1)(iv) of this section, or the 
amount determined under paragraph (c)(1)(v) of this section, whichever 
is less.
    (e) Special rule for services of an independent rural health clinic. 
Application of the Part B annual deductible to rural health clinic 
services is in accordance with Sec. 405.2425(b)(2) of this chapter.
    (f) Amount of the Part B annual deductible. (1) Beginning with 
expenses for services furnished during calendar year 1982, the Part B 
annual deductible is $75.
    (2) From 1973 through 1981, the deductible was $60.
    (3) From 1966 through 1972, the deductible was $50.
    (g) Carryover of Part B annual deductible. For calendar years before 
1982, the Part B annual deductible was reduced by the amount of expenses 
incurred during the last quarter of the preceding year that was applied 
to meet the deductible for that preceding year. Example: If $20 of 
expenses incurred in November 1980 was used to meet the 1980 deductible, 
the 1981 deductible was reduced to $40 ($60-$20).
    (h) Examples of application of the annual deductible. (1) Mr. A 
submitted claims for the following expenses incurred during 1982: $20 
for services furnished in March by physician X; $30 for services 
furnished in April by physician Y; $50 for services furnished in June by 
physician Z, for a total of $100. The carrier determined that the 
charges as submitted were the reasonable charges. The first $75 of 
expenses for which claims were processed is applied to meet the $75 
deductible for that year. Medicare Part B pays 80 percent of the 
remaining $25, or $20.
    (2) Mr. B submitted a claim that included a $25 charge by a doctor 
for an examination to prescribe a hearing aid and an $80 charge for 
office surgery. This was the first claim relating to Mr. B's medical 
expenses processed in the calendar year. The carrier disallowed the $25 
charge because the type of examination is not covered by Medicare. The 
carrier reduced the $80 surgery charge to a reasonable charge of $40. 
Only the $40 reasonable charge for covered services will count toward 
meeting Mr. B's deductible. Since the remainder of the surgery charge 
constitutes and excess over the reasonable charge, it cannot be applied 
to satisfy Mr. B's deductible.
    (3) Mr. C became entitled to Medicare Part B benefits on July 1, 
1982. He incurred expenses of $200 in July, August, and September. The 
carrier determined that the changes as submitted were reasonable. Even 
though Mr. C was entitled to benefits for only half the year, he must 
meet the full $75 deductible. Thus, $75 of this expense constitutes Mr. 
C's deductible. Medicare would pay $100, which is 80 percent of the 
remaining $125.

[51 FR 41339, Nov. 14, 1986, as amended at 56 FR 8842 and 8852, Mar. 1, 
1991; 57 FR 24981, June 12, 1992; 62 FR 59101, Oct. 31, 1997]



Sec. 410.161  Part B blood deductible.

    (a) General rules. (1) As used in this section, packed red cells 
means the red blood cells that remain after plasma is separated from 
whole blood.

[[Page 236]]

    (2) A unit of packed red cells is treated as the equivalent of a 
pint of whole blood, which in this section is referred to as a unit of 
whole blood.
    (3) Medicare does not pay for the first 3 units of whole blood or 
units of packed red cells that are furnished under Part A or Part B in a 
calendar year. The Part B blood deductible is reduced to the extent that 
a blood deductible has been applied under Part A.
    (4) The blood deductible does not apply to other blood components 
such as platelets, fibrinogen, plasma, gamma globulin and serum albumin, 
or to the costs of processing, storing, and administering blood.
    (5) The blood deductible is in addition to the Part B annual 
deductible specified in Sec. 410.160.
    (b) Beneficiary's responsibility for the first 3 units of blood. (1) 
The beneficiary is responsible for the first three units of whole blood 
or packed red cells received during a calendar year.
    (2) If the blood is furnished by a hospital or CAH, the rules set 
forth in Sec. 409.87 (b), (c), and (d) of this chapter apply.
    (3) If the blood is furnished by a physician, clinic, or other 
supplier that has accepted assignment of Medicare benefits, or claims 
payment under Sec. 424.64 of this chapter because the beneficiary died 
without assigning benefits, the supplier may charge the beneficiary the 
reasonable charge for the first 3 units, to the extent that those units 
are not replaced.

[51 FR 41339, Nov. 14, 1986, as amended at 53 FR 6648, Mar. 2, 1988; 56 
FR 8852, Mar. 1, 1991; 58 FR 30668, May 26, 1993]



Sec. 410.163  Payment for services furnished to kidney donors.

    Notwithstanding any other provisions of this chapter, there are no 
deductible or coinsurance requirements with respect to services 
furnished to an individual who donates a kidney for transplant surgery.



Sec. 410.165  Payment for rural health clinic services and ambulatory surgical center services: Conditions.

    (a) Medicare Part B pays for covered rural health clinic and 
Federally qualified health center services if--
    (1) The services are furnished in accordance with the requirements 
of subpart X of part 405 of this chapter and subpart A of part 491 of 
this chapter; and
    (2) The clinic or center files a written request for payment on the 
form and in the manner prescribed by HCFA.
    (b) Medicare Part B pays for covered ambulatory surgical center 
(ASC) services if--
    (1) The services are furnished in accordance with the requirements 
of part 416 of this chapter; and
    (2) The ASC files a written request for payment on the form and in 
the manner prescribed by HCFA.

[51 FR 41339, Nov. 14, 1986, as amended at 57 FR 24981, June 12, 1992]



Sec. 410.170  Payment for home health services, for medical and other health services furnished by a provider or an approved ESRD facility, and for 
          comprehensive outpatient rehabilitation facility (CORF) 
          services: Conditions.

    Payment under Medicare Part B, for home health services, for medical 
and other health services, or for CORF services, may be made to the 
provider or facility only if the following conditions are met:
    (a) Request for payment. A written request for payment is filed by 
or on behalf of the individual to whom the services were furnished.
    (b) Physician certification. (1) For home health services, a 
physician provides certification and recertification in accordance with 
Sec. 424.22 of this chapter.
    (2) For medical and other health services, a physician provides 
certification and recertification in accordance with Sec. 424.24 of this 
chapter.
    (3) For CORF services, a physician provides certification and 
recertification in accordance with Sec. 424.27 of this chapter.
    (c) In the case of home dialysis support services described in 
Sec. 410.52, the services are furnished in accordance with a written 
plan prepared and periodically reviewed by a team that includes the 
patient's physician and other professionals familiar with the

[[Page 237]]

patient's condition as required by Sec. 405.2137(b)(3) of this chapter.

[51 FR 41339, Nov. 14, 1986, as amended at 53 FR 6648, Mar. 2, 1988]



Sec. 410.172  Payment for partial hospitalization services in CMHCs: Conditions.

    Medicare Part B pays for partial hospitalization services furnished 
in a CMHC on behalf of an individual only if the following conditions 
are met:
    (a) The CMHC files a written request for payment on the HCFA form 
1450 and in the manner prescribed by HCFA; and
    (b) The services are furnished in accordance with the requirements 
described in Sec. 410.110.

[59 FR 6578, Feb. 11, 1994]



Sec. 410.175  Alien absent from the United States.

    (a) Medicare does not pay Part B benefits for services furnished to 
an individual who is not a citizen or a national of the United States if 
those services are furnished in any month for which the individual is 
not paid monthly social security cash benefits (or would not be paid if 
he or she were entitled to those benefits) because he or she has been 
outside the United States continuously for 6 full calendar months.
    (b) Payment of benefits resumes with services furnished during the 
first full calendar month the alien is back in the United States.

[53 FR 6634, Mar. 2, 1988]



PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE PAYMENT--Table of Contents




   Subpart A--General Exclusions and Exclusion of Particular Services

Sec.
411.1  Basis and scope.
411.2  Conclusive effect of PRO determinations on payment of claims.
411.4  Services for which neither the beneficiary nor any other person 
          is legally obligated to pay.
411.6  Services furnished by a Federal provider of services or other 
          Federal agency.
411.7  Services that must be furnished at public expense under a Federal 
          law or Federal Government contract.
411.8  Services paid for by a Government entity.
411.9  Services furnished outside the United States.
411.10  Services required as a result of war.
411.12  Charges imposed by an immediate relative or member of the 
          beneficiary's household.
411.15  Particular services excluded from coverage.

  Subpart B--Insurance Coverage That Limits Medicare Payment: General 
                               Provisions

411.20  Basis and scope.
411.21  Definitions.
411.23  Beneficiary's cooperation.
411.24  Recovery of conditional payments.
411.25  Third party payer's notice of mistaken Medicare primary payment.
411.26  Subrogation and right to intervene.
411.28  Waiver of recovery and compromise of claims.
411.30  Effect of third party payment on benefit utilization and 
          deductibles.
411.31  Authority to bill third party payers for full charges.
411.32  Basis for Medicare secondary payments.
411.33  Amount of Medicare secondary payment.
411.35  Limitations on charges to a beneficiary or other party when a 
          workers' compensation plan, a no-fault insurer, or an employer 
          group health plan is primary payer.
411.37  Amount of Medicare recovery when a third party payment is made 
          as a result of a judgment or settlement.

 Subpart C--Limitations on Medicare Payment for Services Covered Under 
                          Workers' Compensation

411.40  General provisions.
411.43  Beneficiary's responsibility with respect to workers' 
          compensation.
411.45  Basis for conditional Medicare payment in workers' compensation 
          cases.
411.46  Lump-sum payments.
411.47  Apportionment of a lump-sum compromise settlement of a workers' 
          compensation claim.

 Subpart D--Limitations on Medicare Payment for Services Covered Under 
                     Liability or No-Fault Insurance

411.50  General provisions.
411.51  Beneficiary's responsibility with respect to no-fault insurance.
411.52  Basis for conditional Medicare payment in liability cases.

[[Page 238]]

411.53  Basis for conditional Medicare payment in no-fault cases.
411.54  Limitation on charges when a beneficiary has received a 
          liability insurance payment or has a claim pending against a 
          liability insurer.

   Subpart E--Limitations on Payment for Services Covered Under Group 
                    Health Plans: General Provisions

411.100  Basis and scope.
411.101  Definitions.
411.102  Basic prohibitions and requirements.
411.103  Prohibition against financial and other incentives.
411.104  Current employment status.
411.106  Aggregation rules.
411.108  Taking into account entitlement to Medicare.
411.110  Basis for determination of nonconformance.
411.112  Documentation of conformance.
411.114  Determination of nonconformance.
411.115  Notice of determination of nonconformance.
411.120  Appeals.
411.121  Hearing procedures.
411.122  Hearing officer's decision.
411.124  Administrator's review of hearing decision.
411.126  Reopening of determinations and decisions.
411.130  Referral to Internal Revenue Service (IRS).

Subpart F--Special Rules: Individuals Eligible or Entitled on the Basis 
         of ESRD, Who Are Also Covered Under Group Health Plans

411.160  Scope.
411.161  Prohibition against taking into account Medicare eligibility or 
          entitlement or differentiating benefits.
411.162  Medicare benefits secondary to group health plan benefits.
411.163  Coordination of benefits: Dual entitlement situations.
411.165  Basis for conditional Medicare payments.

 Subpart G--Special Rules: Aged Beneficiaries and Spouses Who Are Also 
                    Covered Under Group Health Plans

411.170  General provisions.
411.172  Medicare benefits secondary to group health plan benefits.
411.175  Basis for Medicare primary payments.

 Subpart H--Special Rules: Disabled Beneficiaries Who Are Also Covered 
                     Under Large Group Health Plans

411.200  Basis.
411.201  Definitions.
411.204  Medicare benefits secondary to LGHP benefits.
411.206  Basis for Medicare primary payments and limits on secondary 
          payments.

                          Subpart I--[Reserved]

     Subpart J--Physician Ownership of, and Referral of Patients or 
  Laboratory Specimens to, Entities Furnishing Clinical Laboratory or 
                          Other Health Services

411.350  Scope of subpart.
411.351  Definitions.
411.353  Prohibition on certain referrals by physicians and limitations 
          on billing.
411.355  General exceptions to referral prohibitions related to both 
          ownership/investment and compensation.
411.356  Exceptions to referral prohibitions related to ownership or 
          investment interests.
411.357  Exceptions to referral prohibitions related to compensation 
          arrangements.
411.360  Group practice attestation.
411.361  Reporting requirements.
411.370  Advisory opinions relating to physician referrals.
411.372  Procedure for submitting a request.
411.373  Certification.
411.375  Fees for the cost of advisory opinions.
411.377  Expert opinions from outside sources.
411.378  Withdrawing a request.
411.379  When HCFA accepts a request.
411.380  When HCFA issues a formal advisory opinion.
411.382  HCFA's right to rescind advisory opinions.
411.384  Disclosing advisory opinions and supporting information.
411.386  HCFA's advisory opinions as exclusive.
411.387  Parties affected by advisory opinions.
411.388  When advisory opinions are not admissible evidence.
411.389  Range of the advisory opinion.

            Subpart K--Payment for Certain Excluded Services

411.400  Payment for custodial care and services not reasonable and 
          necessary.
411.402  Indemnification of beneficiary.
411.404  Criteria for determining that a beneficiary knew that services 
          were excluded from coverage as custodial care or as not 
          reasonable and necessary.
411.406  Criteria for determining that a provider, practitioner, or 
          supplier knew that services were excluded from coverage as

[[Page 239]]

          custodial care or as not reasonable and necessary.
411.408  Refunds of amounts collected for physician services not 
          reasonable and necessary, payment not accepted on an 
          assignment-related basis.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 54 FR 41734, Oct. 11, 1989, unless otherwise noted.

    Editorial Note: Nomenclature changes affecting part 411 appear at 60 
FR 45370, Aug. 31, 1995.



   Subpart A--General Exclusions and Exclusion of Particular Services



Sec. 411.1  Basis and scope.

    (a) Statutory basis. Sections 1814(c), 1835(d), and 1862 of the Act 
exclude from Medicare payment certain specified services. The Act 
provides special rules for payment of services furnished by Federal 
providers or agencies (sections 1814(c) and 1835(d)), by hospitals and 
physicians outside the United States (sections 1814(f) and 1862(a)(4)), 
and by hospitals and SNFs of the Indian Health Service (section 1880). 
Section 1877 sets forth limitations on referrals and payment for 
clinical laboratory services furnished by entities with which the 
referring physician (or an immediate family member of the referring 
physician) has a financial relationship. Sections 1842(l) and 1879 of 
the Act provide for refund to, or indemnification of, a beneficiary who 
has paid a provider or supplier for certain services that the provider 
or supplier knew were excluded from Medicare coverage.
    (b) Scope. This subpart identifies:
    (1) The particular types of services that are excluded;
    (2) The circumstances under which Medicare denies payment for 
certain services that are usually covered; and
    (3) The circumstances under which Medicare pays for services usually 
excluded from payment.

[54 FR 41734, Oct. 11, 1989, as amended at 60 FR 41978, Aug. 14, 1995; 
60 FR 45361, Aug. 31, 1995]



Sec. 411.2  Conclusive effect of PRO determinations on payment of claims.

    If a utilization and quality control peer review organization (PRO) 
has assumed review responsibility, in accordance with part 466 of this 
chapter, for services furnished to Medicare beneficiaries, Medicare 
payment is not made for those services unless the conditions of subpart 
C of part 466 of this chapter are met.



Sec. 411.4  Services for which neither the beneficiary nor any other person is legally obligated to pay.

    (a) General rule. Except as provided in Sec. 411.8(b) (for services 
paid by a governmental entity), Medicare does not pay for a service if--
    (1) The beneficiary has no legal obligation to pay for the service; 
and
    (2) No other person or organization (such as a prepayment plan of 
which the beneficiary is a member) has a legal obligation to provide or 
pay for that service.
    (b) Special conditions for services furnished to individuals in 
custody of penal authorities. Payment may be made for services furnished 
to individuals or groups of individuals who are in the custody of the 
police or other penal authorities or in the custody of a government 
agency under a penal statute only if the following conditions are met:
    (1) State or local law requires those individuals or groups of 
individuals to repay the cost of medical services they receive while in 
custody.
    (2) The State or local government entity enforces the requirement to 
pay by billing all such individuals, whether or not covered by Medicare 
or any other health insurance, and by pursuing collection of the amounts 
they owe in the same way and with the same vigor that it pursues the 
collection of other debts.



Sec. 411.6  Services furnished by a Federal provider of services or other Federal agency.

    (a) Basic rule. Except as provided in paragraph (b) of this section, 
Medicare does not pay for services furnished by a Federal provider of 
services or other Federal agency.
    (b) Exceptions. Payment may be made--

[[Page 240]]

    (1) For emergency hospital services, if the conditions of 
Sec. 424.103 of this chapter are met;
    (2) For services furnished by a participating Federal provider which 
HCFA has determined is providing services to the public generally as a 
community institution or agency;
    (3) For services furnished by participating hospitals and SNFs of 
the Indian Health Service; and
    (4) For services furnished under arrangements (as defined in 
Sec. 409.3 of this chapter) made by a participating hospital.



Sec. 411.7  Services that must be furnished at public expense under a Federal law or Federal Government contract.

    (a) Basic rule. Except as provided in paragraph (b) of this section, 
payment may not be made for services that any provider or supplier is 
obligated to furnish at public expense, in accordance with a law of, or 
a contract with, the United States.
    (b) Exception. Payment may be made for services that a hospital or 
SNF of the Indian Health Service is obligated to furnish at public 
expense.



Sec. 411.8  Services paid for by a Government entity.

    (a) Basic rule. Except as provided in paragraph (b) of this section, 
Medicare does not pay for services that are paid for directly or 
indirectly by a government entity.
    (b) Exceptions. Payment may be made for the following:
    (1) Services furnished under a health insurance plan established for 
employees of the government entity.
    (2) Services furnished under a title of the Social Security Act 
other than title XVIII.
    (3) Services furnished in or by a participating general or special 
hospital that--
    (i) Is operated by a State or local government agency; and
    (ii) Serves the general community.
    (4) Services furnished in a hospital or elsewhere, as a means of 
controlling infectious diseases or because the individual is medically 
indigent.
    (5) Services furnished by a participating hospital or SNF of the 
Indian Health Service.
    (6) Services furnished by a public or private health facility that--
    (i) Is not a Federal provider or other facility operated by a 
Federal agency;
    (ii) Receives U.S. government funds under a Federal program that 
provides support to facilities that furnish health care services;
    (iii) Customarily seeks payment for services not covered under 
Medicare from all available sources, including private insurance and 
patients' cash resources; and
    (iv) Limits the amounts it collects or seeks to collect from a 
Medicare Part B beneficiary and others on the beneficiary's behalf to:
    (A) Any unmet deductible applied to the charges related to the 
reasonable costs that the facility incurs in providing the covered 
services;
    (B) Twenty percent of the remainder of those charges;
    (C) The charges for noncovered services.
    (7) Rural health clinic services that meet the requirements set 
forth in part 491 of this chapter.

[54 FR 41734, Oct. 11, 1989, as amended at 56 FR 2139, Jan. 22, 1991]



Sec. 411.9  Services furnished outside the United States.

    (a) Basic rule. Except as specified in paragraph (b) of this 
section, Medicare does not pay for services furnished outside the United 
States. For purposes of this paragraph (a), the following rules apply:
    (1) The United States includes the 50 States, the District of 
Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, The 
Northern Mariana Islands, and for purposes of services rendered on board 
ship, the territorial waters adjoining the land areas of the United 
States.
    (2) Services furnished on board ship are considered to have been 
furnished in United States territorial waters if they were furnished 
while the ship was in a port of one of the jurisdictions listed in 
paragraph (a)(1) of this section, or within 6 hours before arrival at, 
or 6 hours after departure from, such a port.
    (3) A hospital that is not physically situated in one of the 
jurisdictions listed in paragraph (a)(1) of this section is

[[Page 241]]

considered to be outside the United States, even if it is owned or 
operated by the United States Government.
    (b) Exception. Under the circumstances specified in subpart H of 
part 424 of this chapter, payment may be made for covered inpatient 
services furnished in a foreign hospital and, on the basis of an 
itemized bill, for covered physicians' services and ambulance service 
furnished in connection with those inpatient services, but only for the 
period during which the inpatient hospital services are furnished.



Sec. 411.10  Services required as a result of war.

    Medicare does not pay for services that are required as a result of 
war, or an act of war, that occurs after the effective date of a 
beneficiary's current coverage for hospital insurance benefits or 
supplementary medical insurance benefits.



Sec. 411.12  Charges imposed by an immediate relative or member of the beneficiary's household.

    (a) Basic rule. Medicare does not pay for services usually covered 
under Medicare if the charges for those services are imposed by--
    (1) An immediate relative of the beneficiary; or
    (2) A member of the beneficiary's household.
    (b) Definitions. As used in this section--
    Immediate relative means any of the following:
    (1) Husband or wife.
    (2) Natural or adoptive parent, child, or sibling.
    (3) Stepparent, stepchild, stepbrother, or stepsister.
    (4) Father-in-law, mother-in-law, son-in-law, daughter-in-law, 
brother-in-law, or sister-in-law.
    (5) Grandparent or grandchild.
    (6) Spouse of grandparent or grandchild.
    Member of the household means any person sharing a common abode as 
part of a single family unit, including domestic employees and others 
who live together as part of a family unit, but not including a mere 
roomer or boarder.
    Professional corporation means a corporation that is completely 
owned by one or more physicians and is operated for the purpose of 
conducting the practice of medicine, osteopathy dentistry, podiatry, 
optometry, or chiropractic, or is owned by other health care 
professionals as authorized by State law.
    (c) Applicability of the exclusion. The exclusion applies to the 
following charges in the specified circumstances:
    (1) Physicians' services. (i) Charges for physicians' services 
furnished by an immediate relative of the beneficiary or member of the 
beneficiary's household, even if the bill or claim is submitted by 
another individual or by an entity such as a partnership or a 
professional corporation.
    (ii) Charges for services furnished incident to a physician's 
professional services (for example by the physician's nurse or 
technician), only if the physician who ordered or supervised the 
services has an excluded relationship to the beneficiary.
    (2) Services other than physicians' services. (i) Charges imposed by 
an individually owned provider or supplier if the owner has an excluded 
relationship to the beneficiary; and
    (ii) Charges imposed by a partnership if any of the partners has an 
excluded relationship to the beneficiary.
    (d) Exception to the exclusion. The exclusion does not apply to 
charges imposed by a corporation other than a professional corporation.



Sec. 411.15  Particular services excluded from coverage.

    The following services are excluded from coverage.
    (a) Routine physical checkups such as--
    (1) Examinations performed for a purpose other than treatment or 
diagnosis of a specific illness, symptom, complaint, or injury, except 
for screening mammography, colorectal cancer screening tests, or 
screening pelvic examinations that meet the criteria specified in 
paragraphs (k)(6), (k)(7), and (k)(8) of this section.
    (2) Examinations required by insurance companies, business 
establishments, government agencies, or other third parties.

[[Page 242]]

    (b) Eyeglasses or contact lenses, except for:
    (1) Post-surgical prosthetic lenses customarily used during 
convalescence for eye surgery in which the lens of the eye was removed 
(e.g., cataract surgery);
    (2) Prosthetic lenses for patients who lack the lens of the eye 
because of congenital absence or surgical removal; and
    (3) One pair of conventional eyeglasses or conventional contact 
lenses furnished after each cataract surgery during which an intraocular 
lens is inserted.
    (c) Eye examinations for the purpose of prescribing, fitting, or 
changing eyeglasses or contact lenses for refractive error only and 
procedures performed in the course of any eye examination to determine 
the refractive state of the eyes, without regard to the reason for the 
performance of the refractive procedures. Refractive procedures are 
excluded even when performed in connection with otherwise covered 
diagnosis or treatment of illness or injury.
    (d) Hearing aids or examination for the purpose of prescribing, 
fitting, or changing hearing aids.
    (e) Immunizations, except for--
    (1) Vaccinations or inoculations directly related to the treatment 
of an injury or direct exposure such as antirabies treatment, tetanus 
antitoxin or booster vaccine, botulin antitoxin, antivenom sera, or 
immune globulin;
    (2) Pneumococcal vaccinations that are reasonable and necessary for 
the prevention of illness;
    (3) Hepatitis B vaccinations that are reasonable and necessary for 
the prevention of illness for those individuals, as defined in 
Sec. 410.63(a) of this chapter, who are at high or intermediate risk of 
contracting hepatitis B; and
    (4) Influenza vaccinations that are reasonable and necessary for the 
prevention of illness.
    (f) Orthopedic shoes or other supportive devices for the feet, 
except when shoes are integral parts of leg braces.
    (g) Custodial care, except as necessary for the palliation or 
management of terminal illness, as provided in part 418 of this chapter. 
(Custodial care is any care that does not meet the requirements for 
coverage as SNF care as set forth in Secs. 409.30 through 409.35 of this 
chapter.)
    (h) Cosmetic surgery and related services, except as required for 
the prompt repair of accidental injury or to improve the functioning of 
a malformed body member.
    (i) Dental services in connection with the care, treatment, filling, 
removal, or replacement of teeth, or structures directly supporting the 
teeth, except for inpatient hospital services in connection with such 
dental procedures when hospitalization is required because of--
    (1) The individual's underlying medical condition and clinical 
status; or
    (2) The severity of the dental procedures.1
---------------------------------------------------------------------------

    \1\ Before July 1981, inpatient hospital care in connection with 
dental procedures was covered only when required by the patient's 
underlying medical condition and clinical status.
---------------------------------------------------------------------------

    (j) Personal comfort services, except as necessary for the 
palliation or management of terminal illness as provided in part 418 of 
this chapter. The use of a television set or a telephone are examples of 
personal comfort services.
    (k) Any services that are not reasonable and necessary for one of 
the following purposes:
    (1) For the diagnosis or treatment of illness or injury or to 
improve the functioning of a malformed body member.
    (2) In the case of hospice services, for the palliation or 
management of terminal illness, as provided in part 418 of this chapter.
    (3) In the case of pneumococcal vaccine for the prevention of 
illness.
    (4) In the case of the patient outcome assessment program 
established under section 1875(c) of the Act, for carrying out the 
purpose of that section.
    (5) In the case of hepatitis B vaccine, for the prevention of 
illness for those individuals at high or intermediate risk of 
contracting hepatitis B. (Section 410.63(a) of this chapter sets forth 
criteria for identifying those individuals.)
    (6) In the case of screening mammography, for the purpose of early 
detection of breast cancer subject to the conditions and limitations 
specified in Sec. 410.34 of this chapter.

[[Page 243]]

    (7) In the case of colorectal cancer screening tests, for the 
purpose of early detection of colorectal cancer subject to the 
conditions and limitations specified in Sec. 410.37 of this chapter.
    (8) In the case of screening pelvic examinations, for the purpose of 
early detection of cervical or vaginal cancer subject to the conditions 
and limitations specified in Sec. 410.56 of this chapter.
    (l) Foot care. (1) Basic rule. Except as provided in paragraph 
(l)(2) of this section, any services furnished in connection with the 
following:
    (i) Routine foot care, such as the cutting or removal of corns, or 
calluses, the trimming of nails, routine hygienic care (preventive 
maintenance care ordinarily within the realm of self care), and any 
service performed in the absence of localized illness, injury, or 
symptoms involving the feet.
    (ii) The evaluation or treatment of subluxations of the feet 
regardless of underlying pathology. (Subluxations are structural 
misalignments of the joints, other than fractures or complete 
dislocations, that require treatment only by nonsurgical methods.
    (iii) The evaluation or treatment of flattened arches (including the 
prescription of supportive devices) regardless of the underlying 
pathology.
    (2) Exceptions. (i) Treatment of warts is not excluded.
    (ii) Treatment of mycotic toenails may be covered if it is furnished 
no more often than every 60 days or the billing physician documents the 
need for more frequent treatment.
    (iii) The services listed in paragraph (l)(1) of this section are 
not excluded if they are furnished--
    (A) As an incident to, at the same time as, or as a necessary 
integral part of a primary covered procedure performed on the foot; or
    (B) As initial diagnostic services (regardless of the resulting 
diagnosis) in connection with a specific symptom or complaint that might 
arise from a condition whose treatment would be covered.
    (m) Services furnished to hospital inpatients. (1) Basic rule. 
Except as provided in paragraph (m)(2) of this section, any service 
furnished to an inpatient of a hospital by an entity other than the 
hospital, unless the hospital has an arrangement (as defined in 
Sec. 409.3 of this chapter) with that entity to furnish that particular 
service to the hospital's inpatients. Services subject to exclusion 
under this paragraph include, but are not limited to, clinical 
laboratory services, pacemakers, artificial limbs, knees, and hips, 
intraocular lenses, total parenteral nutrition, and services incident to 
physicians' services. (As used in this paragraph (m)(1), the term 
``hospital'' includes a CAH.)
    (2) Exceptions. The following services are not excluded from 
coverage:
    (i) Physicians' services that meet the criteria of Sec. 415.102(a) 
of this chapter for payment on a reasonable charge or fee schedule 
basis.
    (ii) Physician assistant services, as defined in section 
1861(s)(2)(K)(i) of the Act, that are furnished after December 31, 1990.
    (iii) Certified nurse-midwife services, as defined in section 
1861(ff) of the Act, that are furnished after December 31, 1990.
    (iv) Qualified psychologist services, as defined in section 1861(ii) 
of the Act, that are furnished after December 31, 1990.
    (v) Services of an anesthetist, as defined in Sec. 410.69 of this 
chapter.
    (n) Certain services of an assistant-at-surgery.
    (1) Services of an assistant-at-surgery in a cataract operation 
(including subsequent insertion of an intraocular lens) unless, before 
the surgery is performed, the appropriate PRO or a carrier has approved 
the use of such an assistant in the surgical procedure based on the 
existence of a complicating medical condition.
    (2) Services on an assistant-at-surgery in a surgical procedure (or 
class of surgical procedures) for which assistants-at-surgery on average 
are used in fewer than 5 percent of such procedures nationally.
    (o) Experimental or investigational devices, except for certain 
devices--
    (1) Categorized by the FDA as a non-experimental/investigational 
(Category B) device defined in Sec. 405.201(b) of this chapter; and
    (2) Furnished in accordance with the FDA-approved protocols 
governing clinical trials.

[[Page 244]]

    (p) Services furnished to SNF residents--(1) Basic rule. Except as 
provided in paragraph (p)(2) of this section, any service furnished to a 
resident of an SNF by an entity other than the SNF, unless the SNF has 
an arrangement (as defined in Sec. 409.3 of this chapter) with that 
entity to furnish that particular service to the SNF's residents. 
Services subject to exclusion under this paragraph include, but are not 
limited to--
    (i) Any physical, occupational, or speech-language therapy services 
regardless of whether or not the services are furnished by, or under the 
supervision of, a physician or other health care professional; and
    (ii) Services furnished as an incident to the professional services 
of a physician or other health care professional specified in paragraph 
(p)(2) of this section.
    (2) Exceptions. The following services are not excluded from 
coverage:
    (i) Physicians' services that meet the criteria of Sec. 415.102(a) 
of this chapter for payment on a fee schedule basis, provided that the 
claim for payment includes the SNF's Medicare provider number in 
accordance with Sec. 424.32(a)(2) of this chapter.
    (ii) Services performed under a physician's supervision by a 
physician assistant who meets the applicable definition in section 
1861(aa)(5) of the Act.
    (iii) Services performed by a nurse practitioner or clinical nurse 
specialist who meets the applicable definition in section 1861(aa)(5) of 
the Act and is working in collaboration (as defined in section 
1861(aa)(6) of the Act) with a physician.
    (iv) Services performed by a certified nurse-midwife, as defined in 
section 1861(gg) of the Act.
    (v) Services performed by a qualified psychologist, as defined in 
section 1861(ii) of the Act.
    (vi) Services performed by a certified registered nurse anesthetist, 
as defined in section 1861(bb) of the Act.
    (vii) Dialysis services and supplies, as defined in section 
1861(s)(2)(F) of the Act.
    (viii) Erythropoietin (EPO) for dialysis patients, as defined in 
section 1861(s)(2)(O) of the Act.
    (ix) Hospice care, as defined in section 1861(dd) of the Act.
    (x) An ambulance trip that initially conveys an individual to the 
SNF to be admitted as a resident, or that conveys an individual from the 
SNF in connection with one of the circumstances specified in paragraphs 
(p)(3)(i) through (p)(3)(iv) of this section as ending the individual's 
status as an SNF resident.
    (xi) For services furnished during 1998 only. The transportation 
costs of electrocardiogram equipment for electrocardiogram test services 
(HCPCS code R0076).
    (3) SNF resident defined. For purposes of this paragraph, a 
beneficiary who is admitted to a Medicare-participating SNF (or to the 
nonparticipating portion of a nursing home of which a distinct part is a 
Medicare-participating SNF) is considered to be a resident of the SNF, 
regardless of whether Part A covers the stay. Whenever such a 
beneficiary leaves the facility, the beneficiary's status as an SNF 
resident for purposes of this paragraph (along with the SNF's 
responsibility to furnish or make arrangements for the services 
described in paragraph (p)(1) of this section) ends when one of the 
following events occurs--
    (i) The beneficiary is admitted as an inpatient to a Medicare-
participating hospital or CAH, or as a resident to another SNF;
    (ii) The beneficiary receives services from a Medicare-participating 
home health agency under a plan of care;
    (iii) The beneficiary receives outpatient services from a Medicare-
participating hospital or CAH (but only with respect to those services 
that are not furnished pursuant to the comprehensive care plan required 
under Sec. 483.20 of this chapter); or
    (iv) The beneficiary is formally discharged (or otherwise departs) 
from the SNF, unless the beneficiary is readmitted (or returns) to that 
or another SNF within 24 consecutive hours.

[54 FR 41734, Oct. 11, 1989; 55 FR 1820, Jan. 19, 1990, as amended at 55 
FR 22789, June 4, 1990; 55 FR 31185, Aug. 1, 1990; 57 FR 33897, July 31, 
1992; 57 FR 36015, Aug. 12, 1992; 58 FR 30669, May 26, 1993; 59 FR 
49834, Sept. 30, 1994; 60 FR 48424, Sept. 19, 1995; 60 FR 63188, Dec. 8, 
1995; 62 FR 46037, Aug. 29, 1997; 62 FR 59101, Oct. 31, 1997; 63 FR 
26308, May 12, 1998; 63 FR 35066, June 26, 1998]

[[Page 245]]



  Subpart B--Insurance Coverage That Limits Medicare Payment: General 
                               Provisions



Sec. 411.20  Basis and scope.

    (a) Statutory basis. (1) Section 1862(b)(2)(A)(i) of the Act 
precludes Medicare payment for services to the extent that payment has 
been made or can reasonably be expected to be made under a group health 
plan with respect to--
    (i) A beneficiary entitled to Medicare on the basis of ESRD during 
the first 18 months of that entitlement;
    (ii) A beneficiary who is age 65 or over, entitled to Medicare on 
the basis of age, and covered under the plan by virtue of his or her 
current employment status or the current employment status of a spouse 
of any age; or
    (iii) A beneficiary who is under age 65, entitled to Medicare on the 
basis of disability, and covered under the plan by virtue of his or her 
current employment status or the current employment status of a family 
member.
    (2) Section 1862(b)(2)(A)(ii) of the Act precludes Medicare payment 
for services to the extent that payment has been made or can reasonably 
be expected to be made promptly under any of the following:
    (i) Workers' compensation.
    (ii) Liability insurance.
    (iii) No-fault insurance.
    (b) Scope. This subpart sets forth general rules that apply to the 
types of insurance specified in paragraph (a) of this section. Other 
general rules that apply to group health plans are set forth in subpart 
E of this part.

[60 FR 45361, Aug. 31, 1995]



Sec. 411.21  Definitions.

    In this subpart B and in subparts C through H of this part, unless 
the context indicates otherwise--
    Conditional payment means a Medicare payment for services for which 
another payer is responsible, made either on the bases set forth in 
subparts C through H of this part, or because the intermediary or 
carrier did not know that the other coverage existed.
    Coverage or covered services, when used in connection with third 
party payments, means services for which a third party payer would pay 
if a proper claim were filed.
    Monthly capitation payment means a comprehensive monthly payment 
that covers all physician services associated with the continuing 
medical management of a maintenance dialysis patient who dialyses at 
home or as an outpatient in an approved ESRD facility.
    Plan means any arrangement, oral or written, by one or more 
entities, to provide health benefits or medical care or assume legal 
liability for injury or illness.
    Prompt or promptly, when used in connection with third party 
payments, except as provided in Sec. 411.50, for payments by liability 
insurers, means payment within 120 days after receipt of the claim.
    Proper claim means a claim that is filed timely and meets all other 
claim filing requirements specified by the plan, program, or insurer.
    Secondary, when used to characterize Medicare benefits, means that 
those benefits are payable only to the extent that payment has not been 
made and cannot reasonably be expected to be made under other coverage 
that is primary to Medicare.
    Secondary payments means payments made for Medicare covered services 
or portions of services that are not payable under other coverage that 
is primary to Medicare.
    Third party payer means an insurance policy, plan, or program that 
is primary to Medicare.
    Third party payment means payment by a third party payer for 
services that are also covered under Medicare.

[54 FR 41734, Oct. 11, 1989, as amended at 60 FR 45361, Aug. 31, 1995]



Sec. 411.23  Beneficiary's cooperation.

    (a) If HCFA takes action to recover conditional payments, the 
beneficiary must cooperate in the action.
    (b) If HCFA's recovery action is unsuccessful because the 
beneficiary does not cooperate, HCFA may recover from the beneficiary.



Sec. 411.24  Recovery of conditional payments.

    If a Medicare conditional payment is made, the following rules 
apply:

[[Page 246]]

    (a) Release of information. The filing of a Medicare claim by on or 
behalf of the beneficiary constitutes an express authorization for any 
entity, including State Medicaid and workers' compensation agencies, and 
data depositories, that possesses information pertinent to the Medicare 
claim to release that information to HCFA. This information will be used 
only for Medicare claims processing and for coordination of benefits 
purposes.
    (b) Right to initiate recovery. HCFA may initiate recovery as soon 
as it learns that payment has been made or could be made under workers' 
compensation, any liability or no-fault insurance, or an employer group 
health plan.
    (c) Amount of recovery. (1) If it is not necessary for HCFA to take 
legal action to recover, HCFA recovers the lesser of the following:
    (i) The amount of the Medicare primary payment.
    (ii) The full primary payment amount that the primary payer is 
obligated to pay under this part without regard to any payment, other 
than a full primary payment that the primary payer has paid or will 
make, or, in the case of a third party payment recipient, the amount of 
the third party payment.
    (2) If it is necessary for HCFA to take legal action to recover from 
the primary payer, HCFA may recover twice the amount specified in 
paragraph (c)(1)(i) of this section.
    (d) Methods of recovery. HCFA may recover by direct collection or by 
offset against any monies HCFA owes the entity responsible for refunding 
the conditional payment.
    (e) Recovery from third parties. HCFA has a direct right of action 
to recover from any entity responsible for making primary payment. This 
includes an employer, an insurance carrier, plan, or program, and a 
third party administrator.
    (f) Claims filing requirements. (1) HCFA may recover without regard 
to any claims filing requirements that the insurance program or plan 
imposes on the beneficiary or other claimant such as a time limit for 
filing a claim or a time limit for notifying the plan or program about 
the need for or receipt of services.
    (2) However, HCFA will not recover its payment for particular 
services in the face of a claims filing requirement unless it has filed 
a claim for recovery by the end of the year following the year in which 
the Medicare intermediary or carrier that paid the claim has notice that 
the third party is primary to Medicare for those particular services. (A 
notice received during the last three months of a year is considered 
received during the following year.)
    (g) Recovery from parties that receive third party payments. HCFA 
has a right of action to recover its payments from any entity, including 
a beneficiary, provider, supplier, physician, attorney, State agency or 
private insurer that has received a third party payment.
    (h) Reimbursement to Medicare. If the beneficiary or other party 
receives a third party payment, the beneficiary or other party must 
reimburse Medicare within 60 days.
    (i) Special rules. (1) In the case of liability insurance 
settlements and disputed claims under employer group health plans and 
no-fault insurance, the following rule applies: If Medicare is not 
reimbursed as required by paragraph (h) of this section, the third party 
payer must reimburse Medicare even though it has already reimbursed the 
beneficiary or other party.
    (2) The provisions of paragraph (i)(1) of this section also apply if 
a third party payer makes its payment to an entity other than Medicare 
when it is, or should be, aware that Medicare has made a conditional 
primary payment.
    (3) In situations that involve procurement costs, the rule of 
Sec. 411.37(b) applies.
    (j) Recovery against Medicaid agency. If a third party payment is 
made to a State Medicaid agency and that agency does not reimburse 
Medicare, HCFA may reduce any Federal funds due the Medicaid agency 
(under title XIX of the Act) by an amount equal to the Medicare payment 
or the third party payment, whichever is less.
    (k) Recovery against Medicare contractor. If a Medicare contractor, 
including an intermediary or carrier, also insures, underwrites, or 
administers as a

[[Page 247]]

third party administrator, a program or plan that is primary to 
Medicare, and does not reimburse Medicare, HCFA may offset the amount 
owed against any funds due the intermediary or carrier under title XVIII 
of the Act or due the contractor under the contract.
    (l) Recovery when there is failure to file a proper claim. (1) Basic 
rule. If Medicare makes a conditional payment with respect to services 
for which the beneficiary or provider or supplier has not filed a proper 
claim with a third party payer, and Medicare is unable to recover from 
the third party payer, Medicare may recover from the beneficiary or 
provider or supplier that was responsible for the failure to file a 
proper claim.
    (2) Exceptions: (i) This rule does not apply in the case of 
liability insurance nor when failure to file a proper claim is due to 
mental or physical incapacity of the beneficiary.
    (ii) HCFA will not recover from providers or suppliers that are in 
compliance with the requirements of Sec. 489.20 of this chapter and can 
show that the reason they failed to file a proper claim is that the 
beneficiary, or someone acting on his or her behalf, failed to give, or 
gave erroneous, information regarding coverage that is primary to 
Medicare.
    (m) Interest charges. (1) With respect to recovery of payments for 
items and services furnished before October 31, 1994, HCFA charges 
interest, exercising common law authority in accordance with 45 CFR 
30.13, consistent with the Federal Claims Collection Act (31 U.S.C. 
3711).
    (2) In addition to its common law authority with respect to recovery 
of payments for items and services furnished on or after October 31, 
1994, HCFA charges interest in accordance with section 1862(b)(2)(B)(i) 
of the Act. Under that provision--
    (i) HCFA may charge interest if reimbursement is not made to the 
appropriate trust fund before the expiration of the 60-day period that 
begins on the date on which notice or other information is received by 
HCFA that payment has been or could be made under a primary plan;
    (ii) Interest may accrue from the date when that notice or other 
information is received by HCFA and is charged until reimbursement is 
made; and
    (iii) The rate of interest is that provided at 42 CFR 405.376(d).

[54 FR 41734, Oct. 11, 1989, as amended at 55 FR 1820, Jan. 19, 1990; 60 
FR 45361, 45362, Aug. 31, 1995]



Sec. 411.25  Third party payer's notice of mistaken Medicare primary payment.

    (a) If a third party payer learns that HCFA has made a Medicare 
primary payment for services for which the third party payer has made or 
should have made primary payment, it must give notice to that effect to 
the Medicare intermediary or carrier that paid the claim.
    (b) The notice must describe the specific situation and the 
circumstances (including the particular type of insurance coverage as 
specified in Sec. 411.20(a)) and, if appropriate, the time period during 
which the insurer is primary to Medicare.
    (c) If a plan is self-insured and self-administered, the employer 
must give the notice to HCFA. Otherwise, the insurer, underwriter, or 
third party administrator must give the notice.

[54 FR 41734, Oct. 11, 1989; as amended at 55 FR 1820, Jan. 19, 1990]



Sec. 411.26  Subrogation and right to intervene.

    (a) Subrogation. With respect to services for which Medicare paid, 
HCFA is subrogated to any individual, provider, supplier, physician, 
private insurer, State agency, attorney, or any other entity entitled to 
payment by a third party payer.
    (b) Right to intervene. HCFA may join or intervene in any action 
related to the events that gave rise to the need for services for which 
Medicare paid.



Sec. 411.28  Waiver of recovery and compromise of claims.

    (a) HCFA may waive recovery, in whole or in part, if the probability 
of recovery, or the amount involved, does not warrant pursuit of the 
claim.

[[Page 248]]

    (b) General rules applicable to compromise of claims are set forth 
in subpart F of part 401 and Sec. 405.376 of this chapter.
    (c) Other rules pertinent to recovery are contained in subpart C of 
part 405 of this chapter.

[54 FR 41734, Oct. 11, 1989, as amended at 61 FR 63749, Dec. 2, 1996]



Sec. 411.30  Effect of third party payment on benefit utilization and deductibles.

    (a) Benefit utilization. Inpatient psychiatric hospital and SNF care 
that is paid for by a third party payer is not counted against the 
number of inpatient care days available to the beneficiary under 
Medicare Part A.
    (b) Deductibles. Expenses for Medicare covered services that are 
paid for by third party payers are credited toward the Medicare Part A 
and Part B deductibles.



Sec. 411.31  Authority to bill third party payers for full charges.

    (a) The fact that Medicare payments are limited to the DRG amount, 
or the reasonable charge, reasonable cost, capitation or fee schedule 
rate, does not affect the amount that a third party payer may pay.
    (b) With respect to workers' compensation plans, no-fault insurers, 
and employer group health plans, a provider or supplier may bill its 
full charges and expect those charges to be paid unless there are limits 
imposed by laws other than title XVIII of the Act or by agreements with 
the third party payer.



Sec. 411.32  Basis for Medicare secondary payments.

    (a) Basic rules. (1) Medicare benefits are secondary to benefits 
payable by a third party payer even if State law or the third party 
payer states that its benefits are secondary to Medicare benefits or 
otherwise limits its payments to Medicare beneficiaries.
    (2) Except as provided in paragraph (b) of this section, Medicare 
makes secondary payments, within the limits specified in paragraph (c) 
of this section and in Sec. 411.33, to supplement the third party 
payment if that payment is less than the charges for the services and, 
in the case of services paid on other than a reasonable charge basis, 
less than the gross amount payable by Medicare under Sec. 411.33(e).
    (b) Exception. Medicare does not make a secondary payment if the 
provider or supplier is either obligated to accept, or voluntarily 
accepts, as full payment, a third party payment that is less than its 
charges.
    (c) General limitation: Failure to file a proper claim. When a 
provider or supplier, or a beneficiary who is not physically or mentally 
incapacitated, receives a reduced third party payment because of failure 
to file a proper claim, the Medicare secondary payment may not exceed 
the amount that would have been payable under Sec. 411.33 if the third 
party payer had paid on the basis of a proper claim.

The provider, supplier, or beneficiary must inform HCFA that a reduced 
payment was made, and the amount that would have been paid if a proper 
claim had been filed.



Sec. 411.33  Amount of Medicare secondary payment.

    (a) Services for which HCFA pays on a Medicare fee schedule or 
reasonable charge basis. The Medicare secondary payment is the lowest of 
the following:
    (1) The actual charge by the supplier (or the amount the supplier is 
obligated to accept as payment in full if that is less than the charges) 
minus the amount paid by the third party payer.
    (2) The amount that Medicare would pay if the services were not 
covered by a third party payer.
    (3) The higher of the Medicare fee schedule, Medicare reasonable 
charge, or other amount which would be payable under Medicare (without 
regard to any applicable Medicare deductible or coinsurance amounts) or 
the third party payer's allowable charge (without regard to any 
deductible or co-insurance imposed by the policy or plan) minus the 
amount actually paid by the third party payer.
    (b) Example: An individual received treatment from a physician for 
which the physician charged $175. The third party payer allowed $150 of 
the charge and paid 80 percent of this amount or $120. The Medicare fee 
schedule for this

[[Page 249]]

treatment is $125. The individual's Part B deductible had been met. As 
secondary payer, Medicare pays the lowest of the following amounts:
    (1) Excess of actual charge minus the third party payment: 
$175-120=$55.
    (2) Amount Medicare would pay if the services were not covered by a 
third party payer: .80 x $125=$100.
    (3) Third party payer's allowable charge without regard to its 
coinsurance (since that amount is higher than the Medicare fee schedule 
in this case) minus amount paid by the third party payer: $150-120=$30.

The Medicare payment is $30.
    (c)-(d)  [Reserved]
    (e) Services reimbursed on a basis other than fee schedule, 
reasonable charge, or monthly capitation rate. The Medicare secondary 
payment is the lowest of the following:
    (1) The gross amount payable by Medicare (that is, the amount 
payable without considering the effect of the Medicare deductible and 
coinsurance or the payment by the third party payer), minus the 
applicable Medicare deductible and coinsurance amounts.
    (2) The gross amount payable by Medicare, minus the amount paid by 
the third party payer.
    (3) The provider's charges (or the amount the provider is obligated 
to accept as payment in full, if that is less than the charges), minus 
the amount payable by the third party payer.
    (4) The provider's charges (or the amount the provider is obligated 
to accept as payment in full if that is less than the charges), minus 
the applicable Medicare deductible and coinsurance amounts.
    (f) Examples: (1) A hospital furnished 7 days of inpatient hospital 
care in 1987 to a Medicare beneficiary. The provider's charges for 
Medicare-covered services totaled $2,800. The third party payer paid 
$2,360. No part of the Medicare inpatient hospital deductible of $520 
had been met. If the gross amount payable by Medicare in this case is 
$2,700, then as secondary payer, Medicare pays the lowest of the 
following amounts:
    (i) The gross amount payable by Medicare minus the Medicare 
inpatient hospital deductible: $2,700-$520=$2,180.
    (ii) The gross amount payable by Medicare minus the third party 
payment: $2,700-$2,360=$340.
    (iii) The provider's charges minus the third party payment: 
$2,800-$2,360=$440.
    (iv) The provider's charges minus the Medicare deductible: 
$2,800-$520=$2,280. Medicare's secondary payment is $340 and the 
combined payment made by the third party payer and Medicare on behalf of 
the beneficiary is $2,700. The $520 deductible was satisfied by the 
third party payment so that the beneficiary incurred no out-of-pocket 
expenses.
    (2) A hospital furnished 1 day of inpatient hospital care in 1987 to 
a Medicare beneficiary. The provider's charges for Medicare-covered 
services totalled $750. The third party payer paid $450. No part of the 
Medicare inpatient hospital deductible had been met previously. The 
third party payment is credited toward that deductible. If the gross 
amount payable by Medicare in this case is $850, then as secondary 
payer, Medicare pays the lowest of the following amounts:
    (i) The gross amount payable by Medicare minus the Medicare 
deductible: $850-$520=$330.
    (ii) The gross amount payable by Medicare minus the third party 
payment: $850-$450=$400.
    (iii) The provider's charges minus the third party payment: 
$750-$450=$300.
    (iv) The provider's charges minus the Medicare deductible: 
$750-$520=$230. Medicare's secondary payment is $230, and the combined 
payment made by the third party payer and Medicare on behalf of the 
beneficiary is $680. The hospital may bill the beneficiary $70 (the $520 
deductible minus the $450 third party payment). This fully discharges 
the beneficiary's deductible obligation.
    (3) An ESRD beneficiary received 8 dialysis treatments for which a 
facility charged $160 per treatment for a total of $1,280. No part of 
the beneficiary's $75 Part B deductible had been met. The third party 
payer paid $1,024 for Medicare-covered services. The composite rate per 
dialysis treatment at this facility is $131 or $1,048 for 8 treatments. 
As secondary payer, Medicare pays the lowest of the following:

[[Page 250]]

    (i) The gross amount payable by Medicare minus the applicable 
Medicare deductible and coinsurance: $1,048-$75-$194.60=$778.40. (The 
coinsurance is calculated as follows: $1,048 composite rate-$75 
deductible=$973 x .20=$194.60).
    (ii) The gross amount payable by Medicare minus the third party 
payment: $1,048-$1,024=$24.
    (iii) The provider's charges minus the third party payment: 
$1,280-$1,024=$256.
    (iv) The provider's charge minus the Medicare deductible and 
coinsurance: $1,280-$75-$194.60=1010.40. Medicare pays $24. The 
beneficiary's Medicare deductible and coinsurance were met by the third 
party payment.
    (4) A hospital furnished 5 days of inpatient care in 1987 to a 
Medicare beneficiary. The provider's charges for Medicare-covered 
services were $4,000 and the gross amount payable was $3,500. The 
provider agreed to accept $3,000 from the third party as payment in 
full. The third party payer paid $2,900 due to a deductible requirement 
under the third party plan. Medicare considers the amount the provider 
is obligated to accept as full payment ($3,000) to be the provider 
charges. The Medicare secondary payment is the lowest of the following:
    (i) The gross amount payable by Medicare minus the Medicare 
inpatient deductible: $3,500-$520=$2,980.
    (ii) The gross amount payable by Medicare minus the third party 
payment: $3,500-$2,900=$600.
    (iii) The provider's charge minus the third party payment: 
$3,000-$2,900=$100.
    (iv) The provider's charges minus the Medicare inpatient deductible: 
$3,000-$520=$2,480. The Medicare secondary payment is $100. When 
Medicare is the secondary payer, the combined payment made by the third 
party payer and Medicare on behalf of the beneficiary is $3,000. The 
beneficiary has no liability for Medicare-covered services since the 
third party payment satisfied the $520 deductible.

[54 FR 41734, Oct. 11, 1989, as amended at 55 FR 1820, Jan. 19, 1990; 60 
FR 45362, Aug. 31, 1995]



Sec. 411.35  Limitations on charges to a beneficiary or other party when a workers' compensation plan, a no-fault insurer, or an employer group health plan is 
          primary payer.

    (a) Definition. As used in this section Medicare-covered services 
means services for which Medicare benefits are payable or would be 
payable except for the Medicare deductible and coinsurance provisions 
and the amounts payable by the third party payer.
    (b) Applicability. This section applies when a workers' compensation 
plan, a no-fault insurer or an employer group health plan is primary to 
Medicare.
    (c) Basic rule. Except as provided in paragraph (d) of this section, 
the amounts the provider or supplier may collect or seek to collect, for 
the Medicare-covered services from the beneficiary or any entity other 
than the workers' compensation plan, the no-fault insurer, or the 
employer plan and Medicare, are limited to the following:
    (1) The amount paid or payable by the third party payer to the 
beneficiary. If this amount exceeds the amount payable by Medicare 
(without regard to deductible or coinsurance), the provider or supplier 
may retain the third party payment in full without violating the terms 
of the provider agreement or the conditions of assignment.
    (2) The amount, if any, by which the applicable Medicare deductible 
and coinsurance amounts exceed any third party payment made or due to 
the beneficiary or to the provider or supplier for the medical services.
    (3) The amount of any charges that may be made to a beneficiary 
under Sec. 413.35 of this chapter when cost limits are applied to the 
services, or under Sec. 489.32 of this chapter when the services are 
partially covered, but only to the extent that the third party payer is 
not responsible for those charges.
    (d) Exception. The limitations of paragraph (c) of this section do 
not apply if the services were furnished by a supplier that is not a 
participating supplier and has not accepted assignment for the services 
or claimed payment under Sec. 424.64 of this chapter.

[[Page 251]]



Sec. 411.37  Amount of Medicare recovery when a third party payment is made as a result of a judgment or settlement.

    (a) Recovery against the party that received payment--(1) General 
rule. Medicare reduces its recovery to take account of the cost of 
procuring the judgment or settlement, as provided in this section, if--
    (i) Procurement costs are incurred because the claim is disputed; 
and
    (ii) Those costs are borne by the party against which HCFA seeks to 
recover.
    (2) Special rule. If HCFA must file suit because the party that 
received payment opposes HCFA's recovery, the recovery amount is as set 
forth in paragraph (e) of this section.
    (b) Recovery against the third party payer. If HCFA seeks recovery 
from the third party payer, in accordance with Sec. 411.24(i), the 
recovery amount will be no greater than the amount determined under 
paragraph (c) or (d) or (e) of this section.
    (c) Medicare payments are less than the judgment or settlement 
amount. If Medicare payments are less than the judgment or settlement 
amount, the recovery is computed as follows:
    (1) Determine the ratio of the procurement costs to the total 
judgment or settlement payment.
    (2) Apply the ratio to the Medicare payment. The product is the 
Medicare share of procurement costs.
    (3) Subtract the Medicare share of procurement costs from the 
Medicare payments. The remainder is the Medicare recovery amount.
    (d) Medicare payments equal or exceed the judgment or settlement 
amount. If Medicare payments equal or exceed the judgment or settlement 
amount, the recovery amount is the total judgment or settlement payment 
minus the total procurement costs.
    (e) HCFA incurs procurement costs because of opposition to its 
recovery. If HCFA must bring suit against the party that received 
payment because that party opposes HCFA's recovery, the recovery amount 
is the lower of the following:
    (1) Medicare payment.
    (2) The total judgment or settlement amount, minus the party's total 
procurement cost.



 Subpart C--Limitations on Medicare Payment for Services Covered under 
                          Workers' Compensation



Sec. 411.40  General provisions.

    (a) Definition. ``Workers' compensation plan of the United States'' 
includes the workers' compensation plans of the 50 States, the District 
of Columbia, American Samoa, Guam, Puerto Rico, and the Virgin Islands, 
as well as the systems provided under the Federal Employees' 
Compensation Act and the Longshoremen's and Harbor Workers' Compensation 
Act.
    (b) Limitations on Medicare payment. (1) Medicare does not pay for 
any services for which--
    (i) Payment has been made, or can reasonably be expected to be made 
promptly under a workers' compensation law or plan of the United States 
or a state; or
    (ii) Payment could be made under the Federal Black Lung Program, but 
is precluded solely because the provider of the services has failed to 
secure, from the Department of Labor, a provider number to include in 
the claim.
    (2) If the payment for a service may not be made under workers' 
compensation because the service is furnished by a source not authorized 
to provide that service under the particular workers' compensation 
program, Medicare pays for the service if it is a covered service.
    (3) Medicare makes secondary payments in accordance with Sec. 411.32 
and Sec. 411.33.



Sec. 411.43  Beneficiary's responsibility with respect to workers' compensation.

    (a) The beneficiary is responsible for taking whatever action is 
necessary to obtain any payment that can reasonably be expected under 
workers' compensation.
    (b) Except as specified in Sec. 411.45(a), Medicare does not pay 
until the beneficiary has exhausted his or her remedies under workers' 
compensation.
    (c) Except as specified in Sec. 411.45(b), Medicare does not pay for 
services that

[[Page 252]]

would have been covered under workers' compensation if the beneficiary 
had filed a proper claim.
    (d) However, if a claim is denied for reasons other than not being a 
proper claim, Medicare pays for the services if they are covered under 
Medicare.



Sec. 411.45  Basis for conditional Medicare payment in workers' compensation cases.

    A conditional Medicare payment may be made under either of the 
following circumstances:
    (a) The beneficiary has filed a proper claim for workers' 
compensation benefits, but the intermediary or carrier determines that 
the workers' compensation carrier will not pay promptly. This includes 
cases in which a workers' compensation carrier has denied a claim.
    (b) The beneficiary, because of physical or mental incapacity, 
failed to file a proper claim.



Sec. 411.46  Lump-sum payments.

    (a) Lump-sum commutation of future benefits. If a lump-sum 
compensation award stipulates that the amount paid is intended to 
compensate the individual for all future medical expenses required 
because of the work-related injury or disease, Medicare payments for 
such services are excluded until medical expenses related to the injury 
or disease equal the amount of the lump-sum payment.
    (b) Lump-sum compromise settlement. (1) A lump-sum compromise 
settlement is deemed to be a workers' compensation payment for Medicare 
purposes, even if the settlement agreement stipulates that there is no 
liability under the workers' compensation law or plan.
    (2) If a settlement appears to represent an attempt to shift to 
Medicare the responsibility for payment of medical expenses for the 
treatment of a work-related condition, the settlement will not be 
recognized. For example, if the parties to a settlement attempt to 
maximize the amount of disability benefits paid under workers' 
compensation by releasing the workers' compensation carrier from 
liability for medical expenses for a particular condition even though 
the facts show that the condition is work-related, Medicare will not pay 
for treatment of that condition.
    (c) Lump-sum compromise settlement: Effect on services furnished 
before the date of settlement. Medicare pays for medical expenses 
incurred before the lump-sum compromise settlement only to the extent 
specified in Sec. 411.47.
    (d) Lump-sum compromise settlement: Effect on payment for services 
furnished after the date of settlement--(1) Basic rule. Except as 
specified in paragraph (d)(2) of this section, if a lump-sum compromise 
settlement forecloses the possibility of future payment of workers' 
compensation benefits, medical expenses incurred after the date of the 
settlement are payable under Medicare.
    (2) Exception. If the settlement agreement allocates certain amounts 
for specific future medical services, Medicare does not pay for those 
services until medical expenses related to the injury or disease equal 
the amount of the lump-sum settlement allocated to future medical 
expenses.



Sec. 411.47  Apportionment of a lump-sum compromise settlement of a workers' compensation claim.

    (a) Determining amount of compromise settlement considered as a 
payment for medical expenses. (1) If a compromise settlement allocates a 
portion of the payment for medical expenses and also gives reasonable 
recognition to the income replacement element, that apportionment may be 
accepted as a basis for determining Medicare payments.
    (2) If the settlement does not give reasonable recognition to both 
elements of a workers' compensation award or does not apportion the sum 
granted, the portion to be considered as payment for medical expenses is 
computed as follows:
    (i) Determine the ratio of the amount awarded (less the reasonable 
and necessary costs incurred in procuring the settlement) to the total 
amount that would have been payable under workers' compensation if the 
claim had not been compromised.
    (ii) Multiply that ratio by the total medical expenses incurred as a 
result of the injury or disease up to the date of the settlement. The 
product is the amount of the workers' compensation

[[Page 253]]

settlement to be considered as payment for medical expenses.

    Example: As the result of a work injury, an individual suffered loss 
of income and incurred medical expenses for which the total workers' 
compensation payment would have been $24,000 if the case had not been 
compromised. The medical expenses amounted to $18,000. The workers' 
compensation carrier made a settlement with the beneficiary under which 
it paid $8,000 in total. A separate award was made for legal fees. Since 
the workers' compensation compromise settlement was for one-third of the 
amount which would have been payable under workers' compensation had the 
case not been compromised ($8,000/$24,000=\1/3\), the workers' 
compensation compromise settlement is considered to have paid for one-
third of the total medical expenses (\1/3\ x $18,000=$6,000).

    (b) Determining the amount of the Medicare overpayment. When 
conditional Medicare payments have been made, and the beneficiary 
receives a compromise settlement payment, the Medicare overpayment is 
determined as set forth in this paragraph (b). The amount of the 
workers' compensation payment that is considered to be for medical 
expenses (as determined under paragraph (a) of this section) is applied, 
at the workers' compensation rate of payment prevailing in the 
particular jurisdiction, in the following order:
    (1) First to any beneficiary payments for services payable under 
workers' compensation but not covered under Medicare.
    (2) Then to any beneficiary payments for services payable under 
workers' compensation and also covered under Medicare Part B. (These 
include deductible and coinsurance amounts and, in unassigned cases, the 
charge in excess of the reasonable charge.)
    (3) Last to any beneficiary payments for services payable under 
workers' compensation and also covered under Medicare Part A. (These 
include Part A deductible and coinsurance amounts and charges for 
services furnished after benefits are exhausted.)

The difference between the amount of the workers' compensation payment 
for medical expenses and any beneficiary payments constitutes the 
Medicare overpayment. The beneficiary is liable for that amount.

    Example: In the example in paragraph (a) of this section, it was 
determined that the workers' compensation settlement paid for $6,000 of 
the total medical expenses. The $18,000 in medical expenses included 
$1,500 in charges for services not covered under Medicare, $7,500 in 
charges for services covered under Medicare Part B, and $9,000 in 
hospital charges for services covered under Medicare Part A. All charges 
were at the workers' compensation payment rate, that is, in amounts the 
provider or supplier must accept as payment in full.
    The Medicare reasonable charge for physicians' services was $7,000 
and Medicare paid $5,600 (80 percent of the reasonable charge). The Part 
B deductible had been met. The Medicare payment rate for the hospital 
services was $8,000. Medicare paid the hospital $7,480 ($8,000--the Part 
A deductible of $520).
    In this situation, the beneficiary's payments totalled $3,920:

Services not covered under Medicare............................   $1,500
Excess of physicians' charges over reasonable charges..........      500
Medicare Part B coinsurance....................................    1,400
Part A deductible..............................................      520
                                                                --------
      Total....................................................    3,920
 

    The Medicare overpayment, for which the beneficiary is liable, would 
be $2,080 ($6,000-$3,920).



 Subpart D--Limitations on Medicare Payment for Services Covered Under 
                     Liability or No-Fault Insurance



Sec. 411.50  General provisions.

    (a) Limits on applicability. The provisions of this subpart C do not 
apply to any services required because of accidents that occurred before 
December 5, 1980.
    (b) Definitions.
    Automobile means any self-propelled land vehicle of a type that must 
be registered and licensed in the State in which it is owned.
    Liability insurance means insurance (including a self-insured plan) 
that provides payment based on legal liability for injury or illness or 
damage to property. It includes, but is not limited to, automobile 
liability insurance, uninsured motorist insurance, underinsured motorist 
insurance, homeowners' liability insurance, malpractice insurance, 
product liability insurance, and general casualty insurance.
    Liability insurance payment means a payment by a liability insurer, 
or an

[[Page 254]]

out-of-pocket payment, including a payment to cover a deductible 
required by a liability insurance policy, by any individual or other 
entity that carries liability insurance or is covered by a self-insured 
plan.
    No-fault insurance means insurance that pays for medical expenses 
for injuries sustained on the property or premises of the insured, or in 
the use, occupancy, or operation of an automobile, regardless of who may 
have been responsible for causing the accident. This insurance includes 
but is not limited to automobile, homeowners, and commercial plans. It 
is sometimes called ``medical payments coverage'', ``personal injury 
protection'', or ``medical expense coverage''.
    Prompt or promptly, when used in connection with payment by a 
liability insurer means payment within 120 days after the earlier of the 
following:
    (1) The date a claim is filed with an insurer or a lien is filed 
against a potential liability settlement.
    (2) The date the service was furnished or, in the case of inpatient 
hospital services, the date of discharge.
    Self-insured plan means a plan under which an individual, or a 
private or governmental entity, carries its own risk instead of taking 
out insurance with a carrier. The term includes a plan of an individual 
or other entity engaged in a business, trade, or profession, a plan of a 
non-profit organization such as a social, fraternal, labor, educational, 
religious, or professional organization, and the plan established by the 
Federal government to pay liability claims under the Federal Tort Claims 
Act.
    Underinsured motorist insurance means insurance under which the 
policyholder's level of protection against losses caused by another is 
extended to compensate for inadequate coverage in the other party's 
policy or plan.
    Uninsured motorist insurance means insurance under which the 
policyholder's insurer will pay for damages caused by a motorist who has 
no automobile liability insurance or who carries less than the amount of 
insurance required by law, or is underinsured.
    (c) Limitation on payment for services covered under no-fault 
insurance. Except as provided under Secs. 411.52 and 411.53 with respect 
to conditional payments. Medicare does not pay for the following:
    (1) Services for which payment has been made or can reasonably be 
expected to be made promptly under automobile no-fault insurance.
    (2) Services furnished on or after November 13, 1989 for which 
payment has been made or can reasonably be expected to be made promptly 
under any no-fault insurance other than automobile no-fault.

[54 FR 41734, Oct. 11, 1989, as amended at 55 FR 1820, Jan. 19, 1990]



Sec. 411.51  Beneficiary's responsibility with respect to no-fault insurance.

    (a) The beneficiary is responsible for taking whatever action is 
necessary to obtain any payment that can reasonably be expected under 
no-fault insurance.
    (b) Except as specified in Sec. 411.53, Medicare does not pay until 
the beneficiary has exhausted his or her remedies under no-fault 
insurance.
    (c) Except as specified in Sec. 411.53, Medicare does not pay for 
services that would have been covered by the no-fault insurance if the 
beneficiary had filed a proper claim.
    (d) However, if a claim is denied for reasons other than not being a 
proper claim, Medicare pays for the services if they are covered under 
Medicare.



Sec. 411.52  Basis for conditional Medicare payment in liability cases.

    If HCFA has information that services for which Medicare benefits 
have been claimed are for treatment of an injury or illness that was 
allegedly caused by another party, a conditional Medicare payment may be 
made.



Sec. 411.53  Basis for conditional Medicare payment in no-fault cases.

    A conditional Medicare payment may be made in no-fault cases under 
either of the following circumstances:
    (a) The beneficiary, or the provider or supplier, has filed a proper 
claim for no-fault insurance benefits but the intermediary or carrier 
determines that the no-fault insurer will not pay promptly for any 
reason other than the circumstances described in Sec. 411.32(a)(1). This 
includes cases in

[[Page 255]]

which the no-fault insurance carrier has denied the claim.
    (b) The beneficiary, because of physical or mental incapacity, 
failed to meet a claim-filing requirement stipulated in the policy.



Sec. 411.54  Limitation on charges when a beneficiary has received a liability insurance payment or has a claim pending against a liability insurer.

    (a) Definition. As used in this section, Medicare-covered services 
means services for which Medicare benefits are payable or would be 
payable except for applicable Medicare deductible and coinsurance 
provisions. Medicare benefits are payable notwithstanding potential 
liability insurance payments, but are recoverable in accordance with 
Sec. 411.24.
    (b) Applicability. This section applies when a beneficiary has 
received a liability insurance payment or has a claim pending against a 
liability insurer for injuries or illness allegedly caused by another 
party.
    (c) Basic rules--(1) Itemized bill. A hospital must, upon request, 
furnish to the beneficiary or his or her representative an itemized bill 
of the hospital's charges.
    (2) Specific limitations. Except as provided in paragraph (d) of 
this section, the provider or supplier--
    (i) May not bill the liability insurer nor place a lien against the 
beneficiary's liability insurance settlement for Medicare covered 
services.
    (ii) May only bill Medicare for Medicare-covered services; and
    (iii) May bill the beneficiary only for applicable Medicare 
deductible and coinsurance amounts plus the amount of any charges that 
may be made to a beneficiary under Sec. 413.35 of this chapter (when 
cost limits are applied to the services) or under Sec. 489.32 of this 
chapter (when services are partially covered).
    (d) Exceptions--(1) Nonparticipating suppliers. The limitations of 
paragraph (c)(2) of this section do not apply if the services were 
furnished by a supplier that is not a participating supplier and has not 
accepted assignment for the services or has not claimed payment for them 
under Sec. 424.64 of this chapter.
    (2) Prepaid health plans. If the services were furnished through an 
organization that has a contract under section 1876 of the Act (that is, 
through an HMO or CMP), or through an organization that is paid under 
section 1833(a)(1)(A) of the Act (that is, through an HCPP) the rules of 
Sec. 417.528 of this chapter apply.
    (3) Special rules for Oregon. For the State of Oregon, because of a 
court decision, and in the absence of a reversal on appeal or a 
statutory clarification overturning the decision, there are the 
following special rules:
    (i) The limitations of paragraph (c)(2) of this section do not apply 
if the liability insurer pays within 120 days after the earlier of the 
following dates:
    (A) The date the hospital files a claim with the insurer or places a 
lien against a potential liability settlement.
    (B) The date the services were provided or, in the case of inpatient 
hospital services, the date of discharge.
    (ii) If the liability insurer does not pay within the 120-day 
period, the hospital must withdraw its claim or lien and comply with the 
limitations imposed by paragraph (c)(2) of this section.



   Subpart E--Limitations on Payment for Services Covered Under Group 
                    Health Plans: General Provisions

    Source: 60 FR 45362, Aug. 31, 1995, unless otherwise noted.



Sec. 411.100  Basis and scope.

    (a) Statutory basis. (1) Section 1862(b) of the Act provides in part 
that Medicare is secondary payer, under specified conditions, for 
services covered under any of the following:
    (i) Group health plans of employers that employ at least 20 
employees and that cover Medicare beneficiaries age 65 or older who are 
covered under the plan by virtue of the individual's current employment 
status with an employer or the current employment status of a spouse of 
any age. (Section 1862(b)(1)(A))

[[Page 256]]

    (ii) Group health plans (without regard to the number of individuals 
employed and irrespective of current employment status) that cover 
individuals who have ESRD. Except as provided in Sec. 411.163, group 
health plans are always primary payers throughout the first 18 months of 
ESRD-based Medicare eligibility or entitlement. (Section 1862(b)(1)(C))
    (iii) Large group health plans (that is, plans of employers that 
employ at least 100 employees) and that cover Medicare beneficiaries who 
are under age 65, entitled to Medicare on the basis of disability, and 
covered under the plan by virtue of the individual's or a family 
member's current employment status with an employer. (Section 
1862(b)(1)(B))
    (2) Sections 1862(b)(1)(A), (B), and (C) of the Act provide that 
group health plans and large group health plans may not take into 
account that the individuals described in paragraph (a)(1) of this 
section are entitled to Medicare on the basis of age or disability, or 
eligible for, or entitled to Medicare on the basis of ESRD.
    (3) Section 1862(b)(1)(A)(i)(II) of the Act provides that group 
health plans of employers of 20 or more employees must provide to any 
employee or spouse age 65 or older the same benefits, under the same 
conditions, that it provides to employees and spouses under 65. The 
requirement applies regardless of whether the individual or spouse 65 or 
older is entitled to Medicare.
    (4) Section 1862(b)(1)(C)(ii) of the Act provides that group health 
plans may not differentiate in the benefits they provide between 
individuals who have ESRD and other individuals covered under the plan 
on the basis of the existence of ESRD, the need for renal dialysis, or 
in any other manner. Actions that constitute ``differentiating'' are 
listed in Sec. 411.161(b).
    (b) Scope. This subpart sets forth general rules pertinent to--
    (1) Medicare payment for services that are covered under a group 
health plan and are furnished to certain beneficiaries who are entitled 
on the basis of ESRD, age, or disability.
    (2) The prohibition against taking into account Medicare entitlement 
based on age or disability, or Medicare eligibility or entitlement based 
on ESRD.
    (3) The prohibition against differentiation in benefits between 
individuals who have ESRD and other individuals covered under the plan.
    (4) The requirement to provide to those 65 or over the same benefits 
under the same conditions as are provided to those under 65.
    (5) The appeals procedures for group health plans that HCFA 
determines are nonconforming plans.



Sec. 411.101  Definitions.

    As used in this subpart and in subparts F through H of this part--
    COBRA stands for Consolidated Omnibus Budget Reconciliation Act of 
1985.
    Days means calendar days.
    Employee (subject to the special rules in Sec. 411.104) means an 
individual who--
    (1) Is working for an employer; or
    (2) Is not working for an employer but is receiving payments that 
are subject to FICA taxes, or would be subject to FICA taxes except that 
the employer is exempt from those taxes under the Internal Revenue Code.
    Employer means, in addition to individuals (including self-employed 
persons) and organizations engaged in a trade or business, other 
entities exempt from income tax such as religious, charitable, and 
educational institutions, the governments of the United States, the 
individual States, Puerto Rico, the Virgin Islands, Guam, American 
Samoa, the Northern Mariana Islands, and the District of Columbia, and 
the agencies, instrumentalities, and political subdivisions of these 
governments.
    FICA stands for the Federal Insurance Contributions Act, the law 
that imposes social security taxes on employers and employees under 
section 21 of the Internal Revenue Code.
    Group health plan (GHP) means any arrangement made by one or more 
employers or employee organizations to provide health care directly or 
through other methods such as insurance or reimbursement, to current or 
former employees, the employer, others associated or formerly associated 
with the

[[Page 257]]

employer in a business relationship, or their families, that--
    (1) Is of, or contributed to by, one or more employers or employee 
organizations.
    (2) If it involves more than one employer or employee organization, 
provides for common administration.
    (3) Provides substantially the same benefits or the same benefit 
options to all those enrolled under the arrangement.

The term includes self-insured plans, plans of governmental entities 
(Federal, State and local), and employee organization plans; that is, 
union plans, employee health and welfare funds or other employee 
organization plans. The term also includes employee-pay-all plans, which 
are plans under the auspices of one or more employers or employee 
organizations but which receive no financial contributions from them. 
The term does not include a plan that is unavailable to employees; for 
example, a plan only for self-employed persons.
    IRC stands for Internal Revenue Code.
    IRS stands for Internal Revenue Service.
    Large group health plan (LGHP) means a GHP that covers employees of 
either--
    (1) A single employer or employee organization that employed at 
least 100 full-time or part-time employees on 50 percent or more of its 
regular business days during the previous calendar year; or
    (2) Two or more employers, or employee organizations, at least one 
of which employed at least 100 full-time or part-time employees on 50 
percent or more of its regular business days during the previous 
calendar year.
    MSP stands for Medicare secondary payer.
    Multi-employer plan means a plan that is sponsored jointly by two or 
more employers (sometimes called a multiple-employer plan) or by 
employers and unions (sometimes under the Taft-Hartley law).
    Self-employed person encompasses consultants, owners of businesses, 
and directors of corporations, and members of the clergy and religious 
orders who are paid for their services by a religious body or other 
entity.
    Similarly situated individual means--
    (1) In the case of employees, other employees enrolled or seeking to 
enroll in the plan; and
    (2) In the case of other categories of individuals, other persons in 
any of those categories who are enrolled or seeking to enroll in the 
plan.



Sec. 411.102  Basic prohibitions and requirements.

    (a) ESRD. (1) A group health plan of any size--(i) May not take into 
account the ESRD-based Medicare eligibility or entitlement of any 
individual who is covered or seeks to be covered under the plan; and
    (ii) May not differentiate in the benefits it provides between 
individuals with ESRD and other individuals covered under the plan, on 
the basis of the existence of ESRD, or the need for dialysis, or in any 
other manner.
    (2) The prohibitions of paragraph (a) of this section do not 
prohibit a plan from paying benefits secondary to Medicare after the 
first 18 months of ESRD-based eligibility or entitlement.
    (b) Age. A GHP of an employer or employee organization of at least 
20 employees--
    (1) May not take into account the age-based Medicare entitlement of 
an individual or spouse age 65 or older who is covered (or seeks to be 
covered) under the plan by virtue of current employment status; and
    (2) Must provide, to employees age 65 or older and to spouses age 65 
or older of employees of any age, the same benefits under the same 
conditions as it provides to employees and spouses under age 65.
    (c) Disability. A GHP of an employer or employee organization of at 
least 100 employees may not take into account the disability-based 
Medicare entitlement of any individual who is covered (or seeks to be 
covered) under the plan by virtue of current employment status.

[[Page 258]]



Sec. 411.103  Prohibition against financial and other incentives.

    (a) General rule. An employer or other entity (for example, an 
insurer) is prohibited from offering Medicare beneficiaries financial or 
other benefits as incentives not to enroll in, or to terminate 
enrollment in, a GHP that is, or would be, primary to Medicare. This 
prohibition precludes offering to Medicare beneficiaries an alternative 
to the employer primary plan (for example, coverage of prescription 
drugs) unless the beneficiary has primary coverage other than Medicare. 
An example would be primary coverage through his own or a spouse's 
employer.
    (b) Penalty for violation. (1) Any entity that violates the 
prohibition of paragraph (a) of this section is subject to a civil money 
penalty of up to $5,000 for each violation; and
    (2) The provisions of section 1128A of the Act (other than 
subsections (a) and (b)) apply to the civil money penalty of up to 
$5,000 in the same manner as the provisions apply to a penalty or 
proceeding under section 1128A(a).



Sec. 411.104  Current employment status.

    (a) General rule. An individual has current employment status if--
    (1) The individual is actively working as an employee, is the 
employer (including a self-employed person), or is associated with the 
employer in a business relationship; or
    (2) The individual is not actively working and--
    (i) Is receiving disability benefits from an employer for up to 6 
months (the first 6 months of employer disability benefits are subject 
to FICA taxes); or
    (ii) Retains employment rights in the industry and has not had his 
employment terminated by the employer, if the employer provides the 
coverage (or has not had his membership in the employee organization 
terminated, if the employee organization provides the coverage), is not 
receiving disability benefits from an employer for more than 6 months, 
is not receiving disability benefits from Social Security, and has GHP 
coverage that is not pursuant to COBRA continuation coverage (26 U.S.C. 
4980B; 29 U.S.C. 1161-1168; 42 U.S.C. 300bb-1 et seq.). Whether or not 
the individual is receiving pay during the period of nonwork is not a 
factor.
    (b) Persons who retain employment rights. For purposes of paragraph 
(a)(2) of this section, persons who retain employment rights include but 
are not limited to--
    (1) Persons who are furloughed, temporarily laid off, or who are on 
sick leave;
    (2) Teachers and seasonal workers who normally do not work 
throughout the year; and
    (3) Persons who have health coverage that extends beyond or between 
active employment periods; for example, based on an hours bank 
arrangement. (Active union members often have hours bank coverage.)
    (c) Coverage by virtue of current employment status. An individual 
has coverage by virtue of current employment status with an employer 
if--
    (1) the individual has GHP or LGHP coverage based on employment, 
including coverage based on a certain number of hours worked for that 
employer or a certain level of commissions earned from work for that 
employer at any time; and
    (2) the individual has current employment status with that employer, 
as defined in paragraph (a) of this section.
    (d) Special rule: Self-employed person. A self-employed individual 
is considered to have GHP or LGHP coverage by virtue of current 
employment status during a particular tax year only if, during the 
preceding tax year, the individual's net earnings, from work in that 
year related to the employer that offers the group health coverage, are 
at least equal to the amount specified in section 211(b)(2) of the Act, 
which defines ``self-employment income'' for social security purposes.
    (e) Special Rule: members of religious orders and members of clergy. 
(1) Members of religious orders who have not taken a vow of poverty. A 
member of a religious order who has not taken a vow of poverty is 
considered to have current employment status with the religious order 
if--
    (i) The religious order pays FICA taxes on behalf of that member; or
    (ii) The individual is receiving cash remuneration from the 
religious order.

[[Page 259]]

    (2) Members of religious orders who have taken a vow of poverty. A 
member of a religious order whose members are required to take a vow of 
poverty is not considered to be employed by the order if the services he 
or she performs as a member of the order are considered employment only 
because the order elects social security coverage under section 3121(r) 
of the IRC. This exemption applies retroactively to services performed 
as a member of the order, beginning with the effective dates of the MSP 
provisions for the aged and the disabled, respectively. The exemption 
does not apply to services performed for employers outside of the order.
    (3) Members of the clergy. A member of the clergy is considered to 
have current employment status with a church or other religious 
organization if the individual is receiving cash remuneration from the 
church or other religious organization for services rendered.
    (f) Special rule: Delayed compensation subject to FICA taxes. An 
individual who is not working is not considered an employee solely on 
the basis of receiving delayed compensation payments for previous 
periods of work even if those payments are subject to FICA taxes (or 
would be subject to FICA taxes if the employer were not exempt from 
paying those taxes). For example, an individual who is not working in 
1993 and receives payments subject to FICA taxes for work performed in 
1992 is not considered to be an employee in 1993 solely on the basis of 
receiving those payments.



Sec. 411.106  Aggregation rules.

    The following rules apply in determining the number and size of 
employers, as required by the MSP provisions for the aged and disabled:
    (a) All employers that are treated as a single employer under 
subsection (a) or (b) of section 52 of the Internal Revenue Code (IRC) 
of 1986 (26 U.S.C. 52 (a) and (b)) are treated as a single employer.
    (b) All employees of the members of an affiliated service group (as 
defined in section 414(m) of the IRC (26 U.S.C. 414m)) are treated as 
employed by a single employer.
    (c) Leased employees (as defined in section 414(n)(2) of the IRC (26 
U.S.C. 414(n)(2)) are treated as employees of the person for whom they 
perform services to the same extent as they are treated under section 
414(n) of the IRC.
    (d) In applying the IRC provisions identified in this section, HCFA 
relies upon regulations and decisions of the Secretary of the Treasury 
respecting those provisions.



Sec. 411.108  Taking into account entitlement to Medicare.

    (a) Examples of actions that constitute ``taking into account''. 
Actions by GHPs or LGHPs that constitute taking into account that an 
individual is entitled to Medicare on the basis of ESRD, age, or 
disability (or eligible on the basis of ESRD) include, but are not 
limited to, the following:
    (1) Failure to pay primary benefits as required by subparts F, G, 
and H of this part 411.
    (2) Offering coverage that is secondary to Medicare to individuals 
entitled to Medicare.
    (3) Terminating coverage because the individual has become entitled 
to Medicare, except as permitted under COBRA continuation coverage 
provisions (26 U.S.C. 4980B(f)(2)(B)(iv); 29 U.S.C. 1162.(2)(D); and 42 
U.S.C. 300bb-2.(2)(D)).
    (4) In the case of a LGHP, denying or terminating coverage because 
an individual is entitled to Medicare on the basis of disability without 
denying or terminating coverage for similarly situated individuals who 
are not entitled to Medicare on the basis of disability.
    (5) Imposing limitations on benefits for a Medicare entitled 
individual that do not apply to others enrolled in the plan, such as 
providing less comprehensive health care coverage, excluding benefits, 
reducing benefits, charging higher deductibles or coinsurance, providing 
for lower annual or lifetime benefit limits, or more restrictive pre-
existing illness limitations.
    (6) Charging a Medicare entitled individual higher premiums.
    (7) Requiring a Medicare entitled individual to wait longer for 
coverage to begin.

[[Page 260]]

    (8) Paying providers and suppliers less for services furnished to a 
Medicare beneficiary than for the same services furnished to an enrollee 
who is not entitled to Medicare.
    (9) Providing misleading or incomplete information that would have 
the effect of inducing a Medicare entitled individual to reject the 
employer plan, thereby making Medicare the primary payer. An example of 
this would be informing the beneficiary of the right to accept or reject 
the employer plan but failing to inform the individual that, if he or 
she rejects the plan, the plan will not be permitted to provide or pay 
for secondary benefits.
    (10) Including in its health insurance cards, claims forms, or 
brochures distributed to beneficiaries, providers, and suppliers, 
instructions to bill Medicare first for services furnished to Medicare 
beneficiaries without stipulating that such action may be taken only 
when Medicare is the primary payer.
    (11) Refusing to enroll an individual for whom Medicare would be 
secondary payer, when enrollment is available to similarly situated 
individuals for whom Medicare would not be secondary payer.
    (b) Permissible actions. (1) If a GHP or LGHP makes benefit 
distinctions among various categories of individuals (distinctions 
unrelated to the fact that the individual is disabled, based, for 
instance, on length of time employed, occupation, or marital status), 
the GHP or LGHP may make the same distinctions among the same categories 
of individuals entitled to Medicare whose plan coverage is based on 
current employment status. For example, if a GHP or LGHP does not offer 
coverage to employees who have worked less than one year and who are not 
entitled to Medicare on the basis of disability or age, the GHP or LGHP 
is not required to offer coverage to employees who have worked less than 
one year and who are entitled to Medicare on the basis of disability or 
age.
    (2) A GHP or LGHP may pay benefits secondary to Medicare for an aged 
or disabled beneficiary who has current employment status if the plan 
coverage is COBRA continuation coverage because of reduced hours of 
work. Medicare is primary payer for this beneficiary because, although 
he or she has current employment status, the GHP coverage is by virtue 
of the COBRA law rather than by virtue of the current employment status.
    (3) A GHP may terminate COBRA continuation coverage of an individual 
who becomes entitled to Medicare on the basis of ESRD, when permitted 
under the COBRA provisions.

[60 FR 45362, Aug. 31, 1995; 60 FR 53876, Oct. 18, 1995]



Sec. 411.110  Basis for determination of nonconformance.

    (a) A ``determination of nonconformance'' is a HCFA determination 
that a GHP or LGHP is a nonconforming plan as provided in this section.
    (b) HCFA makes a determination of nonconformance for a GHP or LGHP 
that, at any time during a calendar year, fails to comply with any of 
the following statutory provisions:
    (1) The prohibition against taking into account that a beneficiary 
who is covered or seeks to be covered under the plan is entitled to 
Medicare on the basis of ESRD, age, or disability, or eligible on the 
basis of ESRD.
    (2) The nondifferentiation clause for individuals with ESRD.
    (3) The equal benefits clause for the working aged.
    (4) The obligation to refund conditional Medicare primary payments.
    (c) HCFA may make a determination of nonconformance for a GHP or 
LGHP that fails to respond to a request for information, or to provide 
correct information, either voluntarily or in response to a HCFA 
request, on the plan's primary payment obligation with respect to a 
given beneficiary, if that failure contributes to either or both of the 
following:
    (1) Medicare erroneously making a primary payment.
    (2) A delay or foreclosure of HCFA's ability to recover an erroneous 
primary payment.



Sec. 411.112  Documentation of conformance.

    (a) Acceptable documentation. HCFA may require a GHP or LGHP to 
demonstrate that it has complied with the Medicare secondary payer 
provisions

[[Page 261]]

and to submit supporting documentation by an official authorized to act 
on behalf of the entity, under penalty of perjury. The following are 
examples of documentation that may be acceptable:
    (1) A copy of the employer's plan or policy that specifies the 
services covered, conditions of coverage, benefit levels and limitations 
with respect to persons entitled to Medicare on the basis of ESRD, age, 
or disability as compared to the provisions applicable to other 
enrollees and potential enrollees.
    (2) An explanation of the plan's allegation that it does not owe 
HCFA any amount HCFA claims the plan owes as repayment for conditional 
or mistaken Medicare primary payments.
    (b) Lack of acceptable documentation. If a GHP or LGHP fails to 
provide acceptable evidence or documentation that it has complied with 
the MSP prohibitions and requirements set forth in Sec. 411.110, HCFA 
may make a determination of nonconformance for both the year in which 
the services were furnished and the year in which the request for 
information was made.



Sec. 411.114  Determination of nonconformance.

    (a) Starting dates for determination of nonconformance. HCFA's 
authority to determine nonconformance of GHPs begins on the following 
dates:
    (1) On January 1, 1987 for MSP provisions that affect the disabled.
    (2) On December 20, 1989 for MSP provisions that affect ESRD 
beneficiaries and the working aged.
    (3) On August 10, 1993 for failure to refund mistaken Medicare 
primary payments.
    (b) Special rule for failure to repay. A GHP that fails to comply 
with Sec. 411.110 (a)(1), (a)(2), or (a)(3) in a particular year is 
nonconforming for that year. If, in a subsequent year, that plan fails 
to repay the resulting mistaken primary payments (in accordance with 
Sec. 411.110(a)(4)), the plan is also nonconforming for the subsequent 
year. For example, if a plan paid secondary for the working aged in 
1991, that plan was nonconforming for 1991. If in 1994 HCFA identifies 
mistaken primary payments attributable to the 1991 violation, and the 
plan refuses to repay, it is also nonconforming for 1994.



Sec. 411.115  Notice of determination of nonconformance.

    (a) Notice to the GHP or LGHP. (1) If HCFA determines that a GHP or 
an LGHP is nonconforming with respect to a particular calendar year, 
HCFA mails to the plan written notice of the following:
    (i) The determination.
    (ii) The basis for the determination.
    (iii) The right of the parties to request a hearing.
    (iv) An explanation of the procedure for requesting a hearing.
    (v) The tax that may be assessed by the IRS in accordance with 
section 5000 of the IRC.
    (vi) The fact that if none of the parties requests a hearing within 
65 days from the date of its notice, the determination is binding on all 
parties unless it is reopened in accordance with Sec. 411.126.
    (2) The notice also states that the plan must, within 30 days from 
the date on its notice, submit to HCFA the names and addresses of all 
employers and employee organizations that contributed to the plan during 
the calendar year for which HCFA has determined nonconformance.
    (b) Notice to contributing employers and employee organizations. 
HCFA mails written notice of the determination, including all the 
information specified in paragraph (a)(1) of this section, to all 
contributing employers and employee organizations already known to HCFA 
or identified by the plan in accordance with paragraph (a)(2) of this 
section. Employers and employee organizations have 65 days from the date 
of their notice to request a hearing.



Sec. 411.120  Appeals.

    (a) Parties to the determination. The parties to the determination 
are HCFA, the GHP or LGHP for which HCFA determined nonconformance, and 
any employers or employee organizations that contributed to the plan 
during the calendar year for which HCFA determined nonconformance.
    (b) Request for hearing. (1) A party's request for hearing must be 
in writing (not in facsimile or other electronic

[[Page 262]]

medium) and in the manner stipulated in the notice of nonconformance; it 
must be filed within 65 days from the date on the notice.
    (2) The request may include rationale showing why the parties 
believe that HCFA's determination is incorrect and supporting 
documentation.
    (3) A request is considered filed on the date it is received by the 
appropriate office, as shown by the receipt date stamped on the request.



Sec. 411.121  Hearing procedures.

    (a) Nature of hearing. (1) If any of the parties requests a hearing 
within 65 days from the date on the notice of the determination of 
nonconformance, the HCFA Administrator appoints a hearing officer.
    (2) If no party files a request within the 65-day period, the 
initial determination of nonconformance is binding upon all parties 
unless it is reopened in accordance with Sec. 411.126.
    (3) If more than one party requests a hearing the hearing officer 
conducts a single hearing in which all parties may participate.
    (4) On the record review. Ordinarily, the hearing officer makes a 
decision based upon review of the data and documents on which HCFA based 
its determination of nonconformance and any other documentation 
submitted by any of the parties within 65 days from the date on the 
notice.
    (5) Oral hearing. The hearing officer may provide for an oral 
hearing either on his or her own motion or in response to a party's 
request if the party demonstrates to the hearing officer's satisfaction 
that an oral hearing is necessary. Within 30 days of receipt of the 
request, the hearing officer gives all known parties written notice of 
the request and whether the request for oral hearing is granted.
    (b) Notice of time and place of oral hearing. If the hearing officer 
provides an oral hearing, he or she gives all known parties written 
notice of the time and place of the hearing at least 30 days before the 
scheduled date.
    (c) Prehearing discovery. (1) The hearing officer may permit 
prehearing discovery if it is requested by a party at least 10 days 
before the scheduled date of the hearing.
    (2) If the hearing officer approves the request, he or she--
    (i) Provides a reasonable time for inspection and reproduction of 
documents; and
    (ii) In ruling on discovery matters, is guided by the Federal Rules 
of Civil Procedure. (28 U.S.C.A. Rules 26-37)
    (3) The hearing officer's orders on all discovery matters are final.
    (d) Conduct of hearing. The hearing officer determines the conduct 
of the hearing, including the order in which the evidence and the 
allegations are presented.
    (e) Evidence at hearing. (1) The hearing officer inquires into the 
matters at issue and may receive from all parties documentary and other 
evidence that is pertinent and material, including the testimony of 
witnesses, and evidence that would be inadmissible in a court of law.
    (2) Evidence may be received at any time before the conclusion of 
the hearing.
    (3) The hearing officer gives the parties opportunity for submission 
and consideration of evidence and arguments and, in ruling on the 
admissibility of evidence, excludes irrelevant, immaterial, or unduly 
repetitious evidence.
    (4) The hearing officer's ruling on admissibility of evidence is 
final and not subject to further review.
    (f) Subpoenas. (1) The hearing officer may, either on his or her own 
motion or upon the request of any party, issue subpoenas for either or 
both of the following if they are reasonably necessary for full 
presentation of the case:
    (i) The attendance and testimony of witnesses.
    (ii) The production of books, records, correspondence, papers, or 
other documents that are relevant and material to any matter at issue.
    (2) A party that wishes the issuance of a subpoena must, at least 10 
days before the date fixed for the hearing, file with the hearing 
officer a written request that identifies the witnesses or documents to 
be produced and describes the address or location in sufficient detail 
to permit the witnesses or documents to be found.
    (3) The request for a subpoena must state the pertinent facts that 
the party

[[Page 263]]

expects to establish by the witnesses or documents and whether those 
facts could be established by other evidence without the use of a 
subpoena.
    (4) The hearing officer issues the subpoenas at his or her 
discretion, and HCFA assumes the cost of the issuance and the fees and 
mileage of any subpoenaed witness, in accordance with section 205(d) of 
the Act (42 U.S.C. 405(d)).
    (g) Witnesses. Witnesses at the hearing testify under oath or 
affirmation, unless excused by the hearing officer for cause. The 
hearing officer may examine the witnesses and shall allow the parties to 
examine and cross-examine witnesses.
    (h) Record of hearing. A complete record of the proceedings at the 
hearing is made and transcribed in all cases. It is made available to 
the parties upon request. The record is not closed until a decision has 
been issued.
    (i) Sources of hearing officer's authority. In the conduct of the 
hearing, the hearing officer complies with all the provisions of title 
XVIII of the Act and implementing regulations, as well as with HCFA 
Rulings issued under Sec. 401.108 of this chapter. The hearing officer 
gives great weight to interpretive rules, general statements of policy, 
and rules of agency organization, procedure, or practice established by 
HCFA.



Sec. 411.122  Hearing officer's decision.

    (a) Timing. (1) If the decision is based on a review of the record, 
the hearing officer mails the decision to all known parties within 120 
days from the date of receipt of the request for hearing.
    (2) If the decision is based on an oral hearing, the hearing officer 
mails the decision to all known parties within 120 days from the 
conclusion of the hearing.
    (b) Basis, content, and distribution of hearing decision. (1) The 
written decision is based on substantial evidence and contains findings 
of fact, a statement of reasons, and conclusions of law.
    (2) The hearing officer mails a copy of the decision to each of the 
parties, by certified mail, return receipt requested, and includes a 
notice that the administrator may review the hearing decision at the 
request of a party or on his or her own motion.
    (c) Effect of hearing decision. The hearing officer's decision is 
the final Departmental decision and is binding upon all parties unless 
the Administrator chooses to review that decision in accordance with 
Sec. 411.124 or it is reopened by the hearing officer in accordance with 
Sec. 411.126.



Sec. 411.124  Administrator's review of hearing decision.

    (a) Request for review. A party's request for review of a hearing 
officer's decision must be in writing (not in facsimile or other 
electronic medium) and must be received by the Administrator within 25 
days from the date on the decision.
    (b) Office of the Attorney Advisor responsibility. The Office of the 
Attorney Advisor examines the hearing officer's decision, the requests 
made by any of the parties or HCFA, and any submission made in 
accordance with the provisions of this section in order to assist the 
Administrator in deciding whether to review the decision.
    (c) Administrator's discretion. The Administrator may--
    (1) Review or decline to review the hearing officer's decision;
    (2) Exercise this discretion on his or her own motion or in response 
to a request from any of the parties; and
    (3) Delegate review responsibility to the Deputy Administrator. (As 
used in this section, the term ``Administrator'' includes ``Deputy 
Administrator'' if review responsibility has been delegated.)
    (d) Basis for decision to review. In deciding whether to review a 
hearing officer's decision, the Administrator considers--
    (1) Whether the decision--
    (i) Is based on a correct interpretation of law, regulation, or HCFA 
Ruling;
    (ii) Is supported by substantial evidence;
    (iii) Presents a significant policy issue having a basis in law and 
regulations;
    (iv) Requires clarification, amplification, or an alternative legal 
basis for the decision; and
    (v) Is within the authority provided by statute, regulation, or HCFA 
Ruling; and

[[Page 264]]

    (2) Whether review may lead to the issuance of a HCFA Ruling or 
other directive needed to clarify a statute or regulation.
    (e) Notice of decision to review or not to review. (1) The 
Administrator gives all parties prompt written notice of his or her 
decision to review or not to review.
    (2) The notice of a decision to review identifies the specific 
issues the Administrator will consider.
    (f) Response to notice of decision to review. (1) Within 20 days 
from the date on a notice of the Administrator's decision to review a 
hearing officer's decision, any of the parties may file with the 
Administrator any or all of the following:
    (i) Proposed findings and conclusions.
    (ii) Supporting views or exceptions to the hearing officer's 
decision.
    (iii) Supporting reasons for the proposed findings and exceptions.
    (iv) A rebuttal to another party's request for review or to other 
submissions already filed with the Administrator.
    (2) The submissions must be limited to the issues the Administrator 
has decided to review and confined to the record established by the 
hearing officer.
    (3) All communications from the parties concerning a hearing 
officer's decision being reviewed by the Administrator must be in 
writing (not in facsimile or other electronic medium) and must include a 
certification that copies have been sent to all other parties.
    (4) The Administrator does not consider any communication that does 
not meet the requirements of this paragraph.
    (g) Administrator's review decision. (1) The Administrator bases his 
or her decision on the following:
    (i) The entire record developed by the hearing officer.
    (ii) Any materials submitted in connection with the hearing or under 
paragraph (f) of this section.
    (iii) Generally known facts not subject to reasonable dispute.
    (2) The Administrator mails copies of the review decision to all 
parties within 120 days from the date of the hearing officer's decision.
    (3) The Administrator's review decision may affirm, reverse, or 
modify the hearing decision or may remand the case to the hearing 
officer.
    (h) Basis and effect of remand. (1) Basis. The bases for remand do 
not include the following:
    (i) Evidence that existed at the time of the hearing and that was 
known or could reasonably have been expected to be known.
    (ii) A court case that was either not available at the time of the 
hearing or was decided after the hearing.
    (iii) Change of the parties' representation.
    (iv) An alternative legal basis for an issue in dispute.
    (2) Effect of remand. (i) The Administrator may instruct the hearing 
officer to take further action with respect to the development of 
additional facts or new issues or to consider the applicability of laws 
or regulations other than those considered during the hearing.
    (ii) The hearing officer takes the action in accordance with the 
Administrator's instructions in the remand notice and again issues a 
decision.
    (iii) The Administrator may review or decline to review the hearing 
officer's remand decision in accordance with the procedures set forth in 
this section.
    (i) Finality of decision. The Administrator's review decision, or 
the hearing officer's decision following remand, is the final 
Departmental decision and is binding on all parties unless the 
Administrator chooses to review the decision in accordance with this 
section, or the decision is reopened in accordance with Sec. 411.126.



Sec. 411.126  Reopening of determinations and decisions.

    (a) A determination that a GHP or LGHP is a nonconforming GHP or the 
decision or revised decision of a hearing officer or of the HCFA 
Administrator may be reopened within 12 months from the date on the 
notice of determination or decision or revised decision, for any reason 
by the entity that issued the determination or decision.
    (b) The decision to reopen or not to reopen is not appealable.

[[Page 265]]



Sec. 411.130  Referral to Internal Revenue Service (IRS).

    (a) HCFA responsibility. After HCFA determines that a plan has been 
a nonconforming GHP in a particular year, it refers its determination to 
the IRS, but only after the parties have exhausted all HCFA appeal 
rights with respect to the determination.
    (b) IRS responsibility. The IRS administers section 5000 of the IRC, 
which imposes a tax on employers (other than governmental entities) and 
employee organizations that contribute to a nonconforming GHP. The tax 
is equal to 25 percent of the employer's or employee organization's 
expenses, incurred during the calendar year in which the plan is a 
nonconforming GHP, for each GHP, both conforming and nonconforming, to 
which the employer or employee organization contributes.



Subpart F--Special Rules: Individuals Eligible or Entitled on the Basis 
         of ESRD, Who Are Also Covered Under Group Health Plans



Sec. 411.160  Scope.

    This subpart sets forth special rules that apply to individuals who 
are eligible for, or entitled to, Medicare on the basis of ESRD. 
(Section 406.13 of this chapter contains the rules for eligibility and 
entitlement based on ESRD.)

[60 FR 45367, Aug. 31, 1995]



Sec. 411.161  Prohibition against taking into account Medicare eligibility or entitlement or differentiating benefits.

    (a) Taking into account. (1) Basic rule. A GHP may not take into 
account that an individual is eligible for or entitled to Medicare 
benefits on the basis of ESRD during the coordination period specified 
in Sec. 411.162(b) and (c). Examples of actions that constitute taking 
into account Medicare entitlement are listed in Sec. 411.108(a).
    (2) Applicability. This prohibition applies for ESRD-based Medicare 
eligibility to the same extent as for ESRD-based Medicare entitlement. 
An individual who has ESRD but who has not filed an application for 
entitlement to Medicare on that basis is eligible for Medicare based on 
ESRD for purposes of paragraphs (b)(2) and (c)(2) through (c)(4) of 
Sec. 411.162 if the individual meets the other requirements of 
Sec. 406.13 of this chapter.
    (3) Relation to COBRA continuation coverage. This rule does not 
prohibit the termination of GHP coverage under title X of COBRA when 
termination of that coverage is expressly permitted, upon entitlement to 
Medicare, under 26 U.S.C. 4980B(f)(2)(B)(iv); 29 U.S.C. 1162.(2)(D); or 
42 U.S.C. 300bb-2.(2)(D).\1\ (Situations in which Medicare is secondary 
to COBRA continuation coverage are set forth in Sec. 411.162(a)(3).)
---------------------------------------------------------------------------

    \1\ COBRA requires that certain group health plans offer 
continuation of plan coverage for 18 to 36 months after the occurrence 
of certain ``qualifying events,'' including loss of employment or 
reduction of employment hours. Those are events that otherwise would 
result in loss of group health plan coverage unless the individual is 
given the opportunity to elect, and does so elect, to continue plan 
coverage at his or her own expense. With one exception, the COBRA 
amendments expressly permit termination of continuation coverage upon 
entitlement to Medicare. The exception is that the plan may not 
terminate continuation coverage of an individual (and his or her 
qualified dependents) if the individual retires on or before the date 
the employer substantially eliminates regular plan coverage by filing 
for Chapter 11 bankruptcy (26 U.S.C. 4980B(g)(1)(D) and 29 U.S.C. 
1167.(3)(C)).
---------------------------------------------------------------------------

    (b) Nondifferentiation. (1) A GHP may not differentiate in the 
benefits it provides between individuals who have ESRD and others 
enrolled in the plan, on the basis of the existence of ESRD, or the need 
for renal dialysis, or in any other manner.
    (2) GHP actions that constitute differentiation in plan benefits 
(and that may also constitute ``taking into account'' Medicare 
eligibility or entitlement) include, but are not limited to the 
following:
    (i) Terminating coverage of individuals with ESRD, when there is no 
basis for such termination unrelated to ESRD (such as failure to pay 
plan premiums) that would result in termination for individuals who do 
not have ESRD.
    (ii) Imposing on persons who have ESRD, but not on others enrolled 
in the plan, benefit limitations such as

[[Page 266]]

less comprehensive health plan coverage, reductions in benefits, 
exclusions of benefits, a higher deductible or coinsurance, a longer 
waiting period, a lower annual or lifetime benefit limit, or more 
restrictive preexisting illness limitations.
    (iii) Charging individuals with ESRD higher premiums.
    (iv) Paying providers and suppliers less for services furnished to 
individuals who have ESRD than for the same services furnished to those 
who do not have ESRD, such as paying 80 percent of the Medicare rate for 
renal dialysis on behalf of a plan enrollee who has ESRD and the usual, 
reasonable and customary charge for renal dialysis on behalf of an 
enrollee who does not have ESRD.
    (v) Failure to cover routine maintenance dialysis or kidney 
transplants, when a plan covers other dialysis services or other organ 
transplants.
    (c) Uniform Limitations on particular services permissible. A plan 
is not prohibited from limiting covered utilization of a particular 
service as long as the limitation applies uniformly to all plan 
enrollees. For instance, if a plan limits its coverage of renal dialysis 
sessions to 30 per year for all plan enrollees, the plan would not be 
differentiating in the benefits it provides between plan enrollees who 
have ESRD and those who do not.
    (d) Benefits secondary to Medicare. (1) The prohibition against 
differentiation of benefits does not preclude a plan from paying 
benefits secondary to Medicare after the expiration of the coordination 
period described in Sec. 411.162(b) and (c), but a plan may not 
otherwise differentiate, as described in paragraph (b) of this section, 
in the benefits it provides.
    (2) Example--

    Mr. Smith works for employer A, and he and his wife are covered 
through employer A's GHP (Plan A). Neither is eligible for Medicare nor 
has ESRD. Mrs. Smith works for employer B, and is also covered by 
employer B's plan (Plan B). Plan A is more comprehensive than Plan B and 
covers certain items and services which Plan B does not cover, such as 
prescription drugs. If Mrs. Smith obtains a medical service, Plan B pays 
primary and Plan A pays secondary. That is, Plan A covers Plan B 
copayment amounts and items and services that Plan A covers but that 
Plan B does not.
    Mr. Jones also works for employer A, and he and his wife are covered 
by Plan A. Mrs. Jones does not have other GHP coverage. Mrs. Jones 
develops ESRD and becomes entitled to Medicare on that basis. Plan A 
pays primary to Medicare during the first 18 months of Medicare 
entitlement based on ESRD. When Medicare becomes the primary payer, the 
plan converts Mrs. Jones' coverage to a Medicare supplement policy. That 
policy pays Medicare deductible and coinsurance amounts but does not pay 
for items and services not covered by Medicare, which plan A would have 
covered. That conversion is impermissible because the plan is providing 
a lower level of coverage for Mrs. Jones, who has ESRD, than it provides 
for Mrs. Smith, who does not. In other words, if Plan A pays secondary 
to primary payers other than Medicare, it must provide the same level of 
secondary benefits when Medicare is primary in order to comply with the 
nondifferentiation provision.

[60 FR 45368, Aug. 31, 1995]



Sec. 411.162  Medicare benefits secondary to group health plan benefits.

    (a) General provisions. (1) Basic rule. Except as provided in 
Sec. 411.163 (with respect to certain individuals who are also entitled 
on the basis of age or disability), Medicare is secondary to any GHP 
(including a retirement plan), with respect to benefits that are payable 
to an individual who is entitled to Medicare on the basis of ESRD, for 
services furnished during any coordination period determined in 
accordance with paragraphs (b) and (c) of this section. (No Medicare 
benefits are payable on behalf of an individual who is eligible but not 
yet entitled.)
    (2) Medicare benefits secondary without regard to size of employer 
and beneficiary's employment status. The size of employer and employment 
status requirements of the MSP provisions for the aged and disabled do 
not apply with respect to ESRD beneficiaries.
    (3) COBRA continuation coverage. Medicare is secondary payer for 
benefits that a GHP--
    (i) Is required to keep in effect under COBRA continuation 
requirements (as explained in the footnote to Sec. 411.161(a)(3)), even 
after the individual becomes entitled to Medicare; or
    (ii) Voluntarily keeps in effect after the individual becomes 
entitled to Medicare on the basis of ESRD, even

[[Page 267]]

though not obligated to do so under the COBRA provisions.
    (4) Medicare payments during the coordination period. During the 
coordination period, HCFA makes Medicare payments as follows:
    (i) Primary payments only for Medicare covered services that are--
    (A) Furnished to Medicare beneficiaries who have declined to enroll 
in the GHP;
    (B) Not covered under the plan; \1\
---------------------------------------------------------------------------

    \1\ HCFA does not pay if noncoverage of services constitutes 
differentiation as prohibited by Sec. 411.161(b).
---------------------------------------------------------------------------

    (C) Covered under the plan but not available to particular enrollees 
because they have exhausted their benefits; or
    (D) Furnished to individuals whose COBRA continuation coverage has 
been terminated because of the individual's Medicare entitlement.
    (ii) Secondary payments, within the limits specified in Secs. 411.32 
and 411.33, to supplement the amount paid by the GHP if that plan pays 
only a portion of the charge for the services.
    (b) Beginning of coordination period. (1) For individuals who start 
a course of maintenance dialysis or who receive a kidney transplant 
before December 1989, the coordination period begins with the earlier 
of--
    (i) The month in which the individual initiated a regular course of 
renal dialysis; or
    (ii) In the case of an individual who received a kidney transplant, 
the first month in which the individual became entitled to Medicare, or, 
if earlier, the first month for which the individual would have been 
entitled to Medicare benefits if he or she had filed an application for 
such benefits.
    (2) For individuals other than those specified in paragraph (b)(1) 
of this section, the coordination period begins with the earlier of--
    (i) The first month in which the individual becomes entitled to 
Medicare part A on the basis of ESRD; or
    (ii) The first month the individual would have become entitled to 
Medicare part A on the basis of ESRD if he or she had filed an 
application for such benefits.
    (c) End of coordination period. (1) For individuals who start a 
regular course of renal dialysis or who receive a kidney transplant 
before December 1989, the coordination period ends with the earlier of 
the end of the 12th month of dialysis or the end of the 12th month of a 
transplant. The 12th month of dialysis may be any time from the 9th 
month through the 12th month of Medicare entitlement, depending on the 
extent to which the individual was subject to a waiting period before 
becoming entitled to Medicare.
    (2) The coordination period for the following individuals ends with 
the earlier of the 12th month of eligibility or the 12th month of 
entitlement to Medicare part A:
    (i) Individuals, other than those specified in paragraph (c)(1) of 
this section, who became entitled to Medicare part A solely on the basis 
of ESRD during December 1989 and January 1990.
    (ii) Individuals, other than those specified in paragraph (c)(1) of 
this section, who could have become entitled to Medicare Part A solely 
on the basis of ESRD during December 1989 and January 1990 if they had 
filed an application.
    (iii) Individuals who become entitled to Medicare part A on the 
basis of ESRD after September 1997.
    (iv) Individuals who can become entitled to Medicare part A on the 
basis of ESRD after September 1997.
    (3) The coordination period for the following individuals ends with 
the earlier of the end of the 18th month of eligibility or the 18th 
month of entitlement to Medicare part A:
    (i) Individuals, other than those specified in paragraph (c)(1) of 
this section, who become entitled to Medicare part A on the basis of 
ESRD from February 1990 through April 1997.
    (ii) Individuals, other than those specified in paragraph (c)(1) of 
this section, who could become entitled to Medicare part A on the basis 
of ESRD from February 1990 through April 1997 if they would file an 
application.
    (4) The coordination periods for the following individuals ends 
September 30, 1998:
    (i) Individuals who become entitled to Medicare part A on the basis 
of

[[Page 268]]

ESRD from May 1997, through September 1997.
    (ii) Individuals who could become entitled to Medicare part A on the 
basis of ESRD from May 1997, through September 1997, if they would file 
an application.
    (d) Examples. Based on the rules specified in paragraphs (b) and (c) 
of this section and the rules specified in Sec. 406.13 of this 
subchapter, the following examples illustrate how to determine, in 
different situations, the number of months during which Medicare is 
secondary payer.
    (1) An individual began dialysis on November 4, 1989. He did not 
initiate a course in self-dialysis training nor did he receive a kidney 
transplant during the first 3 calendar months of dialysis. Thus, he 
became entitled to Medicare on February 1, 1990. Since this individual 
began dialysis before December 1989, the 12-month period began with the 
first month of dialysis, November 1989, and ended October 31, 1990. The 
coordination period in this case is 9 months, February 1990 through 
October 1990.
    (2) An individual began dialysis on January 29, 1990. He did not 
initiate a course in self-dialysis training nor did he receive a kidney 
transplant during the first 3 calendar months of dialysis. Thus, he 
became entitled to Medicare on April 1, 1990. Since the individual began 
dialysis after November 1989, and became entitled to Medicare after 
January 1990, the coordination period began with the first month of 
entitlement, April 1990, and ended September 30, 1991, the end of the 
18th month of entitlement.
    (3) An individual began a regular course of maintenance dialysis on 
February 10, 1990. He did not initiate a course of self-dialysis 
training nor did he receive a kidney transplant during the first 3 
calendar months of dialysis. Thus, he became entitled to Medicare on May 
1, 1990. Medicare is secondary payer from May 1, 1990 through October 
1991, a total of 18 months.
    (4) The same facts exist as in the example under paragraph (d)(3), 
except that the individual began a course of self-dialysis training 
during the first 3 calendar months of dialysis. Thus, the effective date 
of his Medicare entitlement is February 1, 1990, and Medicare is 
secondary payer from February 1, 1990 through July 1991, a total of 18 
months.
    (5) An individual began dialysis on September 15, 1990. He did not 
initiate a course of self-dialysis training nor did he receive a kidney 
transplant during the first 3 calendar months of dialysis. Thus, he 
became entitled to Medicare effective December 1, 1990. Medicare is 
secondary payer from December 1, 1990 through May 1992, a total of 18 
months.
    (6) An individual began dialysis on November 17, 1990. He initiates 
a course of self-dialysis training in January 1991, and thus becomes 
entitled to Medicare effective November 1, 1990. Medicare is secondary 
payer from November 1, 1990, through April 1992, a total of 18 months.
    (7) An individual began a regular course of dialysis on December 10, 
1990. He does not initiate a course of self-dialysis training nor does 
he receive a kidney transplant. He decides to delay his enrollment in 
Medicare because his employer group health plan pays charges in full and 
he does not wish to incur part B premiums at this time. However, in 
March 1992, he files for part A and part B Medicare entitlement, and 
stipulates that he wants his Medicare entitlement to be effective March 
1, 1992 (one year later than he could have become entitled). Since this 
individual could have been entitled to Medicare as early as March 1, 
1991, Medicare is secondary payer only from March 1, 1992, through 
August 1992, a period of 6 months.

(While Medicare is secondary payer for only the last 6 months of this 
period, the Medicare program is effectively secondary payer for the full 
coordination period, due to the fact that the individual delayed his 
Medicare enrollment on account of his employer plan coverage and 
Medicare made no payments at all during the deferred period.)
    (8) The same facts exist as in the example under paragraph (d)(7) of 
this section, except that the individual defers Medicare entitlement 
beyond August 1992. (For purposes of this example, Medicare entitlement 
is not retroactive, but rather takes effect after

[[Page 269]]

August 1992.) There would be no period during which Medicare is 
secondary payer in this situation. This is because Medicare entitlement 
does not begin until after the 18-month period expires as specified in 
paragraph (c)(3)(ii) of this section. Medicare would become primary 
payer as of the effective date of Medicare entitlement. The employer 
plan is required to pay primary from December 1, 1990, through August 
1992, a total of 21 months.
    (9) An individual becomes entitled to Medicare on December 1, 1997. 
The employer plan is primary payer, and Medicare is secondary payer, 
from December 1, 1997, through November 30, 1998, a period of 12 months. 
Medicare becomes primary payer on December 1, 1998, because the 
extension of the coordination period from 12 to 18 months applies only 
to items and services furnished before October 1, 1998.
    (10) An individual becomes entitled to Medicare on August 1, 1997. 
Medicare is secondary payer from August 1, 1997, through September 30, 
1998, a period of 14 months. Medicare becomes primary payer on October 
1, 1998, because the coordination period has expired.
    (e)  [Reserved]
    (f) Determinations for subsequent periods of ESRD eligibility. If an 
individual has more than one period of eligibility based on ESRD, a 
coordination period will be determined for each period of eligibility in 
accordance with this section.

[57 FR 36015, Aug. 12, 1992; 57 FR 45113, Sept. 30, 1992. Redesignated 
and amended at 60 FR 45362, 45368, Aug. 31, 1995]



Sec. 411.163  Coordination of benefits: Dual entitlement situations.

    (a) Basic rule. Coordination of benefits is governed by this section 
if an individual is eligible for or entitled to Medicare on the basis of 
ESRD and also entitled on the basis of age or disability.
    (b) Specific rules. \1\ (1) Coordination period ended before August 
1993. If the first 18 months of ESRD-based eligibility or entitlement 
ended before August 1993, Medicare was primary payer from the first 
month of dual eligibility or entitlement, regardless of when dual 
eligibility or entitlement began.
---------------------------------------------------------------------------

    \1\ A lawsuit was filed in United States District Court for the 
District of Columbia on May 5, 1995 (National Medical Care, Inc. v. 
Shalala, Civil Action No. 95-0860), challenging the implementation of 
one aspect of the OBRA '93 provisions with respect to group health plan 
retirement coverage. The court issued a preliminary injunction order on 
June 6, 1995, which enjoins the Secretary from applying the rule 
contained in Sec. 411.163(b)(4) for items and services furnished between 
August 10, 1993 and April 24, 1995, pending the court's decision on the 
merits. HCFA will modify the rules, if required, based on the final 
ruling by the court.
---------------------------------------------------------------------------

    (2) First month of ESRD-based eligibility or entitlement and first 
month of dual eligibility/entitlement after February 1992 and before 
August 10, 1993. Except as provided in paragraph (b)(4) of this section, 
if the first month of ESRD-based eligibility or entitlement and first 
month of dual eligibility/entitlement were after February 1992 and 
before August 10, 1993, Medicare--
    (i) Is primary payer from the first month of dual eligibility/
entitlement through August 9, 1993;
    (ii) Is secondary payer from August 10, 1993, through the 18th month 
of ESRD-based eligibility or entitlement; and
    (iii) Again becomes primary payer after the 18th month of ESRD-based 
eligibility or entitlement.
    (3) First month of ESRD-based eligibility or entitlement after 
February 1992 and first month of dual eligibility/entitlement after 
August 9, 1993. Except as provided in paragraph (b)(4) of this section, 
if the first month of ESRD-based eligibility or entitlement is after 
February 1992, and the first month of dual eligibility/entitlement is 
after August 9, 1993, the rules of Sec. 411.162(b) and (c) apply; that 
is, Medicare--
    (i) Is secondary payer during the first 18 months of ESRD-based 
eligibility or entitlement; and
    (ii) Becomes primary after the 18th month of ESRD-based eligibility 
or entitlement.
    (4) Medicare continues to be primary after an aged or disabled 
beneficiary becomes eligible on the basis of ESRD. (i) Applicability of 
the rule. Medicare remains the primary payer when an individual becomes 
eligible for Medicare based on ESRD if all of the following conditions 
are met:

[[Page 270]]

    (A) The individual is already entitled on the basis of age or 
disability when he or she becomes eligible on the basis of ESRD.
    (B) The MSP prohibition against ``taking into account'' age-based or 
disability-based entitlement does not apply because plan coverage was 
not ``by virtue of current employment status'' or the employer had fewer 
than 20 employees (in the case of the aged) or fewer than 100 employees 
(in the case of the disabled).
    (C) The plan is paying secondary to Medicare because the plan had 
justifiably taken into account the age-based or disability-based 
entitlement.
    (ii) Effect of the rule. The plan may continue to pay benefits 
secondary to Medicare under paragraph (b)(4)(i) of this section. 
However, the plan may not differentiate in the services covered and the 
payments made between persons who have ESRD and those who do not.
    (c) Examples. (1) (Rule (b)(1).) Mr. A, who is covered by a GHP, 
became entitled to Medicare on the basis of ESRD in January 1992. On 
December 20, 1992, Mr. A attained age 65 and became entitled on the 
basis of age. Since prior law was still in effect (OBRA '93 amendment 
was effective in August 1993), Medicare became primary payer as of 
December 1992, when dual entitlement began.
    (2) (Rule (b)(2).) Miss B, who has GHP coverage, became entitled to 
Medicare on the basis of ESRD in July 1992, and also entitled on the 
basis of disability in June 1993. Medicare was primary payer from June 
1993 through August 9, 1993, because the plan permissibly took into 
account the ESRD-based entitlement (ESRD was not the ``sole'' basis of 
Medicare entitlement); secondary payer from August 10, 1993, through 
December 1993, the 18th month of ESRD-based entitlement (the plan is no 
longer permitted to take into account ESRD-based entitlement that is not 
the ``sole'' basis of Medicare entitlement); and again became primary 
payer beginning January 1994.
    (3) (Rule (b)(3).) Mr. C, who is 67 years old and entitled to 
Medicare on the basis of age, has GHP coverage by virtue of current 
employment status. Mr. C is diagnosed as having ESRD and begins a course 
of maintenance dialysis on June 27, 1993. Effective September 1, 1993, 
Mr. C. is eligible for Medicare on the basis of ESRD. Medicare, which 
was secondary because Mr. C's GHP coverage was by virtue of current 
employment, continues to be secondary payer through February 1995, the 
18th month of ESRD-based eligibility, and becomes primary payer 
beginning March 1995.
    (4) (Rule (b)(3).) Mr. D retired at age 62 and maintained GHP 
coverage as a retiree. In January 1994, at the age of 64, Mr. D became 
entitled to Medicare based on ESRD. Seven months into the 18-month 
coordination period (July 1994) Mr. D turned age 65. The coordination 
period continues without regard to age-based entitlement, with the 
retirement plan continuing to pay primary benefits through June 1995, 
the 18th month of ESRD-based entitlement. Thereafter, Medicare becomes 
the primary payer.
    (5) (Rule (b)(3).) Mrs. E retired at age 62 and maintained GHP 
coverage as a retiree. In July 1994, she simultaneously became eligible 
for Medicare based on ESRD (maintenance dialysis began in April 1994) 
and entitled based on age. The retirement plan must pay benefits primary 
to Medicare from July 1994 through December 1995, the first 18 months of 
ESRD-based eligibility. Thereafter, Medicare becomes the primary payer.
    (6) (Rule (b)(3).) Mr. F, who is 67 years of age, is working and has 
GHP coverage because of his employment status, subsequently develops 
ESRD, and begins a course of maintenance dialysis in October 1994. He 
becomes eligible for Medicare based on ESRD effective January 1, 1995. 
Under the working aged provision, the plan continues to pay primary to 
Medicare through December 1994. On January 1, 1995, the working aged 
provision ceases to apply and the ESRD MSP provision takes effect. In 
September 1995, Mr. F retires. The GHP must ignore Mr. F's retirement 
status and continue to pay primary to Medicare through June 1996, the 
end of the 18-month coordination period.
    (7) (Rule (b)(4).) Mrs. G, who is 67 years of age, is retired. She 
has GHP retirement coverage through her

[[Page 271]]

former employer. Her plan permissibly took into account her age-based 
Medicare entitlement when she retired and is paying benefits secondary 
to Medicare. Mrs. G subsequently develops ESRD and begins a course of 
maintenance dialysis in October 1995. She automatically becomes eligible 
for Medicare based on ESRD effective January 1, 1996. The plan continues 
to be secondary on the basis of Mrs. G's age-based entitlement as long 
as the plan does not differentiate in the services it provides to Mrs. G 
and does not do anything else that would constitute ``taking into 
account'' her ESRD-based eligibility.

[60 FR 45369, Aug. 31, 1995; 60 FR 53876, Oct. 18, 1995]



Sec. 411.165  Basis for conditional Medicare payments.

    (a) General rule. Except as specified in paragraph (b) of this 
section, the Medicare intermediary or carrier may make a conditional 
payment if--
    (1) The beneficiary, the provider, or the supplier that has accepted 
assignment files a proper claim under the group health plan and the plan 
denies the claim in whole or in part; or
    (2) The beneficiary, because of physical or mental incapacity, fails 
to file a proper claim.
    (b) Exception. Medicare does not make conditional primary payments 
under either of the following circumstances:
    (1) The claim is denied for one of the following reasons:
    (i) It is alleged that the group health plan is secondary to 
Medicare.
    (ii) The group health plan limits its payments when the individual 
is entitled to Medicare.
    (iii) Failure to file a proper claim if that failure is for any 
reason other than the physical or mental incapacity of the beneficiary.
    (2) The group health plan fails to furnish information requested by 
HCFA and necessary to determine whether the employer plan is primary to 
Medicare.

[57 FR 36015, Aug. 12, 1992. Redesignated and amended at 60 FR 45362, 
45370, Aug. 31, 1995; 60 FR 53877, Oct. 18, 1995]



 Subpart G--Special Rules: Aged Beneficiaries and Spouses Who Are Also 
                    Covered Under Group Health Plans



Sec. 411.170  General provisions.

    (a) Basis. (1) This subpart is based on certain provisions of 
section 1862(b) of the Act, which impose specific requirements and 
limitations with respect to--
    (i) Individuals who are entitled to Medicare on the basis of age; 
and
    (ii) GHPs of at least one employer of 20 or more employees that 
cover those individuals.
    (2) Under these provisions, the following rules apply:
    (i) An employer is considered to employ 20 or more employees if the 
employer has 20 or more employees for each working day in each of 20 or 
more calendar weeks in the current calendar year or the preceding 
calendar year.
    (ii) The plan may not take into account the Medicare entitlement 
of--
    (A) An individual age 65 or older who is covered or seeks to be 
covered under the plan by virtue of current employment status; or
    (B) The spouse, including divorced or common-law spouse age 65 or 
older of an individual (of any age) who is covered or seeks to be 
covered by virtue of current employment status. (Section 411.108 gives 
examples of actions that constitute ``taking into account.'')
    (iii) Regardless of whether entitled to Medicare, employees and 
spouses age 65 or older, including divorced or common-law spouses of 
employees of any age, are entitled to the same plan benefits under the 
same conditions as employees and spouses under age 65.
    (b) [Reserved]
    (c) Determination of ``aged''. (1) An individual attains a 
particular age on the day preceding the anniversary of his or her birth.
    (2) The period during which an individual is considered to be 
``aged'' begins on the first day of the month in which that individual 
attains age 65.
    (3) For services furnished before May 1986, the period during which 
an individual is considered ``aged'' ends as follows:
    (i) For services furnished before July 18, 1984, it ends on the last 
day of the

[[Page 272]]

month in which the individual attains age 70.
    (ii) For services furnished between July 18, 1984 and April 30, 
1986, it ends on the last day of the month before the month the 
individual attains age 70.
    (4) For services furnished on or after May 1, 1986, the period has 
no upper age limit.

[54 FR 41734, Oct. 11, 1989. Redesignated and amended at 60 FR 45362, 
45370, Aug. 31, 1995]



Sec. 411.172  Medicare benefits secondary to group health plan benefits.

    (a) Conditions that the individual must meet. Medicare Part A and 
Part B benefits are secondary to benefits payable by a GHP for services 
furnished during any month in which the individual--
    (1) Is aged;
    (2) Is entitled to Medicare Part A benefits under Sec. 406.10 of 
this chapter; and
    (3) Meets one of the following conditions:
    (i) Is covered under a GHP of an employer that has at least 20 
employees (including a multi-employer plan in which at least one of the 
participating employers meets that condition), and coverage under the 
plan is by virtue of the individual's current employment status.
    (ii) Is the aged spouse (including a divorced or common-law spouse) 
of an individual (of any age) who is covered under a GHP described in 
paragraph (a)(3)(i) of this section by virtue of the individual's 
current employment status.
    (b) Special rule for multi-employer plans. The requirements and 
limitations of paragraph (a) of this section and of (a)(2)(iii) of 
Sec. 411.170 do not apply with respect to individuals enrolled in a 
multi-employer plan if--
    (1) The individuals are covered by virtue of current employment 
status with an employer that has fewer than 20 employees; and
    (2) The plan requests an exception and identifies the individuals 
for whom it requests the exception as meeting the conditions specified 
in paragraph (b)(1) of this section.
    (c) Refusal to accept group health plan coverage. An employee or 
spouse may refuse the health plan offered by the employer. If the 
employee or spouse refuses the plan--
    (1) Medicare is primary payer for that individual; and
    (2) The plan may not offer that individual coverage complementary to 
Medicare.
    (d) Reemployed retiree or annuitant. A reemployed retiree or 
annuitant who is covered by a GHP and who performs sufficient services 
to qualify for coverage on that basis (that is, other employees in the 
same category are provided health benefits) is considered covered ``by 
reason of current employment status'' even if:
    (1) The employer provides the same GHP coverage to retirees; or
    (2) The premiums for the plan are paid from a retirement or pension 
fund.
    (e) Secondary payments. Medicare pays secondary benefits, within the 
limitations specified in Secs. 411.32 and 411.33, to supplement the 
primary benefits paid by the group health plan if that plan pays only a 
portion of the charge for the services.
    (f) Disabled aged individuals who are considered employed. (1) For 
services furnished on or after November 12, 1985, and before July 17, 
1987, a disabled, nonworking individual age 65 or older was considered 
employed if he or she--
    (i) Was receiving, from an employer, disability payments that were 
subject to tax under the Federal Insurance Contributions Act (FICA); and
    (ii) For the month before the month of attainment of age 65, was not 
entitled to disability benefits under title II of the Act and 20 CFR 
404.315 of the SSA regulations.
    (2) For services furnished on or after July 17, 1987, an individual 
is considered employed if he or she receives, from an employer, 
disability benefits that are subject to tax under FICA, even if he or 
she was entitled to Social Security disability benefits before attaining 
age 65.
    (g) Individuals entitled to Medicare on the basis of age who are 
also eligible for or entitled to Medicare on the basis of ESRD. If an 
aged individual is, or could upon filing an application become, entitled 
to Medicare on the basis of

[[Page 273]]

ESRD, the coordination of benefits rules of subpart F of this part 
apply.

[54 FR 41734, Oct. 11, 1989, as amended at 55 FR 1820, Jan. 19, 1990. 
Redesignated and amended at 60 FR 45362, 45370, Aug. 31, 1995; 60 FR 
53877, Oct. 18, 1995]



Sec. 411.175  Basis for Medicare primary payments.

    (a) General rule. HCFA makes Medicare primary payments for covered 
services that are--
    (1) Furnished to Medicare beneficiaries who have declined to enroll 
in the GHP;
    (2) Not covered by the plan for any individuals or spouses who are 
enrolled by virtue of the individual's current employment status;
    (3) Covered under the plan but not available to particular 
individuals or spouses enrolled by virtue of current employment status 
because they have exhausted their benefits under the plan;
    (4) Furnished to individuals whose COBRA continuation coverage has 
been terminated because of the individual's Medicare entitlement; or
    (5) Covered under COBRA continuation coverage notwithstanding the 
individual's Medicare entitlement.
    (b) Conditional Medicare payments: Basic rule. Except as provided in 
paragraph (c) of this section, Medicare may make a conditional primary 
payment if--
    (1) The beneficiary, the provider, or the supplier that has accepted 
assignment has filed a proper claim under the group health plan and the 
plan has denied the claim in whole or in part; or
    (2) The beneficiary, because of physical or mental incapacity, 
failed to file proper claim.
    (c) Conditional primary payments: Exception. Medicare does not make 
conditional primary payments under either of the following 
circumstances:
    (1) The claim is denied for one of the following reasons:
    (i) It is alleged that the group health plan is secondary to 
Medicare.
    (ii) The plan limits its payments when the individual is entitled to 
Medicare.
    (iii) The plan covers the services for individuals or spouses who 
are enrolled in the plan by virtue of current employment status and are 
under age 65 but not for individuals and spouses who are enrolled on the 
same basis but are age 65 or older.
    (iv) Failure to file a proper claim if that failure is for any 
reason other than physical or mental incapacity of the beneficiary.
    (2) The group health plan fails to furnish information requested by 
HCFA and necessary to determine whether the employer plan is primary to 
Medicare.

[54 FR 41734, Oct. 11, 1989. Redesignated and amended at 60 FR 45362, 
45371, Aug. 31, 1995]



 Subpart H--Special Rules: Disabled Beneficiaries Who Are Also Covered 
                     Under Large Group Health Plans

    Source: 60 FR 45371, Aug. 31, 1995, unless otherwise noted.



Sec. 411.200  Basis.

    (a) This subpart is based on certain provisions of section 1862(b) 
of the Act, which impose specific requirements and limitations with 
respect to--
    (1) Individuals who are entitled to Medicare on the basis of 
disability; and
    (2) Large group health plans (LGHPs) that cover those individuals.
    (b) Under these provisions, the LGHP may not take into account the 
Medicare entitlement of a disabled individual who is covered (or seeks 
to be covered) under the plan by virtue of his or her own current 
employment status or that of a member of his or her family. 
(Sec. 411.108 gives examples of actions that constitute taking into 
account.)



Sec. 411.201  Definitions.

    As used in this subpart--
    Entitled to Medicare on the basis of disability means entitled or 
deemed entitled on the basis of entitlement to social security 
disability benefits or railroad retirement disability benefits. 
(Sec. 406.12 of this chapter explains the requirements an individual 
must meet in order to be entitled or deemed to be entitled to Medicare 
on the basis of disability.)
    Family member means a person who is enrolled in an LGHP based on 
another person's enrollment; for example, the

[[Page 274]]

enrollment of the named insured individual. Family members may include a 
spouse (including a divorced or common-law spouse), a natural, adopted, 
foster, or stepchild, a parent, or a sibling.



Sec. 411.204  Medicare benefits secondary to LGHP benefits.

    (a) Medicare benefits are secondary to benefits payable by an LGHP 
for services furnished during any month in which the individual--
    (1) Is entitled to Medicare Part A benefits under Sec. 406.12 of 
this chapter;
    (2) Is covered under an LGHP; and
    (3) Has LGHP coverage by virtue of his or her own or a family 
member's current employment status.
    (b) Individuals entitled to Medicare on the basis of disability who 
are also eligible for, or entitled to, Medicare on the basis of ESRD. If 
a disabled individual is, or could upon filing an application become, 
entitled to Medicare on the basis of ESRD, the coordination of benefits 
rules of subpart F of this part apply.



Sec. 411.206  Basis for Medicare primary payments and limits on secondary payments.

    (a) General rule. HCFA makes Medicare primary payments for services 
furnished to disabled beneficiaries covered under the LGHP by virtue of 
their own or a family member's current employment status if the services 
are--
    (1) Furnished to Medicare beneficiaries who have declined to enroll 
in the GHP;
    (2) Not covered under the plan for the disabled individual or 
similarly situated individuals;
    (3) Covered under the plan but not available to particular disabled 
individuals because they have exhausted their benefits under the plan;
    (4) Furnished to individuals whose COBRA continuation coverage has 
been terminated because of the individual's Medicare entitlement; or
    (5) Covered under COBRA continuation coverage notwithstanding the 
individual's Medicare entitlement.
    (b) Conditional primary payments: Basic rule. Except as provided in 
paragraph (c) of this section, HCFA may make a conditional Medicare 
primary payment for any of the following reasons:
    (1) The beneficiary, the provider, or the supplier that has accepted 
assignment has filed a proper claim with the LGHP and the LGHP has 
denied the claim in whole or in part.
    (2) The beneficiary, because of physical or mental incapacity, 
failed to file a proper claim.
    (c) Conditional primary payments: Exceptions. HCFA does not make 
conditional Medicare primary payments if--
    (1) The LGHP denies the claim in whole or in part for one of the 
following reasons:
    (i) It is alleged that the LGHP is secondary to Medicare.
    (ii) The LGHP limits its payments when the individual is entitled to 
Medicare.
    (iii) The LGHP does not provide the benefits to individuals who are 
entitled to Medicare on the basis of disability and covered under the 
plan by virtue of current employment status but does provide the 
benefits to other similarly situated individuals enrolled in the plan.
    (iv) The LGHP takes into account entitlement to Medicare in any 
other way.
    (v) There was failure to file a proper claim for any reason other 
than physical or mental incapacity of the beneficiary.
    (2) The LGHP, an employer or employee organization, or the 
beneficiary fails to furnish information that is requested by HCFA and 
that is necessary to determine whether the LGHP is primary to Medicare.
    (d) Limit on secondary payments. The provisions of Sec. 411.172(e) 
also apply to services furnished to the disabled under this subpart.



                          Subpart I--[Reserved]



     Subpart J--Physician Ownership of, and Referral of Patients or 
  Laboratory Specimens to, Entities Furnishing Clinical Laboratory or 
                          Other Health Services

    Source: 60 FR 41978, Aug. 14, 1995, unless otherwise noted.

[[Page 275]]



Sec. 411.350  Scope of subpart.

    (a) This subpart implements section 1877 of the Act, which generally 
prohibits a physician from making a referral under Medicare for clinical 
laboratory services to an entity with which the physician or a member of 
the physician's immediate family has a financial relationship.
    (b) This subpart does not provide for exceptions or immunity from 
civil or criminal prosecution or other sanctions applicable under any 
State laws or under Federal law other than section 1877 of the Act. For 
example, although a particular arrangement involving a physician's 
financial relationship with an entity may not prohibit the physician 
from making referrals to the entity under this subpart, the arrangement 
may nevertheless violate another provision of the Act or other laws 
administered by HHS, the Federal Trade Commission, the Securities and 
Exchange Commission, the Internal Revenue Service, or any other Federal 
or State agency.
    (c) This subpart requires, with some exceptions, that certain 
entities furnishing covered items or services under Part A or Part B 
report information concerning their ownership, investment, or 
compensation arrangements in the form, manner, and at the times 
specified by HCFA.



Sec. 411.351  Definitions.

    As used in this subpart, unless the context indicates otherwise:
    Clinical laboratory services means the biological, microbiological, 
serological, chemical, immunohematological, hematological, biophysical, 
cytological, pathological, or other examination of materials derived 
from the human body for the purpose of providing information for the 
diagnosis, prevention, or treatment of any disease or impairment of, or 
the assessment of the health of, human beings. These examinations also 
include procedures to determine, measure, or otherwise describe the 
presence or absence of various substances or organisms in the body.
    Compensation arrangement means any arrangement involving any 
remuneration, direct or indirect, between a physician (or a member of a 
physician's immediate family) and an entity.
    Direct supervision means supervision by a physician who is present 
in the office suite and immediately available to provide assistance and 
direction throughout the time services are being performed.
    Employee means any individual who, under the usual common law rules 
that apply in determining the employer-employee relationship (as applied 
for purposes of section 3121(d)(2) of the Internal Revenue Code of 
1986), is considered to be employed by, or an employee of, an entity. 
(Application of these common law rules is discussed at 20 CFR 404.1007 
and 26 CFR 31.3121(d)-1(c).)
    Entity means a sole proprietorship, trust, corporation, partnership, 
foundation, not-for-profit corporation, or unincorporated association.
    Fair market value means the value in arm's-length transactions, 
consistent with the general market value. With respect to rentals or 
leases, fair market value means the value of rental property for general 
commercial purposes (not taking into account its intended use). In the 
case of a lease of space, this value may not be adjusted to reflect the 
additional value the prospective lessee or lessor would attribute to the 
proximity or convenience to the lessor when the lessor is a potential 
source of patient referrals to the lessee.
    Financial relationship refers to a direct or indirect relationship 
between a physician (or a member of a physician's immediate family) and 
an entity in which the physician or family member has--
    (1) An ownership or investment interest that exists in the entity 
through equity, debt, or other means and includes an interest in an 
entity that holds an ownership or investment interest in any entity 
providing laboratory services; or
    (2) A compensation arrangement with the entity.
    Group practice means a group of two or more physicians, legally 
organized as a partnership, professional corporation, foundation, not-
for-profit corporation, faculty practice plan, or similar association, 
that meets the following conditions:

[[Page 276]]

    (1) Each physician who is a member of the group, as defined in this 
section, furnishes substantially the full range of patient care services 
that the physician routinely furnishes including medical care, 
consultation, diagnosis, and treatment through the joint use of shared 
office space, facilities, equipment, and personnel.
    (2) Except as provided in paragraphs (2)(i) and (2)(ii) of this 
definition, substantially all of the patient care services of the 
physicians who are members of the group (that is, at least 75 percent of 
the total patient care services of the group practice members) are 
furnished through the group and billed in the name of the group and the 
amounts received are treated as receipts of the group. ``Patient care 
services'' are measured by the total patient care time each member 
spends on these services. For example, if a physician practices 40 hours 
a week and spends 30 hours on patient care services for a group 
practice, the physician has spent 75 percent of his or her time 
providing countable patient care services.
    (i) The ``substantially all'' test does not apply to any group 
practice that is located solely in an HPSA, as defined in this section, 
and
    (ii) For group practices located outside of an HPSA (as defined in 
this section) any time spent by group practice members providing 
services in an HPSA should not be used to calculate whether the group 
practice located outside the HPSA has met the ``substantially all'' 
test, regardless of whether the members' time in the HPSA is spent in a 
group practice, clinic, or office setting.
    (3) The practice expenses and income are distributed in accordance 
with methods previously determined.

In the case of faculty practice plans associated with a hospital, 
institution of higher education, or medical school that has an approved 
medical residency training program in which faculty practice plan 
physicians perform specialty and professional services, both within and 
outside the faculty practice, as well as perform other tasks such as 
research, this definition applies only to those services that are 
furnished within the faculty practice plan.
    Hospital means any separate legally organized operating entity plus 
any subsidiary, related, or other entities that perform services for the 
hospital's patients and for which the hospital bills. A ``hospital'' 
does not include entities that perform services for hospital patients 
``under arrangements'' with the hospital.
    HPSA means, for purposes of this regulation, an area designated as a 
health professional shortage area under section 332(a)(1)(A) of the 
Public Health Service Act for primary medical care professionals (in 
accordance with the criteria specified in 42 CFR part 5, appendix A, 
part I--Geographic Areas). In addition, with respect to dental, mental 
health, vision care, podiatric, and pharmacy services, an HPSA means an 
area designated as a health professional shortage area under section 
332(a)(1)(A) of the Public Health Service Act for dental professionals, 
mental health professionals, vision care professionals, podiatric 
professionals, and pharmacy professionals, respectively.
    Immediate family member or member of a physician's immediate family 
means husband or wife; natural or adoptive parent, child, or sibling; 
stepparent, stepchild, stepbrother, or stepsister; father-in-law, 
mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-
in-law; grandparent or grandchild; and spouse of a grandparent or 
grandchild.
    Laboratory means an entity furnishing biological, microbiological, 
serological, chemical, immunohematological, hematological, biophysical, 
cytological, pathological, or other examination of materials derived 
from the human body for the purpose of providing information for the 
diagnosis, prevention, or treatment of any disease or impairment of, or 
the assessment of the health of, human beings. These examinations also 
include procedures to determine, measure, or otherwise describe the 
presence or absence of various substances or organisms in the body. 
Entities only collecting or preparing specimens (or both) or only 
serving as a mailing service and not performing testing are not 
considered laboratories.
    Members of the group means physician partners and full-time and 
part-time

[[Page 277]]

physician contractors and employees during the time they furnish 
services to patients of the group practice that are furnished through 
the group and are billed in the name of the group.
    Patient care services means any tasks performed by a group practice 
member that address the medical needs of specific patients, regardless 
of whether they involve direct patient encounters. They can include, for 
example, the services of physicians who do not directly treat patients, 
time spent by a physician consulting with other physicians, or time 
spent reviewing laboratory tests.
    Physician incentive plan means any compensation arrangement between 
an entity and a physician or physician group that may directly or 
indirectly have the effect of reducing or limiting services furnished 
with respect to individuals enrolled with the entity.
    Plan of care means the establishment by a physician of a course of 
diagnosis or treatment (or both) for a particular patient, including the 
ordering of items or services.
    Referral--
    (1) Means either of the following:
    (i) Except as provided in paragraph (2) of this definition, the 
request by a physician for, or ordering of, any item or service for 
which payment may be made under Medicare Part B, including a request for 
a consultation with another physician and any test or procedure ordered 
by or to be performed by (or under the supervision of) that other 
physician.
    (ii) Except as provided in paragraph (2) of this definition, a 
request by a physician that includes the provision of laboratory 
services or the establishment of a plan of care by a physician that 
includes the provision of laboratory services.
    (2) Does not include a request by a pathologist for clinical 
diagnostic laboratory tests and pathological examination services if--
    (i) The request is part of a consultation initiated by another 
physician; and
    (ii) The tests or services are furnished by or under the supervision 
of the pathologist.
    Referring physician means a physician (or group practice) who makes 
a referral as defined in this section.
    Remuneration means any payment, discount, forgiveness of debt, or 
other benefit made directly or indirectly, overtly or covertly, in cash 
or in kind, except that the following are not considered remuneration:
    (1) The forgiveness of amounts owed for inaccurate tests or 
procedures, mistakenly performed tests or procedures, or the correction 
of minor billing errors.
    (2) The furnishing of items, devices, or supplies that are used 
solely to collect, transport, process, or store specimens for the entity 
furnishing the items, devices, or supplies or are used solely to order 
or communicate the results of tests or procedures for the entity.
    (3) A payment made by an insurer or a self-insured plan to a 
physician to satisfy a claim, submitted on a fee-for-service basis, for 
the furnishing of health services by that physician to an individual who 
is covered by a policy with the insurer or by the self-insured plan, 
if--
    (i) The health services are not furnished, and the payment is not 
made, under a contract or other arrangement between the insurer or the 
plan and the physician;
    (ii) The payment is made to the physician on behalf of the covered 
individual and would otherwise be made directly to the individual; and
    (iii) The amount of the payment is set in advance, does not exceed 
fair market value, and is not determined in a manner that takes into 
account directly or indirectly the volume or value of any referrals.
    Transaction means an instance or process of two or more persons 
doing business. An isolated transaction is one involving a single 
payment between two or more persons. A transaction that involves long-
term or installment payments is not considered an isolated transaction.



Sec. 411.353  Prohibition on certain referrals by physicians and limitations on billing.

    (a) Prohibition on referrals. Except as provided in this subpart, a 
physician

[[Page 278]]

who has a financial relationship with an entity, or who has an immediate 
family member who has a financial relationship with the entity, may not 
make a referral to that entity for the furnishing of clinical laboratory 
services for which payment otherwise may be made under Medicare.
    (b) Limitations on billing. An entity that furnishes clinical 
laboratory services under a referral that is prohibited by paragraph (a) 
of this section may not present or cause to be presented a claim or bill 
to the Medicare program or to any individual, third party payer, or 
other entity for the clinical laboratory services performed under that 
referral.
    (c) Denial of payment. No Medicare payment may be made for a 
clinical laboratory service that is furnished under a prohibited 
referral.
    (d) Refunds. An entity that collects payment for a laboratory 
service that was performed under a prohibited referral must refund all 
collected amounts on a timely basis.



Sec. 411.355  General exceptions to referral prohibitions related to both ownership/investment and compensation.

    The prohibition on referrals set forth in Sec. 411.353 does not 
apply to the following types of services:
    (a) Physicians' services, as defined in Sec. 410.20(a), that are 
furnished personally by (or under the personal supervision of) another 
physician in the same group practice as the referring physician.
    (b) In-office ancillary services. Services that meet the following 
conditions:
    (1) They are furnished personally by one of the following 
individuals:
    (i) The referring physician.
    (ii) A physician who is a member of the same group practice as the 
referring physician.
    (iii) Individuals who are directly supervised by the referring 
physician or, in the case of group practices, by another physician in 
the same group practice as the referring physician.
    (2) They are furnished in one of the following locations:
    (i) A building in which the referring physician (or another 
physician who is a member of the same group practice) furnishes 
physicians' services unrelated to the furnishing of clinical laboratory 
services.
    (ii) A building that is used by the group practice for the provision 
of some or all of the group's clinical laboratory services.
    (3) They are billed by one of the following:
    (i) The physician performing or supervising the service.
    (ii) The group practice of which the performing or supervising 
physician is a member.
    (iii) An entity that is wholly owned by the physician or the 
physician's group practice.
    (c) Services furnished to prepaid health plan enrollees by one of 
the following organizations:
    (1) An HMO or a CMP in accordance with a contract with HCFA under 
section 1876 of the Act and part 417, subparts J through M, of this 
chapter.
    (2) A health care prepayment plan in accordance with an agreement 
with HCFA under section 1833(a)(1)(A) of the Act and part 417, subpart 
U, of this chapter.
    (3) An organization that is receiving payments on a prepaid basis 
for the enrollees through a demonstration project under section 402(a) 
of the Social Security Amendments of 1967 (42 U.S.C. 1395b-1) or under 
section 222(a) of the Social Security Amendments of 1972 (42 U.S.C. 
1395b-1 note).
    (4) A qualified health maintenance organization (within the meaning 
of section 1310(d) of the Public Health Service Act).
    (5) A coordinated care plan (within the meaning of section 
1851(a)(2)(A) of the Act) offered by an organization in accordance with 
a contract with HCFA under section 1857 of the Act and part 422 of this 
chapter.
    (d) Services furnished in an ambulatory surgical center (ASC) or end 
stage renal disease (ESRD) facility, or by a hospice if payment for 
those services is included in the ASC rate, the ESRD composite rate, or 
as part of the per diem hospice charge, respectively.

[60 FR 41978, Aug. 14, 1995, as amended at 63 FR 35066, June 26, 1998]

[[Page 279]]



Sec. 411.356  Exceptions to referral prohibitions related to ownership or investment interests.

    For purposes of Sec. 411.353, the following ownership or investment 
interests do not constitute a financial relationship:
    (a) Publicly traded securities. Ownership of investment securities 
(including shares or bonds, debentures, notes, or other debt 
instruments) that may be purchased on terms generally available to the 
public and that meet the requirements of paragraphs (a)(1) and (a)(2) of 
this section.
    (1) They are either--
    (i) Listed for trading on the New York Stock Exchange, the American 
Stock Exchange, or any regional exchange in which quotations are 
published on a daily basis, or foreign securities listed on a recognized 
foreign, national, or regional exchange in which quotations are 
published on a daily basis; or
    (ii) Traded under an automated interdealer quotation system operated 
by the National Association of Securities Dealers.
    (2) In a corporation that had--
    (i) Until January 1, 1995, total assets at the end of the 
corporation's most recent fiscal year exceeding $100 million; or
    (ii) Stockholder equity exceeding $75 million at the end of the 
corporation's most recent fiscal year or on average during the previous 
3 fiscal years.
    (b) Mutual funds. Ownership of shares in a regulated investment 
company as defined in section 851(a) of the Internal Revenue Code of 
1986, if the company had, at the end of its most recent fiscal year, or 
on average during the previous 3 fiscal years, total assets exceeding 
$75 million.
    (c) Specific providers. Ownership or investment interest in the 
following entities:
    (1) A laboratory that is located in a rural area (that is, a 
laboratory that is not located in an urban area as defined in 
Sec. 412.62(f)(1)(ii) of this chapter) and that meets the following 
criteria:
    (i) The laboratory testing that is referred by a physician who has 
(or whose immediate family member has) an ownership or investment 
interest in the rural laboratory is either--
    (A) Performed on the premises of the rural laboratory; or
    (B) If not performed on the premises, the laboratory performing the 
testing bills the Medicare program directly for the testing.
    (ii) Substantially all of the laboratory tests furnished by the 
entity are furnished to individuals who reside in a rural area. 
Substantially all means no less than 75 percent.
    (2) A hospital that is located in Puerto Rico.
    (3) A hospital that is located outside of Puerto Rico if one of the 
following conditions is met:
    (i) The referring physician is authorized to perform services at the 
hospital, and the physician's ownership or investment interest is in the 
entire hospital and not merely in a distinct part or department of the 
hospital.
    (ii) Until January 1, 1995, the referring physician's ownership or 
investment interest does not relate (directly or indirectly) to the 
furnishing of clinical laboratory services.



Sec. 411.357  Exceptions to referral prohibitions related to compensation arrangements.

    For purposes of Sec. 411.353, the following compensation 
arrangements do not constitute a financial relationship:
    (a) Rental of office space. Payments for the use of office space 
made by a lessee to a lessor if there is a rental or lease agreement 
that meets the following requirements:
    (1) The agreement is set out in writing and is signed by the parties 
and specifies the premises covered by the lease.
    (2) The term of the agreement is at least 1 year.
    (3) The space rented or leased does not exceed that which is 
reasonable and necessary for the legitimate business purposes of the 
lease or rental and is used exclusively by the lessee when being used by 
the lessee, except that the lessee may make payments for the use of 
space consisting of common areas if the payments do not exceed the 
lessee's pro rata share of expenses for the space based upon the ratio 
of the space used exclusively by the lessee to the total amount of space 
(other than

[[Page 280]]

common areas) occupied by all persons using the common areas.
    (4) The rental charges over the term of the lease are set in advance 
and are consistent with fair market value.
    (5) The charges are not determined in a manner that takes into 
account the volume or value of any referrals or other business generated 
between the parties.
    (6) The agreement would be commercially reasonable even if no 
referrals were made between the lessee and the lessor.
    (b) Rental of equipment. Payments made by a lessee to a lessor for 
the use of equipment under the following conditions:
    (1) A rental or lease agreement is set out in writing and signed by 
the parties and specifies the equipment covered by the lease.
    (2) The equipment rented or leased does not exceed that which is 
reasonable and necessary for the legitimate business purposes of the 
lease or rental and is used exclusively by the lessee when being used by 
the lessee.
    (3) The lease provides for a term of rental or lease of at least 1 
year.
    (4) The rental charges over the term of the lease are set in 
advance, are consistent with fair market value, and are not determined 
in a manner that takes into account the volume or value of any referrals 
or other business generated between the parties.
    (5) The lease would be commercially reasonable even if no referrals 
were made between the parties.
    (c) Bona fide employment relationships. Any amount paid by an 
employer to a physician (or immediate family member) who has a bona fide 
employment relationship with the employer for the provision of services 
if the following conditions are met:
    (1) The employment is for identifiable services.
    (2) The amount of the remuneration under the employment is--
    (i) Consistent with the fair market value of the services; and
    (ii) Except as provided in paragraph (c)(4) of this section, is not 
determined in a manner that takes into account (directly or indirectly) 
the volume or value of any referrals by the referring physician.
    (3) The remuneration is provided under an agreement that would be 
commercially reasonable even if no referrals were made to the employer.
    (4) Paragraph (c)(2)(ii) of this section does not prohibit payment 
of remuneration in the form of a productivity bonus based on services 
performed personally by the physician (or immediate family member of the 
physician).
    (d) Personal service arrangements. (1) General. Remuneration from an 
entity under an arrangement to a physician or immediate family member of 
the physician, including remuneration for specific physicians' services 
furnished to a nonprofit blood center, if the following conditions are 
met:
    (i) The arrangement is set out in writing, is signed by the parties, 
and specifies the services covered by the arrangement.
    (ii) The arrangement covers all of the services to be furnished by 
the physician (or an immediate family member of the physician) to the 
entity.
    (iii) The aggregate services contracted for do not exceed those that 
are reasonable and necessary for the legitimate business purposes of the 
arrangement.
    (iv) The term of the arrangement is for at least 1 year.
    (v) The compensation to be paid over the term of the arrangement is 
set in advance, does not exceed fair market value, and, except in the 
case of a physician incentive plan, is not determined in a manner that 
takes into account the volume or value of any referrals or other 
business generated between the parties.
    (vi) The services to be furnished under the arrangement do not 
involve the counseling or promotion of a business arrangement or other 
activity that violates any State or Federal law.
    (2) Physician incentive plan exception. In the case of a physician 
incentive plan between a physician and an entity, the compensation may 
be determined in a manner (through a withhold, capitation, bonus, or 
otherwise) that takes into account directly or indirectly the volume or 
value of any referrals or other business generated between the parties, 
if the plan meets the following requirements:

[[Page 281]]

    (i) No specific payment is made directly or indirectly under the 
plan to a physician or a physician group as an inducement to reduce or 
limit medically necessary services furnished with respect to a specific 
individual enrolled in the entity.
    (ii) In the case of a plan that places a physician or a physician 
group at substantial financial risk as determined by the Secretary under 
section 1876(i)(8)(A)(ii) of the Act, the plan complies with any 
requirements the Secretary has imposed under that section.
    (iii) Upon request by the Secretary, the entity provides the 
Secretary with access to descriptive information regarding the plan, in 
order to permit the Secretary to determine whether the plan is in 
compliance with the requirements of paragraph (d)(2) of this section.
    (3) Until January 1, 1995, the provisions in paragraph (d)(1) and 
(2) of this section do not apply to any arrangements that meet the 
requirements of section 1877(e)(2) or section 1877(e)(3) of the Act as 
they read before they were amended by the Omnibus Budget Reconciliation 
Act of 1993 (Public Law 103-66).
    (e) Physician recruitment. Remuneration provided by a hospital to 
recruit a physician that is intended to induce the physician to relocate 
to the geographic area served by the hospital in order to become a 
member of the hospital's medical staff, if all of the following 
conditions are met:
    (1) The arrangement and its terms are in writing and signed by both 
parties.
    (2) The arrangement is not conditioned on the physician's referral 
of patients to the hospital.
    (3) The hospital does not determine (directly or indirectly) the 
amount or value of the remuneration to the physician based on the volume 
or value of any referrals the physician generates for the hospital.
    (4) The physician is not precluded from establishing staff 
privileges at another hospital or referring business to another entity.
    (f) Isolated transactions. Isolated financial transactions, such as 
a one-time sale of property or a practice, if all of the conditions set 
forth in paragraphs (c)(2) and (c)(3) of this section are met with 
respect to an entity in the same manner as they apply to an employer. 
There can be no additional transactions between the parties for 6 months 
after the isolated transaction, except for transactions which are 
specifically excepted under the other provisions in Secs. 411.355 
through 411.357.
    (g) Arrangements with hospitals. (1) Until January 1, 1995, any 
compensation arrangement between a hospital and a physician or a member 
of a physician's immediate family if the arrangement does not relate to 
the furnishing of clinical laboratory services; or
    (2) Remuneration provided by a hospital to a physician if the 
remuneration does not relate to the furnishing of clinical laboratory 
services.
    (h) Group practice arrangements with a hospital. An arrangement 
between a hospital and a group practice under which clinical laboratory 
services are provided by the group but are billed by the hospital if the 
following conditions are met:
    (1) With respect to services provided to an inpatient of the 
hospital, the arrangement is pursuant to the provision of inpatient 
hospital services under section 1861(b)(3) of the Act.
    (2) The arrangement began before December 19, 1989, and has 
continued in effect without interruption since then.
    (3) With respect to the clinical laboratory services covered under 
the arrangement, substantially all of these services furnished to 
patients of the hospital are furnished by the group under the 
arrangement.
    (4) The arrangement is in accordance with an agreement that is set 
out in writing and that specifies the services to be furnished by the 
parties and the compensation for services furnished under the agreement.
    (5) The compensation paid over the term of the agreement is 
consistent with fair market value, and the compensation per unit of 
services is fixed in advance and is not determined in a manner that 
takes into account the volume or value of any referrals or other 
business generated between the parties.

[[Page 282]]

    (6) The compensation is provided in accordance with an agreement 
that would be commercially reasonable even if no referrals were made to 
the entity.
    (i) Payments by a physician. Payments made by a physician--
    (1) To a laboratory in exchange for the provision of clinical 
laboratory services; or
    (2) To an entity as compensation for other items or services that 
are furnished at a price that is consistent with fair market value.



Sec. 411.360  Group practice attestation.

    (a) Except as provided in paragraph (b) of this section, a group 
practice (as defined in section 1877(h)(4) of the Act and Sec. 411.351) 
must submit a written statement to its carrier annually to attest that, 
during the most recent 12-month period (calendar year, fiscal year, or 
immediately preceding 12-month period) 75 percent of the total patient 
care services of group practice members was furnished through the group, 
was billed under a billing number assigned to the group, and the amounts 
so received were treated as receipts of the group.
    (b) A newly-formed group practice (one in which physicians have 
recently begun to practice together) or any group practice that has been 
unable in the past to meet the requirements of section 1877(h)(4) of the 
Act must--
    (1) Submit a written statement to attest that, during the next 12-
month period (calendar year, fiscal year, or next 12 months), it expects 
to meet the 75-percent standard and will take measures to ensure the 
standard is met; and
    (2) At the end of the 12-month period, submit a written statement to 
attest that it met the 75-percent standard during that period, billed 
for those services under a billing number assigned to the group, and 
treated amounts received for those services as receipts of the group. If 
the group did not meet the standard, any Medicare payments made for 
clinical laboratory services furnished by the group during the 12-month 
period that were conditioned upon the standard being met are 
overpayments.
    (c) Once any group has chosen whether to use its fiscal year, the 
calendar year, or some other 12-month period, the group practice must 
adhere to this choice.
    (d) The attestation must contain a statement that the information 
furnished in the attestation is true and accurate and must be signed by 
a group representative.
    (e) A group that intends to meet the definition of a group practice 
in order to qualify for an exception described in Secs. 411.355 through 
411.357, must submit the attestation required by paragraph (a) or 
paragraph (b)(1) of this section, as applicable, to its carrier no later 
than 60 days after receipt of the attestation instructions from its 
carrier.

[60 FR 41978, Aug. 14, 1995, as amended at 60 FR 63440, Dec. 11, 1995]



Sec. 411.361  Reporting requirements.

    (a) Basic rule. Except as provided in paragraph (b) of this section, 
all entities furnishing items or services for which payment may be made 
under Medicare must submit information to HCFA concerning their 
financial relationships (as defined in paragraph (d) of this section), 
in such form, manner, and at such times as HCFA specifies.
    (b) Exception. The requirements of paragraph (a) of this section do 
not apply to entities that provide 20 or fewer Part A and Part B items 
and services during a calendar year, or to designated health services 
provided outside the United States.
    (c) Required information. The information submitted to HCFA under 
paragraph (a) of this section must include at least the following:
    (1) The name and unique physician identification number (UPIN) of 
each physician who has a financial relationship with the entity;
    (2) The name and UPIN of each physician who has an immediate 
relative (as defined in Sec. 411.351) who has a financial relationship 
with the entity;
    (3) The covered items and services provided by the entity; and
    (4) With respect to each physician identified under paragraphs 
(c)(1) and (c)(2) of this section, the nature of the financial 
relationship (including the extent and/or value of the ownership or 
investment interest or the compensation arrangement, if requested by 
HCFA).

[[Page 283]]

    (d) Reportable financial relationships. For purposes of this 
section, a financial relationship is any ownership or investment 
interest or any compensation arrangement, as described in section 1877 
of the Act.
    (e) Form and timing of reports. Entities that are subject to the 
requirements of this section must submit the required information on a 
HCFA-prescribed form within the time period specified by the servicing 
carrier or intermediary. Entities are given at least 30 days from the 
date of the carrier's or intermediary's request to provide the initial 
information. Thereafter, an entity must provide updated information 
within 60 days from the date of any change in the submitted information. 
Entities must retain documentation sufficient to verify the information 
provided on the forms and, upon request, must make that documentation 
available to HCFA or the OIG.
    (f) Consequences of failure to report. Any person who is required, 
but fails, to submit information concerning his or her financial 
relationships in accordance with this section is subject to a civil 
money penalty of up to $10,000 for each day of the period beginning on 
the day following the applicable deadline established under paragraph 
(e) of this section until the information is submitted. Assessment of 
these penalties will comply with the applicable provisions of part 1003 
of this title.
    (g) Public disclosure. Information furnished to HCFA under this 
section is subject to public disclosure in accordance with the 
provisions of part 401 of this chapter.



Sec. 411.370  Advisory opinions relating to physician referrals.

    (a) Period during which HCFA will accept requests. The provisions of 
Secs. 411.370 through 411.389 apply to requests for advisory opinions 
that are submitted to HCFA after November 3, 1997, and before August 21, 
2000, and to any requests submitted during any other time period during 
which HCFA is required by law to issue the advisory opinions described 
in this subpart.
    (b) Matters that qualify for advisory opinions and who may request 
one. Any individual or entity may request a written advisory opinion 
from HCFA concerning whether a physician's referral relating to 
designated health services (other than clinical laboratory services) is 
prohibited under section 1877 of the Act. In the advisory opinion, HCFA 
determines whether a business arrangement described by the parties to 
that arrangement appears to constitute a ``financial relationship'' (as 
defined in section 1877(a)(2) of the Act) that could potentially 
restrict a physician's referrals, and whether the arrangement or the 
designated health services at issue appear to qualify for any of the 
exceptions to the referral prohibition described in section 1877 of the 
Act.
    (1) The request must involve an existing arrangement or one into 
which the requestor, in good faith, specifically plans to enter. The 
planned arrangement may be contingent upon the party or parties 
receiving a favorable advisory opinion. HCFA does not consider, for 
purposes of an advisory opinion, requests that present a general 
question of interpretation, pose a hypothetical situation, or involve 
the activities of third parties.
    (2) The requestor must be a party to the existing or proposed 
arrangement.
    (c) Matters not subject to advisory opinions. HCFA does not address 
through the advisory opinion process--
    (1) Whether the fair market value was, or will be, paid or received 
for any goods, services, or property; and
    (2) Whether an individual is a bona fide employee within the 
requirements of section 3121(d)(2) of the Internal Revenue Code of 1986.
    (d) Facts subject to advisory opinions. HCFA considers requests for 
advisory opinions that involve applying specific facts to the subject 
matter described in paragraph (b) of this section. Requestors must 
include in the advisory opinion request a complete description of the 
arrangement that the requestor is undertaking, or plans to undertake, as 
described in Sec. 411.372.
    (e) Requests that will not be accepted. HCFA does not accept an 
advisory opinion request or issue an advisory opinion if--
    (1) The request is not related to a named individual or entity;

[[Page 284]]

    (2) HCFA is aware that the same, or substantially the same, course 
of action is under investigation, or is or has been the subject of a 
proceeding involving the Department of Health and Human Services or 
another governmental agency; or
    (3) HCFA believes that it cannot make an informed opinion or could 
only make an informed opinion after extensive investigation, clinical 
study, testing, or collateral inquiry.
    (f) Effects of an advisory opinion on other Governmental authority. 
Nothing in this part limits the investigatory or prosecutorial authority 
of the OIG, the Department of Justice, or any other agency of the 
Government. In addition, in connection with any request for an advisory 
opinion, HCFA, the OIG, or the Department of Justice may conduct 
whatever independent investigation it believes appropriate.

[63 FR 1655, Jan. 9, 1998]



Sec. 411.372  Procedure for submitting a request.

    (a) Format for a request. A party or parties must submit a request 
for an advisory opinion to HCFA in writing, including an original 
request and 2 copies. The request must be addressed to: Health Care 
Financing Administration, Department of Health and Human Services, 
Attention: Advisory Opinions, P.O. Box 26505, Baltimore, MD 21207.
    (b) Information HCFA requires with all submissions. The request must 
include the following:
    (1) The name, address, telephone number, and Taxpayer Identification 
Number of the requestor.
    (2) The names and addresses, to the extent known, of all other 
actual and potential parties to the arrangement that is the subject of 
the request.
    (3) The name, title, address, and daytime telephone number of a 
contact person who will be available to discuss the request with HCFA on 
behalf of the requestor.
    (4) A complete and specific description of all relevant information 
bearing on the arrangement, including--
    (i) A complete description of the arrangement that the requestor is 
undertaking, or plans to undertake, including: the purpose of the 
arrangement; the nature of each party's (including each entity's) 
contribution to the arrangement; the direct or indirect relationships 
between the parties, with an emphasis on the relationships between 
physicians involved in the arrangement (or their immediate family 
members who are involved) and any entities that provide designated 
health services; the types of services for which a physician wishes to 
refer, and whether the referrals will involve Medicare or Medicaid 
patients;
    (ii) Complete copies of all relevant documents or relevant portions 
of documents that affect or could affect the arrangement, such as 
personal services or employment contracts, leases, deeds, pension or 
insurance plans, financial statements, or stock certificates (or, if 
these relevant documents do not yet exist, a complete description, to 
the best of the requestor's knowledge, of what these documents are 
likely to contain);
    (iii) Detailed statements of all collateral or oral understandings, 
if any; and
    (iv) Descriptions of any other arrangements or relationships that 
could affect HCFA's analysis.
    (5) Complete information on the identity of all entities involved 
either directly or indirectly in the arrangement, including their names, 
addresses, legal form, ownership structure, nature of the business 
(products and services) and, if relevant, their Medicare and Medicaid 
provider numbers. The requestor must also include a brief description of 
any other entities that could affect the outcome of the opinion, 
including those with which the requestor, the other parties, or the 
immediate family members of involved physicians, have any financial 
relationships (either direct or indirect, and as defined in section 
1877(a)(2) of the Act and Sec. 411.351), or in which any of the parties 
holds an ownership or control interest as defined in section 1124(a)(3) 
of the Act.
    (6) A discussion of the specific issues or questions the requestor 
would like HCFA to address including, if possible, a description of why 
the requestor believes the referral prohibition in section 1877 of the 
Act might or might not be triggered by the arrangement and

[[Page 285]]

which, if any, exceptions to the prohibition the requestor believes 
might apply. The requestor should attempt to designate which facts are 
relevant to each issue or question raised in the request and should cite 
the provisions of law under which each issue or question arises.
    (7) An indication of whether the parties involved in the request 
have also asked for or are planning to ask for an advisory opinion on 
the arrangement in question from the OIG under section 1128D(b) of the 
Act (42 U.S.C. 1320a-7d(b)) and whether the arrangement is or is not, to 
the best of the requestor's knowledge, the subject of an investigation.
    (8) The certification(s) described in Sec. 411.373. The 
certification(s) must be signed by--
    (i) The requestor, if the requestor is an individual;
    (ii) The chief executive officer, or comparable officer, of the 
requestor, if the requestor is a corporation;
    (iii) The managing partner of the requestor, if the requestor is a 
partnership; or
    (iv) A managing member, if the requestor is a limited liability 
company.
    (9) A check or money order payable to HCFA in the amount described 
in Sec. 411.375(a).
    (c) Additional information HCFA might require. If the request does 
not contain all of the information required by paragraph (b) of this 
section, or, if either before or after accepting the request, HCFA 
believes it needs more information in order to render an advisory 
opinion, it may request whatever additional information or documents it 
deems necessary. Additional information must be provided in writing, 
signed by the same person who signed the initial request (or by an 
individual in a comparable position), and be certified as described in 
Sec. 411.373.

[63 FR 1655, Jan. 9, 1998]



Sec. 411.373  Certification.

    (a) Every request must include the following signed certification: 
``With knowledge of the penalties for false statements provided by 18 
U.S.C. 1001 and with knowledge that this request for an advisory opinion 
is being submitted to the Department of Health and Human Services, I 
certify that all of the information provided is true and correct, and 
constitutes a complete description of the facts regarding which an 
advisory opinion is sought, to the best of my knowledge and belief.''
    (b) If the advisory opinion relates to a proposed arrangement, in 
addition to the certification required by paragraph (a) of this section, 
the following certification must be included and signed by the 
requestor: ``The arrangement described in this request for an advisory 
opinion is one into which [the requestor], in good faith, plans to 
enter.'' This statement may be made contingent on a favorable advisory 
opinion, in which case the requestor should add one of the following 
phrases to the certification:
    (1) ``if HCFA issues a favorable advisory opinion.''
    (2) ``if HCFA and the OIG issue favorable advisory opinions.''

[63 FR 1656, Jan. 9, 1998]



Sec. 411.375  Fees for the cost of advisory opinions.

    (a) Initial payment. Parties must include with each request for an 
advisory opinion submitted through December 31, 1998, a check or money 
order payable to HCFA for $250. For requests submitted after this date, 
parties must include a check or money order in this amount, unless HCFA 
has revised the amount of the initial fee in a program issuance, in 
which case, the requestor must include the revised amount. This initial 
payment is nonrefundable.
    (b) How costs are calculated. Before issuing the advisory opinion, 
HCFA calculates the costs the Department has incurred in responding to 
the request. The calculation includes the costs of salaries, benefits, 
and overhead for analysts, attorneys, and others who have worked on the 
request, as well as administrative and supervisory support for these 
individuals.
    (c) Agreement to pay all costs. (1) By submitting the request for an 
advisory opinion, the requestor agrees, except as indicated in paragraph 
(c)(3) of this section, to pay all costs the Department incurs in 
responding to the request for an advisory opinion.
    (2) In its request for an advisory opinion, the requestor may 
designate a

[[Page 286]]

triggering dollar amount. If HCFA estimates that the costs of processing 
the advisory opinion request have reached or are likely to exceed the 
designated triggering dollar amount, HCFA notifies the requestor.
    (3) If HCFA notifies the requestor that the actual or estimated cost 
of processing the request has reached or is likely to exceed the 
triggering dollar amount, HCFA stops processing the request until the 
requestor makes a written request for HCFA to continue. If HCFA is 
delayed in processing the request for an advisory opinion because of 
this procedure, the time within which HCFA must issue an advisory 
opinion is suspended until the requestor asks HCFA to continue working 
on the request.
    (4) If the requestor chooses not to pay for HCFA to complete an 
advisory opinion, or withdraws the request, the requestor is still 
obligated to pay for all costs HCFA has identified as costs it incurred 
in processing the request for an advisory opinion, up to that point.
    (5) If the costs HCFA has incurred in responding to the request are 
greater than the amount the requestor has paid, HCFA, before issuing the 
advisory opinion, notifies the requestor of any additional amount that 
is due. HCFA does not issue an advisory opinion until the requestor has 
paid the full amount that is owed. Once the requestor has paid HCFA the 
total amount due for the costs of processing the request, HCFA issues 
the advisory opinion. The time period HCFA has for issuing advisory 
opinions is suspended from the time HCFA notifies the requestor of the 
amount owed until the time HCFA receives full payment.
    (d) Fees for outside experts. (1) In addition to the fees identified 
in this section, the requestor also must pay any required fees for 
expert opinions, if any, from outside sources, as described in 
Sec. 411.377.
    (2) The time period for issuing an advisory opinion is suspended 
from the time that HCFA notifies the requestor that it needs an outside 
expert opinion until the time HCFA receives that opinion.

[63 FR 1656, Jan. 9, 1998]



Sec. 411.377  Expert opinions from outside sources.

    (a) HCFA may request expert advice from qualified sources if HCFA 
believes that the advice is necessary to respond to a request for an 
advisory opinion. For example, HCFA may require the use of accountants 
or business experts to assess the structure of a complex business 
arrangement or to ascertain a physician's or immediate family member's 
financial relationship with entities that provide designated health 
services.
    (b) If HCFA determines that it needs to obtain expert advice in 
order to issue a requested advisory opinion, HCFA notifies the requestor 
of that fact and provides the identity of the appropriate expert and an 
estimate of the costs of the expert advice. As indicated in 
Sec. 411.375(d), the requestor must pay the estimated cost of the expert 
advice.
    (c) Once HCFA has received payment for the estimated cost of the 
expert advice, HCFA arranges for the expert to provide a prompt review 
of the issue or issues in question. HCFA considers any additional 
expenses for the expert advice, beyond the estimated amount, as part of 
the costs HCFA has incurred in responding to the request, and the 
responsibility of the requestor, as described in Sec. 411.375(c).

[63 FR 1657, Jan. 9, 1998]



Sec. 411.378  Withdrawing a request.

    The party requesting an advisory opinion may withdraw the request 
before HCFA issues a formal advisory opinion. This party must submit the 
withdrawal in writing to the same address as the request, as indicated 
in Sec. 411.372(a). Even if the party withdraws the request, the party 
must pay the costs the Department has expended in processing the 
request, as discussed in Sec. 411.375. HCFA reserves the right to keep 
any request for an advisory opinion and any accompanying documents and 
information, and to use them for any governmental purposes permitted by 
law.

[63 FR 1657, Jan. 9, 1998]

[[Page 287]]



Sec. 411.379  When HCFA accepts a request.

    (a) Upon receiving a request for an advisory opinion, HCFA promptly 
makes an initial determination of whether the request includes all of 
the information it will need to process the request.
    (b) Within 15 working days of receiving the request, HCFA--
    (1) Formally accepts the request for an advisory opinion;
    (2) Notifies the requestor about the additional information it 
needs, or
    (3) Declines to formally accept the request.
    (c) If the requestor provides the additional information HCFA has 
requested, or otherwise resubmits the request, HCFA processes the 
resubmission in accordance with paragraphs (a) and (b) of this section 
as if it were an initial request for an advisory opinion.
    (d) Upon accepting the request, HCFA notifies the requestor by 
regular U.S. mail of the date that HCFA formally accepted the request.
    (e) The 90-day period that HCFA has to issue an advisory opinion set 
forth in Sec. 411.380(c) does not begin until HCFA has formally accepted 
the request for an advisory opinion.

[63 FR 1657, Jan. 9, 1998]



Sec. 411.380  When HCFA issues a formal advisory opinion.

    (a) HCFA considers an advisory opinion to be issued once it has 
received payment and once the opinion has been dated, numbered, and 
signed by an authorized HCFA official.
    (b) An advisory opinion contains a description of the material facts 
known to HCFA that relate to the arrangement that is the subject of the 
advisory opinion, and states HCFA's opinion about the subject matter of 
the request based on those facts. If necessary, HCFA includes in the 
advisory opinion material facts that could be considered confidential 
information or trade secrets within the meaning of 18 U.S.C. 1095.
    (c)(1) HCFA issues an advisory opinion, in accordance with the 
provisions of this part, within 90 days after it has formally accepted 
the request for an advisory opinion, or, for requests that HCFA 
determines, in its discretion, involve complex legal issues or highly 
complicated fact patterns, within a reasonable time period.
    (2) If the 90th day falls on a Saturday, Sunday, or Federal holiday, 
the time period ends at the close of the first business day following 
the weekend or holiday;
    (3) The 90-day period is suspended from the time HCFA--
    (i) Notifies the requestor that the costs have reached or are likely 
to exceed the triggering amount as described in Sec. 411.375(c)(2) until 
HCFA receives written notice from the requestor to continue processing 
the request;
    (ii) Requests additional information from the requestor until HCFA 
receives the additional information;
    (iii) Notifies the requestor of the full amount due until HCFA 
receives payment of this amount; and
    (iv) Notifies the requestor of the need for expert advice until HCFA 
receives the expert advice.
    (d) After HCFA has notified the requestor of the full amount owed 
and has received full payment of that amount, HCFA issues the advisory 
opinion and promptly mails it to the requestor by regular first class 
U.S. mail.

[63 FR 1657, Jan. 9, 1998]



Sec. 411.382  HCFA's right to rescind advisory opinions.

    Any advice HCFA gives in an opinion does not prejudice its right to 
reconsider the questions involved in the opinion and, if it determines 
that it is in the public interest, to rescind or revoke the opinion. 
HCFA provides notice to the requestor of its decision to rescind or 
revoke the opinion so that the requestor and the parties involved in the 
requestor's arrangement may discontinue any course of action they have 
taken in accordance with the advisory opinion. HCFA does not proceed 
against the requestor with respect to any action the requestor and the 
involved parties have taken in good faith reliance upon HCFA's advice 
under this part, provided--
    (a) The requestor presented to HCFA a full, complete and accurate 
description of all the relevant facts; and
    (b) The parties promptly discontinue the action upon receiving 
notice that

[[Page 288]]

HCFA had rescinded or revoked its approval, or discontinue the action 
within a reasonable ``wind down'' period, as determined by HCFA.

[63 FR 1657, Jan. 9, 1998]



Sec. 411.384  Disclosing advisory opinions and supporting information.

    (a) Advisory opinions that HCFA issues and releases in accordance 
with the procedures set forth in this subpart are available to the 
public.
    (b) Promptly after HCFA issues an advisory opinion and releases it 
to the requestor, HCFA makes available a copy of the advisory opinion 
for public inspection during its normal hours of operation and on the 
DHHS/HCFA web site.
    (c) Any predecisional document, or part of such predecisional 
document, that is prepared by HCFA, the Department of Justice, or any 
other Department or agency of the United States in connection with an 
advisory opinion request under the procedures set forth in this part is 
exempt from disclosure under 5 U.S.C. 552, and will not be made publicly 
available.
    (d) Documents submitted by the requestor to HCFA in connection with 
a request for an advisory opinion are available to the public to the 
extent they are required to be made available by 5 U.S.C. 552, through 
procedures set forth in 45 CFR part 5.
    (e) Nothing in this section limits HCFA's obligation, under 
applicable laws, to publicly disclose the identity of the requesting 
party or parties, and the nature of the action HCFA has taken in 
response to the request.

[63 FR 1657, Jan. 9, 1998]



Sec. 411.386  HCFA's advisory opinions as exclusive.

    The procedures described in this subpart constitute the only method 
by which any individuals or entities can obtain a binding advisory 
opinion on the subject of a physician's referrals, as described in 
Sec. 411.370. HCFA has not and does not issue a binding advisory opinion 
on the subject matter in Sec. 411.370, in either oral or written form, 
except through written opinions it issues in accordance with this 
subpart.

[63 FR 1658, Jan. 9, 1998]



Sec. 411.387  Parties affected by advisory opinions.

    An advisory opinion issued by HCFA does not apply in any way to any 
individual or entity that does not join in the request for the opinion. 
Individuals or entities other than the requestor(s) may not rely on an 
advisory opinion.

[63 FR 1658, Jan. 9, 1998]



Sec. 411.388  When advisory opinions are not admissible evidence.

    The failure of a party to seek or to receive an advisory opinion may 
not be introduced into evidence to prove that the party either intended 
or did not intend to violate the provisions of sections 1128, 1128A or 
1128B of the Act.

[63 FR 1658, Jan. 9, 1998]



Sec. 411.389  Range of the advisory opinion.

    (a) An advisory opinion states only HCFA's opinion regarding the 
subject matter of the request. If the subject of an advisory opinion is 
an arrangement that must be approved by or is regulated by any other 
agency, HCFA's advisory opinion cannot be read to indicate HCFA's views 
on the legal or factual issues that may be raised before that agency.
    (b) An advisory opinion that HCFA issues under this part does not 
bind or obligate any agency other than the Department. It does not 
affect the requestor's, or anyone else's, obligations to any other 
agency, or under any statutory or regulatory provision other than that 
which is the specific subject matter of the advisory opinion.

[63 FR 1658, Jan. 9, 1998]



            Subpart K--Payment for Certain Excluded Services



Sec. 411.400  Payment for custodial care and services not reasonable and necessary.

    (a) Conditions for payment. Notwithstanding the exclusions set forth 
in Sec. 411.15 (g) and (k). Medicare pays for ``custodial care'' and 
``services not reasonable and necessary'' if the following conditions 
are met:

[[Page 289]]

    (1) The services were funished by a provider or by a practitioner or 
supplier that had accepted assignment of benefits for those services.
    (2) Neither the beneficiary nor the provider, practitioner, or 
supplier knew, or could reasonably have been expected to know, that the 
services were excluded from coverage under Sec. 411.15 (g) or (k).
    (b) Time limits on payment. (1) Basic rule. Except as provided in 
paragraph (b)(2) of this section, payment may not be made for inpatient 
hospital care, posthospital SNF care, or home health services furnished 
after the earlier of the following:
    (i) The day on which the beneficiary has been determined, under 
Sec. 411.404, to have knowledge, actual or imputed, that the services 
were excluded from coverage by reason of Sec. 411.15(g) or 
Sec. 411.15(k).
    (ii) The day on which the provider has been determined, under 
Sec. 411.406 to have knowledge, actual or imputed, that the services are 
excluded from coverage by reason of Sec. 411.15(g) or Sec. 411.15(k).
    (2) Exception. Payment may be made for services furnished during the 
first day after the limit established in paragraph (b)(1) of this 
section, if the PRO or the intermediary determines that the additional 
period of one day is necessary for planning post-discharge care. It the 
PRO or the intermediary determines that yet another day is necessary for 
planning post-discharge care, payment may be made for services furnished 
during the second day after the limit established in paragraph (b)(1) of 
this section.



Sec. 411.402  Indemnification of beneficiary.

    (a) Conditions for indemnification. If Medicare payment is precluded 
because the conditions of Sec. 411.400(a)(2) are not met. Medicare 
indemnifies the beneficiary (and recovers from the provider, 
practitioner, or supplier), if the following conditions are met:
    (1) The beneficiary paid the provider, practitioner, or supplier 
some or all of the charges for the excluded services.
    (2) The beneficiary did not know and could not reasonably have been 
expected to know that the services were not covered.
    (3) The provider, practitioner, or supplier knew, or could 
reasonably have been expected to know that the services were not 
covered.
    (4) The beneficiary files a proper request for indemnification 
before the end of the sixth month after whichever of the following is 
later:
    (i) The month is which the beneficiary paid the provider, 
practitioner, or supplier.
    (ii) The month in which the intermediary or carrier notified the 
beneficiary (or someone on his or her behalf) that the beneficiary would 
not be liable for the services.

For good cause shown by the beneficiary, the 6-month period may be 
extended.
    (b) Amount of indemnification.1 The amount of 
indemnification is the total that the beneficiary paid the provider, 
practitioner, or supplier.
---------------------------------------------------------------------------

    \1\ For services furnished before 1988, the indemnification amount 
was reduced by any deductible or coinsurance amounts that would have 
been applied if the services had been covered.
---------------------------------------------------------------------------

    (c) Effect of indemnification. The amount of indemnification is 
considered an overpayment to the provider, practitioner, or supplier, 
and as such is recoverable under this part or in accordance with other 
applicable provisions of law.



Sec. 411.404  Criteria for determining that a beneficiary knew that services were excluded from coverage as custodial care or as not reasonable and necessary.

    (a) Basic rule. A beneficiary who receives services that constitute 
custodial care under Sec. 411.15(g) or that are not reasonable and 
necessary under Sec. 411.15(k), is considered to have known that the 
services were not covered if the criteria of paragraphs (b) and (c) of 
this section are met.
    (b) Written notice. Written notice has been given to the 
beneficiary, or to someone acting on his or her behalf, that the 
services were not covered because they did not meet Medicare coverage 
guidelines. A notice concerning similar or reasonably comparable 
services furnished on a previous occasion

[[Page 290]]

also meets this criterion. For example, program payment may not be made 
for the treatment of obesity, no matter what form the treatment may 
take. After the beneficiary who is treated for obesity with dietary 
control is informed in writing that Medicare will not pay for treatment 
of obesity, he or she will be presumed to know that there will be no 
Medicare payment for any form of subsequent treatment of this condition, 
including use of a combination of exercise, machine treatment, diet, and 
medication.
    (c) Source of notice. The notice was given by one of the following:
    (1) The PRO, intermediary, or carrier.
    (2) The group or committee responsible for utilization review for 
the provider that furnished the services.
    (3) The provider, practitioner, or supplier that furnished the 
service.



Sec. 411.406  Criteria for determining that a provider, practitioner, or supplier knew that services were excluded from coverage as custodial care or as not 
          reasonable and necessary.

    (a) Basic rule. A provider, practitioner, or supplier that furnished 
services which constitute custodial care under Sec. 411.15(g) or that 
are not reasonable and necessary under Sec. 411.15(k) is considered to 
have known that the services were not covered if any one of the 
conditions specified in paragraphs (b) through (e) of this section is 
met.
    (b) Notice from the PRO, intermediary or carrier. The PRO, 
intermediary, or carrier had informed the provider, practitioner, or 
supplier that the services furnished were not covered, or that similar 
or reasonably comparable services were not covered.
    (c) Notice from the utilization review committee or the 
beneficiary's attending phyician. The utilization review group or 
committee for the provider or the beneficiary's attending physician had 
informed the provider that these services were not covered.
    (d) Notice from the provider, practitioner, or supplier to the 
beneficiary. Before the services were furnished, the provider, 
practitioner or supplier informed the beneficiary that--
    (1) The services were not covered; or
    (2) The beneficiary no longer needed covered services.
    (e) Knowledge based on experience, actual notice, or constructive 
notice. It is clear that the provider, practitioner, or supplier could 
have been expected to have known that the services were excluded from 
coverage on the basis of the following:
    (1) Its receipt of HCFA notices, including manual issuances, 
bulletins, or other written guides or directives from intermediaries, 
carriers, or PROs, including notification of PRO screening criteria 
specific to the condition of the beneficiary for whom the furnished 
services are at issue and of medical procedures subject to preadmission 
review by a PRO.
    (2) Federal Register publications containing notice of national 
coverage decisions or of other specifications regarding noncoverage of 
an item or service.
    (3) Its knowledge of what are considered acceptable standards of 
practice by the local medical community.

[54 FR 41734, Oct. 11, 1989, as amended at 60 FR 48425, Sept. 19, 1995]



Sec. 411.408  Refunds of amounts collected for physician services not reasonable and necessary, payment not accepted on an assignment-related basis.

    (a) Basic rule. Except as provided in paragraph (d) of this section, 
a physician who furnishes a beneficiary services for which the physician 
does not undertake to claim payment on an assignment-related basis must 
refund any amounts collected from the beneficiary for services otherwise 
covered if Medicare payment is denied because the services are found to 
be not reasonable and necessary under Sec. 411.15(k).
    (b) Time limits for making refunds. A timely refund of any 
incorrectly collected amounts of money must be made to the beneficiary 
to whom the services were furnished. A refund is timely if--
    (1) A physician who does not request a review within 30 days after 
receipt of the denial notice makes the refund within that time period; 
or
    (2) A physician who files a request for review within 30 days after 
receipt of the denial notice makes the refund within 15 days after 
receiving notice of

[[Page 291]]

an initial adverse review determination, whether or not the physician 
further appeals the initial adverse review determination.
    (c) Notices and appeals. If payment is denied for nonassignment-
related claims because the services are found to be not reasonable and 
necessary, a notice of denial will be sent to both the physician and the 
beneficiary. The physician who does not accept assignment will have the 
same rights as a physician who submits claims on an assignment-related 
basis, as detailed in subpart H of part 405 and subpart B of part 473, 
to appeal the determination, and will be subject to the same time 
limitations.
    (d) When a refund is not required. A refund of any amounts collected 
for services not reasonable and necessary is not required if--
    (1) The physician did not know, and could not reasonably have been 
expected to know, that Medicare would not pay for the service; or
    (2) Before the service was provided--
    (i) The physician informed the beneficiary, or someone acting on the 
beneficiary's behalf, in writing that the physician believed Medicare 
was likely to deny payment for the specific service; and
    (ii) The beneficiary (or someone eligible to sign for the 
beneficiary under Sec. 424.36(b) of this chapter) signed a statement 
agreeing to pay for that service.
    (e) Criteria for determining that a physician knew that services 
were excluded as not reasonable and necessary. A physician will be 
determined to have known that furnished services were excluded from 
coverage as not reasonable and necessary if one or more of the 
conditions in Sec. 411.406 of this subpart are met.
    (f) Acceptable evidence of prior notice to a beneficiary that 
Medicare was likely to deny payment for a particular service. To qualify 
for waiver of the refund requirement under paragraph (d)(2) of this 
section, the physician must inform the beneficiary (or person acting on 
his or her behalf) that the physician believes Medicare is likely to 
deny payment.
    (1) The notice must--
    (i) Be in writing, using approved notice language;
    (ii) Cite the particular service or services for which payment is 
likely to be denied; and
    (iii) Cite the physician's reasons for believing Medicare payment 
will be denied.
    (2) The notice is not acceptable evidence if--
    (i) The physician routinely gives this notice to all beneficiaries 
for whom he or she furnishes services; or
    (ii) The notice is no more than a statement to the effect that there 
is a possibility that Medicare may not pay for the service.
    (g) Applicability of sanctions to physicians who fail to make 
refunds under this section. A physician who knowingly and willfully 
fails to make refunds as required by this section may be subject to 
sanctions as provided for in chapter V, parts 1001, 1002, and 1003 of 
this title.

[55 FR 24568, June 18, 1990; 55 FR 35142, 35143, Aug. 28, 1990]



PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL SERVICES--Table of Contents




                      Subpart A--General Provisions

Sec.
412.1  Scope of part.
412.2  Basis of payment.
412.4  Discharges and transfers.
412.6  Cost reporting periods subject to the prospective payment 
          systems.
412.8  Publication of schedules for determining prospective payment 
          rates.
412.10  Changes in the DRG classification system.

     Subpart B--Hospital Services Subject to and Excluded From the 
Prospective Payment Systems for Inpatient Operating Costs and Inpatient 
                          Capital-Related Costs

412.20  Hospital services subject to the prospective payment systems.
412.22  Excluded hospitals and hospital units: General rules.
412.23  Excluded hospitals: Classifications.
412.25  Excluded hospital units: Common requirements.
412.27  Excluded psychiatric units: Additional requirements.
412.29  Excluded rehabilitation units: Additional requirements.

[[Page 292]]

412.30  Exclusion of new rehabilitation units and expansion of units 
          already excluded.

Subpart C--Conditions for Payment Under the Prospective Payment Systems 
    for Inpatient Operating Costs and Inpatient Capital-Related Costs

412.40  General requirements.
412.42  Limitations on charges to beneficiaries.
412.44  Medical review requirements: Admissions and quality review.
412.46  Medical review requirements: Physician acknowledgement.
412.48  Denial of payment as a result of admissions and quality review.
412.50  Furnishing of inpatient hospital services directly or under 
          arrangements.
412.52  Reporting and recordkeeping requirements.

Subpart D--Basic Methodology for Determining Prospective Payment Federal 
                   Rates for Inpatient Operating Costs

412.60  DRG classification and weighting factors.
412.62  Federal rates for inpatient operating costs for fiscal year 
          1984.
412.63  Federal rates for inpatient operating costs for fiscal years 
          after Federal fiscal year 1984.

  Subpart E--Determination of Transition Period Payment Rates for the 
        Prospective Payment System for Inpatient Operating Costs

412.70  General description.
412.71  Determination of base-year inpatient operating costs.
412.72  Modification of base-year costs.
412.73  Determination of the hospital-specific rate based on a Federal 
          fiscal year 1982 base period.
412.75  Determination of the hospital-specific rate for inpatient 
          operating costs based on a Federal fiscal year 1987 base 
          period.
412.76  Recovery of excess transition period payment amounts resulting 
          from unlawful claims.

                  Subpart F--Payment for Outlier Cases

412.80  General provisions.
412.82  Payment for extended length-of-stay cases (day outliers).
412.84  Payment for extraordinarily high-cost cases (cost outliers).
412.86  Payment for extraordinarily high-cost day outliers.

Subpart G--Special Treatment of Certain Facilities Under the Prospective 
              Payment System for Inpatient Operating Costs

412.90  General rules.
412.92  Special treatment: Sole community hospitals.
412.96  Special treatment: Referral centers.
412.98  Special treatment: Christian Science Sanatoria.
412.100  Special treatment: Renal transplantation centers.
412.102  Special treatment: Hospitals reclassified as rural.
412.104  Special treatment: Hospitals with high percentage of ESRD 
          discharges.
412.105  Special treatment: Hospitals that incur indirect costs for 
          graduate medical education programs.
412.106  Special treatment: Hospitals that serve a disproportionate 
          share of low-income patients.
412.107  Special treatment: Hospitals that receive an additional update 
          for FYs 1998 and 1999.
412.108  Special treatment: Medicare-dependent, small rural hospitals.
412.109  Special treatment: Essential access community hospitals 
          (EACHs).

 Subpart H--Payments to Hospitals Under the Prospective Payment Systems

412.110  Total Medicare payment.
412.112  Payments determined on a per case basis.
412.113  Other payments.
412.115  Additional payments.
412.116  Method of payment.
412.120  Reductions to total payments.
412.125  Effect of change of ownership on payments under the prospective 
          payment systems.
412.130  Retroactive adjustments for incorrectly excluded hospitals and 
          units.

                        Subparts I-J--[Reserved]

Subpart K--Prospective Payment System for Inpatient Operating Costs for 
                    Hospitals Located in Puerto Rico

412.200  General provisions.
412.204  Payments to hospitals located in Puerto Rico.
412.208  Puerto Rico rates for Federal fiscal year 1988.
412.210  Puerto Rico rates for fiscal years after Federal fiscal year 
          1988.
412.212  National rate.
412.220  Special treatment of certain hospitals located in Puerto Rico.

[[Page 293]]

     Subpart L--The Medicare Geographic Classification Review Board

                Criteria and Conditions for Redesignation

412.230  Criteria for an individual hospital seeking redesignation to 
          another rural area or an urban area.
412.232  Criteria for all hospitals in a rural county seeking urban 
          redesignation.
412.234  Criteria for all hospitals in an urban county seeking 
          redesignation to another urban area.
412.236  Alternative Criteria for hospitals located in an NECMA.

                       Composition and Procedures

412.246  MGCRB members.
412.248  Number of members needed for a decision or a hearing.
412.250  Sources of MGCRB's authority.
412.252  Applications.
412.254  Proceedings before MGCRB.
412.256  Application requirements.
412.258  Parties to MGCRB proceeding.
412.260  Time and place of the oral hearing.
412.262  Disqualification of an MGCRB member.
412.264  Evidence and comments in MGCRB proceeding.
412.266  Availability of wage data.
412.268  Subpoenas.
412.270  Witnesses.
412.272  Record of proceedings before the MGCRB.
412.273  Withdrawing an application.
412.274  Scope and effect of an MGCRB decision.
412.276  Timing of MGCRB decision and its appeal.
412.278  Administrator's review.
412.280  Representation.

  Subpart M--Prospective Payment System for Inpatient Hospital Capital 
                                  Costs

                           General Provisions

412.300  Scope of subpart and definition.
412.302  Introduction to capital costs.
412.304  Implementation of the capital prospective payment system.

 Basic Methodology for Determining the Federal Rate for Capital-Related 
                                  Costs

412.308  Determining and updating the Federal rate.
412.312  Payment based on the Federal rate.
412.316  Geographic adjustment factors.
412.320  Disproportionate share adjustment factor.
412.322  Indirect medical education adjustment factor.

  Determination of Transition Period Payment Rates for Capital-Related 
                                  Costs

412.324  General description.
412.328  Determining and updating the hospital-specific rate.
412.331  Determining hospital-specific rates in cases of hospital 
          merger, consolidation, or dissolution.
412.332  Payment based on the hospital-specific rate.
412.336  Transition period payment methodologies.
412.340  Fully prospective payment methodology.
412.344  Hold-harmless payment methodology.
412.348  Exception payments.
412.352  Budget neutrality adjustment.

                 Special Rules for Puerto Rico Hospitals

412.370  General provisions for hospitals located in Puerto Rico.
412.374  Payments to hospitals located in Puerto Rico.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 50 FR 12741, Mar. 29, 1985, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 412.1  Scope of part.

    (a) Purpose. This part implements sections 1886(d) and (g) of the 
Act by establishing a prospective payment system for the operating costs 
of inpatient hospital services furnished to Medicare beneficiaries in 
cost reporting periods beginning on or after October 1, 1983 and a 
prospective payment system for the capital-related costs of inpatient 
hospital services furnished to Medicare beneficiaries in cost reporting 
periods beginning on or after October 1, 1991. Under these prospective 
payment systems, payment for the operating and capital-related costs of 
inpatient hospital services furnished by hospitals subject to the 
systems (generally, short-term, acute-care hospitals) is made on the 
basis of prospectively determined rates and applied on a per discharge 
basis. Payment for other costs related to inpatient hospital services 
(organ acquisition costs incurred by hospitals with approved organ 
transplantation centers, the costs of qualified nonphysician 
anesthetist's services, as described in Sec. 412.113(c), and direct 
costs of approved nursing and allied health educational programs) is 
made on a reasonable cost basis. Payment for the direct costs of 
graduate medical education is made on

[[Page 294]]

a per resident amount basis in accordance with Sec. 413.86 of this 
chapter. Additional payments are made for outlier cases, bad debts, 
indirect medical education costs, and for serving a disproportionate 
share of low-income patients. Under either prospective payment system, a 
hospital may keep the difference between its prospective payment rate 
and its operating or capital-related costs incurred in furnishing 
inpatient services, and the hospital is at risk for inpatient operating 
or inpatient capital-related costs that exceed its payment rate.
    (b) Summary of content. This subpart describes the basis of payment 
for inpatient hospital services under the prospective payment systems, 
and sets forth the general basis of these systems. Subpart B of this 
part sets forth the classifications of hospitals that are included in 
and excluded from the prospective payment systems, and sets forth 
requirements governing the inclusion or exclusion of hospitals in the 
systems as a result of changes in their classification. Subpart C sets 
forth certain conditions that must be met for a hospital to receive 
payment under the prospective payment systems. Subpart D sets forth the 
basic methodology by which prospective payment rates for inpatient 
operating costs are determined. Subpart E describes the transition rate-
setting methods that are used to determine transition payment rates for 
inpatient operating costs during the first four years of the prospective 
payment system. Subpart F sets forth the methodology for determining 
additional payments for outlier cases. Subpart G sets forth rules for 
special treatment of certain facilities under the prospective payment 
system for inpatient operating costs. Subpart H describes the types, 
amounts, and methods of payment to hospitals under the prospective 
payment system for inpatient operating costs. Subpart K describes how 
the prospective payment system for inpatient operating costs is 
implemented for hospitals located in Puerto Rico. Subpart L sets forth 
the procedures and criteria concerning applications from hospitals to 
the Medicare Geographic Classification Review Board for geographic 
redesignation. Subpart M describes how the prospective payment system 
for inpatient capital-related costs is implemented effective with cost 
reporting periods beginning on or after October 1, 1991.

[57 FR 39818, Sept. 1, 1992, as amended at 58 FR 46337, Sept. 1, 1993]



Sec. 412.2  Basis of payment.

    (a) Payment on a per discharge basis. Under both the inpatient 
operating and inpatient capital-related prospective payment systems, 
hospitals are paid a predetermined amount per discharge for inpatient 
hospital services furnished to Medicare beneficiaries. The prospective 
payment rate for each discharge (as defined in Sec. 412.4) is determined 
according to the methodology described in subpart D, E, or G of this 
part, as appropriate, for operating costs, and according to the 
methodology described in subpart M of this part for capital-related 
costs. An additional payment is made for both inpatient operating and 
inpatient capital-related costs, in accordance with subpart F of this 
part, for cases that have an atypically long length of stay or are 
extraordinarily costly to treat.
    (b) Payment in full. (1) The prospective payment amount paid for 
inpatient hospital services is the total Medicare payment for the 
inpatient operating costs (as described in paragraph (c) of this 
section) and the inpatient capital-related costs (as described in 
paragraph (d) of this section) incurred in furnishing services covered 
by the Medicare program.
    (2) The full prospective payment amount, as determined under subpart 
D, E, or G and under subpart M of this part, is made for each stay 
during which there is at least one Medicare payable day of care. Payable 
days of care, for purposes of this paragraph include the following:
    (i) Limitation of liability days payable under the payment 
procedures for custodial care and services that are not reasonable and 
necessary as specified in Sec. 411.400 of this chapter.
    (ii) Guarantee of payment days, as authorized under Sec. 409.68 of 
this chapter, for inpatient hospital services furnished to an individual 
whom the hospital has reason to believe is entitled to Medicare benefits 
at the time of admission.

[[Page 295]]

    (c) Inpatient operating costs. The prospective payment system 
provides a payment amount for inpatient operating costs, including--
    (1) Operating costs for routine services (as described in 
Sec. 413.53(b) of this chapter), such as the costs of room, board, and 
routine nursing services;
    (2) Operating costs for ancillary services, such as radiology and 
laboratory services furnished to hospital inpatients;
    (3) Special care unit operating costs (intensive care type unit 
services, as described in Sec. 413.53(b) of this chapter);
    (4) Malpractice insurance costs related to services furnished to 
inpatients; and
    (5) Preadmission services otherwise payable under Medicare Part B 
furnished to a beneficiary during the 3 calendar days immediately 
preceding the date of the beneficiary's admission to the hospital that 
meet the following conditions:
    (i) The services are furnished by the hospital or by an entity 
wholly owned or operated by the hospital. An entity is wholly owned by 
the hospital if the hospital is the sole owner of the entity. An entity 
is wholly operated by a hospital if the hospital has exclusive 
responsibility for conducting and overseeing the entity's routine 
operations, regardless of whether the hospital also has policymaking 
authority over the entity.
    (ii) For services furnished after January 1, 1991, the services are 
diagnostic (including clinical diagnostic laboratory tests).
    (iii) For services furnished on or after October 1, 1991, the 
services are furnished in connection with the principal diagnosis that 
requires the beneficiary to be admitted as an inpatient and are not the 
following:
    (A) Ambulance services.
    (B) Maintenance renal dialysis.
    (d) Inpatient capital-related costs. For cost reporting periods 
beginning on or after October 1, 1991, the capital prospective payment 
system provides a payment amount for inpatient hospital capital-related 
costs as described in part 413, subpart G of this chapter.
    (e) Excluded costs. The following inpatient hospital costs are 
excluded from the prospective payment amounts and are paid for on a 
reasonable cost basis:
    (1) Capital-related costs for cost reporting periods beginning 
before October 1, 1991, and an allowance for return on equity, as 
described in Secs. 413.130 and 413.157, respectively, of this chapter.
    (2) Direct medical education costs for approved nursing and allied 
health education programs as described in Sec. 413.85 of this chapter.
    (3) Costs for direct medical and surgical services of physicians in 
teaching hospitals exercising the election in Sec. 405.521 of this 
chapter.
    (4) Heart, kidney, liver, and lung acquisition costs incurred by 
approved transplantation centers.
    (5) The costs of qualified nonphysician anesthetists' services, as 
described in Sec. 412.113(c).
    (f) Additional payments to hospitals. In addition to payments based 
on the prospective payment rates for inpatient operating costs and 
inpatient capital-related costs, hospitals receive payments for the 
following:
    (1) Outlier cases, as described in subpart F of this part.
    (2) The indirect costs of graduate medical education, as specified 
in subparts F and G of this part and in Sec. 412.105 for inpatient 
operating costs and in Sec. 412.322 for inpatient capital-related costs.
    (3) Costs excluded from the prospective payment rates under 
paragraph (e) of this section, as provided in Sec. 412.115.
    (4) Bad debts of Medicare beneficiaries, as provided in 
Sec. 412.115(a).
    (5) ESRD beneficiary discharges if such discharges are ten percent 
or more of the hospital's total Medicare discharges, as provided in 
Sec. 412.104.
    (6) Serving a disproportionate share of low-income patients, as 
provided in Sec. 412.106 for inpatient operating costs and Sec. 412.320 
for inpatient capital-related costs.
    (7) The direct graduate medical education costs for approved 
residency programs in medicine, osteopathy, dentistry, and podiatry as 
described in Sec. 413.86 of this chapter.
    (8) For discharges on or after June 19, 1990, and before October 1, 
1994, and for discharges on or after October 1, 1997, a payment amount 
per unit for blood

[[Page 296]]

clotting factor provided to Medicare inpatients who have hemophilia.

[50 FR 12741, Mar. 29, 1985, as amended at 51 FR 34793, Sept. 30, 1986; 
52 FR 33057, Sept. 1, 1987; 53 FR 38526, Sept. 30, 1988; 55 FR 15173, 
Apr. 20, 1990; 55 FR 36068, Sept. 4, 1990; 57 FR 33897, July 31, 1992; 
57 FR 39819, Sept. 1, 1992; 57 FR 46510, Oct. 9, 1992; 58 FR 46337, 
Sept. 1, 1993; 59 FR 1658, Jan. 12, 1994; 59 FR 45396, Sept. 1, 1994; 62 
FR 46025, Aug. 29, 1997; 63 FR 6868, Feb. 11, 1998]



Sec. 412.4  Discharges and transfers.

    (a) Discharges. Subject to the provisions of paragraphs (b) and (c) 
of this section, a hospital inpatient is considered discharged from a 
hospital paid under the prospective payment system when--
    (1) The patient is formally released from the hospital; or
    (2) The patient dies in the hospital.
    (b) Transfer--Basic rule. A discharge of a hospital inpatient is 
considered to be a transfer for purposes of payment under this part if 
the discharge is made under any of the following circumstances:
    (1) From a hospital to the care of another hospital that is--
    (i) Paid under the prospective payment system; or
    (ii) Excluded from being paid under the prospective payment system 
because of participation in an approved Statewide cost control program 
as described in subpart C of part 403 of this chapter.
    (2) From one inpatient area or unit of a hospital to another 
inpatient area or unit of the hospital that is paid under the 
prospective payment system.
    (c) Transfers--Special 10 DRG rule. For discharges occurring on or 
after October 1, 1998, a discharge of a hospital inpatient is considered 
to be a transfer for purposes of this part when the patient's discharge 
is assigned, as described in Sec. 412.60(c), to one of the qualifying 
diagnosis-related groups (DRGs) listed in paragraph (d) of this section 
and the discharge is made under any of the following circumstances--
    (1) To a hospital or distinct part hospital unit excluded from the 
prospective payment system under subpart B of this part.
    (2) To a skilled nursing facility.
    (3) To home under a written plan of care for the provision of home 
health services from a home health agency and those services begin 
within 3 days after the date of discharge.
    (d) Qualifying DRGs. The qualifying DRGs for purposes of paragraph 
(c) of this section are DRGs 14, 113, 209, 210, 211, 236, 263, 264, 429, 
and 483.
    (e) Payment for discharges. The hospital discharging an inpatient 
(under paragraph (a) of this section) is paid in full, in accordance 
with Sec. 412.2(b).
    (f) Payment for transfers. (1) General rule. Except as provided in 
paragraph (f)(2) or (f)(3) of this section, a hospital that transfers an 
inpatient under the circumstances described in paragraph (b) or (c) of 
this section, is paid a graduated per diem rate for each day of the 
patient's stay in that hospital, not to exceed the amount that would 
have been paid under subparts D and M of this part if the patient had 
been discharged to another setting. The per diem rate is determined by 
dividing the appropriate prospective payment rate (as determined under 
subparts D and M of this part) by the geometric mean length of stay for 
the specific DRG to which the case is assigned. Payment is graduated by 
paying twice the per diem amount for the first day of the stay, and the 
per diem amount for each subsequent day, up to the full DRG payment.
    (2) Special rule for DRGs 209, 210, and 211. A hospital that 
transfers an inpatient under the circumstances described in paragraph 
(c) of this section and the transfer is assigned to DRGs 209, 210 or 211 
is paid as follows:
    (i) 50 percent of the appropriate prospective payment rate (as 
determined under subparts D and M of this part) for the first day of the 
stay; and
    (ii) 50 percent of the amount calculated under paragraph (f)(1) of 
this section for each day of the stay, up to the full DRG payment.
    (3) Transfer assigned to DRG 385. If a transfer is classified into 
DRG 385 (Neonates, died or transferred) the transferring hospital is 
paid in accordance with Sec. 412.2(e).
    (4) Outliers. Effective with discharges occurring on or after 
October 1, 1984, a transferring hospital may qualify for

[[Page 297]]

an additional payment for extraordinarily high-cost cases that meet the 
criteria for cost outliers as described in subpart F of this part.

[63 FR 41003, July 31, 1998]



Sec. 412.6  Cost reporting periods subject to the prospective payment systems.

    (a) Initial cost reporting period for each prospective payment 
system. (1) Each subject hospital is paid under the prospective payment 
system for operating costs for inpatient hospital services effective 
with the hospital's first cost reporting period beginning on or after 
October 1, 1983 and for inpatient capital-related costs effective with 
the hospital's first cost reporting period beginning on or after October 
1, 1991.
    (2) The hospital is paid the applicable prospective payment rate for 
inpatient operating costs and capital-related costs for each discharge 
occurring on or after the first day of its first cost reporting period 
subject to the applicable prospective payment system.
    (3) If a discharged beneficiary was admitted to the hospital before 
the first day of the hospital's first cost reporting period subject to 
the prospective payment system for inpatient operating costs, the 
reasonable costs of services furnished before that day are paid under 
the cost reimbursement provisions of part 413 of this chapter. For such 
discharges, the amount otherwise payable under the applicable 
prospective payment rate is reduced by the amount paid on a reasonable 
cost basis for inpatient hospital services furnished to that beneficiary 
during the hospital stay. If the amount paid under reasonable cost 
exceeds the inpatient operating prospective payment amount, the 
reduction is limited to the inpatient operating prospective payment 
amount.
    (b) Changes in cost reporting periods. HCFA recognizes a change in a 
hospital's cost reporting period made after November 30, 1982 only if 
the change has been requested in writing by the hospital and approved by 
the intermediary in accordance with Sec. 413.24(f)(3) of this chapter.

[57 FR 39819, Sept. 1, 1992]



Sec. 412.8  Publication of schedules for determining prospective payment rates.

    (a) Initial prospective payment rates--(1) For inpatient operating 
costs. Initial prospective payment rates for inpatient operating costs 
(for the period October 1, 1983 through September 30, 1984) were 
determined in accordance with documents published in the Federal 
Register on September 1, 1983 (48 FR 39838), and January 3, 1984 (49 FR 
324).
    (2) For inpatient capital-related costs. Initial prospective payment 
rates for inpatient capital-related costs (for the period October 1, 
1991 through September 30, 1992) were determined in accordance with the 
final rule published in the Federal Register on August 30, 1991 (56 FR 
43196).
    (b) Annual publication of schedule for determining prospective 
payment rates. (1) HCFA proposes changes in the methods, amounts, and 
factors used to determine inpatient prospective payment rates in a 
Federal Register document published for public comment not later than 
the April 1 before the beginning of the Federal fiscal year in which the 
proposed changes would apply.
    (2) HCFA publishes a Federal Register document setting forth final 
methods, amounts, and factors for determining inpatient prospective 
payment rates not later than the August 1 before the Federal fiscal year 
in which the rates would apply.

[57 FR 39820, Sept. 1, 1992, as amended at 62 FR 46025, Aug. 29, 1997]



Sec. 412.10  Changes in the DRG classification system.

    (a) General rule. HCFA issues changes in the DRG classification 
system in a Federal Register notice at least annually. Except as 
specified in paragraphs (c) and (d) of this section, the DRG changes are 
effective prospectively with discharges occurring on or after the same 
date the payment rates are effective.
    (b) Basis for changes in the DRG classification system. All changes 
in the DRG classification system are made using the principles 
established for the DRG system. This means that cases are classified so 
each DRG is--
    (1) Clinically coherent; and

[[Page 298]]

    (2) Embraces an acceptable range of resource consumption.
    (c) Interim coverage changes--(1) Criteria. HCFA makes interim 
changes to the DRG classification system during the Federal fiscal year 
to incorporate items and services newly covered under Medicare.
    (2) Implementation and effective date. HCFA issues interim coverage 
changes through its administrative issuance system and makes the change 
effective as soon as is administratively feasible.
    (3) Publication for comment. HCFA publishes any change made under 
paragraph (c)(1) of this section in the next annual notice of changes to 
the DRG classification system published in accordance with paragraph (a) 
of this section.
    (d) Interim changes to correct omissions and inequities--(1) 
Criteria. HCFA makes interim changes to the DRG classification system to 
correct a serious omission or inequity in the system only if failure to 
make the changes would have--
    (i) A potentially substantial adverse impact on the health and 
safety of beneficiaries; or
    (ii) A significant and unwarranted fiscal impact on hospitals or the 
Medicare program.
    (2) Publication and effective date. HCFA publishes these changes in 
the Federal Register in a final notice with comment period with a 
prospective effective date. The change is also published for public 
information in the next annual notice of changes to the DRG 
classification system published in accordance with paragraph (a) of this 
section.
    (e) Review by ProPAC. Changes published annually in accordance with 
paragraph (a) of this section are subject to review and comment by 
ProPAC upon publication. Interim changes to the DRG classification 
system that are made in accordance with paragraphs (c) and (d) of this 
section are subject to review by ProPAC before implementation.

[50 FR 35688, Sept. 3, 1985, as amended at 51 FR 31496, Sept. 3, 1986; 
57 FR 39820, Sept. 1, 1992]



     Subpart B--Hospital Services Subject to and Excluded From the 
Prospective Payment Systems for Inpatient Operating Costs and Inpatient 
                          Capital-Related Costs



Sec. 412.20  Hospital services subject to the prospective payment systems.

    (a) Except for services described in paragraph (b) of this section, 
all covered inpatient hospital services furnished to beneficiaries 
during subject cost reporting periods are paid for under the prospective 
payment systems.
    (b) Inpatient hospital services will not be paid for under the 
prospective payment systems under any of the following circumstances:
    (1) The services are furnished by a hospital (or hospital unit) 
explicitly excluded from the prospective payment systems under 
Secs. 412.23, 412.25, 412.27, and 412.29.
    (2) The services are emergency services furnished by a 
nonparticipating hospital in accordance with Sec. 424.103 of this 
chapter.
    (3) The services are paid for by an HMO or competitive medical plan 
(CMP) that elects not to have HCFA make payments directly to a hospital 
for inpatient hospital services furnished to the HMO's or CMP's Medicare 
enrollees, as provided in Sec. 417.240(d) and Sec. 417.586 of this 
chapter.

[50 FR 12741, Mar. 29, 1985, as amended at 53 FR 6648, Mar. 2, 1988; 57 
FR 39820, Sept. 1, 1992; 59 FR 45400, Sept. 1, 1994]



Sec. 412.22  Excluded hospitals and hospital units: General rules.

    (a) Criteria. Subject to the criteria set forth in paragraph (e) of 
this section, a hospital is excluded from the prospective payment 
systems if it meets the criteria for one or more of the excluded 
classifications described in Sec. 412.23.
    (b) Cost reimbursement. Except for those hospitals specified in 
paragraph (c) of this section, all excluded hospitals (and excluded 
hospital units, as described in Secs. 412.23 through 412.29) are 
reimbursed under the cost reimbursement rules set forth in part 413 of 
this chapter, and are subject to the ceiling

[[Page 299]]

on the rate of hospital cost increases described in Sec. 413.40 of this 
chapter.
    (c) Special payment provisions. The following classifications of 
hospitals are paid under special provisions and therefore are not 
generally subject to the cost reimbursement or prospective payment rules 
of this chapter.
    (1) Veterans Administration hospitals.
    (2) Hospitals reimbursed under State cost control systems approved 
under part 403 of this chapter.
    (3) Hospitals reimbursed in accordance with demonstration projects 
authorized under section 402(a) of Public Law 90-248 (42 U.S.C. 1395b-1) 
or section 222(a) of Public Law 92-603 (42 U.S.C. 1395b-1 (note)).
    (4) Nonparticipating hospitals furnishing emergency services to 
Medicare beneficiaries.
    (d) Changes in hospitals' status. For purposes of exclusion from the 
prospective payment systems under this subpart, the status of each 
currently participating hospital (excluded or not excluded) is 
determined at the beginning of each cost reporting period and is 
effective for the entire cost reporting period. Any changes in the 
status of the hospital are made only at the start of a cost reporting 
period.
    (e) Hospitals within hospitals. Except as provided in paragraph (f) 
of this section, for cost reporting periods beginning on or after 
October 1, 1997, a hospital that occupies space in a building also used 
by another hospital, or in one or more entire buildings located on the 
same campus as buildings used by another hospital, must meet the 
following criteria in order to be excluded from the prospective payment 
system:
    (1) Separate governing body. The hospital has a governing body that 
is separate from the governing body of the hospital occupying space in 
the same building or on the same campus. The hospital's governing body 
is not under the control of the hospital occupying space in the same 
building or on the same campus, or of any third entity that controls 
both hospitals.
    (2) Separate chief medical officer. The hospital has a single chief 
medical officer who reports directly to the governing body and who is 
responsible for all medical staff activities of the hospital. The chief 
medical officer of the hospital is not employed by or under contract 
with either the hospital occupying space in the same building or on the 
same campus or any third entity that controls both hospitals.
    (3) Separate medical staff. The hospital has a medical staff that is 
separate from the medical staff of the hospital occupying space in the 
same building or on the same campus. The hospital's medical staff is 
directly accountable to the governing body for the quality of medical 
care provided in the hospital, and adopts and enforces bylaws governing 
medical staff activities, including criteria and procedures for 
recommending to the governing body the privileges to be granted to 
individual practitioners.
    (4) Chief executive officer. The hospital has a single chief 
executive officer through whom all administrative authority flows, and 
who exercises control and surveillance over all administrative 
activities of the hospital. The chief executive officer is not employed 
by, or under contract with, either the hospital occupying space in the 
same building or on the same campus or any third entity that controls 
both hospitals.
    (5) Performance of basic hospital functions. The hospital meets one 
of the following criteria:
    (i) The hospital performs the basic functions specified in 
Secs. 482.21 through 482.27, 482.30, and 482.42 of this chapter through 
the use of employees or under contracts or other agreements with 
entities other than the hospital occupying space in the same building or 
on the same campus, or a third entity that controls both hospitals. Food 
and dietetic services and housekeeping, maintenance, and other services 
necessary to maintain a clean and safe physical environment could be 
obtained under contracts or other agreements with the hospital occupying 
space in the same building or on the same campus, or with a third entity 
that controls both hospitals.
    (ii) For the same period of at least 6 months used to determine 
compliance with the criterion regarding the age of patients in 
Sec. 412.23(d)(2) or the length-of-stay criterion in Sec. 412.23(e)(2), 
or for hospitals other than children's or long-

[[Page 300]]

term care hospitals, for a period of at least 6 months immediately 
preceding the first cost reporting period for which exclusion is sought, 
the cost of the services that the hospital obtained under contracts or 
other agreements with the hospital occupying space in the same building 
or on the same campus, or with a third entity that controls both 
hospitals, is no more than 15 percent of the hospital's total inpatient 
operating costs, as defined in Sec. 412.2(c). For purposes of this 
paragraph (e)(5)(ii), however, the costs of preadmission services are 
those specified under Sec. 413.40(c)(2) rather than those specified 
under Sec. 412.2(c)(5).
    (iii) For the same period of at least 6 months used to determine 
compliance with the criterion regarding the age of inpatients in 
Sec. 412.23(d)(2) or the length-of-stay criterion in Sec. 412.23(e)(2), 
or for hospitals other than children's or long-term care hospitals, for 
the period of at least 6 months immediately preceding the first cost 
reporting period for which exclusion is sought, the hospital has an 
inpatient population of whom at least 75 percent were referred to the 
hospital from a source other than another hospital occupying space in 
the same building or on the same campus.
    (f) Application for certain hospitals. If a hospital was excluded 
from the prospective payment systems under the provisions of this 
section on or before September 30, 1995, and at that time occupied space 
in a building also used by another hospital, or in one or more buildings 
located on the same campus as buildings used by another hospital, the 
criteria in paragraph (e) of this section do not apply to the hospital.
    (g) Definition of control. For purposes of this section, control 
exists if an individual or an organization has the power, directly or 
indirectly, significantly to influence or direct the actions or policies 
of an organization or institution.

[50 FR 12741, Mar. 29, 1985, as amended at 51 FR 34793, Sept. 30, 1986; 
57 FR 39820, Sept. 1, 1994; 62 FR 46026, Aug. 29, 1997; 63 FR 26357, May 
12, 1998]



Sec. 412.23  Excluded hospitals: Classifications.

    Hospitals that meet the requirements for the classifications set 
forth in this section may not be reimbursed under the prospective 
payment systems.
    (a) Psychiatric hospitals. A psychiatric hospital must--
    (1) Be primarily engaged in providing, by or under the supervision 
of a psychiatrist, psychiatric services for the diagnosis and treatment 
of mentally ill persons; and
    (2) Meet the conditions of participation for hospitals and special 
conditions of participation for psychiatric hospitals set forth in part 
482 of this chapter.
    (b) Rehabilitation hospitals. A rehabilitation hospital must meet 
the following requirements:
    (1) Have a provider agreement under part 489 of this chapter to 
participate as a hospital.
    (2) Except in the case of a newly participating hospital seeking 
exclusion for its first 12-month cost reporting period, as described in 
paragraph (b)(8) of this section, show that during its most recent 12-
month cost reporting period, it served an inpatient population of whom 
at least 75 percent required intensive rehabilitative services for the 
treatment of one or more of the following conditions:
    (i) Stroke.
    (ii) Spinal cord injury.
    (iii) Congenital deformity.
    (iv) Amputation.
    (v) Major multiple trauma.
    (vi) Fracture of femur (hip fracture).
    (vii) Brain injury.
    (viii) Polyarthritis, including rheumatoid arthritis.
    (ix) Neurological disorders, including multiple sclerosis, motor 
neuron diseases, polyneuropathy, muscular dystrophy, and Parkinson's 
disease.
    (x) Burns.
    (3) Have in effect a preadmission screening procedure under which 
each prospective patient's condition and medical history are reviewed to 
determine whether the patient is likely to benefit significantly from an 
intensive inpatient hospital program or assessment.
    (4) Ensure that the patients receive close medical supervision and 
furnish, through the use of qualified personnel, rehabilitation nursing, 
physical therapy, and occupational therapy, plus, as

[[Page 301]]

needed, speech therapy, social or psychological services, and orthotic 
and prosthetic services.
    (5) Have a director of rehabilitation who--
    (i) Provides services to the hospital and its inpatients on a full-
time basis;
    (ii) Is a doctor of medicine or osteopathy;
    (iii) Is licensed under State law to practice medicine or surgery; 
and
    (iv) Has had, after completing a one-year hospital internship, at 
least two years of training or experience in the medical-management of 
inpatients requiring rehabilitation services.
    (6) Have a plan of treatment for each inpatient that is established, 
reviewed, and revised as needed by a physician in consultation with 
other professional personnel who provide services to the patient.
    (7) Use a coordinated multidisciplinary team approach in the 
rehabilitation of each inpatient, as documented by periodic clinical 
entries made in the patient's medical record to note the patient's 
status in relationship to goal attainment, and that team conferences are 
held at least every two weeks to determine the appropriateness of 
treatment.
    (8) A hospital that seeks exclusion as a rehabilitation hospital for 
the first full 12-month cost reporting period that occurs after it 
becomes a Medicare participating hospital may provide a written 
certification that the inpatient population it intends to serve meets 
the requirements of paragraph (b)(2) of this section, instead of showing 
that it has treated such a population during its most recent 12-month 
cost reporting period. The written certification is also effective for 
any cost reporting period of not less than one month and not more than 
11 months occurring between the date the hospital began participating in 
Medicare and the start of the hospital's regular 12-month cost reporting 
period.
    (9) For cost reporting periods beginning on or after October 1, 
1991, if a hospital is excluded from the prospective payment systems for 
a cost reporting period under paragraph (b)(8) of this section, but the 
inpatient population it actually treated during that period does not 
meet the requirements of paragraph (b)(2) of this section, HCFA adjusts 
payments to the hospital retroactively in accordance with the provisions 
in Sec. 412.130 of this part.
    (c)  [Reserved]
    (d) Children's hospitals. A children's hospital must--
    (1) Have a provider agreement under part 489 of this chapter to 
participate as a hospital; and
    (2) Be engaged in furnishing services to inpatients who are 
predominantly individuals under the age of 18.
    (e) Long-term care hospitals. A long-term care hospital must meet 
the requirements of paragraphs (e)(1) or (e)(2) of this section, and, 
where applicable, the additional requirements Sec. 412.22(e).
    (1) The hospital must have a provider agreement under part 489 of 
this chapter to participate as a hospital and an average inpatient 
length of stay greater than 25 days as calculated under paragraph (e)(3) 
of this section.
    (2) For cost reporting periods beginning on or after August 5, 1997, 
a hospital that was first excluded from the prospective payment system 
under this section in 1986 must have an average inpatient length of stay 
of greater than 20 days, as calculated under paragraph (e)(3) of this 
section, and must demonstrate that at least 80 percent of its annual 
Medicare inpatient discharges in the 12-month cost reporting period 
ending in fiscal year 1997 have a principal diagnosis that reflects a 
finding of neoplastic disease as defined in paragraph (f)(1)(iv) of this 
section.
    (3) The average inpatient length of stay is calculated--
    (i) By dividing the number of total inpatient days (less leave or 
pass days) by the number of total discharges for the hospital's most 
recent complete cost reporting period;
    (ii) If a change in the hospital's average length-of-stay is 
indicated, by the same method for the immediately preceding 6-month 
period; or
    (iii) If a hospital has undergone a change of ownership (as 
described in Sec. 489.18 of this chapter) at the start of a cost 
reporting period or at any time within the preceding 6 months, the 
hospital may be excluded from the prospective payment system as a long-
term care hospital for a cost reporting period if, for the 6 months 
immediately

[[Page 302]]

preceding the start of the period (including time before the change of 
ownership), the hospital has the required average length of stay, 
continuously operated as a hospital, and continuously participated as a 
hospital in Medicare.
    (f) Cancer hospitals--(1) General rule. Except as provided in 
paragraph (f)(2) of this section, if a hospital meets the following 
criteria, it is classified as a cancer hospital and is excluded from the 
prospective payment systems beginning with its first cost reporting 
period beginning on or after October 1, 1989. A hospital classified 
after December 19, 1989, is excluded beginning with its first cost 
reporting period beginning after the date of its classification.
    (i) It was recognized as a comprehensive cancer center or clinical 
cancer research center by the National Cancer Institute of the National 
Institutes of Health as of April 20, 1983.
    (ii) It is classified on or before December 31, 1990, or, if on 
December 19, 1989, the hospital was located in a State operating a 
demonstration project under section 1814(b) of the Act, the 
classification is made on or before December 31, 1991.
    (iii) It demonstrates that the entire facility is organized 
primarily for treatment of and research on cancer (that is, the facility 
is not a subunit of an acute general hospital or university-based 
medical center).
    (iv) It shows that at least 50 percent of its total discharges have 
a principal diagnosis that reflects a finding of neoplastic disease. 
(The principal diagnosis for this purpose is defined as the condition 
established after study to be chiefly responsible for occasioning the 
admission of the patient to the hospital. For the purposes of meeting 
this definition, only discharges with ICD-9-CM principal diagnosis codes 
of 140 through 239, V58.0, V58.1, V66.1, V66.2, or 990 will be 
considered to reflect neoplastic disease.)
    (2) Alternative. A hospital that applied for and was denied, on or 
before December 31, 1990, classification as a cancer hospital under the 
criteria set forth in paragraph (f)(1) of this section is classified as 
a cancer hospital and is excluded from the prospective payment systems 
beginning with its first cost reporting period beginning on or after 
January 1, 1991, if it meets the criterion set forth in paragraph 
(f)(1)(i) of this section and the hospital is--
    (i) Licensed for fewer than 50 acute care beds as of August 5, 1997;
    (ii) Is located in a State that as of December 19, 1989, was not 
operating a demonstration project under section 1814(b) of the Act; and
    (iii) Demonstrates that, for the 4-year period ending on December 
31, 1996, at least 50 percent of its total discharges have a principal 
diagnosis that reflects a finding of neoplastic disease as defined in 
paragraph (f)(1)(iv) of this section.
    (g) Hospitals outside the 50 States, the District of Columbia, or 
Puerto Rico. A hospital is excluded from the prospective payment systems 
if it is not located in one of the fifty States, the District of 
Columbia, or Puerto Rico.
    (h) Hospitals reimbursed under special arrangements. A hospital must 
be excluded from prospective payment for inpatient hospital services if 
it is reimbursed under special arrangement as provided in 
Sec. 412.22(c).

[50 FR 12741, Mar. 29, 1985, as amended at 50 FR 35688, Sept. 3, 1985; 
51 FR 22041, June 17, 1986; 51 FR 31496, Sept. 3, 1986; 52 FR 33057, 
Sept. 1, 1987; 55 FR 36068, Sept. 4, 1990; 55 FR 46887, Nov. 7, 1990; 56 
FR 43240, Aug. 30, 1991; 57 FR 39820, Sept. 1, 1992; 59 FR 45396, Sept. 
1, 1994; 60 FR 45846, Sept. 1, 1995; 62 FR 46026, Aug. 29, 1997]



Sec. 412.25  Excluded hospital units: Common requirements.

    (a) Basis for exclusion. In order to be excluded from the 
prospective payment system, a psychiatric or rehabilitation unit must 
meet the following requirements.
    (1) Be part of an institution that--
    (i) Has in effect an agreement under part 489 of this chapter to 
participate as a hospital;
    (ii) Is not excluded in its entirety from the prospective payment 
systems; and
    (iii) Has enough beds that are not excluded from the prospective 
payment systems to permit the provision of adequate cost information, as 
required by Sec. 413.24(c) of this chapter.
    (2) Have written admission criteria that are applied uniformly to 
both Medicare and non-Medicare patients.

[[Page 303]]

    (3) Have admission and discharge records that are separately 
identified from those of the hospital in which it is located and are 
readily available.
    (4) Have policies specifying that necessary clinical information is 
transferred to the unit when a patient of the hospital is transferred to 
the unit.
    (5) Meet applicable State licensure laws.
    (6) Have utilization review standards applicable for the type of 
care offered in the unit.
    (7) Have beds physically separate from (that is, not commingled 
with) the hospital's other beds.
    (8) Be serviced by the same fiscal intermediary as the hospital.
    (9) Be treated as a separate cost center for cost finding and 
apportionment purposes.
    (10) Use an accounting system that properly allocates costs.
    (11) Maintain adequate statistical data to support the basis of 
allocation.
    (12) Report its costs in the hospital's cost report covering the 
same fiscal period and using the same method of apportionment as the 
hospital.
    (13) As of the first day of the first cost reporting period for 
which all other exclusion requirements are met, the unit is fully 
equipped and staffed and is capable of providing hospital inpatient 
psychiatric or rehabilitation care regardless of whether there are any 
inpatients in the unit on that date.
    (b) Changes in the size of excluded units. For purposes of exclusion 
from the prospective payment systems under this section, the number of 
beds and square footage of each excluded unit remains the same 
throughout each cost reporting period, and any change in the number of 
beds or square footage considered to be part of an excluded unit may be 
made only at the start of a cost reporting period.
    (c) Changes in the status of hospital units. For purposes of 
exclusion from the prospective payment systems under this section, the 
status of each hospital unit (excluded or not excluded) is determined at 
the beginning of each cost reporting period and is effective for the 
entire cost reporting period. Any changes in the status of a unit are 
made only at the start of a cost reporting period. If a unit is added to 
a hospital after the start of a cost reporting period, it cannot be 
excluded from the prospective payment systems before the start of the 
hospital's next cost reporting period.
    (d) Number of excluded units. Each hospital may have only one unit 
of each type (psychiatric or rehabilitation) excluded from the 
prospective payment systems.

[50 FR 12741, Mar. 29, 1985, as amended at 57 FR 39820, Sept. 1, 1992; 
58 FR 46337, Sept. 1, 1993; 59 FR 45400, Sept. 1, 1994]



Sec. 412.27  Excluded psychiatric units: Additional requirements.

    In order to be excluded from the prospective payment systems, a 
psychiatric unit must meet the following requirements:
    (a) Admit only patients whose admission to the unit is required for 
active treatment, of an intensity that can be provided appropriately 
only in an inpatient hospital setting, of a psychiatric principal 
diagnosis that is listed in the Third Edition of the American 
Psychiatric Association's Diagnostic and Statistical Manual, or in 
Chapter Five (``Mental Disorders'') of the International Classification 
of Diseases, Ninth Revision, Clinical Modification.
    (b) Furnish, through the use of qualified personnel, psychological 
services, social work services, psychiatric nursing, occupational 
therapy, and recreational therapy.
    (c) Maintain medical records that permit determination of the degree 
and intensity of the treatment provided to individuals who are furnished 
services in the unit, and that meet the following requirements:
    (1) Development of assessment/diagnostic data. Medical records must 
stress the psychiatric components of the record, including history of 
findings and treatment provided for the psychiatric condition for which 
the inpatient is treated in the unit.
    (i) The identification data must include the inpatient's legal 
status.
    (ii) A provisional or admitting diagnosis must be made on every 
inpatient at the time of admission, and must include the diagnoses of 
intercurrent diseases as well as the psychiatric diagnoses.

[[Page 304]]

    (iii) The reasons for admission must be clearly documented as stated 
by the inpatient or others significantly involved, or both.
    (iv) The social service records, including reports of interviews 
with inpatients, family members, and others must provide an assessment 
of home plans and family attitudes, and community resource contacts as 
well as a social history.
    (v) When indicated, a complete neurological examination must be 
recorded at the time of the admission physical examination.
    (2) Psychiatric evaluation. Each inpatient must receive a 
psychiatric evaluation that must--
    (i) Be completed within 60 hours of admission;
    (ii) Include a medical history;
    (iii) Contain a record of mental status;
    (iv) Note the onset of illness and the circumstances leading to 
admission;
    (v) Describe attitudes and behavior;
    (vi) Estimate intellectual functioning, memory functioning, and 
orientation; and
    (vii) Include an inventory of the inpatient's assets in descriptive, 
not interpretative fashion.
    (3) Treatment plan.
    (i) Each inpatient must have an individual comprehensive treatment 
plan that must be based on an inventory of the inpatient's strengths and 
disabilities. The written plan must include a substantiated diagnosis; 
short-term and long-term goals; the specific treatment modalities 
utilized; the responsibilities of each member of the treatment team; and 
adequate documentation to justify the diagnosis and the treatment and 
rehabilitation activities carried out; and
    (ii) The treatment received by the inpatient must be documented in 
such a way as to assure that all active therapeutic efforts are 
included.
    (4) Recording progress. Progress notes must be recorded by the 
doctor of medicine or osteopathy responsible for the care of the 
inpatient, a nurse, social worker and, when appropriate, others 
significantly involved in active treatment modalities. The frequency of 
progress notes is determined by the condition of the inpatient but must 
be recorded at least weekly for the first two months and at least once a 
month thereafter and must contain recommendations for revisions in the 
treatment plan as indicated as well as precise assessment of the 
inpatient's progress in accordance with the original or revised 
treatment plan.
    (5) Discharge planning and discharge summary. The record of each 
patient who has been discharged must have a discharge summary that 
includes a recapitulation of the inpatient's hospitalization in the unit 
and recommendations from appropriate services concerning follow-up or 
aftercare as well as a brief summary of the patient's condition on 
discharge.
    (d) Meet special staff requirements in that the unit must have 
adequate numbers of qualified professional and supportive staff to 
evaluate inpatients, formulate written, individualized, comprehensive 
treatment plans, provide active treatment measures and engage in 
discharge planning, as follows:
    (1) Personnel. The unit must employ or undertake to provide adequate 
numbers of qualified professional, technical, and consultative personnel 
to--
    (i) Evaluate inpatients;
    (ii) Formulate written, individualized, comprehensive treatment 
plans;
    (iii) Provide active treatment measures; and
    (iv) Engage in discharge planning.
    (2) Director of inpatient psychiatric services: Medical staff. 
Inpatient psychiatric services must be under the supervision of a 
clinical director, service chief, or equivalent who is qualified to 
provide the leadership required for an intensive treatment program. The 
number and qualifications of doctors of medicine and osteopathy must be 
adequate to provide essential psychiatric services.
    (i) The clinical director, service chief, or equivalent must meet 
the training and experience requirements for examination by the American 
Board of Psychiatry and Neurology or the American Osteopathic Board of 
Neurology and Psychiatry.
    (ii) The director must monitor and evaluate the quality and 
appropriateness of services and treatment provided by the medical staff.

[[Page 305]]

    (3) Nursing services. The unit must have a qualified director of 
psychiatric nursing services. In addition to the director of nursing, 
there must be adequate numbers of registered nurses, licensed practical 
nurses, and mental health workers to provide nursing care necessary 
under each inpatient's active treatment program and to maintain progress 
notes on each inpatient.
    (i) The director of psychiatric nursing services must be a 
registered nurse who has a master's degree in psychiatric or mental 
health nursing, or its equivalent, from a school of nursing accredited 
by the National League for Nursing, or be qualified by education and 
experience in the care of the mentally ill. The director must 
demonstrate competence to participate in interdisciplinary formulation 
of individual treatment plans; to give skilled nursing care and therapy; 
and to direct, monitor, and evaluate the nursing care furnished.
    (ii) The staffing pattern must ensure the availability of a 
registered nurse 24 hours each day. There must be adequate numbers of 
registered nurses, licensed practical nurses, and mental health workers 
to provide the nursing care necessary under each inpatient's active 
treatment program.
    (4) Psychological services. The unit must provide or have available 
psychological services to meet the needs of the inpatients. The services 
must be furnished in accordance with acceptable standards of practice, 
service objectives, and established policies and procedures.
    (5) Social services. There must be a director of social services who 
monitors and evaluates the quality and appropriateness of social 
services furnished. The services must be furnished in accordance with 
accepted standards of practice and established policies and procedures. 
Social service staff responsibilities must include, but are not limited 
to, participating in discharge planning, arranging for follow-up care, 
and developing mechanisms for exchange of appropriate information with 
sources outside the hospital.
    (6) Therapeutic activities. The unit must provide a therapeutic 
activities program.
    (i) The program must be appropriate to the needs and interests of 
inpatients and be directed toward restoring and maintaining optimal 
levels of physical and psychosocial functioning.
    (ii) The number of qualified therapists, support personnel, and 
consultants must be adequate to provide comprehensive therapeutic 
activities consistent with each inpatient's active treatment program.

[50 FR 12741, Mar. 29, 1985, as amended at 57 FR 39820, Sept. 1, 1992; 
59 FR 45397, 45400, Sept. 1, 1994]



Sec. 412.29  Excluded rehabilitation units: Additional requirements.

    In order to be excluded from the prospective payment systems, a 
rehabilitation unit must meet the following requirements:
    (a) Have met either the requirements for--
    (1) New units under Sec. 412.30(a); or
    (2) Converted units under Sec. 412.30(b).
    (b) Have in effect a preadmission screening procedure under which 
each prospective patient's condition and medical history are reviewed to 
determine whether the patient is likely to benefit significantly from an 
intensive inpatient program or assessment.
    (c) Ensure that the patients receive close medical supervision and 
furnish, through the use of qualified personnel, rehabilitation nursing, 
physical therapy, and occupational therapy, plus, as needed, speech 
therapy, social services or psychological services, and orthotic and 
prosthetic services.
    (d) Have a plan of treatment for each inpatient that is established, 
reviewed, and revised as needed by a physician in consultation with 
other professional personnel who provide services to the patient.
    (e) Use a coordinated multidisciplinary team approach in the 
rehabilitation of each inpatient, as documented by periodic clinical 
entries made in the patient's medical record to note the patient's 
status in relationship to goal attainment, and that team conferences are 
held at least every two weeks to determine the appropriateness of 
treatment.
    (f) Have a director of rehabilitation who--

[[Page 306]]

    (1) Provides services to the unit and to its inpatients for at least 
20 hours per week;
    (2) Is a doctor of medicine or osteopathy;
    (3) Is licensed under State law to practice medicine or surgery; and
    (4) Has had, after completing a one-year hospital internship, at 
least two years of training or experience in the medical management of 
inpatients requiring rehabilitation services.

[50 FR 12741, Mar. 29, 1985, as amended at 57 FR 39821, Sept. 1, 1992; 
59 FR 45397, 45400, Sept. 1, 1994; 60 FR 45847, Sept. 1, 1995]



Sec. 412.30  Exclusion of new rehabilitation units and expansion of units already excluded.

    (a) Bed capacity in units. A decrease in bed capacity must remain in 
effect for at least a full 12-month cost reporting period before an 
equal or lesser number of beds can be added to the hospital's licensure 
and certification and considered ``new'' under paragraph (b) of this 
section. Thus, when a hospital seeks to establish a new unit under the 
criteria under paragraph (b) of this section, or to enlarge an existing 
unit under the criteria under paragraph (d) of this section, the 
regional office will review its records on the facility to determine 
whether any beds have been delicensed and decertified during the 12-
month cost reporting period before the period for which the hospital 
seeks to add the beds. To the extent bed capacity was removed from the 
hospital's licensure and certification during that period, that amount 
of bed capacity may not be considered ``new'' under paragraph (b) of 
this section.
    (b) New units. (1) A hospital unit is considered a new unit if the 
hospital--
    (i) Has not previously sought exclusion for any rehabilitation unit; 
and
    (ii) Has obtained approval, under State licensure and Medicare 
certification, for an increase in its hospital bed capacity that is 
greater than 50 percent of the number of beds in the unit.
    (2) A hospital that seeks exclusion of a new rehabilitation unit may 
provide a written certification that the inpatient population the 
hospital intends the unit to serve meets the requirements of 
Sec. 412.23(b)(2) instead of showing that the unit has treated such a 
population during the hospital's most recent cost reporting period.
    (3) The written certification described in paragraph (a)(2) of this 
section is effective for the first full cost reporting period during 
which the unit is used to provide hospital inpatient care. If the 
hospital has not previously participated in the Medicare program as a 
hospital, the written certification also is effective for any cost 
reporting period of not less than 1 month and not more than 11 months 
occurring between the date the hospital began participating in Medicare 
and the start of the hospital's regular 12-month cost reporting period.
    (4) If a hospital that has not previously participated in the 
Medicare program seeks exclusion of a rehabilitation unit, it may 
designate certain beds as a new rehabilitation unit for the first full 
12-month cost reporting period that occurs after it becomes a Medicare-
participating hospital. The written certification described in paragraph 
(b)(2) of this section also is effective for any cost reporting period 
of not less than 1 month and not more than 11 months occurring between 
the date the hospital began participating in Medicare and the start of 
the hospital's regular 12-month cost reporting period.
    (5) A hospital that has undergone a change of ownership or leasing 
as defined in Sec. 489.18 of this chapter is not considered to have 
participated previously in the Medicare program.
    (c) Converted units. A hospital unit is considered a converted unit 
if it does not qualify as a new unit under paragraph (a) of this 
section. A converted unit must have treated, for the hospital's most 
recent 12-month cost reporting period, an inpatient population of which 
at least 75 percent required intensive rehabilitation services for the 
treatment of one or more conditions listed under Sec. 412.23(b)(2).
    (d) Expansion of excluded rehabilitation units.
    (1) New bed capacity. The beds that a hospital seeks to add to its 
excluded rehabilitation unit are considered new beds only if--

[[Page 307]]

    (i) The hospital's State-licensed and Medicare-certified bed 
capacity increases at the start of the cost reporting period for which 
the hospital seeks to increase the size of its excluded rehabilitation 
unit, or at any time after the start of the preceding cost reporting 
period; and
    (ii) The hospital has obtained approval, under State licensure and 
Medicare certification, for an increase in its hospital bed capacity 
that is greater than 50 percent of the number of beds it seeks to add to 
the unit.
    (2) Conversion of existing bed capacity.
    (i) Bed capacity is considered to be existing bed capacity if it 
does not meet the definition of new bed capacity under paragraph (c)(1) 
of this section.
    (ii) A hospital may increase the size of its excluded rehabilitation 
unit through conversion of existing bed capacity only if it shows that, 
for all of the hospital's most recent cost reporting period of at least 
12 months, the beds have been used to treat an inpatient population 
meeting the requirements of Sec. 412.23(b)(2).
    (e) Retroactive adjustments for certain units. For cost reporting 
periods beginning on or after October 1, 1991, if a hospital has a new 
rehabilitation unit excluded from the prospective payment systems for a 
cost reporting period under paragraph (a) of this section or expands an 
existing rehabilitation unit under paragraph (c) of this section, but 
the inpatient population actually treated in the new unit or the beds 
added to the existing unit during that cost reporting period does not 
meet the requirements in Sec. 412.23(b)(2), HCFA adjusts payments to the 
hospital retroactively in accordance with the provisions in Sec. 412.130 
of this part.

[50 FR 12741, Mar. 29, 1985, as amended at 56 FR 43420, Aug. 30, 1991; 
57 FR 39821, Sept. 1, 1992; 59 FR 45400, Sept. 1, 1994; 60 FR 45847, 
Sept. 1, 1995; 62 FR 46027, Aug. 29, 1997]



Subpart C--Conditions for Payment Under the Prospective Payment Systems 
    for Inpatient Operating Costs and Inpatient Capital-Related Costs



Sec. 412.40  General requirements.

    (a) A hospital must meet the conditions of this subpart to receive 
payment under the prospective payment systems for inpatient hospital 
services furnished to Medicare beneficiaries.
    (b) If a hospital fails to comply fully with these conditions with 
respect to inpatient hospital services furnished to one or more Medicare 
beneficiaries, HCFA may, as appropriate--
    (1) Withhold Medicare payment (in full or in part) to the hospital 
until the hospital provides adequate assurances of compliance; or
    (2) Terminate the hospital's provider agreement.

[50 FR 12741, Mar. 29, 1985, as amended at 57 FR 39821, Sept. 1, 1992]



Sec. 412.42  Limitations on charges to beneficiaries.

    (a) Prohibited charges. A hospital may not charge a beneficiary for 
any services for which payment is made by Medicare, even if the 
hospital's costs of furnishing services to that beneficiary are greater 
than the amount the hospital is paid under the prospective payment 
systems.
    (b) Permitted charges--Stay covered. A hospital receiving payment 
under the prospective payment systems for a covered hospital stay (that 
is, a stay that includes at least one covered day) may charge the 
Medicare beneficiary or other person only for the following:
    (1) The applicable deductible and coinsurance amounts under 
Secs. 409.82, 409.83, and 409.87 of this chapter.
    (2) Noncovered items and services, furnished at any time during a 
covered stay, unless they are excluded from coverage only on the basis 
of the following:
    (i) The exclusion of custodial care under Sec. 405.310(g) of this 
chapter (see

[[Page 308]]

paragraph (c) of this section for when charges may be made for custodial 
care).
    (ii) The exclusion of medically unnecessary items and services under 
Sec. 405.310(k) of this chapter (see paragraphs (c) and (d) of this 
section for when charges may be made for medically unnecessary items and 
services).
    (iii) The exclusion under Sec. 405.310(m) of this chapter of 
nonphysician services furnished to hospital inpatients by other than the 
hospital or a provider or supplier under arrangements made by the 
hospital.
    (iv) The exclusion of items and services furnished when the patient 
is not entitled to Medicare Part A benefits under subpart A of part 406 
of this chapter (see paragraph (e) of this section for when charges may 
be made for items and services furnished when the patient is not 
entitled to benefits).
    (v) The exclusion of items and services furnished after Medicare 
Part A benefits are exhausted under Sec. 409.61 of this chapter (see 
paragraph (e) of this section for when charges may be made for items and 
services furnished after benefits are exhausted).
    (c) Custodial care and medically unnecessary inpatient hospital 
care. A hospital may charge a beneficiary for services excluded from 
coverage on the basis of Sec. 411.15(g) of this chapter (custodial care) 
or Sec. 411.15(k) of this chapter (medically unnecessary services) and 
furnished by the hospital after all of the following conditions have 
been met:
    (1) The hospital (acting directly or through its utilization review 
committee) determines that the beneficiary no longer requires inpatient 
hospital care. (The phrase ``inpatient hospital care'' includes cases 
where a beneficiary needs a SNF level of care, but, under Medicare 
criteria, a SNF-level bed is not available. This also means that a 
hospital may find that a patient awaiting SNF placement no longer 
requires inpatient hospital care because either a SNF-level bed has 
become available or the patient no longer requires SNF-level care.)
    (2) The attending physician agrees with the hospital's determination 
in writing (for example, by issuing a written discharge order). If the 
hospital believes that the beneficiary does not require inpatient 
hospital care but is unable to obtain the agreement of the physician, it 
may request an immediate review of the case by the PRO. Concurrence by 
the PRO in the hospital's determination will serve in lieu of the 
physician's agreement.
    (3) The hospital (acting directly or through its utilization review 
committee) notifies the beneficiary (or person acting on his or her 
behalf) in writing that--
    (i) In the hospital's opinion, and with the attending physician's 
concurrence or that of the PRO, the beneficiary no longer requires 
inpatient hospital care;
    (ii) Customary charges will be made for continued hospital care 
beyond the second day following the date of the notice;
    (iii) The PRO will make a formal determination on the validity of 
the hospital's finding if the beneficiary remains in the hospital after 
he or she is liable for charges;
    (iv) The determination of the PRO made after the beneficiary 
received the purportedly noncovered services will be appealable by the 
hospital, the attending physician, or the beneficiary under the appeals 
procedures that apply to PRO determinations affecting Medicare Part A 
payment; and
    (v) The charges for continued care will be invalid and refunded if 
collected by the hospital, to the extent that a finding is made that the 
beneficiary required continued care beyond the point indicated by the 
hospital.
    (4) If the beneficiary remains in the hospital after the appropriate 
notification, and the hospital, the physician who concurred in the 
hospital determination on which the notice was based, or PRO 
subsequently finds that the beneficiary requires an acute level of 
inpatient hospital care, the hospital may not charge the beneficiary for 
continued care until the hospital once again determines that the 
beneficiary no longer requires inpatient care, secures concurrence, and 
notifies the beneficiary, as required in paragraphs (c)(1), (c)(2), and 
(c)(3) of this section.
    (d) Medically unnecessary diagnostic and therapeutic services. A 
hospital may charge a beneficiary for diagnostic procedures and studies, 
and therapeutic

[[Page 309]]

procedures and courses of treatment (for example, experimental 
procedures) that are excluded from coverage under Sec. 405.310(k) of 
this chapter (medically unnecessary items and services), even though the 
beneficiary requires continued inpatient hospital care, if those 
services are furnished after the beneficiary (or the person acting on 
his or her behalf) has acknowledged in writing that the hospital (acting 
directly or through its utilization review committee and with the 
concurrence of the intermediary) has informed him or her as follows:
    (1) In the hospital's opinion, which has been agreed to by the 
intermediary, the services to be furnished are not considered reasonable 
and necessary under Medicare.
    (2) Customary charges will be made if he or she receives the 
services.
    (3) If the beneficiary receives the services, a formal determination 
on the validity of the hospital's finding is made by the intermediary 
and, to the extent that the decision requires the exercise of medical 
judgment, the PRO.
    (4) The determination is appealable by the hospital, the attending 
physician, or the beneficiary under the appeals procedure that applies 
to determinations affecting Medicare Part A payment.
    (5) The charges for the services will be invalid and, to the extent 
collected, will be refunded by the hospital if the services are found to 
be covered by Medicare.
    (e) Services furnished on days when the individual is not entitled 
to Medicare Part A benefits or has exhausted the available benefits. The 
hospital may charge the beneficiary its customary charges for noncovered 
items and services furnished on outlier days (as described in Subpart F 
of this part) for which payment is denied because the beneficiary is not 
entitled to Medicare Part A or his or her Medicare Part A benefits are 
exhausted. (1) If payment is considered for outlier days, the entire 
stay is reviewed and days up to the number of days in excess of the 
outlier threshold may be denied on the basis of nonentitlement to Part A 
or exhaustion of benefits. (2) In applying this rule, the latest days 
will be denied first.
    (f) Differential for private room or other luxury services. The 
hospital may charge the beneficiary the customary charge differential 
for a private room or other luxury service that is more expensive than 
is medically required and is furnished for the personal comfort of the 
beneficiary at his or her request (or the request of the person acting 
on his or her behalf).
    (g) Review. (1) The PRO or intermediary may review any cases in 
which the hospital advises the beneficiary (or the person acting on his 
or her behalf) of the noncoverage of the services in accordance with 
paragraph (c)(3) or (d) of this section.
    (2) The hospital must identify such cases to the PRO or intermediary 
in accordance with HCFA instructions.

[50 FR 12741, Mar. 29, 1985, as amended at 50 FR 35688, Sept. 3, 1985; 
54 FR 41747, Oct. 11, 1989; 57 FR 39821, Sept. 1, 1992]



Sec. 412.44  Medical review requirements: Admissions and quality review.

    Beginning on November 15, 1984, a hospital must have an agreement 
with a PRO to have the PRO review, on an ongoing basis, the following:
    (a) The medical necessity, reasonableness and appropriateness of 
hospital admissions and discharges.
    (b) The medical necessity, reasonableness and appropriateness of 
inpatient hospital care for which additional payment is sought under the 
outlier provisions of Secs. 412.82 and 412.84 of this chapter.
    (c) The validity of the hospital's diagnostic and procedural 
information.
    (d) The completeness, adequacy, and quality of the services 
furnished in the hospital.
    (e) Other medical or other practices with respect to beneficiaries 
or billing for services furnished to beneficiaries.

[50 FR 15326, Apr. 17, 1985, as amended at 50 FR 35689, Sept. 3, 1985; 
50 FR 41886, Oct. 16, 1985]



Sec. 412.46  Medical review requirements: Physician acknowledgement.

    (a) Basis. Because payment under the prospective payment system is 
based in part on each patient's principal and secondary diagnoses and 
major procedures performed, as evidenced by the physician's entries in 
the patient's

[[Page 310]]

medical record, physicians must complete an acknowledgement statement to 
this effect.
    (b) Content of physician acknowledgement statement. When a claim is 
submitted, the hospital must have on file a signed and dated 
acknowledgement from the attending physician that the physician has 
received the following notice:

    Notice to Physicians: Medicare payment to hospitals is based in part 
on each patient's principal and secondary diagnoses and the major 
procedures performed on the patient, as attested to by the patient's 
attending physician by virtue of his or her signature in the medical 
record. Anyone who misrepresents, falsifies, or conceals essential 
information required for payment of Federal funds, may be subject to 
fine, imprisonment, or civil penalty under applicable Federal laws.

    (c) Completion of acknowledgement. The acknowledgement must be 
completed by the physician at the time that the physician is granted 
admitting privileges at the hospital, or before or at the time the 
physician admits his or her first patient. Existing acknowledgements 
signed by physicians already on staff remain in effect as long as the 
physician has admitting privileges at the hospital.

[60 FR 45847, Sept. 1, 1995]



Sec. 412.48  Denial of payment as a result of admissions and quality review.

    (a) If HCFA determines, on the basis of information supplied by a 
PRO that a hospital has misrepresented admissions, discharges, or 
billing information, or has taken an action that results in the 
unnecessary admission of an individual entitled to benefits under Part 
A, unnecessary multiple admissions of an individual, or other 
inappropriate medical or other practices with respect to beneficiaries 
or billing for services furnished to beneficiaries, HCFA may as 
appropriate--
    (1) Deny payment (in whole or in part) under Part A with respect to 
inpatient hospital services provided with respect to such an unnecessary 
admission or subsequent readmission of an individual; or
    (2) Require the hospital to take other corrective action necessary 
to prevent or correct the inappropriate practice.
    (b) When payment with respect to admission of an individual patient 
is denied by a PRO under paragraph (a)(1) of this section, and liability 
is not waived in accordance with Secs. 405.330 through 405.332 of this 
chapter, notice and appeals are provided under procedures established by 
HCFA to implement the provisions of section 1155 of the Act, Right to 
Hearing and Judicial Review.
    (c) A determination under paragraph (a) of this section, if it is 
related to a pattern of inappropriate admissions and billing practices 
that has the effect of circumventing the prospective payment systems, is 
referred to the Department's Office of Inspector General, for handling 
in accordance with Sec. 1001.301 of this title.

[50 FR 12741, Mar. 29, 1985, as amended at 50 FR 35688, 35689, Sept. 3, 
1985; 51 FR 34787, Sept. 30, 1986; 57 FR 39821, Sept. 1, 1992]



Sec. 412.50  Furnishing of inpatient hospital services directly or under arrangements.

    (a) The applicable payments made under the prospective payment 
systems, as described in subparts H and M of this part, are payment in 
full for all inpatient hospital services, as defined in Sec. 409.10 of 
this chapter, other than physicians' services to individual patients 
reimbursable on a reasonable charge basis (in accordance with the 
criteria of Sec. 415.102(a) of this chapter).
    (b) HCFA does not pay any provider or supplier other than the 
hospital for services furnished to a beneficiary who is an inpatient, 
except for physicians' services reimbursable under Sec. 405.550(b) of 
this chapter and services of an anesthetist employed by a physician 
reimbursable under Sec. 415.102(a) of this chapter.
    (c) The hospital must furnish all necessary covered services to the 
beneficiary either directly or under arrangements (as defined in 
Sec. 409.3 of this chapter).

[50 FR 12741, Mar. 29, 1985, as amended at 53 FR 38527, Sept. 30, 1988; 
57 FR 39821, Sept. 1, 1992; 60 FR 63188, Dec. 8, 1995]



Sec. 412.52  Reporting and recordkeeping requirements.

    All hospitals participating in the prospective payment systems must 
meet the recordkeeping and cost reporting

[[Page 311]]

requirements of Secs. 413.20 and 413.24 of this chapter.

[50 FR 12741, Mar. 29, 1985, as amended at 51 FR 34793, Sept. 30, 1986; 
57 FR 39821, Sept. 1, 1992]



Subpart D--Basic Methodology for Determining Prospective Payment Federal 
                   Rates for Inpatient Operating Costs



Sec. 412.60  DRG classification and weighting factors.

    (a) Diagnosis-related groups. HCFA establishs a classification of 
inpatient hospital discharges by Diagnosis-Related Groups (DRGs).
    (b) DRG weighting factors. HCFA assigns, for each DRG, an 
appropriate weighting factor that reflects the estimated relative cost 
of hospital resources used with respect to discharges classified within 
that group compared to discharges classified within other groups.
    (c) Assignment of discharges to DRGs. HCFA establishs a methodology 
for classifying specific hospital discharges within DRGs which ensures 
that each hospital discharge is appropriately assigned to a single DRG 
based on essential data abstracted from the inpatient bill for that 
discharge.
    (1) The classification of a particular discharge is based, as 
appropriate, on the patient's age, sex, principal diagnosis (that is, 
the diagnosis established after study to be chiefly responsible for 
causing the patient's admission to the hospital), secondary diagnoses, 
procedures performed, and discharge status.
    (2) Each discharge is assigned to only one DRG (related, except as 
provided in paragraph (c)(3) of this section, to the patient's principal 
diagnosis) regardless of the number of conditions treated or services 
furnished during the patient's stay.
    (3) When the discharge data submitted by a hospital show a surgical 
procedure unrelated to a patient's principal diagnosis, the bill is 
returned to the hospital for validation and reverification. HCFA's DRG 
classification system provides a DRG, and an appropriate weighting 
factor, for the group of cases for which the unrelated diagnosis and 
procedure are confirmed.
    (d) Review of DRG assignment. (1) A hospital has 60 days after the 
date of the notice of the initial assignment of a discharge to a DRG to 
request a review of that assignment. The hospital may submit additional 
information as a part of its request.
    (2) The intermediary reviews the hospital's request and any 
additional information and decides whether a change in the DRG 
assignment is appropriate. If the intermediary decides that a higher-
weighted DRG should be assigned, the case will be reviewed by the 
appropriate PRO as specified in Sec. 466.71(c)(2) of this chapter.
    (3) Following the 60-day period described in paragraph (d)(1) of 
this section, the hospital may not submit additional information with 
respect to the DRG assignment or otherwise revise its claim.
    (e) Revision of DRG classification and weighting factors. Beginning 
with discharges in fiscal year 1988, HCFA adjusts the classifications 
and weighting factors established under paragraphs (a) and (b) of this 
section at least annually to reflect changes in treatment patterns, 
technology, and other factors that may change the relative use of 
hospital resources.

[50 FR 12741, Mar. 29, 1985, as amended at 52 FR 33057, Sept. 1, 1987; 
57 FR 39821, Sept. 1, 1992; 59 FR 45397, Sept. 1, 1994]



Sec. 412.62  Federal rates for inpatient operating costs for fiscal year 1984.

    (a) General rule. HCFA determines national adjusted DRG prospective 
payment rates for operating costs, for each inpatient hospital discharge 
in fiscal year 1984 involving inpatient hospital services of a hospital 
in the United States subject to the prospective payment system under 
subpart B of this part, and determines regional adjusted DRG prospective 
payment rates for inpatient operating costs for such discharges in each 
region, for which payment may be made under Medicare Part A. Such rates 
are determined for hospitals located in urban or rural areas within the 
United States and within each such region, respectively, as described in 
paragraphs (b) through (k) of this section.
    (b) Determining allowable individual hospital inpatient operating 
costs. HCFA

[[Page 312]]

determines the Medicare allowable operating costs per discharge of 
inpatient hospital services for each hospital in the data base for the 
most recent cost reporting period for which data are available.
    (c) Updating for fiscal year 1984. HCFA updates each amount 
determined under paragraph (b) of this section for fiscal year 1984 by--
    (1) Updating for fiscal year 1983 by the estimated average rate of 
change of hospital costs industry-wide between the cost reporting period 
used under paragraph (b) of this section and fiscal year 1983; and
    (2) Projecting for fiscal year 1984 by the applicable percentage 
increase in the hospital market basket for fiscal year 1984.
    (d) Standardizing amounts. HCFA standardizes the amount updated 
under paragraph (c) of this section for each hospital by--
    (1) Adjusting for area variations in case mix among hospitals;
    (2) Excluding an estimate of indirect medical education costs;
    (3) Adjusting for area variations in hospital wage levels; and
    (4) Adjusting for the effects of a higher cost of living for 
hospitals located in Alaska and Hawaii.
    (e) Computing urban and rural averages. HCFA computes an average of 
the standardized amounts determined under paragraph (d) of this section 
for urban and rural hospitals in the United States and for urban and 
rural hospitals in each region.
    (f) Geographic classifications. (1) For purposes of paragraph (e) of 
this section, the following definitions apply:
    (i) The term region means one of the nine census divisions, 
comprising the fifty States and the District of Columbia, established by 
the Bureau of the Census for statistical and reporting purposes.
    (ii) The term urban area means--
    (A) A Metropolitan Statistical Area (MSA) or New England County 
Metropolitan Area (NECMA), as defined by the Executive Office of 
Management and Budget; or
    (B) The following New England counties, which are deemed to be parts 
of urban areas under section 601(g) of the Social Security Amendments of 
1983 (Pub. L. 98-21, 42 U.S.C. 1395ww (note)): Litchfield County, 
Connecticut; York County, Maine; Sagadahoc County, Maine; Merrimack 
County, New Hampshire; and Newport County, Rhode Island.
    (iii) The term rural area means any area outside an urban area.
    (iv) The phrase hospital reclassified as rural means a hospital 
located in a county that was part of an MSA or NECMA, as defined by the 
Executive Office of Management and Budget, but is not part of an MSA or 
NECMA as a result of an Executive Office of Management and Budget 
redesignation occurring after April 20, 1983.
    (2) For hospitals within an MSA or NECMA that crosses census 
division boundaries, the following provisions apply:
    (i) The MSA or NECMA is deemed to belong to the census division in 
which most of the hospitals within the MSA or NECMA are located.
    (ii) If a hospital would receive a lower Federal rate because most 
of the hospitals are located in a census division with a lower Federal 
rate than the rate applicable to the census division in which the 
hospital is located, the payment rate will not be reduced for the 
hospital's cost reporting period beginning before October 1, 1984.
    (iii) If an equal number of hospitals within the MSA or NECMA are 
located in each census division, such hospitals are deemed to be in the 
census division with the higher Federal rate.
    (g) Adjusting the average standardized amounts. HCFA adjusts each of 
the average standardized amounts determined under paragraphs (c), (d), 
and (e) of this section by factors representing HCFA's estimates of the 
following:
    (1) The amount of payment that would have been made under Medicare 
Part B for nonphysician services to hospital inpatients during the first 
cost reporting period subject to prospective payment were it not for the 
fact that such services must be furnished either directly by hospitals 
or under arrangements in order for any Medicare payment to be made after 
September 30, 1983 (the effective date of Sec. 405.310(m) of this 
chapter).
    (2) The amount of FICA taxes that would be incurred during the first 
cost

[[Page 313]]

reporting period subject to the prospective payment system, by hospitals 
that had not incurred such taxes for any or all of their employees 
during the base period described in paragraph (c) of this section.
    (h) Reducing for value of outlier payments. HCFA reduces each of the 
adjusted average standardized amounts determined under paragraphs (c) 
through (g) of this section by a proportion equal to the proportion 
(estimated by HCFA) of the total amount of payments based on DRG 
prospective payment rates that are additional payments for outlier cases 
under subpart F of this part.
    (i) Maintaining budget neutrality. (1) HCFA adjusts each of the 
reduced standardized amounts determined under paragraphs (c) through (h) 
of this section as required for fiscal year 1984 so that the estimated 
amount of aggregate payments made, excluding the hospital-specific 
portion (that is, the total of the Federal portion of transition 
payments, plus any adjustments and special treatment of certain classes 
of hospitals for Federal fiscal year 1984) is not greater or less than 
25 percent of the payment amounts that would have been payable for the 
inpatient operating costs for those same hospitals for fiscal year 1984 
under the Social Security Act as in effect on April 19, 1983.
    (2) The aggregate payments considered under this paragraph exclude 
payments for per case review by a utilization and quality control peer 
review organization, as allowed under section 1866(a)(1)(F) of the Act.
    (j) Computing Federal rates for inpatient operating costs for urban 
and rural hospitals in the United States and in each region. For each 
discharge classified within a DRG, HCFA establishes a national 
prospective payment rate for inpatient operating costs and a regional 
prospective payment rate for inpatient operating costs for each region, 
as follows:
    (1) For hospitals located in an urban area in the United States or 
in that region respectively, the rate equals the product of--
    (i) The adjusted average standardized amount (computed under 
paragraphs (c) through (i) of this section) for hospitals located in an 
urban area in the United States or in that region; and
    (ii) The weighting factor determined under Sec. 412.60(b) for that 
DRG.
    (2) For hospitals located in a rural area in the United States or in 
that region respectively, the rate equals the product of--
    (i) The adjusted average standardized amount (computed under 
paragraphs (c) through (i) of this section) for hospitals located in a 
rural area in the United States or that region; and
    (ii) The weighting factor determined under Sec. 412.60(b) for that 
DRG.
    (k) Adjusting for different area wage levels. HCFA adjusts the 
proportion (as estimated by HCFA from time to time) of Federal rates 
computed under paragraph (j) of this section that are attributable to 
wages and labor-related costs, for area differences in hospital wage 
levels by a factor (established by HCFA) reflecting the relative 
hospital wage level in the geographic area (that is, urban or rural area 
as determined under the provisions of paragraph (f) of this section) of 
the hospital compared to the national average hospital wage level.

[50 FR 12741, Mar. 29, 1985, as amended at 51 FR 34793, Sept. 30, 1986; 
53 FR 38527, Sept. 30, 1988; 57 FR 39821, Sept. 1, 1992; 58 FR 46337, 
Sept. 1, 1993]



Sec. 412.63  Federal rates for inpatient operating costs for fiscal years after Federal fiscal year 1984.

    (a) General rule. (1) HCFA determines a national adjusted 
prospective payment rate for inpatient operating costs for each 
inpatient hospital discharge in a Federal fiscal year after fiscal year 
1984 involving inpatient hospital services of a hospital in the United 
States subject to the prospective payment system, and determines a 
regional adjusted prospective payment rate for operating costs for such 
discharges in each region, for which payment may be made under Medicare 
Part A.
    (2) Each such rate is determined for hospitals located in urban or 
rural areas within the United States and within each such region 
respectively, as described in paragraphs (b) through (g) of this 
section.

[[Page 314]]

    (b) Geographic classifications. (1) For purposes of this section, 
the definitions set forth in Sec. 412.62(f) apply.
    (2) For hospitals within an MSA or NECMA that crosses census 
division boundaries, the following provisions apply:
    (i) The MSA or NECMA is deemed to belong to the census division in 
which most of the hospitals within the MSA or NECMA are located.
    (ii) A hospital that met the conditions specified in 
Sec. 412.62(f)(2)(ii) and therefore did not receive a lower Federal rate 
that would have applied for cost reporting periods beginning before 
October 1, 1984, receives the lower Federal rate applicable to all 
hospitals in the MSA or NECMA in which it is located effective with the 
hospital's cost reporting period that begins on or after October 1, 
1984.
    (iii) The higher Federal rate is payable to all hospitals in the MSA 
or NECMA if an equal number of hospitals within the MSA or NECMA are 
located in each census division.
    (3) For discharges occurring on or after October 1, 1988, a hospital 
located in a rural county adjacent to one or more urban areas is deemed 
to be located in an urban area and receives the Federal payment amount 
for the urban area to which the greater number of workers in the county 
commute if the rural county would otherwise be considered part of an 
urban area, under the standards for designating MSAs or NECMAs if the 
commuting rates used in determining outlying counties were determined on 
the basis of the aggregate number of resident workers who commute to 
(and, if applicable under the standards, from) the central county or 
central counties of all adjacent MSAs or NECMAs. These EOMB standards 
are set forth in the notice of final standards for classification of 
MSAs published in the Federal Register on January 3, 1980 (45 FR 956), 
and available from HCFA, East High Rise Building, room 132, 6325 
Security Boulevard, Baltimore, Maryland 21207.
    (4) For purposes of this section, any change in an MSA or NECMA 
designation is recognized on the October 1 following the effective date 
of the change.
    (5) For discharges occurring on or after October 1, 1988, for 
hospitals that consist of two or more separately located inpatient 
hospital facilities the national adjusted prospective payment rate is 
based on the geographic location of the hospital facility at which the 
discharge occurs.
    (c) Updating previous standardized amounts. (1) HCFA computes an 
average standardized amount for hospitals in urban areas and rural areas 
within the United States, and urban areas and rural areas within each 
region.
    (2) Each of those amounts is equal to the respective adjusted 
average standardized amount computed for fiscal year 1984 under 
Sec. 412.62(g)--
    (i) Increased for fiscal year 1985 by the applicable percentage 
increase in the hospital market basket;
    (ii) Adjusted by the estimated amount of Medicare payment for 
nonphysician services furnished to hospital inpatients that would have 
been paid under Part B were it not for the fact that such services must 
be furnished either directly by hospitals or under arrangements;
    (iii) Reduced by a proportion equal to the proportion (estimated by 
HCFA) of the total amount of prospective payments that are additional 
payment amounts attributable to outlier cases under subpart F of this 
part; and
    (iv) Adjusted for budget neutrality under paragraph (h) of this 
section.
    (3) For fiscal year 1986 and thereafter. HCFA computes, for urban 
and rural hospitals in the United States and for urban and rural 
hospitals in each region, average standardized amount equal to the 
respective adjusted average standardized amounts computed for the 
previous fiscal year--
    (i) Increased by the applicable percentage increase determined under 
paragraphs (d) through (g) of this section;
    (ii) Adjusted by the estimated amount of Medicare payment for 
nonphysician services furnished to hospital inpatients that would have 
been paid under Part B were it not for the fact that such services must 
be furnished either directly by hospitals or under arrangements; and
    (iii) For discharges occurring on or after October 1, 1985 and 
before October

[[Page 315]]

1, 1986, reduced by a proportion (estimated by HCFA) of the amount of 
payments based on the total amount of prospective payments that are 
additional payment amounts attributable to outlier cases under subpart F 
of this part, and for discharges occurring on or after October 1, 1986, 
reduced by a proportion (estimated by HCFA) of the amount of payments 
that, based on the total amount of prospective payments for urban 
hospitals and the total amount of prospective payments for rural 
hospitals, are additional payments attributable to outlier cases in such 
hospitals under subpart F of this part.
    (4) For fiscal years 1987 through 1990 HCFA standardizes the average 
standardized amounts by excluding an estimate of the payments for 
hospitals that serve a disproportionate share of low-income patients.
    (5) For fiscal year 1987 onward, HCFA restandardizes the average 
standardized amounts by excluding an estimate of indirect medical 
education payments.
    (6) For fiscal year 1988 and thereafter, HCFA computes average 
standardized amounts for hospitals located in large urban areas, other 
urban areas, and rural areas. The term large urban area means an MSA 
with a population of more than 1,000,000 or an NECMA, with a population 
of more than 970,000 based on the most recent available population data 
published by the Bureau of the Census.
    (d) Applicable percentage change for fiscal year 1986. (1) The 
applicable percentage change for fiscal year 1986 is--
    (i) For discharges occurring on or after October 1, 1985 and before 
May 1. 1986, zero percent; and
    (ii) For discharges occurring on or after May 1, 1986, one-half of 
one percent.
    (2) For purposes of determining the standardized amounts for 
discharges occurring on or after October 1, 1986, the applicable 
percentage increase for fiscal year 1986 is deemed to have been one-half 
of one percent.
    (e) Applicable percentage change for fiscal year 1987. The 
applicable percentage change for fiscal year 1987 is 1.15 percent.
    (f) Applicable percentage change for fiscal year 1988. (1) The 
applicable percentage change for fiscal year 1988 is--
    (i) For discharges occurring on or after October 1, 1987 and before 
November 21, 1987, zero percent;
    (ii) For discharges occurring on or after November 21, 1987 and 
before April 1, 1988, 2.7 percent; and
    (iii) For discharges occurring on or after April 1, 1988 and before 
October 1, 1988--
    (A) 3.0 percent for hospitals located in rural areas;
    (B) 1.5 percent for hospitals located in large urban areas; and
    (C) 1.0 percent for hospitals located in other urban areas.
    (2) For purposes of determining the standardized amounts for 
discharges occurring on or after October 1, 1988 (for Federal fiscal 
year 1989), the applicable percentage change for fiscal year 1988 is 
deemed to have been--
    (i) 3.0 percent for hospitals located in rural areas;
    (ii) 1.5 percent for hospitals located in large urban areas; and
    (iii) 1.0 percent for hospitals located in other urban areas.
    (g) Applicable percentage change for fiscal year 1989. The 
applicable percentage change for fiscal year 1989 is the percentage 
increase in the market basket index (as defined in Sec. 413.40(a)(3) of 
this chapter)--
    (1) Minus 1.5 percentage points for hospitals located in rural 
areas;
    (2) Minus 2.0 percentage points for hospitals in large urban areas; 
and
    (3) Minus 2.5 percentage points for hospitals in other urban areas.
    (h) Applicable percentage change for fiscal year 1990. (1) The 
applicable percentage change for fiscal year 1990 is--
    (i) For discharges occurring on or after October 1, 1989 and before 
January 1, 1990, 5.5 percent; and
    (ii) For discharges occurring on or after January 1, 1990 and before 
October 1, 1990--
    (A) 9.72 percent for hospitals located in rural areas;
    (B) 5.62 percent for hospitals located in large urban areas; and
    (C) 4.97 percent for hospitals located in other urban areas.
    (2) For purposes of determining the standardized amounts for 
discharges

[[Page 316]]

occurring on or after October 1, 1990, the applicable percentage change 
for fiscal year 1990 is deemed to have been the percentage change 
provided for in paragraph (h)(1)(ii) of this section.
    (i) Applicable percentage change for fiscal year 1991. (1) The 
applicable percentage change for fiscal year 1991 is--
    (i) For discharges occurring on or after October 1, 1990 and before 
October 21, 1990, 5.2 percent;
    (ii) For discharges occurring on or after October 21, 1990 and 
before January 1, 1991, 0.0 percent; and
    (iii) For discharges occurring on or after January 1, 1991 and 
before October 1, 1991--
    (A) 4.5 percent for hospitals located in rural areas; and
    (B) 3.2 percent for hospitals located in large urban areas and other 
urban areas.
    (2) For purposes of determining the standardized amounts for 
discharges occurring on or after October 1, 1991, the applicable 
percentage change for fiscal year 1991 is deemed to have been the 
percentage change provided for in paragraph (i)(1)(iii) of this section.
    (j) Applicable percentage change for fiscal year 1992. The 
applicable percentage change for fiscal year 1992 is the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec. 413.40(a)(3) of this chapter)--
    (1) Minus 0.6 percentage points for hospitals located in rural 
areas.
    (2) Minus 1.6 percentage points for hospitals located in large urban 
areas and other urban areas.
    (k) Applicable percentage change for fiscal year 1993. The 
applicable percentage change for fiscal year 1993 is the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec. 413.40(a)(3) of this chapter)--
    (1) Minus 0.55 percentage points for hospitals located in rural 
areas.
    (2) Minus 1.55 percentage points for hospitals located in large 
urban areas and other urban areas.
    (l) Applicable percentage change for fiscal year 1994. The 
applicable percentage change for fiscal year 1994 is the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec. 413.40(a) of this chapter)--
    (1) Minus 1.0 percentage point for hospitals located in rural areas.
    (2) Minus 2.5 percentage points for hospitals located in large urban 
areas and other urban areas.
    (m) Applicable percentage change for fiscal year 1995. The 
applicable percentage change for fiscal year 1995 is the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec. 413.40(a) of this chapter)--
    (1) Plus, for hospitals located in rural areas, the percentage 
increase necessary so that the average standardized amounts computed 
under paragraph (c) through (i) of this section are equal to the average 
standardized amounts for hospitals located in an urban area other than a 
large urban area.
    (2) Minus 2.5 percentage points for hospitals located in large urban 
areas and other urban areas.
    (n) Applicable percentage change for fiscal year 1996. The 
applicable percentage change for fiscal year 1996 is the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec. 413.40(a) of this chapter) minus 2.0 percentage 
points for all areas.
    (o) Applicable percentage change for fiscal year 1997. The 
applicable percentage change for fiscal year 1997 is the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec. 413.40(a) of this chapter) minus 0.5 percentage 
point for all areas.
    (p) Applicable percentage change for fiscal year 1998. The 
applicable percentage change for fiscal year 1998 is 0 percent for 
hospitals in all areas.
    (q) Applicable percentage change for fiscal year 1999. The 
applicable percentage change for fiscal year 1999 is the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec. 413.40(a) of this subchapter) minus 1.9 percentage 
points for hospitals in all areas.
    (r) Applicable percentage change for fiscal year 2000. The 
applicable percentage change for fiscal year 2000 is the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec. 413.40(a) of this

[[Page 317]]

chapter) minus 1.8 percentage points for hospitals in all areas.
    (s) Applicable percentage change for fiscal years 2001 and 2002. The 
applicable percentage change for fiscal years 2001 and 2002 is the 
percentage increase in the market basket index for prospective payment 
hospitals (as defined in Sec. 413.40(a) of this subchapter) minus 1.1 
percentage points for hospitals in all areas.
    (t) Applicable percentage change for fiscal year 2003 and for 
subsequent years. The applicable percentage change for fiscal year 2003 
and for subsequent years is the percentage increase in the market basket 
index for prospective payment hospitals (as defined in Sec. 413.40(a)) 
for hospitals in all areas.
    (u) Maintaining budget neutrality for fiscal year 1985. (1) For 
fiscal year 1985, HCFA will adjust each of the reduced standardized 
amounts determined under paragraph (c) of this section as required for 
fiscal year 1985 to ensure that the estimated amount of aggregate 
payments made, excluding the hospital-specific portion (that is, the 
total of the Federal portion of transition payments, plus any 
adjustments and special treatment of certain classes of hospitals for 
fiscal year 1985) is not greater or less than 50 percent of the payment 
amounts that would have been payable for the inpatient operating costs 
for those same hospitals for fiscal year 1985 under the law as in effect 
on April 19, 1983.
    (2) The aggregate payments considered under this paragraph exclude 
payments for per case review by a utilization and quality control peer 
review organization, as allowed under section 1866(a)(1)(F) of the Act.
    (v) Computing Federal rates for inpatient operating costs for 
hospitals located in large urban and other areas. For each discharge 
classified within a DRG, HCFA establishes for the fiscal year a national 
prospective payment rate and a regional prospective payment rate for 
inpatient operating costs, for each region, as follows:
    (1) For hospitals located in a large urban area in the United States 
or that region respectively, the rate equals the product of--
    (i) The adjusted average standardized amount (computed under 
paragraph (c) of this section) for the fiscal year for hospitals located 
in a large urban area in the United States or in that region; and
    (ii) The weighting factor determined under Sec. 412.60(b) for that 
DRG.
    (2) For hospitals located in an other area in the United States or 
that region respectively, the rate equals the product of--
    (i) The adjusted average standardized amount (computed under 
paragraph (c) of this section) for the fiscal year for hospitals located 
in an other area in the United States or that region; and
    (ii) The weighting factor (determined under Sec. 412.60(b)) for that 
DRG.
    (w) Adjusting for different area wage levels. (1) HCFA adjusts the 
proportion (as estimated by HCFA from time to time) of Federal rates for 
inpatient operating costs computed under paragraph (j) of this section 
that are attributable to wages and labor-related costs for area 
differences in hospital wage levels by a factor (established by HCFA 
based on survey data) reflecting the relative level of hospital wages 
and wage-related costs in the geographic area (that is, urban or rural 
area as determined under the provisions of paragraph (b) of this 
section) of the hospital compared to the national average level of 
hospital wages and wage-related costs. The wage index is updated 
annually.
    (2)(i) HCFA makes a midyear correction to the wage index for an area 
only if a hospital can show that--
    (A) The intermediary or HCFA made an error in tabulating the 
hospital's data; and
    (B) The hospital could not have known about the error, or did not 
have the opportunity to correct the error, before the beginning of the 
Federal fiscal year.
    (ii) A midyear correction to the wage index is effective 
prospectively from the date the change is made to the wage index.
    (3) Revisions to the wage index resulting from midyear corrections 
to the wage index values are incorporated in the wage index values for 
other areas at the beginning of the next Federal fiscal year.
    (4) The effect on program payments of midyear corrections to the 
wage

[[Page 318]]

index values is taken into account in establishing the standardized 
amounts for the following Federal fiscal year.
    (5) If a judicial decision reverses a HCFA denial of a hospital's 
wage data revision request, HCFA pays the hospital by applying a revised 
wage index that reflects the revised wage data as if HCFA's decision had 
been favorable rather than unfavorable.

[50 FR 12741, Mar. 29, 1985]

    Editorial Note: For Federal Register citations affecting 
Sec. 412.63, see the List of Sections Affected in the finding Aids 
section of this volume.



  Subpart E--Determination of Transition Period Payment Rates for the 
        Prospective Payment System for Inpatient Operating Costs



412.70  General description.

    For discharges occurring on or after April 1, 1988, and before 
October 1, 1996, payments to a hospital are based on the greater of the 
national average standardized amount or the sum of 85 percent of the 
national average standardized amount and 15 percent of the average 
standardized amount for the region in which the hospital is located.

[57 FR 39822, Sept. 1, 1992, as amended at 58 FR 46338, Sept. 1, 1993]



Sec. 412.71  Determination of base-year inpatient operating costs.

    (a) Base-year costs. (1) For each hospital, the intermediary will 
estimate the hospital's Medicare Part A allowable inpatient operating 
costs, as described in Sec. 412.2(c), for the 12-month or longer cost 
reporting period ending on or after September 30, 1982 and before 
September 30, 1983.
    (2) If the hospital's last cost reporting period ending before 
September 30, 1983 is for less than 12 months, the base period will be 
the hospital's most recent 12-month or longer cost reporting period 
ending before such short reporting period, with an appropriate 
adjustment for inflation. (The rules applicable to new hospitals are set 
forth in Sec. 412.74.)
    (b) Modifications to base-year costs. Prior to determining the 
hospital-specific rate, the intermediary will adjust the hospital's 
estimated base-year inpatient operating costs, as necessary, to include 
malpractice insurance costs in accordance with Sec. 413.53(a)(1)(i) of 
this chapter, and exclude the following:
    (1) Medical education costs as described in Sec. 413.85 of this 
chapter.
    (2) Capital-related costs as described in Sec. 413.130 of this 
chapter.
    (3) Kidney acquisition costs incurred by hospitals approved as renal 
transplantation centers as described in Sec. 412.100. Kidney acquisition 
costs in the base year will be determined by multiplying the hospital's 
average kidney acquisition cost per kidney times the number of kidney 
transplants covered by Medicare Part A during the base period.
    (4) Higher costs that were incurred for purposes of increasing base-
year costs.
    (5) One-time nonrecurring higher costs or revenue offsets that have 
the effect of distorting base-year costs as an appropriate basis for 
computing the hospital-specific rate.
    (6) Higher costs that result from changes in hospital accounting 
principles initiated in the base year.
    (7) The costs of qualified nonphysician anesthetists' services, as 
described in Sec. 412.113(c).
    (c) Hospital's request for adjustment of base-year inpatient 
operating costs. (1) Before the date it becomes subject to the 
prospective payment system for inpatient operating costs, a hospital may 
request the intermediary to further adjust its estimated base-period 
costs to take into account the following:
    (i) Services paid for under Medicare Part B during the hospital's 
base year that will be paid for under prospective payments. The base-
year costs may be increased to include estimated payments for certain 
services previously billed as physicians' services before the effective 
date of Sec. 415.102(a) of this chapter, and estimated payments for 
nonphysicians' services that were not furnished either directly or under 
arrangements before October 1, 1983 (the effective date of 
Sec. 405.310(m) of this chapter), but may not include the costs of 
anesthetists' services for which a physician employer continues to bill 
under Sec. 405.553(b)(4) of this chapter.

[[Page 319]]

    (ii) The payment of FICA taxes during cost reporting periods subject 
to the prospective payment system, if the hospital had not paid such 
taxes for all its employees during its base period and will be required 
to participate effective January 1, 1984.
    (2) If a hospital requests that its base-period costs be adjusted 
under paragraph (c)(1) of this section, it must timely provide the 
intermediary with sufficient documentation to justify the adjustment, 
and adequate data to compute the adjusted costs. The intermediary 
decides whether to use part or all of the data on the basis of audit, 
survey and other information available.
    (d) Intermediary's determination. The intermediary uses the best 
data available at the time in estimating each hospital's base-year costs 
and the modifications to those costs authorized by paragraphs (b) and 
(c) of this section. The intermediary's estimate of base-year costs and 
modifications thereto is final and may not be changed after the first 
day of the first cost reporting period beginning on or after October 1, 
1983, except as provided in Sec. 412.72.

[50 FR 12741, Mar. 29, 1985, as amended at 51 FR 34793, Sept. 30, 1986; 
52 FR 33057, Sept. 1, 1987; 57 FR 33897, July 31, 1992; 57 FR 39822, 
Sept. 1, 1992; 59 FR 45398, Sept. 1, 1994; 60 FR 63188, Dec. 8, 1995]



Sec. 412.72  Modification of base-year costs.

    (a) Bases for modification of base-year costs. Base-year costs as 
determined under Sec. 412.71(d) may be modified under the following 
circumstances:
    (1) Inadvertent omissions. (i) A hospital that becomes subject to 
the prospective payment system beginning on or after October 1, 1983 and 
before November 16, 1983 has until November 15, 1983 to request its 
intermediary to reestimate its base-period costs to take into account 
inadvertent omissions in its previous submissions to the intermediary 
related to changes made by the prospective payment legislation for 
purposes of estimating the base-period costs.
    (ii) The intermediary may also initiate changes to the estimation--
    (A) For any reason before the date the hospital becomes subject to 
prospective payment; and
    (B) Before November 16, 1983, for corrections to take into account 
inadvertent omissions in the hospital's previous submissions related to 
changes made by the prospective payment legislation for purposes of 
estimating the base-period costs.
    (iii) Such omissions pertain to adjustments to exclude capital-
related costs and the direct medical education costs of approved 
educational activities and to adjustments specified in Sec. 412.71(c).
    (iv) The intermediary must notify the provider of any change to the 
hospital-specific amount as a result of the provider's request within 30 
days of receipt of the additional data.
    (v) Any change to base-period costs made under this paragraph (a)(1) 
will be made effective retroactively, beginning with the first day of 
the affected hospital's fiscal year.
    (2) Correction of mathematical errors of calculations. (i) The 
hospital must report mathematical errors of calculations to the 
intermediary within 90 days of the intermediary's notification to the 
hospital of the hospital's payments rates.
    (ii) The intermediary may also identify such errors and initiate 
their correction during this period.
    (iii) The intermediary will either make an appropriate adjustment or 
notify the hospital that no adjustment is warranted within 30 days of 
receipt of the hospital's report of an error.
    (iv) Corrections of errors of calculation will be effective with the 
first day of the hospital's first cost reporting period subject to the 
prospective payment system.
    (3) Recognition of additional costs. (i) The intermediary may adjust 
base-period costs to take into account additional costs recognized as 
allowable costs for the hospital's base year as the result of any of the 
following:
    (A) A reopening and revision of the hospital's base-year notice of 
amount of program reimbursement under Secs. 405.1885 through 405.1889 of 
this chapter.

[[Page 320]]

    (B) A prehearing order or finding issued during the provider payment 
appeals process by the appropriate reviewing authority under 
Sec. 405.1821 or Sec. 405.1853 of this chapter that resolved a matter at 
issue in the hospital's base-year notice of amount of program 
reimbursement.
    (C) An affirmation, modification, or reversal of a Provider 
Reimbursement Review Board decision by the Administrator of HCFA under 
Sec. 405.1875 of this chapter that resolved a matter at issue in the 
hospital's base-year notice of amount of program reimbursement.
    (D) An administrative or judicial review decision under 
Secs. 405.1831, 405.1871, or 405.1877 of this chapter that is final and 
no longer subject to review under applicable law or regulations by a 
higher reviewing authority, and that resolved a matter at issue in the 
hospital's base-year notice of amount of program reimbursement.
    (ii) The intermediary will recalculate the hospital's base-year 
costs, incorporating the additional costs recognized as allowable for 
the hospital's base year. Adjustments to base-year costs to take into 
account these additional costs--
    (A) Will be effective with the first day of the hospital's first 
cost reporting period beginning on or after the date of the revision, 
order or finding, or review decision; and
    (B) Will not be used to recalculate the hospital-specific portion as 
determined for fiscal years beginning before the date of the revision, 
order or finding, or review decision.
    (4) Successful appeal. The intermediary may modify base-year costs 
to take into account a successful appeal relating to modifications to 
base-year costs that were made under Sec. 412.71(b). If a hospital 
successfully contests a modification to base-year costs--
    (i) The intermediary will recalculate the hospital's base-year costs 
to reflect the modification determined appropriate as a result of the 
appeal; and
    (ii) Such adjustments will be effective retroactively to the time of 
the intermediary's initial estimation of base-year costs.
    (5) Unlawfully claimed costs. The intermediary may modify base-year 
costs to exclude costs that were unlawfully claimed as determined as a 
result of criminal conviction, imposition of a civil judgment under the 
False Claims Act (31 U.S.C. 3729-3731), or a proceeding for exclusion 
from the Medicare program. In addition to adjusting base-year costs, 
HCFA will recover both the excess costs reimbursed for the base period 
and the additional amounts paid due to the inappropriate increase of the 
hospital-specific portion of the hospital's transition payment rates. 
The amount to be recovered will be computed on the basis of the final 
resolution of the amount of the inappropriate base-year costs.
    (b) Right to administrative and judicial review. (1) An 
intermediary's estimation of a hospital's base-year costs, and 
modifications, made for purposes of determining the hospital-specific 
rate, are subject to administrative and judicial review. Review will be 
available to a hospital upon receipt of its notice of amount of program 
reimbursement following the close of its cost reporting period, but only 
with respect to whether the intermediary followed the provisions of 
Secs. 412.71 and 412.72. (Sections 405.1803 and 405.1807 of this chapter 
set forth the rules for intermediary determinations and notice of amount 
of program reimbursement and the effect of those determinations.)
    (2) In any administrative or judicial review of whether the 
intermediary used the best data available at the time, as required by 
Sec. 412.71(d), an intermediary's estimation will be revised on the 
basis of this review only if the estimation was unreasonable and clearly 
erroneous in light of the data available at the time the estimation was 
made.
    (3) Specifically excluded from administrative or judicial review are 
any issues based on data, information, or arguments not presented to the 
intermediary at the time of the estimation.



Sec. 412.73  Determination of the hospital-specific rate based on a Federal fiscal year 1982 base period.

    (a) Costs on a per discharge basis. The intermediary will determine 
the hospital's estimated adjusted base-year operating cost per discharge 
by dividing the total adjusted operating costs

[[Page 321]]

by the number of discharges in the base period.
    (b) Case-mix adjustment. The intermediary will divide the adjusted 
base-year costs by the hospital's 1981 case-mix index. If the hospital's 
case-mix index is statistically unreliable (as determined by HCFA), the 
hospital's base-year costs will be divided by the lower of the 
following:
    (1) The hospital's estimated case-mix index.
    (2) The average case-mix index for the appropriate classifications 
of all hospitals subject to cost limits established under Sec. 413.30 of 
this chapter for cost reporting periods beginning on or after October 1, 
1982 and before October 1, 1983.
    (c) Updating base-year costs--(1) For Federal fiscal year 1984. The 
case-mix adjusted base-year cost per discharge will be updated by the 
applicable updating factor, that is, the rate-of-increase percentage 
determined under Sec. 413.40(c)(3) of this chapter, as adjusted for 
budget neutrality.
    (2) For Federal fiscal year 1985. The amount determined under 
paragraph (c)(1) of this section will be updated by the applicable 
updating factor, as adjusted for budget neutrality.
    (3) For Federal fiscal year 1986. (i) The amount determined under 
paragraph (c)(2) of this section is updated by--
    (A) Zero percent for the first seven months of the hospital's cost 
reporting period; and
    (B) One-half of one percent for the remaining five months of the 
hospital's cost reporting period.
    (ii) For purposes of determining the updated base-year costs for 
cost reporting periods beginning in Federal fiscal year 1987 (that is, 
on or after October 1, 1986 and before October 1, 1987), the update 
factor for the previous cost reporting period is deemed to have been 
one-half of one percent.
    (4) For Federal fiscal year 1987. The amount determined under 
paragraph (c)(3)(ii) of this section is updated by 1.15 percent.
    (5) For Federal fiscal year 1988. (i) For purposes of determining 
the prospective payment rates for sole community hospitals under 
Sec. 412.92(d) for cost reporting periods beginning in Federal fiscal 
year 1988 (that is, on or after October 1, 1987 and before October 1, 
1988), the base-year cost per discharge is updated as follows:
    (A) For the first 51 days of the hospital's cost reporting period, 
by zero percent.
    (B) For the next 132 days of the hospital's cost reporting period, 
by 2.7 percent.
    (C) For the remainder of the hospital's cost reporting period, by--
    (1) 3.0 percent for hospitals located in rural areas;
    (2) 1.5 percent for hospitals located in large urban areas; and
    (3) 1.0 percent for hospitals located in other urban areas.
    (ii) For purposes of determining the updated base-year costs for 
cost reporting periods beginning in Federal fiscal year 1989 (that is, 
beginning on or after October 1, 1988 and before October 1, 1989), the 
update factor for the cost reporting period beginning during federal 
Fiscal year 1988 is deemed to have been--
    (A) 3.0 percent for hospitals located in rural areas;
    (B) 1.5 percent for hospitals located in large urban areas; and
    (C) 1.0 percent for hospitals located in other urban areas.
    (6) For Federal fiscal year 1989. For cost reporting periods 
beginning in Federal fiscal year 1989, the update factor is determined 
using the methodology set forth in Sec. 412.63(g).
    (7) For Federal fiscal year 1990. (i) Except as described in 
paragraph (c)(7)(ii) of this section, for cost reporting periods 
beginning in Federal fiscal year 1990, the base-period cost per 
discharge is updated as follows:
    (A) For cost reporting periods beginning on or after October 1, 1989 
and before January 1, 1990, by 5.5 percent for discharges occurring 
before January 1, 1990 and by the factors set forth in paragraph 
(c)(7)(i)(B) of this section for discharges occurring on or after 
January 1, 1990.
    (B) For cost reporting periods beginning on or after January 1, 1990 
and before October 1, 1990, by--
    (1) 9.72 percent for hospitals located in rural areas;
    (2) 5.62 percent for hospitals located in large urban areas; and

[[Page 322]]

    (3) 4.97 percent for hospitals located in other urban areas.
    (ii) For discharges occurring on or after October 21, 1990 and 
before January 1, 1991, the base-period cost per discharge, updated as 
set forth in paragraph (c)(7)(i) of this section, is reduced by 5.5 
percent.
    (iii) For purposes of determining the updated base-period costs for 
cost reporting periods beginning in Federal fiscal year 1991 (that is, 
beginning on or after October 1, 1990 and before October 1, 1991), the 
update factor for the cost reporting period beginning during Federal 
fiscal year 1990 is deemed to have been the percentage change provided 
for in paragraph (c)(7)(i)(B) of this section.
    (8) For Federal fiscal year 1991. (i) Except as described in 
paragraph (c)(8)(ii) of this section, for cost reporting periods 
beginning in Federal fiscal year 1991, the base-period cost per 
discharge is updated by 5.2 percent.
    (ii) For discharges occurring on or after October 21, 1990 and 
before January 1, 1991, the base-period cost per discharge is updated by 
0.0 percent.
    (iii) For purposes of determining the updated base period costs for 
cost reporting periods beginning in Federal fiscal year 1992, the update 
factor for the cost reporting period beginning during Federal fiscal 
year 1991 is deemed to have been the percentage change provided for in 
paragraph (c)(8)(i) of this section.
    (9) For Federal fiscal years 1992 and 1993. For Federal fiscal years 
1992 and 1993, the update factor is the percentage increase in the 
market basket index for prospective payment hospitals (as defined in 
Sec. 413.40(a) of this chapter).
    (10) For Federal fiscal year 1994. For Federal fiscal year 1994, the 
update factor is the percentage increase in the market basket index for 
prospective payment hospitals (as defined in Sec. 413.40(a) of the 
chapter) minus 2.3 percentage points. For purposes of determining the 
hospital-specific rate for Federal fiscal year 1994 and subsequent 
years, this update factor is adjusted to take into account the portion 
of the 12-month cost reporting period beginning during Federal fiscal 
year 1993 that occurs in Federal fiscal year 1994.
    (11) For Federal fiscal year 1995. For Federal fiscal year 1995, the 
update factor is the percentage increase in the market basket index for 
prospective payment hospitals (as defined in Sec. 413.40(a) of this 
chapter) minus 2.2 percentage points.
    (12) For Federal fiscal years 1996 and following. For Federal fiscal 
years 1996 and following, the update factor is the market basket index 
for prospective payment hospitals (as defined in Sec. 413.40(a) of this 
chapter).
    (d) Budget neutrality--(1) Federal fiscal year 1984. For cost 
reporting periods beginning on or after October 1, 1983 and before 
October 1, 1984, HCFA adjusts the target rate percentage used under 
paragraph (c)(1) of this section. This adjustment is based on a factor 
actuarially estimated to ensure that the estimated amount of aggregate 
Medicare payments based on the hospital-specific portion of the 
transition payment rates is neither greater nor less than 75 percent of 
the amounts that would have been payable for the inpatient operating 
costs for those same hospitals for fiscal year 1984 under the law in 
effect before April 20, 1983.
    (2) Federal fiscal year 1985. For cost reporting periods beginning 
on or after October 1, 1984 and before October 1, 1985, HCFA adjusts the 
target rate percentage used under paragraph (c)(2) of this section. This 
adjustment is based on a factor actuarially estimated to ensure that the 
estimated amount of aggregate Medicare payment based on the hospital-
specific portion of the transition payment rates is neither greater nor 
less than 50 percent of the amounts that would have been payable for the 
inpatient operating costs for those same hospitals for fiscal year 1985 
under the Social Security Act as in effect on April 19, 1983.
    (e) DRG adjustment. The applicable hospital-specific cost per 
discharge is multiplied by the appropriate DRG weighting factor to 
determine the hospital-specific base payment amount

[[Page 323]]

(target amount) for a particular covered discharge.

[50 FR 12741, Mar. 29, 1985, as amended at 51 FR 16787, May 6, 1986; 51 
FR 34793, Sept. 30, 1986; 51 FR 42234, Nov. 24, 1986; 52 FR 33057, Sept. 
1, 1987; 53 FR 38528, Sept. 30, 1988; 55 FR 15173, Apr. 20, 1990; 56 FR 
573, Jan. 7, 1991; 57 FR 39822, Sept. 1, 1992; 58 FR 46338, Sept. 1, 
1993; 59 FR 1658, Jan. 12, 1994; 59 FR 32383, June 23, 1994]



Sec. 412.75  Determination of the hospital-specific rate for inpatient operating costs based on a Federal fiscal year 1987 base period.

    (a) Base-period costs--(1) General rule. Except as provided in 
paragraph (a)(2) of this section, for each hospital, the intermediary 
determines the hospital's Medicare part A allowable inpatient operating 
costs, as described in Sec. 412.2(c), for the 12-month or longer cost 
reporting period ending on or after September 30, 1987 and before 
September 30, 1988.
    (2) Exceptions. (i) If the hospital's last cost reporting period 
ending before September 30, 1988 is for less than 12 months, the base 
period is the hospital's most recent 12-month or longer cost reporting 
period ending before the short period report.
    (ii) If the hospital does not have a cost reporting period ending on 
or after September 30, 1987 and before September 30, 1988 and does have 
a cost reporting period beginning on or after October 1, 1986 and before 
October 1, 1987, that cost reporting period is the base period unless 
the cost reporting period is for less than 12 months. In that case, the 
base period is the hospital's most recent 12-month or longer cost 
reporting period ending before the short cost reporting period.
    (b) Costs on a per discharge basis. The intermediary determines the 
hospital's average base-period operating cost per discharge by dividing 
the total operating costs by the number of discharges in the base 
period. For purposes of this section, a transfer as defined in 
Sec. 412.4(b) is considered to be a discharge.
    (c) Case-mix adjustment. The intermediary divides the average base-
period cost per discharge by the hospital's case-mix index for the base 
period.
    (d) Updating base-period costs. For purposes of determining the 
updated base-period costs for cost reporting periods beginning in 
Federal fiscal year 1988, the update factor is determined using the 
methodology set forth in Sec. 412.73 (c)(5) through (c)(12).
    (e) DRG adjustment. The applicable hospital-specific cost per 
discharge is multiplied by the appropriate DRG weighting factor to 
determine the hospital-specific base payment amount (target amount) for 
a particular covered discharge.
    (f) Notice of hospital-specific rate. The intermediary furnishes the 
hospital a notice of its hospital-specific rate, which contains a 
statment of the hospital's Medicare part A allowable inpatient operating 
costs, number of Medicare discharges, and case-mix index adjustment 
factor used to determine the hospital's cost per discharge for the 
Federal fiscal year 1987 base period.
    (g) Right to administrative and judicial review. An intermediary's 
determination of the hospital-specific rate for a hospital is subject to 
administrative and judicial review. Review is available to a hospital 
upon receipt of the notice of the hospital-specific rate. This notice is 
treated as a final intermediary determination of the amount of program 
reimbursement for purposes of subpart R of part 405 of this chapter, 
governing provider reimbursement determinations and appeals.
    (h) Modification of hospital-specific rate. (1) The intermediary 
recalculates the hospital-specific rate to reflect the following:
    (i) Any modifications that are determined as a result of 
administrative or judicial review of the hospital-specific rate 
determinations; or
    (ii) Any additional costs that are recognized as allowable costs for 
the hospital's base period as a result of administrative or judicial 
review of the base-period notice of amount of program reimbursement.
    (2) With respect to either the hospital-specific rate determination 
or the amount of program reimbursement determination, the actions taken 
on administrative or judicial review that provide a basis for 
recalculations of the hospital-specific rate include the following:

[[Page 324]]

    (i) A reopening and revision of the hospital's base-period notice of 
amount of program reimbursement under Secs. 405.1885 through 405.1889 of 
this chapter.
    (ii) A prehearing order or finding issued during the provider 
payment appeals process by the appropriate reviewing authority under 
Sec. 405.1821 or Sec. 405.1853 of this chapter that resolved a matter at 
issue in the hospital's base-period notice of amount of program 
reimbursement.
    (iii) An affirmation, modification, or reversal of a Provider 
Reimbursement Review Board decision by the Administrator of HCFA under 
Sec. 405.1875 of this chapter that resolved a matter at issue in the 
hospital's base-period notice of amount of program reimbursement.
    (iv) An administrative or judicial review decision under 
Secs. 405.1831, 405.1871, or 405.1877 of this chapter that is final and 
no longer subject to review under applicable law or regulations by a 
higher reviewing authority, and that resolved a matter at issue in the 
hospital's base-period notice of amount of program reimbursement.
    (v) A final, nonappealable court judgment relating to the base-
period costs.
    (3) The adjustments to the hospital-specific rate made under 
paragraphs (h) (1) and (2) of this section are effective retroactively 
to the time of the intermediary's initial determination of the rate.

[55 FR 15173, Apr. 20, 1990, as amended at 55 FR 36069, Sept. 4, 1990; 
55 FR 39775, Sept. 2, 1990; 56 FR 573, Jan. 7, 1991; 55 FR 46887, Nov. 
7, 1990; 57 FR 39822, Sept. 1, 1992; 58 FR 46338, Sept. 1, 1993]



Sec. 412.76  Recovery of excess transition period payment amounts resulting from unlawful claims.

    If a hospital's base-year costs, as estimated for purposes of 
determining the hospital-specific portion, are determined, by criminal 
conviction or imposition of a civil money penalty or assessment, to 
include costs that were unlawfully claimed, the hospital's base-period 
costs are adjusted to remove the effect of the excess costs, and HCFA 
recovers both the excess costs reimbursed for the base period and the 
additional amounts paid due to the inappropriate increase of the 
hospital-specific portion of the hospital's transition payment rates.

[50 FR 12741, Mar. 29, 1985, as amended at 57 FR 39822, Sept. 1, 1992]



                  Subpart F--Payment for Outlier Cases



412.80   General provisions.

    (a) Basic rule--(1) Discharges occurring on or after October 1, 1994 
and before October 1, 1997. For discharges occurring on or after October 
1, 1994, and before October 1, 1997, except as provided in paragraph (b) 
of this section concerning transferring hospitals, HCFA provides for 
additional payment, beyond standard DRG payments, to a hospital for 
covered inpatient hospital services furnished to a Medicare beneficiary 
if either of the following conditions is met:
    (i) The beneficiary's length-of-stay (including days at the SNF 
level of care if a SNF bed is not available in the area) exceeds the 
mean length-of-stay for the applicable DRG by the lesser of the 
following:
    (A) A fixed number of days, as specified by HCFA; or
    (B) A fixed number of standard deviations, as specified by HCFA.
    (ii) The beneficiary's length-of-stay does not exceed criteria 
established under paragraph (a)(1)(i) of this section, but the 
hospital's charges for covered services furnished to the beneficiary, 
adjusted to operating costs and capital costs by applying cost-to-charge 
ratios as described in Sec. 412.84(h), exceed the DRG payment for the 
case plus a fixed dollar amount (adjusted for geographic variation in 
costs) as specified by HCFA.
    (2) Discharges occurring on or after October 1, 1997. For discharges 
occurring on or after October 1, 1997, except as provided in paragraph 
(b) of this section concerning transfers, HCFA provides for additional 
payment, beyond standard DRG payments, to a hospital for covered 
inpatient hospital services furnished to a Medicare beneficiary if the 
hospital's charges for covered services, adjusted to operating costs and 
capital costs by applying cost-to-charge ratios as described in 
Sec. 412.84(h), exceed the DRG payment for the case

[[Page 325]]

plus a fixed dollar amount (adjusted for geographic variation in costs) 
as specified by HCFA.
    (b) Outlier cases in transferring hospitals. HCFA provides cost 
outlier payments to a transferring hospital for cases paid in accordance 
with Sec. 412.4(f), if the hospital's charges for covered services 
furnished to the beneficiary, adjusted to costs by applying cost-to-
charge ratios as described in Sec. 412.84(h), exceed the DRG payment for 
the case plus a fixed dollar amount (adjusted for geographic variation 
in costs) as specified by HCFA, divided by the geometric mean length of 
stay for the DRG, and multiplied by an applicable factor determined as 
follows:
    (1) For transfer cases paid in accordance with Sec. 412.4(f)(1), the 
applicable factor is equal to the length of stay plus 1 day.
    (2) For transfer cases paid in accordance with Sec. 412.4(f)(2), the 
applicable factor is equal to 0.5 plus the product of the length of stay 
plus 1 day multiplied by 0.5.
    (c) Publication and revision of outlier criteria. HCFA will issue 
threshold criteria for determining outlier payment in the annual notice 
of the prospective payment rates published in accordance with 
Sec. 412.8(b).

[62 FR 46028, Aug. 29, 1997, as amended at 63 FR 41003, July 31, 1998]



Sec. 412.82  Payment for extended length-of-stay cases (day outliers).

    (a) For discharges occurring before October 1, 1997, if the hospital 
stay reflected by a discharge includes covered days of care beyond the 
applicable threshold criterion, the intermediary will make an additional 
payment, on a per diem basis, to the discharging hospital for those 
days. A special request or submission by the hospital is not necessary 
to initiate this payment. However, a hospital may request payment for 
day outliers before the medical review required in paragraph (b) of this 
section.
    (b) The PRO must review and approve to the extent required by HCFA--
    (1) The medical necessity and appropriateness of the admission and 
outlier services in the context of the entire stay;
    (2) The validity of the diagnostic and procedural coding; and
    (3) The granting of grace days.
    (c) Except as provided in Sec. 412.86, the per diem payment made 
under paragraph (a) of this section is derived by taking a percentage of 
the average per diem payment for the applicable DRG, as calculated by 
dividing the Federal prospective payment rate for inpatient operating 
costs and inpatient capital-related costs determined under subpart D of 
this part, by the arithmetic mean length of stay for that DRG. HCFA 
issues the applicable percentage of the average per diem payment in the 
annual publication of the prospective payment rates in accordance with 
Sec. 412.8(b).
    (d) Any days in a covered stay identified as noncovered reduce the 
number of days reimbursed at the day outlier rate but not to exceed the 
number of days that occur after the day outlier threshold.

[50 FR 12741, Mar. 29, 1985, as amended at 50 FR 15326, Apr. 17, 1985; 
50 FR 35689, Sept. 3, 1985; 53 FR 38529, Sept. 30, 1988; 57 FR 39822, 
Sept. 1, 1992; 59 FR 45398, Sept. 1, 1994; 62 FR 46028, Aug. 29, 1997]



Sec. 412.84  Payment for extraordinarily high-cost cases (cost outliers).

    (a) A hospital may request its intermediary to make an additional 
payment for inpatient hospital services that meet the criteria 
established in accordance with Sec. 412.80(a).
    (b) The hospital must request additional payment--
    (1) With initial submission of the bill; or
    (2) Within 60 days of receipt of the intermediary's initial 
determination.
    (c) Except as specified in paragraph (e) of this section, an 
additional payment for a cost outlier case is made prior to medical 
review.
    (d) As described in paragraph (f) of this section, the PRO reviews a 
sample of cost outlier cases after payment. The charges for any services 
identified as noncovered through this review are denied and any outlier 
payment made for these services are recovered, as appropriate, after a 
determination as to the provider's liability has been made.
    (e) If the PRO finds a pattern of inappropriate utilization by a 
hospital, all

[[Page 326]]

cost outlier cases from that hospital are subject to medical review, and 
this review may be conducted prior to payment until the PRO determines 
that appropriate corrective actions have been taken.
    (f) The PRO reviews the cost outlier cases, using the medical 
records and itemized charges, to verify the following:
    (1) The admission was medically necessary and appropriate.
    (2) Services were medically necessary and delivered in the most 
appropriate setting.
    (3) Services were ordered by the physician, actually furnished, and 
not duplicatively billed.
    (4) The diagnostic and procedural codings are correct.
    (g) The intermediary bases the operating and capital costs of the 
discharge on the billed charges for covered inpatient services adjusted 
by the cost to charge ratios applicable to operating and capital costs, 
respectively, as described in paragraph (h) of this section.
    (h) The operating cost-to-charge ratio and, effective with cost 
reporting periods beginning on or after October 1, 1991, the capital 
cost-to-charge ratio used to adjust covered charges are computed 
annually by the intermediary for each hospital based on the latest 
available settled cost report for that hospital and charge data for the 
same time period as that covered by the cost report. Statewide cost-to-
charge ratios are used in those instances in which a hospital's 
operating or capital cost-to-charge ratios fall outside reasonable 
parameters. HCFA sets forth these parameters and the statewide cost-to-
charge ratios in each year's annual notice of prospective payment rates 
published under Sec. 412.8(b).
    (i) If any of the services are determined to be noncovered, the 
charges for these services will be deducted from the requested amount of 
reimbursement but not to exceed the amount claimed above the cost 
outlier threshold.
    (j) Except as provided in paragraph (k) of this section, the 
additional amount is derived by first taking 80 percent of the 
difference between the hospital's adjusted operating cost for the 
discharge (as determined under paragraph (g) of this section) and the 
operating threshold criteria established under Sec. 412.80(a)(1)(ii); 80 
percent is also taken of the difference between the hospital's adjusted 
capital cost for the discharge (as determined under paragraph (g) of 
this section) and the capital threshold criteria established under 
Sec. 412.80(a)(1)(ii). The resulting capital amount is then multiplied 
by the applicable Federal portion of the payment as determined in 
Sec. 412.340(a) or Sec. 412.344(a).
    (k) For discharges occurring on or after April 1, 1988, the 
additional payment amount for the DRGs related to burn cases, which are 
identified in the most recent annual notice of prospective payment rates 
published in accordance with Sec. 412.8(b), is computed under the 
provisions of paragraph (j) of this section except that the payment is 
made using 90 percent of the difference between the hospital's adjusted 
cost for the discharge and the threshold criteria.

[50 FR 12741, Mar. 29, 1985, as amended at 50 FR 35689, Sept. 3, 1985; 
51 FR 31496, Sept. 3, 1986; 53 FR 38529, Sept. 30, 1988; 54 FR 36494, 
Sept. 1, 1989; 55 FR 15174, Apr. 20, 1990; 56 FR 43448, Aug. 30, 1991; 
57 FR 39823, Sept. 1, 1992; 59 FR 45398, Sept. 1, 1994; 62 FR 46028, 
Aug. 29, 1997]



Sec. 412.86  Payment for extraordinarily high-cost day outliers.

     For discharges occurring before October 1, 1997, if a discharge 
that qualifies for an additional payment under the provisions of 
Sec. 412.82 has charges adjusted to costs that exceed the cost outlier 
threshold criteria for an extraordinarily high-cost case as set forth in 
Sec. 412.80(a)(1)(ii), the additional payment made for the discharge is 
the greater of--
    (a) The applicable per diem payment computed under Sec. 412.82 (c) 
or (d); or
    (b) The payment that would be made under Sec. 412.84 (i) or (j) if 
the case had not met the day outlier criteria threshold set forth in 
Sec. 412.80(a)(1)(i).

[53 FR 38529, Sept. 30, 1988, as amended at 62 FR 46028, Aug. 29, 1997]

[[Page 327]]



Subpart G--Special Treatment of Certain Facilities Under the Prospective 
              Payment System for Inpatient Operating Costs



Sec. 412.90  General rules.

    (a) Sole community hospitals. HCFA may adjust the prospective 
payment rates for inpatient operating costs determined under subpart D 
or E of this part if a hospital, by reason of factors such as isolated 
location, weather conditions, travel conditions, or absence of other 
hosptials, is the sole source of inpatient hospital services reasonably 
available in a geographic area to Medicare beneficiaries. If a hospital 
meets the criteria for such an exception under Sec. 412.92(a), its 
prospective payment rates for inpatient operating costs are determined 
under Sec. 412.92(d).
    (b) Referral center. HCFA may adjust the prospective payment rates 
for inpatient operating costs determined under subpart D or E of this 
part if a hospital acts as a referral center for patients transferred 
from other hospitals. Criteria for identifying such referral centers are 
set forth in Sec. 412.96.
    (c) Christian Science Sanatoria. HCFA may adjust the prospective 
payment rates for inpatient operating costs determined under subpart D 
or E of this part if a hospital is a Christian Science sanatorium. Such 
a sanatorium's prospective payment rates are determined in accordance 
with Sec. 412.98.
    (d) Kidney acquisition costs incurred by hospitals approved as renal 
transplantation centers. HCFA pays for kidney acquisition costs incurred 
by renal transplanation centers on a reasonable cost basis. The criteria 
for this special payment provision are set forth in Sec. 412.100.
    (e) Hospitals that are located in urban areas and that are 
reclassified as rural. HCFA adjusts the rural Federal payment amounts 
for inpatient operating costs for hospitals reclassified as rural, as 
defined in Sec. 412.62(f). The criteria for this adjustment are set 
forth in Sec. 412.102.
    (f) Hospitals that have a high percentage of ESRD beneficiary 
discharges. HCFA makes an additional payment to a hospital if ten 
percent or more of its total Medicare discharges in a cost reporting 
period beginning on or after October 1, 1984 are ESRD beneficiary 
discharges. In determining ESRD discharges, discharges in DRG Nos. 302, 
316, and 317 are excluded. The criteria for this additional payment are 
set forth in Sec. 412.104.
    (g) Hosptials that incur indirect costs for graduate medical 
education programs. HCFA makes an additional payment for inpatient 
operating costs to a hospital for indirect medical education costs 
attributable to an approved graduate medical education program. The 
criteria for this additional payment are set forth in Sec. 412.105.
    (h) Hospitals that serve a disproportionate share of low-income 
patients. For discharges occurring on or after May 1, 1986, HCFA makes 
an additional payment for inpatient operating costs to hospitals that 
serve a disproportionate share of low-income patients. The criteria for 
this additional payment are set forth in Sec. 412.106.
    (i) Hospitals that receive an additional update for FYs 1998 and 
1999. For FYs 1998 and 1999, HCFA makes an upward adjustment to the 
standardized amounts for certain hospitals that do not receive indirect 
medical education or disproportionate share payments and are not 
Medicare- dependent, small rural hospitals. The criteria for identifying 
these hospitals are set forth in Sec. 412.107.
    (j) Medicare-dependent, small rural hospitals. For cost reporting 
periods beginning on or after April 1, 1990 and ending before October 1, 
1994, or beginning on or after October 1, 1997 and ending before October 
1, 2001, HCFA adjusts the prospective payment rates for inpatient 
operating costs determined under subparts D and E of this part if a 
hospital is classified as a Medicare-dependent, small rural hospital. 
Criteria for identifying these hospitals are set forth in Sec. 412.108.
    (k) Essential access community hospitals (EACHs). If a hospital was 
designated as an EACH by HCFA as described in Sec. 412.109(a) and is 
located in a rural area as defined in Sec. 412.109(b), HCFA determines 
the prospective payment rate for that hospital, as it does

[[Page 328]]

for sole community hospitals, under Sec. 412.92(d).

[57 FR 39823, Sept. 1, 1992, as amended at 58 FR 30669, May 26, 1993; 62 
FR 46028, Aug. 29, 1997]



Sec. 412.92  Special treatment: Sole community hospitals.

    (a) Criteria for classification as a sole community hospital. HCFA 
classifies a hospital as a sole community hospital if it is located more 
than 35 miles from other like hospitals, or it is located in a rural 
area (as defined in Sec. 412.83(b)) and meets one of the following 
conditions:
    (1) The hospital is located between 25 and 35 miles from other like 
hospitals and meets one of the following criteria:
    (i) No more than 25 percent of residents who become hospital 
inpatients or no more than 25 percent of the Medicare beneficiaries who 
become hospital inpatients in the hospital's service area are admitted 
to other like hospitals located within a 35-mile radius of the hospital, 
or, if larger, within its service area;
    (ii) The hospital has fewer than 50 beds and the intermediary 
certifies that the hospital would have met the criteria in paragraph 
(a)(1)(i) of this section were it not for the fact that some 
beneficiaries or residents were forced to seek care outside the service 
area due to the unavailability of necessary specialty services at the 
community hospital; or
    (iii) Because of local topography or periods of prolonged severe 
weather conditions, the other like hospitals are inaccessible for at 
least 30 days in each 2 out of 3 years.
    (2) The hospital is located between 15 and 25 miles from other like 
hospitals but because of local topography or periods of prolonged severe 
weather conditions, the other like hospitals are inaccessible for at 
least 30 days in each 2 out of 3 years.
    (3) Because of distance, posted speed limits, and predictable 
weather conditions, the travel time between the hospital and the nearest 
like hospital is at least 45 minutes.
    (b) Classification procedures. (1) Request for classification as 
sole community hospital. (i) The hospital must make its request to its 
fiscal intermediary.
    (ii) If a hospital is seeking sole community hospital classification 
under paragraph (a)(1)(i) or (a)(1)(ii) of this section, the hospital 
must include the following information with its request:
    (A) The hospital must provide patient origin data (for example, the 
number of patients from each zip code from which the hospital draws 
inpatients) for all inpatient discharges to document the boundaries of 
its service area.
    (B) The hospital must provide patient origin data from all other 
hospitals located within a 35 mile radius of it or, if larger, within 
its service area, to document that no more than 25 percent of either all 
of the population or the Medicare beneficiaries residing in the 
hospital's service area and hospitalized for inpatient care were 
admitted to other like hospitals for care.
    (iii)(A) If the hospital is unable to obtain the information 
required under paragraph (b)(1)(ii)(A) of this section concerning the 
residences of Medicare beneficiaries who were inpatients in other 
hospitals located within a 50 mile radius of the hospital or, if larger, 
within the hospital's service area, the hospital may request that HCFA 
provide this information.
    (B) If a hospital obtains the information as requested under 
paragraph (b)(1)(iii)(A) of this section, that information is used by 
both the intermediary and HCFA in making the determination of the 
residences of Medicare beneficiaries under paragraphs (b)(1)(iii) and 
(b)(1)(iv) of this section, regardless of any other information 
concerning the residences of Medicare beneficiaries submitted by the 
hospital.
    (iv) The intermediary reviews the request and send the request, with 
its recommendation, to HCFA.
    (v) HCFA reviews the request and the intermediary's recommendation 
and forward its approval or disapproval to the intermediary.
    (2) Effective dates of classification. (i) Sole community hospital 
status is effective 30 days after the date of HCFA's written 
notification of approval.

[[Page 329]]

    (ii) When a court order or a determination by the Provider 
Reimbursement Review Board (PRRB) reverses an HCFA denial of sole 
community hospital status and no further appeal is made, the sole 
community hospital status is effective as follows:
    (A) If the hospital's application was submitted prior to October 1, 
1983, its status as a sole community hospital is effective at the start 
of the cost reporting period for which it sought exemption from the cost 
limits.
    (B) If the hospital's application for sole community hospital status 
was filed on or after October 1, 1983, the effective date is 30 days 
after the date of HCFA's original written notification of denial.
    (iii) When a hospital is granted retroactive approval of sole 
community hospital status by a court order or a PRRB decision and the 
hospital wishes its sole community hospital status terminated before the 
date of the court order or PRRB determination, it must submit written 
notice to the HCFA regional office within 90 days of the court order or 
PRRB decision. A written request received after the 90-day period is 
effective no later than 30 days after the request is submitted.
    (iv) A hospital classified as a sole community hospital receives a 
payment djustment, as described in paragraph (d) of this section, 
effective with discharges occurring on or after 30 days after the date 
of HCFA's approval of the classification.
    (3) Duration of classification. An approved classification as a sole 
community hospital remains in effect without need for reapproval unless 
there is a change in the circumstances under which the classification 
was approved.
    (4) Cancellation of classification. (i) A hospital may at any time 
request cancellation of its classification as a sole community hospital, 
and be paid at rates determined under subparts D and E of this part, as 
appropriate.
    (ii) The cancellation becomes effective no later than 30 days after 
the date the hospital submits its request.
    (iii) If a hospital requests that its sole community hospital 
classification be cancelled, it may not be reclassified as a sole 
community hospital unless it meets the following conditions:
    (A) At least one full year has passed since the effective date of 
its cancellation.
    (B) The hospital meets the qualifying criteria set forth in 
paragraph (a) of this section in effect at the time it reapplies.
    (5) Automatic classification as a sole community hospital. A 
hospital that has been granted an exemption from the hospital cost 
limits before October 1, 1983, or whose request for the exemption was 
received by the appropriate intermediary before October 1, 1983, and was 
subsequently approved, is automatically classified as a sole community 
hospital unless that classification has been cancelled under paragraph 
(b)(3) of this section, or there is a change in the circumstances under 
which the classification was approved.
    (c) Terminology. As used in this section--
    (1) The term miles means the shortest distance in miles measured 
over improved roads. An improved road for this purpose is any road which 
is maintained by a local, State, or Federal government entity and which 
is available for use by the general public.
    (2) The term like hospital means a hospital furnishing short-term, 
acute care. HCFA will not evaluate comparability of specialty services 
in making determinations on classifications as sole community hospitals.
    (3) The term service area means the area from which a hospital draws 
at least 75 percent of its inpatients during the most recent 12-month 
cost reporting period ending before it applies for classification as a 
sole community hospital.
    (d) Determining prospective payment rates for inpatient operating 
costs for sole community hospitals. (1) General rule. For cost reporting 
periods beginning on or after April 1, 1990, a sole community hospital 
is paid based on whichever of the following amounts yields the greatest 
aggregate payment for the cost reporting period:
    (i) The Federal payment rate applicable to the hospitals as 
determined under Sec. 412.63, subject to the regional floor defined in 
Sec. 412.70(c)(6).
    (ii) The hospital-specific rate as determined under Sec. 412.73.

[[Page 330]]

    (iii) The hospital-specific rate as determined under Sec. 412.75.
    (2) Adjustments to payments. A sole community hospital may receive 
an adjustment to its payments to take into account a significant 
decrease in number of discharges or a significant increase in inpatient 
operating costs, as described in paragraphs (e) and (g) of this section 
respectively.
    (e) Additional payments to sole community hospitals experiencing a 
significant volume decrease. (1) For cost reporting periods beginning on 
or after October 1, 1983, the intermediary provides for a payment 
adjustment for a sole community hospital for any cost reporting period 
during which the hospital experiences, due to circumstances as described 
in paragraph (e)(2) of this section a more than five percent decrease in 
its total discharges of inpatients as compared to its immediately 
preceding cost reporting period. If either the cost reporting period in 
question or the immediately preceding cost reporting period is other 
than a 12-month cost reporting period, the intermediary must convert the 
discharges to a monthly figure and multiply this figure by 12 to 
estimate the total number of discharges for a 12-month cost reporting 
period.
    (2) To qualify for a payment adjustment on the basis of a decrease 
in discharges, a sole community hospital must submit its request no 
later than 180 days after the date on the intermediary's Notice of 
Amount of Program Reimbursement--
    (i) Submit to the intermediary documentation demonstrating the size 
of the decrease in discharges, and the resulting effect on per discharge 
costs; and
    (ii) Show that the decrease is due to circumstances beyond the 
hospital's control.
    (3) The intermediary determines a lump sum adjustment amount not to 
exceed the difference between the hospital's Medicare inpatient 
operating costs and the hospital's total DRG revenue for inpatient 
operating costs based on DRG-adjusted prospective payment rates for 
inpatient operating costs (including outlier payments for inpatient 
operating costs determined under subpart F of this part and additional 
payments made for inpatient operating costs for hospitals that serve a 
disproportionate share of low-income patients as determined under 
Sec. 412.106 and for indirect medical education costs as determined 
under Sec. 412.105).
    (i) In determining the adjustment amount, the intermediary 
considers--
    (A) The individual hospital's needs and circumstances, including the 
reasonable cost of maintaining necessary core staff and services in view 
of minimum staffing requirements imposed by State agencies;
    (B) The hospital's fixed (and semi-fixed) costs, other than those 
costs paid on a reasonable cost basis under part 413 of this chapter; 
and
    (C) The length of time the hospital has experienced a decrease in 
utilization.
    (ii) The intermediary makes its determination within 180 days from 
the date it receives the hospital's request and all other necessary 
information.
    (iii) The intermediary determination is subject to review under 
subpart R of part 405 of this chapter.

[50 FR 12741, Mar. 29, 1985, as amended at 51 FR 31496, Sept. 3, 1986; 
51 FR 34793, Sept. 30, 1986; 52 FR 30367, Aug. 14, 1987; 52 FR 33057, 
Sept. 1, 1987; 53 FR 38529, Sept. 30, 1988; 54 FR 36494, Sept. 1, 1989; 
55 FR 14283, Apr. 17, 1990; 55 FR 15174, Apr. 20, 1990; 55 FR 36070, 
Sept. 4, 1990; 56 FR 25487, June 4, 1991; 57 FR 39823, Sept. 1, 1992; 60 
FR 45848, Sept. 1, 1995]



Sec. 412.96  Special treatment: Referral centers.

    (a) Criteria for classification as a referral center: Basic rule. 
HCFA classifies a hospital as a referral center only if the hospital is 
a Medicare participating acute care hospital and meets the applicable 
criteria of paragraph (b) or (c) of this section.
    (b) Criteria for cost reporting periods beginning on or after 
October 1, 1983. The hospital meets either of the following criteria:
    (1) The hospital is located in a rural area (as defined in 
Sec. 412.63(b)) and has the following number of beds, as determined 
under the provisions of Sec. 412.105(b), available for use:
    (i) Effective for discharges occurring before April 1, 1988, the 
hospital has 500 or more beds.
    (ii) Effective for discharges occurring on or after April 1, 1988, 
the hospital

[[Page 331]]

has 275 or more beds during its most recently completed cost reporting 
period unless the hospital submits written documentation with its 
application that its bed count has changed since the close of its most 
recently completed cost reporting period for one or more of the 
following reasons:
    (A) Merger of two or more hospitals.
    (B) Reopening of acute care beds previously closed for renovation.
    (C) Transfer to the prospective payment system of acute care beds 
previously classified as part of an excluded unit.
    (D) Expansion of acute care beds available for use and permanently 
maintained for lodging inpatients, excluding beds in corridors and other 
temporary beds.
    (2) The hospital shows that--(i) At least 50 percent of its Medicare 
patients are referred from other hospitals or from physicians not on the 
staff of the hospital; and
    (ii) At least 60 percent of the hospital's Medicare patients live 
more than 25 miles from the hospital, and at least 60 percent of all the 
services that the hospital furnishes to Medicare beneficiaries are 
furnished to beneficiaries who live more than 25 miles from the 
hospital.
    (c) Alternative criteria. For cost reporting periods beginning on or 
after October 1, 1985, a hospital that does not meet the criteria of 
paragraph (b) of this section is classified as a referral center if it 
is located in a rural area (as defined in Sec. 412.62(f)) and meets the 
criteria specified in paragraphs (c)(1) and (c)(2) of this section and 
at least one of the three criteria specified in paragraphs (c)(3), 
(c)(4), and (c)(5) of this section.
    (1) Case-mix index. HCFA sets forth national and regional case-mix 
index values in each year's annual notice of prospective payment rates 
published under Sec. 412.8(b). The methodology HCFA uses to calculate 
these criteria is described in paragraph (g) of this section. The case-
mix index value to be used for an individual hospital in the 
determination of whether it meets the case-mix index criteria is that 
calculated by HCFA from the hospital's own billing records for Medicare 
discharges as processed by the fiscal intermediary and submitted to 
HCFA. The hospital's case-mix index for discharges (not including 
discharges from units excluded from the prospective payment system under 
subpart B of this part) during the most recent Federal fiscal year that 
ended at least one year prior to the beginning of the cost reporting 
period for which the hospital is seeking referral center status must be 
at least equal to-
    (i) For hospitals applying for rural referral center status for cost 
reporting periods beginning on or after October 1, 1985 and before 
October 1, 1986, the national or regional case-mix index value; or
    (ii) For hospitals applying for rural referral center status for 
cost--reporting periods beginning on or after October 1, 1986, the 
national case-mix index value as established by HCFA or the median case-
mix index value for urban hospitals located in each region. In 
calculating the median case-mix index for each region, HCFA excludes the 
case-mix indexes of hospitals receiving indirect medical education 
payments as provided in Sec. 412.105.
    (2) Number of discharges. (i) HCFA sets forth the national and 
regional numbers of discharges in each year's annual notice of 
prospective payment rates published under Sec. 412.8(b). The methodology 
HCFA uses to calculate these criteria is described in paragraph (h) of 
this section. Except as provided in paragraph (c)(2)(ii) of this section 
for an osteopathic hospital, for the hospital's most recently completed 
cost reporting period, its number of discharges (not including 
discharges from units excluded from the prospective payment system under 
subpart B of this part or from newborn units) is at least equal to--
    (A) For hospitals applying for rural referral center status for cost 
reporting periods beginning on or after October 1, 1985 and before 
October 1, 1986, the number of discharges under either the national or 
regional criterion; or
    (B) For hospitals applying for rural referral center status for cost 
reporting periods beginning on or after October 1, 1986, 5,000 
discharges or, if less, the median number of discharges for urban 
hospitals located in each region.

[[Page 332]]

    (ii) For cost reporting periods beginning on or after January 1, 
1986, an osteopathic hospital, recognized by the American Osteopathic 
Healthcare Association (or any successor organization), that is located 
in a rural area must have at least 3,000 discharges during its most 
recently completed cost reporting period to meet the number of 
discharges criterion. The 3,000 discharches benchmark is also used in 
evaluating an osteopathic hospital for purposes of the triennial review.
    (3) Medical staff. More than 50 percent of the hospital's active 
medical staff are specialists who meet one of the following conditions:
    (i) Are certified as specialists by one of the Member Boards of the 
American Board of Medical Specialties or the Advisory Board of 
Osteopathic Specialists.
    (ii) Have completed the current training requirements for admission 
to the certification examination of one of the Member Boards of the 
American Board of Medical Specialties or the Advisory Board of 
Osteopathic Specialists.
    (iii) Have successfully completed a residency program in a medical 
specialty accredited by the Accreditation Council of Graduate Medical 
Education or the American Osteopathic Association.
    (4) Source of inpatients. At least 60 percent of all its discharges 
are for inpatients who reside more than 25 miles from the hospital.
    (5) Volume of referrals. At least 40 percent of all inpatients 
treated at the hospital are referred from other hospitals or from 
physicians not on the hospital's staff.
    (d) Payment to rural referral centers. Effective for discharges 
occurring on or after April 1, 1988, and before October 1, 1994, a 
hospital that is located in a rural area and meets the criteria of 
paragraphs (b)(1), (b)(2) or (c) of this section is paid prospective 
payments for inpatient operating costs per discharge based on the 
applicable other urban payment rates as determined in accordance with 
Sec. 412.63, as adjusted by the hospital's area wage index.
    (e)-(f) [Reserved]
    (g) Hospital cancellation of referral center status. (1) A hospital 
may at any time request cancellation of its status as a referral center 
and be paid prospective payments per discharge based on the applicable 
rural rate as determined in accordance with Sec. 412.63, as adjusted by 
the hospital's area wage index value.
    (2) The cancellation becomes effective no later than 30 days after 
the date the hospital submits its request.
    (3) If a hospital requests that its referral center status be 
canceled, it may not be reclassified as a referral center unless it 
meets the qualifying criteria set forth in paragraph (a) of this section 
in effect at the time it reapplies.
    (h) Methodology for calculating case-mix index criteria. HCFA 
calculates the national and regional case-mix index value criteria as 
described in paragraphs (g)(1) through (g)(4) of this section.
    (1) Updating process. HCFA updates the national and regional case-
mix index standards using the latest available data from hospitals 
subject to the prospective payment system for the Federal fiscal year.
    (2) Source of data. In making the calculations described in 
paragraph (g)(1) of this section, HCFA uses all inpatient hospital bills 
received for discharges subject to prospective payment during the 
Federal fiscal year being monitored.
    (3) Effective date. HCFA sets forth the national and regional 
criteria in the annual notice of prospective payment rates published 
under Sec. 412.8(b). These criteria are used to determine if a hospital 
qualifies for referral center status for cost reporting periods 
beginning on or after October 1 of the Federal fiscal year to which the 
notice applies.
    (4) Applicability of criteria to HCFA review of referral center 
status. For purposes of the triennial HCFA review of a referral center's 
status as described in paragraph (f) of this section, the referral 
center's case-mix index value for a Federal fiscal year is evaluated 
using the appropriate case-mix value criteria published in the annual 
notice of prospective payment rates.
    (i) Methodology for calculating number of discharges criteria. For 
purposes of determining compliance with the national or regional number 
of discharges criterion under paragraph (c)(2) of this

[[Page 333]]

section, HCFA calculates the criteria as follows:
    (1) Updating process. HCFA updates the national and regional number 
of discharges using the latest available data for levels of admissions 
or discharges or both.
    (2) Source of data. In making the calculations described in 
paragraph (h)(1) of this section, HCFA uses the most recent hospital 
admissions or discharge data available.
    (3) Annual notice. HCFA sets forth the national and regional 
criteria in the annual notice of prospective payment rates published 
under Sec. 412.8(b). These criteria are compared to an applying 
hospital's number of discharges for its most recently completed cost 
reporting period in determining if the hospital qualifies for referral 
center status for cost reporting periods beginning on or after October 1 
of the Federal fiscal year to which the notice applies.
    (4) Applicability of criteria to HCFA review of referral center 
status. For purposes of the triennial review of a referral center's 
status as described in paragraph (f) of this section, the referral 
center's number of discharges for its most recently completed cost 
reporting period is evaluated using the appropriate discharge criteria 
published in the annual notice of prospective payment rates.

[50 FR 12741, Mar. 29, 1985]

    Editorial Note: For Federal Register citations affecting 
Sec. 412.96, see the List of Sections Affected in the Finding Aids 
section of this volume.



Sec. 412.98  Special treatment: Christian Science Sanatoria.

    (a) General rule. If a Christian Science Sanatorium is not excluded 
from the prospective payment systems under subpart B of this part, HCFA 
pays, for inpatient hospital services furnished to a beneficiary by that 
sanatorium, a predetermined fixed amount per discharge based on the 
sanatorium's historical inpatient operating costs per discharge.
    (b) Prospective payment rates. For cost reporting periods beginning 
on or after October 1, 1983, the sanatorium's prospective payment rate 
for inpatient operating costs equals the amount that would constitute 
the sanatorium's target amount under Sec. 413.40(c)(4) of this chapter 
if the institution were subject to the rate of increase ceiling 
specified in Sec. 413.40 of this chapter instead of the prospective 
payment systems. This amount is not adjusted for the DRG weighting 
factor.
    (c) Outlier payments. A Christian Science sanatorium is not eligible 
for outlier payments under subpart F of this part.

[50 FR 12741, Mar. 29, 1985, as amended at 51 FR 34793, Sept. 30, 1986; 
57 FR 39823, Sept. 1, 1992; 58 FR 46338, Sept. 1, 1993; 59 FR 1658, Jan. 
12, 1994]



Sec. 412.100  Special treatment: Renal transplantation centers.

    (a) Adjustments for renal transplantation centers. (1) HCFA adjusts 
the prospective payment rates for inpatient operating costs determined 
under subparts D and E of this part for hospitals approved as renal 
transplantation centers (described at Secs. 405.2170 and 405.2171 of 
this chapter) to remove the estimated net expenses associated with 
kidney acquisition.
    (2) Kidney acquisition costs are treated apart from the prospective 
payment rate for inpatient operating costs, and payment to the hospital 
is adjusted in each reporting period to reflect an amount necessary to 
compensate the hospital for reasonable expenses of kidney acquisition.
    (b) Costs of kidney acquisition. Expenses recognized under this 
section include costs of acquiring a kidney, from a live donor or a 
cadaver, irrespective of whether the kidney was obtained by the hospital 
or through an organ procurement agency. These costs include--
    (1) Tissue typing, including tissue typing furnished by independent 
laboratories;
    (2) Donor and recipient evaluation;
    (3) Other costs associated with excising kidneys, such as donor 
general routine and special care services;
    (4) Operating room and other inpatient ancillary services applicable 
to the donor;
    (5) Preservation and perfusion costs;
    (6) Charges for registration of recipient with a kidney transplant 
registry;
    (7) Surgeons' fees for excising cadaver kidneys;
    (8) Transportation;

[[Page 334]]

    (9) Costs of kidneys acquired from other providers or kidney 
procurement organizations;
    (10) Hospital costs normally classified as outpatient costs 
applicable to kidney excisions (services include donor and donee tissue 
typing, work-up, and related services furnished prior to admission);
    (11) Costs of services applicable to kidney excisions which are 
rendered by residents and interns not in approved teaching programs; and
    (12) All pre-admission physicians services, such as laboratory, 
electroencephalography, and surgeon fees for cadaver excisions, 
applicable to kidney excisions including the costs of physicians 
services.

[50 FR 12741, Mar. 29, 1985, as amended at 57 FR 39824, Sept. 1, 1992]



Sec. 412.102  Special treatment: Hospitals reclassified as rural.

    Effective on or after October 1, 1983, a hospital reclassified as 
rural, as defined in Sec. 412.62(f), may receive an adjustment to its 
rural Federal payment amount for operating costs for two successive 
fiscal years.
    (a) First year adjustment. The hospital's rural average standardized 
amount and disproportionate share payments as described in Sec. 412.106 
are adjusted on the basis of an additional amount that equals two-thirds 
of the difference between the urban standardized amount and 
disproportionate share payments applicable to the hospital before its 
reclassification and the rural standardized amount and disproportionate 
share payments otherwise applicable to the Federal fiscal year for which 
the adjustment is made.
    (b) Second year adjustment. If a hospital continues to be 
reclassified as rural, its rural average standardized amount and 
disproportionate share payments are adjusted on the basis of an 
additional amount that equals one-third of the difference between the 
urban standardized amount and disproportionate share payments applicable 
to the hospital before its reclassification and the rural standardized 
amounts and disproportionate share payments otherwise applicable to the 
Federal fiscal year for which the adjustment is made.

[58 FR 46338, Sept. 1, 1993]



Sec. 412.104  Special treatment: Hospitals with high percentage of ESRD discharges.

    (a) Criteria for classification. Effective with cost reporting 
periods that begin on or after October 1, 1984, HCFA provides an 
additional payment to a hospital for inpatient dialysis provided to ESRD 
beneficiaries if the hospital has established that ESRD beneficiary 
discharges, excluding discharges classified into DRG No. 302 (Kidney 
Transplant), DRG No. 316 (Renal Failure) or DRG No. 317 (Admit for Renal 
Dialysis), constitute ten percent or more of its total Medicare 
discharges.
    (b) Additional payment. A hospital that meets the criteria of 
paragraph (a) of this section is paid an additional payment for each 
ESRD beneficiary discharge except those excluded under paragraph (a) of 
this section.
    (1) The payment is based on the estimated weekly cost of dialysis 
and the average length of stay of ESRD beneficiaries for the hospital.
    (2) The estimated weekly cost of dialysis is the average number of 
dialysis sessions furnished per week during the 12-month period that 
ended June 30, 1983 multiplied by the average cost of dialysis for the 
same period.
    (3) The average cost of dialysis includes only those costs 
determined to be directly related to the dialysis service. (These costs 
include salary, employee health and welfare, drugs, supplies, and 
laboratory services.)
    (4) The average cost of dialysis is reviewed and adjusted, if 
appropriate, at the time the composite rate reimbursement for outpatient 
dialysis is reviewed.
    (5) The payment to a hospital equals the average length of stay of 
ESRD beneficiaries in the hospital, expressed as a ratio to one week, 
times the estimated weekly cost of dialysis multiplied by the number of 
ESRD beneficiary discharges except for those excluded under paragraph 
(a) of this section. This payment is made only on the Federal portion of 
the payment rate.

[50 FR 12741, Mar. 29, 1985, as amended at 57 FR 39824, Sept. 1, 1992]

[[Page 335]]



Sec. 412.105  Special treatment: Hospitals that incur indirect costs for graduate medical education programs.

    HCFA makes an additional payment to hospitals for indirect medical 
education costs using the following procedures:
    (a) Basic data. HCFA determines the following for each hospital:
    (1) The hospital's ratio of full-time equivalent residents, except 
as limited under paragraph (f) of this section, to the number of beds 
(as determined in paragraph (b) of this section). Except for the special 
circumstances for affiliated groups and new programs described in 
paragraphs (f)(1)(vi) and (f)(1)(vii) of this section, for a hospital's 
cost reporting periods beginning on or after October 1, 1997, this ratio 
may not exceed the ratio for the hospital's most recent prior cost 
reporting period.
    (2) The hospital's DRG revenue for inpatient operating costs based 
on DRG-adjusted prospective payment rates for inpatient operating costs, 
excluding outlier payments for inpatient operating costs determined 
under subpart F of this part and additional payments made under the 
provisions of Sec. 412.106 .
    (b) Determination of number of beds. For purposes of this section, 
the number of beds in a hospital is determined by counting the number of 
available bed days during the cost reporting period, not including beds 
or bassinets in the healthy newborn nursery, custodial care beds, or 
beds in excluded distinct part hospital units, and dividing that number 
by the number of days in the cost reporting period.
    (c) Measurement for teaching activity. The factor representing the 
effect of teaching activity on inpatient operating costs equals .405 for 
discharges occurring on or after May 1, 1986.
    (d) Determination of education adjustment factor. Each hospital's 
education adjustment factor is calculated as follows:
    (1) Step one. A factor representing the sum of 1.00 plus the 
hospital's ratio of full-time equivalent residents to beds, as 
determined under paragraph (a)(1) of this section, is raised to an 
exponential power equal to the factor set forth in paragraph (c) of this 
section.
    (2) Step two. The factor derived from step one is reduced by 1.00.
    (3) Step three. The factor derived from completing steps one and two 
is multiplied by `c', and where `c' is equal to the following:
    (i) For discharges occurring on or after October 1, 1988, and before 
October 1, 1997, 1.89.
    (ii) For discharges occurring during fiscal year 1998, 1.72.
    (iii) For discharges occurring during fiscal year 1999, 1.6.
    (iv) For discharges occurring during fiscal year 2000, 1.47.
    (v) For discharges occurring on or after October 1, 2000, 1.35.
    (e) Determination of payment amount. Each hospital's indirect 
medical education payment under the prospective payment system for 
inpatient operating costs is determined by multiplying the total DRG 
revenue for inpatient operating costs, as determined under paragraph 
(a)(2) of this section, by the applicable education adjustment factor 
derived in paragraph (d) of this section.
    (f) Determining the total number of full-time equivalent residents 
for cost reporting periods beginning on or after July 1, 1991. (1) For 
cost reporting periods beginning on or after July 1, 1991, the count of 
full-time equivalent residents for the purpose of determining the 
indirect medical education adjustment is determined as follows:
    (i) The resident must be enrolled in an approved teaching program. 
An approved teaching program is one that meets one of the following 
requirements:
    (A) Is approved by one of the national organizations listed in 
Sec. 415.200(a) of this chapter.
    (B) May count towards certification of the participant in a 
specialty or subspecialty listed in the current edition of either of the 
following publications:
    (1) The Directory of Graduate Medical Education Programs published 
by the American Medical Association.
    (2) The Annual Report and Reference Handbook published by the 
American Board of Medical Specialties.
    (C) Is approved by the Accreditation Council for Graduate Medical 
Education (ACGME) as a fellowship program in geriatric medicine.

[[Page 336]]

    (D) Is a program that would be accredited except for the accrediting 
agency's reliance upon an accreditation standard that requires an entity 
to perform an induced abortion or require, provide, or refer for 
training in the performance of induced abortions, or make arrangements 
for such training, regardless of whether the standard provides 
exceptions or exemptions.
    (ii) In order to be counted, the resident must be assigned to one of 
the following areas:
    (A) The portion of the hospital subject to the prospective payment 
system.
    (B) The outpatient department of the hospital.
    (C) Effective for discharges occurring on or after October 1, 1997, 
the time spent by a resident in a nonhospital setting in patient care 
activities under an approved medical residency training program is 
counted towards the determination of full-time equivalency if the 
criteria set forth at Sec. 413.86(f)(4) are met.
    (iii) Full-time equivalent status is based on the total time 
necessary to fill a residency slot. No individual may be counted as more 
than one full-time equivalent. If a resident is assigned to more than 
one hospital, the resident counts as a partial full-time equivalent 
based on the proportion of time worked in any of the areas of the 
hospital listed in paragraph (g)(1)(ii) of this section, to the total 
time worked by the resident. A part-time resident or one working in an 
area of the hospital other than those listed under paragraph (g)(1)(ii) 
of this section (such as a freestanding family practice center or an 
excluded hospital unit) would be counted as a partial full-time 
equivalent based on the proportion of time assigned to an area of the 
hospital listed in paragraph (g)(1)(ii) of this section, compared to the 
total time necessary to fill a full-time internship or residency slot.
    (iv) Effective for discharges occurring on or after October 1, 1997, 
the total number of full-time equivalent residents in the fields of 
allopathic and osteopathic medicine in either a hospital or nonhospital 
setting that meets the criteria listed in paragraph (f)(1)(ii) of this 
section may not exceed the number of such full-time equivalent residents 
in the hospital with respect to the hospital's most recent cost 
reporting period ending on or before December 31, 1996.
    (v) For a hospital's cost reporting periods beginning on or after 
October 1, 1997, and before October 1, 1998, the total number of full-
time equivalent residents for payment purposes is equal to the average 
of the actual full-time equivalent resident counts (subject to the 
requirements listed in paragraphs (f)(1)(ii)(C) and (f)(1)(iv) of this 
section) for that cost reporting period and the preceding cost reporting 
period. For a hospital's cost reporting periods beginning on or after 
October 1, 1998, the total number of full-time equivalent residents for 
payment purposes is equal to the average of the actual full-time 
equivalent resident count (subject to the requirements set forth in 
paragraphs (f)(1)(ii)(C) and (f)(1)(iv) of this section) for that cost 
reporting period and the preceding two cost reporting periods.
    (vi) Hospitals that are part of the same affiliated group (as 
described in Sec. 413.86(b)) may elect to apply the limit at paragraph 
(f)(1)(iv) of this section on an aggregate basis.
    (vii) If a hospital establishes a new medical residency training 
program, the hospital's FTE cap may be adjusted in accordance with the 
provisions of Sec. 413.86(g)(6)(i) through (iv).
    (2) To include a resident in the full-time equivalent count for a 
particular cost reporting period, the hospital must furnish the 
following information. The information must be certified by an official 
of the hospital and, if different, an official responsible for 
administering the residency program.
    (i) A listing, by specialty, of all residents assigned to the 
hospital and providing services to the hospital during the cost 
reporting period.
    (ii) The name and social security number of each resident.
    (iii) The dates the resident is assigned to the hospital.
    (iv) The dates the resident is assigned to other hospitals or other 
freestanding providers and any nonprovider setting during the cost 
reporting period.
    (v) The proportion of the total time necessary to fill a residency 
slot that

[[Page 337]]

the resident is assigned to an area of the hospital listed under 
paragraph (g)(1)(ii) of this section.
    (3) Fiscal intermediaries must verify the correct count of 
residents.
    (g) Indirect medical education payment for managed care enrollees. 
For portions of cost reporting periods beginning on or after January 1, 
1998, a payment is made to a hospital for indirect medical education 
costs, as determined under paragraph (e) of this section, for discharges 
associated with individuals who are enrolled under a risk-sharing 
contract with an eligible organization under section 1876 of the Act or 
with a Medicare+Choice organization under title XVIII, Part C of the Act 
during the period.

[50 FR 12741, Mar. 29, 1985. Redesignated at 56 FR 43241, Aug. 30, 1991]

    Editorial Note: For Federal Register citations affecting 
Sec. 412.105, see the List of Sections Affected in the Finding Aids 
section of this volume.



Sec. 412.106  Special treatment: Hospitals that serve a disproportionate share of low-income patients.

    (a) General considerations. (1) The factors considered in 
determining whether a hospital qualifies for a payment adjustment 
include the number of beds, the number of patient days, and the 
hospital's location.
    (i) The number of beds in a hospital is determined in accordance 
with Sec. 412.105(b).
    (ii) The number of patient days includes only those days 
attributable to areas of the hospital that are subject to the 
prospective payment system and excludes all others.
    (iii) The hospital's location, in an urban or rural area, is 
determined in accordance with the definitions in Sec. 412.62(f).
    (2) The payment adjustment is applied to the hospital's DRG revenue 
for inpatient operating costs based on DRG-adjusted prospective payment 
rates for inpatient operating costs, excluding outlier payments for 
inpatient operating costs under subpart F of this part and additional 
payments made under the provisions of Sec. 412.105.
    (b) Determination of a hospital's disproportionate patient 
percentage. (1) General rule. A hospital's disproportionate patient 
percentage is determined by adding the results of two computations and 
expressing that sum as a percentage.
    (2) First computation: Federal fiscal year. For each month of the 
Federal fiscal year in which the hospital's cost reporting period 
begins, HCFA--
    (i) Determines the number of covered patient days that--
    (A) Are associated with discharges occurring during each month; and
    (B) Are furnished to patients who during that month were entitled to 
both Medicare Part A and SSI, excluding those patients who received only 
State supplementation;
    (ii) Adds the results for the whole period; and
    (iii) Divides the number determined under paragraph (b)(2)(ii) of 
this section by the total number of patient days that--
    (A) Are associated with discharges that occur during that period; 
and
    (B) Are furnished to patients entitled to Medicare Part A.
    (3) First computation: Cost reporting period. If a hospital prefers 
that HCFA use its cost reporting period instead of the Federal fiscal 
year, it must furnish to HCFA, through its intermediary, a written 
request including the hospital's name, provider number, and cost 
reporting period end date. This exception will be performed once per 
hospital per cost reporting period, and the resulting percentage becomes 
the hospital's official Medicare Part A/SSI percentage for that period.
    (4) Second computation. The fiscal intermediary determines, for the 
same cost reporting period used for the first computation, the number of 
the hospital's patient days of service for which patients were eligible 
for Medicaid but not entitled to Medicare Part A, and divides that 
number by the total number of patient days in the same period. For 
purposes of this second computation, the following requirements apply:
    (i) A patient is deemed eligible for Medicaid on a given day if the 
patient is eligible for medical assistance under an approved State 
Medicaid plan on such day, regardless of whether particular items or 
services were covered or paid under the State plan.

[[Page 338]]

    (ii) The hospital has the burden of furnishing data adequate to 
prove eligibility for each Medicaid patient day claimed under this 
paragraph, and of verifying with the State that a patient was eligible 
for Medicaid during each claimed patient hospital day.
    (5) Disproportionate patient percentage. The intermediary adds the 
results of the first computation made under either paragraph (b)(2) or 
(b)(3) of this section and the second computation made under paragraph 
(b)(4) of this section and expresses that sum as a percentage. This is 
the hospital's disproportionate patient percentage, and is used in 
paragraph (c) of this section.
    (c) Criteria for classification. A hospital is classified as a 
``disproportionate share'' hospital under any of the following 
circumstances:
    (1) The hospital's disproportionate patient percentage, as 
determined under paragraph (b)(5) of this section, is at least equal to 
one of the following:
    (i) 15 percent, if the hospital is located in an urban area and has 
100 or more beds, or is located in a rural area and has 500 or more 
beds.
    (ii) 30 percent, if the hospital is located in a rural area and 
either has more than 100 beds and fewer than 500 beds or is classified 
as a sole community hospital under Sec. 412.92 of this subpart.
    (iii) 40 percent, if the hospital is located in an urban area and 
has fewer than 100 beds.
    (iv) 45 percent, if the hospital is located in a rural area and has 
100 or fewer beds.
    (2) The hospital is located in an urban area, has 100 or more beds, 
and can demonstrate that, during its cost reporting period, more than 30 
percent of its net inpatient care revenues are derived from State and 
local government payments for care furnished to indigent patients.
    (d) Payment adjustment. (1) Method of adjustment. Subject to the 
reduction factor set forth in paragraph (e) of this section, if a 
hospital serves a disproportionate number of low-income patients, its 
DRG revenues for inpatient operating costs are increased by an 
adjustment factor as specified in paragraph (d)(2) of this section.
    (2) Payment adjustment factors. (i) If the hospital meets the 
criteria of paragraph (c)(1)(i) of this section, the payment adjustment 
factor is equal to one of the following:
    (A) If the hospital's disproportionate patient percentage is greater 
than 20.2 percent, the applicable payment adjustment factor is as 
follows:
    (1) For discharges occurring on or after April 1, 1990, and before 
January 1, 1991, 5.62 percent plus 65 percent of the difference between 
20.2 percent and the hospital's disproportionate patient percentage.
    (2) For discharges occurring on or after January 1, 1991, and before 
October 1, 1993, 5.62 percent plus 70 percent of the difference between 
20.2 percent and the hospital's disproportionate patient percentage.
    (3) For discharges occurring on or after October 1, 1993, and before 
October 1, 1994, 5.88 percent plus 80 percent of the difference between 
20.2 percent and the hospital's disproportionate patient percentage.
    (4) For discharges occurring on or after October 1, 1994, 5.88 
percent plus 82.5 percent of the difference between 20.2 percent and the 
hospital's disproportionate patient percentage.
    (B) If the hospital's disproportionate patient percentage is less 
than 20.2 percent, the applicable payment adjustment factor is as 
follows:
    (1) For discharges occurring on or after April 1, 1990, and before 
October 1, 1993, 2.5 percent plus 60 percent of the difference between 
15 percent and the hospital's disproportionate patient percentage.
    (2) For discharges occurring on or after October 1, 1993, 2.5 
percent plus 65 percent of the difference between 15 percent and the 
hospital's disproportionate patient percentage.
    (ii) If the hospital meets the criteria of paragraph (c)(1)(ii) of 
this section, the payment adjustment factor is equal to one of the 
following:
    (A) If the hospital is classified as a rural referral center, the 
payment adjustment factor is 4 percent plus 60 percent of the difference 
between the hospital's disproportionate patient percentage and 30 
percent.

[[Page 339]]

    (B) If the hospital is classified as a sole community hospital, the 
payment adjustment factor is 10 percent.
    (C) If the hospital is classified as both a rural referral center 
and a sole community hospital, the payment adjustment factor is the 
greater of 10 percent or 4 percent plus 60 percent of the difference 
between the hospital's disproportionate patient percentage and 30 
percent.
    (D) If the hospital is not classified as either a sole community 
hospital or a rural referral center, the payment adjustment factor is 4 
percent.
    (iii) If the hospital meets the criteria of paragraph (c)(1)(iii) of 
this section, the payment adjustment factor is equal to 5 percent.
    (iv) If the hospital meets the criteria of paragraph (c)(1)(iv) of 
this section, the payment adjustment factor is 4 percent.
    (v) If the hospital meets the criteria of paragraph (c)(2) of this 
section, the payment adjustment factor is as follows:
    (A) 30 percent for discharges occurring on or after April 1, 1990 
and before October 1, 1991.
    (B) 35 percent for discharges occurring on or after October 1, 1991.
    (e) Reduction in payments for FYs 1998 through 2002. The amounts 
otherwise payable to a hospital under paragraph (d) of this section are 
reduced by the following:
    (1) For FY 1998, 1 percent.
    (2) For FY 1999, 2 percent.
    (3) For FY 2000, 3 percent.
    (4) For FY 2001, 4 percent.
    (5) For FY 2002, 5 percent.
    (6) For FYs 2003 and thereafter, 0 percent.

[54 FR 36494, Sept. 1, 1989, as amended at 55 FR 14283, Apr. 17, 1990; 
55 FR 15174, Apr. 20, 1990; 55 FR 32088, Aug. 7, 1990; 56 FR 573, Jan. 
7, 1991; 56 FR 9633, Mar. 7, 1991; 57 FR 39824, Sept. 1, 1992; 60 FR 
45848, Sept. 1, 1995; 62 FR 46029, Aug. 29, 1997; 63 FR 41004, July 31, 
1998]



412.107  Special treatment: Hospitals that receive an additional update for FYs 1998 and 1999.

    (a) Additional payment update. A hospital that meets the criteria 
set forth in paragraph (b) of this section receives the following 
increase to its applicable percentage amount set forth in Sec. 412.63 
(p) and (q):
    (1) For FY 1998, 0.5 percent.
    (2) For FY 1999, 0.3 percent.
    (b) Criteria for classification. A hospital is eligible for the 
additional payment update set forth in paragraph (a) of this section if 
it meets all of the following criteria:
    (1) Definition. The hospital is not a Medicare-dependent, small 
rural hospital as defined in Sec. 412.108(a) and does not receive any 
additional payment under the following provisions:
    (i) The indirect medical education adjustment made under 
Sec. 412.105.
    (ii) The disproportionate share adjustment made under Sec. 412.106.
    (2) State criteria. The hospital is located in a State in which the 
aggregate payment made under Sec. 412.112 (a) and (c) for hospitals 
described in paragraph (b)(1) of this section for their cost reporting 
periods beginning in FY 1995 is less than the allowable operating costs 
described in Sec. 412.2(c) for those hospitals.
    (3) Hospital criteria. The aggregate payment made to the hospital 
under Sec. 412.112 (a) and (c) for the hospital's cost reporting period 
beginning in the fiscal year in which the additional payment update 
described in paragraph (a) of this section is made is less than the 
allowable operating cost described in Sec. 412.2(c) for that hospital.

[62 FR 46030, Aug. 29, 1997]



Sec. 412.108  Special treatment: Medicare-dependent, small rural hospitals.

    (a) Criteria for classification as a Medicare-dependent, small rural 
hospital.  (1) General considerations. For cost reporting periods 
beginning on or after April 1, 1990 and ending before October 1, 1994, 
or beginning on or after October 1, 1997 and ending before October 1, 
2001, a hospital is classified as a Medicare-dependent, small rural 
hospital if it is located in a rural area (as defined in Sec. 412.63(b)) 
and meets all of the following conditions:
    (i) The hospital has 100 or fewer beds as defined in Sec. 412.105(b) 
during the cost reporting period.
    (ii) The hospital is not also classified as a sole community 
hospital under Sec. 412.92.
    (iii) At least 60 percent of the hospital's inpatient days or 
discharges

[[Page 340]]

were attributable to individuals receiving Medicare part A benefits 
during the hospital's cost reporting period as follows, subject to the 
provisions of paragraph (a)(1)(iv) of this section:
    (A) The hospital's cost reporting period ending on or after 
September 30, 1987 and before September 30, 1988.
    (B) If the hospital does not have a cost reporting period that meets 
the criterion set forth in paragraph (a)(1)(iii)(A) of this section, the 
hospital's cost reporting period beginning on or after October 1, 1986, 
and before October 1, 1987.
    (iv) If the cost reporting period determined under paragraph 
(a)(1)(iii) of this section is for less than 12 months, the hospital's 
most recent 12-month or longer cost reporting period before the short 
period is used.
    (2) Counting days and discharges. In counting inpatient days and 
discharges for purposes of meeting the criteria in paragraph (a)(1)(iii) 
of this section, only days and discharges from acute care inpatient 
hospital stays are counted (including days and discharges from swing 
beds when used for acute care inpatient hospital services), but not 
including days and discharges from units excluded from the prospective 
payment system under Secs. 412.25 through 412.30 or from newborn nursery 
units. For purposes of this section, a transfer as defined in 
Sec. 412.4(b) is considered to be a discharge.
    (b) Classification procedures. The fiscal intermediary determines 
whether a hospital meets the criteria in paragraph (a) of this section. 
If a hospital disagrees with an intermediary's decision, it should 
notify its intermediary and submit documentable evidence that it meets 
the criteria.
    (c) Payment methodology. A hospital that meets the criteria in 
paragraph (a) of this section is paid for its inpatient operating costs 
the sum of paragraphs (c)(1) and (c)(2) of this section.
    (1) The Federal payment rate applicable to the hospital as 
determined under Sec. 412.63, subject to the regional floor defined in 
Sec. 412.70(c)(6).
    (2) The amount, if any, determined as follows:
    (i) For discharges occurring during the first three 12-month cost 
reporting periods that begin on or after April 1, 1990, 100 percent of 
the amount that the Federal rate determined under paragraph (c)(1) of 
this section is exceeded by the higher of the following:
    (A) The hospital-specific rate as determined under Sec. 412.73.
    (B) The hospital-specific rate as determined under Sec. 412.75.
    (ii) For discharges occurring during any subsequent cost reporting 
period (or portion thereof) and before October 1, 1994, and for 
discharges occurring on or after October 1, 1997 and before October 1, 
2001, 50 percent of the amount that the Federal rate determined under 
paragraph (c)(1) of this section is exceeded by the higher of the 
following:
    (A) The hospital-specific rate as determined under Sec. 412.73.
    (B) The hospital-specific rate as determined under Sec. 412.75.
    (d) Additional payments to hospitals experiencing a significant 
volume decrease. (1) HCFA provides for a payment adjustment for a 
Medicare-dependent, small rural hospital for any cost reporting period 
during which the hospital experiences, due to circumstances as described 
in paragraph (d)(2) of this section, a more than 5 percent decrease in 
its total inpatient discharges as compared to its immediately preceding 
cost reporting period. If either the cost reporting period in question 
or the immediately preceding cost reporting period is other than a 12-
month cost reporting period, the intermediary must convert the 
discharges to a monthly figure and multiply this figure by 12 to 
estimate the total number of discharges for a 12-month cost reporting 
period.
    (2) To qualify for a payment adjustment on the basis of a decrease 
in discharges, a Medicare-dependent, small rural hospital must submit 
its request no later than 180 days after the date on the intermediary's 
Notice of Amount of Program Reimbursement and it must--
    (i) Submit to the intermediary documentation demonstrating the size 
of the decrease in discharges and the resulting effect on per discharge 
costs; and
    (ii) Show that the decrease is due to circumstances beyond the 
hospital's control.
    (3) The intermediary determines a lump sum adjustment amount not to

[[Page 341]]

exceed the difference between the hospital's Medicare inpatient 
operating costs and the hospital's total DRG revenue for inpatient 
operating costs based on DRG-adjusted prospective payment rates for 
inpatient operating costs (including outlier payments for inpatient 
operating costs determined under subpart F of this part and additional 
payments made for inpatient operating costs hospitals that serve a 
disproportionate share of low-income patients as determined under 
Sec. 412.106 and for indirect medical education costs as determined 
under Sec. 412.105).
    (i) In determining the adjustment amount, the intermediary 
considers--
    (A) The individual hospital's needs and circumstances, including the 
reasonable cost of maintaining necessary core staff and services in view 
of minimum staffing requirements imposed by State agencies;
    (B) The hospital's fixed (and semi-fixed) costs, other than those 
costs paid on a reasonable cost basis under part 413 of this chapter; 
and
    (C) The length of time the hospital has experienced a decrease in 
utilization.
    (ii) The intermediary makes its determination within 180 days from 
the date it receives the hospital's request and all other necessary 
information.
    (iii) The intermediary determination is subject to review under 
subpart R of part 405 of this chapter.

[55 FR 15175, Apr. 20, 1990; 55 FR 32088, Aug. 7, 1990, as amended at 55 
FR 36070, Sept. 4, 1990; 57 FR 39824, Sept. 1, 1992; 58 FR 46339, Sept. 
1, 1993; 58 FR 67350, Dec. 21, 1993; 59 FR 45400, Sept. 1, 1994; 62 FR 
46030, Aug. 29, 1997; 62 FR 52034, Oct. 6, 1997]



Sec. 412.109  Special treatment: Essential access community hospitals (EACHs).

    (a) General rule. For payment purposes, HCFA treats as a sole 
community hospital any hospital that is located in a rural area as 
described in paragraph (b) of this section and that HCFA designated as 
an EACH under section 1820(i)(1) of the Act as in effect on September 
30, 1997, for as long as the hospital continues to comply with the 
terms, conditions, and limitations that were applicable at the time HCFA 
designated the hospital as an EACH. The payment methodology for sole 
community hospitals is set forth at Sec. 412.92(d).
    (b) Location in a rural area. For purposes of this section, a 
hospital is located in a rural area if it--
    (1) Is located outside any area that is a Metropolitan Statistical 
Area as defined by the Office of Management and Budget or that has been 
recognized as urban under Sec. 412.62;
    (2) Is not deemed to be located in an urban area under Sec. 412.63;
    (3) Is not classified as an urban hospital for purposes of the 
standardized payment amount by HCFA or the Medicare Geographic 
Classification Review Board; or
    (4) Is not located in a rural county that has been redesignated to 
an adjacent urban area under Sec. 412.232.
    (c) Adjustment to the hospital-specific rate for rural EACH's 
experiencing increased costs. (1) General rule. HCFA increases the 
applicable hospital-specific rate of an EACH that it treats as a sole 
community hospital if, during a cost reporting period, the hospital 
experiences an increase in its Medicare inpatient operating costs per 
discharge that is directly attributable to activities related to its 
membership in a rural health network.
    (2) Request and documentation. In order for a hospital to qualify 
for an increase in its hospital-specific rate, it must meet the 
following criteria:
    (i) The hospital must submit its request to its intermediary no 
later than 180 days after the date on the intermediary's notice of 
program reimbursement.
    (ii) The request must include documentation specifically identifying 
the increased costs resulting from the hospital's participation in a 
rural health network and show that the increased costs during the cost 
reporting period will result in increased costs in subsequent cost 
reporting periods that are not already accounted for under the 
prospective payment system payment.
    (iii) The hospital must show that the cost increases are incremental 
costs that would not have been incurred in the absence of the hospital's 
membership in a rural health network.
    (iv) The hospital must show that the cost increases do not include 
amounts

[[Page 342]]

for start-up and one-time, nonrecurring costs attributable to its 
membership in a rural health network.
    (3) Intermediary recommendation. The intermediary forwards the 
following material to HCFA within 60 days of receipt from the hospital:
    (i) The hospital's documentation and the intermediary's verification 
of that documentation.
    (ii) The intermediary's analysis and recommendation of the request.
    (iii) The hospital's Medicare cost report for the year in which the 
increase in costs occurred and the prior year.
    (4) HCFA determination. HCFA determines, within 120 days of 
receiving all necessary information from the intermediary, whether an 
increase in the hospital-specific rate is warranted and, if it is, the 
amount of the increase. HCFA grants an adjustment only if a hospital's 
Medicare inpatient operating costs per discharge exceed the hospital's 
hospital-specific rate. The adjusted hospital-specific rate cannot 
exceed the hospital's Medicare inpatient operating costs per discharge 
for the cost reporting period.
    (d) Termination of EACH designation. If HCFA determines that a 
hospital no longer complies with the terms, conditions, and limitations 
that were applicable at the time HCFA designated the hospital as an 
EACH, HCFA will terminate the EACH designation of the hospital, 
effective with discharges occurring on or after 30 days after the date 
of the determination.
    (e) Review of HCFA determination. A determination by HCFA that a 
hospital's EACH designation should be terminated, is subject to review 
under part 405, subpart R of this chapter, including the time limits for 
filing requests for hearings as specified in Secs. 405.1811(a) and 
405.1841(a)(1) and (b) of this chapter.

[58 FR 30669, May 26, 1993, as amended at 59 FR 45398, Sept. 1, 1994; 60 
FR 45848, Sept. 1, 1995; 61 FR 21972, May 13, 1996; 62 FR 46030, Aug. 
29, 1997]



 Subpart H--Payments to Hospitals Under the Prospective Payment Systems



Sec. 412.110  Total Medicare payment.

    Under the prospective payment systems, Medicare's total payment for 
inpatient hospital services furnished to a Medicare beneficiary by a 
hospital will equal the sum of the payments listed in Secs. 412.112 
through 412.115, reduced by the amounts specified in Sec. 412.120.

[50 FR 12741, Mar. 29, 1985, as amended at 57 FR 39824, Sept. 1, 1992]



Sec. 412.112  Payments determined on a per case basis.

    A hospital is paid the following amounts on a per case basis:
    (a) The appropriate prospective payment rate for inpatient operating 
costs for each discharge as determined in accordance with subparts D, E, 
and G of this part.
    (b) Effective for cost reporting periods beginning on or after 
October 1, 1991, the appropriate prospective payment rate for capital-
related costs for each discharge as determined in accordance with 
subpart M of this part.
    (c) The appropriate outlier payment amounts determined under subpart 
F of this part.

[56 FR 43448, Aug. 30, 1991, as amended at 57 FR 39824, Sept. 1, 1992]



Sec. 412.113  Other payments.

    (a) Capital-related costs. (1) Payment. Subject to the reductions 
described in paragraph (a)(2) of this section, payment for capital-
related costs (as described in Sec. 413.130 of this chapter) for cost 
reporting periods beginning before October 1, 1991 is determined on a 
reasonable cost basis.
    (2) Reduction to capital-related payments. (i) Except for sole 
community hospitals as defined in Sec. 412.92, the amount of capital-
related payments for cost-reporting periods beginning before October 1, 
1991 (including a return on equity capital as provided under 
Sec. 413.157 of this chapter) is reduced by--

[[Page 343]]

    (A) Three and one-half percent for payments attributable to portions 
of cost reporting periods occurring during Federal FY 1987;
    (B) Seven percent for payments attributable to portions of cost 
reporting periods or discharges (as the case may be) occurring during 
fiscal year 1988 and before January 1, 1988;
    (C) Twelve percent for payments attributable to portions of cost 
reporting periods or discharges (as the case may be) in fiscal year 1988 
occurring on or after January 1, 1988;
    (D) Fifteen percent for payments attributable to portions of cost 
reporting periods or discharges (as the case may be) occurring during 
fiscal year 1989 and beginning on or after January 1, 1990 and ending on 
or before September 30, 1991; and
    (E) Ten percent for payments attributable to portions of cost-
reporting periods occurring on or after October 1, 1991 and before the 
beginning of the hospital's first cost-reporting period beginning on or 
after October 1, 1991.
    (ii) If a hospital's cost reporting period encompasses more than one 
Federal fiscal year, the reductions to capital-related payments are 
determined on a prorated monthly basis.
    (3) For cost-reporting periods beginning on or after October 1, 
1991, a hospital with a hospital-specific rate above the Federal capital 
rate is paid a hold-harmless payment for old capital determined in 
accordance with subpart M of this part.
    (b) Direct medical education costs. (1) Payment for the direct 
medical education costs of interns and residents in approved programs 
for cost reporting periods beginning prior to July 1, 1985, and for 
approved education activities of nurses and paramedical health 
professionals is made as described in Sec. 413.85 of this chapter.
    (2) For cost reporting periods beginning on or after July 1, 1985, 
payment for the direct medical education costs of interns and residents 
in approved programs is made as described in Sec. 413.86 of this 
chapter.
    (3) Except as provided in Sec. 413.86(c) of this chapter, for cost 
reporting periods during the prospective payment transition period, the 
costs of medical education must be determined in a manner that is 
consistent with the treatment of these costs for purposes of determining 
the hospital-specific portion of the payment rate as provided in subpart 
E of this part.
    (c) Anesthesia services furnished by hospital employed nonphysician 
anesthetists or obtained under arrangements. (1) For cost reporting 
periods beginning on or after October 1, 1984 through any part of a cost 
reporting period occurring before January 1, 1989, payment is determined 
on a reasonable cost basis for anesthesia services provided in the 
hospital by qualified nonphysician anesthetists (certified registered 
nurse anesthetists and anesthesiologist's assistants) employed by the 
hospital or obtained under arrangements.
    (2)(i) For cost reporting periods, or any part of a cost reporting 
period, beginning on or after January 1, 1989, through any part of a 
cost reporting period occurring before January 1, 1990, payment is 
determined on a reasonable cost basis for anesthesia services provided 
in a hospital by qualified nonphysician anesthetists employed by the 
hospital or obtained under arrangement, if the hospital demonstrates to 
its intermediary prior to April 1, 1989 that it meets the following 
criteria:
    (A) The hospital is located in a rural area as defined in 
Sec. 412.62(f) and is not deemed to be located in an urban area under 
the provisions of Sec. 412.64(b)(3).
    (B) The hospital must have employed or contracted with a qualified 
nonphysician anesthetist, as defined in Sec. 410.66 of this chapter, as 
of January 1, 1988 to perform anesthesia services in that hospital. The 
hospital may employ or contract with more than one anesthetist; however, 
the total number of hours of service furnished by the anesthetists may 
not exceed 2,080 hours per year.
    (C) The hospital must provide data for its entire patient population 
to demonstrate that, during calendar year 1987, its volume of surgical 
procedures (inpatient and outpatient) requiring anesthesia services did 
not exceed 250 procedures. For purposes of this section, a surgical 
procedure requiring anesthesia services means a surgical procedure in 
which the anesthesia is administered and monitored by a qualified 
nonphysician anesthetist, a physician

[[Page 344]]

other than the primary surgeon, or an intern or resident.
    (D) Each qualified nonphysician anesthetist employed by or under 
contract with the hospital has agreed in writing not to bill on a 
reasonable charge basis for his or her patient care in that hospital.
    (ii) To maintain its eligibility for reasonable cost payment under 
paragraph (c)(2)(i) of this section in calendar years after 1989, a 
qualified hospital must demonstrate prior to January 1 of each 
respective year that for the prior year its volume of surgical 
procedures requiring anesthesia service did not exceed 500 procedures.
    (iii) A hospital that did not qualify for reasonable cost payment 
for nonphysician anesthetist services furnished in calendar year 1989 
can qualify for reasonable cost payment in subsequent calendar years, if 
it meets the criteria in Sec. 412.113(c)(2)(i) (A), (B) and (D) above, 
and demonstrates to its intermediary prior to the start of the calendar 
year that it met these criteria. The hospital must provide data for its 
entire patient population to demonstrate that, during calendar year 1987 
and the year immediately preceding its election of reasonable cost 
payment, its volume of surgical procedures (inpatient and outpatient) 
requiring anesthesia services did not exceed 500 procedures.
    (iv) For administrative purposes for the calendar years after 1990, 
the volume of surgical procedures for the immediately preceding year is 
the sum of the surgical procedures for the nine month period ending 
September 30, annualized for the twelve month period.
    (d) Organ acquisition. Payment for organ acquisition costs incurred 
by hospitals with approved transplantation centers is made on a 
reasonable cost basis. The term ``Organs'' is defined in Sec. 486.302 of 
this chapter.

[50 FR 12741, Mar. 29, 1985]

    Editorial Note: For Federal Register citations affecting 
Sec. 412.113, see the List of CFR Sections Affected in the Finding Aids 
section of this volume.



Sec. 412.115  Additional payments.

    (a) Bad debts. An additional payment is made to each hospital in 
accordance with Sec. 413.80 of this chapter for bad debts attributable 
to deductible and coinsurance amounts related to covered services 
received by beneficiaries.
    (b) Administration of blood clotting factor. For discharges 
occurring on or after June 19, 1990, and before October 1, 1994, and for 
discharges occurring on or after October 1, 1997, an additional payment 
is made to a hospital for each unit of blood clotting factor furnished 
to a Medicare inpatient who is a hemophiliac.
    (c) PRO photocopy and mailing costs. An additional payment is made 
to a hospital in accordance with Sec. 466.78 of this chapter for the 
costs of photocopying and mailing medical records requested by a PRO.

[50 FR 12741, Mar. 29, 1985, as amended at 51 FR 34793, Sept. 30, 1986; 
55 FR 15175, Apr. 20, 1990; 56 FR 43448, Aug. 30, 1991; 57 FR 39825, 
Sept. 1, 1992; 57 FR 47787, Oct. 20, 1992; 58 FR 46339, Sept. 1, 1993; 
62 FR 46030, Aug. 29, 1997]



Sec. 412.116  Method of payment.

    (a) General rule. Unless the provisions of paragraphs (b) and (c) of 
this section apply, hospitals are paid for hospital inpatient operating 
costs and capital-related costs for each discharge based on the 
submission of a discharge bill. Payments for inpatient hospital services 
furnished by an excluded psychiatric or a rehabilitation unit of a 
hospital are made as described in Sec. 413.64 (a), (c), (d), and (e) of 
this chapter.
    (b) Periodic interim payments--(1) Criteria for receiving periodic 
interim payments. Effective with claims received on or after July 1, 
1987, a hospital that meets the criteria in Sec. 413.64(h) of this 
chapter may request in writing to receive periodic interim payments as 
described in this paragraph. A hospital that is receiving periodic 
interim payments also receives payment on this basis for inpatient 
hospital services furnished by its excluded psychiatric or 
rehabilitation unit.
    (i) Failure of intermediary to make prompt payment. Beginning with 
claims received in April 1987, the hospital's fiscal intermediary does 
not meet the requirements of section 1816(c)(2) of the Act, which 
provides for prompt payment of claims under Medicare Part A,

[[Page 345]]

for three consecutive calendar months. The hospital may continue to 
receive periodic interim payments until the intermediary meets the 
requirements of section 1816 (c)(2) of the Act for three consecutive 
calendar months. For purposes of this paragraph, a hospital that is 
receiving periodic interim payments as of June 30, 1987 and meets the 
requirements of Sec. 413.64(h) of this chapter may continue to receive 
payment on this basis until the hospital's intermediary meets the 
requirements of section 1816(c)(2) of the Act for three consecutive 
calendar months beginning with April 1987.
    (ii) Hospitals that serve a disproportionate share of low-income 
patients. The hospital is receiving periodic interim payments as of June 
30, 1987 and has a disproportionate share payment adjustment factor of 
at least 5.1 percent as determined under Sec. 412.106(c) for purposes of 
establishing the average standardized amounts for discharges occurring 
on or after October 1, 1986 and before October 1, 1987. The hospital's 
request must be made by a date prior to July 1, 1987, specified by the 
intermediary.
    (iii) Small rural hospitals. The hospital is receiving periodic 
interim payments as of June 30, 1987, makes its request by a date prior 
to July 1, 1987, specified by the intermediary, and, on July 1, 1987, 
the hospital--
    (A) Is located in a rural area as defined in Sec. 412.62(f); and
    (B) Has 100 or fewer beds available for use.
    (2) Frequency of payment. The intermediary estimates a hospital's 
prospective payments as described in paragraph (b)(3) of this section 
and makes biweekly payments equal to 1/26 of the total estimated amount 
of payment for the year. Each payment is made two weeks after the end of 
a biweekly period of service, as described in Sec. 413.64(h)(5) of this 
chapter. These payments are subject to final settlement.
    (3) Amount of payment. (i) The biweekly interim payment amount is 
based on the total estimated Medicare discharges for the reporting 
period multiplied by the hospital's estimated average prospective 
payment amount as described in paragraph (b)(3)(ii) of this paragraph. 
These interim payments are reviewed at least twice during the reporting 
period and adjusted if necessary. Fewer reviews may be necessary if a 
hospital receives interim payments for less than a full reporting 
period.
    (ii) For purposes of determining periodic interim payments under 
this paragraph, a hospital's estimated average prospective payment 
amount is computed as follows:
    (A) If a hospital has no payment experience under the prospective 
payment system for operating costs, the intermediary computes the 
hospital's estimated average prospective payment amount for operating 
costs by multiplying its payment rates as determined under 
Sec. 412.70(c), but without adjustment by a DRG weighting factor, by the 
hospital's case-mix index, and subtracting from this amount estimated 
deductibles and coinsurance.
    (B) Effective for cost-reporting periods beginning on or after 
October 1, 1991, the intermediary computes a hospital's estimated 
average prospective payment amount for capital-related costs by 
multiplying its prospective payment rate as determined under 
Sec. 412.340 or Sec. 412.344(a), as applicable, and under Sec. 412.308 
for cost reporting periods beginning on or after October 1, 2001 but 
without adjustment by a DRG weighting factor, by the hospital's case-mix 
index. The intermediary may take into account estimated additional 
payments per discharge under Sec. 412.348. If the hospital is paid under 
Sec. 412.344(a)(1), the intermediary includes an estimated payment for 
old capital costs per discharge.
    (C) If a hospital has payment experience under the prospective 
payment system for operating costs, and, for cost reporting periods 
beginning on or after October 1, 1991, for inpatient capital-related 
costs, the intermediary computes a hospital's estimated average 
prospective payment amount for operating costs and capital-related costs 
based on that payment experience, adjusted for projected changes, and 
subtracts from this amount estimated deductibles and coinsurance.

[[Page 346]]

    (4) Termination of periodic interim payments--(i) Request by the 
hospital. A hospital receiving periodic interim payments may convert to 
payments on a per discharge basis at any time.
    (ii) Removal by the intermediary. An intermediary terminates 
periodic interim payments if--
    (A) A hospital no longer meets the requirements of Sec. 413.64(h);
    (B) A hospital is receiving payment under the criterion in paragraph 
(b)(1)(i) of this section and the intemediary meets the prompt payment 
requirements of section 1816(c)(2) of the Act for three consecutive 
calendar months; or
    (C) A hospital that is receiving payment under the criterion set 
forth in paragraph (b)(1)(iii) of this section no longer meets the 
criterion.
    (iii) Limitation on reelection. If a hospital that is receiving 
periodic interim payments under the criterion set forth in paragraph 
(b)(1)(ii) or (b)(1)(iii) of this section is removed from that method of 
payment at its own request, it may reelect to receive periodic interim 
payments only under the criterion set forth in paragraph (b)(1)(i) of 
this section. However, if the hospital is removed from that method of 
payment by its intermediary because it no longer meets the requirements 
of Sec. 413.64(h) of this chapter, that hospital may subsequently 
reelect to receive periodic interim payments if it qualifies under the 
provisions of paragraph (b)(1)(ii) or (b)(1)(iii) of this section, 
subject to the requirements in Sec. 413.64(h) of this chapter.
    (c) Special interim payments for certain costs. For capital-related 
costs for cost-reporting periods beginning before October 1, 1991 and 
the direct costs of medical education, which are not included in 
prospective payments but are reimbursed as specified in Secs. 413.130 
and 413.85 of this chapter, respectively, interim payments are made 
subject to final cost settlement. Interim payments for capital-related 
items for cost-reporting periods beginning before October 1, 1991 and 
the estimated cost of approved medical education programs (applicable to 
inpatient costs payable under Medicare Part A and for kidney acquisition 
costs in hospitals approved as renal transplantation centers) are 
determined by estimating the reimbursable amount for the year based on 
the previous year's experience and on substantiated information for the 
current year and divided into 26 equal biweekly payments. Each payment 
is made two weeks after the end of a biweekly period of services, as 
described in Sec. 413.64(h)(5) of this chapter. The interim payments are 
reviewed by the intermediary at least twice during the reporting period 
and adjusted if necessary.
    (d) Special interim payment for unusually long lengths of stay--(1) 
First interim payment. A hospital that is not receiving periodic interim 
payments under paragraph (b) of this section may request an interim 
payment after a Medicare beneficiary has been in the hospital at least 
60 days. Payment for the interim bill is determined as if the bill were 
a final discharge bill and includes any outlier payment determined as of 
the last day for which services have been billed.
    (2) Additional interim payments. A hospital may request additional 
interim payments at intervals of at least 60 days after the date of the 
first interim bill submitted under paragraph (d)(1) of this section. 
Payment for these additional interim bills, as well as the final bill, 
is determined as if the bill were the final bill with appropriate 
adjustments made to the payment amount to reflect any previous interim 
payment made under the provisions of this paragraph (d).
    (e) Outlier payments. Payments for outlier cases (described in 
subpart F of this part) are not made on an interim basis. The outlier 
payments are made based on submitted bills and represent final payment.
    (f) Accelerated payments--(1) General rule. Upon request, an 
accelerated payment may be made to a hospital that is not receiving 
periodic interim payments under paragraph (b) of this section if the 
hospital is experiencing financial difficulties because of the 
following:
    (i) There is a delay by the intermediary in making payment to the 
hospital.
    (ii) Due to an exceptional situation, there is a temporary delay in 
the hospital's preparation and submittal of

[[Page 347]]

bills to the intermediary beyond its normal billing cycle.
    (2) Approval of payment. A hospital's request for an accelerated 
payment must be approved by the intermediary and HCFA.
    (3) Amount of payment. The amount of the accelerated payment is 
computed as a percentage of the net payment for unbilled or unpaid 
covered services.
    (4) Recovery of payment. Recovery of the accelerated payment is made 
by recoupment as hospital bills are processed or by direct payment by 
the hospital.

[53 FR 1627, Jan. 21, 1988, as amended at 53 FR 38532, Sept. 30, 1988; 
54 FR 36495, Sept. 1, 1989; 56 FR 43449, Aug. 30, 1991; 57 FR 3016, Jan. 
27, 1992; 59 FR 36712, July 19, 1994; 59 FR 45400, Sept. 1, 1994]



Sec. 412.120  Reductions to total payments.

    (a) Deductible and coinsurance. Subject to paragraph (a)(2) of this 
section, the total Medicare payments otherwise payable to a hospital are 
reduced by the applicable deductible and coinsurance amounts related to 
inpatient hospital services as determined in accordance with 
Secs. 409.82, 409.83, and 409.87 of this chapter.
    (b) Payment by workers' compensation, automobile medical, no-fault 
or liability insurance or an employer group health plan primary to 
Medicare. If workers' compensation, automobile medical, no-fault, or 
liability insurance or an employer group health plan which is primary to 
Medicare pays in full or in part, the Medicare payment is determined in 
accordance with the following guidelines:
    (1) If workers' compensation pays, in accordance with the applicable 
provisions of Secs. 405.316 through 405.321 of this chapter.
    (2) If automobile medical, no-fault, or liability insurance pays, in 
accordance with the applicable provisions of Secs. 405.322 through 
405.325 of this chapter.
    (3) If an employer group health plan which is primary to Medicare 
pays for services to ESRD beneficiaries, in accordance with the 
applicable provisions of Secs. 405.326 through 405.329 of this chapter.
    (4) If an employer group health plan which is primary to Medicare 
pays for services to employees age 65-69 and their spouses age 65-69, in 
accordance with the applicable provisions of Secs. 405.340 through 
405.344 of this chapter.

[50 FR 12741, Mar. 29, 1985, as amended at 55 FR 36071, Sept. 4, 1990; 
56 FR 573, Jan. 7, 1991; 57 FR 39825, Sept. 1, 1992]



Sec. 412.125  Effect of change of ownership on payments under the prospective payment systems.

    When a hospital's ownership changes, as described in Sec. 489.18 of 
this chapter, the following rules apply:
    (a) Payment for the operating and capital-related costs of inpatient 
hospital services for each patient, including outlier payments, as 
provided in Sec. 412.112, and payments for hemophilia clotting factor 
costs under Sec. 412.115(b), are made to the entity that is the legal 
owner on the date of discharge. Payments are not prorated between the 
buyer and seller.
    (1) The owner on the date of discharge is entitled to submit a bill 
for all inpatient hospital services furnished to a beneficiary 
regardless of when the beneficiary's coverage began or ended during a 
stay, or of how long the stay lasted.
    (2) Each bill submitted must include all information necessary for 
the intermediary to compute the payment amount, whether or not some of 
that information is attributable to a period during which a different 
party legally owned the hospital.
    (b) Other payments under Sec. 412.113 and payments for bad debts as 
described in Sec. 412.115(a), are made to each owner or operator of the 
hospital (buyer and seller) in accordance with the principles of 
reasonable cost reimbursement.

[50 FR 12741, Mar. 29, 1985, as amended at 56 FR 43449, Aug. 30, 1991]



Sec. 412.130  Retroactive adjustments for incorrectly excluded hospitals and units.

    (a) Hospitals for which adjustment is made. The intermediary makes 
the payment adjustment described in paragraph (b) of this section for 
the following hospitals:

[[Page 348]]

    (1) A hospital that was excluded from the prospective payment system 
as a new rehabilitation hospital for a cost reporting period beginning 
on or after October 1, 1991 based on a certification under 
Sec. 412.23(b)(8) regarding the inpatient population the hospital 
planned to treat during that cost reporting period, if the inpatient 
population actually treated in the hospital during that cost reporting 
period did not meet the requirements of Sec. 412.23(b)(2).
    (2) A hospital that had a unit excluded from the prospective payment 
system as a new rehabilitation unit for a cost reporting period 
beginning on or after October 1, 1991 based on a certification under 
Sec. 412.30(a) regarding the inpatient population the hospital planned 
to treat in that unit during that period, if the inpatient population 
actually treated in the unit during that cost reporting period did not 
meet the requirements of Sec. 412.23(b)(2).
    (3) A hospital that added new beds to its existing rehabilitation 
unit for a cost reporting period beginning on or after October 1, 1991 
based on a certification under Sec. 412.30(c) regarding the inpatient 
population the hospital planned to treat in these new beds during that 
cost reporting period, if the inpatient population actually treated in 
the new beds during that cost reporting period did not meet the 
requirements of Sec. 412.23(b)(2).
    (b) Adjustment of payment. The intermediary adjusts the payment to 
the hospitals described in paragraph (a) of this section as follows:
    (1) The intermediary calculates the difference between the amounts 
actually paid during the cost reporting period for which the hospital, 
unit, or beds were first excluded as a new hospital, new unit, or newly 
added beds, and the amount that would have been paid under the 
prospective payment systems for services furnished during that period.
    (2) The intermediary makes a retroactive adjustment for the 
difference between the amount paid to the hospital based on the 
exclusion and the amount that would have been paid under the prospective 
payment systems.

[56 FR 43241, Aug. 30, 1991, as amended at 57 FR 39825, Sept. 1, 1992; 
59 FR 45400, Sept. 1, 1994; 60 FR 45848, Sept. 1, 1995]



                        Subparts I-J--[Reserved]



Subpart K--Prospective Payment System for Inpatient Operating Costs for 
                    Hospitals Located in Puerto Rico

    Source: 52 FR 33058, Sept. 1, 1987, unless otherwise noted.



Sec. 412.200  General provisions.

    Beginning with discharges occurring on or after October 1, 1987, 
hospitals located in Puerto Rico are subject to the rules governing the 
prospective payment system for inpatient operating costs. Except as 
provided in this subpart, the provisions of subparts A, B, C, F, G, and 
H of this part apply to hospitals located in Puerto Rico. Except for 
Sec. 412.60, which deals with DRG classification and weighting factors, 
the provisions of subparts D and E, which describe the methodology used 
to determine prospective payment rates for inpatient operating costs for 
hospitals, do not apply to hospitals located in Puerto Rico. Instead, 
the methodology for determining prospective payment rates for inpatient 
operating costs for these hospitals is set forth in Secs. 412.204 
through 412.212.

[57 FR 39825, Sept. 1, 1992]



Sec. 412.204   Payment to hospitals located in Puerto Rico.

    (a) FY 1988 through FY 1997. For discharges occurring on or after 
October 1, 1997, payments for inpatient operating costs to hospitals 
located in Puerto Rico that are paid under the prospective payment 
system are equal to the sum of--
    (1) 75 percent of the Puerto Rico prospective payment rate for 
inpatient operating costs, as determined under Sec. 412.208 or 
Sec. 412.210; and
    (2) 25 percent of a national prospective payment rate for inpatient 
operating costs, as determined under Sec. 412.212.
    (b) FY 1998 and thereafter. For discharges occurring on or after 
October 1, 1997, payments for inpatient operating costs to hospitals 
located in Puerto Rico that are paid under the prospective payment 
system are equal to the sum of--

[[Page 349]]

    (1) 50 percent of the Puerto Rico prospective payment rate for 
inpatient operating costs, as determined under Sec. 412.208 or 
Sec. 412.210; and
    (2) 50 percent of a national prospective payment rate for inpatient 
operating costs, as determined under Sec. 412.212.

[62 FR 46030, Aug. 29, 1997]



Sec. 412.208  Puerto Rico rates for Federal fiscal year 1988.

    (a) General rule. HCFA determines the Puerto Rico adjusted DRG 
prospective payment rate for inpatient operating costs for each 
inpatient hospital discharge occurring in Federal fiscal year 1988 for a 
prospective payment hospital. These rates are determined as described in 
paragraphs (b) through (i) of this section.
    (b) Determining target amounts. For each hospital subject to the 
prospective payment system for inpatient operating costs, HCFA 
determines the Medicare target amount, as described in Sec. 413.40(c) of 
this chapter, for the hospital's cost reporting period beginning in 
fiscal year 1987. Revisions in the target amounts made subsequent to 
establishment of the standardized amounts under paragraph (d) of this 
section do not affect the standardized amounts.
    (c) Updating the target amounts for fiscal year 1988. HCFA updates 
each target amount determined under paragraph (b) of this section for 
fiscal year 1988 by prorating the applicable percentage increase (as 
defined in Sec. 412.63(f) of this chapter) for fiscal year 1988 to the 
midpoint of fiscal year 1988 (April 1, 1988).
    (d) Standardizing amounts. HCFA standardizes the amount updated 
under paragraph (c) of this section for each hospital by--
    (1) Adjusting for variations in case mix among hospitals;
    (2) Excluding an estimate of indirect medical education costs;
    (3) Adjusting for area variations in hospital wage levels; and
    (4) Excluding an estimate of the payments for hospitals that serve a 
disproportionate share of low-income patients.
    (e) Computing urban and rural averages. HCFA computes separate 
discharge-weighted averages of the standardized amounts determined under 
paragraph (d) of this section for urban and rural hospitals in Puerto 
Rico.
    (f) Geographic classification. (1) For purposes of this paragraph 
(e) of this section, the following definitions apply:
    (i) The term urban area means a Metropolitan Statistical Area (MSA), 
as defined by the Executive Office of Management and Budget.
    (ii) The term large urban area means an MSA with a population of 
more than 1,000,000.
    (iii) The term rural area means any area outside an urban area.
    (2) A hospital classified as rural is deemed to be urban and 
receives the urban Puerto Rico payment amount if the county in which it 
is located meets the following criteria:
    (i) At least 95 percent of the perimeter of the rural county is 
contiguous with urban counties.
    (ii) The county was reclassified from an urban area to a rural area 
after April 20, 1983, as described in Sec. 412.62(f)(1)(iv).
    (iii) At least 15 percent of employed workers in the county commute 
to the central county of one of the adjacent MSAs.
    (g) Reducing for value of outlier payments. HCFA reduces each of the 
average standardized amounts determined under paragraphs (c) through (e) 
of this section by a proportion equal to the proportion (estimated by 
HCFA) of the total amount of payments based on DRG prospective payment 
rates that are additional payments to hospitals located in Puerto Rico 
for outlier cases under subpart F of this part.
    (h) Computing Puerto Rico rates established under the prospective 
payment system for inpatient operating costs for urban and rural 
hospitals. For each discharge classified within a DRG, HCFA establishes 
a Puerto Rico prospective payment rate, as follows:
    (1) For hospitals located in an urban area, the rate equals the 
product of--
    (i) The average standardized amount (computed under paragraphs (c) 
through (g) of this section) for hospitals located in an urban area; and
    (ii) The weighting factor determined under Sec. 412.60(b) for that 
DRG.
    (2) For hospitals located in a rural area, the rate equals the 
product of--

[[Page 350]]

    (i) The average standardized amount (computed under paragraphs (c) 
through (g) of this section) for hospitals located in a rural area; and
    (ii) The weighting factor determined under Sec. 412.60(b) for that 
DRG.
    (i) Adjusting for different area wage levels. HCFA adjusts the 
proportion (as estimated by HCFA from time to time) of Puerto Rico rates 
computed under paragraph (h) of this section that are attributable to 
wages and labor-related costs, for area differences in hospital wage 
levels, by a factor (established by HCFA) reflecting the relative 
hospital wage level in the geographic area (that is, urban or rural area 
as determined under the provisions of paragraph (f) of this section) of 
the hospital compared to the national average hospital wage level.

[52 FR 33058, Sept. 1, 1987; 52 FR 35350, Sept. 18, 1987, as amended at 
53 FR 38533, Sept. 30, 1988; 57 FR 39825, Sept. 1, 1992]



Sec. 412.210  Puerto Rico rates for fiscal years after Federal fiscal year 1988.

    (a) General rule. (1) HCFA determines the Puerto Rico adjusted 
prospective payment rate for inpatient operating costs for each 
inpatient hospital discharge occurring in a Federal fiscal year after 
fiscal year 1988 that involves inpatient hospital services of a hospital 
in Puerto Rico subject to the prospective payment system for which 
payment may be made under Medicare Part A.
    (2) The rate is determined for hospitals located in large urban, 
other urban, or rural areas within Puerto Rico, as described in 
paragraphs (b) through (e) of this section.
    (b) Geographic classifications. (1) For purposes of this section, 
the definitions set forth in Sec. 412.208(f)(1) apply.
    (2) For discharges occurring on or after October 1, 1988, a hospital 
located in a rural county adjacent to one or more urban areas is deemed 
to be located in an urban area and receives the Federal payment amount 
for the urban area to which the greatest number of workers in the county 
commute if the rural county would otherwise be considered part of an 
urban area, under the standards for designating MSAs if the commuting 
rates used in determining outlying counties were determined on the basis 
of the aggregate number of resident workers who commute to (and, if 
applicable under the standards, from) the central county or central 
counties of all adjacent MSAs.

These EOMB standards are set forth in the notice of final standards for 
classification of MSAs published in the Federal Register on January 3, 
1980 (45 FR 956), and available from HCFA, East High Rise Building, Room 
132, 6325 Security Boulevard, Baltimore, Maryland 21207.
    (3) For discharges occurring on or after October 1, 1988, for 
hospitals that consist of two or more separately located inpatient 
hospital facilities, the national adjusted prospective payment rate for 
inpatient operating costs is based on the geographic location of the 
hospital at which the discharge occurs.
    (c) Updating previous standardized amounts. HCFA computes separate 
average standardized amounts for hospitals in large urban, other urban, 
and rural areas within Puerto Rico equal to the respective average 
standardized amount computed for fiscal year 1988 under 
Sec. 412.208(e)--
    (1) Increased by the applicable percentage changes determined under 
Sec. 412.63 (g) and (h); and
    (2) Reduced by a proportion equal to the proportion (estimated by 
HCFA) of the total amount of prospective payments that are additional 
payment amounts to hospitals located in Puerto Rico attributable to 
outlier cases under subpart F of this part.
    (d) Computing Puerto Rico rates for large urban, other urban, and 
rural hospitals. For each discharge classified within a DRG, HCFA 
establishes for the fiscal year a Puerto Rico prospective payment rate 
for inpatient operating costs as follows:
    (1) For hospitals located in a large urban or other urban area in 
Puerto Rico, the rate equals the product of--
    (i) The average standardized amount (computed under paragraph (c) of 
this section) for the fiscal year for hospitals located in a large urban 
or other urban area; and
    (ii) The weighting factor determined under Sec. 412.60(b) for that 
DRG.
    (2) For hospitals located in a rural area in Puerto Rico, the rate 
equals the product of--

[[Page 351]]

    (i) The average standardized amount (computed under paragraph (c) of 
this section) for the fiscal year for hospitals located in a rural area; 
and
    (ii) The weighting factor (determined under Sec. 412.60(b)) for that 
DRG.
    (e) Adjusting for different area wage levels. HCFA adjusts the 
proportion (as estimated by HCFA from time to time) of Puerto Rico rates 
computed under paragraph (d) of this section that is attributable to 
wages and labor-related costs for area differences in hospital wage 
levels by a factor (established by HCFA) reflecting the relative 
hospital wage level in the geographic area (that is, urban or rural area 
as determined under the provisions of paragraph (b) of this section) of 
the hospital compared to the Peurto Rico average hospital wage level.

[52 FR 33058, Sept. 1, 1987, as amended at 53 FR 38533, Sept. 30, 1988; 
57 FR 39825, Sept. 1, 1992; 62 FR 46030, Aug. 29, 1997]



Sec. 412.212  National rate.

    (a) General rule. For purposes of payment to hospitals located in 
Puerto Rico, the national prospective payment rate for inpatient 
operating costs is determined as described in paragraphs (b) through (d) 
of this section.
    (b) Computing a national average standardized amount. HCFA computes 
a discharge-weighted average of the--
    (1) National urban adjusted standardized amount determined under 
Sec. 412.63(j)(1)(i); and
    (2) National rural adjusted average standardized amount determined 
under Sec. 412.63(j)(2)(i).
    (c) Computing a national rate. For each discharge classified within 
a DRG, the national rate equals the product of--
    (1) The national average standardized amount computed under 
paragraph (b) of this section; and
    (2) The weighting factor (determined under Sec. 412.60(b)) for that 
DRG.
    (d) Adjusting for different area wage levels. HCFA adjusts the 
proportion (as estimated by HCFA from time to time) of the national rate 
computed under paragraph (c) of this section that is attributable to 
wages and labor-related costs for area differences in hospital wage 
levels by a factor (established by HCFA) reflecting the relative 
hospital wage level in the geographic area of the hospital compared to 
the national average hospital wage level.

[52 FR 33058, Sept. 1, 1987, as amended at 53 FR 38533, Sept. 30, 1988; 
57 FR 39825, Sept. 1, 1992]



Sec. 412.220  Special treatment of certain hospitals located in Puerto Rico.

    Subpart G of this part sets forth rules for special treament of 
certain facilities under the prospective payment system for inpatient 
operating costs. The following sections in subpart G of this part do not 
apply to hospitals located in Puerto Rico:
    (a) Section 412.92, sole community hospitals.
    (b) Section 412.96, referral centers.

[52 FR 33058, Sept. 1, 1987, as amended at 57 FR 39825, Sept. 1, 1992]



     Subpart L--The Medicare Geographic Classification Review Board

    Source: 55 FR 36766, Sept. 6, 1990, unless otherwise noted.

                Criteria and Conditions for Redesignation



Sec. 412.230  Criteria for an individual hospital seeking redesignation to another rural area or an urban area.

    (a) General. (1) Purpose. Except as provided in paragraph (a)(5) of 
this section, an individual hospital may be redesignated from a rural 
area to an urban area, from a rural area to another rural area, or from 
an urban area to another urban area for the purposes of using the other 
area's standardized amount for inpatient operating costs, wage index 
value, or both.
    (2) Proximity. Except as provided in paragraph (a)(3) of this 
section, to be redesignated to another rural area or an urban area, a 
hospital must demonstrate a close proximity to the area to which it 
seeks redesignation by meeting the criteria in paragraph (b) of this 
section, and submitting data requested under paragraph (c) of this 
section.
    (3) Special rules for sole community hospitals and rural referral 
centers. To be redesignated under the special rules in

[[Page 352]]

this paragraph, a hospital must be a sole community hospital or a rural 
referral center as of the date of the MGCRB's review.
    (i) A hospital that is a rural referral center, a sole community 
hospital, or both does not have to demonstrate a close proximity to the 
area to which it seeks redesignation.
    (ii) If a hospital that is a rural referral center, a sole community 
hospital, or both qualifies for urban redesignation, it is redesignated 
to the urban area that is closest to the hospital. If the hospital is 
closer to another rural area than to any urban area, it may seek 
redesignation to either the closest rural or the closest urban area.
    (iii) If a sole community hospital or rural referral center loses 
its special status as a result of redesignation, the hospital is 
considered to retain its special status for the purpose of applicability 
of the special rules in paragraph (a)(3) of this section.
    (iv) A hospital that is redesignated under paragraph (a)(3) of this 
section may not be redesignated in the same fiscal year under paragraph 
(a)(2) of this section.
    (4) Application of criteria. In applying the numeric criteria 
contained in Secs. 412.230(b)(1) and (2), (d)(2), (e)(1)(iii), and 
(e)(l)(iv) (A) and (B), rounding of numbers to meet the mileage or 
qualifying percentage standard is not permitted.
    (5) Limitations on redesignation. The following limitations apply to 
redesignation:
    (i) An individual hospital may not be redesignated to another area 
for purposes of the wage index if the pre-reclassified average hourly 
wage for that area is lower than the pre-reclassified average hourly 
wage for the area in which the hospital is located.
    (ii) For redesignations effective in fiscal years 1997 and 1998 and 
2002 and thereafter, a hospital may not be redesignated for purposes of 
the standardized amount if the area to which the hospital seeks 
redesignation does not have a higher standardized amount than the 
standardized amount the hospital currently receives.
    (iii) A hospital may not be redesignated to more than one area.
    (b) Proximity criteria. A hospital demonstrates a close proximity 
with the area to which it seeks redesignation if one of the following 
conditions applies:
    (1) The distance from the hospital to the area is no more than 15 
miles for an urban hospital and no more than 35 miles for a rural 
hospital.
    (2) At least 50 percent of the hospital's employees reside in the 
area.
    (c) Appropriate proximity data. For redesignation to an area, the 
hospital must submit appropriate data relating to its proximity to that 
area.
    (1) To demonstrate proximity to the area, the hospital must submit 
evidence of the shortest route over improved roads to the area and the 
distance of that route.
    (2) For employee address data, the hospital must submit current 
payroll records that include information that establishes the home 
addresses by zip code of its employees.
    (d) Use of an area's standardized amount for inpatient operating 
costs. (1) Criteria. To receive an area's standardized amount for 
inpatient operating costs, a hospital must demonstrate that its incurred 
costs are more comparable to the amount it would be paid if it were 
reclassified than the amount it would be paid under its current 
classification, and that it has the necessary geographic relationship 
(as specified in paragraphs (a) and (b) of this section) with the area 
to which it seeks redesignation.
    (2) Demonstrating comparable costs. A hospital demonstrates that its 
costs are more comparable to the amount it would be paid if it were 
reclassified if the hospital's case mix adjusted cost per discharge is 
at least equal to its current rate plus 75 percent of the difference 
between that rate and the rate it would receive if it were reclassified.
    (3) Appropriate cost data. For a standardized amount for inpatient 
operating costs change, the hospital must submit appropriate data as 
follows:
    (i) For hospital-specific data, the hospital must provide data from 
its most recently settled and most recently filed cost report.
    (ii) For data on other hospitals, the hospital must base its 
application on the most recent revisions to the prospective payment 
rates for inpatient

[[Page 353]]

operating costs, as published in the Federal Register.
    (e) Use of urban or other rural area's wage index--(1) Criteria for 
use of area's wage index. Except as provided in paragraphs (e)(3) and 
(e)(4) of this section, to use an area's wage index, a hospital must 
demonstrate the following:
    (i) The hospital's incurred wage costs are comparable to hospital 
wage costs in an urban or other rural area;
    (ii) The hospital has the necessary geographic relationship as 
specified in paragraphs (a) and (b) of this section;
    (iii) The hospital's average hourly wage is at least 108 percent of 
the average hourly wage of hospitals in the area in which the hospital 
is located; and
    (iv) One of the following conditions apply:
    (A) The hospital's average hourly wage is equal to at least 84 
percent of the average hourly wage of hospitals in the area to which it 
seeks redesignation; or
    (B) For redesignations effective before fiscal year 1999, the 
hospital's average hourly wage weighted for occupational categories is 
at least 90 percent of the average hourly wages of hospitals in the area 
to which it seeks redesignation.
    (2) Appropriate wage data. For a wage index change, the hospital 
must submit appropriate data as follows:
    (i) For hospital-specific data, the hospital must provide data from 
the HCFA hospital wage survey used to construct the wage index in effect 
for prospective payment purposes during the fiscal year prior to the 
fiscal year for which the hospital requests reclassification.
    (ii) For data of other hospitals, the hospital must provide data 
concerning the following:
    (A) The average hourly wage in the area in which the hospital is 
located and the average hourly wage in the area to which the hospital 
seeks reclassification. The wage data are taken from the HCFA hospital 
wage survey used to construct the wage index in effect for prospective 
payment purposes during the fiscal year prior to the fiscal year for 
which the hospital requests reclassification and;
    (B) If the hospital is requesting reclassification under 
Sec. 412.230(e)(1)(iv)(B), occupational-mix data to demonstrate the 
average occupational mix for each employment category in the area to 
which the hospital seeks reclassification. Occupational-mix data can be 
obtained from surveys conducted by the American Hospital Association.
    (3) Rural referral center exception. If a hospital was ever a rural 
referral center, it does not have to demonstrate that it meets the 
criterion set forth in paragraph (e)(1)(iii) of this section concerning 
its average hourly wage.
    (4) Special dominating hospital exception. The requirements of 
paragraph (e)(1)(i) and (e)(1)(iii) of this section do not apply if a 
hospital meets the following criteria:
    (i) Its average hourly wage is at least 108 percent of the average 
hourly wage of all other hospitals in the area in which the hospital is 
located.
    (ii) It pays at least 40 percent of the adjusted uninflated wages in 
the MSA.
    (iii) It was approved for redesignation under this paragraph (e) for 
each year from fiscal year 1992 through fiscal year 1997.

[55 FR 36766, Sept. 6, 1990, as amended at 56 FR 25488, June 4, 1991; 57 
FR 39825, Sept. 1, 1992; 59 FR 45399, Sept. 1, 1994; 60 FR 45848, Sept. 
1, 1995; 62 FR 46031, Aug. 29, 1997; 63 FR 26357, May 12, 1998]



Sec. 412.232  Criteria for all hospitals in a rural county seeking urban redesignation.

    (a) Criteria. For all hospitals in a rural county to be redesignated 
to an urban area, the following conditions must be met:
    (1) The county in which the hospitals are located must be adjacent 
to the MSA or NECMA to which they seek redesignation.
    (2) All hospitals in a rural county must apply for redesignation as 
a group.
    (3) The hospitals must demonstrate that the rural county in which 
they are located currently meets the criteria for metropolitan character 
under paragraph (b) of this section and the wage criteria under 
paragraph (c) of this section.

[[Page 354]]

    (4) The hospitals may be redesignated only if one of the following 
conditions is met:
    (i) The pre-reclassified average hourly wage for the area to which 
they seek redesignation is higher than the pre-reclassified average 
hourly wage for the area in which they are currently located.
    (ii) The standardized amount for the area to which they seek 
redesignation is higher than the standardized amount for the area in 
which they are located.
    (b) Metropolitan character. The group of hospitals must demonstrate 
that the county in which the hospitals are located meets the standards 
for redesignation to an MSA or an NECMA as an outlying county that were 
published in the Federal Register on March 30, 1990 (55 FR 12154) using 
Bureau of the Census data or Bureau of Census estimates made after 1990.
    (c) Wage criteria. In applying the following numeric criteria, 
rounding of numbers to meet the qualifying percentages is not permitted.
    (1) Aggregate hourly wage. The aggregate average hourly wage for all 
hospitals in the rural county must be equal to at least 85 percent of 
the average hourly wage in the adjacent urban area; or
    (2) Aggregate hourly wage weighted for occupational mix. For 
redesignations effective before fiscal year 1999, the aggregate hourly 
wage for all hospitals in the rural county, weighted for occupational 
categories, is at least 90 percent of the average hourly wage in the 
adjacent urban area.
    (d) Appropriate data. (1) Metropolitan character. (i) To meet the 
criteria in paragraph (b) of this section, the hospitals may submit 
data, estimates, or projections, made by the Bureau of the Census 
concerning population density or growth, or changes in designation of 
urban areas.
    (ii) The MGCRB only considers data developed by the Bureau of the 
Census.
    (2) Appropriate wage data. The hospitals must submit appropriate 
data as follows:
    (i) For hospital-specific data, the hospitals must provide data from 
the HCFA wage survey used to construct the wage index in effect for 
prospective payment purposes during the fiscal year prior to the fiscal 
year for which the hospitals request reclassification.
    (ii) For data for other hospitals, the hospitals must provide the 
following:
    (A) The average hourly wage in the adjacent area, which is taken 
from the HCFA hospital wage survey used to construct the wage index in 
effect for prospective payment purposes during the fiscal year prior to 
the fiscal year for which the hospitals request reclassification.
    (B) Occupational-mix data to demonstrate the average occupational 
mix for each employment category in the adjacent area. Occupational-mix 
data can be obtained from surveys conducted by the American Hospital 
Association.

[55 FR 36766, Sept. 6, 1990, as amended at 57 FR 39826, Sept. 1, 1992; 
58 FR 46339, Sept. 1, 1993; 59 FR 45399, Sept. 1, 1994; 60 FR 45849, 
Sept. 1, 1995; 62 FR 46031, Aug. 29, 1997]



Sec. 412.234  Criteria for all hospitals in an urban county seeking redesignation to another urban area.

    (a) General criteria. For all prospective payment hospitals in an 
.urban county to be redesignated to another urban area, the following 
conditions must be met:
    (1) All hospitals in an urban county must apply for redesignation as 
a group.
    (2) The county in which the hospitals are located must be adjacent 
to the urban area to which they seek redesignation.
    (3) The county in which the hospitals are located must be part of 
the Consolidated Metropolitan Statistical Area (CMSA) that includes the 
urban area to which they seek redesignation.
    (4) The hospitals may be redesignated only if one of the following 
conditions is met.
    (i) The pre-reclassified average hourly wage for the area to which 
they seek redesignation is higher than the pre-reclassified average 
hourly wage for the area in which they are currently located.
    (ii) The standardized amount for the area to which they seek 
redesignation is higher than the standardized amount for the area in 
which they are currently located.

[[Page 355]]

    (b) Wage criteria. In applying the following numeric criteria, 
rounding of numbers to meet the qualifying percentages is not permitted.
    (1) Aggregate hourly wage. The aggregate average hourly wage of all 
hospitals in the urban county must be at least 85 percent of the average 
hospital hourly wage in the MSA or NECMA to which the hospitals in the 
county seek reclassification; or
    (2) Aggregate hourly wage weighted for occupational mix. For 
redesignations effective before fiscal year 1999, the aggregate average 
hourly wage for all hospitals in the county, weighted for occupational 
categories, is at least 90 percent of the average hourly wage in the 
adjacent urban area.
    (c) Standardized amount inpatient operating costs--(1) Criteria. The 
urban hospitals must demonstrate that their average incurred costs are 
more comparable to the amount the hospitals would be paid if they were 
reclassified than the amount they would be paid under their current 
classification.
    (2) Demonstrating comparable costs. The urban hospitals demonstrate 
that their costs are more comparable to the average amount they would be 
paid if they were reclassified if, on average, each hospital's case-mix 
adjusted cost per case is at least equal to the amount it would be paid 
under its current classification plus 75 percent of the difference 
between that amount and the amount the hospital would receive if it were 
reclassified.
    (d) Appropriate data. (1) Wage data. The hospitals must submit 
appropriate wage data as provided for in Sec. 412.230(e)(2).
    (2) Cost data. The hospitals must submit appropriate data as 
provided for in Sec. 412.230(d)(3).

[56 FR 25488, June 4, 1991, as amended at 57 FR 39826, Sept. 1, 1992; 58 
FR 46339, Sept. 1, 1993; 60 FR 45849, Sept. 1, 1995; 62 FR 46031, Aug. 
29, 1997]



Sec. 412.236  Alternative criteria for hospitals located in an NECMA.

    (a) General. (1) An urban hospital whose designation is affected by 
the implementation of NECMAs may qualify for redesignation by meeting 
either the criteria in Sec. 412.230 or the criterion in paragraph (b) of 
this section.
    (2) All the hospitals in a NECMA may qualify for redesignation by 
meeting the criteria in either Sec. 412.234 or in paragraph (c) of this 
section.
    (b) Criterion applicable to an individual urban hospital in a NECMA. 
The hospital demonstrates that it would have been designated in a 
different urban area under the criteria for designating MSAs in New 
England.
    (c) Criteria applicable to a group of hospitals in a NECMA. (1) All 
prospective payment hospitals in a NECMA must apply for redesignation.
    (2) The hospitals must demonstrate that the NECMA to which they are 
designated would be combined as part of the NECMA to which they seek 
redesignation if the criteria for combining NECMAs were the same as the 
criteria used for combining MSAs.
    (d) Appropriate data. (1) The MGCRB only considers population and 
commuting data developed by the Bureau of the Census.
    (2) To meet the criterion in paragraph (b) of this section or the 
criteria in paragraph (c) of this section, hospitals must submit data 
from the Bureau of the Census.

[55 FR 36766, Sept. 6, 1990. Redesignated and amended at 56 FR 25488, 
June 4, 1991]

                       Composition and Procedures



Sec. 412.246  MGCRB members.

    (a) Composition. The Medicare Geographical Classification Review 
Board (MGCRB) consists of five members, including a Chairman, all of 
whom are appointed by the Secretary. The members include two members who 
are representative of prospective payment system hospitals located in 
rural areas, and at least one individual who is knowledgeable in 
analyzing the costs of inpatient hospital services.
    (b) Term of office. The term of office for an MGCRB member may not 
exceed 3 years. A member may serve more than one term. The Secretary may 
terminate a member's tenure prior to its full term.

[55 FR 36766, Sept. 6, 1990, as amended at 61 FR 46224, Aug. 30, 1996; 
61 FR 51217, Oct. 1, 1996]

[[Page 356]]



Sec. 412.248  Number of members needed for a decision or a hearing.

    (a) A quorum. A quorum, consisting of at least a majority of the 
MGCRB members, one of whom is representative of rural hospitals if 
possible, is required for making MGCRB decisions.
    (b) Number of members for a hearing. If less than a quorum is 
present for an oral hearing, the chairman with the consent of the 
hospital may allow those members present to conduct the hearing and to 
prepare a recommended decision, which is then submitted to a quorum.



Sec. 412.250  Sources of MGCRB's authority.

    (a) Compliance. The MGCRB, in issuing decisions under section 
1886(d)(10)(C) of the Act, complies with all the provisions of title 
XVIII and related provisions of the Act and implementing regulations, 
including the criteria and conditions located at Sec. 412.230 through 
Sec. 412.236, issued by the Secretary under the authority of section 
1886(d)(10)(D) of the Act; and HCFA Rulings issued under the authority 
of the Administrator.
    (b) Affords great weight. The MGCRB affords great weight to other 
interpretive rules, general statements of policy and rules of agency 
organization, procedure, and practice established by HCFA.

[55 FR 36766, Sept. 6, 1990, as amended at 56 FR 25488, June 4, 1991]



Sec. 412.252  Applications.

    (a) By one hospital. An individual prospective payment system 
hospital seeking redesignation to a different rural or urban area has 
the right to submit an application to the MGCRB.
    (b) By a group of hospitals. A group of hospitals has the right to 
submit an application to the MGCRB requesting redesignation of all 
prospective payment hospitals in a county if all prospective payment 
hospitals located in a county or in a NECMA agree to the request.



Sec. 412.254  Proceedings before MGCRB.

    (a) On-the-record decision. The MGCRB will ordinarily issue an on-
the-record decision without conducting an oral hearing. The MGCRB will 
issue a decision based upon all documents, data, and other written 
evidence and comments submitted timely to the MGCRB by the parties.
    (b) Oral hearing. The MGCRB may hold an oral hearing on its own 
motion or if a party demonstrates to the MGCRB's satisfaction that an 
oral hearing is necessary.



Sec. 412.256  Application requirements.

    (a) Written application. A request for reclassification must be in 
writing and must constitute a complete application in accordance with 
paragraph (b) of this section.
    (1) An application must be mailed or delivered to the MGCRB, with a 
copy to HCFA, and may not be submitted through the facsimile (FAX) 
process or by other electronic means.
    (2) A complete application must be received not later than the first 
day of the 13-month period preceding the Federal fiscal year for which 
reclassification is requested.
    (3) The filing date of an application is the date the application is 
received by the MGCRB.
    (b) Criteria for a complete application. An application is complete 
if the application from an individual hospital or from all hospitals in 
a county includes the following information:
    (1) The Federal fiscal year for which the hospital is applying for 
redesignation.
    (2) Which criteria constitute the basis of the request for 
reclassification.
    (3) An explanation of how the hospital or hospitals meet the 
relevant criteria in Secs. 412.230 through 412.236, including any 
necessary data to support the application.
    (c) Opportunity to complete a submitted application. (1) The MGCRB 
will review an application within 15 days of receipt to determine if the 
application is complete. If the MGCRB determines that an application is 
incomplete, the MGCRB will notify the hospital, with a copy to HCFA, 
within the 15 day period, that it has determined that the application is 
incomplete and may dismiss the application if a complete application is 
not filed by September 1.
    (2) At the request of the hospital, the MGCRB may, for good cause, 
grant a

[[Page 357]]

hospital that has submitted an application by October 1, an extension 
beyond October 1 to complete its application.
    (d) Appeal of MGCRB dismissal. (1) The hospital may appeal the MGCRB 
dismissal to the Administrator within 15 days of the date of the notice 
of dismissal.
    (2) Within 20 days of receipt of the hospital's request for appeal, 
the Administrator will affirm the dismissal or reverse the dismissal and 
remand the case to the MGCRB to determine whether reclassification is 
appropriate.
    (e) Notification of complete application. When the MGCRB determines 
that the hospital's application contains all the necessary elements for 
a complete application, it notifies the hospital in writing, with a copy 
to HCFA, that the application is complete and that the case may proceed 
to an MGCRB decision.

[55 FR 36766, Sept. 6, 1990, as amended at 56 FR 25488, June 4, 1991; 62 
FR 46031, Aug. 29, 1997; 63 FR 26357, May 12, 1998]



Sec. 412.258  Parties to MGCRB proceeding.

    (a) The party or parties to an MGCRB proceeding are the hospital or 
group of hospitals requesting a change in geographic designation.
    (b) HCFA has 30 days from the date of receipt of notice of a 
complete application to submit written comments and recommendations 
(with a copy to the hospital) for consideration by the MGCRB.
    (c) The hospital has 15 days from the date of receipt of HCFA's 
comments to submit written comments to the MGCRB, with a copy to HCFA, 
for the purpose of responding to HCFA's comments.



Sec. 412.260  Time and place of the oral hearing.

    If the MGCRB decides that an oral hearing is necessary, it sets the 
time and place for the hearing and notifies the parties in writing, with 
a copy to HCFA, not less than 10 days before the time scheduled for the 
hearing. The MGCRB may reschedule, adjourn, postpone, or reconvene the 
hearing provided that reasonable written notice is given to the parties, 
with a copy to HCFA.



Sec. 412.262  Disqualification of an MGCRB member.

    (a) Grounds for disqualification. An MGCRB member may not 
participate in any decision in a case in which he or she may be 
prejudiced or partial with respect to a party or has any other interest 
in the case.
    (b) Request for disqualification. If a party believes that an MGCRB 
member should not participate in a decision, the party submits the 
objection in writing to the MGCRB at its earliest opportunity, 
explaining the grounds for the request. HCFA may also submit such a 
suggestion to the MGCRB.
    (c) Consideration by the MGCRB member. The MGCRB member will 
consider the objection and, at his or her discretion, either will 
proceed or withdraw.
    (d) Consideration by the MGCRB If the member does not withdraw, a 
party may petition the MGCRB for withdrawal and the MGCRB will consider 
the objection and rule on whether the member may participate in the 
decision before it decides the case.



Sec. 412.264  Evidence and comments in MGCRB proceeding.

    (a) Submission by the parties. Before a decision is issued and 
during an oral hearing, the parties may present evidence or comments to 
the MGCRB regarding the matters at issue in the case.
    (b) Content of evidence and comments. The MGCRB may receive evidence 
and comments without regard for the rules of evidence applicable to 
court procedures.
    (c) Ex parte communications. (1) The members of the MGCRB and its 
staff may not consult or be consulted by an individual representing the 
interests of an applicant hospital or by any other individual on any 
matter in issue before the MGCRB without notice to the hospital or HCFA. 
If such communication occurs, the MGCRB will disclose it to the hospital 
or HCFA, as appropriate, and make it part of the record after the 
hospital or HCFA has had an opportunity to comment. MGCRB members and 
staff may not consider any information outside the record about matters 
concerning a hospital's application for reclassification.

[[Page 358]]

    (2) The provisions in paragraph (c)(1) of this section do not apply 
to the following:
    (i) Communications among MGCRB members and staff.
    (ii) Communications concerning the MGCRB's administrative functions 
or procedures.
    (iii) Requests from the MGCRB to a party or HCFA for a document.
    (iv) Material that the MGCRB includes in the record after notice and 
an opportunity to comment.
    (d) MGCRB rulings on evidence and comments. The MGCRB rules upon the 
admissibility of evidence and comments and excludes irrelevant, 
immaterial, or unduly repetitious evidence and comments.



Sec. 412.266  Availability of wage data.

    A hospital may obtain the average hourly wage data necessary to 
prepare its application to the MGCRB from Federal Register documents 
published in accordance with the provisions of Sec. 412.8(b).

[60 FR 45849, Sept. 1, 1995]



Sec. 412.268  Subpoenas.

    (a) In general. When reasonably necessary for the full presentation 
of a case, and only after a pre-decision request for information or data 
has failed to produce the necessary evidence, either upon its own motion 
or upon the request of a party, the MGCRB may issue subpoenas for the 
attendance and testimony of witnesses, for an oral hearing or the 
production of books, records, correspondence, papers, or other documents 
that are relevant and material to any matter at issue.
    (b) Content of request. The request must designate which witnesses 
or documents are to be produced, and describe addresses or locations 
with sufficient particularly to permit these witnesses or documents to 
be found. The request for a subpoena must state the pertinent facts that 
the party expects to establish by the requested witnesses or documents 
and whether these facts could be established by other evidence without 
the use of a subpoena.
    (c) Issuance. Subpoenas are issued as provided in section 205(d) of 
the Act.
    (d) Payment for subpoena cost. HCFA pays for the cost of issuing 
subpoenas and the fees and mileage of any witness who is subpoenaed, as 
provided in section 205(d) of the Act.



Sec. 412.270  Witnesses.

    Witnesses at an oral hearing testify under oath or affirmation, 
unless excused by the MGCRB for cause. The MGCRB may examine the 
witnesses and may allow the parties or their representatives to also 
examine any witnesses called.



Sec. 412.272  Record of proceedings before the MGCRB.

    A complete record of the proceedings before the MGCRB is made in all 
cases. The record will not be closed until a decision has been issued by 
the MGCRB. A transcription of an oral hearing will be made at a party's 
request, at the expense of the requesting party.



Sec. 412.273  Withdrawing an application.

    (a) Timing of a withdrawal. The MGCRB allows a hospital, or group of 
hospitals, to withdraw its application if the request for withdrawal is 
submitted to the MGCRB during the following time periods:
    (1) At any time before the MGCRB issues a decision on the 
application; or
    (2) After the MGCRB issues a decision, provided that the request for 
withdrawal is received by the MGCRB within 45 days of publication of 
HCFA's annual notice of proposed rulemaking concerning changes to the 
inpatient hospital prospective payment system and proposed payment rates 
for the fiscal year for which the application has been filed.
    (b) Written request only. A request to withdraw an application must 
be made in writing to the MGCRB by all hospitals that are party to the 
application.
    (c) Appeal of the MGCRB's denial of a hospital's request for 
withdrawal. (1) A hospital may file an appeal of the MGCRB's denial of 
its request for withdrawal of an application to the Administrator. The 
appeal must be received within 15 days of the date of the notice of the 
denial.

[[Page 359]]

    (2) Within 20 days of receipt of the hospital's request for appeal, 
the Administrator affirms or reverses the denial.

[56 FR 25489, June 4, 1991, as amended at 56 FR 43241, Aug. 30, 1991; 57 
FR 39826, Sept. 1, 1992]



Sec. 412.274  Scope and effect of an MGCRB decision.

    (a) Scope of decision. The MGCRB may affirm or change a hospital's 
geographic designation. The MGCRB's decision is based upon the evidence 
of record, including the hospital's application and other evidence 
obtained or received by the MGCRB.
    (b) Effective date and term of the decision. Any classification 
change is effective for one year beginning with discharges occurring on 
the first day (October 1) of the second Federal fiscal year following 
the Federal fiscal year in which the complete application is filed and 
ending effective at the end of that Federal fiscal year (the end of the 
next September 30).
    (c) Additional decisions. When the MGCRB determines that the facts 
that provide the basis for reclassification will remain unchanged 
through the end of the following Federal fiscal year, it may also 
provide for the following:
    (1) A one-year automatic renewal of its decision.
    (2) An abbreviated application and decision process for renewals.

[55 FR 36766, Sept. 6, 1990, as amended at 62 FR 46031, Aug. 29, 1997]



Sec. 412.276  Timing of MGCRB decision and its appeal.

    (a) Timing. The MGCRB notifies the parties in writing, with a copy 
to HCFA, and issues a decision within 180 days after the first day of 
the Federal fiscal year preceding the Federal fiscal year for which a 
hospital has filed a complete application. The hospital has 15 days from 
the date of the decision to request Administrator review.
    (b) Appeal. The decision of the MGCRB is final and binding upon the 
parties unless it is reviewed by the Administrator and the decision is 
changed by the Administrator in accordance with Sec. 412.278.



Sec. 412.278  Administrator's review.

    (a) Hospitals requests for review. A hospital or group of hospitals 
dissatisfied with the MGCRB's decision regarding its geographic 
designation may request the Administrator to review the MGCRB decision. 
(A hospital or group of hospitals may also request that the 
Administrator review the MGCRB's dismissal of an application as untimely 
filed or incomplete, as provided in Sec. 412.256(d).)
    (b) Procedures for hospital's request for review. (1) The hospital's 
request for review must be in writing and sent to the Administrator, in 
care of the Office of the Attorney Advisor. The request must be received 
by the Administrator within 15 days after the date the MGCRB issues its 
decision. A request for Administrator review filed by facsimile (FAX) or 
other electronic means will not be accepted. The hospital must also mail 
a copy of its request for review to HCFA's Office of Payment Policy.
    (2) The request for review may contain proposed findings of fact and 
conclusions of law, exceptions to the MGCRB's decision, and supporting 
reasons therefor.
    (3) Within 15 days of receipt of the hospital's request for review, 
HCFA may submit to the Administrator, in writing, with a copy to the 
party, comments and recommendations concerning the hospital's 
submission.
    (4) Within 10 days of receipt of HCFA's submission, the hospital may 
submit in writing, with a copy to HCFA, a response to the Administrator.
    (c) Discretionary review by the Administrator. (1) The Administrator 
may, at his or her discretion, review any final decision of the MGCRB.
    (2) The Administrator promptly notifies the hospital that he or she 
has decided to review a decision of the MGCRB. The notice of review 
indicates the particular issues to be considered and includes copies of 
any comments submitted to the Administrator by HCFA staff concerning the 
MGCRB decision.
    (3) Within 15 days of the receipt of the Administrator's notice of 
review, the hospital may submit a response in

[[Page 360]]

writing to the Administrator, with a copy of HCFA.
    (d) Criteria for discretionary review. In deciding whether to review 
an MGCRB decision, the Administrator normally considers whether it 
appears that any of the following situations apply:
    (1) The MGCRB made an erroneous interpretation of law, regulation, 
or HCFA Ruling.
    (2) The MGCRB's decision is not supported by substantial evidence.
    (3) The case presents a significant policy issue having a basis in 
law and regulations, and review is likely to lead to issuance of a HCFA 
Ruling or other directive needed to clarify a provision in the law or 
regulations.
    (4) The decision of the MGCRB requires clarification, amplication, 
or an alternative legal basis.
    (5) The MGCRB has incorrectly extended its authority to a degree not 
provided for by law, regulation, or HCFA Ruling.
    (e) Communication procedures. All communications between HCFA staff 
and the Administrator concerning the Administrator's review of an MGCRB 
decision must be in writing. As specified in paragraphs (b) and (c) of 
this section, copies of comments by HCFA staff are sent to applicant 
hospitals within 15 days of receipt of a hospital's request for review, 
or, in cases in which the Administrator decides to review a case at his 
or her discretion, are included with the Administrator's notice of 
review. In the event there are additional communications between HCFA 
staff and the Administrator concerning MGCRB decisions reviewed by the 
Administrator under paragraphs (b) or (c) of this section, HCFA 
furnishes copies of the communications to the hospital or group of 
hospitals.
    (f) Administrator's decision. (1) The Administrator may not receive 
or consider any new evidence and must issue a decision based only upon 
the record as it appeared before the MGCRB and comments submitted under 
paragraphs (b)(2), (b)(3), (b)(4), (c)(2), and (c)(3) of this section.
    (2) The Administrator issues a decision in writing to the party with 
a copy to HCFA--
    (i) Not later than 90 days following receipt of the party's request 
for review; or
    (ii) Not later than 105 days following issuance of the MGCRB 
decision in the case of review at the discretion of the Administrator.
    (3) The Administrator's decision issued under Sec. 412.278 (a) or 
(c) is the final Departmental decision, unless it is amended under 
Sec. 412.278(g). The final Departmental decision is not subject to 
judicial review.
    (4) The Administrator's decision is not subject to judicial review.
    (g) Amendment of Administrator decision--(1) Hospital's request for 
amendment. The hospital may request the Administrator to amend the 
decision for the limited purpose of correcting mathematical or 
computational errors, or to correct the decision if the evidence that 
was considered in making the decision clearly shows on its face that an 
error was made. The following procedure is followed:
    (i) The hospital's request for amendment must be received by the 
Administrator within 10 days after the date the Administrator issues a 
decision. The request for amendment must be in writing, with a copy to 
HCFA.
    (ii) The Administrator promptly reviews the hospital's request and 
amends the decision, if necessary, within 5 days following receipt of 
the hospital's request for amendment.
    (2) Discretionary review by the Administrator. Within 15 days 
following the issuance of the Administrator's decision, the 
Administrator, at his or her discretion, may amend the decision to 
correct mathematical or computational errors, or to correct the decision 
if the evidence that was considered in making the decision clearly shows 
on its face that an error was made. The Administrator's amended decision 
is final and is not subject to judicial review.

[55 FR 36766, Sept. 6, 1990, as amended at 56 FR 25489, June 4, 1991; 57 
FR 39826, Sept. 1, 1992]



Sec. 412.280  Representation.

    (a) General. A party may be represented by legal counsel or by any 
other person appointed to act as its

[[Page 361]]

representative at any proceeding before the MGCRB or the Administrator.
    (b) Rights of a representative. A representative appointed by a 
party may accept or give on behalf of the party any request or notice 
connected with any proceeding before the MGCRB or the Administrator. A 
representative is entitled to present evidence and argument as to facts 
and law in any MGCRB proceeding affecting the party represented and to 
obtain information to the same extent as the party represented. Notice 
of any action or decision sent to the representative of a party has the 
same effect as if it had been sent to the party itself.



  Subpart M--Prospective Payment System for Inpatient Hospital Capital 
                                  Costs

    Source: 56 FR 43449, Aug. 30, 1991, unless otherwise noted.

                           General Provisions



Sec. 412.300  Scope of subpart and definition.

    (a) Purpose. This subpart implements section 1886(g)(1)(A) of the 
Act by establishing a prospective payment system for inpatient hospital 
capital-related costs. Under this system, payment is made on the basis 
described in Sec. 412.304 through Sec. 412.374 for inpatient hospital 
capital-related costs furnished by hospitals subject to the prospective 
payment system under subpart B of this part.
    (b) Definition. For purposes of this subpart, a new hospital means a 
hospital that has operated (under previous or present ownership) for 
less than 2 years. The following hospitals are not new hospitals:
    (1) A hospital that builds new or replacement facilities at the same 
or another location even if coincidental with a change of ownership, a 
change in management, or a lease arrangement.
    (2) A hospital that closes and subsequently reopens.
    (3) A hospital that has been in operation for more than 2 years but 
has participated in the Medicare program for less than 2 years.
    (4) A hospital that changes its status from a hospital that is 
excluded from the prospective payment systems to a hospital that is 
subject to the capital prospective payment systems.

[56 FR 43449, Aug. 30, 1991, as amended at 57 FR 39827, Sept. 1, 1992]



Sec. 412.302  Introduction to capital costs.

    (a) New capital costs. New capital costs are allowable Medicare 
inpatient hospital capital-related costs under subpart G of part 413 of 
this chapter that are related to assets that were first put in use for 
patient care after December 31, 1990 (except for such costs deemed to be 
old capital costs based on prior obligations as described in paragraph 
(c) of this section) and those allowable capital-related costs related 
to assets in use prior to December 31, 1990 that are excluded from the 
definition of old capital costs described in paragraphs (b) (2) through 
(5) of this section, or are betterment or improvement costs related to 
those old capital assets.
    (b) Old capital costs. Except as provided in paragraph (c) of this 
section with respect to capital obligations that qualify for recognition 
as old capital, old capital costs are allowable capital-related costs 
for land and depreciable assets that were put in use for patient care on 
or before December 31, 1990. However, for a new hospital as defined in 
Sec. 412.300(b), old capital costs are defined as those allowable 
capital-related costs for land and depreciable assets that were put in 
use for patient care on or before the later of December 31, 1990 or the 
last day of the hospital's base year cost reporting period under 
Sec. 412.328(a)(2). Old capital costs include the following:
    (1) Allowable depreciation on assets based on the useful life 
guidelines used to determine depreciation expense in the hospital's base 
period.
    (2) Allowable capital-related interest expense. Except as provided 
below, the amount of allowable capital-related interest expense that 
will be recognized as old capital is limited to the amount the hospital 
was legally obligated to pay as of December 31, 1990. Any allowable 
interest expense in excess of this limitation will be recognized as new 
capital.

[[Page 362]]

    (i) An increase in interest expense is recognized if the increase is 
due to periodic fluctuations of rates in variable interest rate loans or 
at the time of conversion from a variable rate loan to a fixed rate loan 
when no other changes in the terms of the loan are made.
    (ii) If the terms of a debt instrument are revised after December 
31, 1990, the amount of interest that will be recognized as old capital 
during the transition cannot exceed the amount that would have been 
recognized during the same period prior to the revision of the debt 
instrument.
    (iii) If short-term financing was used to acquire old capital assets 
and the debt is extended or ``rolled-over'', a portion of the extended 
debt will be recognized as old capital. The portion will equal the ratio 
of the net book value as of the beginning of the applicable cost 
reporting period for depreciable assets that were in use in the base 
year, to the net book value as of the beginning of the base year cost 
reporting period for those assets. The net book value for the base year 
will not be adjusted to exclude assets that have been fully depreciated 
or removed from service since the base year. If the debt is related to 
specific assets, the ratio will be determined based on the values for 
those assets. The ratio will exclude assets that were acquired with 
other identifiable debt instruments. For purposes of this paragraph, 
short term financing is a debt that becomes due in no later than the 
earlier of 5 years or half of the average useful life of the assets to 
which the debt is related.
    (iv) If old capital indebtedness is commingled with new capital 
debt, the allowable interest expense will be apportioned to old capital 
costs based on the ratio of the portion of the loan principal related to 
old capital indebtedness to the total loan principal.
    (v) Investment income, excluding income from funded depreciation 
accounts, is used to reduce old capital interest expense based on the 
ratio of total old capital interest expense to total allowable interest 
expense in each cost reporting period.
    (3) Allowable capital-related lease and rental costs for land and 
depreciable assets that were obligated as of December 31, 1990.
    (i) Lease renewals up to the annual lease payment level obligated as 
of December 31, 1990 are recognized provided the same asset remains in 
use, the asset has a useful life of at least 3 years, and the annual 
lease payment is $1,000 or more for each item or service.
    (ii) If a hospital-owned asset is sold or given to another party and 
that same asset is then leased back by the hospital, the amount of 
allowable capital-related costs recognized as old capital costs is 
limited to the amount allowed for that asset in the last cost reporting 
period that it was owned by the hospital.
    (iii) If an entire hospital is leased without assumption of the 
hospital's asset costs after December 31, 1990, the amount of allowable 
capital-related costs recognized as old capital costs is limited to the 
amount allowed for old capital costs in the base year or the last cost 
reporting period these costs were recognized under this subpart, 
whichever is later.
    (4) The portion of allowable costs for other capital-related 
expenses (including but not limited to, taxes, insurance, license and 
royalty fees on depreciable assets) resulting from applying the ratio of 
the hospital's gross old asset value to total asset value in each cost 
reporting period.
    (5) The appropriate portion of the capital-related costs of related 
organizations under Sec. 413.17 that would be recognized as old capital 
costs if these costs had been incurred directly by the hospital.
    (6) Obligated capital costs that are recognized as old capital costs 
in accordance with paragraph (c) of this section.
    (7) If a hospital had nonreimbursable costs applicable to an old 
capital asset as of December 31, 1990 that subsequently become allowable 
inpatient capital-related costs, the allowable costs for such an asset 
that are attributable to inpatient hospital services are recognized as 
old capital costs if a portion of the asset was in use for inpatient 
hospital care on December 31, 1990 and the costs meet all other 
provisions for recognition of old capital costs contained in this 
section.

[[Page 363]]

    (c) Obligated capital costs--(1) General rule. Under the conditions 
described below, capital-related costs attributable to assets that are 
put in use after December 31, 1990 may be recognized as old capital 
costs. Any allowable capital-related costs for these assets that are not 
recognized as old capital costs are recognized as new capital costs.
    (i) Fixed assets. The costs of capital-related items and services 
defined in subpart G of part 413 for which there was a contractual 
obligation entered into by a hospital or related party with an outside, 
unrelated party for the construction, reconstruction, lease, rental, or 
financing of a fixed asset may be recognized as old capital costs if all 
the following conditions are met:
    (A) The obligation must arise from a binding written agreement that 
was executed on or before December 31, 1990 and that obligates the 
hospital on or before December 31, 1990.
    (B) The capital asset must be put in use for patient care before 
October 1, 1994 except as provided in paragraph (c)(1)(iv) of this 
section.
    (C) The hospital notifies the intermediary of the existence of 
obligated capital costs as provided in paragraph (c)(1)(v) of this 
section.
    (D) The amount that is recognized as old capital cost is limited to 
the lesser of the actual allowable costs when the asset is put in use or 
the estimated costs of the capital expenditure at the time it was 
obligated as provided in paragraph (c)(1)(vi) of this section.
    (ii) Moveable equipment. Moveable equipment is recognized as old 
capital only if all of the conditions specified in paragraphs (c)(1)(i) 
(B) through (D) of this section are met and one of the following 
conditions is met:
    (A) There was a binding contractual agreement that was executed on 
or before December 31, 1990 and obligates the hospital on or before 
December 31, 1990 for the lease or purchase of the item of equipment on 
or before December 31, 1990.
    (B) There was a binding contractual agreement that was executed on 
or before December 31, 1990 and obligates the hospital on or before 
December 31, 1990 for financing the acquisition of the equipment; the 
item of equipment costs at least $100,000; and the item was specifically 
listed in an equipment purchase plan approved by the Board of Directors 
on or before December 31, 1990.
    (iii) Agreements not recognized. Agreements for planning, design or 
feasibility that do not commit the hospital to undertake a project are 
not recognized as obligating capital expenditures for purposes of this 
subsection.
    (iv) Extension of deadline. HCFA may extend the deadline in 
paragraph (c)(1)(i)(B) of this section, under which an asset must be put 
in use for patient care before October 1, 1994, to no later than 
September 30, 1996 for extraordinary circumstances beyond the hospital's 
control. Extraordinary circumstances include, but are not limited to, a 
construction strike or atypically severe weather that significantly 
delayed completion of a construction project. Normal construction delays 
do not constitute extraordinary circumstances.
    (A) The hospital must submit its request for an extended deadline 
with documentation of the extraordinary circumstances by the later of 
January 1, 1993 or 180 days after the extraordinary circumstance.
    (B) The intermediary reviews the request and verifies the hospital's 
documentation, and forwards the request to HCFA within 60 days. Within 
90 days, HCFA notifies the intermediary of its decision and, if an 
extension is granted, of the revised deadline for putting the asset in 
use for patient care service.
    (v) The hospital must submit to its intermediary the binding 
agreement and supporting documents that relate to the obligated capital 
expenditure by the later of October 1, 1992, or within 90 days after the 
start of the hospital's first cost reporting period beginning on or 
after October 1, 1991. This documentation must include a project 
description (including details of any phased construction or financing) 
and an estimate of costs that were prepared no later than December 31, 
1990.
    (vi) Cost limitation--(A) Leases, Rentals or Purchases. The amount 
of obligated capital costs recognized as old capital costs cannot exceed 
the amount specified in the lease, rental, or purchase agreement. If 
moveable equipment is

[[Page 364]]

recognized as old capital under paragraph (c)(1)(ii)(B) of this section, 
the amount recognized as old capital costs cannot exceed the estimated 
cost identified in the equipment purchase plan approved by the 
hospital's Board of Directors.
    (B) Construction contracts. The amount of obligated capital costs 
recognized as old capital costs cannot exceed the estimated construction 
costs for the project as of December 31, 1990. Additional costs will be 
recognized as old capital costs only if the additional costs are 
directly attributable to changes in life safety codes or other building 
requirements established by government ordinance that occurred after the 
project was obligated.
    (C) Financing costs. The amount of obligated interest expense that 
will be recognized as old capital costs cannot exceed the amount for 
which the hospital was legally obligated as of December 31, 1990 or, in 
the case of financing that is arranged after December 31, 1990 for a 
capital acquisition that was legally obligated as of December 31, 1990, 
the amount specified in a detailed financing plan approved by the 
hospital's Board of Directors prior to January 1, 1991.
    (vii) Determining old capital costs. (A) The intermediary determines 
whether the applicable criteria are met for recognition of obligated 
capital costs as old capital costs and the maximum allowable cost that 
will be recognized as old capital costs.
    (B) The intermediary advises the hospital of its determination by 
the later of the end of the hospital's first cost reporting period 
subject to the capital prospective payment system or 9 months after the 
receipt of the hospital's notification under paragraph (c)(1)(v) of this 
section.
    (C) The actual amount that will be recognized as old capital costs 
is based on the lesser of the allowable costs for the asset when it is 
put into patient use or the amounts determined under paragraph 
(c)(1)(vi) of this section.
    (viii) Multi-phase project. If the hospital has a multi-phase 
capital project, the provisions of paragraphs (c)(1) (i) through (vii) 
of this section apply independently to each phase of the project.
    (2) Lengthy certificate-of-need process. (i) If a hospital does not 
meet the criteria under paragraph (c)(1)(i) or paragraph (c)(1)(ii) of 
this section, but meets all of the following criteria, the estimated 
cost for the project as of December 31, 1990 may be recognized as old 
capital costs:
    (A) The hospital is required under State law to obtain preapproval 
of the capital project or acquisition by a designated State or local 
planning authority in the State in which it is located.
    (B) The hospital filed an initial application for a certificate of 
need on or before December 31, 1989 that includes a detailed description 
of the project and its estimated cost and had not received approval or 
disapproval on or before September 30, 1990. If the hospital received 
conditional approval on or before September 30, 1990, the hospital's 
intermediary assesses the nature of the conditions. The hospital will be 
considered to have received approval for the project as of September 30, 
1990 if the intermediary determines that the hospital received 
sufficient approval for the project to proceed without significant 
delay.
    (C) The hospital expended the lesser of $750,000 or 10 percent of 
the estimated cost of the project on or before December 31, 1990; and
    (D) The hospital put the asset into patient use on or before the 
later of September 30, 1996 or 4 years from the date the certificate of 
need was approved.
    (ii) The provisions of paragraphs (c)(1) (iv) through (viii) of this 
section apply to projects that meet the criteria in paragraph (c)(2)(i) 
of this section.
    (3) Construction in process. (i) If a hospital that initiates 
construction on a capital project does not meet the requirements of 
paragraphs (c)(1)(i) or (ii) or (c)(2)(i) of this section, the project 
costs may be recognized as old capital costs if all the following 
conditions are met:
    (A) The hospital received any required certificate of need approval 
on or before December 31, 1990.
    (B) The hospital's Board of Directors formally authorized the 
project with a detailed description of its scope and costs on or before 
December 31, 1990.

[[Page 365]]

    (C) The estimated cost of the project as of December 31, 1990 
exceeds 5 percent of the hospital's total patient revenues during its 
base year.
    (D) The capitalized cost that had been incurred for the project as 
of December 31, 1990 exceeded the lesser of $750,000 or 10 percent of 
the estimated project cost.
    (E) The hospital began actual construction or renovation 
(``groundbreaking'') on or before March 31, 1991.
    (F) The project is completed before October 1, 1994.
    (ii) The provisions of paragraphs (c)(1) (iv) through (viii) of this 
section apply to projects that meet the criteria in paragraph (c)(3)(i) 
of this section.
    (d) Consistency in cost reporting--(1) General rule. For cost 
reporting periods beginning on or after October 1, 1991, and before 
October 1, 2001, the hospital must follow consistent cost finding 
methods for classifying and allocating capital-related costs, except as 
otherwise provided in paragraph (d)(4) of this section.
    (2) Old capital costs. Unless there is a change of ownership, the 
hospital must continue the same cost finding methods for old capital 
costs, including its practices for the direct assignment of capital-
related costs and its cost allocation bases, that were in effect in the 
hospital's last cost reporting period ending on or before October 1, 
1991. If there is a change of ownership, the new owners may request that 
the intermediary approve a change in order to be consistent with their 
established cost finding practices.
    (3) New capital costs. If a hospital desires to change its cost 
finding methods for new capital costs, the request for change must be 
made in writing to the intermediary prior to the beginning of the cost 
reporting period for which the change is to apply. The request must 
include justification as to why the change will result in more accurate 
and more appropriate cost finding. The intermediary will not approve the 
change unless it determines that there is reasonable justification for 
the change.
    (4) Hospitals may elect the simplified cost allocation methodology 
under the terms and conditions provided in the instructions for HCFA 
Form 2552.

[56 FR 43449, Aug. 30, 1991, as amended at 57 FR 3016, Jan. 27, 1992; 57 
FR 39827, Sept. 1, 1992; 57 FR 46510, Oct. 9, 1992; 59 FR 45399, Sept. 
1, 1994; 61 FR 46224, Aug. 30, 1996; 61 FR 51217, Oct. 1, 1996]



Sec. 412.304  Implementation of the capital prospective payment system.

    (a) General rule. As described in Secs. 412.312 through 412.370, 
effective with cost reporting periods beginning on or after October 1, 
1991, HCFA pays an amount determined under the capital prospective 
payment system for each inpatient hospital discharge as defined in 
Sec. 412.4. This amount is in addition to the amount payable under the 
prospective payment system for inpatient hospital operating costs as 
determined under Sec. 412.63.
    (b) Cost reporting periods beginning on or after October 1, 1991 and 
before October 1, 2001. For cost reporting periods beginning on or after 
October 1, 1991 and before October 1, 2001, the capital payment amount 
is based on either a combination of payments for old capital costs and 
new capital costs or a fully prospective rate, as determined under 
Sec. 412.324 through Sec. 412.348.
    (c) Cost reporting periods beginning on or after October 1, 2001. 
For cost reporting periods beginning on or after October 1, 2001, the 
capital payment amount is based solely on the Federal rate determined 
under paragraphs (a) and (b) of Sec. 412.308 and updated under paragraph 
(c) of Sec. 412.308.
    (d) Interim payments. Interim payments are made to the hospital as 
provided in Sec. 412.116.

 Basic Methodology for Determining the Federal Rate for Capital-Related 
                                  Costs



Sec. 412.308  Determining and updating the Federal rate.

    (a) FY 1992 national average cost per discharge. HCFA determines the 
FY 1992 estimated national average cost per discharge by updating the 
discharge weighted national average Medicare inpatient hospital capital-
related cost per discharge for FY 1989 by

[[Page 366]]

the estimated increase in Medicare inpatient hospital capital costs per 
discharge.
    (b) Standard Federal rate. The standard Federal rate is used to 
determine the Federal rate for each fiscal year in accordance with the 
formula specified in paragraph (c) of this section.
    (1) HCFA determines the standard Federal rate by adjusting the FY 
1992 updated national average cost per discharge by a factor so that 
estimated aggregate payments based on the standard Federal rate adjusted 
by the payment adjustments described in Sec. 412.312(b) equal estimated 
aggregate payments based solely on the national average cost per 
discharge.
    (2) Effective FY 1994, the standard Federal rate used to determine 
the Federal rate each year under paragraph (c) of this section is 
reduced by 7.4 percent.
    (3) Effective FY 1996, the standard Federal rate used to determine 
the Federal rate each year under paragraph (c) of this section is 
reduced by 0.28 percent to account for the effect of the revised policy 
for payment of transfers under Sec. 412.4(d).
    (4) Effective FY 1998, the unadjusted standard Federal capital 
payment rate in effect on September 30, 1997, used to determine the 
Federal rate each year under paragraph (c) of this section is reduced by 
15.68 percent.
    (5) For discharges occurring on or after October 1, 1997 through 
September 30, 2002, the unadjusted standard Federal capital payment rate 
as in effect on September 30, 1997, used to determine the Federal rate 
each year under paragraph (c) of this section is further reduced by 2.1 
percent.
    (c) The Federal rate. HCFA determines the Federal rate each year by 
adjusting the standard Federal rate by the following factors.
    (1) Update factor. After FY 1992, HCFA updates the standard Federal 
rate as follows:
    (i) FY 1993 through FY 1995. For FY 1993 through FY 1995, the 
standard Federal rate is updated based on a moving two-year average of 
actual increases in capital-related costs per discharge for the period 
three and four years before the fiscal year in question, excluding the 
portion of the increase attributable to changes in case mix.
    (ii) Effective FY 1996. Effective FY 1996, the standard Federal rate 
is updated based on an analytical framework. The framework includes a 
capital input price index, which measures the annual change in the 
prices associated with capital-related costs during the year. HCFA 
adjusts the capital input price index rate of change to take into 
account forecast errors, changes in the case mix index, the effect of 
changes to DRG classification and relative weights, and allowable 
changes in the intensity of hospital services.
    (2) Outlier payment adjustment factor. HCFA reduces the updated 
standard Federal rate by an adjustment factor equal to the estimated 
additional payments under the Federal rate for outlier cases under 
subpart F of this part, determined as a proportion of total capital 
payments under the Federal rate.
    (3) Exceptions payment adjustment factor. HCFA reduces the updated 
standard Federal rate by an adjustment factor equal to the estimated 
additional payments for exceptions under Sec. 412.348 determined as a 
proportion of total payments under the hospital-specific rate and 
Federal rate.
    (4) Budget neutrality adjustment factor. (i) For FY 1992 through FY 
1995, HCFA adjusts the updated standard Federal rate by a budget 
neutrality factor determined under Sec. 412.352.
    (ii) HCFA makes an adjustment to the Federal rate so that estimated 
aggregate payments for the fiscal year based on the Federal rate after 
any changes resulting from the annual reclassification and recalibration 
of the DRG weight in accordance with Sec. 412.60(e) and in the 
geographic adjustment factors described in Sec. 412.312(b)(2) equal 
estimated aggregate payments based on the Federal rate that would have 
been made without such changes.

[56 FR 43449, Aug. 30, 1991; 57 FR 3016, Jan. 27, 1992, as amended at 58 
FR 46339, Sept. 1, 1993; 59 FR 45399, Sept. 1, 1994; 60 FR 45849, Sept. 
1, 1995; 62 FR 46031, Aug. 29, 1997]

[[Page 367]]



Sec. 412.312  Payment based on the Federal rate.

    (a) General. The payment amount for each discharge based on the 
Federal rate determined under Sec. 412.308(c) is determined under the 
following formula: [Federal rate X DRG weight X Geographic adjustment 
factor X Large urban add-on X (1 + Capital disproportionate share 
adjustment factor + capital indirect medical education adjustment 
factor) X (for hospitals located in Alaska and Hawaii, a cost-of-living 
adjustment factor)] + (Any applicable outlier payment).
    (b) Payment adjustments--(1) DRG weights. The relative resource 
requirements of the discharge are taken into account by applying the DRG 
weighting factor that is assigned to the discharge under Sec. 412.60.
    (2) Geographic adjustment factors--(i) Local cost variation. A 
geographic adjustment factor is applied that takes into account 
geographic variation in costs.
    (ii) Large urban add-on. An additional adjustment is made for 
hospitals located in a large urban area to reflect the higher costs 
incurred by hospitals located in those areas.
    (iii) Cost-of-living adjustment. An additional adjustment is made 
for hospitals located in Alaska and Hawaii to account for the higher 
cost-of-living in those States.
    (3) Disproportionate share adjustment. For hospitals with at least 
100 beds located in an urban area and serving low-income patients, a 
disproportionate share adjustment factor is applied that reflects the 
higher costs attributable to furnishing services to low income patients.
    (4) Indirect medical education adjustment. An additional adjustment 
is made based on the ratio of residents to the average daily patient 
census of the hospital to account for the indirect costs of medical 
education.
    (c) Additional payment for outlier cases. Payment is made for day 
outlier cases as provided for in Sec. 412.82 and for cost outlier cases 
if both capital-related and operating-related costs exceed the cost 
outlier threshold as provided for in Sec. 412.84.
    (d) Payment for transfer cases. Payment is made for transfer cases 
as provided for in Sec. 412.4.



Sec. 412.316  Geographic adjustment factors.

    (a) Local cost variation. HCFA adjusts for local cost variation 
based on the hospital wage index value that is applicable to the 
hospital under Sec. 412.63(k). The adjustment factor equals the hospital 
wage index value applicable to the hospital raised to the .6848 power 
and is applied to 100 percent of the Federal rate.
    (b) Large urban location. HCFA provides an additional payment to a 
hospital located, for purposes of receiving payment under 
Sec. 412.63(a), in a large urban area equal to 3.0 percent of what would 
otherwise be payable to the hospital based on the Federal rate.
    (c) Cost-of-living adjustment. HCFA provides an additional payment 
to a hospital located in Alaska and Hawaii equal to [.3152 X (the cost-
of-living adjustment factor used to determine payments under 
Sec. 412.115 - 1)] percent.



Sec. 412.320  Disproportionate share adjustment factor.

    (a) Criteria for classification. A hospital is classified as a 
``disproportionate share hospital'' for the purposes of capital 
prospective payments if either of the following conditions is met:
    (1) The hospital is located, for purposes of receiving payment under 
Sec. 412.63(a), in an urban area, has 100 or more beds as determined in 
accordance with Sec. 412.105(b) and serves low-income patients, as 
determined under Sec. 412.106(b).
    (2) The hospital meets the criteria in Sec. 412.106(c)(2).
    (b) Payment adjustment factor. (1) If a hospital meets the criteria 
in paragraph (a)(1) of this section for a disproportionate share 
hospital for purposes of capital prospective payments, the 
disproportionate share payment adjustment factor equals [e raised to the 
power of (.2025  x the hospital's disproportionate patient percentage as 
determined under Sec. 412.106(b)(5)), -1], where e is the natural 
antilog of 1.
    (2) If a hospital meets the criteria in Sec. 412.106(c)(2) for 
purposes of hospital

[[Page 368]]

inpatient operating prospective payments, the disproportionate share 
adjustment factor is the factor that results from deeming the hospital 
to have the same disproportionate share patient percentage that would 
yield its operating disproportionate share adjustment.

[56 FR 43449, Aug. 30, 1991; 57 FR 3016, Jan. 27, 1992, as amended at 58 
FR 46339, Sept. 1, 1993]



Sec. 412.322  Indirect medical education adjustment factor.

    (a) Basic data. HCFA determines the following for each hospital:
    (1) The hospital's number of full-time equivalent residents as 
determined under Sec. 412.105(f).
    (2) The hospital's average daily census is determined by dividing 
the total number of inpatient days in the acute inpatient area of the 
hospital by the number of days in the cost reporting period.
    (3) The measurement of teaching activity is the ratio of the 
hospital's full-time equivalent residents to average daily census. This 
ratio cannot exceed 1.5.
    (b) Payment adjustment factor. The indirect teaching adjustment 
factor equals [e (raised to the power of .2822 x the ratio of residents 
to average daily census)-1].

[56 FR 43449, Aug. 30, 1991, as amended at 63 FR 26357, May 12, 1998; 63 
FR 41004, July 31, 1998]

  Determination of Transition Period Payment Rates for Capital-Related 
                                  Costs



Sec. 412.324  General description.

    (a) Hospitals under Medicare in FY 1991. During the ten-year 
transition period, payments to a hospital with a hospital-specific rate 
below the Federal rate are based on the fully prospective payment 
methodology under Sec. 412.340 or for a hospital with a hospital-
specific rate above the Federal rate, the hold-harmless payment 
methodology under Sec. 412.344.
    (b) New hospitals. (1) A new hospital, as defined under 
Sec. 412.300(b), is paid 85 percent of its allowable Medicare inpatient 
hospital capital-related costs through its cost reporting period ending 
at least 2 years after the hospital accepts its first patient.
    (2) For the third year through the remainder of the transition 
period, the hospital is paid based on the fully prospective payment 
methodology or the hold-harmless payment methodology using the base 
period determined under Sec. 412.328(a)(2).
    (3) If the hospital is paid under the hold-harmless methodology 
described in Sec. 412.344, the hold-harmless payment for old capital 
costs described in Sec. 412.344(a)(1) is payable for up to and including 
8 years and may continue beyond the first cost reporting period 
beginning on or after October 1, 2000.
    (c) Hospitals with 52-53 week fiscal years ending September 25 
through September 29. For purposes of this subpart, a hospital with a 
52-53 week fiscal year period beginning September 26 through September 
30, 1992 is deemed to have the same beginning date for all cost 
reporting periods beginning before October 1, 2000 (unless the hospital 
later changes its cost reporting period).

[56 FR 43449, Aug. 30, 1991; 57 FR 3016, Jan. 27, 1992]



Sec. 412.328  Determining and updating the hospital-specific rate.

    (a) Base-year cost reporting period. (1) Last 12 month cost 
reporting period ending on or before December 31, 1990. For each 
hospital, the intermediary uses the hospital's latest 12-month or longer 
cost reporting period ending on or before December 31, 1990 as the base 
period to determine a hospital's hospital-specific rate.
    (2) New hospitals. The base-year cost reporting period for a new 
hospital is its 12-month cost reporting period (or a combination of cost 
reporting periods covering at least 12 months) that begins at least 1 
year after the hospital accepts its first patient.
    (3) Other hospitals. For other than a new hospital as defined in 
Sec. 412.300(b), if a hospital does not have a 12-month cost reporting 
period or does not have adequate Medicare utilization to file a cost 
report in a period ending on or before December 31, 1990, the hospital-
specific rate is based on the hospital's old capital costs (per 
discharge) in its first 12-month cost reporting period (or combination 
of cost reporting periods

[[Page 369]]

covering at least 12 months) ending after December 31, 1990.
    (b) Base-year costs per discharge. (1) Base period allowable 
inpatient capital costs per discharge. (i) Determination. The 
intermediary determines the base period allowable inpatient capital 
costs per discharge for the hospital by dividing the hospital's total 
allowable Medicare inpatient hospital capital-related cost in the base 
period by the number of Medicare discharges in the base period.
    (ii) Disposal of assets in the base year. When a depreciable asset 
has been disposed of in the base year, only that portion of the gain or 
loss that is allocated to the base-year cost reporting period is 
reflected in the hospital-specific rate.
    (iii) Disposal of assets subsequent to the base year. If an asset 
for which the Medicare program had recognized depreciation during the 
base year is disposed of subsequent to the base year, the hospital-
specific rate will not be revised to recognize the portion of the gain 
or loss allocated to the base year.
    (2) Discharges. For the purpose of determining a hospital's base 
period capital costs per discharge, a discharge includes discharges as 
defined in Sec. 412.4(a) and transfers as defined in Sec. 412.4(b)(2), 
adjusted by the transfer adjustment factor that is determined under 
paragraph (b)(3) of this section.
    (3) Transfer adjustment factor. (i) For base year cost reporting 
periods ending on or before December 31, 1990, HCFA uses the base year 
MEDPAR data received as of June 30, 1991 to develop an adjustment to 
discharges to account for transfers. HCFA divides the length of stay for 
each transfer case by the geometric mean length of stay for the DRG (but 
in no case using a number greater than 1.0) and assigns each nontransfer 
case a value of 1.0. To determine the transfer adjustment factor, HCFA 
adds together the adjusted discharges and divides the result by total 
discharges including transfers.
    (ii) For base year cost reporting periods ending after December 31, 
1990 but beginning before October 1, 1991, HCFA determines a transfer 
adjustment factor as described in paragraph (b)(3)(i) of this section 
for a hospital using the applicable base year MEDPAR data on file as of 
the December 31 or June 30 occurring at least 6 months after the close 
of the approved base year.
    (iii) For base year cost reporting periods beginning on or after 
October 1, 1991, the intermediary determines the transfer adjustment 
factor in place of HCFA as described in paragraph (b)(3)(i) of this 
section based on the most recent billing data available as of the date 
of the final determination of the hospital-specific rate.
    (c) Case-mix adjustment. (1) Determining transfer-adjusted case mix 
value. Step 1: For base year cost reporting periods ending on or before 
December 31, 1990, HCFA uses the base year MEDPAR data received as of 
June 30, 1991 to determine the hospital's transfer-adjusted case-mix 
value. For base year cost reporting periods ending after December 31, 
1990 and beginning before October 1, 1991, HCFA determines a transfer-
adjusted case-mix value for a hospital using the applicable base year 
MEDPAR data on file as of the December 31 or June 30 occurring at least 
6 months after the close of the base year. For base year cost reporting 
periods beginning on or after October 1, 1991, the intermediary 
determines the transfer-adjusted case-mix value based on the most recent 
billing data available as of the date of the final determination of the 
hospital-specific rate. HCFA or the intermediary, as appropriate, 
multiplies the DRG weight for each case by one of the following factors:
    (i) If the case is not a transfer, the factor equals 1.0.
    (ii) If the case is a transfer, the factor equals the lesser of 1.0 
or the ratio of the length of stay for the case divided by the geometric 
mean length of stay for the DRG.

Step 2: The products derived for all cases under Step 1 are added 
together and the result is divided by the adjusted discharges used to 
calculate the transfer adjustment factor determined under paragraph 
(b)(3) of this section.
    (2) Adjusting base period capital costs per discharge by the 
hospital's transfer-adjusted case-mix value. The intermediary divides 
the base period capital costs per discharge for each hospital as 
determined in paragraph (b) of this section by the hospital's transfer-
adjusted

[[Page 370]]

case mix value for the cost reporting period determined under paragraph 
(c)(1) of this section.
    (d) Updatinq to FY 1992. The intermediary updates the case-mix 
adjusted base period costs per discharge to FY 1992 based on the 
national average increase in Medicare inpatient capital costs per 
discharge as estimated by HCFA, excluding the portion of the increase in 
capital costs per discharge attributable to changes in case mix.
    (e) Hospital-specific rate. The intermediary determines the 
hospital-specific rate each year by adjusting the amount determined 
under paragraph (d) of this section by the following factors:
    (1) Update factor. After FY 1992, the intermediary updates the 
hospital-specific rate in accordance with Sec. 412.308(c)(1).
    (2) Exceptions payment adjustment factor. For FY 1992 through FY 
2001, the intermediary reduces the updated amount determined in 
paragraph (d) of this section by an adjustment factor equal to the 
estimated additional payments for capital-related costs for exceptions 
under Sec. 412.348, determined as a proportion of the total amount of 
payments under the hospital-specific rate and Federal rate.
    (3) Budget neutrality adjustment factor. For FY 1992 through FY 
1995, the intermediary adjusts the updated amount determined in 
paragraph (d) of this section by a budget neutrality adjustment factor 
determined under Sec. 412.352.
    (4) Payment for transfer cases. Effective FY 1996, the intermediary 
reduces the updated amount determined in paragraph (d) of this section 
by 0.28 percent to account for the effect of the revised policy for 
payment of transfers under Sec. 412.4(d).
    (5) Reduction of rate: FY 1998. Effective FY 1998, the unadjusted 
hospital-specific rate as in effect on September 30, 1997 described in 
paragraph (e)(1) of this section is reduced by 15.68 percent.
    (6) Reduction of rate: FY 1998 through FY 2002. For discharges 
occurring on or after October 1, 1997 through September 30, 2002, the 
unadjusted hospital-specific rate in effect on September 30, 1997, 
described in paragraph (e)(1) of this section is further reduced by 2.1 
percent.
    (f) Redetermination of hospital-specific rate. (1) General. (i) Upon 
request by a hospital, the intermediary redetermines the hospital-
specific rate to reflect an increase in old capital costs as determined 
in a cost reporting period subsequent to the base year. An increase in 
Medicare old capital cost per discharge that is related solely to a 
decline in utilization is not recognized as an increase in old capital 
costs for purposes of this section. New capital costs are excluded from 
the redetermination of the hospital-specific rate.
    (ii) The hospital may request redetermination for any cost reporting 
period beginning subsequent to the base period but no later than the 
later of the hospital's cost reporting period beginning in FY 1994 or 
the cost reporting period beginning after obligated capital that is 
recognized as old capital under Sec. 412.302(b) is put in use.
    (iii) The hospital must request a redetermination in writing no 
later than the date the cost report must be filed with the hospital's 
intermediary for the first cost reporting period beginning on or after 
October 1, 1991 or the cost reporting period that will serve as the new 
base period, whichever is later. The hospital's redetermination request 
must include the cost report for the new base period and an estimate of 
the revised hospital-specific rate indicating that the new rate exceeds 
the hospital's current hospital-specific rate.
    (2) Determination of old capital costs. The intermediary determines 
the hospital's old capital costs for the subsequent cost reporting 
period that will serve as the new base period. The intermediary includes 
the costs of obligated capital that are recognized as old capital costs 
under Sec. 412.302(b), excludes the costs of assets disposed of 
subsequent to the initial base year, and reflects changes in allowable 
old capital costs occurring subsequent to the initial base period.
    (3) Redetermined hospital-specific rate. The intermediary 
redetermines the hospital-specific rate based on the old capital costs 
that are determined under paragraph (f)(2) of this section for the new 
base period. The intermediary--
    (i) Divides the hospital's old capital costs for the new base period 
by the number of Medicare discharges in that

[[Page 371]]

cost reporting period (consistent with paragraph (b) of this section);
    (ii) Divides the old capital costs per discharge by the hospital's 
transfer adjusted case-mix value for the new base period (consistent 
with paragraph (c) of this section);
    (iii) Applies an update factor, if appropriate, to account for 
inflation occurring subsequent to the new base year, an exceptions 
payment adjustment factor, and a budget neutrality adjustment factor 
(consistent with paragraphs (d) and (e) of this section).
    (4) Denial by intermediary. If the intermediary determines, after 
audit, that the revised hospital-specific rate is lower than the current 
hospital-specific rate, it advises the hospital that its request is 
denied and explains the basis for the denial.
    (5) Implementation date. The redetermined hospital-specific rate 
applies to discharges occurring on or after the beginning date of the 
new base period.
    (g) Review and revision of the hospital-specific rate. (1) Interim 
determination. The intermediary makes an interim determination of the 
hospital-specific rate based on the best data available and notifies the 
hospital at least 30 days before the beginning of the hospital's first 
cost reporting period beginning on or after October 1, 1991.
    (2) Final determination. (i) The intermediary makes a final 
determination of the hospital-specific rate based on the final 
settlement of the base period cost report.
    (ii) The final determination of the hospital-specific rate is 
effective retroactively to the beginning of the hospital's first cost 
reporting period beginning on or after October 1, 1991 or, in the case 
of a redetermination of the hospital-specific rate under 
Sec. 412.328(f), to the beginning of the new base period.
    (iii) The final determination of the hospital-specific rate is 
subject to administrative and judicial review in accordance with subpart 
R of part 405 of this chapter, governing provider reimbursement 
determinations and appeals.
    (iv) The intermediary adjusts the hospital-specific rate to reflect 
any revisions that result from administrative or judicial review of the 
final determination of hospital-specific rate. The revised determination 
is effective retroactively to the same extent as in paragraph (g)(2)(ii) 
of this section.

[56 FR 43449, Aug. 30, 1991; 57 FR 3016, 3017, Jan. 27, 1992; 57 FR 
39828, Sept. 1, 1992; 60 FR 45849, Sept. 1, 1995; 62 FR 46031, Aug. 29, 
1997]



Sec. 412.331  Determining hospital-specific rates in cases of hospital merger, consolidation, or dissolution.

    (a) New hospital merger or consolidation. If, after a new hospital 
accepts its first patient but before the end of its base year, it merges 
with one or more existing hospitals, and two or more separately located 
hospital campuses are maintained, the hospital-specific rate and payment 
determination for the merged entity are determined as follows--
    (1) Post-merger base year payment methodology. The new campus is 
paid based on reasonable costs until the end of its base year. The 
existing campus remains on its previous payment methodology until the 
end of the new campus' base year. Effective with the first cost 
reporting period beginning after the the end of the new campus' base 
year, the intermediary determines a hospital-specific rate applicable to 
the new campus in accordance with Sec. 412.328, and then determines a 
revised hospital-specific rate for the merged entity in accordance with 
paragraph (a)(2) of this section.
    (2) Revised hospital-specific rate. Using each hospital's base 
period data, the intermediary determines a combined average discharge-
weighted hospital-specific rate.
    (3) Post-base year payment determination. To determine the 
applicable payment methodology under Sec. 412.336 and for payment 
purposes under Sec. 412.340 or Sec. 412.344, the discharge-weighted 
hospital-specific rate determined by the intermediary is compared to the 
Federal rate. The revised payment methodology is effective on the first 
day of the cost reporting period beginning after the end of the new 
campus' base year.
    (b) Hospital merger or consolidation. If, after the base year, two 
or more hospitals merge or consolidate into one hospital as provided for 
under Sec. 413.134(k) of this chapter and the provisions of paragraph 
(a) of this section

[[Page 372]]

do not apply, the intermediary determines a revised hospital-specific 
rate applicable to the combined facility under Sec. 412.328, which is 
effective beginning with the date of merger or consolidation. The 
following rules apply to the revised hospital-specific rate and payment 
determination:
    (1) Revised hospital-specific rate. Using each hospital's base 
period data, the intermediary determines a combined average discharge 
weighted hospital-specific rate.
    (2) Payment determination. The discharge-weighted hospital-specific 
rate determined by the intermediary is compared to the Federal rate to 
establish the appropriate payment methodology under Sec. 412.336 and for 
payment purposes under Secs. 412.340 or 412.344. The revised payment 
methodology is effective as of the date of merger or consolidation.
    (3) Old capital cost determination. The capital-related costs 
related to the assets of each merged or consolidated hospital as of 
December 31, 1990 are recognized as old capital costs during the 
transition period. If the hospital is paid under the hold-harmless 
methodology after merger or consolidation, only that original base year 
old capital is eligible for hold-harmless payments.
    (c) Hospital dissolution. If a hospital separates into two or more 
hospitals that are subject to capital payments under this subpart after 
the base year, the intermediary determines new hospital-specific rates 
for each separate hospital under the provisions of Sec. 412.328 
effective as of the date of the dissolution. The new hospital-specific 
rates are determined as follows:
    (1) Hospital-specific rate--(i) Adequate base year data. The 
intermediary determines whether the base year capital-related cost data 
and necessary statistical records are adequate to reconstruct the cost 
and other data required under Sec. 412.328 from the former hospital's 
financial records to determine the hospital-specific rates for each 
facility. If the data are adequate, the intermediary uses the former 
hospital's base period to determine the hospital-specific rate for each 
separate hospital.
    (ii) Inadequate original base year data. If the intermediary 
determines that the base period data for the former hospital is 
inadequate to establish separate hospital-specific rates, the 
intermediary establishes a new base period for each hospital. The new 
base period is each hospital's first 12-month or longer cost reporting 
period (or combination of cost reporting periods covering at least 12 
months) immediately following separation of the hospitals. The 
intermediary determines the hospital-specific rate for each hospital 
using the new base period under Sec. 412.328.
    (2) Payment determinations. The intermediary applies the payment 
methodology provisions of Sec. 412.336. The revised payment 
determination is effective as of the date of the hospital's dissolution.
    (3) Old capital cost determination. In determining the old capital 
costs for each hospital, the amount recognized as old capital is limited 
to the allowable capital-related costs attributable to assets that were 
in use for patient care as of December 31, 1990, and the hospitals are 
subject to all other transition period rules of this subpart.

[57 FR 39828, Sept. 1, 1992, as amended at 63 FR 41004, July 31, 1998]



Sec. 412.332  Payment based on the hospital-specific rate.

    The payment amount for each discharge (as defined in Sec. 412.4(a)) 
based on the hospital-specific rate determined under Sec. 412.328 (e) or 
(f) is determined by multiplying the applicable hospital-specific rate 
by the DRG weighting factor applicable to the discharge under 
Sec. 412.60 and the applicable hospital-specific rate percentage for the 
pertinent cost reporting period under Sec. 412.340.



Sec. 412.336  Transition period payment methodologies.

    (a) General. For discharges occurring in cost reporting periods 
beginning on or after October 1, 1991 and before October 1, 2001, a 
hospital is paid under one of two payment methodologies described in 
Sec. 412.340 and Sec. 412.344. Except as provided under paragraph (b) of 
this section, a hospital is paid under the same methodology throughout 
the transition period.
    (1) Hospital-specific rate below the Federal rate. A hospital with a 
hospital-specific rate below the Federal rate

[[Page 373]]

(after taking into account the estimated effect of the payment 
adjustments and outlier payments) is paid under the fully prospective 
payment methodology as described in Sec. 412.340.
    (2) Hospital-specific rate above the Federal rate. A hospital with a 
hospital-specific rate that is above the Federal rate (after taking into 
account the estimated effect of the payment adjustments and outlier 
payments) is paid under the hold-harmless payment methodology as 
described in Sec. 412.344.
    (b) Special rule for revised hospital-specific rate. If a hospital 
with a hospital-specific rate below the Federal rate requests that its 
hospital-specific rate be redetermined, the redetermined hospital-
specific rate is compared to the Federal rate that is applicable to the 
new base period (after taking into account the estimated effect of the 
payment adjustments and outlier payments). If the redetermined hospital-
specific rate is higher than the Federal rate, the hospital is paid 
under the hold-harmless methodology effective with the beginning of the 
new base period and continuing throughout the remainder of the 
transition.
    (c) Interim and final determinations of applicable payment 
methodology--(1) Interim determination. The intermediary makes an 
interim determination of the applicable payment methodology based on the 
best data available and notifies the hospital of its determination at 
least 30 days before the beginning of the hospital's first cost 
reporting period beginning on or after October 1, 1991.
    (2) Final determination. (i) The intermediary makes a final 
determination of the applicable payment methodology based on its final 
determination of the hospital's hospital-specific rate. The final 
determination of the applicable payment methodology is effective 
retroactively to the beginning of the hospital's first cost reporting 
period beginning on or after October 1, 1991.
    (ii) If the hospital-specific rate is redetermined in accordance 
with Sec. 412.328(f), the intermediary makes a new determination of the 
applicable payment methodology. The new determination is effective 
retroactively to the beginning of the new base period.
    (iii) If the hospital-specific rate is revised under Sec. 412.328(g) 
as a result of administrative or judicial review, the intermediary makes 
a new determination of the applicable payment methodology. The new 
determination is effective retroactively to the beginning of the 
hospital's first cost reporting period beginning on or after October 1, 
1991 or to the beginning of the new base period.
    (d) Special Rule for Redetermination of Hospital Payment 
Methodology. For cost reporting periods beginning on or after October 1, 
1993, the intermediary redetermines the hospital payment methodologies 
to take into account the reduction to the standard Federal rate provided 
in Sec. 412.308(b)(2):
    (1) For a hospital paid under the fully prospective payment 
methodology in the last hospital cost reporting period beginning before 
October 1, 1993, the intermediary compares the hospital's FY 1994 
hospital-specific rate with the hospital's FY 1994 Federal rate (after 
taking into account the estimated effect of the payment adjustments and 
outlier payments).
    (i) A hospital with a FY 1994 hospital-specific rate that is above 
the FY 1994 adjusted Federal rate is paid under the hold-harmless 
payment methodology described in Sec. 412.344.
    (ii) Subject to the provisions of Sec. 412.328(f), a hospital with a 
FY 1994 hospital-specific rate that is below the FY 1994 adjusted 
Federal rate continues to be paid under the fully prospective payment 
methodology as described in Sec. 412.340.
    (iii) The intermediary notifies the hospital of the new 
determination of the hospital's payment methodology within 90 days of 
the hospital's first cost reporting period beginning on or after October 
1, 1993. The new determination is effective to the beginning of the 
hospital's first cost reporting period beginning on or after October 1, 
1993.
    (2) A hospital paid under the hold-harmless payment methodology in 
the last cost reporting period beginning before October 1, 1993, will 
continue to be paid in accordance with the provisions of Sec. 412.344.

[56 FR 43449, Aug. 30, 1991; 57 FR 3017, Jan. 27, 1992, as amended at 58 
FR 46340, Sept. 1, 1993]

[[Page 374]]



Sec. 412.340  Fully prospective payment methodology.

    A hospital paid under the fully prospective payment methodology 
receives a payment per discharge based on a proportion of the hospital-
specific rate and the Federal rate as follows:

------------------------------------------------------------------------
                                                              Hospital-
                                                  Federal      specific
 Cost reporting periods beginning on or after:      rate         rate
                                                 percentage   percentage
------------------------------------------------------------------------
October 1, 1991...............................           10           90
October 1, 1992...............................           20           80
October 1, 1993...............................           30           70
October 1, 1994...............................           40           60
October 1, 1995...............................           50           50
October 1, 1996...............................           60           40
October 1, 1997...............................           70           30
October 1, 1998...............................           80           20
October 1, 1999...............................           90           10
October 1, 2000...............................          100            0
------------------------------------------------------------------------



Sec. 412.344  Hold-harmless payment methodology.

    (a) General. A hospital paid under the hold-harmless payment 
methodology receives a payment per discharge based on the higher of:
    (1) 85 percent of reasonable costs for old capital costs (100 
percent for sole community hospitals) plus an amount for new capital 
costs based on a proportion of the Federal rate. The proportion is equal 
to the ratio of the hospital's Medicare inpatient costs for new capital 
to total Medicare inpatient capital costs; or
    (2) 100 percent of the Federal rate.
    (3) Exceptions. (i) A hospital that would receive higher payment 
under paragraph (a)(1) of this section may elect payment based on 100 
percent of the Federal rate under paragraph (a)(2) of this section.
    (ii) A hospital that does not maintain records that are adequate to 
identify its old capital costs is deemed to have elected payment per 
discharge based on 100 percent of the Federal rate.
    (b) Continued basis of payment. A hospital paid based on 100 percent 
of the Federal rate during the later of its cost reporting period 
beginning in FY 1994 or its first cost reporting period beginning after 
obligated capital that is recognized as old capital under 
Sec. 412.302(b) is put in use continues to be paid on that basis in 
subsequent cost reporting periods during the transition period and does 
not receive a reasonable cost payment for old capital costs under 
paragraph (a)(1) of this section.
    (c) Basis of determination. The determination under paragraph (a) of 
this section regarding which payment alternative is applicable is made 
without regard to additional payments under the exceptions process under 
Sec. 412.348.
    (d) Interim and final payment determinations. (1) Using the best 
data available, the intermediary makes an interim payment determination 
under paragraph (a) of this section concerning the applicable payment 
alternative, and, in the case of payment under paragraph (a)(1) of this 
section, the payment amounts for old and new capital. The intermediary 
notifies the hospital of its determination at least 30 days before the 
beginning of the hospital's first cost reporting period beginning on or 
after October 1, 1991. The intermediary may revise its determination 
based on additional information submitted by the hospital and make 
appropriate adjustments retroactively.
    (2) The final determination of the amount payable under paragraph 
(a) of this section is based on final settlement of the Medicare cost 
report for the applicable cost reporting period and is effective 
retroactively to the beginning of that cost reporting period. This final 
determination is subject to administrative and judicial review in 
accordance with subpart R of part 405 of this chapter, governing 
provider reimbursement determinations and appeals.

[56 FR 43449, Aug. 30, 1991; 57 FR 3017, Jan. 27, 1992]



Sec. 412.348  Exception payments.

    (a) Definitions. As used in this section--
    Annual operating expenses. Annual operating expenses means the sum 
of net expenses for all reimbursable cost centers for a 12 month cost 
reporting period. Annual operating expenses are obtained from the 
Medicare cost report.
    Average age of fixed assets. The average age of fixed assets is the 
ratio of accumulated depreciation for buildings and fixed equipment to 
current depreciation expense for buildings and fixed equipment. The 
average age of fixed assets is determined from information on the 
Medicare cost report.

[[Page 375]]

    Fixed assets. Fixed assets mean buildings and fixed equipment.
    (b) Criterion for additional payment during the transition period. 
An additional payment is made to a hospital paid under either the fully 
prospective payment methodology or the hold-harmless payment methodology 
as determined under paragraph (c) of this section for cost reporting 
periods beginning on or after October 1, 1991 and before October 1, 
2001.
    (c) Minimum payment level by class of hospital. (1) HCFA establishes 
a minimum payment level by class of hospital. The minimum payment level 
for a hospital will equal a fixed percentage of the hospital's capital-
related costs. The minimum payment levels may be no greater than the 
percentages of allowable capital-related costs that follow:
    (i) 90 percent for sole community hospitals.
    (ii) 80 percent for hospitals located in an urban area for purposes 
of Sec. 412.63(a) with at least 100 beds, as determined under 
Sec. 412.105(b), that have a disproportionate share patient percentage 
of at least 20.2 percent as determined under Sec. 412.106(b), and for 
hospitals located in an urban area for purposes of Sec. 412.63(a) with 
at least 100 beds that qualify for disproportionate share payments under 
Sec. 412.106(c)(2).
    (iii) 70 percent for all other hospitals.
    (2) When it is necessary to adjust the minimum payment levels set by 
class of hospitals specified in paragraphs (c)(1)(i) and (g)(6) of this 
section, HCFA will adjust those levels for each class of hospitals in 
one percentage point increments as necessary to satisfy the requirement 
specified in paragraph (h) of this section that total estimated payments 
under the exception process not exceed 10 percent of the total estimated 
capital prospective payments (exclusive of hold-harmless payments for 
old capital) for the same fiscal year.
    (d) Additional payments. A hospital is entitled to an additional 
payment if its capital payments for the cost reporting period would 
otherwise be less than the applicable minimum payment level. The 
additional payment equals the difference between the applicable minimum 
payment level and the capital payments that the hospital would otherwise 
receive minus any offset amount determined under paragraph (e)(2) of 
this section.
    (e) Determining a hospital's exception payment amount--(1) 
Cumulative comparison. For each cost reporting period beginning before 
October 1, 2001, the hospital's exception payment is determined by 
comparing the cumulative payments made to the hospital under the capital 
prospective payment system to the cumulative minimum payment levels 
applicable to the hospital for each cost reporting period subject to the 
prospective payment system.
    (2) Offsetting amounts. Any amount by which the hospital's 
cumulative payments exceed its cumulative minimum payment levels is 
deducted from the additional payment that would otherwise be payable for 
a cost reporting period.
    (f) Additional payment exception for extraordinary circumstances. 
(1) A hospital may request an additional payment if the hospital incurs 
unanticipated capital expenditures in excess of $5 million (net of 
proceeds from other payment sources such as insurance, litigation 
decisions and other State, local or Federal government funding programs) 
due to extraordinary circumstances beyond the hospital's control. 
Extraordinary circumstances include, but are not limited to, a flood, 
fire, or earthquake.
    (2) A hospital must apply to its HCFA Regional Office by the later 
of October 1, 1992 or 180 days after the extraordinary circumstance 
causing the unanticipated expenditures for a determination by HCFA of 
whether the hospital is eligible for an additional payment based on the 
nature of the circumstances and the amount of financial loss documented 
by the hospital.
    (3) Except for sole community hospitals, the additional payment is 
based on a minimum payment amount of 85 percent for Medicare's share of 
allowable capital-related costs attributable to the extraordinary 
circumstances. For sole community hospitals, the minimum payment amount 
is 100 percent.
    (4) The minimum payment level applicable under paragraph (c)(1) of 
this

[[Page 376]]

section is adjusted to take into account the 85 percent minimum payment 
level (100 percent for sole community hospitals) under paragraph (f)(3) 
of this section for the unanticipated capital-related costs. The 
additional payment for the cost reporting period equals the difference 
between the adjusted minimum payment level and the capital payments the 
hospital would otherwise receive less any offset amount determined under 
paragraph (e)(2) of this section.
    (g) Special exceptions process. For eligible hospitals that meet a 
project need requirement, a project size requirement, and, in the case 
of certain urban hospitals, meet an excess capacity test, an additional 
payment may be made for up to 10 years beyond the end of the capital 
prospective payment system transition period.
    (1) Eligible hospitals. The following classes of hospitals are 
eligible to receive exceptions payments under this special exceptions 
provision:
    (i) Sole community hospitals.
    (ii) Hospitals located in an urban area under Sec. 412.63(a) with at 
least 100 beds, as determined under Sec. 412.105(b), that either have a 
disproportionate share of at least 20.2 percent as determined under 
Sec. 412.106(b) or qualify for disproportionate share payments under 
Sec. 412.106(c)(2).
    (iii) Hospitals with a combined inpatient Medicare and Medicaid 
utilization of at least 70 percent.
    (2) Project need requirement. A hospital must show that it has 
obtained any required approval from a State or local planning authority. 
If a hospital is not required to obtain approval from a planning 
authority, it must satisfy the age of asset test specified in paragraph 
(g)(3) of this section and, in the case of an urban hospital, the excess 
capacity test under paragraph (g)(4) of this section.
    (3) Age of assets test. A hospital must show that its average age of 
fixed assets is at or above the 75th percentile for the hospital's first 
cost reporting period beginning on or after October 1, 1991.
    (4) Excess capacity test for urban hospitals. Urban hospitals that 
are not required to receive approval from a State or local planning 
authority must demonstrate that either--
    (i) The overall average occupancy rate in its metropolitan 
statistical area is at least 80 percent; or
    (ii) After completion of the project, its capacity is no more than 
80 percent of its prior capacity (in terms of bed size).
    (5) Project size requirement. A hospital must complete, during the 
period from the beginning of its first cost reporting period beginning 
on or after October 1, 1991 to the end of its last cost reporting period 
beginning before October 1, 2001, a project whose costs for replacement 
and/or renovation of fixed assets related to patient care are at least:
    (i) $200 million; or
    (ii) 100 percent of its operating cost during the first 12 month 
cost reporting period beginning on or after October 1, 1991.
    (6) Minimum payment level. The minimum payment level for qualifying 
hospitals will be 70 percent.
    (7) Limitation on the period for exception payments. A qualifying 
hospital may receive an exceptions payment for up to 10 years from the 
year in which it completes a project for replacement or renovation of 
capital assets that meets project need and project size requirements 
(and, if applicable, excess capacity test), provided that it completes 
the project no later than the end of the hospital's last cost reporting 
period beginning before October 1, 2001. A project is considered to be 
completed when the assets are put into use for patient care.
    (8) Determining a hospital's exception payment amount--(i) 
Cumulative comparison. For each cost reporting period, the hospital's 
exception payment is determined by comparing the cumulative payments 
made to the hospital under the capital prospective payment system to the 
cumulative minimum payment levels applicable to the hospital for each 
cost reporting period subject to the prospective payment system.
    (ii) Offsetting amounts. Offsetting amounts are applied in the 
following order--(A) Any amount by which the hospital's cumulative 
payments exceed its cumulative minimum payment levels is deducted from 
the additional

[[Page 377]]

payment that would otherwise be payable for a cost reporting period.
    (B) Any amount by which the hospital's current year Medicare 
inpatient operating and capital prospective payment system payments 
(excluding, if applicable, 75 percent of the hospital's operating 
prospective payment system disproportionate share payments) exceed its 
Medicare inpatient operating and capital costs is deducted from the 
additional payment that would otherwise be payable for the cost 
reporting period. For purposes of calculating the offset, the costs and 
payments for services that are not subject to the hospital inpatient 
prospective payment system are excluded.
    (h) Limit on exception payments. Total estimated payments under the 
exception process may not exceed 10 percent of the total estimated 
capital prospective payments (exclusive of hold-harmless payments for 
old capital) for the same fiscal year.

[59 FR 45399, Sept. 1, 1994, as amended at 62 FR 46031, Aug. 29. 1997]



Sec. 412.352  Budget neutrality adjustment.

    For FY 1992 through FY 1995, HCFA will determine an adjustment to 
the hospital-specific rate and the Federal rate proportionately so that 
the estimated aggregate payments under this subpart for inpatient 
hospital capital costs each fiscal year will equal 90 percent of what 
HCFA estimates would have been paid for capital-related costs on a 
reasonable cost basis under Sec. 413.130 of this chapter.

                 Special Rules for Puerto Rico Hospitals



Sec. 412.370  General provisions for hospitals located in Puerto Rico.

    Except as provided in Sec. 412.374, hospitals located in Puerto Rico 
are subject to the rules in this subpart governing the prospective 
payment system for inpatient hospital capital-related costs.



Sec. 412.374  Payments to hospitals located in Puerto Rico.

    (a) Payments for capital-related costs to hospitals located in 
Puerto Rico that are paid under the prospective payment system are equal 
to the sum of the following:
    (1) 50 percent of a Puerto Rico capital rate based on data from 
Puerto Rico hospitals only, which is determined in accordance with 
procedures for developing the Federal rate; and
    (2) 50 percent of the Federal rate, as determined under 
Sec. 412.308.
    (b) Effective for fiscal year 1998, the Puerto Rico capital rate 
described in paragraph (a) of this section in effect on September 30, 
1997, is reduced by 15.68 percent.
    (c) For discharges occurring on or after October 1, 1997 through 
September 30, 2002, the Puerto Rico capital rate described in paragraph 
(a) of this section in effect on September 30, 1997 is further reduced 
by 2.1 percent.

[62 FR 46032, Aug. 29, 1997]



PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED PAYMENT RATES FOR SKILLED NURSING FACILITIES--Table of Contents




                Subpart A--Introduction and General Rules

Sec.
413.1  Introduction.
413.5  Cost reimbursement: General.
413.9  Cost related to patient care.
413.13  Amount of payment if customary charges for services furnished 
          are less than reasonable costs.
413.17  Cost to related organizations.

                Subpart B--Accounting Records and Reports

413.20  Financial data and reports.
413.24  Adequate cost data and cost finding.

                 Subpart C--Limits on Cost Reimbursement

413.30  Limitations on reimbursable costs.
413.35  Limitations on coverage of costs: Charges to beneficiaries if 
          cost limits are applied to services.
413.40  Ceiling on the rate of increase in hospital inpatient costs.

                        Subpart D--Apportionment

413.50  Apportionment of allowable costs.
413.53  Determination of cost of services to beneficiaries.
413.56  [Reserved]

[[Page 378]]

                    Subpart E--Payments to Providers

413.60  Payments to providers: General.
413.64  Payments to providers: Specific rules.
413.70  Payment for services of a CAH.
413.74  Payment to a foreign hospital.

                 Subpart F--Specific Categories of Costs

413.80  Bad debts, charity, and courtesy allowances.
413.85  Cost of educational activities.
413.86  Direct graduate medical education payments.
413.90  Research costs.
413.92  Costs of surety bonds.
413.94  Value of services of nonpaid workers.
413.98  Purchase discounts and allowances, and refunds of expenses.
413.100  Special treatment of certain accrued costs.
413.102  Compensation of owners.
413.106  Reasonable cost of physical and other therapy services 
          furnished under arrangements.
413.114  Payment for posthospital SNF care furnished by a swing-bed 
          hospital.
413.118  Payment for facility services related to covered ASC surgical 
          procedures performed in hospitals on an outpatient basis.
413.122  Payment for hospital outpatient radiology services and other 
          diagnostic procedures.
413.123  Payment for screening mammography performed by hospitals on an 
          outpatient basis.
413.124  Reduction to hospital outpatient operating costs.
413.125  Payment for home health services.

                    Subpart G--Capital-Related Costs

413.130  Introduction to capital-related costs.
413.134  Depreciation: Allowance for depreciation based on asset costs.
413.139  Depreciation: Optional allowance for depreciation based on a 
          percentage of operating costs.
413.144  Depreciation: Allowance for depreciation on fully depreciated 
          or partially depreciated assets.
413.149  Depreciation: Allowance for depreciation on assets financed 
          with Federal or public funds.
413.153  Interest expense.
413.157  Return on equity capital of proprietary providers.

Subpart H--Payment for End-Stage Renal Disease (ESRD) Services and Organ 
                            Procurement Costs

413.170  Scope.
413.172  Principles of prospective payment.
413.174  Prospective rates for hospital-based and independent ESRD 
          facilities.
413.176  Amount of payments.
413.178  Bad debts.
413.180  Procedures for requesting exceptions to payment rates.
413.182  Criteria for approval of exception requests.
413.184  Payment exception: Atypical service intensity (patient mix).
413.186  Payment exception: Isolated essential facility.
413.188  Payment exception: Extraordinary circumstances.
413.190  Payment exception: Self-dialysis training costs.
413.192  Payment exception: Frequency of dialysis.
413.194  Appeals.
413.196  Notification of changes in rate-setting methodologies and 
          payment rates.
413.198  Recordkeeping and cost reporting requirements for outpatient 
          maintenance dialysis.
413.200  Payment of independent organ procurement organizations and 
          histocompatibility laboratories.
413.202  Organ procurement organization (OPO) cost for kidneys sent to 
          foreign countries or transplanted in patients other than 
          Medicare beneficiaries.
413.203  Transplant center costs for organs sent to foreign countries or 
          transplanted in patients other than Medicare beneficiaries.

Subpart I--Prospectively Determined Payment Rates for Low-Volume Skilled 
 Nursing Facilities, for Cost Reporting Periods Beginning Prior to July 
                                 1, 1998

413.300  Basis and scope.
413.302  Definitions.
413.304  Eligibility for prospectively determined payment rates.
413.308  Rules governing election of prospectively determined payment 
          rates.
413.310  Basis of payment.
413.312  Methodology for calculating rates.
413.314  Determining payment amounts: Routine per diem rate.
413.316  Determining payment amounts: Ancillary services.
413.320  Publication of prospectively determined payment rates or 
          amounts.
413.321  Simplified cost reports for SNFs.

      Subpart J--Prospective Payment for Skilled Nursing Facilities

413.330  Basis and scope.
413.333  Definitions.
413.335  Basis of payment.
413.337  Methodology for calculating the prospective payment rates.
413.340  Transition period.
413.343  Resident assessment data.
413.345  Publication of Federal prospective payment rates.

[[Page 379]]

413.348  Limitation on review.

    Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i) and (n), 
1861(v), 1871, 1881, 1883, and 1866 of the Social Security Act (42 
U.S.C. 1302, 1395f(b), 1395g, 1395l, 1395l(a), (i) and (n), 1395x(v), 
1395hh, 1395rr, 1395tt, and 1395ww).

    Source: 51 FR 34793, Sept. 30, 1986, unless otherwise noted.



                Subpart A--Introduction and General Rules



Sec. 413.1  Introduction.

    (a) Basis, scope, and applicability. (1) Statutory basis. (i) Basic 
provisions. (A) Section 1815 of the Act requires that the Secretary make 
interim payments to providers and periodically determine the amount that 
should be paid under Part A of Medicare to each provider for the 
services it furnishes.
    (B) Section 1814(b) of the Act (for Part A) and section 1833(a) (for 
Part B) provide for payment on the basis of the lesser of a provider's 
reasonable costs or customary charges.
    (C) Section 1861(v) of the Act defines ``reasonable cost''.
    (ii) Additional provisions. (A) Section 1138(b) of the Act specifies 
the conditions for Medicare payment for organ procurement costs.
    (B) Section 1814(j) of the Act provides for exceptions to the 
``lower of costs or charges'' provisions.
    (C) Sections 1815(a) and 1833(e) of the Act provide the Secretary 
with authority to request information from providers to determine the 
amount of Medicare payment due providers.
    (D) Section 1833(a)(4) and (i)(3) of the Act provide for payment of 
a blended amount for certain surgical services furnished in a hospital's 
outpatient department.
    (E) Section 1833(n) of the Act provides for payment of a blended 
amount for outpatient hospital diagnostic procedures such as radiology.
    (F) Section 1834(c)(1)(C) of the Act establishes the method for 
determining Medicare payment for screening mammograms performed by 
hospitals.
    (G) Section 1834(g) of the Act provides that payment for critical 
access hospital (CAH) outpatient services is the reasonable costs of the 
CAH in providing these services, as determined in accordance with 
section 1861(v)(1)(A) of the Act and the applicable principles of cost 
reimbursement in this part and in part 415 of this chapter.
    (H) Section 1881 of the Act authorizes payment for services 
furnished to ESRD patients.
    (I) Section 1883 of the Act provides for payment for post-hospital 
SNF care furnished by a rural hospital that has swing-bed approval.
    (J) Sections 1886(a) and (b) of the Act impose a ceiling on the rate 
of increase in hospital inpatient costs.
    (K) Section 1886(h) of the Act provides for payment to a hospital 
for the services of interns and residents in approved teaching programs 
on the basis of a ``per resident'' amount.
    (2) Scope. This part sets forth regulations governing Medicare 
payment for services furnished to beneficiaries by--
    (i) Hospitals and critical access hospitals (CAHs);
    (ii) Skilled nursing facilities (SNFs);
    (iii) Home health agencies (HHAs);
    (iv) Comprehensive outpatient rehabilitation facilities (CORFs);
    (v) End-stage renal disease (ESRD) facilities;
    (vi) Providers of outpatient physical therapy and speech pathology 
services (OPTs); and
    (vii) Organ procurement agencies (OPAs) and histocompatibility 
laboratories.
    (viii) Community mental health centers (CMHCs) but only for purposes 
of furnishing partial hospitalization services.
    (3) Applicability. The payment principles and related policies set 
forth in this part are binding on HCFA and its fiscal intermediaries, on 
the Provider Reimbursement Review Board, and on the entities listed in 
paragraph (a)(2) of this section.
    (b) Reasonable cost reimbursement. Except as provided under 
paragraphs (c) through (f) of this section, Medicare is generally 
required, under section 1814(b) of the Act (for services covered under 
Part A) and under section 1833(a)(2) of the Act (for services covered 
under Part B) to pay for services furnished by providers on the basis of 
reasonable costs as defined in section 1861(v) of the Act, or the 
provider's customary charges for those services, if

[[Page 380]]

lower. Regulations implementing section 1861(v) are found generally in 
this part beginning at Sec. 413.5.
    (c) Outpatient maintenance dialysis and related services. Section 
1881 of the Act authorizes special rules for the coverage of and payment 
for services furnished to ESRD patients. Sections 413.170 and 413.174 
implement various provisions of section 1881. In particular, 
Sec. 413.170 establishes a prospective payment method for outpatient 
maintenance dialysis services that applies both to hospital-based and 
independent ESRD facilities, and under which Medicare pays for both home 
and infacility dialysis services furnished on or after August 1, 1983.
    (d) Payment for inpatient hospital services. (1) For cost reporting 
periods beginning before October 1, 1983, the amount paid for inpatient 
hospital services is determined on a reasonable cost basis.
    (2) Payment to short-term general hospitals located in the 50 States 
and the District of Columbia for the operating costs of hospital 
inpatient services for cost reporting periods beginning on or after 
October 1, 1983, and for the capital-related costs of inpatient services 
for cost reporting periods beginning on or after October 1, 1991, are 
determined prospectively on a per discharge basis under part 412 of this 
chapter except as follows:
    (i) Payment for capital-related costs for cost reporting periods 
beginning before October 1, 1991, medical education costs, kidney 
acquisition costs, and the costs of certain anesthesia services, is 
described in Sec. 412.113 of this chapter.
    (ii) Payment to children's, psychiatric, rehabilitation and long-
term hospitals (as well as separate psychiatric and rehabilitation units 
(distinct parts) of short-term general hospitals), which are excluded 
from the prospective payment system under subpart B of part 412 of this 
chapter, and to hospitals outside the 50 States and the District of 
Columbia is on a reasonable cost basis, subject to the provisions of 
Sec. 413.40.
    (iii) Payment to hospitals subject to a State reimbursement control 
system is described in paragraph (e) of this section.
    (e) State reimbursement control systems. Beginning October 1, 1983, 
Medicare reimbursement for inpatient hospital services may be made in 
accordance with a State reimbursement control system rather than under 
the Medicare reimbursement principles set forth in this part, if the 
State system is approved by HCFA. Regulations implementing this 
alternative reimbursement authority are set forth in subpart C of part 
403 of this chapter.
    (f) Services of qualified nonphysician anesthetists. For cost 
reporting periods, or any part of a cost reporting period, beginning on 
or after January 1, 1989, costs incurred for the services of qualified 
nonphysician anesthetists are not paid on a reasonable cost basis unless 
the provisions of Sec. 412.113(c)(2) of this chapter apply. These 
services are paid under the special rules set forth in Sec. 405.553 of 
this chapter.
    (g) Payment for services furnished in SNFs. (1) Except as specified 
in paragraph (g)(2)(ii) of this section, the amount paid for services 
furnished in cost reporting periods beginning before July 1, 1998, is 
determined on a reasonable cost basis or, where applicable, in 
accordance with the prospectively determined payment rates for low-
volume SNFs established under section 1888(d) of the Act, as set forth 
in subpart I of this part.
    (2) The amount paid for services (other than those described in 
Sec. 411.15(p)(2) of this chapter)--
    (i) That are furnished in cost reporting periods beginning on or 
after July 1, 1998, to a resident who is in a covered Part A stay, is 
determined in accordance with the prospectively determined payment rates 
for SNFs established under section 1888(e) of the Act, as set forth in 
subpart J of this part.
    (ii) That are furnished on or after July 1, 1998, to a resident who 
is not in a covered Part A stay, is determined in accordance with any 
applicable Part B fee schedule or, for a particular item or service to 
which no fee schedule applies, by using the existing payment

[[Page 381]]

methodology utilized under Part B for such item or service.

[51 FR 34793, Sept. 30, 1986, as amended at 57 FR 33898, July 31, 1992; 
57 FR 39829, Sept. 1, 1992; 58 FR 30670, May 26, 1993; 59 FR 6578, Feb. 
11, 1994; 60 FR 33136, June 27, 1995; 60 FR 37594, July 21, 1995; 60 FR 
50441, Sept. 29, 1995; 62 FR 31, Jan. 2, 1997; 62 FR 46032, 46037, Aug. 
29, 1997; 63 FR 26309, May 12, 1998]



Sec. 413.5  Cost reimbursement: General.

    (a) In formulating methods for making fair and equitable 
reimbursement for services rendered beneficiaries of the program, 
payment is to be made on the basis of current costs of the individual 
provider, rather than costs of a past period or a fixed negotiated rate. 
All necessary and proper expenses of an institution in the production of 
services, including normal standby costs, are recognized. Furthermore, 
the share of the total institutional cost that is borne by the program 
is related to the care furnished beneficiaries so that no part of their 
cost would need to be borne by other patients. Conversely, costs 
attributable to other patients of the institution are not to be borne by 
the program. Thus, the application of this approach, with appropriate 
accounting support, will result in meeting actual costs of services to 
beneficiaries as such costs vary from institution to institution. 
However, payments to providers of services for services furnished 
Medicare beneficiaries are subject to the provisions of Secs. 413.13 and 
413.30.
    (b) Putting these several points together, certain tests have been 
evolved for the principles of reimbursement and certain goals have been 
established that they should be designed to accomplish. In general 
terms, these are the tests or objectives:
    (1) That the methods of reimbursement should result in current 
payment so that institutions will not be disadvantaged, as they 
sometimes are under other arrangements, by having to put up money for 
the purchase of goods and services well before they receive 
reimbursement.
    (2) That, in addition to current payment, there should be 
retroactive adjustment so that increases in costs are taken fully into 
account as they actually occurred, not just prospectively.
    (3) That there be a division of the allowable costs between the 
beneficiaries of this program and the other patients of the provider 
that takes account of the actual use of services by the beneficiaries of 
this program and that is fair to each provider individually.
    (4) That there be sufficient flexibility in the methods of 
reimbursement to be used, particularly at the beginning of the program, 
to take account of the great differences in the present state of 
development of recordkeeping.
    (5) That the principles should result in the equitable treatment of 
both nonprofit organizations and profit-making organizations.
    (6) That there should be a recognition of the need of hospitals and 
other providers to keep pace with growing needs and to make 
improvements.
    (c) As formulated herein, the principles given recognition to such 
factors as depreciation, interest, bad debts, educational costs, 
compensation of owners, and an allowance for a reasonable return on 
equity capital (in the case of certain proprietary providers). With 
respect to allowable costs some items of inclusion and exclusion are:
    (1) An appropriate part of the net cost of approved educational 
activities will be included.
    (2) Costs incurred for research purposes, over and above usual 
patient care, will not be included.
    (3) [Reserved]
    (4) The value of services provided by nonpaid workers, as members of 
an organization (including services of members of religious orders) 
having an agreement with the provider to furnish such services, is 
includable in the amount that would be paid others for similar work.
    (5) Discounts and allowances received on the purchase of goods or 
services are reductions of the cost to which they relate.
    (6) Bad debts growing out of the failure of a beneficiary to pay the 
deductible, or the coinsurance, will be reimbursed (after bona fide 
efforts at collection).
    (7) Charity and courtesy allowances are not includable, although 
``fringe benefit'' allowances for employees under a formal plan will be 
includable as part of their compensation.

[[Page 382]]

    (8) A reasonable allowance of compensation for the services of 
owners in profitmaking organizations will be allowed providing their 
services are actually performed in a necessary function.
    (9) Reasonable cost of physicians' direct medical and surgical 
services (including supervision of interns and residents in the care of 
individual patients) furnished in a teaching hospital may be reimbursed 
as a provider cost (as described in Sec. 415.162 of this chapter) if 
elected as provided for in Sec. 415.160 of this chapter.
    (d) In developing these principles of reimbursement for the Medicare 
program, all of the considerations inherent in allowances for 
depreciation were studied. The principles, as presented, provide options 
to meet varied situations. Depreciation will essentially be on an 
historical cost basis but since many institutions do not have adequate 
records of old assets, the principles provide an optional allowance in 
lieu of such depreciation for assets acquired before 1966. For assets 
acquired after 1965, the historical cost basis must be used. All assets 
actually in use for production of services for Medicare beneficiaries 
will be recognized even though they may have been fully or partially 
depreciated for other purposes. Assets financed with public funds may be 
depreciated. Although funding of depreciation is not required, there is 
an incentive for it since income from funded depreciation is not 
considered as an offset which must be taken to reduce the interest 
expense that is allowable as a program cost.
    (e) A return on the equity capital of proprietary facilities, as 
described in Sec. 413.157, is an allowance in addition to the reasonable 
cost of covered services furnished to beneficiaries.
    (f) Renal dialysis items and services furnished under the ESRD 
provision are reimbursed and reported under Secs. 413.170 and 413.174 
respectively. For special rules concerning health maintenance 
organizations (HMOs), and providers of services and other health care 
facilities that are owned or operated by an HMO, or related to an HMO by 
common ownership or control, see Secs. 417.242(b)(14) and 417.250(c) of 
this chapter.

[51 FR 34793, Sept. 30, 1986; 51 FR 37398, Oct. 22, 1986, as amended at 
52 FR 21225, June 4, 1987; 52 FR 23398, June 19, 1987; 57 FR 39829, 
Sept. 1, 1992; 60 FR 63189, Dec. 8, 1995; 61 FR 63748, Dec. 2, 1996]



Sec. 413.9  Cost related to patient care.

    (a) Principle. All payments to providers of services must be based 
on the reasonable cost of services covered under Medicare and related to 
the care of beneficiaries. Reasonable cost includes all necessary and 
proper costs incurred in furnishing the services, subject to principles 
relating to specific items of revenue and cost. However, for cost 
reporting periods beginning after December 31, 1973, payments to 
providers of services are based on the lesser of the reasonable cost of 
services covered under Medicare and furnished to program beneficiaries 
or the customary charges to the general public for such services, as 
provided for in Sec. 413.13.
    (b) Definitions--(1) Reasonable cost. Reasonable cost of any 
services must be determined in accordance with regulations establishing 
the method or methods to be used, and the items to be included. The 
regulations in this part take into account both direct and indirect 
costs of providers of services. The objective is that under the methods 
of determining costs, the costs with respect to individuals covered by 
the program will not be borne by individuals not so covered, and the 
costs with respect to individuals not so covered will not be borne by 
the program. These regulations also provide for the making of suitable 
retroactive adjustments after the provider has submitted fiscal and 
statistical reports. The retroactive adjustment will represent the 
difference between the amount received by the provider during the year 
for covered services from both Medicare and the beneficiaries and the 
amount determined in accordance with an accepted method of cost 
apportionment to be the actual cost of services furnished to 
beneficiaries during the year.
    (2) Necessary and proper costs. Necessary and proper costs are costs 
that are appropriate and helpful in developing and maintaining the 
operation of

[[Page 383]]

patient care facilities and activities. They are usually costs that are 
common and accepted occurrences in the field of the provider's activity.
    (c) Application. (1) It is the intent of Medicare that payments to 
providers of services should be fair to the providers, to the 
contributors to the Medicare trust funds, and to other patients.
    (2) The costs of providers' services vary from one provider to 
another and the variations generally reflect differences in scope of 
services and intensity of care. The provision in Medicare for payment of 
reasonable cost of services is intended to meet the actual costs, 
however widely they may vary from one institution to another. This is 
subject to a limitation if a particular institution's costs are found to 
be substantially out of line with other institutions in the same area 
that are similar in size, scope of services, utilization, and other 
relevant factors.
    (3) The determination of reasonable cost of services must be based 
on cost related to the care of Medicare beneficiaries. Reasonable cost 
includes all necessary and proper expenses incurred in furnishing 
services, such as administrative costs, maintenance costs, and premium 
payments for employee health and pension plans. It includes both direct 
and indirect costs and normal standby costs. However, if the provider's 
operating costs include amounts not related to patient care, 
specifically not reimbursable under the program, or flowing from the 
provision of luxury items or services (that is, those items or services 
substantially in excess of or more expensive than those generally 
considered necessary for the provision of needed health services), such 
amounts will not be allowable. The reasonable cost basis of 
reimbursement contemplates that the providers of services would be 
reimbursed the actual costs of providing quality care however widely the 
actual costs may vary from provider to provider and from time to time 
for the same provider.

[51 FR 34795, Sept. 30, 1986; 51 FR 37398, Oct. 22, 1986]



Sec. 413.13  Amount of payment if customary charges for services furnished are less than reasonable costs.

    (a) Definitions. As used in this section--
    Fair compensation means, for the purpose of providers that meet the 
nominal charge provisions in paragraph (f) of this section, the 
reasonable cost of covered services furnished to beneficiaries.
    New provider means a provider that has operated as the type of 
facility for which it has been approved for participation in the 
Medicare program (for example, as a SNF or an HHA) under present and 
previous ownership for less than three full years.
    Provider with a significant portion of low-income patients means a 
nonpublic provider whose charges are 60 percent or less of the 
reasonable cost represented by the charges, and that demonstrates, as 
required under paragraph (c)(1)(iii) of this section, that its charges 
are less than costs because its customary practice is to charge patients 
based on their ability to pay.
    Public provider means a provider operated by a Federal, State, 
county, city, or other local government agency or instrumentality.
    (b) Application of the principle of lesser of costs or charges--(1) 
General rule. Except as provided in paragraph (c) of this section, 
effective with cost reporting periods beginning on or after January 1, 
1974, hospitals, SNFs, HHAs, OPTs, and CMHCs but only for purposes of 
providing partial hospitalization services, are paid the lesser of the 
reasonable cost (as described in paragaraph (d) of this section) of 
covered services furnished to beneficiaries or the customary charges (as 
defined in paragraph (e) of this section) made by the provider for the 
same services. The carryover of unreimbursed reasonable costs from 
previous cost reporting periods is recognized, in accordance with the 
provisions of paragraph (h) of this section.
    (2) Example. A provider's reasonable cost for covered services 
furnished to Medicare beneficiaries during a cost reporting period is 
$125,000. The customary charges to those beneficiaries

[[Page 384]]

for these services is $110,000. The provider is to be reimbursed 
$110,000 less deductible and coinsurance amounts that the beneficiaries 
are charged.
    (c) Providers and services not subject to the principle--(1) 
Providers--(i) CORFs. Payment to CORFs is based on the reasonable cost 
of the services.
    (ii) Public providers. Public providers furnishing services free of 
charge or at a nominal charge (as specified in paragraph (f) of this 
section) are paid fair compensation for services furnished to 
beneficiaries.
    (iii) Providers furnishing services to a significant portion of low-
income patients. Effective with cost reporting periods beginning on or 
after October 1, 1984, a provider furnishing services at a nominal 
charge (as specified in paragraph (f) of this section) is paid fair 
compensation, upon request, for services furnished to beneficiaries if 
the provider can demonstrate to its intermediary that a significant 
portion of its patients are low income and that its charges are less 
than costs because its customary practice is to charge patients based on 
their ability to pay.
    (2) Services--(i) Part A inpatient hospital services. The lesser of 
costs or charges principle does not apply to Part A inpatient hospital 
services subject to--
    (A) The rate-of-increase limits under Sec. 413.40, effective with 
cost reporting periods beginning on or after October 1, 1982; or
    (B) The prospective payment system under Part 412 of this chapter, 
effective with cost reporting periods beginning on or after October 1, 
1983.
    (ii) Special rule for facility services related to ambulatory 
surgical procedures performed in outpatient hospital departments. 
Effective for hospitals with cost reporting periods beginning on or 
after October 1, 1987, reasonable costs and customary charges for those 
services relating to ambulatory surgical procedures that are subject to 
the payment methodology described in Sec. 413.118 are aggregated and 
treated separately from all other hospital costs and charges incurred 
during the cost reporting period.
    (iii) Durable medical equipment furnished by HHAs--(A) General. 
Except as provided in paragraph (c)(2)(iii)(B) of this section, for 
durable medical equipment furnished by an HHA as a home health service 
on or after July 18, 1984, the HHA is paid the lesser of the reasonable 
cost of the equipment or the customary charges (less a 20 percent 
coinsurance as provided in section 1866(a)(2)(A)(ii) of the Act), not to 
exceed 80 percent of the reasonable cost of the equipment. The lesser of 
cost or charges determination for durable medical equipment is made 
separately from all other items or services furnished in an HHA 
regardless of whether the equipment is furnished under Part A or Part B.
    (B) HHAs meeting the nominal charge provisions. A public HHA, or an 
HHA that demonstrates that a significant portion of its patients are 
low-income patients under the nominal charge provisions, as provided in 
paragraph (f)(2) of this section, are paid 80 percent of fair 
compensation for durable medical equipment furnished as a home health 
service on or after July 18, 1984.
    (iv) Critical access hospital (CAH) services. The lesser of costs or 
charges principle does not apply in determining payment for inpatient or 
outpatient services furnished by a CAH under Sec. 413.70.
    (3) Hospital outpatient radiology services. The reasonable costs and 
customary charges for hospital outpatient radiology services furnished 
on or after October 1, 1988, that are subject to the payment method 
described in Sec. 413.122, are aggregated and treated separately from 
all other hospital costs and charges incurred during the cost reporting 
period.
    (4) Other diagnostic procedures performed by a hospital on an 
outpatient basis. The reasonable costs and customary charges for other 
diagnostic procedures identified by HCFA, that are performed on an 
outpatient basis by a hospital on or after October 1, 1989, and that are 
subject to the payment method described in Sec. 413.122, are aggregated 
and treated separately from all other hospital costs or charges incurred 
during the cost reporting period.
    (d) Exclusions from reasonable cost. For purposes of comparison with 
customary charges under this section, reasonable cost does not include--

[[Page 385]]

    (1) Payments made to a provider as reimbursement for bad debts 
arising from noncollection of Medicare deductible and coinsurance 
amounts (Sec. 413.80);
    (2) Amounts that represent the recovery of excess depreciation 
resulting from termination in the Medicare program or a decrease in 
Medicare utilization (Sec. 413.134(d)(3)) applicable to prior cost 
reporting periods;
    (3) Amounts that result from a disposition of depreciable assets 
(Sec. 413.134(f)), applicable to prior cost reporting periods;
    (4) Payments to funds for the donated services of teaching 
physicians (Sec. 413.85); and
    (5) Graduate medical education costs for cost reporting periods 
beginning on or after July 1, 1985.
    (e) Customary charges--(1) General. As used in this paragraph (e), 
customary charges means the charges for services, as defined in 
Sec. 413.53(b), furnished to beneficiaries. These charges must be 
recorded on all bills submitted for program reimbursement.
    (2) Special situations in which customary charges are reduced. 
Customary charges are reduced in proportion to the ratio of the 
aggregate amount actually collected from charge-paying non-Medicare 
patients to the amount that would have been realized had customary 
charges been paid and the provider--
    (i) Did not actually impose charges in the case of most patients 
liable for payment for its services on a charge basis; or
    (ii) Failed to make a reasonable effort to collect those charges.
    (f) Nominal charges--(1) Cost reporting periods beginning before 
October 1, 1984. Except for durable medical equipment furnished by HHAs 
as provided in paragraph (c)(2)(iii) of this section, if a public 
provider's total charges, for cost reporting periods beginning before 
October 1, 1984, are less than one-half of the reasonable cost of 
services or items represented by these charges, then the provider is 
reimbursed fair compensation.
    (2) Cost reporting periods beginning on or after October 1, 1984. 
For cost reporting periods beginning on or after October 1, 1984, the 
following provisions apply in determining nominal charges:
    (i) Reimbursement of fair compensation. Except for the limitations 
on reimbursement for durable medical equipment furnished by HHAs as 
provided in paragraph (c)(2)(iii) of this section, public providers, and 
providers with a significant portion of low-income patients that request 
payment under this paragraph are reimbursed fair compensation if total 
charges are 60 percent or less of the reasonable cost of services or 
items represented by these charges.
    (ii) Separate determination of nominal charges. Except as provided 
in paragraph (f)(2)(iii) of this section, the determination of nominal 
charges, which is based on charges actually billed to charge-paying, 
non-Medicare patients, is made separately with respect to inpatient and 
outpatient services (other than clinical diagnostic laboratory tests 
that are paid under section 1833(h) of the Act).
    (iii) Determination of nominal charges in special situations. (A) 
For providers that have a sliding scale or discounted schedule of 
charges based on patients' ability to pay, the determination of nominal 
charges is based on charges billed to all charge-paying patients. This 
determination is made using the ratio of sliding scale or discounted 
charges to the provider's full customary charges. For determining 
nominal charges, the ratio is applied to the provider's Medicare charges 
to equate those charges to customary charges.
    (B) For HHAs, the determination of nominal charges for all items and 
services other than durable medical equipment is made on an aggregate 
basis. The nominal charge determination for durable medical equipment is 
made separately from other items or services furnished by HHAs.
    (C) For cost reporting periods beginning on or after July 1, 1985, 
graduate medical education payments (or a provider's graduate medical 
education reasonable costs if supported by appropriate data) are 
included in reasonable costs when making the nominal charge 
determination.
    (g) The aggregation method--(1) Cost reporting periods beginning 
before October 1, 1984--Application. In comparing costs and charges 
under the lesser of costs or

[[Page 386]]

charges principle for cost reporting periods beginning before October 1, 
1984, the reasonable cost for items and services and the customary 
charges for those same items and services are to be aggregated (that is, 
totalled and compared) without regard to whether the services are 
reimbursable under Part A or Part B of Medicare. This aggregation method 
is to be applied after the provider's charges and costs have been 
adjusted to exclude the amounts described in paragraph (d) of this 
section and to exclude--
    (i) Any amounts attributable to physician services not reimbursable 
to the provider on a reasonable cost basis as described in Secs. 415.55 
through 415.70 of this chapter; and
    (ii) All costs and charges for noncovered provider services.
    (2) Cost reporting periods beginning on or after October 1, 1984. 
Effective with cost reporting periods beginning on or after October 1, 
1984, the aggregation method used for computing the lesser of costs or 
charges, as set forth in paragraph (g)(1) of this section, may not be 
used. For covered items and services furnished during these periods, 
total reasonable cost of covered items and services is compared with 
total customary charges for those items and services, separately for 
Part A and for Part B.
    (h) Accumulation of unreimbursed costs and carryover to subsequent 
periods--(1) General rule. A provider whose charges are lower than its 
reasonable cost for those services in any cost reporting period 
beginning on or after January 1, 1974 but before April 28, 1988, may 
carry forward costs that are unreimbursed under paragraph (b) of this 
section for the two succeeding cost reporting periods. However, no 
recovery may be made in any period in which costs are unreimbursed 
because a provider's costs exceed the limitations on reimbursable costs 
(Sec. 413.30) or the ceiling on the rate of hospital cost increases 
(Sec. 413.40).
    (2) Reimbursement as a result of carryover. The provider is 
reimbursed for the costs that are carried forward to a succeeding cost 
reporting period--
    (i) If total charges for services provided in that subsequent period 
exceed the total reasonable cost of the services; and
    (ii) To the extent that accumulation of the costs being carried 
forward and the costs for the services provided in that subsequent 
period do not exceed the customary charges for those services.
    (3) Two succeeding periods less than 24 months. If the two 
succeeding cost reporting periods are less than 24 full calendar months, 
the provider may carry forward the unreimbursed costs for one additional 
cost reporting period.
    (4) Example. In the cost reporting period ending September 30, 1982, 
a provider's reasonable costs were $100,000. The provider's customary 
charges for those services were $90,000. The provider is reimbursed 
$90,000 less any deductible and coinsurance amounts but is permitted to 
carry forward the unreimbursed reasonable costs of $10,000 for the next 
two succeeding cost reporting periods. If, in the cost reporting period 
ending September 30, 1983, customary charges to beneficiaries exceeded 
the reasonable costs for those services by $10,000 or more, and the 
provider had no costs unreimbursed under Sec. 413.30 or Sec. 413.40, the 
provider would recover the entire $10,000 previously not reimbursed. If, 
however, beneficiary charges for that cost reporting period exceeded 
costs by only $8,000, this amount ($8,000) would be added to the 
provider's reimbursable costs for this period. The balance of the 
unreimbursed amount ($2,000) would be carried forward to the next cost 
reporting period.
    (5) New providers. (i) General rule. A new provider whose cost 
reporting period begins before April 28, 1988, may carry forward costs 
that are unreimbursed from previous periods, as described in paragraph 
(b) of this section, during a provider's base period. The base period 
includes any cost reporting period beginning on or after January 1, 
1974, and ending on or before the last day of its third year of 
operation. The unreimbursed costs may be carried forward for the five 
succeeding cost reporting periods. However, no recovery may be made in 
any period in which costs are unreimbursed because a provider's costs 
exceed the limitations on

[[Page 387]]

reimbursable costs (Sec. 413.30) or the ceiling on the rate of hospital 
cost increases (Sec. 413.40).
    (ii) Reimbursement as a result of carryover. The new provider is 
reimbursed for the costs that are carried forward to a succeeding cost 
reporting period--
    (A) If total charges for the services provided in that subsequent 
period exceed the total reasonable cost of the services; and
    (B) To the extent that accumulation of the costs being carried 
forward and the costs for the services provided in that subsequent 
period do not exceed the customary charges for those services.
    (iii) Five succeeding periods less than 60 months. If the five 
succeeding cost reporting periods are less than 60 full calendar months, 
the provider may carry forward the unreimbursed costs for one additional 
cost reporting period.
    (iv) Example. A provider begins its operations on March 5, 1972. 
However, it begins to participate in the Medicare program as of January 
1, 1973, and reports on a calendar year basis. Because the provider 
would be subject to the lesser of cost or charges principle for its cost 
reporting period beginning with January 1, 1974, it would be permitted 
to accumulate any unreimbursed costs (excess of costs over its charges) 
incurred during this reporting period. Therefore, because this cost 
reporting period ends before the end of the third year of operation, its 
carryover period would be the succeeding five cost reporting periods 
ending with December 31, 1979. If this provider had begun its operation 
on July 1, 1973, and become a participating provider as of the same date 
(with a fiscal year ending June 30), it would have been able to 
accumulate any unreimbursed costs for the two cost reporting periods 
ending June 30, 1975, and June 30, 1976. Its carryover period would then 
be the five cost reporting periods ending no later than June 30, 1981, 
in the case of costs unreimbursed in either of the reporting periods 
ending June 30, 1975, or June 30, 1976.

[53 FR 10085, Mar. 29, 1988; 53 FR 12641, Apr. 15, 1988, as amended at 
54 FR 40315, Sept. 29, 1989; 56 FR 8842, Mar. 1, 1991; 58 FR 30670, May 
26, 1993; 59 FR 6578, Feb. 11, 1994; 60 FR 63189, Dec. 8, 1995; 62 FR 
46032, Aug. 29, 1997; 63 FR 26357, May 12, 1998]



Sec. 413.17  Cost to related organizations.

    (a) Principle. Except as provided in paragraph (d) of this section, 
costs applicable to services, facilities, and supplies furnished to the 
provider by organizations related to the provider by common ownership or 
control are includable in the allowable cost of the provider at the cost 
to the related organization. However, such cost must not exceed the 
price of comparable services, facilities, or supplies that could be 
purchased elsewhere.
    (b) Definitions. (1) Related to the provider. Related to the 
provider means that the provider to a significant extent is associated 
or affiliated with or has control of or is controlled by the 
organization furnishing the services, facilities, or supplies.
    (2) Common ownership. Common ownership exists if an individual or 
individuals possess significant ownership or equity in the provider and 
the institution or organization serving the provider.
    (3) Control. Control exists if an individual or an organization has 
the power, directly or indirectly, significantly to influence or direct 
the actions or policies of an organization or institution.
    (c) Application. (1) Individuals and organizations associate with 
others for various reasons and by various means. Some deem it 
appropriate to do so to assure a steady flow of supplies or services, to 
reduce competition, to gain a tax advantage, to extend influence, and 
for other reasons. These goals may be accomplished by means of ownership 
or control, by financial assistance, by management assistance, and other 
ways.
    (2) If the provider obtains items of services, facilities, or 
supplies from an

[[Page 388]]

organization, even though it is a separate legal entity, and the 
organization is owned or controlled by the owner(s) of the provider, in 
effect the items are obtained from itself. An example would be a 
corporation building a hospital or a nursing home and then leasing it to 
another corporation controlled by the owner. Therefore, reimbursable 
cost should include the costs for these items at the cost to the 
supplying organization. However, if the price in the open market for 
comparable services, facilities, or supplies is lower than the cost to 
the supplier, the allowable cost to the provider may not exceed the 
market price.
    (d) Exception. (1) An exception is provided to this general 
principle if the provider demonstrates by convincing evidence to the 
satisfaction of the fiscal intermediary (or, if the provider has not 
nominated a fiscal intermediary, HCFA), that--
    (i) The supplying organization is a bona fide separate organization;
    (ii) A substantial part of its business activity of the type carried 
on with the provider is transacted with others than the provider and 
organizations related to the supplier by common ownership or control and 
there is an open, competitive market for the type of services, 
facilities, or supplies furnished by the organization;
    (iii) The services, facilities, or supplies are those that commonly 
are obtained by institutions such as the provider from other 
organizations and are not a basic element of patient care ordinarily 
furnished directly to patients by such institutions; and
    (iv) The charge to the provider is in line with the charge for such 
services, facilities, or supplies in the open market and no more than 
the charge made under comparable circumstances to others by the 
organization for such services, facilities, or supplies.
    (2) In such cases, the charge by the supplier to the provider for 
such services, facilities, or supplies is allowable as cost.



                Subpart B--Accounting Records and Reports



Sec. 413.20  Financial data and reports.

    (a) General. The principles of cost reimbursement require that 
providers maintain sufficient financial records and statistical data for 
proper determination of costs payable under the program. Standardized 
definitions, accounting, statistics, and reporting practices that are 
widely accepted in the hospital and related fields are followed. Changes 
in these practices and systems will not be required in order to 
determine costs payable under the principles of reimbursement. 
Essentially the methods of determining costs payable under Medicare 
involve making use of data available from the institution's basis 
accounts, as usually maintained, to arrive at equitable and proper 
payment for services to beneficiaries.
    (b) Frequency of cost reports. Cost reports are required from 
providers on an annual basis with reporting periods based on the 
provider's accounting year. In the interpretation and application of the 
principles of reimbursement, the fiscal intermediaries will be an 
important source of consultative assistance to providers and will be 
available to deal with questions and problems on a day-to-day basis.
    (c) Recordkeeping requirements for new providers. A newly 
participating provider of services (as defined in Sec. 400.202 of this 
chapter) must make available to its selected intermediary for 
examination its fiscal and other records for the purpose of determining 
such provider's ongoing recordkeeping capability and inform the 
intermediary of the date its initial Medicare cost reporting period 
ends. This examination is intended to assure that--
    (1) The provider has an adequate ongoing system for furnishing the 
records needed to provide accurate cost data and other information 
capable of verification by qualified auditors and adequate for cost 
reporting purposes under section 1815 of the Act; and

[[Page 389]]

    (2) No financial arrangements exist that will thwart the commitment 
of the Medicare program to reimburse providers the reasonable cost of 
services furnished beneficiaries. The data and information to be 
examined include cost, revenue, statistical, and other information 
pertinent to reimbursement including, but not limited to, that described 
in paragraph (d) of this section and in Sec. 413.24.
    (d) Continuing provider recordkeeping requirements. (1) The provider 
must furnish such information to the intermediary as may be necessary 
to--
    (i) Assure proper payment by the program, including the extent to 
which there is any common ownership or control (as described in 
Sec. 413.17(b)(2) and (3)) between providers or other organizations, and 
as may be needed to identify the parties responsible for submitting 
program cost reports;
    (ii) Receive program payments; and
    (iii) Satisfy program overpayment determinations.
    (2) The provider must permit the intermediary to examine such 
records and documents as are necessary to ascertain information 
pertinent to the determination of the proper amount of program payments 
due. These records include, but are not limited to, matters pertaining 
to--
    (i) Provider ownership, organization, and operation;
    (ii) Fiscal, medical, and other recordkeeping systems;
    (iii) Federal income tax status;
    (iv) Asset acquisition, lease, sale, or other action;
    (v) Franchise or management arrangements;
    (vi) Patient service charge schedules;
    (vii) Costs of operation;
    (viii) Amounts of income received by source and purpose; and
    (ix) Flow of funds and working capital.
    (3) The provider, upon request, must furnish the intermediary copies 
of patient service charge schedules and changes thereto as they are put 
into effect. The intermediary will evaluate such charge schedules to 
determine the extent to which they may be used for determining program 
payment.
    (e) Suspension of program payments to a provider. If an intermediary 
determines that a provider does not maintain or no longer maintains 
adequate records for the determination of reasonable cost under the 
Medicare program, payments to such provider will be suspended until the 
intermediary is assured that adequate records are maintained. Before 
suspending payments to a provider, the intermediary will, in accordance 
with the provisions in Sec. 405.372(a) of this chapter, send written 
notice to such provider of its intent to suspend payments. The notice 
will explain the basis for the intermediary's determination with respect 
to the provider's records and will identify the provider's recordkeeping 
deficiencies. The provider must be given the opportunity, in accordance 
with Sec. 405.372(b) of this chapter, to submit a statement (including 
any pertinent evidence) as to why the suspension must not be put into 
effect.

[51 FR 34793, Sept. 30, 1986, as amended at 61 FR 63749, Dec. 2, 1996]



Sec. 413.24  Adequate cost data and cost finding.

    (a) Principle. Providers receiving payment on the basis of 
reimbursable cost must provide adequate cost data. This must be based on 
their financial and statistical records which must be capable of 
verification by qualified auditors. The cost data must be based on an 
approved method of cost finding and on the accrual basis of accounting.

However, if governmental institutions operate on a cash basis of 
accounting, cost data based on such basis of accounting will be 
acceptable, subject to appropriate treatment of capital expenditures.
    (b) Definitions. (1) Cost finding. Cost finding is the process of 
recasting the data derived from the accounts ordinarily kept by a 
provider to ascertain costs of the various types of services furnished. 
It is the determination of these costs by the allocation of direct costs 
and proration of indirect costs.
    (2) Accrual basis of accounting. As used in this part, the term 
accrual basis of accounting means that revenue is reported in the period 
in which it is earned, regardless of when it is collected; and an 
expense is reported in the period in which it is incurred, regardless of 
when it is paid. (See Sec. 413.100

[[Page 390]]

regarding limitations on allowable accrued costs in situations in which 
the related liabilities are not liquidated timely.)
    (c) Adequacy of cost information. Adequate cost information must be 
obtained from the provider's records to support payments made for 
services furnished to beneficiaries. The requirement of adequacy of data 
implies that the data be accurate and in sufficient detail to accomplish 
the purposes for which it is intended. Adequate data capable of being 
audited is consistent with good business concepts and effective and 
efficient management of any organization, whether it is operated for 
profit or on a nonprofit basis. It is a reasonable expectation on the 
part of any agency paying for services on a cost-reimbursement basis. In 
order to provide the required cost data and not impair comparability, 
financial and statistical records should be maintained in a manner 
consistent from one period to another. However, a proper regard for 
consistency need not preclude a desirable change in accounting 
procedures if there is reason to effect such change.
    (d) Cost finding methods. After the close of the accounting period, 
providers must use one of the following methods of cost finding to 
determine the actual costs of services furnished during that period. 
(These provisions do not apply to SNFs that elect and qualify for 
prospectively determined payment rates under subpart I of this part for 
cost reporting periods beginning on or after October 1, 1986. For the 
special rules that are applicable to those SNFs, see Sec. 413.321.) For 
cost reporting periods beginning after December 31, 1971, providers 
using the departmental method of cost apportionment must use the step-
down method described in paragraph (d)(1) of this section or an ``other 
method'' described in paragraph (d)(2) of this section. For cost 
reporting periods beginning after December 31, 1971, providers using the 
combination method of cost apportionment must use the modified cost 
finding method described in paragraph (d)(3) of this section. Effective 
for cost reporting periods beginning on or after October 1, 1980, HHAs 
not based in hospitals or SNFs must use the step-down method described 
in paragraph (d)(1) of this section. (HHAs based in hospitals or SNFs 
must use the method applicable to the parent institution.) However, an 
HHA not based in a hospital or SNF that received less than $35,000 in 
Medicare payment for the immediately preceding cost reporting period, 
and for whom this payment represented less than 50 percent of the total 
operating cost of the agency, may use a simplified version of the step-
down method, as specified in instructions for the cost report issued by 
HCFA.
    (1) Step-down Method. This method recognizes that services furnished 
by certain nonrevenue-producing departments or centers are utilized by 
certain other nonrevenue-producing centers as well as by the revenue-
producing centers. All costs of nonrevenue-producing centers are 
allocated to all centers that they serve, regardless of whether or not 
these centers produce revenue. The cost of the nonrevenue-producing 
center serving the greatest number of other centers, while receiving 
benefits from the least number of centers, is apportioned first. 
Following the apportionment of the cost of the nonrevenue-producing 
center, that center will be considered ``closed'' and no further costs 
are apportioned to that center. This applies even though it may have 
received some service from a center whose cost is apportioned later. 
Generally, if two centers furnish services to an equal number of centers 
while receiving benefits from an equal number, that center which has the 
greatest amount of expense should be allocated first.
    (2) Other methods. (i) The double-apportionment method. The double-
apportionment method may be used by a provider upon approval of the 
intermediary. This method also recognizes that the nonrevenue-producing 
departments or centers furnish services to other nonrevenue-producing 
centers as well as to revenue-producing centers. A preliminary 
allocation of the costs of non-revenue-producing centers is made. These 
centers or departments are not ``closed'' after this preliminary 
allocation. Instead, they remain ``open,'' accumulating a portion of the 
costs of all other centers from which services are received. Thus, after 
the

[[Page 391]]

first or preliminary allocation, some costs will remain in each center 
representing services received from other centers. The first or 
preliminary allocation is followed by a second or final apportionment of 
expenses involving the allocation of all costs remaining in the 
nonrevenue-producing functions directly to revenue-producing centers.
    (ii) More sophisticated methods. A more sophisticated method 
designed to allocate costs more accurately may be used by the provider 
upon approval of the intermediary. However, having elected to use the 
double-apportionment method, the provider may not thereafter use the 
step-down method without approval of the intermediary. Written request 
for the approval must be made on a prospective basis and must be 
submitted before the end of the fourth month of the prospective 
reporting period. Likewise, once having elected to use a more 
sophisticated method, the provider may not thereafter use either the 
double-apportionment or step-down methods without similar request and 
approval.
    (3) Modified cost finding for providers using the Combination Method 
for reporting periods beginning after December 31, 1971. This method 
differs from the step-down method in that services furnished by 
nonrevenue-producing departments or centers are allocated directly to 
revenue-producing departments or centers even though these services may 
be utilized by other nonrevenue-producing departments or centers. In the 
application of this method the cost of nonrevenue-producing centers 
having a common basis of allocation are combined and the total 
distributed to revenue-producing centers. All nonrevenue-producing 
centers having significant percentages of cost in relation to total 
costs will be allocated this way. The combined total costs of remaining 
nonrevenue-producing costs centers will be allocated to revenue-
producing cost centers in the proportion that each bears to total costs, 
direct and indirect, already allocated. The bases which are to be used 
and the centers which are to be combined for allocation are not optional 
but are identified and incorporated in the cost report forms developed 
for this method. Providers using this method must use the program cost 
report forms devised for it. Alternative forms may not be used without 
prior approval by HCFA based upon a written request by the provider 
submitted through the intermediary.
    (4) Temporary method for initial period. If the provider is unable 
to use either cost-finding method when it first participates in the 
program, it may apply to the intermediary for permission to use some 
other acceptable method that would accurately identify costs by 
department or center, and appropriately segregate inpatient and 
outpatient costs. Such other method may be used for cost reports 
covering periods ending before January 1, 1968.
    (5) Simplified optional reimbursement method for small, rural 
hospitals with distinct parts for cost reporting periods beginning on or 
after July 20, 1982. (i) A rural hospital with a Medicare-certified 
distinct part SNF may elect to be reimbursed for services furnished in 
its hospital general routine service area and distinct part SNF using 
the reimbursement method specified in Sec. 413.53 for swing-bed 
hospitals, if it meets the following conditions:
    (A) The institution is located in a rural area as defined in 
Sec. 482.66 of this chapter.
    (B) On the first day of the cost reporting period, the hospital and 
distinct part SNF have fewer than 50 beds in total (with the exception 
of beds for newborns and beds in intensive care type inpatient units).
    (ii) In applying the optional reimbursement method, only those beds 
located in the hospital general routine service area and in the distinct 
part SNF certified by Medicare are combined into a single cost center 
for purposes of cost finding.
    (iii) The reasonable cost of the routine extended care services is 
determined in accordance with Sec. 413.114(c). The reasonable cost of 
the hospital general routine services is determined in accordance with 
Sec. 413.53(a)(2).
    (iv) The hospital must make its election to use the optional swing-
bed reimbursement method in writing to the intermediary before the 
beginning of the hospital's cost reporting year. The hospital must make 
any request to revoke the election in writing before the

[[Page 392]]

beginning of the affected cost reporting period.
    (v) The intermediary must approve requests to terminate use of the 
optional swing-bed reimbursement method. If a hospital terminates use of 
this optional method, no further elections may be made by the facility 
to use the optional method.
    (e) Accounting basis. The cost data submitted must be based on the 
accrual basis of accounting which is recognized as the most accurate 
basis for determining costs. However, governmental institutions that 
operate on a cash basis of accounting may submit cost data on the cash 
basis subject to appropriate treatment of capital expenditures.
    (f) Cost reports. For cost reporting purposes, the Medicare program 
requires each provider of services to submit periodic reports of its 
operations that generally cover a consecutive 12-month period of the 
provider's operations. Amended cost reports to revise cost report 
information that has been previously submitted by a provider may be 
permitted or required as determined by HCFA.
    (1) Cost reports--Terminated providers and changes of ownership. A 
provider that voluntarily or involuntarily ceases to participate in the 
Medicare program or experiences a change of ownership must file a cost 
report for that period under the program beginning with the first day 
not included in a previous cost reporting period and ending with the 
effective date of termination of its provider agreement or change of 
ownership.
    (2) Due dates for cost reports. (i) Cost reports are due on or 
before the last day of the fifth month following the close of the period 
covered by the report. For cost reports ending on a day other than the 
last day of the month, cost reports are due 150 days after the last day 
of the cost reporting period.
    (ii) Extensions of the due date for filing a cost report may be 
granted by the intermediary only when a provider's operations are 
significantly adversely affected due to extraordinary circumstances over 
which the provider has no control, such as flood or fire.
    (3) Changes in cost reporting periods. A provider may change its 
cost reporting period if a change in ownership is experienced or if 
the--
    (i) Provider requests the change in writing from its intermediary;
    (ii) Intermediary receives the request at least 120 days before the 
close of the new reporting period requested by the provider; and
    (iii) Intermediary determines that good cause for the change exists. 
Good cause would not be found to exist if the effect is to change the 
initial date that a hospital would be affected by the rate of increase 
ceiling (see Sec. 413.40), or be paid under the prospective payment 
systems (see part 412 of this chapter).
    (4) Electronic submission of cost reports. (i) As used in this 
paragraph, ``provider'' means a hospital, skilled nursing facility, or 
home health agency.
    (ii) Effective for cost reporting periods beginning on or after 
October 1, 1989, for hospitals, and cost reporting periods ending on or 
after February 1, 1997, for skilled nursing facilities and home health 
agencies, a provider is required to submit cost reports in a 
standardized electronic format. The provider's electronic program must 
be capable of producing the HCFA standardized output file in a form that 
can be read by the fiscal intermediary's automated system. This 
electronic file, which must contain the input data required to complete 
the cost report and the data required to pass specified edits, is 
forwarded to the fiscal intermediary for processing through its system.
    (iii) The fiscal intermediary stores the provider's as-filed 
electronic cost report and may not alter that file for any reason. The 
fiscal intermediary makes a ``working copy'' of the as-filed electronic 
cost report to be used, as necessary, throughout the settlement process 
(that is, desk review, processing audit adjustments, final settlement, 
etc). The provider's electronic program must be able to disclose if any 
changes have been made to the as-filed electronic cost report after 
acceptance by the intermediary. If the as-filed electronic cost report 
does not pass all specified edits, the fiscal intermediary rejects the 
cost report and returns it to the provider for correction. For purposes 
of the requirements in paragraph (f)(2) of this section concerning due

[[Page 393]]

dates, an electronic cost report is not considered to be filed until it 
is accepted by the intermediary.
    (iv) Effective for cost reporting periods ending on or after 
September 30, 1994, for hospitals, and cost reporting periods ending on 
or after, February 1, 1997, for skilled nursing facilities and home 
health agencies, a provider must submit a hard copy of a settlement 
summary, a statement of certain worksheet totals found within the 
electronic file, and a statement signed by its administrator or chief 
financial officer certifying the accuracy of the electronic file or the 
manually prepared cost report. During a transition period, skilled 
nursing facilities and home health agencies must submit a hard copy of 
the completed cost report forms in addition to the electronic file. The 
following statement must immediately precede the dated signature of the 
provider's administrator or chief financial officer:

    I hereby certify that I have read the above certification statement 
and that I have examined the accompanying electronically filed or 
manually submitted cost report and the Balance Sheet Statement of 
Revenue and Expenses prepared by ________ (Provider Name(s) and 
Number(s)) for the cost reporting period beginning ________ and ending 
________ and that to the best of my knowledge and belief, this report 
and statement are true, correct, complete and prepared from the books 
and records of the provider in accordance with applicable instructions, 
except as noted. I further certify that I am familiar with the laws and 
regulations regarding the provision of health care services, and that 
the services identified in this cost report were provided in compliance 
with such laws and regulations.

    (v) A provider may request a delay or waiver of the electronic 
submission requirement in paragraph (f)(4)(ii) of this section if this 
requirement would cause a financial hardship or if the provider 
qualifies as a low or no Medicare utilization provider. The provider 
must submit a written request for delay or waiver with necessary 
supporting documentation to its intermediary no later than 30 days after 
the end of its cost reporting period. The intermediary reviews the 
request and forwards it, with a recommendation for approval or denial, 
to HCFA central office within 30 days of receipt of the request. HCFA 
central office either approves or denies the request and notifies the 
intermediary within 60 days of receipt of the request.
    (5) An acceptable cost report submission is defined as follows:
    (i) All providers--The provider, must complete and submit the 
required cost reporting forms, including all necessary signatures. A 
cost report is rejected for lack of supporting documentation only if it 
does not include the Provider Cost Reimbursement Questionnaire. 
Additionally, a cost report for a teaching hospital is rejected for lack 
of supporting documentation if the cost report does not include a copy 
of the Intern and Resident Information System diskette.
    (ii) For providers that are required to file electronic cost 
reports--In addition to the requirements of paragraphs (f)(4) and 
(f)(5)(i) of this section, the provider must submit its cost reports in 
an electronic cost report format in conformance with the requirements 
contained in the Electronic Cost Report (ECR) Specifications Manual 
(unless the provider has received an exemption from HCFA).
    (iii) The intermediary makes a determination of acceptability within 
30 days of receipt of the provider's cost report. If the cost report is 
considered unacceptable, the intermediary returns the cost report with a 
letter explaining the reasons for the rejection. When the cost report is 
rejected, it is deemed an unacceptable submission and treated as if a 
report had never been filed.
    (g) Exception from full cost reporting for lack of program 
utilization. If a provider does not furnish any covered services to 
Medicare beneficiaries during a cost reporting period, it is not 
required to submit a full cost report. It must, however, submit an 
abbreviated cost report, as prescribed by HCFA.
    (h) Waiver of full or simplified cost reporting for low program 
utilization. (1) If the provider has had low utilization of covered 
services by Medicare beneficiaries (as determined by the intermediary) 
and has received correspondingly low interim payments for the cost 
reporting period, the intermediary may waive a full cost report or the 
simplified cost report described in

[[Page 394]]

Sec. 413.321 if it decides that it can determine, without a full or 
simplified report, the reasonable cost of covered services provided 
during that period.
    (2) If a full or simplified cost report is waived, the provider must 
submit within the same time period required for full or simplified cost 
reports:
    (i) The cost reporting forms prescribed by HCFA for this situation; 
and
    (ii) Any other financial and statistical data the intermediary 
requires.

[51 FR 34793, Sept. 30, 1986, as amended at 57 FR 39829, Sept. 1, 1992; 
59 FR 26964, May 25, 1994; 60 FR 33125, 33136, 33143, June 27, 1995; 60 
FR 37594, July 21, 1995; 62 FR 31, Jan. 2, 1997]



                 Subpart C--Limits on Cost Reimbursement



Sec. 413.30  Limitations on reimbursable costs.

    (a) Introduction. (1) Scope. This section implements sections 
1861(v)(1)(A) and (v)(1)(L) of the Act, by setting forth the general 
rules under which HCFA may establish limits on provider costs recognized 
as reasonable in determining Medicare program payments, and sections 
1861(v)(7)(B) and 1886(a) of the Act, by setting forth the general rules 
under which HCFA may establish limits on the operating costs of 
inpatient hospital services that are recognized as reasonable in 
determining Medicare program payments. (For cost reporting periods 
beginning on or after October 1, 1983, the operating costs incurred in 
furnishing inpatient hospital services are not subject to the provisions 
of this section.) This section also sets forth rules governing 
exemptions, exceptions, and adjustments to limits established under this 
section that HCFA may make as appropriate in consideration of special 
needs or situations of particular providers.
    (2) General principle. Reimbursable provider costs may not exceed 
the costs estimated by HCFA to be necessary for the efficient delivery 
of needed health services. HCFA may establish estimated cost limits for 
direct or indirect overall costs or for costs of specific items or 
services or groups of items or services. These limits will be imposed 
prospectively and may be calculated on a per beneficiary, per admission, 
per discharge, per diem, per visit, or other basis.
    (b) Procedure for establishing limits. (1) In establishing limits 
under this section, HCFA may classify providers by type of provider (for 
example, hospitals, SNFs, and HHAs) and by other factors HCFA finds 
appropriate and practical, including--
    (i) Type of services furnished;
    (ii) Geographical area where services are furnished, allowing for 
grouping of noncontiguous areas having similar demographic and economic 
characteristics;
    (iii) Size of institution;
    (iv) Nature and mix of services furnished; or
    (v) Type and mix of patients treated.
    (2) Estimates of the costs necessary for efficient delivery of 
health services may be based on cost reports or other data providing 
indicators of current costs. Current and past period data will be 
adjusted to arrive at estimated costs for the prospective periods to 
which limits are being applied.
    (3) Prior to the beginning of a cost period to which revised limits 
will be applied, HCFA will publish a notice in the Federal Register, 
establishing cost limits and explaining the basis on which they were 
calculated.
    (4) In establishing limits under paragraph (b)(1) of this section, 
HCFA may find it inappropriate to apply particular limits to a class of 
providers due to the characteristics of the provider class, the data on 
which those limits are based, or the method by which the limits are 
determined. In such cases, HCFA may exclude that class of providers from 
the limits, explaining the basis of the exclusion in the notice setting 
forth the limits for the appropriate cost reporting periods.
    (c) Provider requests regarding applicability of cost limits. Except 
for the per-beneficiary limitation that applies to HHAs, a provider may 
request a reclassification, exception, or exemption from the cost limits 
imposed under this section. In addition, a hospital may request an 
adjustment to the cost limits imposed under this section. The provider's 
request must be made to its fiscal intermediary within 180 days of the 
date on the intermediary's notice of

[[Page 395]]

program reimbursement. The intermediary makes a recommendation on the 
provider's request to HCFA, which makes the decision. HCFA responds to 
the request within 180 days from the date HCFA receives the request from 
the intermediary. The intermediary notifies the provider of HCFA's 
decision. The time required for HCFA to review the request is considered 
good cause for the granting of an extension of the time limit to apply 
for a Board review, as specified in Sec. 405.1841 of this chapter. 
HCFA's decision is subject to review under subpart R of part 405 of this 
chapter.
    (d) Reclassification. A provider may obtain a reclassification if it 
can show that its classification is at variance with the criteria 
specified in promulgating the limits.
    (e) Exemptions. Exemptions from the limits imposed under this 
section may be granted to a new provider. A new provider is a provider 
of inpatient services that has operated as the type of provider (or the 
equivalent) for which it is certified for Medicare, under present and 
previous ownership, for less than three full years. An exemption granted 
under this paragraph expires at the end of the provider's first cost 
reporting period beginning at least two years after the provider accepts 
its first patient.
    (f) Exceptions. Limits established under this section may be 
adjusted upward for a provider under the circumstances specified in 
paragraphs (f)(1) through (f)(5) of this section. An adjustment is made 
only to the extent the costs are reasonable, attributable to the 
circumstances specified, separately identified by the provider, and 
verified by the intermediary.
    (1) Atypical services. The provider can show that the--
    (i) Actual cost of items or services furnished by a provider exceeds 
the applicable limit because such items or services are atypical in 
nature and scope, compared to the items or services generally furnished 
by providers similarly classified; and
    (ii) Atypical items or services are furnished because of the special 
needs of the patients treated and are necessary in the efficient 
delivery of needed health care.
    (2) Extraordinary circumstances. The provider can show that it 
incurred higher costs due to extraordinary circumstances beyond its 
control. These circumstances include, but are not limited to, strikes, 
fire, earthquake, flood, or similar unusual occurrences with substantial 
cost effects.
    (3) Providers in areas with fluctuating populations. (i) The 
provider is located in an area (for example, a resort area) that has a 
population that varies significantly during the year;
    (ii) The appropriate health planning agency has determined that the 
area does not have a surplus of beds and similar services and has 
certified that the beds and services made available by the provider are 
necessary; and
    (iii) The provider meets occupancy standards established by the 
Secretary.
    (4) Medical and paramedical education. The provider can demonstrate 
that, if compared to other providers in its group, it incurs increased 
costs for items or services covered by limits under this section because 
of its operation of an approved education program specified in 
Sec. 413.85.
    (5) Unusual labor costs. The provider has a percentage of labor 
costs that varies more than 10 percent from that included in the 
promulgation of the limits.
    (g) Operational review of providers receiving an exception. Any 
provider that applies for an exception to the limits established under 
paragraph (f) of this section must agree to an operational review at the 
discretion of HCFA. The findings from any such review may be the basis 
for recommendations for improvements in the efficiency and economy of 
the provider's operations. If such recommendations are made, any future 
exceptions shall be contingent on the provider's implementation of these 
recommendations.
    (h) Adjustments. For cost reporting periods beginning on or after 
October 1, 1982 and before October 1, 1983, HCFA may adjust the amount 
of a hospital's inpatient operating costs to take into account factors 
that could result in a significant distortion in the operating costs of 
inpatient hospital services. Such factors could include a decrease in 
the inpatient services that a hospital provides that are customarily

[[Page 396]]

provided directly by similar hospitals, or the manipulation of 
discharges to increase reimbursement. A decrease in inpatient services 
could result from changes that include, but are not limited to, such 
actions as closing a special care unit or changing the arrangements 
under which such services may be furnished, such as leasing a 
department.

[51 FR 34793, Sept. 30, 1986, as amended at 52 FR 21225, June 4, 1987; 
53 FR 38533, Sept. 30, 1988; 60 FR 45849, Sept. 1, 1995; 63 FR 15737, 
Mar. 31, 1998]



Sec. 413.35  Limitations on coverage of costs: Charges to beneficiaries if cost limits are applied to services.

    (a) Principle. A provider of services that customarily furnishes an 
individual items or services that are more expensive than the items or 
services determined to be necessary in the efficient delivery of needed 
health services described in Sec. 413.30, may charge an individual 
entitled to benefits under Medicare for such more expensive items or 
services even though not requested by the individual. The charge, 
however, may not exceed the amount by which the cost of (or, if less, 
the customary charges for) such more expensive items or services 
furnished by such provider in the second cost reporting period 
immediately preceding the cost reporting period in which such charges 
are imposed exceeds the applicable limit imposed under the provisions of 
Sec. 413.30. This charge may be made only if--
    (1) The intermediary determines that the charges have been 
calculated properly in accordance with the provisions of this section;
    (2) The services are not emergency services as defined in paragraph 
(d) of this section;
    (3) The admitting physician has no direct or indirect financial 
interest in such provider;
    (4) HCFA has provided notice to the public through notice in a 
newspaper of general circulation servicing the provider's locality and 
such other notice as the Secretary may require, of any charges the 
provider is authorized to impose on individuals entitled to benefits 
under Medicare on account of costs in excess of the costs determined to 
be necessary in the efficient delivery of needed health services under 
Medicare; and
    (5) The provider has, in the manner described in paragraph (e) of 
this section, identified such charges to such individual or person 
acting on his behalf as charges to meet the costs in excess of the costs 
determined to be necessary in the efficient delivery of needed health 
services under Medicare.
    (b) Provider request to charge beneficiaries for costs in excess of 
limits. (1) If a provider's actual costs (or, if less, the customary 
charges) in the second preceding cost period exceed the prospective 
limits established for such costs, the intermediary will, at the 
provider's request, validate in advance the charges that may be made to 
the beneficiaries for the excess.
    (2) If a provider does not have a second preceding cost period and 
is a new provider as defined in Sec. 413.30(e), the provider, subject to 
validation by the intermediary, will estimate the current cost of the 
service to which a limit is being applied. Such amount will be adjusted 
to an amount equivalent to costs in the second preceding year by use of 
a factor to be developed based on estimates of cost increases during the 
preceding two years and published by SSA or HCFA. The amount thus 
derived will be used in lieu of the second preceding cost period amount 
in determining the charge to the beneficiary.
    (3) To obtain consideration of such a request, the provider must 
submit to the intermediary a statement indicating the chagre for which 
it is seeking validation and providing the data and method used to 
determine the amount. Such statement should include the--
    (i) Provider's name and number;
    (ii) Identity of class and prospective cost limit for the class in 
which the provider has been included;
    (iii) Amount of charge and cost period in which the charge is to be 
imposed;
    (iv) Cost and customary charge for items and services furnished to 
beneficiaries; and
    (v) Cost period ending date of the second reporting period 
immediately preceding the cost period in which the charge is to be 
imposed. The intermediary may request such additional

[[Page 397]]

information as it finds necessary with respect to the request.
    (c) Provider charges. (1) Establishing the charges. If the actual 
cost incurred (or, if less, the customary charges) in the prior period 
determined under paragraph (a) of this section exceeds the limits 
applicable to the pertinent period, the provider may charge the 
beneficiary to the extent costs in the second preceding cost reporting 
period (or the equivalent when there is no second preceding period) 
exceed the current cost limits. (Data from the most recently submitted 
appropriate cost report will be used in determining the actual cost.) 
For example, if a limit of $58 per day is applied to the cost of general 
routine services for the provider's cost reporting period starting in 
calendar year 1975 and if the provider's actual general routine cost in 
the second preceding reporting period, that is, the reporting period 
starting in calendar year 1973, was $60 per day, the provider (after 
first having obtained intermediary validation and subject to the 
considerations and requirements specified in paragraph (a) of this 
section) may charge Medicare Part A beneficiaries up to $2 per day for 
general routine services.
    (2) Adjusting cost. Program reimbursement for the costs to which 
limits imposed under Sec. 413.30 are applied in any cost reporting 
period will not exceed the lesser of the provider's actual cost or the 
limits imposed under Sec. 413.30. If program reimbursement for items or 
services to which such limits are applied plus the charges to 
beneficiaries for such items or services imposed under this section 
exceed the provider's actual cost for such items or services, program 
payment to the provider will be reduced to the extent program payment 
plus charges to the beneficiaries exceed actual cost. If the provider's 
actual cost for general routine services in 1975 was $57,000, the cost 
limit was $58,000, and billed charges to Medicare Part A beneficiaries 
were $2,000, the provider would receive $55,000 from the program 
($57,000 actual cost minus the $2,000 in charges to the beneficiaries).
    (d) Definition of emergency services. For purposes of paragraph 
(a)(2) of this section, emergency services are those hospital services 
that are necessary to prevent the death or serious impairment of the 
health of the individual, and which, because of the threat to the life 
or health of the individual, necessitate the use of the most accessible 
hospital (as determined under Sec. 424.106 of this chapter) available 
and equipped to furnish such services. If an individual has been 
admitted to such hospital as an inpatient because of an emergency, the 
emergency will be deemed to continue until it is safe from a medical 
standpoint to move the individual to another hospital or other 
institution or to discharge him.
    (e) Identification of charges to individual. For purposes of 
paragraph (a)(5) of this section, a provider must give or send to the 
individual or his representative, a schedule of all items and services 
that the individual might need and for which the provider imposes 
charges under this section, and the charge for each. Such schedule must 
specify that the charges are necessary to meet the costs in excess of 
the costs determined to be necessary in the efficient delivery of needed 
health services under Medicare and include such other information as 
HCFA considers necessary to protect the individual's rights under this 
section. The provider, in arranging for the individual's admission, 
first service, or start of care, must give or send this schedule to the 
individual or his representative when arrangements are being made for 
such services or if this is not feasible, as soon thereafter as is 
practicable but no later than at the initiation of services.

[51 FR 34793, Sept. 30, 1986, as amended at 53 FR 6648, Mar. 20, 1988; 
60 FR 45849, Sept. 1, 1995]



Sec. 413.40  Ceiling on the rate of increase in hospital inpatient costs.

    (a) Introduction--(1) Scope. This section implements section 1886(b) 
of the Act, establishing a ceiling on the rate of increase in operating 
costs per case for hospital inpatient services furnished to Medicare 
beneficiaries that will be recognized as reasonable for purposes of 
determining the amount of Medicare payment. This rate-of-increase 
ceiling applies to hospital cost reporting periods beginning on or after 
October 1, 1982. This section also sets

[[Page 398]]

forth rules governing exemptions from and adjustments to the ceiling.
    (2) Applicability. (i) This section is not applicable to--
    (A) Hospitals reimbursed in accordance with section 1814(b)(3) of 
the Act or under State reimbursement control systems that have been 
approved under section 1886(c) of the Act and subpart C of part 403 of 
this chapter; or
    (B) Hospitals that are paid under the prospective payment systems 
for inpatient hospital services in accordance with section 1886 (d) and 
(g) of the Act and part 412 of this chapter.
    (ii) For cost reporting periods beginning on or after October 1, 
1983, this section applies to hospitals excluded from the prospective 
payment system in accordance with Sec. 412.23 of this chapter, and 
psychiatric and rehabilitation units excluded from the prospective 
payment system in accordance with Secs. 412.25 through 412.30 of this 
chapter.
    (3) Definitions. As used in this section--
    Ceiling is the aggregate upper limit on the amount of a hospital's 
net Medicare inpatient operating costs that the program will recognize 
for payment purposes. For each cost reporting period, the ceiling is 
determined by multiplying the updated target amount, as defined in this 
paragraph, for that period by the number of Medicare discharges during 
that period.
    Date of discharge is the earliest of the following dates:
    (A) The date the patient has exhausted Medicare Part A hospital 
inpatient benefits (including the election to use lifetime reserve days) 
during his or her spell of illness.
    (B) The date the patient is formally released as specified in 
Sec. 412.4(a)(1) of this chapter.
    (C) The date the patient is transferred to another facility.
    (D) The date the patient dies.
    Market basket index is HCFA's projection of the annual percentage 
increase in hospital inpatient operating costs. The market basket index 
is a wage and price index that incorporates weighted indicators of 
changes in wages and prices that are representative of the mix of goods 
and services included in the most common categories of hospital 
inpatient operating costs subject to the ceiling, as described in 
paragraph (c)(1) of this section.
    Net inpatient operating costs include the costs of certain 
preadmission services as specified in Sec. 413.40(c)(2), the costs of 
routine services, ancillary services, and intensive care services (as 
defined in Sec. 413.53(b)) incurred by a hospital in furnishing covered 
inpatient services to Medicare beneficiaries. Net inpatient operating 
costs exclude capital-related costs as described in Sec. 413.130, the 
costs of approved medical education programs as described in 
Secs. 413.85 and 413.86, and heart, kidney, and liver acquisition costs 
incurred by approved transplantation centers. These costs are identified 
and excluded from inpatient operating costs before the application of 
the ceiling.
    Rate-of-increase percentage is the percentage by which each 
hospital's target amount from the preceding Federal fiscal year is 
increased.
    Target amount is the per discharge (case) limitation, derived from 
the hospital's allowable net Medicare inpatient operating costs in the 
hospital's base year, and updated for each subsequent hospital cost 
reporting period by the appropriate annual rate-of-increase percentage.
    Update adjustment percentage is the percentage by which a hospital's 
allowable inpatient operating service costs for the 12-month cost 
reporting period beginning in Federal fiscal year 1990 exceeds the 
hospital's ceiling for that period.
    Update factor is the decimal equivalent of the rate-of-increase 
percentage. The update factor is the value by which a hospital's target 
amount for the preceding year is multiplied in order to determine the 
target amount for the following year. For example, if the rate-of-
increase percentage for a year is 2.7 percent, the update factor for 
that year is 1.027.
    (b) Cost reporting periods subject to the rate-of-increase ceiling. 
(1) Base period. Each hospital's target amount is based on its allowable 
net inpatient operating costs per case from the cost reporting period of 
at least 12 months immediately preceding the first cost reporting period 
subject to the rate-of-increase ceiling established under this section. 
If the immediately preceding

[[Page 399]]

cost reporting period is a short reporting period (fewer than 12 
months), the first period of at least 12 months subsequent to that short 
period is the base period.
    (i) The target amount established under this provision remains 
applicable to a hospital or excluded hospital unit, as described in 
Secs. 412.25 through 412.30 of this chapter, despite intervening cost 
reporting periods during which the hospital or excluded hospital unit is 
not subject to the ceiling as a result of other provisions of the law or 
regulations, or nonparticipation in the Medicare program, unless the 
hospital or excluded hospital unit qualifies as a new hospital or 
excluded part hospital unit under the provisions of paragraph (f) of 
this section.
    (ii) The base period for a newly established excluded unit is the 
first cost reporting period of at least 12 months following the unit's 
certification to participate in the Medicare program.
    (iii) When the operational structure of a hospital or unit changes 
(that is, a freestanding hospital becomes a unit or vice versa) the base 
period is the first cost reporting period of at least 12 months 
effective with the revised Medicare certification classification.
    (iv) Request for rebased target amount for the cost reporting period 
beginning on or after October 1, 1997 and on or before September 30, 
1998. Except for qualified long-term care hospitals as defined in 
paragraph (b)(1)(v) of this section, each hospital or unit under present 
or previous ownership that received payment under section 1886(b) of the 
Act during cost reporting periods beginning before October 1, 1990, may 
submit a request to its fiscal intermediary to rebase its target amount. 
The request must be received by the fiscal intermediary by the later of 
November 1, 1997 or 60 days before the beginning of its cost reporting 
period beginning during fiscal year 1998. The rebased target amount for 
the cost reporting period beginning during fiscal year 1998 is 
determined as follows:
    (A) Determine the hospital's inpatient operating costs per case for 
each of the five most recent settled cost reports as of August 5, 1997.
    (B) For each of the five cost reports, update the operating costs 
per case by the applicable update factors up to the hospital's cost 
reporting period beginning during FY 1998.
    (C) Exclude the highest and lowest of the five updated amounts 
determined under paragraph (b)(1)(iv)(B) of this section.
    (D) Compute the average for the remaining three updated amounts for 
operating cost per case.
    (v) Request by qualified long-term care hospital. A qualified long-
term care hospital may file a request to its fiscal intermediary for a 
rebased FY 1998 target amount. The request must be received by the 
fiscal intermediary by the later of November 1, 1997 or 60 days before 
the beginning of its cost reporting period beginning during fiscal year 
1998. The rebased FY 1998 target amount is the hospital's FY 1996 
inpatient operating costs updated to FY 1997. A qualified long-term care 
hospital means a long-term care hospital that meets the following two 
conditions for its two most recent settled cost reports as of August 5, 
1997:
    (A) Its Medicare inpatient operating costs exceed 115 percent of the 
ceiling.
    (B) The hospital would have had a disproportionate patient 
percentage (as defined in Sec. 412.106) equal to or greater than 70 
percent if it were a prospective payment hospital.
    (2) Periods subject to the ceiling. The ceiling established under 
this section applies to all cost reporting periods that--
    (i) Begin on or after October 1, 1982; and
    (ii) Immediately follow the base period established under paragraph 
(b)(1) of this section unless the exception in paragraph (b)(3) of this 
section is applicable.
    (3) Periods of other than 12 months. The ceiling established under 
this section does not apply to cost reporting periods of fewer than 12 
months that occur in conjunction with a change in operation of the 
facility, as defined in paragraph (b)(1)(iii) of this section, as a 
result of changes in ownership, merger, or consolidation. However, the 
ceiling applies to cost reporting periods of fewer than 12 months that 
result solely from the approval of a hospital's request for a change in 
accounting cycle, as specified in Sec. 413.24(f)(3).

[[Page 400]]

    (c) Costs subject to the ceiling--(1) Applicability. The ceiling 
established under this section applies to net operating costs incurred 
by a hospital in furnishing inpatient hospital services to Medicare 
beneficiaries.
    (2) Preadmission services otherwise payable under Medicare Part B 
furnished to a beneficiary during the calendar day immediately preceding 
the date of the beneficiary's admission to the hospital that meet the 
following conditions:
    (i) The services are furnished by the hospital or any entity wholly 
owned or operated by the hospital. An entity is wholly owned by the 
hospital if the hospital is the sole owner of the entity. An entity is 
wholly operated by a hospital if the hospital has exclusive 
responsibility for conducting and overseeing the entity's routine 
operations, regardless of whether the hospital also has policymaking 
authority over the entity.
    (ii) For services furnished after January 1, 1991, the services are 
diagnostic (including clinical diagnostic laboratory tests).
    (iii) For services furnished on or after October 1, 1991, the 
services are furnished in connection with the principal diagnosis that 
requires the beneficiary to be admitted as an inpatient and are not the 
following:
    (A) Ambulance services.
    (B) Maintenance renal dialysis.
    (3) Rate-of-increase percentages and update factors. The applicable 
rate-of-increase percentages and update factors are determined as 
follows:
    (i) Federal fiscal year 1986. The applicable rate-of-increase 
percentage for cost reporting periods beginning on or after October 1, 
1985 and before September 30, 1986 is five twenty-fourths of one 
percent, and the update factor is 1.00208333. For purposes of 
determining the target amount for cost reporting periods beginning on or 
after October 1, 1986, the applicable percentage increase for cost 
reporting periods beginning during Federal fiscal year 1986 is deemed to 
have been one-half percent, and the update factor is 1.005.
    (ii) Federal fiscal year 1987. The applicable rate-of-increase 
percentage for cost reporting periods beginning on or after October 1, 
1986 and before September 30, 1987 is 1.15 percent; the update factor is 
1.0115.
    (iii) Federal fiscal year 1988. The applicable rate-of-increase 
percentage for cost reporting periods beginning on or after October 1, 
1987 and before October 1, 1988 is 2.3238 percent; the update factor is 
1.023238. For purposes of updating the target amount for cost reporting 
periods beginning on or after October 1, 1988, the rate-of-increase 
percentage for cost reporting periods beginning during FY 1988 is deemed 
to have been 2.7 percent; the update factor is deemed to have been 
1.027.
    (iv) Federal fiscal year 1989 through Federal fiscal year 1993. The 
applicable rate-of-increase percentage for cost reporting periods 
beginning on or after October 1, 1988, and before October 1, 1993, is 
the percentage increase projected by the hospital market basket index 
(as defined in paragraph (a)(3) of this section).
    (v) Federal fiscal year 1994 through Federal fiscal year 1997. The 
applicable rate-of-increase percentage for cost reporting periods 
beginning on or after October 1, 1993, and before October 1, 1998, is 
the market basket percentage increase minus the lesser of, 1 percentage 
point, or the percentage point difference between 10 percent and the 
hospital's ``update adjustment percentage'' (as defined in paragraph 
(a)(3) of this section); for hospitals with an ``update adjustment 
percentage'' of at least 10 percent, the applicable rate-of-increase 
percentage is the market basket percentage increase. The ``update 
adjustment percentage'' is increased in each Federal fiscal year by the 
sum of the hospital's applicable reductions applied to the market basket 
percentage increase for previous Federal fiscal years.
    (vi) Federal fiscal year 1998. The applicable rate-of-increase 
percentage for cost reporting periods beginning on or after October 1, 
1997 is 0 percent.
    (vii) Federal fiscal year 1999 through Federal fiscal year 2002. The 
applicable rate-of-increase percentage for cost reporting periods 
beginning on or after October 1, 1998, and before October 1, 2002, based 
on data from the most recent available cost report, is:
    (A) The percentage increase in the market basket, if inpatient 
operating

[[Page 401]]

costs are equal to or exceed the ceiling amount by 10 percent or more of 
the ceiling.
    (B) The percentage increase in the market basket minus .25 
percentage points for each percentage point by which inpatient operating 
costs are less than 10 percent over the ceiling (but not less than 0), 
if inpatient operating costs exceed the ceiling by less than 10 percent 
of the ceiling.
    (C) The greater of the percentage increase in the market basket 
minus 2.5 percentage points or 0 percent, if inpatient operating costs 
are equal to or less than the ceiling but greater than 66.7 percent of 
the ceiling.
    (D) 0 percent, if inpatient operating costs do not exceed 66.7 
percent of the ceiling.
    (viii) Federal fiscal year 2003 and following. The applicable rate-
of-increase percentage for cost reporting periods beginning on or after 
October 1, 2002, is the percentage increase projected by the hospital 
market basket index.
    (4) Target amount. The intermediary will establish a target amount 
for each hospital. The target amount for a cost reporting period is 
determined as follows:
    (i) Except as provided in paragraph (c)(4)(iv) of this section, and 
subject to the provisions of paragraph (c)(4)(iii) of this section, for 
the first cost reporting period to which this ceiling applies, the 
target amount equals the hospital's allowable net inpatient operating 
costs per case for the hospital's base period increased by the update 
factor for the subject period.
    (ii) Subject to the provisions of paragraph (c)(4)(iii) of this 
section, for subsequent cost reporting periods, the target amount equals 
the hospital's target amount for the previous cost reporting period 
increased by the update factor for the subject cost reporting period, 
unless the provisions of paragraph (c)(5)(ii) of this section apply.
    (iii) In the case of a psychiatric hospital or unit, rehabilitation 
hospital or unit, or long-term care hospital, the target amount is the 
lower of--
    (A) The hospital-specific target amount (the net allowable costs in 
a base period increased by the applicable update factors); or
    (B) One of the following for the applicable cost reporting period--
    (1) For cost reporting periods beginning during fiscal year 1998, 
the 75th percentile of target amounts for hospitals in the same class 
(psychiatric hospital or unit, rehabilitation hospital or unit, or long-
term care hospital) for cost reporting periods ending during FY 1996, 
increased by the applicable market basket percentage up to the first 
cost reporting period beginning on or after October 1, 1997.
    (2) For cost reporting periods beginning during fiscal years 1999 
through 2002, the amount determined under paragraph (c)(4)(iii)(B)(1) of 
this section, increased by the market basket percentage up through the 
subject period, subject to the provisions of paragraph (c)(4)(iv) of 
this section.
    (iv) For purposes of the limits on target amounts established under 
paragraph (c)(4)(iii) of this section, each hospital or unit that 
qualifies for exclusion as a member of only one class of excluded 
facility (psychiatric hospital or unit, rehabilitation hospital or unit, 
or long-term care hospital) will be subject to the limit applicable to 
that class. If a hospital or unit qualifies to be classified in more 
than one way under the exclusion criteria in subpart B of part 412 of 
this chapter, the hospital's or unit's target amount may not exceed the 
lowest applicable limit.
    (v) In the case of a hospital that received payments under paragraph 
(f)(2)(ii) of this section, for purposes of determining the hospital's 
target amount for the hospital's third 12-month cost reporting period, 
the target amount for the preceding cost reporting period is equal to 
the amount determined under paragraph (f)(2)(ii)(A) of this section.
    (5) Applicable update factor. (i) The applicable update factor is 
derived from the prospectively determined rate-of-increase percentage 
published by HCFA. The update factor for each Federal fiscal year is 
applied prospectively to the target amount for each cost reporting 
period beginning during the Federal fiscal year.
    (ii) In the case of cost reporting periods of less than 12 months, 
the target amount determined for a hospital's

[[Page 402]]

first cost reporting period beginning in a Federal fiscal year applies 
to subsequent periods beginning in the same Federal fiscal year.
    (d) Application of the target amount in determining the amount of 
payment. (1) General process. (i) At the end of each cost reporting 
period subject to this section, the hospital's intermediary will compare 
a hospital's allowable net inpatient operating costs with that 
hospital's ceiling (as defined in paragraph (a)(3) of this section) for 
that period.
    (ii) The hospital's actual allowable costs will be determined 
without regard to the lesser of cost or charges provisions of 
Sec. 413.13, and in accordance with the provisions of paragraphs (d)(2) 
or (d)(3) of this section, as applicable.
    (2) Net inpatient operating costs are less than or equal to the 
ceiling. For cost reporting periods beginning on or after October 1, 
1997, if a hospital's allowable net inpatient operating costs do not 
exceed the hospital's ceiling, payment to the hospital will be 
determined on the basis of the lower of the--
    (i) Net inpatient operating costs plus 15 percent of the difference 
between inpatient operating costs and the ceiling; or
    (ii) Net inpatient operating costs plus 2 percent of the ceiling.
    (3) Net inpatient operating costs are greater than the ceiling. For 
cost reporting periods beginning on or after October 1, 1997--
    (i) If a hospital's allowable net inpatient operating costs do not 
exceed 110 percent of the ceiling (or the adjusted ceiling, if 
applicable), payment will be the ceiling (or the adjusted ceiling, if 
applicable);
    (ii) If a hospital's allowable net inpatient operating costs are 
greater than 110 percent of the ceiling (or the adjusted ceiling, if 
applicable), payment will be the ceiling (or the adjusted ceiling, if 
applicable) plus the lesser of:
    (A) 50 percent of the allowable net inpatient operating costs in 
excess of 110 percent of the ceiling (or the adjusted ceiling, if 
applicable); or
    (B) 10 percent of the ceiling (or the adjusted ceiling, if 
applicable).
    (4) Continuous improvement bonus payments. For cost reporting 
periods beginning on or after October 1, 1997, eligible hospitals (as 
defined in paragraph (d)(5) of this section) receive payments in 
addition to those in paragraph (d)(2) of this section, as applicable. 
These payments are equal to the lesser of--
    (i) 50 percent of the amount by which the operating costs are less 
than the expected costs for the period; or
    (ii) 1 percent of the ceiling.
    (5) Eligibility requirements for continuous improvement bonus 
payments. To qualify, a hospital must have been paid as a prospective 
payment excluded hospital for at least three full cost reporting periods 
prior to the applicable period, and the hospital's operating costs per 
discharge for the period must be less than the least of the following:
    (i) The hospital's target amount.
    (ii) The hospital's trended costs.
    (A) For a hospital for which its cost reporting period ending during 
fiscal year 1996 was its third or subsequent full cost reporting period, 
trended costs are the lesser of the allowable inpatient operating costs 
per discharge or the target amount for the cost reporting period ending 
in fiscal year 1996, increased in a compounded manner for each 
succeeding fiscal year by the market basket percentage increase;
    (B) For all other hospitals, trended costs are the allowable 
inpatient operating costs per discharge for its third full cost 
reporting period increased in a compounded manner for each succeeding 
fiscal year by the market basket increase.
    (iii) The hospital's expected costs. The hospital's expected costs 
are the lesser of its allowable inpatient operating costs per discharge 
or the target amount for the previous cost reporting period, updated by 
the market basket percentage increase for the fiscal year.
    (e) Hospital requests regarding adjustments to the payment allowed 
under the rate-of-increase ceiling. (1) Timing of application. A 
hospital may request an adjustment to the rate-of-increase ceiling 
imposed under this section. The hospital's request must be received by 
the hospital's fiscal intermediary no later than 180 days after the date 
on the intermediary's initial notice of amount of program reimbursement 
(NPR) for the cost reporting period for which the hospital requests an 
adjustment.

[[Page 403]]

    (2) Intermediary recommendation. Unless HCFA has authorized the 
intermediary to make the decision, the intermediary makes a 
recommendation on the hospital's request to HCFA, which makes the 
decision. HCFA issues a decision to the intermediary no later than 180 
days after receipt of the completed application and the intermediary's 
recommendation.
    (3) Intermediary decision. If HCFA has authorized the intermediary 
to make the decision, the intermediary issues a decision no later than 
180 days after receipt of the completed application.
    (4) Notification and review. (i) The intermediary notifies the 
hospital of the decision, including a full explanation of the grounds 
for the decision. A decision issued under paragraph (e)(2) or (e)(3) of 
this section is considered final unless the hospital submits additional 
information and requests a review of the decision no later than 180 days 
after the date on the intermediary's notice of the decision.
    (ii) The final decision is subject to review under the provider 
reimbursement determination and appeal procedures in subpart R of part 
405 of this chapter, provided the hospital has received an NPR for the 
cost reporting period in question, and the NPR disallows costs for which 
the hospital had requested an adjustment (see the definitions in 
Sec. 405.1801(a) of this chapter and the provisions regarding a 
provider's right to a Board hearing in Sec. 405.1835 of this chapter).
    (5) Extending time limit for PRRB review of NPR. The time required 
to review the request is considered good cause for the granting of an 
extension of the time limit to apply for review of the notice of amount 
of program reimbursement by the Provider Reimbursement Review Board, as 
specified in Sec. 405.1841(b) of this chapter.
    (6) Applicability. The provisions in paragraphs (e)(1) through 
(e)(5) of this section apply to a hospital's initial request for an 
adjustment and to a request for a review of the original decision based 
on additional data.
    (f) Comparison to the target amount for new hospitals and units--(1) 
New hospitals and units--(i) New hospitals. For purposes of this 
section, a new hospital is a provider of hospital inpatient services 
that--
    (A) Has operated as the type of hospital for which HCFA granted it 
approval to participate in the Medicare program, under present or 
previous ownership (or both), for less than 2 full years; and
    (B) Has provided the type of hospital inpatient services for which 
HCFA granted it approval to participate in the Medicare program, for 
less than 2 years.
    (ii) New units. A newly established unit that is excluded from the 
prospective payments system under the provisions of Secs. 412.25 through 
412.30 of this chapter does not qualify for the exemption afforded to a 
new hospital under paragraph (f)(2)(i) of this section unless the unit 
is located in an acute care hospital that, if it were subject to the 
provisions of this section, would qualify as a new hospital under 
paragraph (f)(1)(i) of this section.
    (2) Comparison--(i) Exemptions. (A) A new children's hospital is 
exempt from the rate-of-increase ceiling imposed under this section. The 
exemption begins when the hospital accepts its first patient and ends at 
the end of the first cost reporting period ending at least 2 years after 
the hospital accepts its first patient. The first cost reporting period 
of at least 12 months beginning at least 1 year after the hospital 
accepts its first patient is the base year, in accordance with paragraph 
(b) of this section.
    (B) Within 180 days of the date a hospital is excluded from the 
prospective payment system, the intermediary determines whether the 
hospital is exempt from the rate-of-increase ceiling. The intermediary 
notifies the hospital of its determination and the hospital's base 
period.
    (C) A decision issued under paragraph (f)(2)(ii)(B) of this section 
is considered final unless the hospital submits additional information 
and requests a review of the decision no later than 180 days after the 
date on the intermediary's notice of the decision. The final decision is 
subject to review under subpart R of part 405 of this

[[Page 404]]

chapter, provided the hospital has received a notice of program 
reimbursement (NPR) for the cost reporting period in question and the 
NPR does not reflect an exemption (see the definitions in 
Sec. 405.1801(a) of this chapter and the provisions regarding a 
provider's right to a Board hearing in Sec. 405.1835 of this chapter).
    (ii) Median target amount. (A) For cost reporting periods beginning 
on or after October 1, 1997, the amount of payment for a new psychiatric 
hospital or unit, a new rehabilitation hospital or unit, or a new long-
term care hospital that was not paid as an excluded hospital prior to 
October 1, 1997, is the lower of the hospital's net inpatient operating 
costs per case or 110 percent of the national median of the target 
amounts for the class of excluded hospitals and units (psychiatric, 
rehabilitation, long-term care) as adjusted and updated. This 
methodology applies to the hospital's first two 12-month cost reporting 
periods.
    (B) The national median of the target amounts is the FY 1996 median 
target amount--
    (1) Adjusted to account for differences in area wage levels;
    (2) Updated by the market basket percentage increase to the fiscal 
year in which the hospital first received payments as an excluded 
provider.
    (3) Risk-basis HMOs. Items or services that are furnished to 
beneficiaries enrolled in an HMO by a hospital that is either owned or 
operated by a risk-basis HMO or related to a risk-basis HMO by common 
ownership or control are exempt from the rate-of-increase ceiling (see 
the definition of an entity with a risk sharing contract in Sec. 417.401 
of this chapter).
    (g) Adjustments--(1) General rule. HCFA may adjust the amount of the 
operating costs considered in establishing the rate-of-increase ceiling 
for one or more cost reporting periods, including both periods subject 
to the ceiling and the hospital's base period, under the circumstances 
specified in paragraphs (g)(2), (g)(3), and (g)(4) of this section. When 
an adjustment is requested by the hospital, HCFA makes an adjustment 
only to the extent that the hospital's operating costs are reasonable, 
attributable to the circumstances specified separately identified by the 
hospital, and verified by the intermediary. HCFA may grant an adjustment 
requested by the hospital only if the hospital's operating costs exceed 
the rate-of-increase ceiling imposed under this section. In the case of 
a psychiatric hospital or unit, rehabilitation hospital or unit, or 
long-term care hospital, the amount of payment made to a hospital after 
an adjustment under paragraph (g)(3) of this section may not exceed the 
applicable limit based on 75th percentile of the target amounts for 
hospitals of the same class as described in Sec. 413.40(c)(4)(iii).
    (2) Extraordinary circumstances. HCFA may make an adjustment to take 
into account unusual costs (in either a cost reporting period subject to 
the ceiling or the hospital's base period) due to extraordinary 
circumstances beyond the hospital's control. These circumstances 
include, but are not limited to, strikes, fire, earthquakes, floods, or 
similar unusual occurrences with substantial cost effects.
    (3) Comparability of cost reporting periods--(i) Adjustment for 
distortion. HCFA may make an adjustment to take into account factors 
that would result in a significant distortion in the operating costs of 
inpatient hospital services between the base year and the cost reporting 
period subject to the limits.
    (ii) Factors. The adjustments described in paragraph (g)(3)(i) of 
this section, include, but are not limited to, adjustments to take into 
account:
    (A) FICA taxes (if the hospital did not incur costs for FICA taxes 
in its base period).
    (B) Services billed under part B of Medicare during the base period, 
but paid under part A during the subject cost reporting period.
    (C) Malpractice insurance costs (if malpractice costs were not 
included in the base year operating costs).
    (D) Increases in service intensity or length of stay attributable to 
changes in the type of patient served.
    (E) A change in the inpatient hospital services that a hospital 
provides, and that are customarily provided directly by similar 
hospitals, such as an addition or discontinuation of services or 
treatment programs.

[[Page 405]]

    (F) The manipulation of discharges to increase reimbursement.
    (iii) Adjusting operating costs. Without a formal request from a 
hospital, HCFA may adjust the amount of operating costs determined under 
paragraph (c)(1) of this section to take into account certain 
adjustments. These adjustments include, but are not limited to, 
adjustments under paragraphs (g)(3)(ii)(A), (B), (C), (E), and (F) of 
this section.
    (4) Significant wage increase. (i) Criteria. HCFA may make an 
adjustment to take into account a significant increase in wages 
occurring between the base period and the cost reporting period subject 
to the ceiling if there is a significant increase in the average hourly 
wage for the geographic area in which the hospital is located 
(determined by reference to the wage index for prospective payment 
hospitals without regard to geographic reclassifications under sections 
1886(d)(8) and (10) of the Act). For this purpose, there is a 
significant wage increase if the wage index value based on wage survey 
data collected for the cost reporting period subject to the ceiling is 
at least 8.0 percent higher than the wage index value based on survey 
data collected for the base year cost reporting period. If survey data 
are not available for the cost reporting periods used in the comparison, 
the wage index value based on the latest available survey data collected 
prior to that cost reporting period is used.
    (ii) Amount of the adjustment. The adjustment for a significant wage 
increase equals the amount by which the lesser of the following 
calculations exceeds 108 percent of the increase in the national average 
hourly earnings for hospital workers:
    (A) The rate of increase in the average hourly wage in the 
geographic area (determined by applying the applicable increase in the 
area wage index value to the rate of increase in the national average 
hourly earnings for hospital workers).
    (B) The rate of increase in the hospital's average hourly wage.
    (5) Adjustment limitations. For cost reporting periods beginning on 
or after October 1, 1993, and before October 1, 2003, the payment 
reductions under paragraph (c)(3)(v) through (c)(3)(vii) of this section 
will not be considered when determining adjustments under this 
paragraph.
    (h)  [Reserved]
    (i) Assignment of a new base period. (1) General rule. (i) Effective 
with cost reporting periods beginning on or after April 1, 1990, HCFA 
may assign a new base period to establish a revised ceiling if the new 
base period is more representative of the reasonable and necessary cost 
of furnishing inpatient services and all the following conditions apply:
    (A) The actual allowable inpatient costs of the hospital in the cost 
reporting period that would be affected by the revised ceiling exceed 
the target amount established under paragraph (c) of this section.
    (B) The hospital documents that the higher costs are the result of 
substantial and permanent changes in furnishing patient care services 
since the base period. In making this determination, HCFA takes into 
consideration the following factors:
    (1) Changes in the services provided by the hospital.
    (2) Changes in applicable technologies and medical practices.
    (3) Differences in the severity of illness among patients or types 
of patients served.
    (C) The adjustments described in paragraph (g) of this section would 
not result in recognition of the reasonable and necessary costs of 
providing inpatient services.
    (ii) The revised ceiling is based on the necessary and proper costs 
incurred during the new base period.
    (A) Increases in overhead costs (for example, administrative and 
general costs and housekeeping costs) are not taken into consideration 
unless the hospital documents that these increases result from 
substantial and permanent changes in furnishing patient care services.
    (B) In determining whether wage increases are necessary and proper, 
HCFA takes into consideration whether increases in wages and wage-
related costs for hospitals in the labor market area exceed the national 
average increase.

[[Page 406]]

    (2) New base period. The new base period is the first cost reporting 
period that is 12 months or longer that reflects the substantial and 
permanent change.
    (3) New applicable rate-of-increase percentages and update factors. 
The revised target amount resulting from the assignment of a new base 
period is increased by the applicable rate-of-increase percentages 
(update factors) described in paragraph (c)(3) of this section.
    (j) Reduction to capital-related costs. For psychiatric hospital and 
units, rehabilitation hospitals and units, and long-term care hospitals, 
the amount otherwise payable for capital-related costs for hospital 
inpatient services is reduced by 15 percent for portions of cost 
reporting periods occurring on or after October 1, 1997 through 
September 30, 2002.

[58 FR 46340, Sept. 1, 1993, as amended at 59 FR 1659, Jan. 12, 1994; 59 
FR 45401, Sept. 1, 1994; 60 FR 45849, Sept. 1, 1995; 61 FR 2725, Jan. 
29, 1996; 61 FR 46225, Aug. 30, 1996; 62 FR 46032, Aug. 29, 1997; 63 FR 
6868, Feb. 11, 1998; 63 FR 26358, May 12, 1998; 63 FR 41004, July 31, 
1998]



                        Subpart D--Apportionment



Sec. 413.50  Apportionment of allowable costs.

    (a) Consistent with prevailing practice in which third-party 
organizations pay for health care on a cost basis, reimbursement under 
the Medicare program involves a determination of--
    (1) Each provider's allowable costs for producing services; and
    (2) The share of these costs which is to be borne by Medicare. The 
provider's costs are to be determined in accordance with the principles 
reviewed in the preceding discussion relating to allowable costs. The 
share to be borne by Medicare is to be determined in accordance with 
principles relating to apportionment of cost.
    (b) In the study and consideration devoted to the method of 
apportioning costs, the objective has been to adopt methods for use 
under Medicare that would, to the extent reasonably possible, result in 
the program's share of a provider's total allowable costs being the same 
as the program's share of the provider's total services. This result is 
essential for carrying out the statutory directive that the program's 
payments to providers should be such that the costs of covered services 
for beneficiaries would not be passed on to nonbeneficiaries, nor would 
the cost of services for nonbeneficiaries be borne by the program.
    (c) A basic factor bearing upon apportionment of costs is that 
Medicare beneficiaries are not a cross section of the total population. 
Nor will they constitute a cross section of all patients receiving 
services from most of the providers that participate in the program. 
Available evidence shows that the use of services by persons age 65 and 
over differs significantly from other groups. Consequently, the 
objective sought in the determination of the Medicare share of a 
provider's total costs means that the methods used for apportionment 
must take into account the differences in the amount of services 
received by patients who are beneficiaries and other patients serviced 
by the provider.
    (d) The method of cost reimbursement most widely used at the present 
time by third-party purchasers of inpatient hospital care apportions a 
provider's total costs among groups served on the basis of the relative 
number of days of care used. This method, commonly referred to as 
average-per-diem cost, does not take into account, variations in the 
amount of service which a day of care may represent and thereby assumes 
that the patients for whom payment is made on this basis are average in 
their use of service.
    (e) In considering the average-per-diem method of apportioning cost 
for use under the program, the difficulty encountered is that the 
preponderance of presently available evidence strongly indicates that 
the over-age 65 patient is not typical from the standpoint of average-
per-diem cost. On the average this patient stays in the hospital twice 
as long and therefore the ancillary services that he uses are averaged 
over the longer period of time, resulting in an average-per-diem cost 
for the aged alone, significantly below the average-per-diem for all 
patients.
    (f) Moreover, the relative use of services by aged patients as 
compared to

[[Page 407]]

other patients differs significantly among institutions. Consequently, 
considerations of equity among institutions are involved as well as that 
of effectiveness of the apportionment method under the program in 
accomplishing the objective of paying each provider fully, but only for 
services to beneficiaries.
    (g) A further consideration of long-range importance is that the 
relative use of services by aged and other patients can be expected to 
change, possibly to a significant extent in future years. The ability of 
apportionment methods used under the program to reflect such change is 
an element of flexibility which has been regarded as important in the 
formulation of the cost reimbursement principles.
    (h) An alternative to the relative number of days of care as a basis 
for apportioning costs is the relative amount of charges billed by the 
provider for services to patients. The amount of charges is the basis 
upon which the cost of hospital care is distributed among patients who 
pay directly for the services they receive. Payment for services on the 
basis of charges applies generally under insurance programs in which 
individuals are indemnified for incurred expenses, a form of health 
insurance widely held throughout the United States. Also, charges to 
patients are commonly a factor in determining the amount of payment to 
hospitals under insurance programs providing service benefits, many of 
which pay ``costs or charges, whichever is less'' and some of which pay 
exclusively on the basis of charges. In all of these instances, the 
provider's own charge structure and method of itemizing services for the 
purpose of assessing charges is utilized as a measure of the amount of 
services received and as the basis for allocating responsibility for 
payment among those receiving the provider's services.
    (i) An increasing number of third-party purchasers who pay for 
services on the basis of cost are developing methods that utilize 
charges to measure the amount of services for which they have 
responsibility for payment. In this approach, the amount of charges for 
such services as a proportion of the provider's total charges to all 
patients is used to determine the proportion of the provider's total 
costs for which the third-party purchaser assumes responsibility. The 
approach is subject to numerous variations. It can be applied to the 
total of charges for all services combined or it can be applied to 
components of the provider's activities for which the amount of costs 
and charges are ascertained through a breakdown of data from the 
provider's accounting records.
    (j) For the application of the approach to components, which 
represent types of services, the breakdown of total costs is 
accomplished by ``cost-finding'' techniques under which indirect costs 
and nonrevenue activities are allocated to revenue producing components 
for which charges are made as services are furnished.



Sec. 413.53  Determination of cost of services to beneficiaries.

    (a) Principle. Total allowable costs of a provider will be 
apportioned between program beneficiaries and other patients so that the 
share borne by the program is based upon actual services received by 
program beneficiaries. The methods of apportionment are defined as 
follows:
    (1) Departmental method--(i) Methodology. Except as provided in 
paragraph (a)(1)(ii) of this section with respect to the treatment of 
the private room cost differential for cost reporting periods starting 
on or after October 1, 1982, the ratio of beneficiary charges to total 
patient charges for the services of each ancillary department is applied 
to the cost of the department; to this is added the cost of routine 
services for program beneficiaries, determined on the basis of a 
separate average cost per diem for general routine patient care areas as 
defined in paragraph (b) of this section, taking into account, in 
hospitals, a separate average cost per diem for each intensive care 
unit, coronary care unit, and other intensive care type inpatient 
hospital units.
    (ii) Exception: Indirect cost of private rooms. For cost reporting 
periods starting on or after October 1, 1982, except with respect to a 
hospital receiving payment under part 412 of this chapter (relating to 
the prospective payment

[[Page 408]]

system), the additional cost of furnishing services in private room 
accommodations is apportioned to Medicare only if these accommodations 
are furnished to program beneficiaries, and are medically necessary. To 
determine routine service cost applicable to beneficiaries--
    (A) Multiply the average cost per diem (as defined in paragraph (b) 
of this section) by the total number of Medicare patient days (including 
private room days whether or not medically necessary);
    (B) Add the product of the average per diem private room cost 
differential (as defined in paragraph (b) of this section) and the 
number of medically necessary private room days used by beneficiaries; 
and
    (C) Effective October 1, 1990, do not include private rooms 
furnished for SNF-type and NF-type services under the swing-bed 
provision in the number of days in paragraphs (a)(1)(ii)(A) and (B) of 
this section.
    (2) Carve-out out method--(i) The carve-out out method is used to 
allocate hospital inpatient general routine service costs in a 
participating swing-bed hospital, as defined in Sec. 413.114(b). Under 
this method, effective for services furnished on or after October 1, 
1990, the reasonable costs attributable to the inpatient routine SNF-
type and NF-type services furnished to all classes of patients are 
subtracted from total inpatient routine service costs before computing 
the average cost per diem for inpatient routine hospital care.
    (ii) The cost per diem attributable to the routine SNF-type services 
covered by Medicare is based on the regional Medicare swing-bed SNF rate 
in effect for a given calendar year, as described in Sec. 413.114(c). 
The Medicare SNF rate applies only to days covered and paid as Medicare 
days. When Medicare coverage runs out, the Medicare rate no longer 
applies.
    (iii) The cost per diem attributable to all non-Medicare swing-bed 
days is based on the average statewide Medicaid NF rate for the prior 
calendar year, adjusted to approximate the average NF rate for the 
current calendar year.
    (iv) The sum of total Medicare SNF-type days multiplied by the cost 
per diem attributable to Medicare SNF-type services and the total NF-
type days multiplied by the cost per diem attributable to all non-
Medicare days is subtracted from total inpatient general routine service 
costs. The cost per diem for inpatient routine hospital care is computed 
based on the remaining inpatient routine service costs.
    (3) Cost per visit by type-of-service method--HHAs. For cost 
reporting periods beginning on or after October 1, 1980, all HHAs must 
use the cost per visit by type-of-service method of apportioning costs 
between Medicare and non-Medicare beneficiaries. Under this method, the 
total allowable cost of all visits for each type of service is divided 
by the total number of visits for that type of service. Next, for each 
type of service, the number of Medicare covered visits is multiplied by 
the average cost per visit just computed. This represents the cost 
Medicare will recognize as the cost for that service, subject to cost 
limits published by HCFA (see Sec. 413.30).
    (b) Definitions. As used in this section--
    Ancillary services means the services for which charges are 
customarily made in addition to routine services.
    Apportionment means an allocation or distribution of allowable cost 
between the beneficiaries of the Medicare program and other patients.
    Average cost per diem for general routine services means the 
following:
    (1) For cost reporting periods beginning on or after October 1, 
1982, subject to the provisions on swing-bed hospitals, the average cost 
of general routine services net of the private room cost differential. 
The average cost per diem is computed by the following methodology:
    (i) Determine the total private room cost differential by 
multiplying the average per diem private room cost differential 
determined in paragraph (c) of this section by the total number of 
private room patient days.
    (ii) Determine the total inpatient general routine service costs net 
of the total private room cost differential by subtracting the total 
private room cost differential from total inpatient general routine 
service costs.
    (iii) Determine the average cost per diem by dividing the total 
inpatient

[[Page 409]]

general routine service cost net of private room cost differential by 
all inpatient general routine days, including total private room days.
    (2) For swing-bed hospitals, the amount computed by--(i) Subtracting 
the routine costs associated with Medicare SNF-type days and non-
Medicare NF-type days from the total allowable inpatient cost for 
routine services (excluding the cost of services provided in intensive 
care units, coronary care units, and other intensive care type inpatient 
hospital units and nursery costs); and
    (ii) Dividing the remainder (excluding the total private room cost 
differential) by the total number of inpatient hospital days of care 
(excluding Medicare SNF-type days and non-Medicare NF-type days of care, 
days of care in intensive care units, coronary care units, and other 
intensive care type inpatient hospital units; and newborn days; but 
including total private room days).
    Average cost per diem for hospital intensive care type units means 
the amount computed by dividing the total allowable costs for routine 
services in each of these units by the total number of inpatient days of 
care furnished in each of these units.
    Average per diem private room cost differential means the difference 
in the average per diem cost of furnishing routine services in a private 
room and in a semi-private room. (This differential is not applicable to 
hospital intensive care type units.) (The method for computing this 
differential is described in paragraph (c) of this section.)
    Charges means the regular rates for various services that are 
charged to both beneficiaries and other paying patients who receive the 
services. Implicit in the use of charges as the basis for apportionment 
is the objective that charges for services be related to the cost of the 
services.
    Intensive care type inpatient hospital unit means a hospital unit 
that furnishes services to critically ill inpatients. Examples of 
intensive care type units include, but are not limited to, intensive 
care units, trauma units, coronary care units, pulmonary care units, and 
burn units. Excluded as intensive care type units are postoperative 
recovery rooms, postanesthesia recovery rooms, maternity labor rooms, 
and subintensive or intermediate care units. (The unit must also meet 
the criteria of paragraph (d) of this section.)
    Nursing facility (NF)-type services, formerly known as ICF and SNF-
type services, are routine services furnished by a swing-bed hospital to 
Medicaid and other non-Medicare patients. Under the Medicaid program, 
effective October 1, 1990, facilities are no longer certified as SNFs or 
ICFs but instead are certified only as NFs and can provide services as 
defined in section 1919(a)(1) of the Act.
    Skilled nursing facility (SNF)-type services are routine services 
furnished by a swing-bed hospital that would constitute extended care 
services if furnished by an SNF. SNF-type services include routine SNF 
services furnished in the distinct part SNF of a hospital complex that 
is combined with the hospital general routine service area cost center 
under Sec. 413.24(d)(5). Effective October 1, 1990, only Medicare 
covered services are included in the definition of SNF-type services.
    Ratio of beneficiary charges to total charges on a departmental 
basis means the ratio of charges to beneficiaries of the Medicare 
program for services of a revenue-producing department or center to the 
charges to all patients for that center during an accounting period. 
After each revenue-producing center's ratio is determined, the cost of 
services furnished to beneficiaries of the Medicare program is computed 
by applying the individual ratio for the center to the cost of the 
related center for the period.
    Routine services means the regular room, dietary, and nursing 
services, minor medical and surgical supplies, and the use of equipment 
and facilities for which a separate charge is not customarily made.
    (c) Method for computing the average per diem private room cost 
differential. Compute the average per diem private room cost 
differential as follows:
    (1) Determine the average per diem private room charge differential 
by subtracting the average per diem charge for all semi-private room 
accommodations from the average per

[[Page 410]]

diem charge for all private room accommodations. The average per diem 
charge for private room accommodations is determined by dividing the 
total charges for private room accommodations by the total number of 
days of care furnished in private room accommodations. The average per 
diem charge for semi-private accommodations is determined by dividing 
the total charges for semi-private room accommodations by the total 
number of days of care furnished in semi-private accommodations.
    (2) Determine the inpatient general routine cost to charge ratio by 
dividing total inpatient general routine service cost by the total 
inpatient general routine service charges.
    (3) Determine the average per diem private room cost differential by 
multiplying the average per diem private room charge differential 
determined in paragraph (c)(1) of this section by the ratio determined 
in paragraph (c)(2) of this section.
    (d) Criteria for identifying intensive care type units. For purposes 
of determining costs under this section, a unit will be identified as an 
intensive care type inpatient hospital unit only if the unit--
    (1) Is in a hospital;
    (2) Is physically and identifiably separate from general routine 
patient care areas, including subintensive or intermediate care units, 
and ancillary service areas. There cannot be a concurrent sharing of 
nursing staff between an intensive care type unit and units or areas 
furnishing different levels or types of care. However, two or more 
intensive care type units that concurrently share nursing staff can be 
reimbursed as one combined intensive care type unit if all other 
criteria are met. Float nurses (nurses who work in different units on an 
as-needed basis) can be utilized in the intensive care type unit. If a 
float nurse works in two different units during the same eight hour 
shift, then the costs must be allocated to the appropriate units 
depending upon the time spent in those units. The hospital must maintain 
adequate records to support the allocation. If such records are not 
available, then the costs must be allocated to the general routine 
services cost areas;
    (3) Has specific written policies that include criteria for 
admission to, and discharge from, the unit;
    (4) Has registered nursing care available on a continuous 24-hour 
basis with at least one registered nurse present in the unit at all 
times;
    (5) Maintains a minimum nurse-patient ratio of one nurse to two 
patients per patient day. Included in the calculation of this nurse-
patient ratio are registered nurses, licensed vocational nurses, 
licensed practical nurses, and nursing assistants who provide patient 
care. Not included are general support personnel such as ward clerks, 
custodians, and housekeeping personnel; and
    (6) Is equipped, or has available for immediate use, life-saving 
equipment necessary to treat the critically ill patients for which it is 
designed. This equipment may include, but is not limited to, respiratory 
and cardiac monitoring equipment, respirators, cardiac defibrillators, 
and wall or canister oxygen and compressed air.
    (e) Application--(1) Departmental method; Cost reporting periods 
beginning on or after October 1, 1982.
    (i) The following example illustrates how costs would be determined, 
using only inpatient data, for cost reporting periods beginning on or 
after October 1, 1982, based on apportionment of--
    (A) The average cost per diem for general routine services (subject 
to the private room differential provisions of paragraph (a)(1)(iii) of 
this section);
    (B) The average cost per diem for each intensive care type unit;
    (C) The ratio of beneficiary charges to total charges applied to 
cost by department.

[[Page 411]]



                                                   Hospital Y
----------------------------------------------------------------------------------------------------------------
                                                                             Ratio of
                                                 Charges to                beneficiary                 Cost of
                  Department                      program        Total      charges to   Total cost  beneficiary
                                               beneficiaries    charges       total                    services
                                                                             charges
----------------------------------------------------------------------------------------------------------------
                                                                            Percent
 
                                              ------------------------------------------------------------------
Operating rooms..............................       $20,000       $70,000      28\4/7\      $77,000      $22,000
Delivery rooms...............................             0        12,000            0       30,000            0
Pharmacy.....................................        20,000        60,000      33\1/3\       45,000       15,000
X-ray........................................        24,000       100,000           24       75,000       18,000
Laboratory...................................        40,000       140,000      28\4/7\       98,000       28,000
Others.......................................         6,000        30,000           20       25,000        5,000
                                              ------------------------------------------------------------------
      Total..................................       110,000       412,000  ...........      350,000       88,000
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                    Total                    Average     Program in    Cost of
                                                  inpatient    Total cost    cost per     patient    beneficiary
                                                     days                      diem         days       services
----------------------------------------------------------------------------------------------------------------
General routine................................       30,000     $630,000          $21        8,000     $168,000
Coronary care unit.............................          500       20,000           40          200        8,000
Intensive care unit............................        3,000      108,000           36        1,000       36,000
                                                ----------------------------------------------------------------
                                                      33,500      758,000  ...........        9,200      212,000
                                                ----------------------------------------------------------------
      Total....................................  ...........  ...........  ...........  ...........      300,000
----------------------------------------------------------------------------------------------------------------

    (ii) The following illustrates how apportionment based on an average 
cost per diem for general routine services is determined.

                                                   Hospital E
----------------------------------------------------------------------------------------------------------------
                                                                       Private        Semi-private
                              Facts                                accommodations    accommodations      Total
----------------------------------------------------------------------------------------------------------------
Total charges...................................................           $20,000          $175,000    $195,000
Total days......................................................               100             1,000       1,100
Programs days...................................................                70               400         470
Medically necessary for program beneficiaries...................                20  ................          20
    Total general routine service costs.........................  ................  ................    165,000
Average private room per diem charge ($20,000 private room charges  100 days)...............    \1\ $200
Average semi-private room per diem charge ($175,000 semi-private charge  1,000 days)........   \1\ $175
----------------------------------------------------------------------------------------------------------------
\1\ Per diem.
    Average per diem private room cost differential.
1. Average per diem private room charge differential ($200 private room per diem--$175, semi-private room per
  diem), $25.
2. Inpatient general routine cost/charge ratio ($165,000 total costs  $195,000 total charges),
  0.8461538.
3. Average per diem private room cost differential ($25 charge differential  x  .8461538 cost/charge ratio),
  $21.15.
    Average cost per diem for inpatient general routine services.
4. Total private room cost differential ($21.15 average per diem cost differential  x  100 private room days),
  $2,115.
5. Total inpatient general routine service costs net of private room cost differential ($165,000 total routine
  cost -$2,115 private room cost differential), $162,885.
6. Average cost per diem for inpatient general routine services ($162,885 routine cost net of private room cost
  differential  1,100 patient days), $148.08.
    Medicare general routine service cost.
7. Total routine per diem cost applicable to Medicare ($148.08 average cost per diem  x  470 Medicare private
  and semi-private patient days), $69,598.
8. Total private room cost differential applicable to Medicare ($21.15 average per diem private room cost
  differential  x  20 medically necessary private room days), $423.
9. Medicare inpatient general routine service cost ($423 Medicare private room cost differential + $69,598
  Medicare cost of general routine inpatient services), $70,021.


[[Page 412]]

    (2) Carve out method. The following illustrates how apportionment is 
determined in a hospital reimbursed under the carve out method (subject 
to the private room differential provisions of paragraph (a)(1)(ii) of 
this section):

                               Hospital K
  [Determination of cost of routine SNF-type and ICF-type services and
                  general routine hospital services\1\]
------------------------------------------------------------------------
                                                   Days of care
                                        --------------------------------
                 Facts                    General
                                          routine    SNF-type   ICF-type
                                          hospital
------------------------------------------------------------------------
Total days of care.....................      2,000        400        100
Medicare days of care..................        600        300  .........
Average Medicaid rate..................        N/A        $35        $20
  Total inpatient general routine service costs: $250,000...............
------------------------------------------------------------------------


 
 
 
Calculation of cost of routine SNF-type services applicable to Medicare:
      $35  x  300 = $10,500
Calculation of cost of general routine hospital services:
    Cost of SNF-type services: $35  x  400..................     $14,000
    Cost of ICF-type services: $20  x  100..................       2,000
 
                                                             -----------
      Total.................................................     $16,000
Average cost per diem of general routine hospital services:
  $250,000 -- $16,000  2,000 days = $117
Medicare general routine hospital cost:
    $117  x  600 = $70,200
Total Medicare reasonable cost for general routine inpatient days:
      $10,500 + $70,200 = $80,700
 


[51 FR 34793, Sept. 30, 1986, as amended at 59 FR 45401, Sept. 1, 1994; 
61 FR 51616, Oct. 3, 1996; 61 FR 58631, Nov. 18, 1996]



Sec. 413.56  [Reserved]



                    Subpart E--Payments to Providers



Sec. 413.60  Payments to providers: General.

    (a) The fiscal intermediaries will establish a basis for interim 
payments to each provider. This may be done by one of several methods. 
If an intermediary is already paying the provider on a cost basis, the 
intermediary may adjust its rate of payment to an estimate of the result 
under the Medicare principles of reimbursement. If no organization is 
paying the provider on a cost basis, the intermediary may obtain the 
previous year's financial statement from the provider and, by applying 
the principles of reimbursement, compute or approximate an appropriate 
rate of payment. The interim payment may be related to the last year's 
average per diem, or to charges, or to any other ready basis of 
approximating costs.
    (b) At the end of the period, the actual apportionment, based on the 
cost finding and apportionment methods selected by the provider, 
determines the Medicare reimbursement for the actual services provided 
to beneficiaries during the period.
    (c) Basically, therefore, interim payments to providers will be made 
for services throughout the year, with final settlement on a retroactive 
basis at the end of the accounting period. Interim payments will be made 
as often as possible and in no event less frequently than once a month. 
The retroactive payments will take fully into account the costs that 
were actually incurred and settle on an actual, rather than on an 
estimated basis.



Sec. 413.64  Payments to providers: Specific rules.

    (a) Reimbursement on a reasonable cost basis. Providers of services 
paid on the basis of the reasonable cost of services furnished to 
beneficiaries will receive interim payments approximating the actual 
costs of the provider. These payments will be made on the most 
expeditious schedule administratively feasible but not less often than 
monthly. A retroactive adjustment based on actual costs will be made at 
the end of a reporting period.
    (b) Amount and frequency of payment. Medicare states that providers 
of services will be paid the reasonable cost of services furnished to 
beneficiaries. Since actual costs of services cannot be determined until 
the end of the accounting period, the providers must be paid on an 
estimated cost basis during the year. While Medicare provides that 
interim payments will be made no less often than monthly, intermediaries 
are expected to make payments on the most expeditious basis 
administratively feasible. Whatever estimated cost basis is used for 
determining interim payments during the year, the intent is that the 
interim payments shall approximate actual costs as nearly as is 
practicable so that the retroactive adjustment based on actual costs 
will be as small as possible.

[[Page 413]]

    (c) Interim payments during initial reporting period. At the 
beginning of the program or when a provider first participates in the 
program, it will be necessary to establish interim rates of payment to 
providers of services. Once a provider has filed a cost report under the 
Medicare program, the cost report may be used as a basis for determining 
the interim rate of reimbursement for the following period. However, 
since initially there is no previous history of cost under the program, 
the interim rate of payment must be determined by other methods, 
including the following:
    (1) If the intermediary is already paying the provider on a cost or 
cost-related basis, the intermediary will adjust its rate of payment to 
the program's principles of reimbursement. This rate may be either an 
amount per inpatient day, or a percent of the provider's charges for 
services furnished to the program's beneficiaries.
    (2) If an organization other than the intermediary is paying the 
provider for services on a cost or cost-related basis, the intermediary 
may obtain from that organization or from the provider itself the rate 
of payment being used and other cost information as may be needed to 
adjust that rate of payment to give recognition to the program's 
principles of reimbursement.
    (3) It no organization is paying the provider on a cost or cost-
related basis, the intermediary will obtain the previous year's 
financial statement from the provider. By analysis of such statement in 
light of the principles of reimbursement, the intermediary will compute 
an appropriate rate of payment.
    (4) After the initial interim rate has been set, the provider may at 
any time request, and be allowed, an appropriate increase in the 
computed rate, upon presentation of satisfactory evidence to the 
intermediary that costs have increased. Likewise, the intermediary may 
adjust the interim rate of payment if it has evidence that actual costs 
may fall significantly below the computed rate.
    (d) Interim payments for new providers. (1) Newly-established 
providers will not have cost experience on which to base a determination 
of an interim rate of payment. In such cases, the intermediary will use 
the following methods to determine an appropriate rate:
    (i) If there is a provider or providers comparable in substantially 
all relevant factors to the provider for which the rate is needed, the 
intermediary will base an interim rate of payment on the costs of the 
comparable provider.
    (ii) If there are no substantially comparable providers from whom 
data are available, the intermediary will determine an interim rate of 
payment based on the budgeted or projected costs of the provider.
    (2) Under either method, the intermediary will review the provider's 
cost experience after a period of three months. If need for an 
adjustment is indicated, the interim rate of payment will be adjusted in 
line with the provider's cost experience.
    (e) Interim payments after initial reporting period. Interim rates 
of payment for services provided after the initial reporting period will 
be established on the basis of the cost report filed for the previous 
year covering Medicare services. The current rate will be determined--
whether on a per diem or percentage of charges basis--using the previous 
year's costs of covered services and making any appropriate adjustments 
required to bring, as closely as possible, the current year's rate of 
interim payment into agreement with current year's costs. This interim 
rate of payment may be adjusted by the intermediary during an accounting 
period if the provider submits appropriate evidence that its actual 
costs are or will be significantly higher than the computed rate. 
Likewise, the intermediary may adjust the interim rate of payment if it 
has evidence that actual costs may fall significantly below the computed 
rate.
    (f) Retroactive adjustment. (1) Medicare provides that providers of 
services will be paid amounts determined to be due, but not less often 
than monthly, with necessary adjustments due to previously made 
overpayments or underpayments. Interim payments are made on the basis of 
estimated costs. Actual costs reimbursable to a provider cannot be 
determined until the cost reports are filed and costs are verified. 
Therefore, a retroactive adjustment

[[Page 414]]

will be made at the end of the reporting period to bring the interim 
payments made to the provider during the period into agreement with the 
reimbursable amount payable to the provider for the services furnished 
to program beneficiaries during that period.
    (2) In order to reimburse the provider as quickly as possible, an 
initial retroactive adjustment will be made as soon as the cost report 
is received. For this purpose, the costs will be accepted as reported, 
unless there are obvious errors or inconsistencies, subject to later 
audit. When an audit is made and the final liability of the program is 
determined, a final adjustment will be made.
    (3) To determine the retroactive adjustment, the amount of the 
provider's total allowable cost apportioned to the program for the 
reporting year is computed. This is the total amount of reimbursement 
the provider is due to receive from the program and the beneficiaries 
for covered services furnished during the reporting period. The total of 
the interim payments made by the program in the reporting year and the 
deductibles and coinsurance amounts receivable from beneficiaries is 
computed. The difference between the reimbursement due and the payments 
made is the amount of the retroactive adjustment.
    (g) Accelerated payments to providers. Upon request, an accelerated 
payment may be made to a provider of services that is not receiving 
periodic interim payments under paragraph (h) of this section if the 
provider has experienced financial difficulties due to a delay by the 
intermediary in making payments or in exceptional situations, in which 
the provider has experienced a temporary delay in preparing and 
submitting bills to the intermediary beyond its normal billing cycle. 
Any such payment must be approved first by the intermediary and then by 
HCFA. The amount of the payment is computed as a percentage of the net 
reimbursement for unbilled or unpaid covered services. Recovery of the 
accelerated payment may be made by recoupment as provider bills are 
processed or by direct payment.
    (h) Periodic interim payment method of reimbursement--(1) Covered 
services furnished before July 1, 1987. In addition to the regular 
methods of interim payment on individual provider billings for covered 
services, the periodic interim payment (PIP) method is available for 
Part A hospital and SNF inpatient services and for both Part A and Part 
B HHA services.
    (2) Covered services furnished on or after July 1, 1987. Effective 
with claims received on or after July 1, 1987, the periodic interim 
payment (PIP) method is available for the following:
    (i) Part A inpatient hospital services furnished in hospitals that 
are excluded from the prospective payment systems under subpart B of 
part 412 of this chapter.
    (ii) Part A services furnished in hospitals receiving payment in 
accordance with a demonstration project authorized under section 402(a) 
of Public Law 90-248 (42 U.S.C. 1395b-1) or section 222(a) of Public Law 
92-603 (42 U.S.C. 1395b-1 (note)), or a State reimbursement control 
system approved under section 1886(c) of the Act and subpart C of part 
403 of this chapter, if that type of payment is specifically approved by 
HCFA as an integral part of the demonstration or control system. If that 
type of payment is not an integral part of the demonstration or control 
system, PIP is available for the hospital under paragraph (h)(1)(i) of 
this section for hospitals excluded from the prospective payment systems 
or under Sec. 412.116(b) of this chapter for prospective payment 
hospitals.
    (iii) Part A SNF services.
    (iv) Part A and Part B HHA services.
    (v) Part A services furnished in hospitals paid under the 
prospective payment system, including distinct part psychiatric or 
rehabilitation units, as described in Sec. 412.116(b) of this chapter.
    (vi) Services furnished in a hospice as specified in part 418 of 
this chapter. Payment on a PIP basis is described in Sec. 418.307 of 
this chapter.
    (3) Any participating provider furnishing the services described in 
paragraph (h)(1) of this section that establishes to the satisfaction of 
the intermediary that it meets the following requirements may elect to 
be reimbursed under the PIP method, beginning with the first month after 
its request that

[[Page 415]]

the intermediary finds administratively feasible:
    (i) The provider's estimated total Medicare reimbursement for 
inpatient services is at least $25,000 a year computed under the PIP 
formula or, in the case of an HHA, either its estimated--
    (A) Total Medicare reimbursement for Part A and Part B services is 
at least $25,000 a year computed under the PIP formula; or
    (B) Medicare reimbursement computed under the PIP formula is at 
least 50 percent of estimated total allowable cost.
    (ii) The provider has filed at least one completed Medicare cost 
report accepted by the intermediary as providing an accurate basis for 
computation of program payment (except in the case of a provider 
requesting reimbursement under the PIP method upon first entering the 
Medicare program).
    (iii) The provider has the continuing capability of maintaining in 
its records the cost, charge, and statistical data needed to accurately 
complete a Medicare cost report on a timely basis.
    (iv) The provider has repaid or agrees to repay any outstanding 
current financing payment in full, such payment to be made before the 
effective date of its requested conversion from a regular interim 
payment method to the PIP method.
    (4) No conversion to the PIP method may be made with respect to any 
provider until after that provider has repaid in full its outstanding 
current financing payment.
    (5) The intermediary's approval of a provider's request for 
reimbursement under the PIP method will be conditioned upon the 
intermediary's best judgment as to whether payment can be made to the 
provider under the PIP method without undue risk of its resulting in an 
overpayment because of greatly varying or substantially declining 
Medicare utilization, inadequate billing practices, or other 
circumstances. The intermediary may terminate PIP reimbursement to a 
provider at any time it determines that the provider no longer meets the 
qualifying requirements or that the provider's experience under the PIP 
method shows that proper payment cannot be made under this method.
    (6) Payment will be made biweekly under the PIP method unless the 
provider requests a longer fixed interval (not to exceed one month) 
between payments. The payment amount will be computed by the 
intermediary to approximate, on the average, the cost of covered 
inpatient or home health services furnished by the provider during the 
period for which the payment is to be made, and each payment will be 
made two weeks after the end of such period of services. Upon request, 
the intermediary will, if feasible, compute the provider's payments to 
recognize significant seasonal variation in Medicare utilization of 
services on a quarterly basis starting with the beginning of the 
provider's reporting year.
    (7) A provider's PIP amount may be appropriately adjusted at any 
time if the provider presents or the intermediary otherwise obtains 
evidence relating to the provider's costs or Medicare utilization that 
warrants such adjustment. In addition, the intermediary will recompute 
the payment immediately upon completion of the desk review of a 
provider's cost report and also at regular intervals not less often than 
quarterly. The intermediary may make a retroactive lump sum interim 
payment to a provider, based upon an increase in its PIP amount, in 
order to bring past interim payments for the provider's current cost 
reporting period into line with the adjusted payment amount. The 
objective of intermediary monitoring of provider costs and utilization 
is to assure payments approximating, as closely as possible, the 
reimbursement to be determined at settlement for the cost reporting 
period. A significant factor in evaluating the amount of the payment in 
terms of the realization of the projected Medicare utilization of 
services is the timely submittal to the intermediary of completed 
admission and billing forms. All providers must complete billings in 
detail under this method as under regular interim payment procedures.
    (i) Bankruptcy or insolvency of provider. If on the basis of 
reliable evidence, the intermediary has a valid basis for believing 
that, with respect to a provider, proceedings have been or will shortly 
be instituted in a State or

[[Page 416]]

Federal court for purposes of determining whether such provider is 
insolvent or bankrupt under an appropriate State or Federal law, any 
payments to the provider will be adjusted by the intermediary, 
notwithstanding any other regulation or program instruction regarding 
the timing or manner of such adjustments, to a level necessary to insure 
that no overpayment to the provider is made.
    (j) Interest payments resulting from judicial review--(1) 
Application. If a provider of services seeks judicial review by a 
Federal court (see Sec. 405.1877 of this chapter) of a decision 
furnished by the Provider Reimbursement Review Board or subsequent 
reversal, affirmation, or modification by the Secretary, the amount of 
any award of such Federal court will be increased by interest payable by 
the party against whom the judgment is made (see Sec. 413.153 for 
treatment of interest). The interest is payable for the period beginning 
on the first day of the first month following the 180-day period which 
began on either the date the intermediary made a final determination or 
the date the intermediary would have made a final determination had it 
been done on a timely basis (see Secs. 405.1835(b) and 405.1841(a) of 
this chapter).
    (2) Amount due. Section 1878(f) of the Act, 42 U.S.C. 1395oo(f), 
authorizes a court to award interest in favor of the prevailing party on 
any amount due as a result of the court's decision. If the intermediary 
withheld any portion of the amount in controversy prior to the date the 
provider seeks judicial review by a Federal court, and the Medicare 
program is the prevailing party, interest is payable by the provider 
only on the amount not withheld. Similarly, if the Medicare program 
seeks to recover amounts previously paid to a provider, and the provider 
is the prevailing party, interest on the amounts previously paid to a 
provider is not payable by the Medicare program since that amount had 
been paid and is not due the provider.
    (3) Rate. The amount of interest to be paid is equal to the rate of 
return on equity capital (see Sec. 413.157) in effect for the month in 
which the civil action is commenced.

    Example: An intermediary made a final determinaton on the amount of 
Medicare program reimbursement on June 15, 1974, and the provider 
appealed that determination to the Provider Reimbursement Review Board. 
The Board heard the appeal and rendered a decision adverse to the 
provider. On October 28, 1974, the provider commenced civil action to 
have such decision reviewed. The rate of return on equity capital for 
the month of October 1974 was 11.625 percent. The period for which 
interest is computed begins on January 1, 1975, and the interest 
beginning January 1, 1975, would be at the rate of 11.625 percent per 
annum.

[51 FR 34793, Sept. 30, 1986, as amended at 51 FR 42238, Nov. 24, 1986; 
53 FR 1628, Jan. 21, 1988; 57 FR 39830, Sept. 1, 1992; 59 FR 36713, July 
19, 1994]



Sec. 413.70  Payment for services of a CAH.

    (a) Except as provided in paragraph (b) of this section, payment for 
inpatient and outpatient services of a CAH is the reasonable costs of 
the CAH in providing such services, as determined in accordance with 
section 1861(v)(1)(A) of the Act and the applicable principles of cost 
reimbursement in this part and in part 415 of this chapter.
    (b) The following payment principles are excluded when determining 
payment for CAH inpatient and outpatient services:
    (1) For inpatient services--
    (i) Lesser of cost or charges;
    (ii) Ceilings on hospital operating costs; and
    (iii) Reasonable compensation equivalent (RCE) limits for physician 
services to providers;
    (2) For outpatient services--
    (i) Lesser of costs or charges;
    (ii) RCE limits;
    (iii) Any type of reduction to operating or capital costs under 
Sec. 413.124 or Sec. 413.130(j)(7) of this part;
    (iv) Blended payment amounts for ASC, radiology, and other 
diagnostic services; and
    (v) Clinical laboratory fee schedule.

[63 FR 26358, May 12, 1998]



Sec. 413.74  Payment to a foreign hospital.

    (a) Principle. Section 1814(f) of the Act provides for the payment 
of emergency and nonemergency inpatient hospital services furnished by 
foreign hospitals to Medicare beneficiaries.

[[Page 417]]

Subpart H of part 424 of this chapter, together with this section, 
specify the conditions for payment. These conditions may result in 
payments only to Canadian and Mexican hospitals.
    (b) Amount of payment. Effective with admissions on or after January 
1, 1980, the reasonable cost for services covered under the Medicare 
program furnished to beneficiaries by a foreign hospital will be equal 
to 100 percent of the hospital's customary charges (as defined in 
Sec. 413.13(b)) for the services.
    (c) Submittal of claims. The hospital must establish its customary 
charges for the services by submitting an itemized bill with each claim 
it files in accordance with its election under Sec. 424.104 of this 
chapter.
    (d) Exchange rate. Payment to the hospital will be subject to the 
official exchange rate on the date the patient is discharged and to the 
applicable deductible and coinsurance amounts described in Secs. 409.80 
through 409.83.

[51 FR 34793, Sept. 30, 1986, as amended at 51 FR 41351, Nov. 14, 1986; 
53 FR 6648, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



                 Subpart F--Specific Categories of Costs



Sec. 413.80  Bad debts, charity, and courtesy allowances.

    (a) Principle. Bad debts, charity, and courtesy allowances are 
deductions from revenue and are not to be included in allowable cost; 
however, except for anesthetists' services described under paragraph (h) 
of this section, bad debts attributable to the deductibles and 
coinsurance amounts are reimbursable under the program.
    (b) Definitions--(1) Bad debts. Bad debts are amounts considered to 
be uncollectible from accounts and notes receivable that were created or 
acquired in providing services. ``Accounts receivable'' and ``notes 
receivable'' are designations for claims arising from the furnishing of 
services, and are collectible in money in the relatively near future.
    (2) Charity allowances. Charity allowances are reductions in charges 
made by the provider of services because of the indigence or medical 
indigence of the patient. Cost of free care (uncompensated services) 
furnished under a Hill-Burton obligation are considered as charity 
allowances.
    (3) Courtesy allowances. Courtesy allowances indicate a reduction in 
charges in the form of an allowance to physicians, clergy, members of 
religious orders, and others as approved by the governing body of the 
provider, for services received from the provider. Employee fringe 
benefits, such as hospitalization and personnel health programs, are not 
considered to be courtesy allowances.
    (c) Normal accounting treatment: Reduction in revenue. Bad debts, 
charity, and courtesy allowances represent reductions in revenue. The 
failure to collect charges for services furnished does not add to the 
cost of providing the services. Such costs have already been incurred in 
the production of the services.
    (d) Requirements for Medicare. Under Medicare, costs of covered 
services furnished beneficiaries are not to be borne by individuals not 
covered by the Medicare program, and conversely, costs of services 
provided for other than beneficiaries are not to be borne by the 
Medicare program. Uncollected revenue related to services furnished to 
beneficiaries of the program generally means the provider has not 
recovered the cost of services covered by that revenue. The failure of 
beneficiaries to pay the deductible and coinsurance amounts could result 
in the related costs of covered services being borne by other than 
Medicare beneficiaries. To assure that such covered service costs are 
not borne by others, the costs attributable to the deductible and 
coinsurance amounts that remain unpaid are added to the Medicare share 
of allowable costs. Bad debts arising from other sources are not 
allowable costs.
    (e) Criteria for allowable bad debt. A bad debt must meet the 
following criteria to be allowable:
    (1) The debt must be related to covered services and derived from 
deductible and coinsurance amounts.
    (2) The provider must be able to establish that reasonable 
collection efforts were made.
    (3) The debt was actually uncollectible when claimed as worthless.

[[Page 418]]

    (4) Sound business judgment established that there was no likelihood 
of recovery at any time in the future.
    (f) Charging of bad debts and bad debt recoveries. The amounts 
uncollectible from specific beneficiaries are to be charged off as bad 
debts in the accounting period in which the accounts are deemed to be 
worthless. In some cases an amount previously written off as a bad debt 
and allocated to the program may be recovered in a subsequent accounting 
period; in such cases the income therefrom must be used to reduce the 
cost of beneficiary services for the period in which the collection is 
made.
    (g) Charity allowances. Charity allowances have no relationship to 
beneficiaries of the Medicare program and are not allowable costs. These 
charity allowances include the costs of uncompensated services furnished 
under a Hill-Burton obligation. (Note: In accordance with section 106(b) 
of Pub. L. 97-248 (enacted September 3, 1982), this sentence is 
effective with respect to any costs incurred under Medicare except that 
it does not apply to costs which have been allowed prior to September 3, 
1982, pursuant to a final court order affirmed by a United States Court 
of Appeals.) The cost to the provider of employee fringe-benefit 
programs is an allowable element of reimbursement.
    (h) Limitations on bad debts. In determining reasonable costs for 
hospitals, the amount of bad debts otherwise treated as allowable costs 
(as defined in paragraph (e) of this section) is reduced--
    (1) For cost reporting periods beginning during fiscal year 1998, by 
25 percent;
    (2) For cost reporting periods beginning during fiscal year 1999, by 
40 percent; and
    (3) For cost reporting periods beginning during a subsequent fiscal 
year, by 45 percent.
    (i) Exception. Bad debts arising from services for anesthetists paid 
under a fee schedule are not reimbursable under the program.

[51 FR 34793, Sept. 30, 1986, as amended at 57 FR 33898, July 31, 1992; 
60 FR 63189, Dec. 8, 1995; 63 FR 41005, July 31, 1998]



Sec. 413.85  Cost of educational activities.

    (a) Payment--(1) General rule. Except as provided in paragraph 
(a)(2) of this section, a provider's allowable cost may include its net 
cost of approved educational activities, as calculated under paragraph 
(g) of this section. The net cost is subject to apportionment based on 
Medicare utilization as described in Sec. 413.50.
    (2) Exception. For cost reporting periods beginning on or after July 
1, 1985, payment to hospitals and hospital-based providers for approved 
residency programs in medicine, osteopathy, dentistry, and podiatry is 
determined as provided in Sec. 413.86.
    (b) Definition--Approved educational activities. Approved 
educational activities means formally organized or planned programs of 
study usually engaged in by providers in order to enhance the quality of 
patient care in an institution. These activities must be licensed if 
required by State law. If licensing is not required, the institution 
must receive approval from the recognized national professional 
organization for the particular activity.
    (c) Educational activities. Many providers engage in educational 
activities including training programs for nurses, medical students, 
interns and residents, and various paramedical specialties. These 
programs contribute to the quality of patient care within an institution 
and are necessary to meet the community's needs for medical and 
paramedical personnel. It is recognized that the costs of such 
educational activities should be borne by the community. However, many 
communities have not assumed responsibility for financing these programs 
and it is necessary that support be provided by those purchasing health 
care. Until communities undertake to bear these costs, the program will 
participate appropriately in the support of these activities. Although 
the intent of the program is to share in the support of educational 
activities customarily or traditionally carried on by providers in 
conjunction with their operations, it is not intended that this program 
should participate in increased costs resulting from redistribution of 
costs from educational institutions or units to patient care 
institutions or units.

[[Page 419]]

    (d) Activities not within the scope of this principle. The costs of 
the following activities are not within the scope of this principle but 
are recognized as normal operating costs and are reimbursed in 
accordance with applicable principles--
    (1) Orientation and on-the-job training;
    (2) Part-time education for bona fide employees at properly 
accredited academic or technical institutions (including other 
providers) devoted to undergraduate or graduate work;
    (3) Costs, including associated travel expense, or sending employees 
to educational seminars and workshops that increase the quality of 
medical care or operating efficiency of the provider;
    (4) Maintenance of a medical library;
    (5) Training of a patient or patient's family in the use of medical 
appliances;
    (6) Clinical training of students not enrolled in an approved 
education program operated by the provider; and
    (7) Other activities that do not involve the actual operation of an 
approved education program including the costs of interns and residents 
in anesthesiology who are employed to replace anesthetists.
    (e) Approved programs. Recognized professional and paramedical 
educational training programs now being conducted by provider 
institutions, and their approving bodies, include the following:

(1) Cyto-technology...................  Committee on Allied Health,
                                         Education, and Accreditation in
                                         collaboration with the Board of
                                         Schools of Medical Technology,
                                         American Society of Clinical
                                         Pathologists.
(2) Dietetic internships..............  The American Dietetic
                                         Association.
(3) Hospital administration             Accrediting Commission on
 residencies.                            Education in Health Services
                                         Administration.
(4) Inhalation therapy................  Committee on Allied Health,
                                         Education, and Accreditation in
                                         collaboration with the Board of
                                         Schools of Inhalation Therapy.
(5) Medical records...................  Committee on Allied Health,
                                         Education, and Accreditation in
                                         collaboration with the
                                         Committee on Education and
                                         Registration of the American
                                         Association of Medical Records
                                         Librarians.
(6) Medical technology................  Committee on Allied Health,
                                         Education, and Accreditation in
                                         collaboration with the Board of
                                         Schools of Medical Technology,
                                         American Society of Clinical
                                         Pathologists.
(7) Nurse anesthetists................  The American Association of
                                         Nurse Anesthetists.
(8) Professional nursing..............  Approved by the respective State
                                         approving authorities. Reported
                                         for the United States by the
                                         National League for Nursing.
(9) Practical nursing.................  Approved by the respective State
                                         approving authorities. Reported
                                         for the United States by the
                                         National League for Nursing.
(10) Occupa- tional Therapy...........  Committee on Allied Health,
                                         Education, and Accreditation in
                                         collaboration with the Council
                                         on Education of the American
                                         Occupational Therapy
                                         Association.
(11) Pharmacy residencies.............  American Society of Hospital
                                         Pharmacists.
(12) Physical therapy.................  Committee on Allied Health,
                                         Education, and Accreditation in
                                         collaboration with the American
                                         Physical Therapy Association.
(13) X-ray technology.................  Committee on Allied Health,
                                         Education, and Accreditation in
                                         collaboration with the American
                                         College of Radiology.
 

    (f) Other educational programs. There may also be other educational 
programs not included in the foregoing in which a provider institution 
is engaged. Appropriate consideration will be given by the intermediary 
and HCFA to the costs incurred for those activities that come within the 
purview of the principle when determining the allowable costs for 
apportionment under the Medicare program.

[[Page 420]]

    (g) Calculating net cost. Net costs of approved educational 
activities are determined by deducting, from a provider's total costs of 
these activities, revenues it receives from tuition. For this purpose, a 
provider's total costs include trainee stipends, compensation of 
teachers, and other direct and indirect costs of the activities as 
determined under the Medicare cost-finding principles in Sec. 413.24.
    (h) Medicare+Choice organizations. (1) Effective January 1, 1999, 
Medicare+Choice organizations may receive direct graduate medical 
education payments for the time that residents spend in nonhospital 
provider settings such as freestanding clinics, nursing homes, and 
physicians' offices in connection with approved programs.
    (2) Medicare+Choice organizations may receive direct graduate 
medical education payments if all of the following conditions are met:
    (i) The resident spends his or her time in patient care activities.
    (ii) The Medicare+Choice organization incurs ``all or substantially 
all'' of the costs for the training program in the nonhospital setting 
as defined in Sec. 413.86(b).
    (iii) There is a written agreement between the Medicare+Choice 
organization and the nonhospital site that indicates the Medicare+Choice 
organization will incur the costs of the resident's salary and fringe 
benefits and provide reasonable compensation to the nonhospital site for 
teaching activities.
    (3) A Medicare+Choice organization's allowable direct graduate 
medical education costs, subject to the redistribution and community 
support principles in Sec. 413.85(c), consist of--
    (i) Residents' salaries and fringe benefits (including travel and 
lodging where applicable); and
    (ii) Reasonable compensation to the nonhospital site for teaching 
activities related to the training of medical residents.
    (4) The direct graduate medical education payment is equal to the 
product of--
    (i) The lower of--
    (A) The Medicare+Choice organization's allowable direct graduate 
medical education costs per resident as defined in paragraph (h)(3) of 
this section; or
    (B) The national average per resident amount; and
    (ii) Medicare's share, which is equal to the ratio of the number of 
Medicare beneficiaries enrolled to the total number of individuals 
enrolled in the Medicare+Choice organization.
    (5) Direct graduate medical education payments made to 
Medicare+Choice organizations under this section are made from the 
Federal Supplementary Medical Insurance Trust Fund.

[51 FR 34793, Sept. 30, 1986, as amended at 54 FR 40315, Sept. 29, 1989; 
63 FR 41005, July 31, 1998]



Sec. 413.86  Direct graduate medical education payments.

    (a) Statutory basis and scope--(1) Basis. This section implements 
section 1886(h) of the Act by establishing the methodology for Medicare 
payment of the cost of direct graduate medical educational activities.
    (2) Scope. This section applies to Medicare payments to hospitals 
and hospital-based providers for the costs of approved residency 
programs in medicine, osteopathy, dentistry, and podiatry for cost 
reporting periods beginning on or after July 1, 1985.
    (b) Definitions. For purposes of this section, the following 
definitions apply:
    Affiliated group means--
    (1) Two or more hospitals located in the same urban or rural area 
(as those terms are defined in Sec. 412.62(f) of this subchapter) or in 
contiguous areas if individual residents work at each of the hospitals 
during the course of the program; or
    (2) If the hospitals are not located in the same or a contiguous 
urban or rural area, the hospitals are jointly listed--
    (i) As the sponsor, primary clinical site or major participating 
institution for one or more of the programs as these terms are used in 
Graduate Medical Education Directory, 1997-1998; or
    (ii) As the sponsor or under ``affiliations and outside rotations'' 
for one or more programs in operation in Opportunities, Directory of 
Osteopathic Postdoctoral Education Programs.

[[Page 421]]

    (3) The hospitals are under common ownership.
    All or substantially all of the costs for the training program in 
the nonhospital setting means the residents' salaries and fringe 
benefits (including travel and lodging where applicable) and the portion 
of the cost of teaching physicians' salaries and fringe benefits 
attributable to direct graduate medical education.
    Approved geriatric program means a fellowship program of one or more 
years in length that is approved by the Accreditation Council for 
Graduate Medical Education (ACGME) under the ACGME's criteria for 
geriatric fellowship programs.
    Approved medical residency program means a program that meets one of 
the following criteria:
    (1) Is approved by one of the national organizations listed in 
Sec. 415.200(a) of this chapter.
    (2) May count towards certification of the participant in a 
specialty or subspecialty listed in the current edition of either of the 
following publications:
    (i) The Directory of Graduate Medical Education Programs published 
by the American Medical Association, and available from American Medical 
Association, Department of Directories and Publications, 515 North State 
Street, Chicago, Illinois 60610; or
    (ii) The Annual Report and Reference Handbook published by the 
American Board of Medical Specialties, and available from American Board 
of Medical Specialties, One Rotary Center, suite 805, Evanston, Illinois 
60201.
    (3) Is approved by the Accreditation Council For Graduate Medical 
Education (ACGME) as a fellowship program in geriatric medicine.
    (4) Is a program that would be accredited except for the accrediting 
agency's reliance upon an accreditation standard that requires an entity 
to perform an induced abortion or require, provide, or refer for 
training in the performance of induced abortions, or make arrangements 
for such training, regardless of whether the standard provides 
exceptions or exemptions.
    Base period means a cost reporting period that began on or after 
October 1, 1983 but before October 1, 1984.
    CPI--U stands for the Consumer Price Index for All Urban Consumers 
as compiled by the Bureau of Labor Statistics.
    Foreign medical graduate means a resident who is not a graduate of a 
medical, osteopathy, dental, or podiatry school, respectively, 
accredited or approved as meeting the standards necessary for 
accreditation by one of the following organizations:
    (1) The Liaison Committee on Medical Education of the American 
Medical Association.
    (2) The American Osteopathic Association.
    (3) The Commission on Dental Accreditation.
    (4) The Council on Podiatric Medical Education.
    FMGEMS stands for the Foreign Medical Graduate Examination in the 
Medical Sciences (Part I and Part II).
    FTE stands for full-time equivalent.
    Medicare patient load means, with respect to a hospital's cost 
reporting period, the total number of hospital inpatient days during the 
cost reporting period that are attributable to patients for whom payment 
is made under Medicare Part A divided by total hospital inpatient days. 
In calculating inpatient days, inpatient days in any distinct part of 
the hospital furnishing a hospital level of care are included and 
nursery days are excluded.
    Primary care resident is a resident enrolled in an approved medical 
residency training program in family medicine, general internal 
medicine, general pediatrics, preventive medicine, geriatric medicine or 
osteopathic general practice.
    Resident means an intern, resident, or fellow who participates in an 
approved medical residency program, including programs in osteopathy, 
dentistry, and podiatry, as required in order to become certified by the 
appropriate specialty board.
    (c) Payment for graduate medical education costs--General rule. 
Beginning with cost reporting periods starting on or after July 1, 1985, 
hospitals, including hospital-based providers, are paid for the costs of 
approved graduate medical education programs as described in paragraph 
(d) through (h) of this section.

[[Page 422]]

    (d) Calculating payment for graduate medical education costs. A 
hospital's Medicare payment for the costs of an approved residency 
program is calculated as follows:
    (1) Step one. The hospital's updated per resident amount (as 
determined under paragraph (e) of this section) is multipled by the 
actual number of FTE residents (as determined under paragraph (g) of 
this section). This result is the aggregate approved amount for the cost 
reporting period.
    (2) Step two. The product derived in step one is multipled by the 
hospital's Medicare patient load.
    (3) Step three. For portions of cost reporting periods beginning on 
or after January 1, 1998, the product derived in step one is multiplied 
by the proportion of the hospital's inpatient days attributable to 
individuals who are enrolled under a risk-sharing contract with an 
eligible organization under section 1876 of the Act and who are entitled 
to Medicare Part A or with a Medicare+Choice organization under Title 
XVIII, Part C of the Act. This amount is multiplied by an applicable 
payment percentage equal to--
    (i) 20 percent for 1998;
    (ii) 40 percent for 1999;
    (iii) 60 percent in 2000;
    (iv) 80 percent in 2001; and
    (v) 100 percent in 2002 and subsequent years.
    (4) Step four. Add the results of steps 2 and 3.
    (5) Step five. The product derived in step two is apportioned 
between Part A and Part B of Medicare based on the ratio of Medicare's 
share of reasonable costs excluding graduate medical education costs 
attributable to each part as determined through the Medicare cost 
report.
    (e) Determining per resident amounts for the base period--(1) For 
the base period. (i) Except as provided in paragraph (e)(4) of this 
section, the intermediary determines a base-period per resident amount 
for each hospital as follows:
    (A) Determine the allowable graduate medical education costs for the 
cost reporting period beginning on or after October 1, 1983 but before 
October 1, 1984. In determining these costs, graduate medical education 
costs allocated to the nursery cost center, research and other 
nonreimbursable cost centers, and hospital-based providers that are not 
participating in Medicare are excluded and graduate medical education 
costs allocated to distinct-part hospital units and hospital-based 
providers that participate in Medicare are included.
    (B) Divide the costs calculated in paragraph (e)(1)(i)(A) of this 
section by the average number of FTE residents working in all areas of 
the hospital complex (including those areas whose costs were excluded 
under paragraph (e)(1)(i)(A) of this section) for its cost reporting 
period beginning on or after October 1, 1983 but before October 1, 1984.
    (ii) In determining the base-period per resident amount under 
paragraph (e)(1)(i) of this section, the intermediary--
    (A) Verifies the hospital's base-period graduate medical education 
costs and the hospital's average number of FTE residents;
    (B) Excludes from the base-period graduate medical education costs 
any nonallowable or misclassified costs, including those previously 
allowed under Sec. 412.113(b)(3) of this chapter; and
    (C) Upon a hospital's request, includes graduate medical education 
costs that were misclassified as operating costs during the hospital's 
prospective payment base year and were not allowable under 
Sec. 412.113(b)(3) of this chapter during the graduate medical education 
base period. These costs may be included only if the hospital requests 
an adjustment of its prospective payment hospital-specific rate or 
target amount as described in paragraph (j)(2) of this section.
    (iii) If the hospital's cost report for its GME base period is no 
longer subject to reopening under Sec. 405.1885 of this chapter, the 
intermediary may modify the hospital's base-period costs solely for 
purposes of computing the per resident amount.
    (iv) If the intermediary modifies a hospital's base-period graduate 
medical education costs as described in paragraph (e)(1)(ii)(B) of this 
section, the hospital may request an adjustment of

[[Page 423]]

its prospective payment hospital-specific rate or target amount as 
described in paragraph (j)(1) of this section.
    (v) The intermediary notifies each hospital that either had direct 
graduate medical education costs or received indirect education payment 
in its cost reporting period beginning on or after October 1, 1984 and 
before October 1, 1985 of its base-period average per resident amount. A 
hospital may appeal this amount within 180 days of the date of that 
notice.
    (2) For cost reporting periods beginning on or after July 1, 1985 
and before July 1, 1986. For cost reporting periods beginning on or 
after July 1, 1985 and before July 1, 1986, a hospital's base-period per 
resident amount is adjusted as follows:
    (i) If a hospital's base period began on or after October 1, 1983 
and before July 1, 1984, the amount is adjusted by the percentage change 
in the CPI-U that occurred between the hospital's base period and the 
first cost reporting period to which the provisions of this section 
apply. The adjusted amount is then increased by one percent.
    (ii) If a hospital's base period began on or after July 1, 1984 and 
before October 1, 1984, the amount is increased by one percent.
    (3) For cost reporting periods beginning on or after July 1, 1986. 
For cost reporting periods beginning on or after July 1, 1986, a 
hospital's base-period per resident amount is adjusted as follows:
    (i) Except as provided in paragraph (e)(3)(ii) of this section, each 
hospital's per resident amount for the previous cost reporting is 
adjusted by the projected change in the CPI-U for the 12-month cost 
reporting period. This adjustment is subject to revision during the 
settlement of the cost report to reflect actual changes in the CPI-U 
that occurred during the cost reporting period.
    (ii) For cost reporting periods beginning on or after October 1, 
1993 through September 30, 1995, each hospital's per resident amount for 
the previous cost reporting period will not be adjusted for any resident 
FTEs who are not either a primary care resident or an obstetrics and 
gynecology resident.
    (4) Exceptions--(i) Base period for certain hospitals. If a hospital 
did not have any approved medical residency training programs or did not 
participate in Medicare during the base period, but either condition 
changes in a cost reporting period beginning on or after July 1, 1985, 
the intermediary establishes a per resident amount for the hospital 
using the information from the first cost reporting period during which 
the hospital participates in Medicare and the residents are on duty 
during the first month of that period. Any graduate medical education 
program costs incurred by the hospital before that cost reporting period 
are reimbursed on a reasonable cost basis. The per resident amount is 
based on the lower of the following:
    (A) The hospital's actual costs, incurred in connection with the 
graduate medical education program for the hospital's first cost 
reporting period in which residents were on duty during the first month 
of the cost reporting period.
    (B) The mean value of per resident amounts of hospitals located in 
the same geographic wage area, as that term is used in the prospective 
payment system under part 412 of this chapter, for cost reporting 
periods beginning in the same fiscal years. If there are fewer than 
three amounts that can be used to calculate the mean value, the 
calculation of the per resident amounts includes all hospitals in the 
hospital's region as that term is used in Sec. 412.62(f)(1)(i).
    (ii) Short or long base-period cost reporting periods. If a 
hospital's base-period cost reporting period reflects graduate medical 
education costs for a period that is shorter than 50 weeks or longer 
than 54 weeks, the intermediary converts the allowable costs for the 
base period into a daily figure. The daily figure is then multiplied by 
365 or 366, as appropriate, to derive the approved per resident amount 
for a 12-month base-period cost reporting period. If a hospital has two 
cost reporting periods beginning in the base period, the later period 
serves as the base-period cost reporting period.
    (iii) Short or long cost reporting periods beginning on or after 
July 1, 1985. If a hospital's cost reporting period is shorter than 50 
weeks or longer than 54 weeks, the hospital's intermediary should 
contact HCFA Central Office to

[[Page 424]]

receive a special CPI-U adjustment factor.
    (f) Determining the total number of FTE residents. Subject to the 
weighting factors in paragraphs (g) and (h) of this section, the count 
of FTE residents is determined as follows:
    (1) Residents in an approved program working in all areas of the 
hospital complex may be counted.
    (2) No individual may be counted as more than one FTE. Except as 
provided in paragraphs (f)(3) and (4) of this section, if a resident 
spends time in more than one hospital or, in a nonprovider setting, the 
resident counts as partial FTE based on the proportion of time worked at 
the hospital to the total time worked. A part-time resident counts as a 
partial FTE based on the proportion of allowable time worked compared to 
the total time necessary to fill a full-time internship or residency 
slot.
    (3) On or after July, 1, 1987 and for portions of cost reporting 
periods occurring before January 1, 1999, the time residents spend in 
nonprovider settings such as freestanding clinics, nursing homes, and 
physicians' offices in connection with approved programs is not excluded 
in determining the number of FTE residents in the calculation of a 
hospital's resident count if the following conditions are met--
    (i) The resident spends his or her time in patient care activities.
    (ii) There is a written agreement between the hospital and the 
outside entity that states that the resident's compensation for training 
time spent outside of the hospital setting is to be paid by the 
hospital.
    (4) For portions of cost reporting periods occurring on or after 
January 1, 1999, the time residents spend in nonprovider settings such 
as freestanding clinics, nursing homes, and physicians' offices in 
connection with approved programs may be included in determining the 
number of FTE residents in the calculation of a hospital's resident 
count if the following conditions are met--
    (i) The resident spends his or her time in patient care activities.
    (ii) The written agreement between the hospital and the nonhospital 
site must indicate that the hospital will incur the cost of the 
resident's salary and fringe benefits while the resident is training in 
the nonhospital site and the hospital is providing reasonable 
compensation to the nonhospital site for supervisory teaching 
activities. The agreement must indicate the compensation the hospital is 
providing to the nonhospital site for supervisory teaching activities.
    (g) Determining the weighted number of FTE residents. Subject to the 
provisions in paragraph (h) of this section, HCFA determines a 
hospital's number of FTE residents by applying a weighting factor to 
each resident and then summing the resulting numbers that represent each 
resident. The weighting factor is determined as follows:
    (1) For purposes of this section, an initial residency period is the 
number of years necessary to satisfy the minimum requirements for 
certification in a specialty or subspecialty, plus one year. Effective 
August 10, 1993, residents or fellows in an approved preventive medicine 
residency or fellowship program may also be counted as a full FTE 
resident for up to two additional years beyond the initial residency 
period limitations. Effective July 1, 1995, an initial residency period 
is defined as the minimum number of years required for board 
eligibility. An initial residency period may not exceed five years in 
order to be counted toward determining FTE status except in the case of 
fellows in an approved geriatric program whose initial residency period 
may last up to two additional years. For combined residency programs, an 
initial residency period is defined as the time required for individual 
certification in the longer of the programs. If the resident is enrolled 
in a combined medical residency training program in which all of the 
individual programs (that are combined) are for training primary care 
residents (as defined in paragraph (b) of this section) or obstetrics 
and gynecology residents, the initial residency period is the time 
required for individual certification in the longer of the programs plus 
one year.
    (i) For residency programs other than those specified in paragraphs 
(g)(1)(ii) and (g)(1)(iii) of this section,

[[Page 425]]

the initial residency period is the minimum number of years of formal 
training necessary to satisfy the requirements for initial board 
eligibility in the particular specialty for which the resident is 
training, as specified in the 1985-1986 Directory of Residency Training 
Programs.
    (ii) For residency programs in osteopathy, dentistry, and podiatry, 
the minimum requirement for certification in a specialty or subspecialty 
is the minimum number of years of formal training necessary to satisfy 
the requirements of the appropriate approving body listed in 
Sec. 415.200(a) of this chapter.
    (iii) For residency programs in geriatric medicine approved by the 
ACGME, as set forth in later editions of the directory specified in 
paragraph (g)(1)(ii) of this section, these programs are considered 
approved programs retroactively to the latter of--
    (A) The starting date of the program within a hospital; or
    (B) The hospital's costs reporting period beginning on or after July 
1, 1985.
    (iv) The time spent in residency programs that do not lead to 
certification in a specialty or subspecialty, but that otherwise meet 
the definition of approved programs, as described in paragraph (b) of 
this section, is counted toward the initial residency period limitation.
    (2) If the resident is in an initial residency period, the weighting 
factor is one.
    (3) If the resident is not in an initial residency period, the 
weighting factor is 1.00 during the period beginning on or after July 1, 
1985 and before July 1, 1986, .75 during the period beginning on or 
after July 1, 1986 and before July 1, 1987 and is .50 thereafter without 
regard to the hospital's cost reporting period.
    (4) For purposes of determining direct graduate medical education 
payment, for cost reporting periods beginning on or after October 1, 
1997, a hospital's unweighted FTE count for residents in allopathic and 
osteopathic medicine may not exceed the hospital's unweighted FTE count 
for these residents for the most recent cost reporting period ending on 
or before December 31, 1996. If the hospital's number of FTE residents 
in a cost reporting period beginning on or after October 1, 1997, 
exceeds the limit described in this paragraph (g), the hospital's 
weighted FTE count (before application of the limit) will be reduced in 
the same proportion that the number of FTE residents for that cost 
reporting period exceeds the number of FTE residents for the most recent 
cost reporting period ending on or before December 31, 1996. Hospitals 
that are part of the same affiliated group may elect to apply the limit 
on an aggregate basis. The fiscal intermediary may make appropriate 
modifications to apply the provisions of this paragraph (g)(4) based on 
the equivalent of a 12-month cost reporting period.
    (5) For purposes of determining direct graduate medical education 
payment, for the hospital's first cost reporting period beginning on or 
after October 1, 1997, the hospital's weighted FTE count is equal to the 
average of the weighted FTE count for the payment year cost reporting 
period and the preceding cost reporting period. For cost reporting 
periods beginning on or after October 1, 1998, the hospital's weighted 
FTE count is equal to the average of the weighted FTE count for the 
payment year cost reporting period and the preceding two cost reporting 
periods. The fiscal intermediary may make appropriate modifications to 
apply the provisions of this paragraph based on the equivalent of 12-
month cost reporting periods. If a hospital qualifies for an adjustment 
to the limit established under paragraph (g)(4) of this section for new 
medical residency programs created under paragraph (g)(6) of this 
section, the count of residents participating in new medical residency 
training programs above the number included in the hospital's FTE count 
for the cost reporting period ending during calendar year 1996 is added 
after applying the averaging rules in this paragraph for a period of 
years. Residents participating in new medical residency training 
programs are included in the hospital's FTE count before applying the 
averaging rules after the period of years has expired. For purposes of 
this paragraph, the period of years equals the minimum accredited length 
for the type of program.

[[Page 426]]

The period of years begins when the first resident begins training.
    (6) If a hospital established a new medical residency training 
program as defined in this paragraph (g) after January 1, 1995, the 
hospital's FTE cap described under paragraph (g)(4) of this section may 
be adjusted as follows:
    (i) If a hospital had no residents before January 1, 1995, and it 
establishes a new medical residency training program on or after that 
date, the hospital's unweighted FTE resident cap under paragraph (g)(4) 
of this section may be adjusted based on the product of the highest 
number of residents in any program year during the third year of the 
first program's existence for all new residency training programs and 
the number of years in which residents are expected to complete the 
programs based on the minimum accredited length for the type of program. 
For these hospitals the cap will only be adjusted for the programs 
established on or after January 1, 1995. Except for rural hospitals, the 
cap will not be revised for new programs established after the 3 years. 
Only rural hospitals that qualify for an adjustment to its FTE cap under 
this paragraph are permitted to be part of the same affiliated group for 
purposes of an aggregate FTE limit.
    (ii) If a hospital had residents in its most recent cost reporting 
period ending before January 1, 1995, the hospital's unweighted FTE cap 
may be adjusted for new medical residency training programs established 
on or after January 1, 1995 and on or before August 5, 1997. Adjustments 
to the hospital's FTE resident limit for the new program are based on 
the product of the highest number of residents in any program year of 
the newly established program and the number of years in which residents 
are expected to complete each program based on the minimum accredited 
length for the type of program. The hospital's unweighted FTE limit for 
a cost reporting period may be adjusted to reflect the number of 
residents in its most recent cost reporting period ending on or before 
December 31, 1996, and up to the incremental increase in its FTE count 
only for the newly established programs.
    (iii) If a hospital with residents in its most recent cost reporting 
period ending on or before January 1, 1995, is located in a rural area 
(or other hospitals located in rural areas which added residents under 
paragraph (g)(6)(i) of this section), the hospital's unweighted FTE 
limit may be adjusted in the same manner described in paragraph 
(g)(6)(ii) of this section to reflect the increase for residents in the 
new medical residency training programs established after August 5, 
1997. For these hospitals, the limit will be adjusted for additional new 
programs but not for expansions of existing or previously existing 
programs.
    (iv) A hospital seeking an adjustment to the limit on its unweighted 
resident count policy must provide documentation to its fiscal 
intermediary justifying the adjustment.
    (7) For purposes of paragraph (g) of this section, a new medical 
residency training program means a medical residency that receives 
initial accreditation by the appropriate accrediting body or begins 
training residents on or after January 1, 1995.
    (h) Determination of weighting factors for foreign medical 
graduates. (1) The weighting factor for a foreign medical graduate is 
determined under the provisions of paragraph (g) of this section if the 
foreign medical graduate--
    (i) Has passed FMGEMS; or
    (ii) Before July 1, 1986, received certification from, or passed an 
examination of, the Educational Committee for Foreign Medical Graduates.
    (2) Before July 1, 1986, the weighting factor for a foreign medical 
graduate is 1.0 times the weight determined under the provisions of 
paragraph (g) of this section. On or after July 1, 1986, and before July 
1, 1987, the weighting factor for a graduate of a foreign medical school 
who was in a residency program both before and after July 1, 1986 but 
who does not meet the requirements set forth in paragraph (h)(1) of this 
section is .50 times the weight determined under the provisions of 
paragraph (g) of this section.
    (3) On or after July 1, 1987, these foreign medical graduates are 
not counted in determining the number of FTE residents.

[[Page 427]]

    (4) During the cost reporting period in which a foreign medical 
graduate passes FMGEMS, the weighting factor for that resident is 
determined under the provisions of paragraph (g) of this section for the 
part of the cost reporting period beginning with the month the resident 
passes the test.
    (5) On or after September 1, 1989, the National Board of Medical 
Examiners Examination, Parts I and II, may be substituted for FMGEMS for 
purposes of the determination made under paragraphs (h)(1) and (h)(4) of 
this section.
    (6) On or after June 1, 1992, the United States Medical Licensing 
Examination may be substituted for the FMGEMS for purposes of the 
determination made under paragraphs (h)(1) and (h)(4) of this section. 
On or after July 1, 1993 only the results of steps I and II of the 
United States Medical Licensing Examination shall be accepted for 
purposes of making this determination.
    (i) To include a resident in the FTE count for a particular cost 
reporting period, the hospital must furnish the following information.

The information must be certified by an official of the hospital and, if 
different, an official responsible for administering the residency 
program.
    (1) The name and social security number of the resident.
    (2) The type of residency program in which the individual 
participates and the number of years the resident has completed in all 
types of residency programs.
    (3) The dates the resident is assigned to the hospital and any 
hospital-based providers.
    (4) The dates the resident is assigned to other hospitals, or other 
freestanding providers, and any nonprovider setting during the cost 
reporting period, if any.
    (5) The name of the medical, osteopathic, dental, or podiatric 
school from which the resident graduated and the date of graduation.
    (6) If the resident is an FMG, documentation concerning whether the 
resident has satisfied the requirements of paragraph (h) of this 
section.
    (7) The name of the employer paying the resident's salary.
    (j) Special rules for States that formerly had a waiver from 
Medicare reimbursement principles. (1) Effective for cost reporting 
periods beginning on or after January 1, 1986, hospitals in States that, 
prior to becoming subject to the prospective payment system, had a 
waiver for the operation of a State reimbursement control system under 
section 1886(c) of the Act, section 402 of the Social Security 
Amendments of 1967 (42 U.S.C. 1395b-1 or section 222(a) of the Social 
Security Amendment of 1972 (42 U.S.C. 1395b-1 (note)) are permitted to 
change the order in which they allocate administrative and general costs 
to the order specified in the instructions for the Medicare cost report.
    (2) For hospitals making this election, the base-period costs for 
the purpose of determining the per resident amount are adjusted to take 
into account the change in the order by which they allocate 
administrative and general costs to interns and residents in approved 
program cost centers.
    (3) Per resident amounts are determined for the base period and 
updated as described in paragraph (e) of this section. For cost 
reporting periods beginning on or after January 1, 1986, payment is made 
based on the methodology described in paragraph (d) of this section.
    (k) Adjustment of a hospital's target amount or prospective payment 
hospital-specific rate--(1) Misclassified operating costs--(i) General 
rule. If a hospital has its base-period graduate medical education costs 
reduced under paragraph (e)(1) of this section because those costs 
included misclassified operating costs, the hospital may request that 
the intermediary review the classification of the affected costs in its 
rate-of-increase ceiling or prospective payment base year for purposes 
of adjusting the hospital's target amount or hospital-specific rate. For 
those cost reports that are not subject to reopening under Sec. 405.1885 
of this chapter, the hospital's reopening request must explicitly state 
that the review is limited to this one issue.
    (ii) Request for review. The hospital must request review of the 
classification of its rate of increase ceiling or prospective payment 
base year costs no

[[Page 428]]

later than 180 days after the date of the notice by the intermediary of 
the hospital's base-period average per resident amount. A hospital's 
request for review must include sufficient documentation to demonstrate 
to the intermediary that adjustment of the hospital's hospital-specific 
rate or target amount is warranted.
    (iii) Effect of intermediary's review. If the intermediary, upon 
review of the hospital's costs, determines that the hospital's hospital-
specific rate or target amount should be adjusted, the adjustment of the 
hospital-specific rate or the target amount is effective for the 
hospital's cost reporting periods subject to the prospective payment 
system or the rate-of-increase ceiling that are still subject to 
reopening under Sec. 405.1885 of this chapter.
    (2) Misclassification of graduate medical education costs--(i) 
General rule. If costs that should have been classified as graduate 
medical education costs were treated as operating costs during both the 
graduate medical education base period and the rate-of-increase ceiling 
base year or prospective payment base year and the hospital wishes to 
receive benefit for the appropriate classification of these costs as 
graduate medical education costs in the graduate medical education base 
period, the hospital must request that the intermediary review the 
classification of the affected costs in the rate-of-increase ceiling or 
prospective payment base year for purposes of adjusting the hospital's 
target amount or hospital-specific rate. For those cost reports that are 
not subject to reopening under Sec. 405.1885 of this chapter, the 
hospital's reopening request must explicitly state that the review is 
limited to this one issue.
    (ii) Request for review. The hospital must request review of the 
classification of its costs no later than 180 days after the date of the 
intermediary's notice of the hospital's base-period average per resident 
amount. A hospital's request for review must include sufficient 
documentation to demonstrate to the intermediary that modification of 
the adjustment of the hospital's hospital-specific rate or target amount 
is warranted.
    (iii) Effect of intermediary's review. If the intermediary, upon 
review of the hospital's costs, determines that the hospital's hospital-
specific rate or target amount should be adjusted, the adjustment of the 
hospital-specific rate and the adjustment of the target amount is 
effective for the hospital's cost reporting periods subject to the 
prospective payment system or the rate-of-increase ceiling that are 
still subject to reopening under Sec. 405.1885 of this chapter.

[54 FR 40316, Sept. 29, 1989; 55 FR 290, Jan. 4, 1990, as amended at 56 
FR 43243, Aug. 30, 1991; 57 FR 39830, Sept. 1, 1992; 58 FR 46343, Sept. 
1, 1993; 59 FR 45401, Sept. 1, 1994; 60 FR 63189, Dec. 8, 1995; 61 FR 
46225, Aug. 30, 1996; 62 FR 46034, Aug. 29, 1997; 63 FR 26358, May 12, 
1998; 63 FR 41005, July 31, 1998]



Sec. 413.90  Research costs.

    (a) Principle. Costs incurred for research purposes, over and above 
usual patient care, are not includable as allowable costs.
    (b) Application. (1) There are numerous sources of financing for 
health-related research activities. Funds for this purpose are provided 
under many Federal programs and by other tax-supported agencies. Also, 
many foundations, voluntary health agencies, and other private 
organizations, as well as individuals, sponsor or contribute to the 
support of medical and related research. Funds available from such 
sources are generally ample to meet basic medical and hospital research 
needs. A further consideration is that quality review should be assured 
as a condition of governmental support for research. Provisions for such 
review would introduce special difficulties in the Medicare programs.
    (2) If research is conducted in conjunction with, and as a part of, 
the care of patients, the costs of usual patient care and studies, 
analyses, surveys, and related activities to serve the provider's 
administrative and program needs are allowable costs in the 
determination of payment under Medicare.

[51 FR 34793, Sept. 30, 1986, as amended at 61 FR 63748, Dec. 2, 1996]



Sec. 413.92  Costs of surety bonds.

    Costs incurred by a provider to obtain a surety bond required by 
part 489,

[[Page 429]]

subpart F of this chapter are not included as allowable costs.

[63 FR 310, Jan. 5, 1998]



Sec. 413.94  Value of services of nonpaid workers.

    (a) Principle. The value of services in positions customarily held 
by full-time employees performed on a regular, scheduled basis by 
individuals as nonpaid members of organizations under arrangements 
between such organizations and a provider for the performance of such 
services without direct remuneration from the provider to such 
individuals is allowable as an operating expense for the determination 
of allowable cost subject to the limitation contained in paragraph (b) 
of this section. The amounts allowed are not to exceed those paid others 
for similar work. Such amounts must be identifiable in the records of 
the institutions as a legal obligation for operating expenses.
    (b) Limitations: Services of nonpaid workers. The services must be 
performed on a regular, scheduled basis in positions customarily held by 
full-time employees and necessary to enable the provider to carry out 
the functions of normal patient care and operation of the institution. 
The value of services of a type for which providers generally do not 
remunerate individuals performing such services is not allowable as a 
reimbursable cost under the Medicare program. For example, donated 
services of individuals in distributing books and magazines to patients, 
or in serving in a provider canteen or cafeteria or in a provider gift 
shop, would not be reimbursable.
    (c) Application. The following illustrates how a provider would 
determine an amount to be allowed under this principle: The prevailing 
salary for a lay nurse working in Hospital A is $5,000 for the year. The 
lay nurse receives no maintenance or special perquisites. A sister 
working as a nurse engaged in the same activities in the same hospital 
receives maintenance and special perquisites which cost the hospital 
$2,000 and are included in the hospital's allowable operating costs. The 
hospital would then include in its records an additional $3,000 to bring 
the value of the services rendered to $5,000. The amount of $3,000 would 
be allowable if the provider assumes obligation for the expense under a 
written agreement with the sisterhood or other religious order covering 
payment by the provider for the services.



Sec. 413.98  Purchase discounts and allowances, and refunds of expenses.

    (a) Principle. Discounts and allowances received on purchases of 
goods or services are reductions of the costs to which they relate. 
Similarly, refunds of previous expense payments are reductions of the 
related expense.
    (b) Definitions--(1) Discounts. Discounts, in general, are 
reductions granted for the settlement of debts.
    (2) Allowances. Allowances are deductions granted for damage, delay, 
shortage, imperfection, or other causes, excluding discounts and 
returns.
    (3) Refunds. Refunds are amounts paid back or a credit allowed on 
account of an overcollection.
    (c) Normal accounting treatment--Reduction of costs. All discounts, 
allowances, and refunds of expenses are reductions in the cost of goods 
or services purchased and are not income. If they are received in the 
same accounting period in which the purchases were made or expenses were 
incurred, they will reduce the purchases or expenses of that period. 
However, if they are received in a later accounting period, they will 
reduce the comparable purchases or expenses in the period in which they 
are received.
    (d) Application. (1) Purchase discounts have been classified as 
cash, trade, or quantity discounts. Cash discounts are reductions 
granted for the settlement of debts before they are due. Trade discounts 
are reductions from list prices granted to a class of customers before 
consideration of credit terms. Quantity discounts are reductions from 
list prices granted because of the size of individual or aggregate 
purchase transactions. Whatever the classification of purchase 
discounts, like treatment in reducing allowable costs is required. In 
the past, purchase discounts were considered as financial management 
income. However, modern accounting theory holds that income is not 
derived from a purchase but rather from a sale

[[Page 430]]

or an exchange and that purchase discounts are reductions in the cost of 
whatever was purchased. The true cost of the goods or services is the 
net amount actually paid for them. Treating purchase discounts as income 
would result in an overstatement of costs to the extent of the discount.
    (2) As with discounts, allowances, and rebates received from 
purchases of goods or services, refunds of previous expense payments are 
clearly reductions in costs and must be reflected in the determination 
of allowable costs. This treatment is equitable and is in accord with 
that generally followed by other governmental programs and third-party 
payment organizations paying on the basis of cost.



Sec. 413.100  Special treatment of certain accrued costs.

    (a) Principle. As described in Sec. 413.24(b)(2), under the accrual 
basis of accounting, revenue is reported in the period in which it is 
earned and expenses are reported in the period in which they are 
incurred. In the case of accrued costs described in this section, for 
Medicare payment purposes the costs are allowable in the year in which 
the costs are accrued and claimed for Medicare payment only under the 
conditions set forth in paragraph (c) of this section.
    (b) Definitions. (1) All-inclusive paid days off benefit. An all-
inclusive paid days off benefit replaces other vacation and sick pay 
plans. It is a formal plan under which, based on actual hours worked, 
all employees accrue vested leave or payment in lieu of vested leave for 
any combination of types of leave, such as illness, medical 
appointments, holidays, and vacations.
    (2) Self-insurance. Self-insurance is a means by which a provider 
independently or as part of a group undertakes the risk of protecting 
itself against anticipated liabilities by providing funds in an amount 
equal to anticipated liabilities, rather than by purchasing insurance 
coverage.
    (c) Recognition of accrued costs. (1) General. Although Medicare 
recognizes, in the year of accrual, the accrual of costs for which a 
provider has not actually expended funds during the current cost 
reporting period, for purposes of payment Medicare does not recognize 
the accrual of costs unless the related liabilities are liquidated 
timely.
    (2) Requirements for liquidation of liabilities. For accrued costs 
to be recognized for Medicare payment in the year of the accrual, the 
requirements set forth below must be met with respect to the liquidation 
of related liabilities. If liquidation does not meet these requirements, 
the cost is disallowed, generally in the year of accrual, except as 
specified in paragraph (c)(2)(ii) of this section.
    (i) A short-term liability.
    (A) Except as provided in paragraph (c)(2)(i)(B) of this section, a 
short-term liability, including the current portion of a long-term 
liability (for example, mortgage interest payments due to be paid in the 
current year), must be liquidated within 1 year after the end of the 
cost reporting period in which the liability is incurred.
    (B) If, within the 1-year time limit, the provider furnishes to the 
intermediary sufficient written justification (based upon documented 
evidence) for nonpayment of the liability , the intermediary may grant 
an extension for good cause. The extension may not exceed 3 years beyond 
the end of the cost reporting year in which the liability was incurred.
    (ii) Vacation pay and all-inclusive paid days off.
    (A) If the provider's vacation policy, or its policy for all-
inclusive paid days off, is consistent for all employees, liquidation of 
the liability must be made within the period provided for by that 
policy.
    (B) If the provider's vacation policy, or its policy for all-
inclusive paid days off, is not consistent for all employees, 
liquidation of the liability must be made within 2 years after the close 
of the cost reporting period in which the liability is accrued.
    (C) If payment is not made within the required time period or if 
benefits are forfeited by the employee, an adjustment to disallow the 
accrued cost is made in the current period (that is, the latest year in 
which payment should have been made or the year in which the benefits 
are forfeited) rather than

[[Page 431]]

in the period in which the cost was accrued and claimed for Medicare 
payment. However, an intermediary may choose to require the adjustment 
in the period in which the cost was accrued and claimed for Medicare 
payment if the cost report for that period is open or can be reopened as 
provided in Sec. 405.1885 of this chapter, and if the intermediary 
believes the adjustment is more appropriate in that period.
    (iii) Sick pay.
    (A) If sick leave is vested and funded in a deferred compensation 
plan, liabilities related to the contributions to the fund must be 
liquidated, generally within 1 year after the end of the cost reporting 
period in which the liability is incurred. If, within the 1-year time 
limit, the provider furnishes to the intermediary sufficient written 
justification (based upon documented evidence) for nonpayment of the 
liability, the intermediary may grant an extension for good cause. The 
extension may not exceed 3 years beyond the end of the cost reporting 
year in which the liability was incurred. Contributions to the deferred 
compensation plan must be reduced to reflect estimated forfeitures. 
Actual forfeitures above or below estimated forfeitures must be used to 
adjust annual contributions to the fund.
    (B) If the sick leave plan grants employees the nonforfeitable right 
to demand cash payment for unused sick leave at the end of each year, 
sick pay is includable in allowable costs, without funding, in the cost 
reporting period in which it is earned.
    (C) Sick pay paid on any basis other than that specified in 
paragraphs (c)(2)(iii) (A) or (B) of this section can be claimed for 
Medicare payment only on a cash basis for the year in which the benefits 
are paid.
    (iv) Compensation of owners. Accrued liability related to 
compensation of owners other than sole proprietors and partners must be 
liquidated within 75 days after the close of the cost reporting period 
in which the liability occurs.
    (v) Nonpaid workers. Obligations incurred under a legally-
enforceable agreement to remunerate an organization of nonpaid workers 
must be discharged no later than the end of the provider's cost 
reporting period following the period in which the services were 
furnished.
    (vi) FICA and other payroll taxes. The provider's share of FICA and 
other payroll taxes that the provider becomes obligated to remit to 
governmental agencies is included in allowable costs only during the 
cost reporting period in which payment (upon which the tax is based) is 
actually made to the employee. For example, no legal obligation exists 
for a provider-employer to pay FICA taxes until the employee is paid and 
the specific amount of liability known.
    (vii) Deferred compensation.
    (A) Reasonable provider payments made under unfunded deferred 
compensation plans are included in allowable costs only during the cost 
reporting period in which actual payment is made to the participating 
employee.
    (B) Accrued liability related to contributions to a funded deferred 
compensation plan must be liquidated within 1 year after the end of the 
cost reporting period in which the liability is incurred. An extension, 
not to exceed 3 years beyond the end of the cost reporting year in which 
the liability was incurred, may be granted by the intermediary for good 
cause if the provider, within the 1-year time limit, furnishes to the 
intermediary sufficient written justification for non-payment of the 
liability.
    (C) Postretirement benefit plans (including those addressed in 
Statement of Financial Accounting Standards No. 106 (December 1990)) are 
deferred compensation arrangements and thus are subject to the 
provisions of this section regarding deferred compensation and to 
applicable program instructions for determining Medicare payment for 
deferred compensation.
    (viii) Self-insurance. Accrued liability related to contributions to 
a self-insurance program that are systematically made to a funding 
agency and that cover malpractice and comprehensive general liability, 
unemployment compensation, workers' compensation insurance losses, or 
employee health benefits, must be liquidated within 75 days after the 
close of the cost reporting period.

[60 FR 33136, June 27, 1995]

[[Page 432]]



Sec. 413.102  Compensation of owners.

    (a) Principle. A reasonable allowance of compensation for services 
of owners is an allowable cost provided that the services are actually 
performed in a necessary function.
    (b) Definitions. (1) Compensation. Compensation means the total 
benefit received by the owner for the services he furnishes to the 
institution. It includes the following items:
    (i) Salary amounts paid for managerial, administrative, 
professional, and other services.
    (ii) Amounts paid by the institution for the personal benefit of the 
proprietor.
    (iii) The cost of assets and services that the proprietor receives 
from the institution.
    (iv) Deferred compensation.
    (2) Reasonableness. Reasonableness requires that the compensation 
allowance--
    (i) Be such an amount as would ordinarily be paid for comparable 
services by comparable institutions; and
    (ii) Depend upon the facts and circumstances of each case.
    (3) Necessary. Necessary requires that the function be--
    (i) Such that had the owner not furnished the services, the 
institution would have had to employ another person to perform the 
services; and
    (ii) Pertinent to the operation and sound conduct of the 
institution.
    (c) Application. (1) Owners of provider organizations often furnish 
services as managers, administrators, or in other capacities. In such 
cases, it is equitable that reasonable compensation for the services 
furnished to be an allowable cost. To do otherwise would disadvantage 
such owners in comparison with corporate providers or providers 
employing persons to perform similar services.
    (2) Ordinarily, compensation paid to proprietors is a distribution 
of profits. However, if a proprietor furnishes necessary services for 
the institution, the institution is in effect employing his services, 
and a reasonable compensation for these services is an allowable cost. 
In corporate providers, the salaries of owners who are also employees 
are subject to the same requirements of reasonableness. If the services 
are furnished on less than a full-time basis, the allowable compensation 
should reflect an amount proportionate to a full-time basis. 
Reasonableness of compensation may be determined by reference to, or in 
comparison with, compensation paid for comparable services and 
responsibilities in comparable institutions; or it may be determined by 
other appropriate means.



Sec. 413.106  Reasonable cost of physical and other therapy services furnished under arrangements.

    (a) Principle. The reasonable cost of the services of physical, 
occupational, speech, and other therapists, and services of other health 
specialists (other than physicians), furnished under arrangements (as 
defined in section 1861(w) of the Act) with a provider of services, a 
clinic, a rehabilitation agency or a public health agency, may not 
exceed an amount equivalent to the prevailing salary and additional 
costs that would reasonably have been incurred by the provider or other 
organization had such services been performed by such person in an 
employment relationship, plus the cost of other reasonable expenses 
incurred by such person in furnishing services under such an 
arrangement. However, if the services of a therapist are required on a 
limited part-time basis, or to perform intermittent services, payment 
may be made on the basis of a reasonable rate per unit of service, even 
though this rate may be greater per unit of time than salary-related 
amounts, if the greater payment is, in the aggregate, less than the 
amount that would have been paid had a therapist been employed on a 
full-time or regular part-time salaried basis. Pursuant to section 17(a) 
of Public Law 93-233 (87 Stat. 967), the provisions of this section are 
effective for cost reporting periods beginning after March, 1975.
    (b) Definitions--(1) Prevailing salary. The prevailing salary is the 
hourly salary rate based on the 75th percentile of salary ranges paid by 
providers in the geographical area, by type of therapy, to therapists 
working full time in an employment relationship.
    (2) Fringe benefit and expense factor. The standard fringe benefit 
and expense factor is an amount that takes

[[Page 433]]

account of fringe benefits, such as vacation pay, insurance premiums, 
pension payments, allowances for job-related training, meals, etc., 
generally received by an employee therapist, as well as expenses, such 
as maintaining an office, appropriate insurance, etc., an individual not 
working as an employee might incur in furnishing services under 
arrangements.
    (3) Adjusted hourly salary equivalency amount. The adjusted hourly 
salary equivalency amount is the prevailing hourly salary rate plus the 
standard fringe benefit and expense factor. This amount is determined on 
a periodic basis for appropriate geographical areas.
    (4) Travel allowance. A standard travel allowance is an amount that 
is recognized, in addition to the adjusted hourly salary equivalency 
amount.
    (5) Limited part-time or intermittent services. Therapy services are 
considered to be on a limited part-time or intermittent basis if the 
provider or other organization furnishing the services under 
arrangements requires the services of a therapist or therapists on an 
average of less than 15 hours per week. This determination is made by 
dividing the total hours of services furnished during the cost reporting 
period by the number of weeks in which the services were furnished in 
the cost reporting period regardless of the number of days in each week 
in which services were performed.
    (6) Guidelines. Guidelines are the amounts published by HCFA 
reflecting the application of paragraphs (b) (1) through (4) of this 
section to an individual therapy service and a geographical area. Other 
statistically valid data may be used to establish guidelines for a 
geographical area, provided that the study designs, questionnaires and 
instructions, as well as the resultant survey data for determining the 
guidelines are submitted to and approved in advance by HCFA. Such data 
must be arrayed so as to permit the determination of the 75th percentile 
of the range of salaries paid to full-time employee therapists.
    (7) Administrative responsibility. Administrative responsibility is 
the performance of those duties that normally fall within the purview of 
a department head or other supervisor. This term does not apply to 
directing aides or other assistants in furnishing direct patient care.
    (c) Application. (1) Under this provision, HCFA will establish 
criteria for use in determining the reasonable cost of physical, 
occupational, speech, and other therapy services and the services of 
other health specialists (other than physicians) furnished by 
individuals under arrangements with a provider of services, a clinic, a 
rehabilitation agency, or public health agency. It is recognized that 
providers have a wide variety of arrangements with such individuals. 
These individuals may be independent practitioners or employees of 
organizations furnishing various health care specialists. This provision 
does not require change in the substance of these arrangements.
    (2) If therapy services are performed under arrangements at a 
provider site on a full-time or regular part-time basis, the reasonable 
cost of such services may not exceed the amount determined by taking 
into account the total number of hours of services furnished by the 
therapist, the adjusted hourly salary equivalency amount appropriate for 
the particular therapy in the geographical area in which the services 
are furnished and a standard travel allowance.
    (3) If therapy services are performed under arrangements on a 
limited part-time or intermittent basis at the provider site, the 
reasonable cost of such services is evaluated on a reasonable rate per 
unit of service basis, except that payment for these services, in the 
aggregate, during the cost reporting period, may not exceed the amount 
that would be determined to be reasonable under paragraph (c)(2) of this 
section, had a therapist furnished the provider or other organization 
furnishing the services under arrangements 15 hours of service per week 
on a regular part-time basis for the weeks in which services were 
furnished by the non-employee therapist.
    (4) If an HHA furnishes services under arrangements at the patient's 
residence or in other situations in which therapy services are not 
performed at the provider's site, the reasonable cost of such services 
is evaluated as follows:

[[Page 434]]

    (i) Time records available. If time records of HHA visits are 
maintained by the provider, the reasonable cost of such services is 
evaluated on a unit-of-time basis, by taking into account the total 
number of hours of service furnished by the therapist, the adjusted 
hourly salary equivalency amount appropriate for the particular therapy 
in the geographical area in which the services are furnished, and a 
standard travel allowance for each visit. However, if the travel time of 
the therapist is accurately recorded by the therapist, and approved and 
maintained by the provider, the reasonable cost of such services may be 
evaluated, at the option of the provider, by taking into account the 
total number of hours of service furnished by the therapist, including 
travel time, and the adjusted hourly salary equivalency amount 
appropriate for the particular therapy in the geographical area in which 
the services are furnished. This option does not apply to services 
furnished by HHAs under arrangements with providers other than HHAs.
    (ii) No time records available. If time records are unavailable or 
found to be inaccurate, each HHA visit is considered the equivalent of 
one hour of service. In such cases, the reasonable cost of such services 
is determined by taking into account the number of visits made by the 
therapist under arrangements with such agency, the adjusted hourly 
salary equivalency amount appropriate for the particular therapy in the 
geographical area in which the services are furnished, and a standard 
travel allowance.
    (iii) Limited part-time or intermittent services. If under paragraph 
(c)(4) (i) or (ii) of this section, the provider required therapy 
services on an average of less than 15 hours per week, the services are 
considered limited part-time or intermittent services, and the 
reasonable cost of such services is evaluated on a reasonable rate per 
unit of service basis as described in paragraph (c)(3) of this section.
    (5) If therapy services are performed in situations where 
compensation to a therapist employed by the provider is based, at least 
in part, on a fee-for-service or on a percentage of income (or 
commission), the guidelines will apply. The entire compensation will be 
subject to the guidelines in cases where the nature of the arrangements 
is most like an under ``arrangement'' situation, although technically 
the provider may treat the therapists as employees. The intent of this 
section is to prevent an employment relationship from being used to 
circumvent the guidelines.
    (6) These provisions are applicable to individual therapy services 
or disciplines by means of separate guidelines by geographical area and 
apply to costs incurred after issuance of the guidelines but no earlier 
than the beginning of the provider's cost reporting period described in 
paragraph (a) of this section. Until a guideline is issued for a 
specific therapy or discipline, costs are evaluated so that such costs 
do not exceed what a prudent and cost-conscious buyer would pay for the 
given service.
    (d) Notice of guidelines to be imposed. Prior to the beginning of a 
period to which a guideline will be applied, a notice will be published 
in the Federal Register establishing the guideline amounts to be applied 
to each geographical area by type of therapy.
    (e) Additional allowances. (1) If a therapist supervises other 
therapists or has administrative responsibility for operating a 
provider's therapy department, a reasonable allowance may be added to 
the adjusted hourly salary equivalency amount by the intermediary based 
on its knowledge of the differential between therapy supervisors' and 
therapists' salaries in similar provider settings in the area.
    (2) If a therapist performing services under arrangements furnishes 
equipment and supplies used in furnishing therapy services, the 
guideline amount may be supplemented by the cost of the equipment and 
supplies, provided the cost does not exceed the amount the provider, as 
a prudent and cost-conscious buyer, would have been able to include as 
allowable cost.
    (f) Exceptions. The following exceptions may be granted but only 
upon the provider's demonstration that the conditions indicated are 
present:
    (1) Exception because of unique circumstances or special labor 
market conditions. An exception may be granted

[[Page 435]]

under this section by the intermediary if a provider demonstrates that 
the costs for therapy services established by the guideline amounts are 
inappropriate to a particular provider because of some unique 
circumstances or special labor market conditions in the area.
    (2) Exception for services furnished by risk-basis HMO providers. 
For special rules concerning services furnished to an HMO's enrollees 
who are Medicare beneficiaries by a provider owned or operated by a 
risk-basis HMO (see Sec. 417.201(b) of this chapter) or related to a 
risk-basis HMO by common ownership or control (see Sec. 417.250(c) of 
this chapter).
    (3) Exception for inpatient hospital services. Effective with cost 
reporting periods beginning on or after October 1, 1983, the costs of 
therapy services furnished under arrangements to a hospital inpatient 
are excepted from the guidelines issued under this section if such costs 
are subject to the provisions of Sec. 413.40 or part 412 of this 
chapter. The intermediary will grant the exception without request from 
the provider.
    (g) Appeals. A request by a provider for a hearing on the 
determination of an intermediary concerning the therapy costs determined 
to be allowable based on the provisions of this section, including a 
determination with respect to an exception under paragraph (f) of this 
section, is made to the intermediary only after submission of its cost 
report and receipt of the notice of amount of program reimbursement 
reflecting such determination, in accordance with the provisions of 
subpart R of part 405 of this chapter.

[51 FR 34793, Sept. 30, 1986, as amended at 63 FR 5139, Jan. 30, 1998]



Sec. 413.114  Payment for posthospital SNF care furnished by a swing-bed hospital.

    (a) Purpose and basis. This section implements section 1883 of the 
Act, which provides for payment for posthospital SNF care furnished by 
rural hospitals having a swing-bed approval. Payments to these hospitals 
for posthospital SNF care furnished in general routine inpatient beds 
are based on the reasonable cost of posthospital SNF care in accordance 
with paragraph (c) of this section. Swing-bed hospitals approved after 
March 31, 1988 with more than 49 beds must meet additional payment 
requirements as set forth in paragraph (d) of this section.
    (b) Definitions. For purposes of this section--
    Availability date means with respect to a posthospital SNF care 
patient in a swing-bed hospital, the later of--
    (i) Any date on which a bed is available for the patient in a 
Medicare-participating SNF located within the hospital's geographic 
region;
    (ii) The date that a hospital learns that a bed is available in a 
Medicare-participating SNF; or
    (iii) If the notice is prospective, the date that a bed will become 
available in a Medicare-participating SNF.
    Geographic region means an area that includes the SNFs with which a 
hospital has traditionally arranged transfers and all other SNFs within 
the same proximity to the hospital. In the case of a hospital without 
existing transfer practices upon which to base a determination, the 
geographic region is an area that includes all the SNFs within 50 miles 
(as defined in Sec. 412.92(c)(1) of this chapter) of the hospital unless 
the hospital can demonstrate that the SNFs are inaccessible to its 
patients. In the event of a dispute as to whether an SNF is within a 
hospital's geographic region or the SNF is inaccessible to hospital 
patients, the HCFA Regional Office makes a determination.
    Swing-bed hospital means a hospital or CAH participating in Medicare 
that has an approval from HCFA to provide posthospital SNF care as 
defined in Sec. 409.20 of this chapter, and meets the requirements 
specified in Sec. 482.66 or Sec. 485.645 of this chapter, respectively.
    (c) Principle. The reasonable cost of posthospital SNF care 
furnished by a swing-bed hospital is determined as follows:
    (1) The reasonable cost of routine SNF services is based on the 
average Medicare rate per patient day for routine services provided in 
freestanding SNFs in the region where the swing-bed hospital is located. 
The rates are calculated using the regions as defined in section 
1886(d)(2)(D) of the Social Security Act. The rates are based on the

[[Page 436]]

most recent year for which settled cost reporting period data are 
available, increased in a compounded manner, using the increase 
applicable to the SNF routine cost limits, up to and including the 
calendar year for which the rates are in effect. If the current Medicare 
swing-bed rate for routine extended care services furnished by a swing-
bed hospital during a calendar year is less than the rate for the prior 
calendar year, payment is made based on the prior calendar year's rate.
    (2) The reasonable cost of ancillary services furnished as 
posthospital SNF care is determined in the same manner as the reasonable 
cost of other ancillary services furnished by the hospital in accordance 
with Sec. 413.55(a)(1).
    (d) Additional requirements--(1) General rule. Prior to Medicare 
payment being made to a swing-bed hospital with more than 49 beds (but 
fewer than 100) the following payment requirements must be met:
    (i) If there is an available SNF bed in the geographic region, a 
posthospital SNF care patient must be transferred within 5 days 
(excluding weekends and holidays) of the availability date, unless the 
patient's physician certifies within the 5-day period that transfer is 
not medically appropriate.
    (ii) The number of patient days for posthospital SNF care in a cost 
reporting period does not exceed 15 percent of the product of the number 
of days in the period and the average number of licensed beds in the 
hospital in the period. In those States that do not license their 
hospital beds, the hospitals must use the total number of hospital beds 
reported on their most recent Certificate of Need (CON), excluding 
bassinets. If during the cost reporting period, there is an increase or 
decrease in the number of ``licensed'' beds, the number of ``licensed'' 
beds for each part of the period is to be multiplied by the number of 
days for which that number of ``licensed'' beds was available. After 
totalling the results, compute 15 percent of the total available 
``licensed'' bed days to determine the payment limitation.
    (2) Payment restrictions. (i) The hospital must not seek payment for 
posthospital SNF care after the end of the 5 day period (excluding 
weekends and holidays) beginning on the availability date of a SNF bed 
unless the patient's physician has certified, within that 5 day period, 
that the transfer of the patient to the SNF was not medically 
appropriate.
    (ii) The hospital must not seek payment for posthospital SNF care in 
a cost reporting period to the extent that they exceed 15 percent of the 
product of the number of days in the period and the average number of 
licensed beds in the period. In those States that do not license 
hospital beds, the hospital must use the average number of hospital beds 
reported on its most recent CON, excluding bassinets.
    (3) Payment exception. Payment will continue to be made during the 
cost reporting period in which the 15 percent limit specified in 
paragraph (d)(1)(ii) of this section is reached for those patients who 
are receiving posthospital SNF care at the time the hospital reaches the 
limit.

[51 FR 34793, Sept. 30, 1986, as amended at 54 FR 37274, Sept. 7, 1989; 
56 FR 54545, Oct. 22, 1991; 58 FR 30671, May 26, 1993; 61 FR 51616, Oct. 
3, 1996; 62 FR 46037, Aug. 29, 1997]



Sec. 413.118  Payment for facility services related to covered ASC surgical procedures performed in hospitals on an outpatient basis.

    (a) Basis and scope. This section implements section 1833(a)(4) and 
(i)(3) of the Act and establishes the method for determining Medicare 
payments for services related to covered ambulatory surgical center 
(ASC) procedures performed in a hospital on an outpatient basis. It does 
not apply to services furnished by an ASC operated by a hospital that 
has an agreement with HCFA to be paid in accordance with Sec. 416.30 of 
this chapter. (For regulations governing ASCs see part 416 of this 
chapter.)
    (b) Definitions. For purposes of this section--
    Facility services are those items and services, as specified in 
Sec. 416.61 of this chapter, that are furnished by a hospital on an 
outpatient basis in connection with covered ASC surgical procedures, as 
described in Sec. 416.65 of this chapter.

[[Page 437]]

    Standard overhead amount means an amount equal to the prospectively 
determined payment rate that would be paid for the procedure if it had 
been furnished by an ASC in the same geographic area.
    (c) Payment principle. The aggregate amount of payments for facility 
services, furnished in a hospital on an outpatient basis, that are 
related to covered ASC surgical procedures (covered under Sec. 416.65 of 
this chapter) is equal to the lesser of--
    (1) The hospital's reasonable cost or customary charges, as 
determined in accordance with Sec. 413.13, reduced by deductibles and 
coinsurance; or
    (2) The blended payment amount as described in paragraph (d) of this 
section, which is based on hospital-specific cost and charge data and 
rates paid to free-standing ASCs.
    (d) Blended payment amount. (1) For cost reporting periods beginning 
on or after October 1, 1987 but before October 1, 1988, the blended 
payment amount is equal to the sum of--
    (i) 75 percent of the hospital-specific amount (the lesser of the 
hospital's reasonable cost or customary charges, reduced by deductibles 
and coinsurance); and
    (ii) 25 percent of the ASC payment amount (that is, 80 percent of 
the result obtained by subtracting the deductibles from the sum of the 
standard overhead amounts.)
    (2) For the period of time beginning with the first day of a 
hospital's cost reporting period that begins on or after October 1, 1988 
and ends on December 31, 1990, the blended payment amount is equal to 50 
percent of the hospital-specific amount and 50 percent of the ASC 
payment amount.
    (3) For portions of cost reporting periods beginning on or after 
January 1, 1991, the blended payment amount is equal to 42 percent of 
the hospital-specific amount and 58 percent of the ASC payment amount.
    (4) For cost reporting periods beginning on or after October 1, 1988 
and before January 1, 1995, the blended payment amount is equal to the 
sum of 75 percent of the hospital-specific amount and 25 percent of the 
ASC payment amount for a hospital that makes an application to its 
fiscal intermediary and meets the following requirements.
    (i) More than 60 percent of the hospital's inpatient hospital 
discharges, as described in Sec. 412.60 of this chapter, occurring 
during its cost reporting period beginning on or after October 1, 1986 
and before October 1, 1987, are classified in diagnosis related groups 
36 through 74.
    (ii) During its cost reporting period beginning on or after October 
1, 1986 and before October 1, 1987, more than 30 percent of the 
hospital's total revenues is derived from outpatient services.
    (e) Aggregation of cost, charges, and the blended amount. For 
purposes of determining the correct payment amount under paragraphs (c) 
and (d) of this section, all reasonable costs and customary charges 
attributable to facility services furnished during a cost reporting 
period are aggregated and treated separately from the reasonable costs 
and customary charges attributable to all other services furnished in 
the hospital.

[52 FR 36773, Oct. 1, 1987; 52 FR 37715, Oct. 8, 1987, as amended at 55 
FR 33699, Aug. 17, 1990; 55 FR 34797, Aug. 24, 1990; 57 FR 36017, Aug. 
12, 1992; 57 FR 45113, Sept. 30, 1992]



Sec. 413.122  Payment for hospital outpatient radiology services and other diagnostic procedures.

    (a) Basis and purpose. (1) This section implements section 1833(n) 
of the Act and establishes the method for determining Medicare payments 
for radiology services and other diagnostic procedures performed by a 
hospital on an outpatient basis.
    (2) For purposes of this section--
    (i) Radiology services include diagnostic and therapeutic radiology, 
nuclear medicine, CAT scan procedures, magnetic resonance imaging, 
ultrasound and other imaging services; and
    (ii) Other diagnostic procedures are those identified by HCFA, and 
do not include diagnostic radiology procedures or diagnostic laboratory 
tests.
    (b) Payment for hospital outpatient radiology services. (1) The 
aggregate payment for hospital outpatient radiology services furnished 
on or after October 1, 1988 is equal to the lesser of the following:

[[Page 438]]

    (i) The hospital's reasonable cost or customary charges, as 
determined in accordance with Sec. 413.13, reduced by the applicable 
Part B annual deductible and coinsurance amounts.
    (ii) The blended payment amount described in paragraph (b)(2) of 
this section.
    (2) The blended payment amount for hospital outpatient radiology 
services furnished on or after October 1, 1988, but before October 1, 
1989, is equal to the sum of--
    (i) 65 percent of the hospital-specific amount (the hospital's 
reasonable cost or customary charges, whichever is less, reduced by the 
applicable Part B annual deductible and coinsurance amounts); and
    (ii) 35 percent of a prevailing charge or fee schedule amount that 
is calculated as 80 percent of the amount determined by subtracting the 
applicable Part B annual deductible from 62 percent of the prevailing 
charges (or for services furnished on or after January 1, 1989, the fee 
schedule amount established) for the same services when furnished by 
participating physicians in their offices in the same locality.
    (3) For hospital outpatient radiology services furnished on or after 
October 1, 1989, the blended payment amount is equal to the sum of 50 
percent of the hospital-specific amount and 50 percent of the fee 
schedule amount.
    (4) For hospital outpatient radiology services furnished on or after 
January 1, 1991, the blended payment amount is equal to the sum of 42 
percent of the hospital-specific amount and 58 percent of the fee 
schedule amount.
    (c) Payment for other diagnostic procedures. (1) The aggregate 
payment for other diagnostic procedures performed by a hospital on an 
outpatient basis on or after October 1, 1989 is equal to the lesser of 
the following:
    (i) The hospital's reasonable cost or customary charges, as 
determined in accordance with Sec. 414.13, reduced by the applicable 
Part B annual deductible and coinsurance amounts.
    (ii) The blended payment described in paragraph (c)(2) of this 
section.
    (2) The blended payment amount for other diagnostic procedures 
furnished on or after October 1, 1989, but before October 1, 1990, is 
equal to the sum of--
    (i) 65 percent of the hospital-specific amount (the hospital's 
reasonable cost or customary charges, whichever is less, reduced by the 
applicable Part B annual deductible and coinsurance amounts); and
    (ii) 35 percent of a prevailing charge amount that is calculated as 
80 percent of the amount determined by subtracting the applicable Part B 
annual deductible from 42 percent of the prevailing charges for the same 
services furnished by participating physicians in their offices in the 
same locality.
    (3) For other diagnostic procedures performed by a hospital on or 
after October 1, 1990, the blended payment is equal to 50 percent of the 
hospital-specific amount and 50 percent of the prevailing charge amount.

[56 FR 8842, Mar. 1, 1991, as amended at 57 FR 36017, Aug. 12, 1992]



Sec. 413.123  Payment for screening mammography performed by hospitals on an outpatient basis.

    (a) Basis and scope. This section implements section 1834(c)(1)(C) 
of the Act and establishes the method for determining Medicare payment 
for screening mammographies performed by hospitals.
    (b) Payment to hospitals for outpatient services. Payment to 
hospitals for screening mammography services performed on an outpatient 
basis is determined in accordance with the technical component billing 
requirements in Sec. 405.534(d) of this chapter.

[55 FR 53522, Dec. 31, 1990, as amended at 59 FR 49834, Sept. 30, 1994]



Sec. 413.124  Reduction to hospital outpatient operating costs.

    (a) Except for sole community hospitals, as defined in Sec. 412.92, 
and critical access hospitals, the reasonable costs of outpatient 
hospital services (other than capital-related costs of such services) 
are reduced by 5.8 percent for services rendered during portions of cost 
reporting periods occurring on or after October 1, 1990, and before 
October 1, 1998.
    (b) For purposes of determining the blended payment amounts of 
ambulatory surgical center approved surgical procedures performed in the 
hospital outpatient setting under Sec. 413.118 and

[[Page 439]]

hospital outpatient radiology services and other diagnostic procedures 
under Sec. 413.122, the reduction is applicable only to the hospital-
specific portion of the blended payment amounts.

[57 FR 36017, Aug. 12, 1992, as amended at 59 FR 26960, May 25, 1994; 62 
FR 46037, Aug. 29, 1997]



Sec. 413.125  Payment for home health services.

    For additional rules on the allowability of certain costs incurred 
by home health agencies, see Secs. 409.46 and 409.49(b) of this chapter.

[59 FR 65497, Dec. 20, 1994]



                    Subpart G--Capital-Related Costs



Sec. 413.130  Introduction to capital-related costs.

    (a) General rule. Capital-related costs and an allowance for return 
on equity are limited to the following:
    (1) Net depreciation expense as determined under Secs. 413.134, 
413.144, and 413.149, adjusted by gains and losses realized from the 
disposal of depreciable assets under Sec. 413.134(f).
    (2) Taxes on land or depreciable assets used for patient care.
    (3) Leases and rentals, including license and royalty fees, for the 
use of depreciable assets or land, as described in paragraph (b) of this 
section.
    (4) The costs of betterments and improvements as described in 
paragraph (c) of this section.
    (5) The costs of minor equipment that are capitalized, rather than 
expensed, as described in paragraph (d) of this section.
    (6) Insurance expense on depreciable assets, as described in 
paragraph (e) of this section.
    (7) Interest expense as determined under Sec. 413.153, subject to 
the qualifications of paragraph (f) of this section.
    (8) For certain proprietary providers, return on equity capital, as 
determined under Sec. 413.157.
    (9) The capital-related costs of related organizations (as described 
in Sec. 413.17), as determined in accordance with paragraph (g) of this 
section.
    (10) Debt issuance costs, debt discounts, and debt redemption costs, 
if the associated debt was incurred to acquire land or depreciable 
assets used for patient care or to refinance existing debt for which the 
original purpose was to acquire land or depreciable assets used for 
patient care.
    (11) The apportionment of the capital-related costs of jointly owned 
assets among the owners must be on a basis that reflects the relative 
use by each owner, rather than the ownership share or the amount of time 
the asset is located at each owners site.
    (b) Leases and rentals. (1) Subject to the qualifications of 
paragraphs (b) (2), (4), (5), and (8) of this section, leases and 
rentals, including licenses and royalty fees, are includable in capital-
related costs if they relate to the use of assets that would be 
depreciable if the provider owned them outright or they relate to land, 
which is neither depreciable nor amortizable if owned outright. The 
terms ``leases'' and ``rentals of assets'' signify that a provider has 
possession, use, and enjoyment of the assets.
    (2) For sale and leaseback agreements for hospitals and SNFs entered 
into before October 23, 1992 and for sale and leaseback agreements for 
other providers entered into at any time, a provider may include 
incurred rental charges in its capital-related costs, as specified in a 
sale and leaseback agreement with a nonrelated purchaser (including 
shared service organizations not related within the meaning of 
Sec. 413.17) involving plant facilities or equipment only if the 
following conditions are met:
    (i) The rental charges are reasonable based on the following--
    (A) Consideration of rental charges of comparable facilities and 
market conditions in the area;
    (B) The type, expected life, condition, and value of the facilities 
or equipment rented; and
    (C) Other provisions of the rental agreements.
    (ii) Adequate alternative facilities or equipment that would serve 
the purpose are not or were not available at lower cost.
    (iii) The leasing was based on economic and technical 
considerations.
    (3) If the conditions of paragraph (b)(2) of this section are not 
met, the amount a provider may include in its

[[Page 440]]

capital-related costs as rental or lease expense under a sale and 
leaseback agreement may not exceed the amount that the provider would 
have included in its capital-related costs had the provider retained 
legal title to the facilities or equipment, such as interest on 
mortgage, taxes, depreciation, and insurance costs.
    (4) For sale and leaseback agreements for hospitals and SNFs entered 
into on or after October 23, 1992, the amount a provider may include in 
its capital-related costs as rental or lease expense may not exceed the 
amount that the provider would have included in its capital-related 
costs had the provider retained legal title to the facilities or 
equipment, such as interest expense on mortgages, taxes, depreciation, 
and insurance costs (the costs of ownership). This limitation applies 
both on an annual basis and over the useful life of the asset.
    (i) If in the early years of the lease, the annual rental or lease 
costs are less than the annual costs of ownership, but in the later 
years of the lease the annual rental or lease costs are more than the 
annual costs of ownership, in the years that the annual rental or lease 
costs are more than the annual costs of ownership, the provider may 
include in capital-related costs annually the actual amount of rental or 
lease costs. The aggregate rental or lease costs included in capital-
related costs may not exceed the aggregate costs of ownership that would 
have been included in capital-related costs over the useful life of the 
asset had the provider retained legal title to the asset.
    (ii) If in the early years of the lease, the annual rental or lease 
costs exceed the annual costs of ownership, but in the later years of 
the lease the annual rental or lease costs are less than the annual 
costs of ownership, the provider may carry forward amounts of rental or 
lease costs that were not included in capital-related costs in the early 
years of the lease due to the costs of ownership limitation, and include 
these amounts in capital-related costs in the years of the lease when 
the annual rental or lease costs are less than the annual costs of 
ownership.
    (iii) In any given year the amount of actual annual rental or lease 
costs plus the amount carried forward to that year may not exceed the 
amount of the costs of ownership for that year.
    (iv) In the aggregate, the amount of rental or lease costs included 
in capital-related costs may not exceed the amount of the costs of 
ownership that the provider could have included in capital-related costs 
had the provider retained legal title to the asset.
    (5) For lease purchase transactions entered into before October 23, 
1992, a lease that meets the following conditions establishes a virtual 
purchase:
    (i) The rental charge exceeds rental charges of comparable 
facilities or equipment in the area.
    (ii) The term of the lease is less than the useful life of the 
facilities or equipment.
    (iii) The provider has the option to renew the lease at a 
significantly reduced rental, or the provider has the right to purchase 
the facilities or equipment at a price that appears to be significantly 
less than what the fair market value of the facilities or equipment 
would be at the time acquisition by the provider is permitted.
    (6)(i) If a lease is a virtual purchase under paragraph (b)(5) of 
this section, the rental charge is includable in capital-related costs 
only to the extent that it does not exceed the amount that the provider 
would have included in capital-related costs if it had legal title to 
the asset (the cost of ownership), such as straight-line depreciation, 
insurance, and interest. A provider may not include in its capital-
related costs accelerated depreciation in this situation.
    (ii) The difference between the amount of rent paid and the amount 
of rent allowed as capital-related costs is considered a deferred charge 
and is capitalized as part of the historical cost of the asset when the 
asset is purchased.
    (iii) If an asset is returned to the owner, instead of being 
purchased, the deferred charge may be included in capital-related costs 
in the year the asset is returned.
    (iv) If the term of the lease is extended for an additional period 
of time at a reduced lease cost and the option

[[Page 441]]

to purchase still exists, the deferred charge may be included in 
capital-related costs to the extent of increasing the reduced rental to 
an amount not in excess of the cost of ownership.
    (v) If the term of the lease is extended for an additional period of 
time at a reduced lease cost and the option to purchase no longer 
exists, the deferred charge may be included in the capital-related costs 
to the extent of increasing the reduced rental to a fair rental value.
    (7) Amounts included in lease or rental payments for repair or 
maintenance agreements are excluded from capital-related costs. If no 
amount is identified in the lease or rental agreement for maintenance, 
the entire lease payment is considered a capital-related cost subject to 
the provisions of paragraph (b)(1) of this section.
    (8) For lease purchase transactions entered into on or after October 
23, 1992, a lease that meets any one of the following conditions 
establishes a virtual purchase:
    (i) The lease transfers title of the facilities or equipment to the 
lessee during the lease term.
    (ii) The lease contains a bargain purchase option.
    (iii) The lease term is at least 75 percent of the useful life of 
the facilities or equipment. This provision is not applicable if the 
lease begins in the last 25 percent of the useful life of the facilities 
or equipment.
    (iv) The present value of the minimum lease payments (payments to be 
made during the lease term including bargain purchase option, guaranteed 
residual value, and penalties for failure to renew) equals at least 90 
percent of the fair market value of the leased property. This provision 
is not applicable if the lease begins in the last 25 percent of the 
useful life of the facilities or equipment. Present value is computed 
using the lessee's incremental borrowing rate, unless the interest rate 
implicit in the lease is known and is less than the lessee's incremental 
borrowing rate, in which case the interest rate implicit in the lease is 
used.
    (9)(i) If a lease establishes a virtual purchase under paragraph 
(b)(8) of this section, the rental charge is includable in capital-
related costs to the extent that it does not exceed the amount that the 
provider would have included in capital-related costs if it had legal 
title to the asset (the cost of ownership). The cost of ownership 
includes straight-line depreciation, insurance, and interest. For 
purposes of computing the limitation on allowable rental cost in this 
paragraph, a provider may not include accelerated depreciation.
    (ii) The difference between the amount of rent paid and the amount 
of rent allowed as capital-related costs is considered a deferred charge 
and is capitalized as part of the historical cost of the asset when the 
asset is purchased.
    (iii) If an asset is returned to the owner instead of being 
purchased, the deferred charge may be included in capital-related costs 
in the year the asset is returned.
    (iv) If the term of the lease is extended for an additional period 
of time at a reduced lease cost and the option to purchase still exists, 
the deferred charge may be included in capital-related costs to the 
extent of increasing the reduced rental to an amount not in excess of 
the cost of ownership.
    (v) If the term of the lease is extended for an additional period of 
time at a reduced lease cost and the option to purchase no longer 
exists, the deferred charge may be included in capital-related costs to 
the extent of increasing the reduced rental to a fair rental value.
    (vi) If the lessee becomes the owner of the leased asset (either by 
operation of the lease or by other means), the amount considered as 
depreciation, for the purpose of having computed the limitation on 
rental charges in paragraph (b)(9)(i) of this section, must be used in 
calculating the limitation on adjustments for the purpose of determining 
any gain or loss under Sec. 413.134(f) upon disposal of an asset.
    (c) Betterments and improvements. (1) Betterments and improvements 
are changes which extend the estimated useful life of an asset at least 
two years beyond its original estimated useful life, or increase the 
productivity of an asset significantly over its original productivity.
    (2) A provider must capitalize and prorate the costs of betterments 
and

[[Page 442]]

improvements over the remaining estimated useful life of the asset, as 
modified by the betterment or improvement.
    (d) Minor equipment. A provider must include in its capital-related 
costs the costs of minor equipment that are capitalized rather than 
charged off to expense if--
    (1) The net book value of minor equipment at the time the provider 
enters the program is prorated over three years (that is, one-third of 
the net book value is written off each year), and new purchases are also 
prorated over a 3-year period; or
    (2) The cost of minor equipment is prorated over their actual useful 
lives.
    (e) Insurance. (1) A provider must include in its capital-related 
costs the costs of insurance on depreciable assets used for patient care 
or insurance that provides for the payment of capital-related costs 
during business interruption.
    (2) If an insurance policy also provides protection for other than 
the replacement of depreciable assets or to pay capital-related costs in 
the case of business interruption insurance, only that portion of the 
premium related to the replacement of depreciable assets or to pay 
capital-related costs in the case of business interruption insurance is 
includable in capital-related costs.
    (f) Debt premiums and debt discounts. Debt premiums or debt discount 
are applied as adjustments to capital-related costs if the associated 
debt is incurred for acquiring land or depreciable assets used for 
patient care or for refinancing existing debt for which the original 
purpose was to acquire land or depreciable assets used for patient care.
    (g) Interest expense. (1) A provider must include in its capital-
related costs interest expense, as described in Sec. 413.153, if such 
expense is incurred in--
    (i) Acquiring land or depreciable assets (either through purchase or 
lease) used for patient care; or
    (ii) Refinancing existing debt, if the original purpose of the 
refinanced debt was to acquire land or depreciable assets used for 
patient care.
    (2) If investment income offset is required under 
Sec. 413.153(b)(2)(iii), only that portion of investment income that 
bears the same relationship to total investment income, as the portion 
of capital-related interest expense bears to total interest expense, is 
offset against capital-related costs.
    (h) Costs of supplying organizations--(1) Supplying organizations 
related to the provider. (i) If the supplying organization is related to 
the provider within the meaning of Sec. 413.17, except as provided in 
paragraph (g)(1)(ii) of this section, a provider's capital-related costs 
include the capital-related costs of the supplying organization.
    (ii) If the costs of the services, facilities or supplies being 
furnished exceed the open market price, or if the provisions of 
Sec. 413.17(d) apply, no part of the cost to the provider of the 
services, facilities, or supplies are considered capital-related costs, 
unless the services, facilities, or supplies would otherwise be 
considered capital-related.
    (2) Supplying organizations not related to the provider. If the 
supplying organization is not related to the provider within the meaning 
of Sec. 413.17, no part of the charge to the provider may be considered 
a capital-related cost (unless the services, facilities, or supplies are 
capital-related in nature) unless--
    (i) The capital-related equipment is leased or rented (as described 
in paragraph (b) of this section) by the provider;
    (ii) The capital-related equipment is located on the provider's 
premises, or is located offsite and is on real estate owned, leased or 
rented by the provider; and
    (iii) The capital-related portion of the charge is separately 
specified in the charge to the provider.
    (i) Costs excluded from capital-related costs. The following costs 
are not capital-related costs. To the extent that they are allowable, 
they must be included in determining each provider's operating costs:
    (1) Costs incurred for the repair or maintenance of equipment or 
facilities.
    (2) Amounts included in rentals or lease payments for repair or 
maintenance agreements.
    (3) Interest expense incurred to borrow working capital (for 
operating expenses).
    (4) General liability insurance or any other form of insurance to 
provide protection other than for the replacement

[[Page 443]]

of depreciable assets or to pay capital-related costs in the case of 
business interruption.
    (5) Taxes other than those assessed on the basis of some valuation 
of land or depreciable assets used for patient care. (Taxes not related 
to patient care, such as income taxes, are not allowable, and are 
therefore not included among either capital-related or operating costs.)
    (6) The costs of minor equipment that are charged off to expense 
rather than capitalized as described in paragraph (d) of this section.
    (7) The costs incurred for maintenance and repair insurance 
agreements (commonly referred to as maintenance agreements).
    (j) Reduction to capital-related costs. (1) Except for sole 
community hospitals and critical access hospitals, the amount of 
capital-related costs of all hospital outpatient services is reduced 
by--
    (i) 15 percent for portions of cost reporting periods occurring on 
or after October 1, 1989, through September 30, 1991; and
    (ii) 10 percent for portions of cost reporting periods occurring on 
or after October 1, 1991, through September 30, 1998.
    (2) For purposes of determining the blended payment amounts for 
hospital outpatient services under Sec. 413.118 and Sec. 413.122, the 
reduction is applicable only to the hospital-specific portion of the 
blended amounts.

[51 FR 34793, Sept. 30, 1986, as amended at 52 FR 21225, June 4, 1987; 
56 FR 43456, Aug. 30, 1991; 57 FR 3017, Jan. 27, 1992; 57 FR 36017, Aug. 
12, 1992; 57 FR 43917, Sept. 23, 1992; 58 FR 17528, Apr. 5, 1993; 59 FR 
26960, May 25, 1994; 62 FR 46037, Aug. 29, 1997]



Sec. 413.134  Depreciation: Allowance for depreciation based on asset costs.

    (a) Principle. An appropriate allowance for depreciation on 
buildings and equipment used in the provision of patient care is an 
allowable cost. The depreciation must be--
    (1) Identifiable and recorded in the provider's accounting records;
    (2) Based on the historical cost of the asset, except as specified 
in paragraph (j) of this section regarding donated assets; and
    (3) Prorated over the estimated useful life of the asset using--
    (i) The straight-line method; or
    (ii) Accelerated depreciation under a declining balance method (not 
to exceed double the straight-line rate) or the sum-of-the-years' digits 
method in the following situations:
    (A) Depreciable assets for which accelerated depreciation was used 
for Medicare purposes before August 1, 1970, including those assets for 
which a timely request to change from straight-line depreciation to 
accelerated depreciation was received by an intermediary before August 
1, 1970;
    (B) Depreciable assets acquired before August 1, 1970, if no 
election to use straight-line or accelerated depreciation was in effect 
on August 1, 1970, and the provider was participating in the program on 
August 1, 1970;
    (C) Depreciable assets of a provider if construction of such 
depreciable asset began before February 5, 1970, and the provider was 
participating in the program on February 5, 1970; or
    (D) Depreciable assets of a provider if a valid written contract was 
entered into by a provider participating in the program before February 
5, 1970, for construction, acquisition, or for the permanent financing 
thereof, and such contract was binding on a provider on February 5, 
1970, and at all times thereafter; or
    (iii) A declining balance method, not to exceed 150 percent of the 
straight-line rate, for a depreciable asset acquired after July 31, 
1970; however, this declining balance method may be used only if the 
cash flow from depreciation on the total assets of the institution 
during the reporting period, including straight-line depreciation on the 
assets in question, is insufficient (assuming funding of available 
capital not required currently for amortization and assuming reasonable 
interest income on such funds) to supply the funds required to meet the 
reasonable principal amortization schedules on the capital debts related 
to the provider's total depreciable assets. For each depreciable asset 
for which a provider requests authorization to use a declining balance 
method for Medicare reimbursement purposes, but not to exceed 150 
percent of the straight-line rate, the provider

[[Page 444]]

must demonstrate to the intermediary's satisfaction that the required 
cash flow need exists. For each depreciable asset in which a provider 
justifies the use of accelerated depreciation, the intermediary must 
give written approval for the use of a depreciation method other than 
straight-line before basing any interim payment on this accelerated 
depreciation or making its reasonable cost determination which includes 
an allowance for such depreciation.
    (b) General rules--(1) Historical cost. Historical cost is the cost 
incurred by the present owner in acquiring the asset.
    (i) All providers--(A) Depreciable assets acquired after July 31, 
1970 and before December 1, 1997. For depreciable assets acquired after 
July 31, 1970 and before December 1, 1997, and for a hospital or an SNF, 
acquired before July 18, 1984, the historical cost may not exceed the 
lower of current reproduction cost adjusted for straight-line 
depreciation over the life of the asset to the time of the purchase or 
the fair market value of the asset at the time of its purchase.
    (B) Depreciable assets acquired on or after December 1, 1997. For 
depreciable assets acquired on or after December 1, 1997, the historical 
cost of the asset that will be recognized under this program must not 
exceed the historical cost less depreciation allowed to the owner of 
record as of August 5, 1997 (or if an asset did not exist as of August 
5, 1997, the first owner of record after August 5, 1997). For this 
paragraph (b)(1)(i)(B), the following apply:
    (1) An asset that was not in existence as of August 5, 1997 includes 
an asset that physically existed but was not owned by a provider 
participating in the Medicare program as of that date.
    (2) The acquisition cost to the owner of record is subject to the 
limitation on historical costs described in paragraphs (g) (1), (2), and 
(3) of this section, and is reduced by any depreciation taken by the 
owner of record. The limitation on historical cost is also applied to 
the purchase of land, which is a capital asset that is neither 
depreciable nor amortizable under any circumstances. (See 
Secs. 413.153(d) and 413.157(b) for application of the limitation to the 
cost of land for purposes of determining the allowable interest 
expense.)
    (3) Acquisition cost to the owner of record includes the costs of 
betterment or improvements that extend the estimated useful life of an 
asset at least 2 years beyond its original estimated useful life or that 
increase the productivity of an asset significantly over its original 
productivity.
    (4) For assets acquired prior to a provider's entrance into the 
Medicare program, the acquisition cost to the owner of record is the 
historical cost when acquired, rather than when the provider entered the 
program.
    (5) For assets subject to the optional depreciation allowance as 
described in Sec. 413.139, the acquisition cost to the owner of record 
is the historical cost established for those assets when the provider 
changed to actual depreciation as described in Sec. 413.139(e). If the 
provider did not change to actual depreciation, as described in 
Sec. 413.139(e), for optional allowance assets, the acquisition cost to 
the owner of record is based on the provider's recorded historical cost 
of the asset when acquired. If the provider has no historical cost 
records for optional allowance assets, the acquisition cost to the owner 
of record is established by appraisal.
    (6) The historical cost of an asset acquired on or after July 18, 
1984 may not include costs attributable to the negotiation or settlement 
of the sale or purchase (by acquisition, merger, or consolidation) of 
any capital asset for which any payment was previously made under the 
Medicare program. The costs to be excluded include, but are not limited 
to, appraisal costs (except those incurred at the request of the 
intermediary under paragraph (f)(2)(iv) of this section), legal fees, 
accounting and administrative costs, travel costs, and the costs of 
feasibility studies.
    (ii) Hospitals and SNFs only. (A) For assets acquired on or after 
July 18, 1984 and before December 1, 1997 and not subject to an 
enforceable agreement entered into before July 18, 1984, historical cost 
may not exceed the lowest of the following:
    (1) The allowable acquisition cost of the asset to the owner of 
record as of July 18, 1984 (or, in the case of an asset not in existence 
as of July 18, 1984, the

[[Page 445]]

first owner of record of the asset after that date);
    (2) The acquisition cost of the asset to the new owner; or
    (3) The fair market value of the asset on the date of acquisition.
    (B) For purposes of applying paragraph (b)(1)(ii)(A) of this 
section, an asset not in existence as of July 18, 1984 includes any 
asset that physically existed, but was not owned by a hospital or SNF 
participating in the Medicare program as of July 18, 1984.
    (C) The acquisition cost to the owner of record is subject to any 
limitation on historical costs described in paragraphs (b)(1)(i) or 
(g)(1) and (2) of this section, and is not reduced by any depreciation 
taken by the owner of record. This limitation on historical cost is also 
applied to the purchase of land, a capital asset that is neither 
depreciable nor amortizable under any circumstances. (See 
Secs. 413.153(d) and 413.157(b) for application of the limitation to the 
cost of land for purposes of determining allowable interest expense and 
return on equity capital or proprietary providers.)
    (D) Acquisition cost to the owner of record includes the costs of 
betterments or improvements that extend the estimated useful life of an 
asset at least two years beyond its original estimated useful life or 
increase the productivity of an asset significantly over its original 
productivity.
    (E) For assets acquired prior to a hospital's or SNF's entrance into 
the Medicare program, the acquisition cost to the owner of record is the 
historical cost of the asset when acquired, rather than when the 
hospital or SNF entered the program.
    (F) For assets subject to the optional depreciation allowance as 
described in Sec. 413.139, the acquisition cost to the owner of record 
is the historical cost established for those assets when the hospital or 
SNF changed to actual depreciation as described in Sec. 413.139(e). If 
the hospital or SNF did not change to actual depreciation, as described 
in Sec. 413.139(e), for optional allowance assets, the acquisition cost 
to the owner of record is established by reference to the hospital's or 
SNF's recorded historical cost of the asset when acquired. If the 
hospital or SNF has no historical cost records for optional allowance 
assets, the acquisition cost to the owner of record is established by 
appraisal.
    (G) The historical cost of an asset acquired on or after July 18, 
1984 may not include costs attributable to the negotiation or settlement 
of the sale or purchase (by acquisition, merger, or consolidation) of 
any capital asset for which any payment was previously made under the 
Medicare program. The costs to be excluded include, but are not limited 
to, appraisal costs (except those incurred at the request of the 
intermediary under paragraph (f)(2)(iv) of this section), legal fees, 
accounting and administrative costs, travel costs, and the costs of 
feasibility studies.
    (iii) Hospital-based providers other than SNFs and SNF-based 
providers. For changes of ownership that involve assets of a hospital-
based provider other than a SNF, or assets of a SNF-based provider, the 
provisions of paragraph (b)(1)(ii) of this section are not applicable. A 
reasonable allocation of the purchase price must be made, so that the 
hospital-based provider other than a SNF, or a SNF-based provider, is 
not affected by the limitations described in paragraph (b)(1)(ii) of 
this section. The historical cost of assets of providers other than 
hospitals and SNFs is governed by paragraph (b)(1)(i) of this section.
    (2) Fair market value. Fair market value is the price that the asset 
would bring by bona fide bargaining between well-informed buyers and 
sellers at the date of acquisition. Usually the fair market price is the 
price that bona fide sales have been consummated for assets of like 
type, quality, and quantity in a particular market at the time of 
acquisition.
    (3) The straight-line method. Under the straight-line method of 
depreciation, the cost or other basis (for example, fair market value in 
the case of donated assets) of the asset, less its estimated salvage 
value, if any, is determined first. Then this amount is distributed in 
equal amounts over the period of the estimated useful life of the asset.
    (4) Declining balance method. Under the declining balance method, 
the annual depreciation allowance is computed by multiplying the

[[Page 446]]

undepreciated cost of the asset each year by a uniform rate up to double 
the straight-line rate or 150 percent, as the case may be (see paragraph 
(a)(3) of this section for limitations on use of accelerated methods of 
depreciation).
    (5) Sum-of-the-years' digits method. Under the sum-of-the-years' 
digits method, the annual depreciation allowance is computed by 
multiplying the depreciable cost basis (cost less salvage value) by a 
constantly decreasing fraction. The numerator of the fraction is 
represented by the remaining years of useful life of the asset at the 
beginning of each year, and the denominator is always represented by the 
sum of the years' digits of useful life at the time of acquisition.
    (6) Current reproduction cost. Current reproduction cost is the cost 
at current prices, in a particular locality or market area, of 
reproducing an item of property or a group of assets. Where depreciable 
assets are concerned, this means the reasonable cost to have built, 
reproduce in kind, or, in the case of equipment or similar assets, to 
purchase in the competitive market.
    (7) Useful life. The estimated useful life of a depreciable asset is 
its normal operating or service life to the provider, subject to the 
provisions in paragraph (b)(7)(i) of this section. Factors to be 
considered in determining useful life include normal wear and tear; 
obsolescence due to normal economic and technological changes; climatic 
and other local conditions; and the provider's policy for repairs and 
replacement.
    (i) Initial selection of useful life. In selecting a proper useful 
life for computing depreciation under the Medicare program, providers 
must use the useful life guidelines published by HCFA. If HCFA has not 
published applicable useful life guidelines, providers must use--
    (A) The edition of the American Hospital Association useful life 
guidelines, as specified in HCFA Medicare program manuals; or
    (B) A different useful life specifically requested by the provider 
and approved by the intermediary. A different useful life may be 
approved by the intermediary if the provider's request is properly 
supported by acceptable factors that affect the determination of useful 
life. However, such factors as an expected early sale, retirement, 
demolition or abandonment of an asset, or termination of the provider 
from the Medicare program may not be used.
    (ii) Application of guidelines. The provisions concerning the 
selection of useful life guidelines described in paragraph (b)(7)(i) of 
this section apply to assets acquired on or after January 1, 1981. For 
assets acquired before January 1, 1981, providers must use the useful 
life guidelines published by the American Hospital Association in its 
1973 edition of Chart of Accounts for Hospitals, or those published by 
the Internal Revenue Service, or those approved for use by 
intermediaries as provided in paragraph (b)(7)(i)(B) of this section.
    (iii) Changing useful life. A change in the estimated useful life 
may be made if clear and convincing evidence justifies a redetermination 
of the useful life used by the provider. Such a change must be approved 
by the intermediary in writing, and the factors cited in paragraphs 
(b)(7) and (b)(7)(i) of this section are applicable in making such 
redeterminations of useful life. If the request is approved, the change 
is effective with the reporting period immediately following the period 
in which the provider's request is submitted for approval.
    (8) Donated asset. An asset is considered donated when the provider 
acquires the asset without making payment in the form of cash, new debt, 
assumed debt, property or services. Except as provided in paragraph 
(j)(3) of this section, if a provider makes payment in any form to 
acquire an asset, the payment is considered the purchase price for the 
purpose of determining allowable historical cost.
    (9) Net book value. The net book value of an asset is the 
depreciable basis used for the Medicare program by the asset's last 
participating owner less depreciation recognized under the Medicare 
program.
    (c) Recording of depreciation. Appropriate recording of depreciation 
includes the identification of the depreciable assets in use, the 
assets' historical costs, the assets' dates of acquisition, the method 
of depreciation, estimated useful lives, and the assets' accumulated 
depreciation.

[[Page 447]]

    (d) Depreciation methods--(1) General. Proration of the cost of an 
asset over its useful life is allowed on the straight-line method, or, 
when permitted under paragraph (a)(3) of this section, the declining 
balance or the sum-of-the-years' digits methods. One method may be used 
on a single asset or group of assets and another method on others. In 
applying the declining balance or sum-of-the-years' digits method to an 
asset that is not new, the undepreciated cost of the asset is treated as 
the cost of a new asset in computing depreciation.
    (2) Change in method. Prior to August 1, 1970, a provider may change 
from the straight-line method to an accelerated method or vice versa, 
upon advance approval from the intermediary on a prospective basis with 
the request being made before the end of the first month of the 
prospective reporting period. Only one such change with respect to a 
particular asset may be made by a provider. Effective with August 1, 
1970, a provider may only change from an accelerated method or optional 
method (see Sec. 413.139) to the straight-line method. Such a change may 
be made without intermediary approval and the basis for depreciation is 
the undepreciated cost reduced by the salvage value. Thereafter, once 
straight-line depreciation is selected for a particular asset, an 
accelerated method may not be established for that asset.
    (3) Recovery of accelerated depreciation--(i) General. If a provider 
who has used an accelerated method of depreciation for any of its assets 
terminates participation in the program, or if the Medicare proportion 
of its allowable costs decreases so that cumulatively substantially more 
depreciation was paid than would have been paid using the straight-line 
method of depreciation, the excess of reimbursable cost determined by 
using accelerated depreciation methods and paid under the program over 
the reimbursable cost that would have been determined and paid under the 
program by using the straight-line method of depreciation, will be 
recovered as an offset to current reimbursement due or, if the provider 
has terminated participation in the program, as an overpayment. In this 
determination of excess payment, recognition will be given to the 
effects the adjustment to straight-line depreciation would have on the 
return on equity capital and on the allowance in lieu of specific 
recognition of other costs in the respective years.
    (ii) Transaction between related organizations--(A) General. If the 
termination of the provider agreement is due to a change in provider 
ownership, as defined in Sec. 489.18 of this chapter, resulting from a 
transaction between related organizations, as defined in Sec. 413.17, 
and the criteria in paragraph (b) of this section are met, the excess of 
reimbursable cost, as determined in paragraph (d)(3)(i) of this section 
may not be recovered if there is a continuation of participation by the 
facility in the Medicare program.
    (B) Criteria. The following criteria must be met if the recovery of 
excess reimbursable cost is not to be made:
    (1) The termination of the provider agreement is due to a change in 
ownership of the provider resulting from a transaction between related 
organizations.
    (2) The successor provider continues to participate in the Medicare 
program.
    (3) Control and the extent of the financial interest of the owners 
of the provider before and after the termination remain the same; that 
is, the successor owners acquire the same per-centage of control or 
financial investment as the transferors had.
    (4) All assets and liabilities of the terminated provider are 
transferred to the related successor participating provider.
    (C) Effect of transaction. In transactions meeting the criteria 
specified in paragraph (d)(3)(ii)(B) of this section, the provision 
concerning recovery of excess reimbursable cost (Sec. 413.134(d)(3)(i)) 
is not applied, and the transaction is treated as follows:
    (1) The successor provider must record the historical cost and 
accumulated depreciation and the method of depreciation recognized under 
the Medicare program, and these are considered as incurred by the 
successor provider for Medicare purposes.
    (2) The Medicare program's utilization of the terminated provider is 
considered as having been incurred by the

[[Page 448]]

successor provider for Medicare purposes.
    (3) The equity capital of the terminated provider as of the closing 
of its final cost reporting period must be wholly contained in the 
equity capital of the successor provider as of the beginning of its 
first cost reporting period.
    (e) Funding of depreciation. Although funding of depreciation is not 
required, it is strongly recommended that providers use this mechanism 
as a means of conserving funds for replacement of depreciable assets. 
Funded depreciation account funds must be placed in readily marketable 
investments of the type that assures the availability and conservation 
of the funds. Additions to the funded depreciation account must remain 
in the account for at least 6 months to be considered valid funding 
transactions.
    (1) Incentive. As an incentive for funding, investment income on 
funded depreciation is not treated as a reduction of allowable interest 
expense provided such investment income is deposited in, and becomes 
part of, the funded depreciation account at the time of receipt by the 
provider. Investment income earned on deposits before the 6-month period 
elapses are not offset unless the deposits are withdrawn for an improper 
purpose during this period. If a provider transfers assets of the funded 
depreciation account to a related organization (for example, pooling of 
several chain organization providers' funded depreciation accounts at 
the chain home office for investment purposes), these assets shall be 
treated as the provider's funds and are subject to all the requirements 
specified in paragraph (e) of this section.
    (2) Availability of funded depreciation. (i) HCFA considers funded 
depreciation available for use in the acquisition or replacement of 
depreciable assets related to patient care unless the funded 
depreciation funds have been committed by contract for the acquisition 
of depreciable assets related to the furnishing of patient care or for 
other capital purposes related to patient care.
    (ii) Borrowing for a purpose for which funded depreciation account 
funds should have been used makes the borrowing unnecessary to the 
extent that funded depreciation account funds were available at the time 
of the borrowing. Available funds in the funded depreciation account, to 
the extent of the unnecessary borrowing, are called ``tainted'' funds. 
Interest expense incurred on borrowing for a capital purpose is not an 
allowable cost to the extent that funded depreciation account funds were 
available at the time of the borrowing.
    (iii) A provider can remove the ``unnecessary'' characterization of 
borrowing, and thereby cure tainted funded depreciation, by using the 
tainted funds for a proper purpose described in paragraph (e)(3)(i) of 
this section. However, any funded depreciation that existed at the time 
of the unnecessary borrowing and is not classified as tainted must be 
used before any of the tainted funds.
    (iv) When only a portion of the borrowing is considered unnecessary 
under paragraph (e)(2)(ii) of this section, subsequent repayments of 
such borrowing from general funds are applied first to the allowable 
portion of the borrowing and then, when all of the allowable borrowing 
is repaid, to the unallowable portion of the borrowing. When funds from 
the funded depreciation account are used for the repayment of the 
unnecessary borrowing, an equivalent amount of tainted funds is cured 
without regard to the provisions of paragraphs (e)(2)(ii) and 
(e)(3)(i)(C) of this section. Similarly, where general funds are used to 
pay for the unallowable borrowing after the necessary borrowing has been 
repaid, an equivalent amount of tainted funded depreciation is cured 
without regard to the provisions of paragraphs (e)(2)(ii) and 
(e)(3)(i)(C) of this section.
    (3) Withdrawals of funded depreciation--(i) Proper withdrawals. (A) 
Withdrawals from funded depreciation are considered proper if made 
either for the acquisition or replacement of depreciable assets related 
to the furnishing of patient care or for other capital purposes related 
to patient care.
    (B) First-in, first-out basis. Proper withdrawals from funded 
depreciation are made on a first-in, first-out basis.
    (C) Exception. If HCFA determines that a borrowing is unnecessary 
because of the existence of available

[[Page 449]]

funded depreciation, and additional deposits have been made to funded 
depreciation after the occurrence of the unnecessary borrowing, 
withdrawals made after the date of the additional deposits are deemed to 
be made on a last-in, first-out basis.
    (ii) Improper withdrawals. (A) Withdrawals from funded depreciation 
that do not meet the requirements for proper withdrawals under the 
provisions in paragraph (e)(3)(i)(A) of this section are considered 
improper withdrawals.
    (B) Improper withdrawals from funded depreciation are made on a 
last-in, first-out basis. If improper withdrawals are made, interest 
expense is reduced in accordance with section Sec. 413.153(c)(3).
    (C) Improper withdrawals will result in the offset of otherwise 
allowable interest expense under the offset provisions in 
Sec. 413.153(c)(3).
    (4) Loans from funded depreciation. (i) When the general fund of the 
provider borrows from the funded depreciation to obtain working capital 
for normal operating expenses to furnish patient care, interest incurred 
by the general fund is an allowable operating cost only if the interest 
expense is supported by documents that evidence that the funds were 
borrowed and that payment of interest and repayment of the funds are 
required, is separately identified in the provider's accounting records, 
and meets the necessary and proper tests described in 
Secs. 413.153(b)(2) and (b)(3). However, if the general fund of the 
provider borrows from the funded depreciation account to acquire 
depreciable assets used in furnishing patient care, or for other capital 
purposes related to patient care, interest expense paid by the general 
fund to the funded depreciation account is not an allowable cost. 
Providers are expected to use the funded depreciation for these 
purposes.
    (ii) Loans from funded depreciation to the general fund are 
considered investments of funded depreciation, but do not have to meet 
the readily marketable test described in paragraph (e) of this section. 
Loans made from funded depreciation are subject to the requirement that 
funded depreciation must be available for the acquisition of depreciable 
assets used to furnish patient care, or for other capital purposes 
related to patient care. Costs incurred to secure lines of credit from 
lending institutions to ensure such availability are not allowable 
costs.
    (iii) Funding of depreciation from general funds will not be 
recognized to the extent of any outstanding loans from the funded 
depreciation account to the general fund. Deposits from the general fund 
into the funded depreciation account must be first applied to reduce any 
loans outstanding from the funded depreciation to the general fund. When 
the loans are repaid in full, general funds deposited in the funded 
depreciation account are considered as repayments of the general fund. 
Therefore, any subsequent interest expense of the general fund paid to 
the funded depreciation fund is not an allowable cost.
    (iv) A provider may loan its funded depreciation to a related 
organization for any purpose subject to the following conditions:
    (A) Authorization for such a loan by the provider's appropriate 
managing body of the provider, such as Board of Trustees or Board of 
Directors, must be on file.
    (B) The funded depreciation loaned must remain available, as 
specified in paragraph (e)(2) of this section, to the provider making 
the loan. Costs incurred for lines of credit to assure such availability 
are not allowable costs. During the period of time that the loan is 
outstanding, if the provider making the loan resorts to outside 
borrowing for a purpose for which its funded depreciation should have 
been used, interest expense on an amount of the outside borrowing up to 
the amount of the funded depreciation that should have been available 
would be disallowed as unnecessary.
    (C) Such loans shall be considered investments of the provider's 
funded depreciation, but the requirement that funded depreciation be 
invested in readily marketable investments as required in paragraph (e) 
of this section is waived for such loans.
    (D) The funded depreciation account must earn interest on such loans 
at a rate that does not exceed the rate that would be charged for a 
comparable loan

[[Page 450]]

from an independent lending institution. This investment income will not 
be used to reduce the provider's interest expense if all the other 
conditions in paragraph (e) of this section are met. If the entity 
borrowing the funds is another provider participating in the Medicare 
program, the interest expense incurred on such loans would be allowable 
if the loan meets all of the interest expense requirements specified in 
Sec. 413.153. (For purposes of Sec. 413.153(b)(3)(ii), such loans are 
not considered to be with a related lender.)
    (f) Gains and losses on disposal of assets--(1) General. Depreciable 
assets may be disposed of through sale, scrapping, trade-in, exchange, 
demolition, abandonment, condemnation, fire, theft, or other casualty. 
If disposal of a depreciable asset, including the sale or scrapping of 
an asset before December 1, 1997, results in a gain or loss, an 
adjustment is necessary in the provider's allowable cost. (No gain or 
loss is recognized on either the sale or the scrapping of an asset that 
occurs on or after December 1, 1997.) The amount of a gain included in 
the determination of allowable cost is limited to the amount of 
depreciation previously included in Medicare allowable costs. The amount 
of a loss to be included is limited to the undepreciated basis of the 
asset permitted under the program. The treatment of the gain or loss 
depends upon the manner of disposition of the asset, as specified in 
paragraphs (f)(2) through (6) of this section. The gain or loss on the 
disposition of depreciable assets has no retroactive effect on a 
proprietary provider's equity capital for years prior to the year of 
disposition.
    (2) Bona fide sale or scrapping before December 1, 1997. For the 
bona fide sale or scrapping of depreciable assets before December 1, 
1997, the following apply:
    (i) Except as specified in paragraph (f)(3) of this section, gains 
and losses realized from the bona fide sale or scrapping of depreciable 
assets are included in the determination of allowable cost only if the 
sale or scrapping occurs while the provider is participating in 
Medicare. The extent to which such gains and losses are included is 
calculated by prorating the basis for depreciation of the asset in 
accordance with the proportion of the asset's useful life for which the 
provider participated in Medicare. For purposes of this paragraph 
(f)(2)(i), scrapping refers to the physical removal from the provider's 
premises of tangible personal properties that are no longer useful for 
their intended purpose and are only salable for their scrap or junk 
value.
    (ii) If the total amount of gains or losses realized from bona fide 
sales or scrapping does not exceed $5,000 within the cost reporting 
period or if the provider's cumulative utilization under the Medicare 
program is less than 5 percent, the net amount of gains or losses 
realized from sale or scrapping will be allowed as a depreciation 
adjustment in the period of disposal. For purposes of this paragraph 
(f)(2)(ii), the provider's cumulative Medicare utilization precentage is 
determined by comparing the cumulative total of the Medicare inpatient 
days for all reporting periods in which depreciation on the asset 
disposed of was claimed under the Medicare program to the cumulative 
total of inpatient days of the participating provider for the same 
reporting periods.
    (iii) If the conditions specified in paragraph (f)(2)(ii) of this 
section are not met, the adjustment to reimbursable cost in the 
reporting period of asset disposition is calculated as follows:
    (A) The total amount of gains or losses shall be allocated to all 
reporting periods under the Medicare program, based on the ratio of the 
depreciation allowed on the assets in each reporting period to the total 
depreciation allowed under the Medicare program.
    (B) The results of this allocation are multiplied by the ratio of 
Medicare reimbursable cost to total allowable cost for each reporting 
period.
    (C) The results of this multiplication are then added.
    (D) Effective for cost reporting periods beginning on or after 
October 1, 1991, no adjustment will be made for the portion of gains or 
losses allocated to inpatient hospital services for which the hospital 
was paid under the fully prospective payment methodology as described in 
Sec. 412.340 of this chapter or under the hold-harmless methodology

[[Page 451]]

based on the Federal rate as described in Sec. 412.344(a)(1) of this 
chapter for new capital costs or in Sec. 412.344(a)(2) of this chapter.
    (iv) If a provider sells more than one asset for a lump sum sales 
price, the gain or loss on the sale of each depreciable asset must be 
determined by allocating the lump sum sales price among all the assets 
sold, in accordance with the fair market value of each asset as it was 
used by the provider at the time of sale. If the buyer and seller cannot 
agree on an allocation of the sales price, or if they do agree but there 
is insufficient documentation of the current fair market value of each 
asset, the intermediary for the selling provider will require an 
appraisal by an independent appraisal expert to establish the fair 
market value of each asset and will make an allocation of the sales 
price in accordance with the appraisal.
    (3) Sale within 1 year after termination. Gains and losses realized 
from a bona fide sale of depreciable assets within 1 year immediately 
following the date on which the provider terminates participation in the 
Medicare program are also included in the determination of allowable 
cost, in accordance with the procedure specified in paragraph (f)(2) of 
this section. However, if several assets are sold for a lump sum sales 
price, the determination of fair market value must be based on the 
appraised value of the assets as they were last used by the provider 
while participating in the Medicare program.
    (4) Exchange, trade-in or donation. Gains or losses realized from 
the exchange, trade-in, or donation of depreciable assets are not 
included in the determination of allowable cost. When the disposition of 
an asset is by means of exchange or trade-in, the historical cost of the 
new asset is the sum of the undepreciated cost of the asset disposed of 
and the additional cash or other assets transferred (or to be 
transferred) to acquire the new asset. However, if the asset disposed of 
was acquired by the provider before its participation in the Medicare 
program and the sum of the undepreciated cost and the cash or other 
assets transferred (or to be transferred) exceed the list price or fair 
market value of the new asset, the historical cost of the new asset is 
limited to the lower of its list price or fair market value.
    (5) Demolition or abandonment. (i) For purposes of this section, the 
term ``abandonment'' means the permanent retirement of an asset for any 
future purpose, not merely the provider's ceasing to use the asset for 
patient care purposes. To claim an abandonment under the Medicare 
program, the provider must have relinquished all rights, title, claim, 
and possession of the asset with the intention of never reclaiming it or 
resuming its ownership, possession, or enjoyment.
    (ii) If losses resulting from the demolition or abandonment of 
depreciable assets do not exceed $5,000 within the cost-reporting 
period, the losses are to be allowed in the period of disposal.
    (iii) If losses exceed $5,000 and, at the date of disposition, the 
demolished or abandoned assets are at least 80 percent depreciated as 
computed under the straight-line method, such losses are includable in 
the determination of allowable cost under the Medicare program in the 
period of disposal and the procedure provided in paragraph (f)(2)(iii) 
of this section must be used in determining the adjustment to 
reimbursable cost.
    (iv) Losses in excess of $5,000 resulting from the demolition or 
abandonment of assets, which at the date of disposition are not 80 
percent depreciated as computed under the straight-line method, must be 
capitalized as a deferred charge and amortized as follows:
    (A) If the State Health Planning and Development Agency (SHPDA) 
designated under section 1521 of the Public Health Service Act approves 
the demolition or abandonment of a depreciable asset as being consistent 
with the health systems plan of the health service area in which the 
provider is located, the net loss realized shall be capitalized as a 
deferred charge and amortized over the remaining life of the demolished 
or abandoned asset, or at the rate of $5,000 per year, whichever is 
greater. If no SHPDA exists or if such agency is unable or unwilling to 
perform this function, the provider must submit a request for approval 
to the intermediary. The intermediary,

[[Page 452]]

after reviewing this request and before issuing the approval, will 
submit the request along with its recommendation to the appropriate 
Regional Office for its approval.
    (B) If a provider fails to obtain approval as specified in paragraph 
(f)(5)(iv)(A) of this section, a loss is not allowable unless the 
demolished or abandoned asset is replaced. If the asset is replaced, the 
loss resulting from the unapproved demolition or abandonment must be 
capitalized as a deferred charge and amortized over the estimated useful 
life of the replacement asset or at the rate of $5,000 per year, 
whichever is greater.
    (v) If a loss resulting from the demolition or abandonment is 
deferred and amortized and the provider terminates its participation in 
the Medicare program or ceases to use a replacement asset in the 
provision of patient care services, the unamortized deferred charge 
remaining at that time must not be included in determining allowable 
cost under the Medicare program.
    (vi) Losses on demolition must include the demolition cost incurred 
by the provider for razing and removal of the asset, less any salvage 
value recovered by the provider. However, if a provider demolishes a 
depreciable asset for the purpose of preparing land for future sale, the 
net demolition cost incurred by the provider (razing and removal costs 
less salvage recovered) is considered a capital expenditure and added to 
the historical basis of the land.
    (vii) If a provider purchases land on which there is a building, no 
depreciation will be allowed under the Medicare program unless the 
building is used in providing patient care. If the building is 
demolished, the entire purchase price and demolition cost shall be 
considered the historical cost of the land. If the building is used for 
patient care, but demolished within 5 years of purchase, the entire 
purchase price, less allowed depreciation, plus demolition cost will be 
considered the historical cost of the land.
    (6) Involuntary conversion. (i) Losses resulting from the 
involuntary conversion of depreciable assets, such as condemnation, 
fire, theft, or other casualty, are generally included in the 
determination of allowable cost on a deferred basis if the asset is 
restored or replaced. However, losses resulting from a provider's 
imprudent management of its depreciable assets, such as the failure to 
obtain proper insurance coverage, are not included in the determination 
of allowable cost.
    (ii) The net allowable loss from involuntary conversion must consist 
of the undepreciated cost of unrecovered book value of the asset, less 
amounts received from insurance proceeds gifts, and grants received from 
local, State, or Federal government, or any other source as a result of 
the involuntary conversion.
    (iii) If the asset is replaced and the net allowable loss in any 
cost-reporting period does not exceed $5,000, the entire amount must be 
included in allowable cost in the period in which the loss is incurred. 
If the asset is replaced and the net allowable loss in any cost-
reporting period exceeds $5,000, the loss must be capitalized as a 
deferred charge and amortized over the useful life of the replacement or 
restored asset. If a replaced or restored asset ceases to be used in the 
provision of patient care services or the provider terminates its 
participation in the Medicare program, the unamortized deferred charge 
remaining at that time will not be included in determining allowable 
cost under the Medicare program.
    (iv) If the provider fails to replace or restore an involuntarily 
converted asset, the loss is not included in determining allowable cost. 
However, if the provider intends to replace or restore the asset but is 
unable to do so because the designated SHPDA finds such replacement or 
restoration to be inconsistent with the health systems plan of the 
provider's health service area, the loss is allowable so long as the 
provider continues to participate in Medicare. In this case, the loss 
must be capitalized as a deferred charge and amortized over the 
remaining life of the involuntarily converted asset, or at the rate of 
$5,000 per year, whichever is greater.
    (v) If a gain is realized from an involuntary conversion of 
depreciable assets, the net amount realized reduces the basis of the 
restored or replacement asset. If the asset is not restored or replaced, 
the gain is to be treated in

[[Page 453]]

accordance with paragraph (f)(2) of this section.
    (7) Effect on equity capital. The unrecovered loss entered on the 
books of the provider as a deferred charge, in accordance with 
paragraphs (f) (5) and (6) of this section, is not includable in the 
computation of equity capital under Sec. 413.157.
    (8) Sale of replacement or restored assets. If a provider sells a 
replacement or restored asset while participating in the Medicare 
program or within 1 year immediately following the date on which it 
terminates its participation in the Medicare program, the unrecovered 
loss entered on the books of the provider as a deferred charge in 
accordance with paragraphs (f) (5) and (6) of this section will not be 
included in determining the gain or loss realized from the sale of the 
replacement or restored asset. However, if the sale of such asset is 
made to a related organization, as defined in Sec. 413.17, and the 
purchasing organization continues as a provider in the Medicare program, 
the remaining deferred charge representing the unrecovered depreciable 
basis of the demolished, abandoned or destroyed asset must continue to 
be amortized over the remaining expected useful life of the replacement 
or restored asset. If the sale is made to an unrelated organization, 
further amortization of the deferred charge is not allowed.
    (g) Establishment of cost basis on purchase of facility as an 
ongoing operation--(1) Assets acquired after July 1, 1966 and before 
August 1, 1970. The cost basis for the assets of a facility purchased as 
an ongoing operation after July 1, 1966, and before August 1, 1970, is 
the lowest of the--
    (i) Total price paid for the facility by the purchaser, as allocated 
to the individual assets of the facility;
    (ii) Total fair market value of the facility at the time of the 
sale, as allocated to the individual assets; or
    (iii) Combined fair market value of the individually identified 
assets at the time of the sale.
    (2) Assets acquired after July 31, 1970 and, for hospitals and SNFs, 
before July 18, 1984. For depreciable assets acquired after July 31, 
1970 and, for hospitals and SNFs, before July 18, 1984, in addition to 
the limitations specified in paragraph (g)(1) of this section, the cost 
basis of the depreciable assets may not exceed the current reproduction 
cost depreciated on a straight-line basis over the life of the asset to 
the time of the sale.
    (3) Assets acquired by hospitals and SNFs on or after July 18, 1984 
and not subject to an enforceable agreement entered into before that 
date. Subject to paragraphs (b)(1)(ii) (B) through (G) and (b)(1)(iii) 
of this section, historical cost may not exceed the lowest of the 
following:
    (i) The allowable acquisition cost of the asset to the owner of 
record as of July 18, 1984 (or, in the case of an asset not in existence 
as of July 18, 1984, the first owner of record of the asset);
    (ii) The acquisition cost to the new owner; or
    (iii) The fair market value of the asset on the date of acquisition.
    (4) Assets acquired by all providers on or after December 1, 1997. 
Subject to the provisions of paragraph (b)(1)(i)(A) of this section, the 
historical cost may not exceed the historical cost of the asset, as 
recognized under the Medicare program, less depreciation allowed, to the 
owner of record as of August 5, 1997 (or for an asset not in existence 
as of August 5, 1997, the first owner of record after August 5, 1997).
    (5) Transactions other than bona fide. If the purchaser cannot 
demonstrate that the sale was bona fide, in addition to the limitations 
specified in paragraph (g)(1), (2), and (3) of this section, the 
purchaser's cost basis may not exceed the seller's cost basis, less 
accumulated depreciation.
    (h) Sale and leaseback agreements and other lease transactions. (1) 
For sale and leaseback agreements for all providers, and for sale and 
leaseback agreements for hospitals and SNFs entered into before October 
23, 1992, a provider may include in its allowable costs incurred rental 
charges, as specified in a sale and leaseback agreement with a 
nonrelated purchaser involving plant facilities or equipment, only if--
    (i) The rental charges are reasonable based on consideration of 
rental charges of comparable facilities and market conditions in the 
area; the type, expected life, condition, and

[[Page 454]]

value of the facilities or equipment rented; and other provisions of the 
rental agreement;
    (ii) Adequate alternate facilities or equipment that would serve the 
purpose are not or were not available at lower cost; and
    (iii) The leasing was based on economic and technical 
considerations.
    (2) If the conditions of paragraph (h)(1) of this section are not 
met, the amount a provider may include in its allowable costs as rental 
or lease expense under a sale and leaseback agreement may not exceed the 
amount that the provider would have included in its allowable costs had 
the provider retained legal title to the facilities or equipment such as 
interest expense on mortgages, taxes, depreciation, and insurance costs.
    (3) For hospitals and SNFs entering into sale and leaseback 
agreements on or after October 23, 1992, the amount a provider may 
include in its allowable costs as rental or lease expense may not exceed 
the amount that the provider would have included in its allowable costs 
had the provider retained legal title to the facilities or equipment, 
such as interest expense on mortgages, taxes, depreciation, and 
insurance costs (the costs of ownership). This limitation applies both 
on an annual basis and over the useful life of the asset.
    (i) If in the early years of the lease, the annual rental or lease 
costs are less than the annual costs of ownership, but in the later 
years of the lease the annual rental or lease costs are more than the 
annual costs of ownership, in the years that the annual rental or lease 
costs are more than the costs of ownership the provider may include in 
allowable costs annually the actual amount of rental or lease costs. The 
aggregate rental or lease costs included in allowable costs may not 
exceed the aggregate costs of ownership that would have been included in 
allowable costs over the useful life of the asset had the provider 
retained legal title to the asset.
    (ii) If in the early years of the lease, the annual rental or lease 
costs exceed the annual costs of ownership, but in the later years of 
the lease the annual rental or lease costs are less than the annual 
costs of ownership, the provider may carry forward amounts of rental or 
lease costs that were not included in allowable costs in the early years 
of the lease due to the costs of ownership limitation, and include these 
amounts in allowable costs in the years of the lease when the annual 
rental or lease costs are less than the annual costs of ownership. In 
any given year the amount of actual annual rental or lease costs plus 
the amount carried forward to that year may not exceed the amount of the 
costs of ownership for that year.
    (iii) In the aggregate, the amount of rental or lease costs included 
in allowable costs may not exceed the amount of the costs of ownership 
that the provider could have included in allowable costs had the 
provider retained legal title to the asset.
    (4) For lease transactions of all providers entered into before 
October 23, 1992, a lease that meets the following conditions 
establishes a virtual purchase:
    (i) The rental charge exceeds rental charges of comparable 
facilities or equipment in the area.
    (ii) The term of the lease is less than the useful life of the 
facilities or equipment.
    (iii) The provider has the option to renew the lease at a 
significantly reduced rental, or the provider has the right to purchase 
the facilities or equipment at a price that appears to be significantly 
less than what the fair market value of the facilities or equipment 
would be at the time acquisition by the provider is permitted.
    (5)(i) If a lease is a virtual purchase under paragraph (h)(4) of 
this section, the rental charge is includable in allowable costs only to 
the extent that it does not exceed the amount that the provider would 
have included in allowable costs if it had legal title to the asset (the 
cost of ownership), such as straight-line depreciation, insurance, and 
interest. For purposes of computing the limitation on allowable rental 
cost in this paragraph, a provider may not include accelerated 
depreciation.
    (ii) The difference between the amount of rent paid and the amount 
of rent allowed as rental expense is considered a deferred charge and 
must be

[[Page 455]]

capitalized as part of the historical cost of the asset when the asset 
is purchased.
    (iii) If an asset is returned to the owner instead of being 
purchased, the deferred charge may be expensed in the year the asset is 
returned.
    (iv) If the term of the lease is extended for an additional period 
of time at a reduced lease cost and the option to purchase still exists, 
the deferred charge may be expensed to the extent of increasing the 
reduced rental to an amount not in excess of the cost of ownership.
    (v) If the term of the lease is extended for an additional period of 
time at a reduced lease cost and the option to purchase no longer 
exists, the deferred charge may be expensed to the extent of increasing 
the reduced rental to a fair rental value.
    (6) For lease transactions entered into on or after October 23, 
1992, a lease that meets any one of the following conditions establishes 
a virtual purchase:
    (i) The lease transfers title of the facilities or equipment to the 
lessee during the lease term.
    (ii) The lease contains a bargain purchase option.
    (iii) The lease term is 75 percent or more of the useful life of the 
facilities or equipment. This provision is not applicable if the lease 
begins in the last 25 percent of the useful life of the facilities or 
equipment.
    (iv) The present value of the minimum lease payments (that is, 
payments to be made during the lease term, including bargain purchase 
option, guaranteed residual value, or penalties for failure to renew) 
equals 90 percent or more of the fair market value of the leased 
property. This provision is not applicable if the lease begins in the 
last 25 percent of the useful life of the facilities or equipment. The 
present value is computed using the lessee's incremental borrowing rate, 
unless the interest rate implicit in the lease is known and is less than 
the lessee's incremental borrowing rate, in which case, the interest 
rate implicit in the lease is used.
    (7)(i) If a lease is a virtual purchase under paragraph (h)(6) of 
this section, the rental charge is includable in allowable costs only to 
the extent that it does not exceed the amount that the provider would 
have included in allowable costs if it had legal title to the asset (the 
costs of ownership), such as straight-line depreciation, insurance, and 
interest. For purposes of computing the limitation on allowable rental 
cost as described in this paragraph, a provider may not include 
accelerated depreciation in its allowable costs.
    (ii) The difference between the amount of rent paid and the amount 
of rent allowed as rental expense is considered a deferred charge and is 
capitalized as part of the historical cost of the asset when the asset 
is purchased.
    (iii) If an asset is returned to the owner instead of being 
purchased, the deferred charge may be expensed in the year the asset is 
returned.
    (iv) If the term of the lease is extended for an additional period 
of time at a reduced lease cost and the option to purchase still exists, 
the deferred charge may be expensed to the extent of increasing the 
reduced rental to an amount not in excess of the cost of ownership.
    (v) If the term of the lease is extended for an additional period of 
time at a reduced lease cost and the option to purchase no longer 
exists, the deferred charge may be expensed to the extent of increasing 
the reduced rental to a fair rental value.
    (vi) If the lessee becomes the owner of the leased asset (either by 
operation of the lease or by other means), the amount considered as 
depreciation, for the purpose of having computed the limitation 
expressed in paragraph (h)(7)(i) of this section, must be used in 
calculating the limitation on adjustments to depreciation for the 
purpose of determining any gain or loss upon disposal of an asset under 
paragraph (f) of this section.
    (i) Intergovernmental transfer of facilities. The basis for 
depreciation of assets transferred under appropriate legal authority 
from one governmental entity to another is as follows:
    (1) The historical cost incurred by the present owner in acquiring 
the asset under a bona fide sale. The historical cost may not exceed the 
lower of current reproduction cost adjusted for straight-line 
depreciation over the

[[Page 456]]

life of the asset to the time of the purchase of fair market value at 
the time of the purchase.
    (2) The fair market value at the time of donation under a bona fide 
donation of the asset (subject to the limitations set forth under 
paragraph (i) of this section). An asset is considered donated when a 
governmental entity acquires the asset without assuming the functions 
for which the transferor used the asset or making any payment for it in 
the form of cash, property, or services.
    (3) If neither paragraph (h) (1) nor (2) of this section applies, 
for example, the transfer was solely to facilitate administration or to 
reallocate jurisdictional responsibility, or the transfer constituted a 
taking over in whole or in part of the function of one governmental 
entity by another governmental entity, the basis for depreciation is--
    (i) With respect to an asset on which the transferor has claimed 
depreciation under the Medicare program, the transferor's basis under 
the Medicare program prior to the transfer. The method of depreciation 
used by the transferee may be the same as that used by the transferor, 
or the transferee may change the method, as permitted under paragraph 
(d)(2) of this section; or
    (ii) With respect to an asset on which the transferor has not 
claimed depreciation under the Medicare program, the cost incurred by 
the transferor in acquiring the asset (not to exceed the basis that 
would have been recognized had the transferor participated in the 
Medicare program) less depreciation calculated on the straight-line 
basis over the life of the asset to the time of transfer.
    (j) Basis of assets donated to a provider--(1) Assets not used or 
depreciated under the Medicare program. If an asset has never been used 
or depreciated under the Medicare program and is donated to a provider, 
the basis for the purpose of calculating depreciation and equity capital 
(if applicable) is the fair market value of the asset at the time of 
donation.
    (2) Assets used or depreciated under the Medicare program. If an 
asset has been used or depreciated under the Medicare program and is 
donated to a provider, the basis for the purpose of calculating 
depreciation and equity capital (if applicable) is the lesser of--
    (i) The fair market value at the time of donation; or
    (ii) The net book value in the hands of the owner last participating 
in the Medicare program.
    (3) Transfers of State hospitals to nonprofit corporations without 
monetary consideration. If a State transfers a hospital to a nonprofit 
corporation without monetary consideration on or after July 18, 1984, 
the depreciable basis of the assets to the new owner is the net book 
value of the assets as recorded on the State's books at the time of the 
transfer. For purposes of this section, monetary consideration includes 
cash, new debt, and assumed debt.
    (k) Limitation on Federal participation for capital expenditures. 
The allowance for depreciation is not an allowable cost for certain 
capital expenditures as described in Sec. 413.161.
    (l) Transactions involving a provider's capital stock--(1) 
Acquisition of capital stock of a provider. If the capital stock of a 
provider is acquired, the provider's assets may not be revalued. For 
example, if Corporation A purchases the capital stock of Corporation B, 
the provider, Corporation B continues to be the provider after the 
purchase and Corporation A is merely the stockholder. Corporation B's 
assets may not be revalued.
    (2) Statutory merger. A statutory merger is a combination of two or 
more corporations under the corporation laws of the State, with one of 
the corporations surviving. The surviving corporation acquires the 
assets and liabilities of the merged corporation(s) by operation of 
State law. The effect of a statutory merger upon Medicare reimbursement 
is as follows:
    (i) Statutory merger between unrelated parties. If the statutory 
merger is between two or more corporations that are unrelated (as 
specified in Sec. 413.17), the assets of the merged corporation(s) 
acquired by the surviving corporation may be revalued in accordance with 
paragraph (g) of this section. If the merged corporation was a provider 
before the merger, then it is subject to the provisions of paragraphs 
(d)(3) and (f) of this section concerning recovery

[[Page 457]]

of accelerated depreciation and the realization of gains and losses. The 
basis of the assets owned by the surviving corporation are unaffected by 
the transaction. An example of this type of transaction is one in which 
Corporation A, a nonprovider, and Corporation B, the provider, are 
combined by a statutory merger, with Corporation A being the surviving 
corporation. In such a case the assets of Corporation B acquired by 
Corporation A may be revalued in accordance with paragraph (g) of this 
section.
    (ii) Statutory merger between related parties. If the statutory 
merger is between two or more related corporations (as specified in 
Sec. 413.17), no revaluation of assets is permitted for those assets 
acquired by the surviving corporation. An example of this type of 
transaction is one in which Corporation A purchase the capital stock of 
Corporation B, the provider. Immediately after the acquisition of the 
capital stock of Corporation B, there is a statutory merger of 
Corporation B and Corporation A, with Corporation A being the surviving 
corporation. Under these circumstances, at the time of the merger the 
transaction is one between related parties and is not a basis for 
revaluation of the provider's assets.
    (3) Consolidation. A consolidation is the combination of two or more 
corporations resulting in the creation of a new corporate entity. If at 
least one of the original corporations is a provider, the effect of a 
consolidation upon Medicare reimbursement for the provider is as 
follows:
    (i) Consolidation between unrelated parties. If the consolidation is 
between two or more corporations that are unrelated (as specified in 
Sec. 413.17), the assets of the provider corporation(s) may be revalued 
in accordance with paragraph (g) of this section.
    (ii) Consolidation between related parties. If the consolidation is 
between two or more related corporations (as specified in Sec. 413.17), 
no revaluation of provider assets is permitted.

[51 FR 34793, Sept. 30, 1986, as amended at 56 FR 43456, Aug. 30, 1991; 
57 FR 3017, Jan. 27, 1992; 57 FR 39830, Sept. 1, 1992; 57 FR 43919, 
Sept. 23, 1992; 58 FR 17528, Apr. 5, 1993; 59 FR 45401, Sept. 1, 1994; 
63 FR 1382, Jan. 9, 1998]



Sec. 413.139  Depreciation: Optional allowance for depreciation based on a percentage of operating costs.

    (a) Principle. With respect to all assets acquired before 1966, the 
provider, at its option, may choose an allowance for depreciation based 
on a percentage of operating costs. The operating costs to be used are 
the provider's 1965 operating costs or the provider's current year's 
allowable costs, whichever are the lower. The percentage to be applied 
is 5 percent starting with the year 1966-67, with such percentage being 
uniformly reduced by one-half percent each succeeding year. The 
allowance based on operating costs is in addition to regular 
depreciation on assets acquired after 1965; however, if the optional 
allowance is selected, the combined amount of such allowance on pre-1966 
assets and the straight-line depreciation on assets acquired after 1965 
(including the estimated depreciation on assets held on a rental basis 
during the current year) may not exceed 6 percent of the provider's 
allowable cost for the current year.
    (b) Definitions--(1) Operating costs. Operating costs are the total 
costs incurred by the provider in operating the institution or facility.
    (2) Allowable costs. Allowable costs are the costs of a provider 
that are includable under the principles for cost reimbursement. Through 
application of apportionment methods to the total amount of such 
allowable costs, the share of a provider's total cost that is 
attributable to covered services for beneficiaries is determined.
    (c) Application. If a provider has inadequate historical cost 
records for pre-1966 depreciable assets, the provider may elect to 
receive an allowance for depreciation on such assets based on a 
percentage of operating costs. The optional allowance for depreciation 
for such assets may be used, however, whether or not a provider has 
records of the cost of pre-1966 depreciable assets currently in use.
    (d) Allowance based on a percentage of operating costs. (1) The 
allowance for depreciation based on a percentage of operating costs is 
to be computed by applying a specified percentage to a base amount equal 
to the provider's

[[Page 458]]

1965 total operating costs, without adjustments to these principles or 
the current year's allowable operating costs, whichever is lower. The 
percentage to be applied is five for the reporting period that starts 
before or during 1966-67, four and one-half for the reporting period 
that begins during 1967-68, and continues to decline annually by equal 
amounts to become zero in 1976-77.
    (2) If used as a base for determining the optional allowance for 
depreciation, neither the 1965 operating costs nor the current year's 
allowable costs are to include any actual depreciation, estimated 
depreciation on rented depreciable-type assets, allowance in lieu of 
specific recognition of other costs, or return on equity capital. Such 
exclusions are to be made only for the purpose of computing the 
allowance for depreciation based on operating costs. For other purposes, 
the excluded amounts are recognized in determining allowable costs and 
for computing the costs of services furnished to Medicare beneficiaries 
during the reporting period.
    (e) Change to actual depreciation. (1) A provider that elects this 
allowance may at any time before 1976 change to actual depreciation on 
all pre-1966 depreciable assets. In such case, this option is eliminated 
and the provider can no longer elect to receive an allowance for 
depreciation based on a percentage of operating costs.
    (2) If the provider desires to change to actual depreciation but 
either has no historical cost records or has incomplete records, the 
determination of historical cost may be made through appropriate means 
involving expert consultation with the determination being subject to 
review and approval by the intermediary.
    (f) Determination of optional allowance based on percentage of 
operating costs illustrated. The following illustrates how the provider 
would determine the optional allowance for depreciation based on 
operating costs.

    Example No. 1. The provider keeps its records on a calendar year 
basis. The current year's actual allowable cost and the actual operating 
cost for 1965 do not include any actual depreciation or rentals on 
depreciable-type assets. The current year's allowable cost also does not 
include any allowance in lieu of specific recognition of other costs or 
return on equity capital.

                                Year 1966
Current year's allowable cost.............................    $1,100,000
                                                           =============
Operating cost for 1965\1\................................    $1,000,000
Percent for determining the allowance.....................             5
                                                           -------------
      Allowance...........................................       $50,000
 
\1\ 1965 Operating cost was used in computing the allowance for
  depreciation based on a percentage of operating costs because it was
  lower than 1966 allowable cost.


                                Year 1967
Current year's allowable cost.............................    $1,200,000
                                                           =============
Operating cost for 1965\1\................................    $1,000,000
Percent for determining the allowance\2\..................             5
                                                           -------------
      Allowance...........................................       $50,000
 
\1\ 1965 Operating cost was used in computing the allowance for
  depreciation based on a percentage of operating costs because it was
  lower than 1967 allowable cost.
\2\ Since the reporting period began during the year 1966-1967 (July 1,
  1966-June 30, 1967) 5 percent is the percentage to be used.


                                Year 1968
Operating cost for 1965...................................    $1,000,000
                                                           =============
Current year's allowable cost \1\.........................      $900,000
Percent for determining the allowance\2\..................        4\1/2\
                                                           -------------
      Allowance...........................................       $40,500
 
\1\ The current year's allowable cost was used in computing the
  allowance for depreciation based on percentage of operating costs
  because it was lower than 1965 operating cost.
\2\ Since the reporting period began during the year 1967-1968 (July 1,
  1967-June 30, 1968) 4\1/2\ percent is the percentage to be used.

    Example No. 2. When the provider pays rent for depreciable-type 
assets rented prior to 1966, the estimated depreciation on such assets 
must be deducted from the allowance. The following illustration 
demonstrates how the allowance is determined.
    The provider keeps its records on a calendar year basis. The current 
year's actual allowable cost and the actual operating cost for 1965 did 
not include any actual depreciation, allowance in lieu of specific 
recognition of other costs, or return on equity capital. However, such 
costs have been adjusted to exclude estimated depreciation on rented 
depreciable-type assets.

                                Year 1966
Adjusted current year's allowable cost....................    $1,100,000
                                                           =============
Adjusted operating cost for 1965\1\.......................    $1,000,000
Percent for determining the allowance.....................             5
                                                           -------------
      Allowance...........................................       $50,000
Less estimated depreciation for depreciable-type assets           $3,000
 rented prior to 1966 on which rental is paid in 1966.....
                                                           -------------
      Adjusted allowance..................................       $47,000
 
\1\ 1965 operating cost was used in computing the allowance for
  depreciation based on a percentage of operating costs because it was
  lower than 1966 allowable cost.



[[Page 459]]

    (g) Limitation on depreciation if optional allowance is used. This 
optional allowance only is subject to a limitation based on the 
provider's total allowable operating cost for the current year. To 
determine this limitation, compute the sum of the actual depreciation 
claimed, the allowance based on a percentage of operating costs, and the 
estimated straight-line depreciation on depreciable-type assets rented 
after 1965. If this sum exceeds six percent of the provider's current 
year's allowable cost (exclusive of any actual depreciation claimed, 
estimated depreciation on rented depreciable-type assets, allowance in 
lieu of specific recognition of other costs, and return on equity 
capital), the allowance for depreciation based on a percentage of 
operating costs is reduced by the amount of excess. In applying this 
limitation, if the actual depreciation claimed is on an accelerated 
basis, it must be converted to a straight-line basis only for use in 
calculating this limitation. It is presumed that pre-1966 assets will 
not be retired at a greater than normal rate, and the limitation of six 
percent, as it affects the availability of the allowance, is designed as 
a safeguard if the presumption is not borne out. If the provider does 
not elect to use the optional allowance, the combined allowance for 
depreciation based on costs of pre-1966 assets and those subsequently 
acquired is not subject to the six percent limitation.

    Example No. 1. The following illustration demonstrates how this 
limitation would be determined.

                                Year 1966
  [The provider keeps its records on a calendar year basis. The current
year's actual allowable cost and the actual operating cost for 1965 have
been adjusted to exclude actual depreciation, the estimated depreciation
    on rented depreciable-type assets, allowance in lieu of specific
       recognition of other costs, and return on equity capital.]
Adjusted operating cost for 1965..........................    $1,000,000
Percent for determining the allowance.....................             5
In 1966 assets were acquired which produce a straight-line       $18,000
 depreciation of..........................................
Estimated depreciation on assets rented in 1966...........        $2,000
Adjusted allowable operating cost for 1966................    $1,100,000
 
   calculation of allowance for depreciation based on a percentage of
                             operating costs
 
                      Gross allowance
 
5 percent times adjusted 1965 operating costs ($1,000,000)       $50,000
Estimated depreciation on assets rented in 1966...........         2,000
Straight-line depreciation on post-1965 assets............        18,000
                                                           -------------
      Total...............................................        70,000
6 percent of adjusted 1966 allowable operating cost.......        66,000
                                                           -------------
      Reduction in allowance..............................         4,000
                                                           =============
Allowance.................................................        50,000
Reduction.................................................         4,000
                                                           -------------
      Adjusted allowance..................................        46,000
                                                           =============
      Total depreciation allowance for 1966 ($18,000              64,000
       actual depreciation plus $46,000 allowance based on
       operating cost)....................................
 

    Assume in this illustration that the provider had elected to use the 
declining balance method in computing its allowable depreciation and the 
rental expense for depreciable-type assets was $3,500. In that case, it 
would include in its 1966 allowable cost not only the $46,000 allowance 
based on operating costs but also $36,000 (in this instance 
2 x straight-line rate is used) in actual depreciation and the rental 
expense of $3,500--or a total of $85,500 covering all its depreciable 
assets.



Sec. 413.144  Depreciation: Allowance for depreciation on fully depreciated or partially depreciated assets.

    (a) Principle. Depreciation on assets being used by a provider at 
the time it enters into the Medicare program is allowed. This principle 
applies even though such assets may be fully or partially depreciated on 
the provider's books.
    (b) Application. Depreciation is allowable on assets being used at 
the time the provider enters into the program. This applies even though 
such assets may be fully depreciated on the provider's books or fully 
depreciated with respect to other third-party payers. So long as an 
asset is being used, its useful life is considered not to have ended, 
and consequently the asset is subject to depreciation based upon a 
revised estimate of the asset's useful life as determined by the 
provider and approved by the intermediary. Correction of prior years' 
depreciation to reflect revision of estimated useful life should be made 
in the first year of participation in the program unless the provider 
has used the optional method (Sec. 413.139),

[[Page 460]]

in which case the correction should be made at the time of discontinuing 
the use of that method. If an asset has become fully depreciated under 
Medicare, further depreciation is not appropriate or allowable, even 
though the asset may continue in use.
    (c) Example of an allowance for a fully-depreciated asset. For 
example, if a 50-year-old building is in use at the time the provider 
enters into the program, depreciation is allowable on the building even 
though it has been fully depreciated on the provider's books. Assuming 
that a reasonable estimate of the asset's continued life is 20 years (70 
years from the date of acquisition), the provider may claim depreciation 
over the next 20 years--if the asset is in use that long--or a total 
depreciation of as much as twenty-seventieths of the asset's historical 
cost.
    (d) Corrections to depreciation. If the asset is disposed of before 
the expiration of its estimated useful life, the depreciation would be 
adjusted to the actual useful life. Likewise, a provider may not have 
fully depreciated other assets it is using and finds that it has 
incorrectly estimated the useful lives of those assets. In such cases, 
the provider may use the corrected useful lives in determining the 
amount of depreciation, provided such corrections have been approved by 
the intermediary.



Sec. 413.149  Depreciation: Allowance for depreciation on assets financed with Federal or public funds.

    (a) Principle. Depreciation is allowed on assets financed with Hill-
Burton or other Federal or public funds.
    (b) Application. Like other assets (including other donated 
depreciable assets), assets financed with Hill-Burton or other Federal 
or public funds become a part of the provider institution's plant and 
equipment to be used in furnishing services. It is the function of 
payment of depreciation to provide funds that make it possible to 
maintain the assets and preserve the capital employed in the production 
of services. Therefore, irrespective of the source of financing of an 
asset, if it is used in the providing of services for beneficiaries of 
the program, payment for depreciation of the asset is, in fact, a cost 
of the production of those services. Moreover, recognition of this cost 
is necessary to maintain productive capacity for the future. An 
incentive for funding of depreciation is provided in these principles by 
the provision that investment income on funded depreciation is not 
treated as a reduction of allowable interest expense under 
Sec. 413.153(a).



Sec. 413.153  Interest expense.

    (a)(1) Principle. Necessary and proper interest on both current and 
capital indebtedness is an allowable cost. However, interest costs are 
not allowable if incurred as a result of--
    (i) Judicial review by a Federal court (as described in 
Sec. 413.64(j));
    (ii) An interest assessment on a determined overpayment (as 
described in Sec. 405.377 of this chapter); or
    (iii) Interest on funds borrowed to repay an overpayment (as 
described in Sec. 413.64(j) or Sec. 405.378 of this chapter), up to the 
amount of the overpayment, unless the provider had made a prior 
commitment to borrow funds for other purposes (for example, capital 
improvements).
    (2) Exception. In those cases of administrative or judicial 
reversal, interest paid on funds borrowed to repay an overpayment is an 
allowable cost, in accordance with this section.
    (b) Definitions--(1) Interest. Interest is the cost incurred for the 
use of borrowed funds. Interest on current indebtedness is the cost 
incurred for funds borrowed for a relatively short term. This is usually 
for such purposes as working capital for normal operating expenses. 
Interest on capital indebtedness is the cost incurred for funds borrowed 
for capital purposes, such as acquisition of facilities and equipment, 
and capital improvements. Generally, loans for capital purposes are 
long-term loans.
    (2) Necessary. Necessary interest is interest that meets the 
following requirements:
    (i) It is incurred on a loan made to satisfy a financial need of the 
provider. Loans that result in excess funds or investments are not 
considered necessary.

[[Page 461]]

    (ii) It is incurred on a loan made for a purpose reasonably related 
to patient care.
    (iii) It is reduced by investment income except income from--
    (A) Gifts, grants, and endowments, whether held separately or pooled 
with other funds;
    (B) Funded depreciation that meets the program's qualifying 
criteria;
    (C) The provider's qualified pension funds;
    (D) The provider's deferred compensation funds that meet the 
program's qualifying criteria; and
    (E) The provider's self-insurance trust funds that meet the 
program's qualifying criteria.
    (iv) It is not reduced by interest received as a result of judicial 
review by a Federal court (as described in Sec. 413.64(j)).
    (3) Proper. Proper requires that interest be--
    (i) Incurred at a rate not in excess of what a prudent borrower 
would have had to pay in the money market existing at the time the loan 
was made; and
    (ii) Paid to a lender not related through control or ownership, or 
personal relationship to the borrowing organization. However, interest 
is allowable if paid on loans from the provider's donor-restricted 
funds, the funded depreciation account, or the provider's qualified 
pension fund.
    (4) Zero coupon bonds. Zero coupon bonds are issued by government 
agencies, corporations, and banks at a price substantially below the 
face value. The difference between the purchase price and the face value 
reflects the actual amount of interest and is neither a discount nor an 
adjustment to the interest rate as with other bonds. Interest is paid at 
maturity when the bond is redeemed at face value.
    (c) Borrower-lender relationship. (1) Except as described in 
paragraph (c)(2) of this section, to be allowable, interest expense must 
be incurred on indebtedness established with lenders or lending 
organizations not related through control, ownership, or personal 
relationship to the borrower. Presence of any of these factors could 
affect the ``bargaining'' process that usually accompanies the making of 
a loan, and could thus be suggestive of an agreement on higher rates of 
interest or of unnecessary loans. Loans should be made under terms and 
conditions that a prudent borrower would make in armslength transactions 
with lending institutions. The intent of this provision is to assure 
that loans are legitimate and needed, and that the interest rate is 
reasonable. Thus, interest paid by the provider to partners, 
stockholders, or related organizations of the provider would not be 
allowable. If the owner uses his own funds in a business, it is 
reasonable to treat the funds as invested funds or capital, rather than 
borrowed funds. Therefore, if interest on loans by partners, 
stockholders, or related organizations is disallowed as a cost solely 
because of the relationship factor, the principal of such loans is 
treated as invested funds in the computation of the provider's equity 
capital under Sec. 413.157.
    (2) Exceptions to the general rule regarding interest on loans from 
controlled sources of funds are made in the following circumstances. 
Interest on loans to providers by partners, stockholders, or related 
organizations made prior to July 1, 1966, is allowable as cost, provided 
that the terms and conditions of payment of such loans have been 
maintained in effect without modification subsequent to July 1, 1966. If 
the general fund of a provider ``borrows'' from a donor-restricted fund 
and pays interest to the restricted fund, this interest expense is an 
allowable cost. The same treatment is accorded interest paid by the 
general fund on money ``borrowed'' from the funded depreciation account 
of the provider or from the provider's qualified pension fund. In 
addition, if a provider operated by members of a religious order borrows 
from the order, interest paid to the order is an allowable cost.
    (3) If funded depreciation is used for purposes other than 
improvement, replacement, or expansion of facilities or equipment 
related to patient care, allowable interest expense is reduced to adjust 
for offsets not made in prior years for earnings on funded depreciation. 
A similar treatment is accorded deposits in the provider's qualified 
pension fund if such deposits are used for other than the purpose for 
which the fund was established.

[[Page 462]]

    (d) Loans not reasonably related to patient care. (1) The following 
types of loans are not considered to be for a purpose reasonably related 
to patient care:
    (i) For loans made to finance acquisition of a facility, that 
portion of the cost that exceeds--
    (A) Historical cost as determined under Sec. 413.134(b); or
    (B) The cost basis determined under Sec. 413.134(g); and
    (ii) Loans made to finance capital stock acquisitions, mergers, or 
consolidations for which revaluation of assets is not allowed under 
Sec. 413.134(k).
    (2) In determining whether a loan was made for the purpose of 
acquiring a facility, we apply any owner's investment or funds first to 
the tangible assets, then to the intangible assets other than goodwill, 
and lastly to the goodwill. If the owner's investment or funds are not 
sufficient to cover the cost allowed for tangible assets, we apply funds 
borrowed to finance the acquisition to the portion of the allowed cost 
of the tangible assets not covered by the owner's investment, then to 
the intangible assets other than goodwill, and lastly to the goodwill. 
Repayments of the funds borrowed are applied first to the borrowing 
related to the tangible assets, then to the borrowing related to the 
intangible assets other than goodwill, and lastly to the borrowing 
related to the goodwill.
    (3) When a provider borrows funds, but only some of the funds are 
necessary, repayments of the loan (principal and interest portions) are 
applied first to pay for the necessary portion of the loan. Only after 
all of the necessary portion of the loan (principal and interest) has 
been repaid are any repayments applied to the unnecessary portion of the 
loan. Repayments toward non-allowable borrowing pertaining to assets or 
activities not related to patient care are considered investments, and 
the provisions of paragraph (b)(2)(iii) of this section are applied.
    (e) Limitation on Federal participation for capital expenditures. 
The allowance for depreciation is not an allowable cost for certain 
capital expenditures as described in Sec. 413.161.
    (f) Zero coupon bonds--(1) Interest on bonds issued on or after 
August 15, 1996. For zero coupon bonds issued on or after August 15, 
1996, interest expense incurred to provide funds for patient care-
related costs is an allowable expense, and interest income earned for 
investment purposes is an allowable offset, in the cost reporting period 
in which the interest accrues.
    (2) Interest income offset. Interest income from zero coupon bonds 
must be offset against allowable interest expense as prescribed in 
paragraph (b)(2) of this section and in Sec. 413.130(g)(2). If zero 
coupon bonds are purchased with the proceeds of an advanced refunding of 
debt, offset of the investment income is required under 
Sec. 413.153(b)(2)(iii), but the investment income is not prorated under 
Sec. 413.130(g)(2).
    (3) Use of effective interest method. (i) Interest expense and 
interest income from zero coupon bonds that are reported as they accrue 
must be amortized using the effective interest method. This method 
recognizes the actual accrual of interest expense or income for each 
interest computation period (as specified by the bond instrument) 
throughout the life of the bond.
    (ii) A constant effective yield rate is determined and applied to 
the book value (outstanding loan balance including prior accrued 
interest) of the bond at the beginning of each period to determine the 
total interest for the period.
    (iii) If the interest computation period involves portions of more 
than one cost reporting period, the amount of interest for that 
computation period shall be apportioned to each cost reporting period.
    (iv) An example of the computation of interest using the effective 
interest method follows:

                                  Facts

    Life of zero coupon bond: 15 years.
    Value at maturity: $50,000.
    Bondholder pays $6,996 for the bond.
    Annual interest rate is 13.5506% compounded semi-annually.
    From the table below, interest for the first year would be $980.11 
($474.00 plus $506.11).

[[Page 463]]



------------------------------------------------------------------------
                                                                Col. 4
                                         Col 2                Book value
                                      Book value    Col. 3      end of
      Col 1  Six-month periods         beginning   Effective    period
                                       of period   interest*  (columns 2
                                                                 + 3)
------------------------------------------------------------------------
1                                      $6,996.00     $474.00   $7,470.00
2                                       7,470.00      506.11    7,976.11
3                                       7,976.11      540.40    8,516.51
4                                       8,516.51      577.02    9,093.53
29                                     43,855.94    2,971.37   46,827.31
30                                     46,827.31    3,172.69  50,000.00
------------------------------------------------------------------------
*Computed by multiplying the book value at the beginning of each period
  (Column 2) by 6.7753% (the annual interest rate of 13.5506% 2 =
  6.7753%).


[51 FR 34793, Sept. 30, 1986, as amended at 56 FR 43457, Aug. 30, 1991; 
59 FR 45402, Sept. 1, 1994; 61 FR 37014, July 16, 1996; 61 FR 63748, 
63479, Dec. 2, 1996]



Sec. 413.157  Return on equity capital of proprietary providers.

    (a) Definitions. For purposes of this section--
    Proprietary provider means a provider that is organized and operated 
with the expectation of earning a profit for its owners (as 
distinguished from a provider that is organized and operated on a 
nonprofit basis). Proprietary providers may be sole proprietorships, 
partnerships, or corporations. Effective for cost reporting periods 
beginning on or after July 6, 1987, the term applies only to proprietary 
hospitals and SNFs.
    (b) General rule. A reasonable return on equity capital invested and 
used in the provision of patient care is paid as an allowance in 
addition to the reasonable cost of covered services furnished to 
beneficiaries by proprietary providers.
    (1) Rate of return applicable to proprietary providers for cost 
reporting periods beginning before July 6, 1987. Except as provided in 
paragraphs (b)(2), (b)(3), and (b)(4) of this section, the amount 
allowable on an annual basis, for cost reporting periods beginning 
before July 6, 1987, is determined by multiplying the provider's equity 
capital by a percentage equal to one and one-half times the average of 
the rates of interest on special issues of public debt obligations 
issued for purchase by the Medicare Part A Trust Fund for each of the 
months during the provider's reporting period or portion thereof covered 
under the program.
    (2) Rate of return for inpatient hospital services furnished by 
proprietary hospitals. The rate used in determining the return for 
inpatient hospital services is a percentage of the average of the rates 
of interest described in paragraph (b)(1) of this section. The 
percentages applicable to inpatient hospital services are as follows:
    (i) 150 percent for cost reporting periods beginning before April 
20, 1983.
    (ii) 100 percent for cost reporting periods beginning on or after 
April 20, 1983 and before October 1, 1986.
    (iii) 75 percent for cost reporting periods beginning on or after 
October 1, 1986 and before October 1, 1987.
    (iv) 50 percent for cost reporting periods beginning on or after 
October 1, 1987 and before October 1, 1988.
    (v) 25 percent for cost reporting periods beginning on or after 
October 1, 1988 and before October 1, 1989.
    (vi) Zero percent for cost reporting periods beginning on or after 
October 1, 1989.
    (3) Rate of return related to proprietary SNFs. (i) For cost 
reporting periods beginning on or after October 1, 1985, the rate used 
in determining the return for SNF services furnished before October 1, 
1993, is a percentage equal to the average of the rates of interest 
described in paragraph (b)(1) of this section.
    (ii) There is no allowance for return for SNF services furnished on 
or after October 1, 1993.
    (4) Rate of return related to outpatient hospital services. (i) For 
cost reporting periods beginning on or after October 1, 1985, the rate 
used in determining the return for outpatient hospital services 
furnished before January 1, 1988 is a percentage equal to the average of 
the rates of interest described in paragraph (b)(1) of this section.
    (ii) There is no allowance for return for outpatient hospital 
services furnished on or after January 1, 1988.
    (5) Rate of return for proprietary services of all nonhospital and 
non-SNF providers. (i) For cost reporting periods beginning on or after 
October 1, 1985, but before July 6, 1987, the rate used in determining 
the return for services of all nonhospital and non-SNF providers is a 
percentage equal to the average of the rates of interest described in 
paragraph (b)(1) of this section.
    (ii) For cost reporting periods beginning on or after July 6, 1987, 
there is no allowance for return on equity capital for nonhospital and 
non-SNF providers.

[[Page 464]]

    (c) Application--(1) Computation of equity capital. For purposes of 
computing the allowable return, the provider's equity capital means--
    (i) The provider's investment in plant, property, and equipment 
related to patient care (net of depreciation) and funds deposited by a 
provider who leases plant, property, or equipment related to patient 
care and is required by the terms of the lease to deposit such funds 
(net of noncurrent debt related to such investment or deposited funds); 
and
    (ii) Net working capital maintained for necessary and proper 
operation of patient care activities. However, debt representing loans 
from partners, stockholders, or related organizations on which interest 
payments would be allowable as costs but for the provisions of 
Sec. 413.153(b)(3)(ii), is not subtracted in computing the amount of 
equity capital in order that the proceeds from such loans be treated as 
part of the provider's equity capital. In computing the amount of equity 
capital upon which a return is allowable, investment in facilities is 
recognized on the basis of the historical cost, or other basis, used for 
depreciation and other purposes under Part A of Medicare.
    (2) Acquisitions after July 1970. With respect to a facility or any 
tangible assets of a facility acquired on or after August 1, 1970, the 
excess of the price paid for such facility or such tangible assets over 
the historical cost, as defined in Sec. 413.134(b), or the cost basis, 
as determined under Sec. 413.134(g) (whichever is appropriate), is not 
includable in equity capital, and loans made to finance such excess 
portion of the cost of such acquisitions (see Sec. 413.153(d)) are 
excluded in computing equity capital.
    (3) Acquisitions prior to August 1970. With respect to a facility or 
any tangible assets of a facility acquired before August 1970, the 
excess of the price paid for such facility or assets over the fair 
market value of tangible assets at the time of purchase is includable in 
equity capital to the extent that it is reasonable except that the 
cumulative allowable return for such excess may not exceed 100 percent 
of such excess. For purposes of this section, the cumulative allowable 
return means the sum of the allowable rate of return on equity capital 
for all months starting from August 1, 1970. For example, if the 
allowable rates of return on equity capital for a provider are 9 percent 
for the first year (and such year started August 1, 1970), 8.5 percent 
for the second year, and 10.5 percent for the third year, the cumulative 
allowable return at the end of the third year would be 28 percent. After 
the cumulative allowable return equals 100 percent, the inclusion in 
equity capital of the excess is no longer allowable.
    (4) Computation of return on equity capital. For purposes of 
computing the allowable return, the amount of equity capital is the 
average investment during the reporting period. The rate of return 
allowed, as derived from time to time based upon interest rates in 
accordance with this principle, is determined by HCFA and communicated 
through intermediaries. Return on investment as an element of allowable 
costs is subject to apportionment in the same manner as other elements 
of allowable costs.

    Example of calculation of cumulative allowable return. X purchased a 
provider on July 1, 1969, paying $100,000 in excess of the fair market 
value of the assets acquired. Provider X files its cost report on a 
calendar-year basis. The allowable rate of return on equity capital for 
August 1, 1970-December 31, 1970 (4.538 percent), is obtained by 
multiplying the allowable rate of return for the period ending December 
31, 1970 (10.891) by \5/12\ (a fraction of which the numerator is the 
number of months from August 1, 1970, to the end of the cost-reporting 
period and the denominator is the number of months in the cost-reporting 
period). The cumulative allowable return for Provider X for the period 
August 1, 1970-December 31, 1973, (32.367 percent) is computed as 
follows:

------------------------------------------------------------------------
                                                                Rate of
                                                               return on
                  Cost reporting year ending                     equity
                                                                capital
                                                               (percent)
------------------------------------------------------------------------
Dec. 31, 1970................................................      4.538
Dec. 31, 1971................................................      8.969
Dec. 31, 1972................................................      8.891
Dec. 31, 1973................................................      9.969
                                                              ----------
      Total..................................................     32.367
------------------------------------------------------------------------

(The $100,000 paid in excess of the fair market value of the assets 
acquired is included in equity capital until the sum of the allowable 
rate of return on equity capital equals 100 percent. Of course, no 
portion of the

[[Page 465]]

$100,000 may be amortized as an allowable cost or is otherwise allowable 
for any program reimbursement purposes other than for determining the 
provider's equity capital.

[51 FR 34793, Sept. 30, 1986, as amended at 52 FR 21225, June 4, 1987; 
52 FR 23398, June 19, 1987; 52 FR 32921, Sept. 1, 1987; 53 FR 12017, 
Apr. 12, 1988; 57 FR 39830, Sept. 1, 1992; 59 FR 26960, May 25, 1994]



Subpart H--Payment for End-Stage Renal Disease (ESRD) Services and Organ 
                            Procurement Costs

    Source:  62 FR 43668, Aug. 15, 1997, unless otherwise noted.



Sec. 413.170  Scope.

    This subpart implements sections 1881 (b)(2) and (b)(7) of the Act 
by--
    (a) Setting forth the principles and authorities under which HCFA is 
authorized to establish a prospective payment system for outpatient 
maintenance dialysis furnished in or under the supervision of an ESRD 
facility approved under subpart U of part 405 of this chapter (referred 
to as ``facility'' in this section). For purposes of this section and 
Sec. 413.172 through Sec. 413.198, ``outpatient maintenance dialysis'' 
means outpatient dialysis, home dialysis, self-dialysis, and home 
dialysis training, as defined in Sec. 405.2102 (f)(2)(ii), (f)(2)(iii), 
and (f)(3) of this chapter, and includes all items and services 
specified in Secs. 410.50 and 410.52 of this chapter.
    (b) Providing procedures and criteria under which a facility may 
receive an exception to the prospective payment rates; and
    (c) Establishing procedures that a facility must follow to appeal 
its payment amount under the prospective payment system.



Sec. 413.172  Principles of prospective payment.

    (a) Payments for outpatient maintenance dialysis are based on rates 
set prospectively by HCFA.
    (b) All approved ESRD facilities must accept the prospective payment 
rates established by HCFA as payment in full for covered outpatient 
maintenance dialysis.
    (c) HCFA publishes the methodology used to establish payment rates 
and the changes specified in Sec. 413.196(b) in the Federal Register.



Sec. 413.174  Prospective rates for hospital-based and independent ESRD facilities.

    (a) Establishment of rates. HCFA establishes prospective payment 
rates for ESRD facilities using a methodology that--
    (1) Differentiates between hospital-based facilities and independent 
ESRD facilities;
    (2) Effectively encourages efficient delivery of dialysis services; 
and
    (3) Provides incentives for increasing the use of home dialysis.
    (b) Determination of independent facility. For purposes of rate-
setting and payment under this section, HCFA considers any facility that 
does not meet all of the criteria of a hospital-based facility to be an 
independent facility. A determination under this paragraph (b) is an 
initial determination under Sec. 498.3 of this chapter.
    (c) Determination of hospital-based facility. A determination under 
this paragraph (c) is an initial determination under Sec. 498.3 of this 
chapter. For purposes of rate-setting and payment under this section, 
HCFA determines that a facility is hospital-based if the--
    (1) Facility and hospital are subject to the bylaws and operating 
decisions of a common governing board. This governing board, which has 
final administrative responsibility, approves all personnel actions, 
appoints medical staff, and carries out similar management functions;
    (2) Facility's director or administrator is under the supervision of 
the hospital's chief executive officer and reports through him or her to 
the governing board;
    (3) Facility personnel policies and practices conform to those of 
the hospital;
    (4) Administrative functions of the facility (for example, records, 
billing, laundry, housekeeping, and purchasing) are integrated with 
those of the hospital; and
    (5) Facility and hospital are financially integrated, as evidenced 
by the cost report, which reflects allocation of

[[Page 466]]

overhead to the facility through the required step-down methodology.
    (d) Nondetermination of hospital-based facility. In determining 
whether a facility is hospital-based, HCFA does not consider--
    (1) An agreement between a facility and a hospital concerning 
patient referral;
    (2) A shared service arrangement between a facility and a hospital; 
or
    (3) The physical location of a facility on the premises of a 
hospital.
    (e) Add-on amounts. If all the physicians furnishing services to 
patients in an ESRD facility elect the initial method of payment (as 
described in Sec. 414.313(c) of this chapter), the prospective rate (as 
described in paragraph (a) of this section) paid to that facility is 
increased by an add-on amount as described in Sec. 414.313.
    (f) Erythropoietin/Epoietin (EPO). (1) When EPO is furnished to an 
ESRD patient by a Medicare-approved ESRD facility or a supplier of home 
dialysis equipment and supplies, payment is based on the amount 
specified in paragraph (f)(3) of this section.
    (2) The payment is made only on an assignment basis, that is, 
directly to the facility or supplier, which must accept, as payment in 
full, the amount that HCFA determines.
    (3) HCFA determines the payment amount in accordance with the 
following rules:
    (i) The amount is prospectively determined, as specified in section 
1881(b)(11)(B)(ii) of the Act, reviewed and adjusted by HCFA, as 
necessary, and paid to hospital-based and independent dialysis 
facilities and to suppliers of home dialysis equipment and supplies, 
regardless of the location of the facility, supplier, or patient.
    (ii) If HCFA determines that an adjustment to the payment amount is 
necessary, HCFA publishes a Federal Register notice proposing a revision 
to the EPO payment amount and requesting public comment.
    (iii) Any increase in this amount for a year does not exceed the 
percentage increase (if any) in the implicit price deflator for gross 
national product (as published by the Department of Commerce) for the 
second quarter of the preceding year over the implicit price deflator 
for the second quarter of the second preceding year.
    (iv) The Medicare payment amount is subject to the Part B deductible 
and coinsurance.
    (g) Additional payment for certain drugs. In addition to the 
prospective payment described in this section, HCFA makes an additional 
payment for certain drugs furnished to ESRD patients by a Medicare-
approved ESRD facility. HCFA makes this payment directly to the ESRD 
facility. The facility must accept the allowance determined by HCFA as 
payment in full. Payment for these drugs is made as follows:
    (1) Hospital-based facilities. HCFA makes payments in accordance 
with the cost reimbursement rules set forth in this part.
    (2) Independent facilities. HCFA makes payment in accordance with 
the methodology set forth in Sec. 405.517 of this chapter for paying for 
drugs that are not paid on a cost or prospective payment basis.



Sec. 413.176  Amount of payments.

    (a) If the beneficiary has incurred the full deductible applicable 
under Part B of Medicare before the dialysis treatment, the intermediary 
pays the facility 80 percent of its prospective payment rate.
    (b) If the beneficiary has not incurred the full deductible 
applicable under Part B of Medicare before the dialysis treatment, the 
intermediary subtracts the amount applicable to the deductible from the 
facility's prospective rate and pays the facility 80 percent of the 
remainder, if any.



Sec. 413.178  Bad debts.

    (a) HCFA will reimburse each facility its allowable Medicare bad 
debts, as defined in Sec. 413.80(b), up to the facility's costs, as 
determined under Medicare principles, in a single lump sum payment at 
the end of the facility's cost reporting period.
    (b) A facility must attempt to collect deductible and coinsurance 
amounts owed by beneficiaries before requesting reimbursement from HCFA 
for uncollectible amounts. Section 413.80 specifies the collection 
efforts facilities must make.

[[Page 467]]

    (c) A facility must request payment for uncollectible deductible and 
coinsurance amounts owed by beneficiaries by submitting an itemized list 
that specifically enumerates all uncollectable amounts related to 
covered services under the composite rate.



Sec. 413.180  Procedures for requesting exceptions to payment rates.

    (a) Outpatient maintenance dialysis payments. All payments for 
outpatient maintenance dialysis furnished at or by facilities are made 
on the basis of prospective payment rates.
    (b) Criteria for requesting an exception. If a facility projects on 
the basis of prior year costs and utilization trends that it will have 
an allowable cost per treatment higher than its prospective rate set 
under Sec. 413.174, and if these excess costs are attributable to one or 
more of the factors in Sec. 413.182, the facility may request, in 
accordance with paragraph (d) of this section, that HCFA approve an 
exception to that rate and set a higher prospective payment rate. 
However, a facility may only request an exception or seek to retain its 
previously approved exception rate when authorized under the conditions 
specified in paragraphs (d) and (e) of this section.
    (c) Application of deductible and coinsurance. The higher payment 
rate is subject to the application of deductible and coinsurance in 
accordance with Sec. 413.176.
    (d) Payment rate exception request. A facility must request an 
exception to its payment rate within 180 days of--
    (1) The effective date of its new composite payment rate(s);
    (2) The effective date that HCFA opens the exceptions process; or
    (3) The date on which an extraordinary cost-increasing event occurs, 
as specified (or provided for) in Secs. 413.182(c) and 413.188.
    (e) Criteria for retaining a previously approved exception rate. A 
facility may elect to retain its previously approved exception rate in 
lieu of any composite rate increase or any other exception amount if--
    (1) The conditions under which the exception was granted have not 
changed;
    (2) The facility files a request to retain the rate with its fiscal 
intermediary during the 30-day period before the opening of an exception 
cycle; and
    (3) The request is approved by the fiscal intermediary.
    (f) Documentation for a payment rate exception request. If the 
facility is requesting an exception to its payment rate, it must submit 
to HCFA its most recently completed cost report as required under 
Sec. 413.198 and whatever statistics, data, and budgetary projections as 
determined by HCFA to be needed to adjudicate each type of exception. 
HCFA may audit any cost report or other information submitted. The 
materials submitted to HCFA must--
    (1) Separately identify elements of cost contributing to costs per 
treatment in excess of the facility's payment rate;
    (2) Show that the facility's costs, including those costs that are 
not directly attributable to the exception criteria, are allowable and 
reasonable under the reasonable cost principles set forth in this part;
    (3) Show that the elements of excessive cost are specifically 
attributable to one or more conditions specified in Sec. 413.182;
    (4) Specify the amount of additional payment per treatment the 
facility believes is required for it to recover its justifiable excess 
costs; and
    (5) Specify that the facility has compared its most recently 
completed cost report with cost reports from (at least 2) prior years. 
The facility must explain any material statistical data or cost changes, 
or both, and include an explanation with the documentation supporting 
the exception request.
    (g) Completion of requirements and criteria. The facility must 
demonstrate to HCFA's satisfaction that the requirements of this section 
and the criteria in Sec. 413.182 are fully met. The burden of proof is 
on the facility to show that one or more of the criteria are met and 
that the excessive costs are justifiable under the reasonable cost 
principles set forth in this part.
    (h) Approval of an exception request. An exception request is deemed 
approved unless it is disapproved within

[[Page 468]]

60 working days after it is filed with its intermediary.
    (i) Determination of an exception request. In determining the 
facility's payment rate under the exception process, HCFA excludes all 
costs that are not reasonable or allowable under the reasonable cost 
principles set forth in this part.
    (j) Period of approval: Payment exception request. Except for 
exceptions approved under Secs. 413.180(e), 413.180(k), 413.182(c), and 
413.188, a prospective exception payment rate approved by HCFA applies 
for the period from the date the complete exception request was filed 
with its intermediary until the earlier of the--
    (1) Date the circumstances justifying the exception rate no longer 
exist; or
    (2) End of the period during which the announced rate was to apply.
    (k) Period of approval: Payment exception request under 
Secs. 413.182(c) and 413.188. A prospective exception payment rate 
approved by HCFA under Secs. 413.182(c) and 413.188 applies from the 
date of the extraordinary event until the end of the period during which 
the prospective announced rate was to apply, unless HCFA determines that 
another date is more appropriate. If HCFA does not extend the exception 
period and the facility believes that it continues to require an 
exception to its rate, the facility must reapply in accordance with the 
procedures in this section.
    (l) Denial of an exception request. HCFA denies exception requests 
submitted without the documentation specified in Sec. 413.182 and the 
applicable regulations cited there.
    (m) Criteria for refiling a denied exception request. A facility 
that has been denied an exception request during the 180 days may file 
another exception request if all required documentation is filed with 
the intermediary by the 180th day.



Sec. 413.182  Criteria for approval of exception requests.

    HCFA may approve exceptions to an ESRD facility's prospective 
payment rate if the facility demonstrates, by convincing objective 
evidence, that its total per treatment costs are reasonable and 
allowable under the relevant cost reimbursement principles of part 413 
and that its per treatment costs in excess of its payment rate are 
directly attributable to any of the following criteria:
    (a) Atypical service intensity (patient mix), as specified in 
Sec. 413.184.
    (b) Isolated essential facility, as specified in Sec. 413.186.
    (c) Extraordinary circumstances, as specified in Sec. 413.188.
    (d) Self-dialysis training costs, as specified in Sec. 413.190.
    (e) Frequency of dialysis, as specified in Sec. 413.192.



Sec. 413.184  Payment exception: Atypical service intensity (patient mix).

    (a) To qualify for an exception to the prospective payment rate 
based on atypical service intensity (patient mix)--
    (1) A facility must demonstrate that a substantial proportion of the 
facility's outpatient maintenance dialysis treatments involve atypically 
intense dialysis services, special dialysis procedures, or supplies that 
are medically necessary to meet special medical needs of the facility's 
patients. Examples that may qualify under this criterion are more 
intense dialysis services that are medically necessary for patients such 
as--
    (i) Patients who have been referred from other facilities on a 
temporary basis for more intense care during a period of medical 
instability and who return to the original facility after stabilization;
    (ii) Pediatric patients who require a significantly higher staff-to-
patient ratio than typical adult patients; or
    (iii) Patients with medical conditions that are not commonly treated 
by ESRD facilities and that complicate the dialysis procedure.
    (2) The facility must demonstrate clearly that these services, 
procedures, or supplies and its per treatment costs are prudent and 
reasonable when compared to those of facilities with a similar patient 
mix.
    (3) A facility must demonstrate that--
    (i) Its nursing personnel costs have been allocated properly between 
each mode of care; and

[[Page 469]]

    (ii) The additional nursing hours per treatment are not the result 
of an excess number of employees.
    (b) Documentation. (1) A facility must submit a listing of all 
outpatient dialysis patients (including all home patients) treated 
during the most recently completed fiscal or calendar year showing--
    (i) Patients who received transplants, including the date of 
transplant;
    (ii) Patients awaiting a transplant who are medically able, have 
given consent, and are on an active transplant list, and projected 
transplants;
    (iii) Home patients;
    (iv) In-facility patients, staff-assisted, or self-dialysis;
    (v) Individual patient diagnosis;
    (vi) Diabetic patients;
    (vii) Patients isolated because of contagious disease;
    (viii) Age of patients;
    (ix) Mortality rate, by age and diagnosis;
    (x) Number of patient transfers, reasons for transfers, and any 
related information; and
    (xi) Total number of hospital admissions for the facility's 
patients, reason for, and length of stay of each session.
    (2) The facility also must--
    (i) Submit documentation on costs of nursing personnel (registered 
nurses, licensed practical nurses, technicians, and aides) incurred 
during the most recently completed fiscal year cost report showing--
    (A) Amount each employee was paid;
    (B) Number of personnel;
    (C) Amount of time spent in the dialysis unit; and
    (D) Staff-to-patient ratio based on total hours, with an analysis of 
productive and nonproductive hours.
    (ii) Submit documentation on supply costs incurred during the most 
recently completed fiscal or calendar year cost report showing--
    (A) By modality, a complete list of supplies used routinely in a 
dialysis treatment;
    (B) The make and model number of each dialyzer and its component 
cost; and
    (C) That supplies are prudently purchased (for example, that bulk 
discounts are used when available).
    (iii) Submit documentation on overhead costs incurred during the 
most recently completed fiscal or calendar year cost reporting year 
showing--
    (A) The basis of the higher overhead costs;
    (B) The impact on the specific cost components; and
    (C) The effect on per treatment costs.



Sec. 413.186  Payment exception: Isolated essential facility.

    (a) Qualifications. To qualify for an exception to the prospective 
payment rate based on being an isolated essential facility--
    (1) The facility must be the only supplier of dialysis in its 
geographical area;
    (2) The facility's patients must be unable to obtain dialysis 
services elsewhere without substantial additional hardship; and
    (3) The facility's excess costs must be justifiable.
    (b) Criteria for determining qualifications. In determining whether 
a facility qualifies for an exception based on its being an isolated 
essential facility, HCFA considers--
    (1) Local, permanent residential population density;
    (2) Typical local commuting distances from medical services;
    (3) Volume of treatments; and
    (4) The extent that other dialysis facilities are used by area 
residents (other than the applying facility's patients).
    (c) Documentation. (1) Isolated. Generally, to be considered 
isolated, the facility must document that it is located outside an 
established Metropolitan Statistical Area and provides dialysis to a 
permanent patient population, as opposed to a transient patient 
population.
    (2) Essential. To be considered essential, the facility must 
document--
    (i) That a substantial number of its patients cannot obtain dialysis 
services elsewhere without additional hardship; and
    (ii) The additional hardship the patients will incur in travel time 
and cost.
    (3) Cost per treatment. The facility must--

[[Page 470]]

    (i) Document that its cost per treatment is reasonable; and
    (ii) Explain how the facility's cost per treatment in excess of its 
composite rate relates to the isolated essential facility criteria 
specified in paragraph (b) of this section.
    (4) Additional information. The facility must also furnish the 
following information in a format that concisely explains the facility's 
cost and patient data to support its request:
    (i) A list of current and requested payment rates for each modality.
    (ii) An explanation of how the facility's costs in excess of its 
composite rate payment are attributable to its being an isolated 
essential facility.
    (iii) An explanation of any unusual geographic conditions in the 
area surrounding the facility.
    (iv) A copy of the latest filed cost report and a budget estimate 
for the next 12 months prepared on cost report forms.
    (v) An explanation of unusual costs reported on the facility's 
actual or budgeted cost reports and any significant changes in budgeted 
costs and data compared to actual costs and data reported on the latest 
filed cost report.
    (vi) The name, location of, and distance to the nearest renal 
dialysis facility.
    (vii) A list of patients by modality showing commuting distance and 
time to the current and the next nearest renal dialysis facility.
    (viii) The historical and projected patient-to-staff ratios and 
number of machines used for maintenance dialysis treatments.
    (ix) A computation showing the facility's treatment capacity, 
arrived at by taking the total stations multiplied by the number of 
hours of operation for the year divided by the average length of a 
dialysis treatment.
    (x) The geographic boundaries and population size of the facility's 
service area.



Sec. 413.188  Payment exception: Extraordinary circumstances.

    (a) To qualify for an exception to the prospective payment rate 
based on extraordinary circumstances, the facility must substantiate 
that it incurs excess costs beyond its control due to a fire, 
earthquake, flood, or other natural disaster.
    (b) HCFA will not grant an exception based on increased costs if a 
facility has chosen not to--
    (1) Maintain adequate insurance protection against such losses 
(through the purchase of insurance, the maintenance of a self-insurance 
program, or other equivalent alternative); or
    (2) File a claim for losses covered by insurance or utilize its 
self-insurance program.



Sec. 413.190  Payment exception: Self-dialysis training costs.

    (a) Qualifications. To qualify for an exception to the prospective 
payment rate based on self-dialysis training costs, the facility must 
establish that it incurs per treatment costs for furnishing self-
dialysis and home dialysis training that exceed the facility's payment 
rate for such training sessions.
    (b) Justification. To justify its exception request, a facility 
must--
    (1) Separately identify those elements contributing to its costs in 
excess of the composite training rate; and
    (2) Demonstrate that its per treatment costs are reasonable and 
allowable.
    (c) Criteria for determining proper cost reporting. HCFA considers 
the facility's total costs, cost finding and apportionment, including 
its allocation of costs, to determine if costs are properly reported by 
treatment modality.
    (d) Limitation of exception requests. Exception requests for a 
higher training rate are limited to those cost components relating to 
training such as technical staff, medical supplies, and the special 
costs of education (manuals and education materials). These requests may 
include overhead and other indirect costs to the extent that these costs 
are directly attributable to the additional training costs.
    (e) Documentation. The facility must provide the following 
information to support its exception request:
    (1) A copy of the facility's training program.
    (2) Computation of the facility's cost per treatment for maintenance 
sessions and training sessions including an explanation of the cost 
difference between the two modalities.

[[Page 471]]

    (3) Class size and patients' training schedules.
    (4) Number of training sessions required, by treatment modality, to 
train patients.
    (5) Number of patients trained for the current year and the prior 2 
years on a monthly basis.
    (6) Projection for the next 12 months of future training candidates.
    (7) The number and qualifications of staff at training sessions.
    (f) Accelerated training exception. (1) An ESRD facility may bill 
Medicare for a dialysis training session only when a patient receives a 
dialysis treatment (normally three times a week for hemodialysis). 
Continuous cycling peritoneal dialysis (CCPD) and continuous ambulatory 
peritoneal dialysis (CAPD) are daily treatment modalities; ESRD 
facilities are paid the equivalent of three hemodialysis treatments for 
each week that CCPD and CAPD treatments are provided.
    (2) If an ESRD facility elects to train all its patients using a 
particular treatment modality more often than during each dialysis 
treatment and, as a result, the number of billable training dialysis 
sessions is less than the number of actual training sessions, the 
facility may request a composite rate exception, limited to the lesser 
of the--
    (i) Facility's projected training cost per treatment; or
    (ii) Cost per treatment the facility would have received in training 
a patient if it had trained patients only during a dialysis treatment, 
that is, three times per week.
    (3) An ESRD facility may bill a maximum of 25 training sessions per 
patient for hemodialysis training and 15 sessions for CCPD and CAPD 
training.
    (4) In computing the payment amount under an accelerated training 
exception, HCFA uses a minimum number of training sessions per patient 
(15 for hemodialysis and 5 for CAPD and CCPD) when the facility actually 
provides fewer than the minimum number of training sessions.
    (5) To justify an accelerated training exception request, an ESRD 
facility must document that a significant number of training sessions 
for a particular modality are provided during a shorter but more 
condensed period.
    (6) The facility must submit with the exception request a list of 
patients, by modality, trained during the most recent cost report 
period. The list must include each beneficiary's--
    (i) Name;
    (ii) Age; and
    (iii) Training status (completed, not completed, being retrained, or 
in the process of being trained).
    (7) The total treatments from the patient list must be the same as 
the total treatments reported on the cost report filed with the request.



Sec. 413.192  Payment exception: Frequency of dialysis.

    (a) Qualification. To qualify for an exception to the prospective 
payment rate based on frequency of dialysis, the facility must establish 
that it has a substantial portion of outpatient maintenance dialysis 
treatments furnished to patients who dialyze less frequently than three 
times per week.
    (b) Definition. For purposes of this section, ``substantial'' means 
the number of treatments furnished by the facility is at least 15 
percent lower than the number would be if all patients dialyzed three 
times a week.
    (c) Limitation for per treatment payment rates. Per treatment 
payment rates granted under this exception may not exceed the amount 
that produces weekly payments per patient equal to three times the 
facility's prospective composite rate, exclusive of any exception 
amounts.
    (d) Documentation. To document that an ESRD facility furnishes a 
substantial number of dialysis treatments at a frequency less than three 
times per week per patient, the facility must submit the following 
information:
    (1) A list of patients receiving outpatient dialysis treatments for 
the cost report that is filed with the request. The list must indicate--
    (i) Whether the patients are permanent, transient, or temporary;
    (ii) The medically prescribed frequency of dialysis; and
    (iii) The number of dialysis treatments that each patient received 
on a weekly and yearly basis and an explanation of any discrepancy 
between that

[[Page 472]]

calculation and the number of treatments reported on the facility's cost 
report.
    (2) A list of patients used to project treatments. The list must 
indicate--
    (i) Whether the patients are permanent, transient, or temporary;
    (ii) The medically prescribed frequency of dialysis;
    (iii) The number of dialysis treatments that each patient is 
projected to receive on a weekly and yearly basis, an explanation of any 
discrepancy between that calculation and the number of treatments 
reported on the facility's projected cost report, and an explanation for 
any change among prior, actual, and projected data.
    (3) A schedule showing the number of treatments to be furnished 
twice a week and the number of treatments that would have been furnished 
if each patient were dialyzed three times a week.
    (4) A computation of the facility's projected costs per treatment 
using the--
    (i) Projected number of treatments furnished twice a week; and
    (ii) Number of treatments if patients dialyze three times a week.
    (5) A schedule showing the computation of the percentage decrease in 
the number of treatments.



Sec. 413.194  Appeals.

    (a) Appeals under section 1878 of the Act. (1) A facility that 
disputes the amount of its allowable Medicare bad debts reimbursed by 
HCFA under Sec. 413.178 may request review by the intermediary or the 
Provider Reimbursement Review Board (PRRB) in accordance with subpart R 
of part 405 of this chapter.
    (2) A facility must request and obtain a final agency decision prior 
to seeking judicial review of a dispute regarding the amount of 
allowable Medicare bad debts.
    (b) Other appeals. (1) A facility that has requested higher payment 
per treatment in accordance with Sec. 413.180 may request review from 
the intermediary or the PRRB if HCFA has denied the request in whole or 
in part. In such a case, the procedure in subpart R of part 405 of this 
chapter is followed to the extent that it is applicable.
    (2) The PRRB has the authority to review the action taken by HCFA on 
the facility's requests. However, the PRRB's decision is subject to 
review by the Administrator under Sec. 405.1875 of this chapter.
    (3) A facility must request and obtain a final agency decision, in 
accordance with paragraph (b)(1) of this section, prior to seeking 
judicial review of the denial, in whole or in part, of the exception 
request.
    (c) Procedure. (1) The facility must request review within 180 days 
of the date of the decision on which review is sought.
    (2) The facility may not submit to the reviewing entity, whether it 
is the intermediary or the PRRB, any additional information or cost data 
that had not been submitted to HCFA at the time HCFA evaluated the 
exception request.
    (d) Determining amount in controversy. For purposes of determining 
PRRB jurisdiction under subpart R of part 405 of this chapter for the 
appeals described in paragraph (b) of this section--
    (1) The amount in controversy per treatment is determined by 
subtracting the amount of program payment from the amount the facility 
requested under Sec. 413.180; and
    (2) The total amount in controversy is calculated by multiplying the 
amount in controversy per treatment by the projected number of 
treatments for the exception request period.



Sec. 413.196  Notification of changes in rate-setting methodologies and payment rates.

    (a) HCFA or the facility's intermediary notifies each facility of 
changes in its payment rate. This notice includes changes in individual 
facility payment rates resulting from corrections or revisions of 
particular geographic labor cost adjustment factors.
    (b) Changes in payment rates resulting from incorporation of updated 
cost data or general revisions of geographic labor cost adjustment 
factors are announced by notice published in the Federal Register 
without opportunity for prior comment. Revisions of

[[Page 473]]

the rate-setting methodology are published in the Federal Register in 
accordance with the Department's established rulemaking procedures.



Sec. 413.198  Recordkeeping and cost reporting requirements for outpatient maintenance dialysis.

    (a) Purpose and Scope. This section implements section 
1881(b)(2)(B)(i) of the Act by specifying recordkeeping and cost 
reporting requirements for ESRD facilities approved under subpart U of 
part 405 of this chapter. The records and reports will enable HCFA to 
determine the costs incurred in furnishing outpatient maintenance 
dialysis as defined in Sec. 413.170(a).
    (b) Recordkeeping and reporting requirements. (1) Each facility must 
keep adequate records and submit the appropriate HCFA-approved cost 
report in accordance with Secs. 413.20 and 413.24, which provide rules 
on financial data and reports, and adequate cost data and cost finding, 
respectively.
    (2) The cost reimbursement principles set forth in this part 
(beginning with Sec. 413.134, Depreciation, and excluding the principles 
listed in paragraph (b)(4) of this section), apply in the determination 
and reporting of the allowable cost incurred in furnishing outpatient 
maintenance dialysis treatments to patients dialyzing in the facility, 
or incurred by the facility in furnishing home dialysis service, 
supplies, and equipment.
    (3) Allowable cost is the reasonable cost related to dialysis 
treatments. Reasonable cost includes all necessary and proper expenses 
incurred by the facility in furnishing the dialysis treatments, such as 
administrative costs, maintenance costs, and premium payments for 
employee health and pension plans. It includes both direct and indirect 
costs and normal standby costs. Reasonable cost does not include costs 
that--
    (i) Are not related to patient care for outpatient maintenance 
dialysis;
    (ii) Are for services or items specifically not reimbursable under 
the program;
    (iii) Flow from the provision of luxury items or servicess (items or 
services substantially in excess of or more expensive than those 
generally considered necessary for the provision of needed health 
services); or
    (iv) Are found to be substantially out of line with other 
institutions in the same area that are similar in size, scope of 
services, utilization, and other relevant factors.
    (4) The following principles of this part do not apply in 
determining adjustments to allowable costs as reported by ESRD 
facilities:
    (i) Section 413.157, Return on equity capital of proprietary 
providers;
    (ii) Section 413.200, Reimbursement of OPAs and histocompatibility 
laboratories;
    (iii) Section 413.9, Cost related to patient care (except for the 
principles stated in paragraph (b)(3) of this section); and
    (iv) Sections 413.64, Payments to providers, and Secs. 413.13, 
413.30, 413.35, 413.40, 413.74, and Secs. 415.55 through 415.70, 
Sec. 415.162, and Sec. 415.164 of this chapter, Principles of 
reimbursement for services by hospital-based physicians.



Sec. 413.200  Payment of independent organ procurement organizations and histocompatibility laboratories.

    (a) Principle. Covered services furnished after September 30, 1978 
by organ procurement organizations (OPOs) and histocompatibility 
laboratories in connection with kidney acquisition and transplantation 
will be reimbursed under the principles for determining reasonable cost 
contained in this part. Services furnished by freestanding OPOs and 
histocompatibility laboratories, that have an agreement with the 
Secretary in accordance with paragraph (c) of this section, will be 
reimbursed by making an interim payment to the transplant hospitals 
using these services and by making a retroactive adjustment, directly 
with the OPO or laboratory, based upon a cost report filed by the OPO or 
laboratory. (The reasonable costs of services furnished by hospital 
based OPOs or laboratories will be reimbursed in accordance with the 
principles contained in Secs. 413.60 and 413.64.)
    (b) Definitions. For purposes of this section:
    Freestanding refers to an OPO or a histocompatibility laboratory 
that is not--

[[Page 474]]

    (1) Subject to the control of the hospital with respect to the 
hiring, firing, training, and paying of employees; and
    (2) Considered as a department of the hospital for insurance 
purposes (including malpractice insurance, general liability insurance, 
worker's compensation insurance, and employee retirement insurance).
    Histocompatibility laboratory means a laboratory meeting the 
standards and providing the services for kidneys or other organs set 
forth in Sec. 413.2171(d) of this chapter.
    OPO means an organization defined in Sec. 486.302 of this chapter.
    (c) Agreements with independent OPOs and laboratories. (1) Any 
freestanding OPO or histocompatibility laboratory that wishes to have 
the cost of its pretransplant services reimbursed under the Medicare 
program must file an agreement with HCFA under which the OPO or 
laboratory agrees--
    (i) To file a cost report in accordance with Sec. 413.24(f) within 
three months after the end of each fiscal year;
    (ii) To permit HCFA to designate an intermediary to determine the 
interim reimbursement rate payable to the transplant hospitals for 
services provided by the OPO or laboratory and to make a determination 
of reasonable cost based upon the cost report filed by the OPO or 
laboratory;
    (iii) To provide such budget or cost projection information as may 
be required to establish an initial interim reimbursement rate;
    (iv) To pay to HCFA amounts that have been paid by HCFA to 
transplant hospitals and that are determined to be in excess of the 
reasonable cost of the services provided by the OPO or laboratory; and
    (v) Not to charge any individual for items or services for which 
that individual is entitled to have payment made under section 1861 of 
the Act.
    (2) The initial cost report due from an OPO or laboratory is for its 
first fiscal year during any portion of which it had an agreement with 
the Secretary under paragraphs (c) (1) and (2) of this section. The 
initial cost report covers only the period covered by the agreement.
    (d) Interim reimbursement. (1) Hospitals eligible to receive 
Medicare reimbursement for renal transplantation will be paid for the 
pretransplantation services of a freestanding OPO or histocompatibility 
laboratory that has an agreement with the Secretary under paragraph (c) 
of this section, on the basis of an interim rate established by an 
intermediary for that OPO or laboratory.
    (2) The interim rate will be based on the average cost per service 
incurred by an OPO or laboratory, during its previous fiscal year, 
associated with procuring a kidney for transplantation. This interim 
rate may be adjusted if necessary for anticipated cost changes. If there 
is not adequate cost data to determine the initial interim rate, it will 
be determined according to the OPO's or laboratory's estimate of its 
projected costs for the fiscal year.
    (3) Payments made on the basis of the interim rate will be 
reconciled directly with the OPO or laboratory after the close of its 
fiscal year, in accordance with paragraph (e) of this section.
    (4) Information on the interim rate for all freestanding OPOs and 
histocompatibility laboratories shall be disseminated to all transplant 
hospitals and intermediaries.
    (e) Retroactive adjustment. (1) Cost reports. Information provided 
in cost reports by freestanding OPOs and histocompatibility laboratories 
must meet the requirements for cost data and cost finding specified in 
paragraphs (a) through (e) of Sec. 413.24. These cost reports must 
provide a complete accounting of the cost incurred by the agency or 
laboratory in providing covered services, the total number of Medicare 
beneficiaries who received those services, and any other data necessary 
to enable the intermediary to make a determination of the reasonable 
cost of covered services provided to Medicare beneficiaries.
    (2) Audit and adjustment. A cost report submitted by a freestanding 
OPO or histocompatibility laboratory will be reviewed by the 
intermediary and a new interim reimbursement rate for the succeeding 
fiscal year will be established based upon this review. A retroactive 
adjustment in the amount paid under the interim rate will be made in 
accordance with Sec. 413.64(f). If the determination of reasonable cost

[[Page 475]]

reveals an overpayment or underpayment resulting from the interim 
reimbursement rate paid to transplant hospitals, a lump sum adjustment 
will be made directly between that intermediary and the OPO or 
laboratory.
    (f) For services furnished on or after April 1, 1988, no payment may 
be made for services furnished by an OPO that does not meet the 
requirements of part 485, subpart D of this chapter.
    (g) Appeals. Any OPO or histocompatibility laboratory that disagrees 
with an intermediary's cost determination under this section is entitled 
to an intermediary hearing, in accordance with the procedures contained 
in Secs. 405.1811 through 405.1833, if the amount in controversy is 
$1,000 or more.



Sec. 413.202  Organ procurement organization (OPO) cost for kidneys sent to foreign countries or transplanted in patients other than Medicare beneficiaries.

    An OPO's total costs for all kidneys is reduced by the costs 
associated with procuring kidneys sent to foreign transplant centers or 
transplanted in patients other than Medicare beneficiaries. OPOs, as 
defined in Sec. 435.302 of this chapter, must separate costs for 
procuring kidneys that are sent to foreign transplant centers and 
kidneys transplanted in patients other than Medicare beneficiaries from 
Medicare allowable costs prior to final settlement by the Medicare 
fiscal intermediaries. Medicare costs are based on the ratio of the 
number of usable kidneys transplanted into Medicare beneficiaries to the 
total number of usable kidneys applied to reasonable costs. Certain 
long-standing arrangements that existed before March 3, 1988 (for 
example, an OPO that procures kidneys at a military transplant hospital 
for transplant at that hospital), will be deemed to be Medicare kidneys 
for cost reporting statistical purposes. The OPO must submit a request 
to the fiscal intermediary for review and approval of these 
arrangements.



Sec. 413.203  Transplant center costs for organs sent to foreign countries or transplanted in patients other than Medicare beneficiaries.

    (a) A transplant center's total costs for all organs is reduced by 
the costs associated with procuring organs sent to foreign transplant 
centers or transplanted in patients other than Medicare beneficiaries. 
Organs are defined in Sec. 486.302 (only covered organs will be paid for 
on a reasonable cost basis).
    (b) Transplant center hospitals must separate costs for procuring 
organs that are sent to foreign transplant centers and organs 
transplanted in patients other than Medicare beneficiaries from Medicare 
allowable costs prior to final cost settlement by the Medicare fiscal 
intermediaries.
    (c) Medicare costs are based on the ratio of the number of usable 
organs transplanted into Medicare beneficiaries to the total number of 
usable organs applied to reasonable costs.



Subpart I--Prospectively Determined Payment Rates for Low-Volume Skilled 
 Nursing Facilities, for Cost Reporting Periods Beginning Prior to July 
                                 1, 1998

    Source: 60 FR 37594, July 21, 1995, unless otherwise noted.



Sec. 413.300  Basis and scope.

    (a) Basis. This subpart implements section 1888(d) of the Act, which 
provides for optional prospectively determined payment rates for 
qualified SNFs.
    (b) Scope. This subpart sets forth the eligibility criteria an SNF 
must meet to qualify, the process governing election of prospectively 
determined payment rates, and the basis and methodology for determining 
prospectively determined payment rates.



Sec. 413.302  Definitions.

    For purposes of this subpart--
    Area wage level means the average wage per hour for all 
classifications of

[[Page 476]]

employees as reported by health care facilities within a specified area.
    Census region means one of the 9 census divisions, comprising the 50 
States and the District of Columbia, established by the Bureau of the 
Census for statistical and reporting purposes.
    Routine capital-related costs means the capital-related costs, 
allowable for Medicare purposes (as described in Subpart G of this 
Part), that are allocated to the SNF participating inpatient routine 
service cost center as reported on the Medicare cost report.
    Routine operating costs means the cost of regular room, dietary, and 
nursing services, and minor medical and surgical supplies for which a 
separate charge is not customarily made. It does not include the costs 
of ancillary services, capital-related costs, or, where appropriate, 
return on equity.
    Rural area means any area outside an urban area in a census region.
    Urban area means a Metropolitan Statistical Area (MSA) or New 
England County Metropolitan Area (NECMA), as defined by the Office of 
Management and Budget, or a New England county deemed to be an urban 
area, as listed in Sec. 412.62(f)(1)(ii)(B) of this chapter.



Sec. 413.304  Eligibility for prospectively determined payment rates.

    (a) General rule. An SNF is eligible to receive a prospectively 
determined payment rate for a cost reporting period if it had fewer than 
1,500 Medicare covered inpatient days as reported on a Medicare cost 
report in its immediately preceding cost reporting period. This 
criterion applies even if the SNF received a prospectively determined 
payment rate during the preceding cost reporting period.
    (b) Less than a full cost reporting period. If the cost reporting 
period that precedes an SNF's request for prospectively determined 
payment is not a full cost reporting period, the SNF is eligible to 
receive prospectively determined payment rates only if the average daily 
Medicare census for the period (Medicare inpatient days divided by the 
total number of days in the cost reporting period) is not greater than 
4.1.
    (c) Newly-participating SNFs. An SNF is eligible to receive 
prospectively determined payment rates for its first cost reporting 
period for which it is approved to participate in Medicare.



Sec. 413.308  Rules governing election of prospectively determined payment rates.

    (a) Requirements. An SNF must notify its intermediary at least 30 
calendar days before the beginning of the cost reporting period for 
which it requests to receive such payment that it elects prospectively 
determined payment rates. A separate request must be made for each cost 
reporting period for which an SNF seeks prospectively determined 
payment. A newly participating SNF with no preceding cost reporting 
period must make its election within 30 days of its notification of 
approval to participate in Medicare.
    (b) Intermediary notice. After evaluating an SNF's request for 
prospectively determined payment rates, the intermediary notifies the 
SNF in writing as to whether the SNF meets any of the eligibility 
criteria described in Sec. 413.304 and the timely election requirements 
under Sec. 413.308(a). The intermediary must notify the SNF of its 
initial and final determinations within 10 working days after it 
receives all the data necessary to make each determination. The 
intermediary's determination is limited to one cost reporting period.
    (c) Prohibition against revocation. An SNF may not revoke its 
request after it has received the initial determination of eligibility 
from the intermediary and the cost reporting period has begun.
    (d) Revocation by intermediary. If an SNF is given tentative 
approval to receive a prospectively determined payment rate, and, after 
the start of the applicable cost reporting period, the intermediary 
determines that the SNF does not meet the eligibility criteria, the 
intermediary must revoke the prospectively determined payment option.



Sec. 413.310  Basis of payment.

    (a) Method of payment. Under the prospectively determined payment 
rate system, a qualified SNF receives a per diem payment of a 
predetermined rate for inpatient services furnished to Medicare 
beneficiaries. Each SNF's routine per diem payment rate is determined 
according to the methodology

[[Page 477]]

described in Sec. 413.312 and is based on various components of SNF 
costs.
    (b) Payment in full. The payment rate represents payment in full for 
routine services as described in Sec. 413.314 (subject to applicable 
coinsurance as described in Subpart G of Part 409 of this title), and 
for routine capital costs. Payment is made in lieu of payment on a 
reasonable cost basis for routine services and for routine capital 
costs.



Sec. 413.312  Methodology for calculating rates.

    (a) Data used. (1) To calculate the prospectively determined payment 
rates, HCFA uses:
    (i) The SNF cost data that were used to develop the applicable 
routine service cost limits;
    (ii) A wage index to adjust for area wage differences; and
    (iii) The most recent projections of increases in the costs from the 
SNF market basket index.
    (2) In the annual schedule of rates published in the Federal 
Register under the authority of Sec. 413.320, HCFA announces the wage 
index and the annual percentage increases in the market basket used in 
the calculation of the rates.
    (b) Calculation of per diem rate. (1) Routine operating component of 
rate--(i) Adjusting cost report data. The SNF market basket index is 
used to adjust the routine operating cost from the SNF cost report to 
reflect cost increases occurring between cost reporting periods 
represented in the data collected and the midpoint of the initial cost 
reporting period to which the payment rates apply.
    (ii) Calculating a per diem cost. For each SNF, an adjusted routine 
operating per diem cost is computed by dividing the adjusted routine 
operating cost (see paragraph (b)(1)(i) of this section) by the SNF's 
total patient days.
    (iii) Adjusting for wage levels. (A) The SNF's adjusted per diem 
routine operating cost calculated under paragraph (b)(1)(ii) of this 
section is then divided into labor-related and nonlabor-related 
portions.
    (B) The labor-related portion is obtained by multiplying the SNF's 
adjusted per diem routine operating cost by a percentage that represents 
the labor-related portion of cost from the market basket. This 
percentage is published when the revised rates are published as 
described in Sec. 413.320.
    (C) The labor-related portion of each SNF's per diem cost is divided 
by the wage index applicable to the SNF's geographic location to arrive 
at the adjusted labor-related portion of routine cost.
    (iv) Group means. SNFs are grouped by urban or rural location by 
census region. Separate means of adjusted labor-related and nonlabor 
routine operating costs for each SNF group are established in accordance 
with the SNF's region and urban or rural location. For each group, the 
mean labor-related and mean nonlabor-related per diem routine operating 
costs are multiplied by 105 percent.
    (2) Computation of routine capital-related cost.
    (i) The SNF routine capital-related cost for both direct and 
indirect capital costs allocated to routine services, as reported on the 
Medicare cost report, is obtained for each SNF in the data base.
    (ii) For each SNF, the per diem capital-related cost is calculated 
by dividing the SNF's routine capital costs by its inpatient days.
    (iii) SNFs are grouped by urban and rural location by census region, 
and mean per diem routine capital-related cost is determined for each 
group.
    (iv) Each group mean per diem capital-related cost is multiplied by 
105 percent.
    (3) Computation of return on owner's equity for services furnished 
before October 1, 1993. (i) Each proprietary SNF's Medicare return on 
equity is obtained from its cost report and the portion attributable to 
the routine service cost is determined as described in Sec. 413.157.
    (ii) For each proprietary SNF, per diem return on equity is 
calculated by dividing the routine cost related return on equity 
determined under paragraph (b)(3)(i) of this section by the SNF's total 
Medicare inpatient days.
    (iii) Separate group means are computed for per diem return on 
equity of proprietary SNFs, based on regional and urban or rural 
classification.
    (iv) Each group mean is multiplied by 105 percent.

[[Page 478]]



Sec. 413.314  Determining payment amounts: Routine per diem rate.

    (a) General rule. An SNF that elects to be paid under the 
prospectively determined payment rate system, and qualifies for such 
payment, is paid a per diem rate for inpatient routine services. This 
rate is adjusted to reflect area wage differences and the cost reporting 
period beginning date (if necessary) and is subject to the limitation 
specified in paragraph (d) of this section.
    (b) Per diem rate. The prospectively determined payment rate for 
each urban and rural area in each census region is comprised of the 
following:
    (1) A routine operating component, which is divided into:
    (i) A labor-related portion adjusted by the appropriate wage index; 
and
    (ii) A nonlabor-related portion.
    (2) A routine capital-related cost portion.
    (3) For proprietary SNFs only, a portion that is based on the return 
on owner's equity related to routine cost, applicable only for services 
furnished before October 1, 1993.
    (c) Adjustment for cost reporting period. (1) If a facility has a 
cost reporting period beginning after the beginning of the Federal 
fiscal year, the intermediary increases the labor-related and nonlabor-
related portions of the prospective payment rate that would otherwise 
apply to the SNF by an adjustment factor. Each factor represents the 
projected increase in the market basket index for a specific 12-month 
period. The factors are used to account for inflation in costs for cost 
reporting periods beginning after October 1. Adjustment factors are 
published in the annual notice of prospectively determined payment rates 
described in Sec. 413.320.
    (2) If a facility uses a cost reporting period that is not 12 months 
in duration, the intermediary must obtain a special adjustment factor 
from HCFA for the specific period.
    (d) Limitation of prospectively determined payment rate. The per 
diem prospectively determined payment rate for an SNF, excluding 
capital-related costs and excluding return on equity for services 
furnished prior to October 1, 1993, may not exceed the individual SNF's 
routine service cost limit. Under Sec. 413.30, the routine service cost 
limit is the limit determined without regard to exemptions, exceptions, 
or retroactive adjustments, and is the actual limit in effect when the 
provider elects to be paid a prospectively determined payment rate.



Sec. 413.316  Determining payment amounts: Ancillary services.

    Ancillary services are paid on the basis of reasonable cost in 
accordance with section 1861(v)(1) of the Act and Sec. 413.53.



Sec. 413.320  Publication of prospectively determined payment rates or amounts.

    At least 90 days before the beginning of a Federal fiscal year to 
which revised prospectively determined payment rates are to be applied, 
HCFA publishes a notice in the Federal Register:
    (a) Establishing the prospectively determined payment rates for 
routine services; and
    (b) Explaining the basis on which the prospectively determined 
payment rates are calculated.



Sec. 413.321  Simplified cost report for SNFs.

    SNFs electing to be paid under the prospectively determined payment 
rate system may file a simplified cost report. The cost report contains 
a simplified method of cost finding to be used in lieu of cost methods 
described in Sec. 413.24(d). This method is specified in the 
instructions for Form HCFA-2540S, contained in sections 3000-3027.3 of 
Part 2 of the Provider Reimbursement Manual. This form may not be used 
by hospital-based SNFs or SNFs that are part of a health care complex. 
Those SNFs must file a cost report that reflects the shared services and 
administrative costs of the hospital and any other related facilities in 
the health care complex.



      Subpart J--Prospective Payment for Skilled Nursing Facilities

    Source: 63 FR 26309, May 12, 1998, unless otherwise noted.

[[Page 479]]



Sec. 413.330  Basis and scope.

    (a) Basis. This subpart implements section 1888(e) of the Act, which 
provides for the implementation of a prospective payment system for SNFs 
for cost reporting periods beginning on or after July 1, 1998.
    (b) Scope. This subpart sets forth the framework for the prospective 
payment system for SNFs, including the methodology used for the 
development of payment rates and associated adjustments, the application 
of a transition phase, and related rules.



Sec. 413.333  Definitions.

    As used in this subpart--
    Case-mix index means a scale that measures the relative difference 
in resource intensity among different groups in the resident 
classification system.
    Market basket index means an index that reflects changes over time 
in the prices of an appropriate mix of goods and services included in 
covered skilled nursing services.
    Resident classification system means a system for classifying SNF 
residents into mutually exclusive groups based on clinical, functional, 
and resource-based criteria. For purposes of this subpart, this term 
refers to the current version of the Resource Utilization Groups, as set 
forth in the annual publication of Federal prospective payment rates 
described in Sec. 413.345.
    Rural area means any area outside of an urban area.
    Urban area means a metropolitan statistical area (MSA) or New 
England County Metropolitan Area (NECMA), as defined by the Office of 
Management and Budget, or a New England county deemed to be an urban 
area, as listed in Sec. 412.62(f)(1)(ii)(B) of this chapter.

[63 FR 26309, May 12, 1998; 63 FR 53307, Oct. 5, 1998]



Sec. 413.335  Basis of payment.

    (a) Method of payment. Under the prospective payment system, SNFs 
receive a per diem payment of a predetermined rate for inpatient 
services furnished to Medicare beneficiaries. The per diem payments are 
made on the basis of the Federal payment rate described in Sec. 413.337 
and, during a transition period, on the basis of a blend of the Federal 
rate and the facility-specific rate described in Sec. 413.340. These per 
diem payment rates are determined according to the methodology described 
in Sec. 413.337 and Sec. 413.340.
    (b) Payment in full. The payment rates represent payment in full 
(subject to applicable coinsurance as described in subpart G of part 409 
of this chapter) for all costs (routine, ancillary, and capital-related) 
associated with furnishing inpatient SNF services to Medicare 
beneficiaries other than costs associated with operating approved 
educational activities as described in Sec. 413.85.



Sec. 413.337  Methodology for calculating the prospective payment rates.

    (a) Data used. (1) To calculate the prospective payment rates, HCFA 
uses--
    (i) Medicare data on allowable costs from freestanding and hospital-
based SNFs for cost reporting periods beginning in fiscal year 1995. 
SNFs that received ``new provider'' exemptions under Sec. 413.30(e)(2) 
are excluded from the data base used to compute the Federal payment 
rates. In addition, allowable costs related to exceptions payments under 
Sec. 413.30(f) are excluded from the data base used to compute the 
Federal payment rates;
    (ii) An appropriate wage index to adjust for area wage differences;
    (iii) The most recent projections of increases in the costs from the 
SNF market basket index;
    (iv) Resident assessment and other data that account for the 
relative resource utilization of different resident types; and
    (v) Medicare Part B SNF claims data reflecting amounts payable under 
Part B for covered SNF services (other than those services described in 
Sec. 411.15(p)(2) of this chapter) furnished during SNF cost reporting 
periods beginning in fiscal year 1995 to individuals who were residents 
of SNFs and receiving Part A covered services.
    (b) Methodology for calculating the per diem Federal payment rates--
(1) Determining SNF costs. In calculating the initial unadjusted Federal 
rates applicable for services provided during the period beginning July 
1, 1998 through

[[Page 480]]

September 30, 1999, HCFA determines each SNF's costs by summing its 
allowable costs for the cost reporting period beginning in fiscal year 
1995 and its estimate of Part B payments (described in paragraphs 
(a)(1)(i) and (a)(1)(v) of this section).
    (2) Use of market basket index. The SNF market basket index is used 
to adjust the SNF cost data to reflect cost increases occurring between 
cost reporting periods represented in the data and the initial period 
(beginning July 1, 1998 and ending September 30, 1999) to which the 
payment rates apply. For each year, the cost data are updated by a 
factor equivalent to the annual market basket index percentage minus 1 
percentage point.
    (3) Calculation of the per diem cost. For each SNF, the per diem 
cost is computed by dividing the cost data for each SNF by the 
corresponding number of Medicare days.
    (4) Standardization of data for variation in area wage levels and 
case-mix. The cost data described in paragraph (b)(2) of this section 
are standardized to remove the effects of geographic variation in wage 
levels and facility variation in case-mix. The cost data are 
standardized for geographic variation in wage levels using the wage 
index. The cost data are standardized for facility variation in case-mix 
using the case-mix indices and other data that indicate facility case-
mix.
    (5) Calculation of unadjusted Federal payment rates. HCFA calculates 
the national per diem unadjusted payment rates by urban and rural 
classification in the following manner:
    (i) By computing the average per diem standardized cost of 
freestanding SNFs weighted by Medicare days.
    (ii) By computing the average per diem standardized cost of 
freestanding and hospital-based SNFs combined weighted by Medicare days.
    (iii) By computing the average of the amounts determined under 
paragraphs (b)(5)(i) and (b)(5)(ii) of this section.
    (c) Calculation of adjusted Federal payment rates for case-mix and 
area wage levels. The Federal rate is adjusted to account for facility 
case-mix using a resident classification system and associated case-mix 
indices that account for the relative resource utilization of different 
patient types. This classification system utilizes the resident 
assessment instrument completed by SNFs as described at Sec. 483.20 of 
this chapter, according to the assessment schedule described in 
Sec. 413.343(b). The Federal rate is also adjusted to account for 
geographic differences in area wage levels using an appropriate wage 
index.
    (d) Annual updates of Federal unadjusted payment rates. HCFA updates 
the unadjusted Federal payment rates on a fiscal year basis.
    (1) For fiscal years 2000 through 2002, the unadjusted Federal rate 
is equal to the rate for the previous period or fiscal year increased by 
a factor equal to the SNF market basket index percentage minus 1 
percentage point.
    (2) For subsequent fiscal years, the unadjusted Federal rate is 
equal to the rate for the previous fiscal year increased by the 
applicable SNF market basket index amount.



Sec. 413.340  Transition period.

    (a) Duration of transition period and proportions for the blended 
transition rate. Beginning with an SNF's first cost reporting period 
beginning on or after July 1, 1998, there is a transition period 
covering three cost reporting periods. During this transition phase, 
SNFs receive a payment rate comprising a blend of the adjusted Federal 
rate and a facility-specific rate. For the first cost reporting period 
beginning on or after July 1, 1998, payment is based on 75 percent of 
the facility-specific rate and 25 percent of the Federal rate. For the 
subsequent cost reporting period, the rate is comprised of 50 percent of 
the facility-specific rate and 50 percent of the Federal rate. In the 
final cost reporting period of the transition, the rate is comprised of 
25 percent of the facility-specific rate and 75 percent of the Federal 
rate. For all subsequent cost reporting periods, payment is based 
entirely on the Federal rate.
    (b) Calculation of facility-specific rate for the first cost 
reporting period. The facility-specific rate is computed based on the 
SNF's Medicare allowable costs from its fiscal year 1995 cost report 
plus an estimate of the amounts payable under Part B for covered SNF 
services (other than those services described in Sec. 411.15(p)(2) of 
this chapter)

[[Page 481]]

furnished during fiscal year 1995 to individuals who were residents of 
SNFs and receiving Part A covered services. Allowable costs associated 
with exceptions, as described in Sec. 413.30(f), are included in the 
calculation of the facility-specific rate. Allowable costs associated 
with exemptions, as described in Sec. 413.30(e)(2), are included in the 
calculation of the facility-specific rate but only to the extent that 
they do not exceed 150 percent of the routine cost limit. Low Medicare 
volume SNFs that were paid a prospectively determined rate under 
Sec. 413.300 for their cost reporting period beginning in fiscal year 
1995 will utilize that rate as the basis for the allowable costs of 
routine (operating and capital-related) expenses in determining the 
facility-specific rate. Each SNF's allowable costs are updated to the 
first cost reporting period to which the payment rates apply using 
annual factors equal to the SNF market basket percentage minus 1 
percentage point.
    (c) SNFs participating in the Multistate Nursing Home Case-Mix and 
Quality Demonstration. SNFs that participated in the Multistate Nursing 
Home Case-Mix and Quality Demonstration in a cost reporting period that 
began in calendar year 1997 will utilize their allowable costs from that 
cost reporting period, including prospective payment amounts determined 
under the demonstration payment methodology.
    (d) Update of facility-specific rates for subsequent cost reporting 
periods. The facility-specific rate for a cost reporting period that is 
subsequent to the first cost reporting period is equal to the facility-
specific rate for the first cost reporting period (described in 
paragraph (a) of this section) updated by the market basket index.
    (1) For a subsequent cost reporting period beginning in fiscal years 
1998 and 1999, the facility-specific rate is equal to the facility-
specific rate for the previous cost reporting period updated by the 
applicable market basket index percentage minus one percentage point.
    (2) For a subsequent cost reporting period beginning in fiscal year 
2000, the facility-specific rate is equal to the facility-specific rate 
for the previous cost reporting period updated by the applicable market 
basket index percentage.
    (e) SNFs excluded from the transition period. SNFs that received 
their first payment from Medicare, under present or previous ownership, 
on or after October 1, 1995, are excluded from the transition period, 
and payment is made according to the Federal rates only.



Sec. 413.343  Resident assessment data.

    (a) Submission of resident assessment data. SNFs are required to 
submit the resident assessment data described at Sec. 483.20 of this 
chapter in the manner necessary to administer the payment rate 
methodology described in Sec. 413.337. This provision includes the 
frequency, scope, and number of assessments required.
    (b) Assessment schedule. In accordance with the methodology 
described in Sec. 413.337(c) related to the adjustment of the Federal 
rates for case-mix, SNFs must submit assessments according to an 
assessment schedule. This schedule must include performance of patient 
assessments on the 5th, 14th, 30th, 60th, and 90th days following 
admission and such other assessments that are necessary to account for 
changes in patient care needs.
    (c) Noncompliance with assessment schedule. HCFA pays a default rate 
for the Federal rate when a SNF fails to comply with the assessment 
schedule in paragraph (b) of this section. The default rate is paid for 
the days of a patient's care for which the SNF is not in compliance with 
the assessment schedule.



Sec. 413.345  Publication of Federal prospective payment rates.

    HCFA publishes information pertaining to each update of the Federal 
payment rates in the Federal Register. This information includes the 
tandardized Federal rates, the resident classification system that 
provides the basis for case-mix adjustment (including the designation of 
those specific Resource Utilization Groups under the resident 
classification system that represent the required SNF level of care, as 
provided in Sec. 409.30 of this chapter), and the wage index. This 
information is published before May 1 for the fiscal

[[Page 482]]

year 1998 and before August 1 for the fiscal years 1999 and after.



Sec. 413.348  Limitation on review.

    Judicial or administrative review under sections 1869 or 1878 of the 
Act or otherwise is prohibited with regard to the establishment of the 
Federal rates. This prohibition includes the methodology used in the 
computation of the Federal standardized payment rates, the case-mix 
methodology, and the development and application of the wage index. This 
prohibition on judicial and administrative review also extends to the 
methodology used to establish the facility-specific rates but not to 
determinations related to reasonable cost in the fiscal year 1995 cost 
reporting period used as the basis for these rates.



PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES--Table of Contents




                      Subpart A--General Provisions

Sec.
414.1  Basis and scope.
414.2  Definitions.
414.4  Fee schedule areas.
414.20  Formula for computing fee schedule amounts.
414.21  Medicare payment basis.
414.22  Relative value units (RVUs).
414.24  Review, revision, and addition of RVUs for physician services.
414.26  Determining the GAF.
414.28  Conversion factors.
414.30  Conversion factor update.
414.32  Determining payments for certain physician services furnished in 
          facility settings.
414.34  Payment for services and supplies incident to a physician's 
          service.
414.36  Payment for drugs incident to a physician's service.
414.38  Special rules for payment of low osmolar contrast media.
414.39  Special rules for payment of care plan oversight.
414.40  Coding and ancillary policies.
414.42  Adjustment for first 4 years of practice.
414.44  Transition rules.
414.46  Additional rules for payment of anesthesia services.
414.48  Limits on actual charges of nonparticipating suppliers.
414.50  Physician billing for purchased diagnostic tests.
414.52  Payment for physician assistants' services.
414.54  Payment for certified nurse-midwives' services.
414.56  Payment for nurse practitioners' and clinical nurse specialists' 
          services.
414.58  Payment of charges for physician services to patients in 
          providers.
414.60  Payment for the services of CRNAs.
414.62  Fee schedule for clinical psychologist services.

                        Subparts B-C--[Reserved]

  Subpart D--Payment for Durable Medical Equipment and Prosthetic and 
                            Orthotic Devices

414.200  Purpose.
414.202  Definitions.
414.210  General payment rules.
414.220  Inexpensive or routinely purchased items.
414.222  Items requiring frequent and substantial servicing.
414.224  Customized items.
414.226  Oxygen and oxygen equipment.
414.228  Prosthetic and orthotic devices.
414.229  Other durable medical equipment--capped rental items.
414.230  Determining a period of continuous use.
414.232  Special payment rules for transcutaneous electrical nerve 
          stimulators (TENS).

  Subpart E--Determination of Reasonable Charges Under the ESRD Program

414.300  Scope of subpart.
414.310  Determination of reasonable charges for physician services 
          furnished to renal dialysis patients.
414.313  Initial method of payment.
414.314  Monthly capitation payment method.
414.316  Payment for physician services to patients in training for 
          self-dialysis and home dialysis.
414.320  Determination of reasonable charges for physician renal 
          transplantation services.
414.330  Payment for home dialysis equipment, supplies, and support 
          services.
414.335  Payment for EPO furnished to a home dialysis patient for use in 
          the home.

                        Subparts F-H--[Reserved]

    Authority: Secs. 1102, 1871, and 1881(b)(l) of the Social Security 
Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(l)).

    Source: 55 FR 23441, June 8, 1990, unless otherwise noted.

    Editorial Note: Nomenclature changes affecting this part appear at 
60 FR 50442, Sept. 29, 1995, and 60 FR 53877, Oct. 18, 1995.

[[Page 483]]



                      Subpart A--General Provisions

    Source: 56 FR 59624, Nov. 25, 1991; 57 FR 42492, Sept. 15, 1992, 
unless otherwise noted.



Sec. 414.1  Basis and scope.

    This part implements the indicated provisions of the following 
sections of the Act:

    1833--Rules for payment for most Part B services.
    1834(a) and (h)--Amounts and frequency of payments for durable 
medical equipment and for prosthetic devices and orthotics and 
prosthetics.
    l848--Fee schedule for physician services.
    1881(b)--Rules for payment for services to ESRD beneficiaries.
    1887--Payment of charges for physician services to patients in 
providers.

[60 FR 50442, Sept. 29, 1995]



Sec. 414.2  Definitions.

    As used in this part, unless the context indicates otherwise--
    AA stands for anesthesiologist assistant.
    AHPB stands for adjusted historical payment basis.
    CF stands for conversion factor.
    CRNA stands for certified registered nurse anesthetist.
    CY stands for calendar year.
    FY stands for fiscal year.
    GAF stands for geographic adjustment factor.
    GPCI stands for geographic practice cost index.
    HCPCS stands for HCFA Common Procedure Coding System.
    Physician services means the following services to the extent that 
they are covered by Medicare:
    (1) Professional services of doctors of medicine and osteopathy 
(including osteopathic practitioners), doctors of optometry, doctors of 
podiatry, doctors of dental surgery and dental medicine, and 
chiropractors.
    (2) Supplies and services covered ``incident to'' physician services 
(excluding drugs as specified in Sec. 414.36).
    (3) Outpatient physical and occupational therapy services if 
furnished by a person or an entity that is not a Medicare provider of 
services as defined in Sec. 400.202 of this chapter.
    (4) Diagnostic x-ray tests and other diagnostic tests (excluding 
diagnostic laboratory tests paid under the fee schedule established 
under section 1833(h) of the Act).
    (5) X-ray, radium, and radioactive isotope therapy, including 
materials and services of technicians.
    (6) Antigens, as described in section 1861(s)(2)(G) of the Act.
    (7) Bone mass measurement.
    RVU stands for relative value unit.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992; 
58 FR 63686, Dec. 2, 1993; 59 FR 63463, Dec. 8, 1994; 60 FR 63177, Dec. 
8, 1995; 63 FR 34328, June 24, 1998]



Sec. 414.4  Fee schedule areas.

    (a) General. HCFA establishes physician fee schedule areas that 
generally conform to the geographic localities in existence before 
January 1, 1992.
    (b) Changes. HCFA announces proposed changes to fee schedule areas 
in the Federal Register and provides an opportunity for public comment. 
After considering public comments, HCFA publishes the final changes in 
the Federal Register.

[59 FR 63463, Dec. 8, 1994]



Sec. 414.20  Formula for computing fee schedule amounts.

    (a) Participating supplier. The fee schedule amount for a 
participating supplier for a physician service as defined in Sec. 414.2 
is computed as the product of the following amounts:
    (1) The RVUs for the service.
    (2) The GAF for the fee schedule area.
    (3) The CF.
    (b) Nonparticipating supplier. The fee schedule amount for a 
nonparticipating supplier for a physician service as defined in 
Sec. 414.2 is 95 percent of the fee schedule amount as calculated in 
paragraph (a) of this section.

[62 FR 59101, Oct. 31, 1997]



Sec. 414.21  Medicare payment basis.

    Medicare payment is based on the lesser of the actual charge or the 
applicable fee schedule amount.

[62 FR 59101, Oct. 31, 1997]



Sec. 414.22  Relative value units (RVUs).

    HCFA establishes RVUs for physician work, physician practice 
expense, and malpractice insurance.

[[Page 484]]

    (a) Physician work RVUs--(1) General rule. Physician work RVUs are 
established using a relative value scale in which the value of physician 
work for a particular service is rated relative to the value of work for 
other physician services.
    (2) Special RVUs for anesthesia and radiology services)--(i) 
Anesthesia services. The rules for determining RVUs for anesthesia 
services are set forth in Sec. 414.46.
    (ii) Radiology services. HCFA bases the RVUs for all radiology 
services on the relative value scale developed under section 
1834(b)(1)(A) of the Act, with appropriate modifications to ensure that 
the RVUs established for radiology services that are similar or related 
to other physician services are consistent with the RVUs established for 
those similar or related services.
    (b) Practice expense RVUs. (1) Practice expense RVUs are computed 
for each service or class of service by applying average historical 
practice cost percentages to the estimated average allowed charge during 
the 1991 base period.
    (2) The average practice expense percentage for a service or class 
of services is computed as follows:
    (i) Multiply the average practice expense percentage for each 
specialty by the proportion of a particular service or class of service 
performed by that specialty.
    (ii) Add the products for all specialties.
    (3) For services furnished beginning calendar year (CY) 1994, for 
which 1994 practice expense RVUs exceed 1994 work RVUs and that are 
performed in office settings less than 75 percent of the time, the 1994, 
1995, and 1996 practice expense RVUs are reduced by 25 percent of the 
amount by which they exceed the number of 1994 work RVUs. Practice 
expense RVUs are not reduced to less than 128 percent of 1994 work RVUs.
    (4) For services furnished beginning January 1, 1998, practice 
expense RVUs for certain services are reduced to 110 percent of the work 
RVUs for those services. The following two categories of services are 
excluded from this limitation:
    (i) The service is provided more than 75 percent of the time in an 
office setting; or
    (ii) The service is one described in section 1848(c)(2)(G)(v) of the 
Act, codified at 42 U.S.C. 1395w-4(c)(2)(G). Section 1848(c)(2)(G)(v) of 
the Act refers to the 1998 proposed resource-based practice expense RVUs 
(as specified in the June 18, 1997 physician fee schedule proposed rule 
(62 FR 33158)) for the specific site, either in-office or out-of-office, 
increased from its 1997 practice expense RVUs.)
    (c) Malpractice insurance RVUs. (1) Malpractice insurance RVUs are 
computed for each service or class of services by applying average 
malpractice insurance historical practice cost percentages to the 
estimated average allowed charge during the 1991 base period.
    (2) The average historical malpractice insurance percentage for a 
service or class of services is computed as follows:
    (i) Multiply the average malpractice insurance percentage for each 
specialty by the proportion of a particular service or class of services 
performed by that specialty.
    (ii) Add all the products for all the specialties.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42493, Sept. 15, 1992; 
58 FR 63687, Dec. 2, 1993; 62 FR 59102, Oct. 31, 1997]



Sec. 414.24  Review, revision, and addition of RVUs for physician services.

    (a) Interim values for new and revised HCPCS level 1 and level 2 
codes. (1) HCFA establishes interim RVUs for new services and for codes 
for which definitions have changed.
    (2) HCFA publishes a notice in the Federal Register to announce 
interim RVUs and seek public comment on them. The RVUs are effective 
prospectively for services furnished beginning on the effective date 
specified in the notice.
    (3) After considering public comments, HCFA revises, if necessary, 
the interim RVUs and announces those revisions in a final notice 
published in the Federal Register. Any revisions in the RVUs are 
effective prospectively for services furnished beginning on the

[[Page 485]]

effective date specified in the final notice.
    (b) Revision of RVUs for established HCPCS level 1 and level 2 
codes. (1) HCFA publishes a proposed notice in the Federal Register to 
announce changes in RVUs for established codes and provides an 
opportunity for public comment no less often than every 5 years.
    (2) After considering public comments, HCFA publishes a final notice 
in the Federal Register to announce revisions to RVUs.
    (3) The RVU revisions are effective prospectively for services 
furnished beginning on the effective date specified in the final notice.
    (c) Values for local codes (HCPCS Level 3). (1) Carriers establish 
relative values for local codes for services not included in HCPCS 
levels 1 or 2.
    (2) Carriers must obtain prior approval from HCFA to establish local 
codes for services that meet the definition of ``physician services'' in 
Sec. 414.2.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992]



Sec. 414.26  Determining the GAF.

    HCFA establishes a GAF for each service in each fee schedule area.
    (a) Geographic indices. HCFA uses the following indices to establish 
the GAF:
    (1) An index that reflects one-fourth of the difference between the 
relative value of physicians' work effort in each of the different fee 
schedule areas as determined under Sec. 414.22(a) and the national 
average of that work effort.
    (2) An index that reflects the relative costs of the mix of goods 
and services comprising practice expenses (other than malpractice 
expenses) in each of the different fee schedule areas as determined 
under Sec. 414.22(b) compared to the national average of those costs.
    (3) An index that reflects the relative costs of malpractice 
expenses in each of the different fee schedule areas as determined under 
Sec. 414.22(c) compared to the national average of those costs.
    (b) Class-specific practice cost indices. If the application of a 
single index to different classes of services would be substantially 
inequitable because of differences in the mix of goods and services 
comprising practice expenses for the different classes of services, more 
than one index may be established under paragraph (a)(2) of this 
section.
    (c) Computation of GAF. The GAF for each fee schedule area is the 
sum of the physicians' work adjustment factor, the practice expense 
adjustment factor, and the malpractice cost adjustment factor, as 
defined in this section:
    (1) The geographic physicians' work adjustment factor for a service 
is the product of the proportion of the total relative value for the 
service that reflects the RVUs for the work component and the geographic 
physicians' work index value established under paragraph (a)(1) of this 
section.
    (2) The geographic practice expense adjustment factor for a service 
is the product of the proportion of the total relative value for the 
service that reflects the RVUs for the practice expense component, 
multiplied by the geographic practice cost index (GPCI) value 
established under paragraph (a)(2) of this section.
    (3) The geographic malpractice adjustment factor for a service is 
the product of the proportion of the total relative value for the 
service that reflects the RVUs for the malpractice component, multiplied 
by the GPCI value established under paragraph (a)(3) of this section.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992]



Sec. 414.28  Conversion factors.

    HCFA establishes CFs in accordance with section 1848(d) of the Act.
    (a) Base-year CFs. HCFA established the CF for 1992 so that had 
section 1848 of the Act applied during 1991, it would have resulted in 
the same aggregate amount of payments for physician services as the 
estimated aggregate amount of these payments in 1991, adjusted by the 
update for 1992 computed as specified in Sec. 414.30.
    (b) Subsequent CFs. For calendar years 1993 through 1995, the CF for 
each year is equal to the CF for the previous year, adjusted in 
accordance with Sec. 414.30. Beginning January 1, 1996, the CF for each 
calendar year may be further adjusted so that adjustments to the fee 
schedule in accordance with section 1848(c)(2)(B)(ii) of the Act do not 
cause total expenditures under the

[[Page 486]]

fee schedule to differ by more than $20 million from the amount that 
would have been spent if these adjustments had not been made.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992; 
60 FR 53877, Oct. 18, 1995; 60 FR 63177, Dec. 8, 1995]



Sec. 414.30  Conversion factor update.

    Unless Congress acts in accordance with section 1848(d)(3) of the 
Act--
    (a) General rule. The CF update for a CY equals the Medicare 
Economic Index increased or decreased by the number of percentage points 
by which the percentage increase in expenditures for physician services 
(or for a particular category of physician services, such as surgical 
services) in the second preceding FY over the third preceding FY exceeds 
the performance standard rate of increase established for the second 
preceding FY.
    (b) Downward adjustment. The downward adjustment may not exceed the 
following:
    (1) For CYs 1992 and 1993, 2 percentage points.
    (2) For CY 1994, 2.5 percentage points.
    (3) For CYs 1995 and thereafter, 5 percentage points.

[55 FR 23441, June 8, 1990, as amended at 60 FR 63177, Dec. 8, 1995; 61 
FR 42385, Aug. 15, 1996]



Sec. 414.32  Determining payments for certain physician services furnished in facility settings.

    (a) Definition. As used in this section, facility settings include 
the following facilities:
    (1) Hospital outpatient departments, including clinics and emergency 
rooms.
    (2) Hospital inpatient departments.
    (3) Comprehensive outpatient rehabilitation facilities.
    (4) Comprehensive inpatient rehabilitation facilities.
    (5) Inpatient psychiatric facilities.
    (b) General rule. If physician services of the type routinely 
furnished in a physician's office are furnished in facility settings, 
the fee schedule amount for those services is determined by reducing the 
applicable practice expense RVUs for the service by 50 percent.
    (c) Services covered by the reduction. HCFA establishes a list of 
services routinely furnished in physicians' offices nationally. Services 
furnished at least 50 percent of the time in physicians' offices are 
subject to this reduction.
    (d) Services excluded from the reduction. The reduction established 
under this section does not apply to the following:
    (1) Rural health clinic services.
    (2) Surgical services not on the ambulatory surgical center covered 
list of procedures published under Sec. 416.65(c) of this chapter when 
furnished in an ambulatory surgical center.
    (3) Anesthesiology services and diagnostic and therapeutic radiology 
services.

[58 FR 63687, Dec. 2, 1993, as amended at 60 FR 63177, Dec. 8, 1995; 62 
FR 59102, Oct. 31, 1997]



Sec. 414.34  Payment for services and supplies incident to a physician's service.

    (a) Medical supplies. (1) Except as otherwise specified in this 
paragraph, office medical supplies are considered to be part of a 
physician's practice expense, and payment for them is included in the 
practice expense portion of the payment to the physician for the medical 
or surgical service to which they are incidental.
    (2) If physician services of the type routinely furnished in 
provider settings are furnished in a physician's office, separate 
payment may be made for certain supplies furnished incident to that 
physician service if the following requirements are met:
    (i) It is a procedure that can safely be furnished in the office 
setting in appropriate circumstances.
    (ii) It requires specialized supplies that are not routinely 
available in physicians' offices and that are generally disposable.
    (3) For the purpose of paragraph (a)(2) of this section, provider 
settings include only the following settings:
    (i) Hospital inpatient and outpatient departments.
    (ii) Ambulatory surgical centers.
    (4) For the purpose of paragraph (a)(2) of this section, ``routinely 
furnished in provider settings'' means furnished in inpatient or 
outpatient hospital settings or ambulatory surgical centers more than 50 
percent of the time.

[[Page 487]]

    (5) HCFA establishes a list of services for which a separate supply 
payment may be made under this section.
    (6) The fee schedule amount for supplies billed separately is not 
subject to a GPCI adjustment.
    (b) Services of nonphysicians that are incident to a physician's 
service. Services of nonphysicians that are covered as incident to a 
physician's service are paid as if the physician had personally 
furnished the service.



Sec. 414.36  Payment for drugs incident to a physician's service.

    Payment for drugs incident to a physician's service is made in 
accordance with Sec. 405.517 of this chapter.



Sec. 414.38  Special rules for payment of low osmolar contrast media.

    (a) General. Payment for low osmolar contrast media is included in 
the technical component payment for diagnostic procedures except as 
specified in paragraph (b) of this section.
    (b) Conditions for separate payment. For diagnostic procedures 
furnished to beneficiaries who are neither inpatients nor outpatients of 
any hospital, separate payment is made for low osmolar contrast media 
used in all intrathecal injections and in intravenous, and intra-
arterial injections, if it is used for patients with one or more of the 
following characteristics:
    (1) A history of a previous adverse reaction to contrast material, 
with the exception of a sensation of heat, flushing, or a single episode 
of nausea or vomiting.
    (2) A history of asthma or allergy.
    (3) Significant cardiac dysfunction including recent or imminent 
cardiac decompensation, severe arrhythmias, unstable angina pectoris, 
recent myocardial infarction, and pulmonary hypertension.
    (4) Generalized severe debilitation.
    (5) Sickle cell disease.
    (c) Method of payment. If one of the conditions of paragraph (b) of 
this section is met, payment is made for low osmolar contrast media as 
set forth in Sec. 414.36 as a drug furnished incident to a physician's 
service, subject to paragraph (d) of this section.
    (d) Drug payment reduction. If separate payment is made for low 
osmolar contrast media, the payment amount calculated in accordance with 
Sec. 414.36 is reduced by 8 percent to account for the allowance for 
contrast media already included in the technical component of the 
diagnostic procedure code.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, 42493, Sept. 15, 
1992]



Sec. 414.39  Special rules for payment of care plan oversight.

    (a) General. Except as specified in paragraph (b) of this section, 
payment for care plan oversight is included in the payment for visits 
and other services under the physician fee schedule.
    (b) Exception. Separate payment is made under the following 
conditions for physician care plan oversight services furnished to 
beneficiaries who receive HHA and hospice services that are covered by 
Medicare:
    (1) The care plan oversight services require recurrent physician 
supervision of therapy involving 30 or more minutes of the physician's 
time per month.
    (2) Payment is made to only one physician per patient for services 
furnished during a calendar month period. The physician must have 
furnished a service requiring a face-to-face encounter with the patient 
at least once during the 6-month period before the month for which care 
plan oversight payment is first billed. The physician may not have a 
significant ownership interest in, or financial or contractual 
relationship with, the HHA in accordance with Sec. 424.22(d) of this 
chapter. The physician may not be the medical director or employee of 
the hospice and may not furnish services under an arrangement with the 
hospice.
    (3) If a physician furnishes care plan oversight services during a 
postoperative period, payment for care plan oversight services is made 
if the services are documented in the patient's medical record as 
unrelated to the surgery.

[59 FR 63463, Dec. 8, 1994; 60 FR 49, Jan. 3, 1995; 60 FR 36733, July 
18, 1995]



Sec. 414.40  Coding and ancillary policies.

    (a) General rule. HCFA establishes uniform national definitions of 
services, codes to represent services, and payment modifiers to the 
codes.

[[Page 488]]

    (b) Specific types of policies. HCFA establishes uniform national 
ancillary policies necessary to implement the fee schedule for physician 
services. These include, but are not limited to, the following policies:
    (1) Global surgery policy (for example, post- and pre-operative 
periods and services, and intra-operative services).
    (2) Professional and technical components (for example, payment for 
services, such as an EEG, which typically comprise a technical component 
(the taking of the test) and a professional component (the 
interpretation)).
    (3) Payment modifiers (for example, assistant-at-surgery, multiple 
surgery, bilateral surgery, split surgical global services, team 
surgery, and unusual services).



Sec. 414.42  Adjustment for first 4 years of practice.

    (a) General rule. For services furnished during CYs 1992 and 1993, 
except as specified in paragraph (b) of this section, the fee schedule 
payment amount or prevailing charge must be phased in as specified in 
paragraph (d) of this section for physicians, physical therapists (PTs), 
occupational therapists (OTs), and all other health care practitioners 
who are in their first through fourth years of practice.
    (b) Exception. The reduction required in paragraph (d) of this 
section does not apply to primary care services or to services furnished 
in a rural area as defined in section 1886(d)(2)(D) of the Act that is 
designated under section 332(a)(1)(A) of the Public Health Service Act 
as a Health Professional Shortage Area.
    (c) Definition of years of practice. (1) The ``first year of 
practice`` is the first full CY during the first 6 months of which the 
physician, PT, OT, or other health care practitioner furnishes 
professional services for which payment may be made under Medicare Part 
B, plus any portion of the prior CY if that prior year does not meet the 
first 6 months test.
    (2) The ``second, third, and fourth years of practice`` are the 
first, second, and third CYs following the first year of practice, 
respectively.
    (d) Amounts of adjustment. The fee schedule payment for the service 
of a new physician, PT, OT, or other health care practitioner is limited 
to the following percentages for each of the indicated years:
    (1) First year--80 percent
    (2) Second year--85 percent
    (3) Third year--90 percent
    (4) Fourth year--95 percent

[57 FR 42493, Sept. 15, 1992, as amended at 58 FR 63687, Dec. 2, 1993]



Sec. 414.44  Transition rules.

    (a) Adjusted historical payment basis--(1) All services other than 
radiology and nuclear medicine services. For all physician services 
other than radiology services, furnished in a fee schedule area, the 
adjusted historical payment basis (AHPB) is the estimated weighted 
average prevailing charge applied in the fee schedule area for the 
service in CY 1991, as determined by HCFA without regard to physician 
specialty and as adjusted to reflect payments for services below the 
prevailing charge, adjusted by the update established for CY 1992.
    (2) Radiology services. For radiology services, the AHPB is the 
amount paid for the service in the fee schedule area in CY 1991 under 
the fee schedule established under section 1834(b), adjusted by the 
update established for CY 1992.
    (3) Nuclear medicine services. For nuclear medicine services, the 
AHPB is the amount paid for the service in the fee schedule area in CY 
1991 under the fee schedule established under section 6105(b) of Public 
Law 101-239 and section 4102(g) of Public Law 101-508, adjusted by the 
update established for CY 1992.
    (4) Transition adjustment. HCFA adjusts the AHPB for all services by 
5.5 percent to produce budget-neutral payments for 1992.
    (b) Adjustment of 1992 payments for physician services other than 
radiology services. For physician services furnished during CY 1992 the 
following rules apply:
    (1) If the AHPB determined under paragraph (a) of this section is 
from 85 percent to 115 percent of the fee schedule amount for the area 
for services furnished in 1992, payment is at the fee schedule amount.
    (2) If the AHPB determined under paragraph (a) of this section is 
less

[[Page 489]]

than 85 percent of the fee schedule amount for the area for services 
furnished in 1992, an amount equal to the AHPB plus 15 percent of the 
fee schedule amount is substituted for the fee schedule amount.
    (3) If the AHPB determined under paragraph (a) of this section is 
greater than 115 percent of the fee schedule amount for the area for 
services furnished in 1992, an amount equal to the AHPB minus 15 percent 
of the fee schedule amount is substituted for the fee schedule amount.
    (c) Adjustment of 1992 payments for radiology services. For 
radiology services furnished during CY 1992 the following rules apply:
    (1) If the AHPB determined under paragraph (a) of this section is 
from 85 percent to 109 percent of the fee schedule amount for the area 
for services furnished in 1992, payment is at the fee schedule amount.
    (2) If the AHPB determined under paragraph (a) of this section is 
less than 85 percent of the fee schedule amount for the area for 
services furnished in 1992, an amount equal to the AHPB plus 15 percent 
of the fee schedule amount is substituted for the fee schedule amount.
    (3) If the AHPB determined under paragraph (a) of this section is 
greater than 109 percent of the fee schedule amount for the area for 
services furnished in 1992, an amount equal to the AHPB minus 9 percent 
of the fee schedule amount is substituted for the fee schedule amount.
    (d) Computation of payments for CY 1993. For physician services 
subject to the transition rules in CY 1992 and furnished during CY 1993, 
the fee schedule is equal to 75 percent of the amount that would have 
been paid in the fee schedule area under the 1992 transition rules, 
adjusted by the amount of the 1993 update, plus 25 percent of the 1993 
fee schedule amount.
    (e) Computation of payments for CY 1994. For physician services 
subject to the transition rules in CY 1993, and furnished during CY 
1994, the fee schedule is equal to 67 percent of the amount that would 
have been paid in the fee schedule area under the 1993 transition rules, 
adjusted by the amount of the 1994 update, plus 33 percent of the 1994 
fee schedule amount.
    (f) Computation of payments for CY 1995. For physician services 
subject to the transition rules in CY 1994 and furnished during CY 1995, 
the fee schedule is equal to 50 percent of the amount that would have 
been paid in the fee schedule area under the 1994 transition rules, 
adjusted by the amount of the 1995 update, plus 50 percent of the 1995 
fee schedule amount.



Sec. 414.46  Additional rules for payment of anesthesia services.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Base unit means the value for each anesthesia code that reflects 
all activities other than anesthesia time. These activities include 
usual pre-operative and post-operative visits, the administration of 
fluids and/or blood incident to anesthesia care, and monitoring 
services.
    (2) Time units involve the continuous actual presence of the 
physician (or of the medically directed qualified anesthetist or 
resident) and start when he or she begins to prepare the patient for 
anesthesia care and ends when the anesthesiologist (or medically 
directed CRNA) is no longer in personal attendance, that is, when the 
patient may be safely placed under post-operative care.
    (b) Determination of payment amount--Basic rule. For anesthesia 
services performed, medically directed, or medically supervised by a 
physician, HCFA pays the lesser of the actual charge or the anesthesia 
fee schedule amount.
    (1) The physician fee schedule amount for an anesthesia service is 
based on the product of the allowable base and time units and an 
anesthesia-specific CF.
    (2) The allowable base units are determined by the uniform relative 
value guide based on the 1988 American Society of Anesthesiologists' 
Relative Value Guide except that the number of base units recognized for 
anesthesia services furnished during cataract or iridectomy surgery is 
four units. The uniform base units are identified in program operating 
instructions.

[[Page 490]]

    (3) Modifier units are not allowed. Modifier units include 
additional units charged by a physician or a CRNA for patient health 
status, risk, age, or unusual circumstances.
    (c) Physician personally performs the anesthesia procedure.
    (1) HCFA considers an anesthesia service to be personally performed 
under any of the following circumstances:
    (i) The physician performs the entire anesthesia service alone.
    (ii) The physician establishes an attending physician relationship 
in one or two concurrent cases involving an intern or resident and the 
service was furnished before January 1, 1994.
    (iii) The physician establishes an attending physician relationship 
in one case involving an intern or resident and the service was 
furnished on or after January 1, 1994 but prior to January 1, 1996. For 
services on or after January 1, 1996, the physician must be the teaching 
physician as defined in Secs. 415.170 through 415.184 of this chapter.
    (iv) The physician and the CRNA or AA are involved in a single case 
and the services of each are found to be medically necessary.
    (v) The physician is continuously involved in a single case 
involving a student nurse anesthetist.
    (vi) The physician is continuously involved in a single case 
involving a CRNA or AA and the service was furnished prior to January 1, 
1998.
    (2) HCFA determines the fee schedule amount for an anesthesia 
service personally performed by a physician on the basis of an 
anesthesia-specific fee schedule CF and unreduced base units and 
anesthesia time units. One anesthesia time unit is equivalent to 15 
minutes of anesthesia time, and fractions of a 15-minute period are 
recognized as fractions of an anesthesia time unit.
    (d) Anesthesia services medically directed by a physician. (1) HCFA 
considers an anesthesia service to be medically directed by a physician 
if:
    (i) The physician performs the activities described in Sec. 415.110 
of this chapter.
    (ii) The physician directs qualified individuals involved in two, 
three, or four concurrent cases.
    (iii) Medical direction can occur for a single case furnished on or 
after January 1, 1998 if the physician performs the activities described 
in Sec. 415.110 of this chapter and medically directs a single CRNA or 
AA.
    (2) The rules for medical direction differ for certain time periods 
depending on the nature of the qualified individual who is directed by 
the physician. If more than two procedures are directed on or after 
January 1, 1994, the qualified individuals could be AAs, CRNAs, interns, 
or residents. The medical direction rules apply to student nurse 
anesthetists only if the physician directs two concurrent cases, each of 
which involves a student nurse anesthetist or the physician directs one 
case involving a student nurse anesthetist and the other involving a 
CRNA, AA, intern, or resident.
    (3) Payment for medical direction is based on a specific percentage 
of the payment allowance recognized for the anesthesia service 
personally performed by a physician alone. The following percentages 
apply for the years specified:
    (i) CY 1994--60 percent of the payment allowance for personally 
performed procedures.
    (ii) CY 1995--57.5 percent of the payment allowance for personally 
performed services.
    (iii) CY 1996--55 percent of the payment allowance for personally 
performed services.
    (iv) CY 1997--52.5 percent of the payment allowance for personally 
performed services.
    (v) CY 1998 and thereafter--50 percent of the payment allowance for 
personally performed services.
    (e) Physician medically supervises anesthesia services. If the 
physician medically supervises more than four concurrent anesthesia 
services, HCFA bases the fee schedule amount on an anesthesia-specific 
CF and three base units. This represents payment for the physician's 
involvement in the pre-surgical anesthesia services.

[[Page 491]]

    (f) Payment for medical or surgical services furnished by a 
physician while furnishing anesthesia services. (1) HCFA allows separate 
payment under the fee schedule for certain reasonable and medically 
necessary medical or surgical services furnished by a physician while 
furnishing anesthesia services to the patient. HCFA makes payment for 
these services in accordance with the general physician fee schedule 
rules in Sec. 414.20. These services are described in program operating 
instructions.
    (2) HCFA makes no separate payment for other medical or surgical 
services, such as the pre-anesthetic examination of the patient, pre- or 
post-operative visits, or usual monitoring functions, that are 
ordinarily included in the anesthesia service.
    (g) Physician involved in multiple anesthesia services. If the 
physician is involved in multiple anesthesia services for the same 
patient during the same operative session, the carrier makes payment 
according to the base unit associated with the anesthesia service having 
the highest base unit value and anesthesia time that encompasses the 
multiple services.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992; 
58 FR 63687, Dec. 2, 1993; 60 FR 63177, Dec. 8, 1995]



Sec. 414.48  Limits on actual charges of nonparticipating suppliers.

    (a) General rule. A supplier, as defined in Sec. 400.202 of this 
chapter, who is nonparticipating and does not accept assignment may 
charge a beneficiary an amount up to the limiting charge described in 
paragraph (b) of this section.
    (b) Specific limits. For items or services paid under the physician 
fee schedule, the limiting charge is 115 percent of the fee schedule 
amount for nonparticipating suppliers. For items or services HCFA 
excludes from payment under the physician fee schedule (in accordance 
with section 1848 (j)(3) of the Act), the limiting charge is 115 percent 
of 95 percent of the payment basis applicable to participating suppliers 
as calculated in Sec. 414.20(b).

[58 FR 63687, Dec. 2, 1993, as amended at 62 FR 59102, Oct. 31, 1997]



Sec. 414.50  Physician billing for purchased diagnostic tests.

    (a) General rule. For services covered under section 1861(s)(3) of 
the Act and paid for under this part 414 subpart A, if a physician bills 
for a diagnostic test performed by an outside supplier, the payment to 
the physician less the applicable deductibles and coinsurance may not 
exceed the lowest of the following amounts:
    (1) The supplier's net charge to the physician.
    (2) The physician's actual charge.
    (3) The fee schedule amount for the test that would be allowed if 
the supplier billed directly.
    (b) Restriction on payment. The physician must identify the supplier 
and indicate the supplier's net charge for the test. If the physician 
fails to provide this information, HCFA makes no payment to the 
physician and the physician may not bill the beneficiary.
    (1) Physicians who accept Medicare assignment may bill beneficiaries 
for only the applicable deductibles and coinsurance.
    (2) Physicians who do not accept Medicare assignment may not bill 
the beneficiary more than the payment amount described in paragraph (a) 
of this section.

[56 FR 59624, Nov. 25, 1991; 57 FR 42492, Sept. 15, 1992, as amended at 
63 FR 34328, June 24, 1998]



Sec. 414.52  Payment for physician assistants' services.

    Allowed amounts for the services of a physician assistant furnished 
beginning January 1, 1992, may not exceed the following limits:
    (a) For assistant-at-surgery services, 65 percent of the amount that 
would be allowed under the physician fee schedule if the assistant-at-
surgery service was furnished by a physician.
    (b) For services (other than assistant-at-surgery services) 
furnished in a hospital, 75 percent of the physician fee schedule amount 
for the service.
    (c) For all other services, 85 percent of the physician fee schedule 
amount for the service.

[[Page 492]]



Sec. 414.54  Payment for certified nurse-midwives' services.

    For services furnished after December 31, 1991, allowed amounts 
under the fee schedule established under section 1833(a)(1)(K) of the 
Act for the payment of certified nurse-midwife services may not exceed 
65 percent of the physician fee schedule amount for the service.



Sec. 414.56  Payment for nurse practitioners' and clinical nurse specialists' services.

    (a) Rural areas. For services furnished beginning January 1, 1992, 
allowed amounts for the services of a nurse practitioner or a clinical 
nurse specialist in rural area (as described in section 
1861(s)(2)(K)(iii) of the Act) may not exceed the following limits:
    (1) For services furnished in a hospital (including assistant-at-
surgery services), 75 percent of the physician fee schedule amount for 
the service.
    (2) For all other services, 85 percent of the physician fee schedule 
amount for the service.
    (b) Non-rural areas. For services furnished beginning January 1, 
1992, allowed amounts for the services of a nurse practitioner or a 
clinical nurse specialist in a nursing facility may not exceed 85 
percent of the physician fee schedule amount for the service.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42493, Sept. 15, 1992]



Sec. 414.58  Payment of charges for physician services to patients in providers.

    (a) Payment under the physician fee schedule. In addition to the 
special conditions for payment in Secs. 415.100 through 415.130, and 
Sec. 415.190 of this chapter, HCFA establishes payment for physician 
services to patients in providers under the physician fee schedule in 
accordance with Secs. 414.1 through 414.48.
    (b) Teaching hospitals. Services furnished by physicians in teaching 
hospitals may be made on a reasonable cost basis set forth in 
Sec. 415.162 of this chapter if the hospital exercises the election 
described in Sec. 415.160 of this chapter.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992; 
60 FR 63189, Dec. 8, 1995]



Sec. 414.60  Payment for the services of CRNAs.

    (a) Basis for payment. Beginning with CY 1994--
    (1) The allowance for an anesthesia service furnished by a medically 
directed CRNA is based on a fixed percentage of the allowance recognized 
for the anesthesia service personally performed by the physician alone, 
as specified in Sec. 414.46(d)(3); and
    (2) The CF for an anesthesia service furnished by a CRNA not 
directed by a physician may not exceed the CF for a service personally 
performed by a physician.
    (b) To whom payment may be made. Payment for an anesthesia service 
furnished by a CRNA may be made to the CRNA or to any individual or 
entity (such as a hospital, critical access hospital, physician, group 
practice, or ambulatory surgical center) with which the CRNA has an 
employment or contract relationship that provides for payment to be made 
to the individual or entity.
    (c) Condition for payment. Payment for the services of a CRNA may be 
made only on an assignment related basis, and any assignment accepted by 
a CRNA is binding on any other person presenting a claim or request for 
payment for the service.

[60 FR 63178, Dec. 8, 1995, as amended at 62 FR 46037, Aug. 29, 1997]



Sec. 414.62  Fee schedule for clinical psychologist services.

    The fee schedule for clinical psychologist services is set at 100 
percent of the amount determined for corresponding services under the 
physician fee schedule.

[62 FR 59102, Oct. 31, 1997]



                        Subparts B-C--[Reserved]



  Subpart D--Payment for Durable Medical Equipment and Prosthetic and 
                            Orthotic Devices



Sec. 414.200  Purpose.

    This subpart implements sections 1834 (a) and (h) of the Act by 
specifying how payments are made for the purchase or rental of new and 
used durable

[[Page 493]]

medical equipment and prosthetic and orthotic devices for Medicare 
beneficiaries.

[57 FR 57689, Dec. 7, 1992]



Sec. 414.202  Definitions.

    For purposes of this subpart, the following definitions apply:
    Covered item update means the percentage increase in the consumer 
price index for all urban consumers (U.S. city average) (CPI-U) for the 
12-month period ending with June of the previous year.
    Durable medical equipment means equipment, furnished by a supplier 
or a home health agency that--
    (1) Can withstand repeated use;
    (2) Is primarily and customarily used to serve a medical purpose;
    (3) Generally is not useful to an individual in the absence of an 
illness or injury; and
    (4) Is appropriate for use in the home. (See Sec. 410.38 of this 
chapter for a description of when an institution qualifies as a home.)
    Prosthetic and orthotic devices means--
    (1) Devices that replace all or part of an internal body organ, 
including ostomy bags and supplies directly related to ostomy care, and 
replacement of such devices and supplies;
    (2) One pair of conventional eyeglasses or contact lenses furnished 
subsequent to each cataract surgery with insertion of an intraocular 
lens; and
    (3) Leg, arm, back, and neck braces, and artificial legs, arms, and 
eyes, including replacements if required because of a change in the 
beneficiary's physical condition.

The following are neither prosthetic nor orthotic devices--
    (1) Parenteral and enteral nutrients, supplies, and equipment;
    (2) Intraocular lenses;
    (3) Medical supplies such as catheters, catheter supplies, ostomy 
bags, and supplies related to ostomy care that are furnished by an HHA 
as part of home health services under Sec. 409.40(e) of this chapter;
    (4) Dental prostheses.
    Region means those carrier service areas administered by HCFA 
regional offices.

[57 FR 57689, Dec. 7, 1992]



Sec. 414.210  General payment rules.

    (a) General rule. For items furnished on or after January 1, 1989, 
except as provided in paragraphs (c) and (d) of this section, Medicare 
pays for durable medical equipment, prosthetics and orthotics, including 
a separate payment for maintenance and servicing of the items as 
described in paragraph (e) of this section, on the basis of 80 percent 
of the lesser of--
    (1) The actual charge for the item;
    (2) The fee schedule amount for the item, as determined in 
accordance with the provisions of Secs. 414.220 through 414.232.
    (b) Payment classification. (1) The carrier determines fee schedules 
for the following classes of equipment and devices:
    (i) Inexpensive or routinely purchased items, as specified in 
Sec. 414.220.
    (ii) Items requiring frequent and substantial servicing, as 
specified in Sec. 414.222.
    (iii) Certain customized items, as specified in Sec. 414.224.
    (iv) Oxygen and oxygen equipment, as specified in Sec. 414.226.
    (v) Prosthetic and orthotic devices, as specified in Sec. 414.228.
    (vi) Other durable medical equipment (capped rental items), as 
specified in Sec. 414.229.
    (vii) Transcutaneous electrical nerve stimulators (TENS), as 
specified in Sec. 414.232.
    (2) HCFA designates the items in each class of equipment or device 
through its program instructions.
    (c) Exception for certain HHAs. Public HHAs and HHAs that furnish 
services or items free-of-charge or at nominal prices to a significant 
number of low-income patients, as defined in Sec. 413.13(a) of this 
chapter, are paid on the basis of 80 percent of the fee schedule amount 
determined in accordance with the provision of Secs. 414.220 through 
414.230.
    (d) Prohibition on special limits. For items furnished on or after 
January 1, 1989 and before January 1, 1991, neither HCFA nor a carrier 
may establish a special reasonable charge for items covered under this 
subpart on the basis of inherent reasonableness as described in 
Sec. 405.502(g) of this chapter.

[[Page 494]]

    (e) Maintenance and servicing. (1) General rule. Except as provided 
in paragraph (e)(2) of this section, the carrier pays the reasonable and 
necessary charges for maintenance and servicing of purchased equipment. 
Reasonable and necessary charges are those made for parts and labor not 
otherwise covered under a manufacturer's or supplier's warranty. Payment 
is made, as needed, in a lump sum based on the carrier's consideration 
of the item. Payment is not made for maintenance and servicing of a 
rented item other than the maintenance and servicing fee for other 
durable medical equipment, as described in Sec. 414.229(e).
    (2) Exception. For items purchased on or after June 1, 1989, no 
payment is made under the provisions of paragraph (e)(1) of this section 
for the maintenance and servicing of:
    (i) Items requiring frequent and substantial servicing, as defined 
in Sec. 414.222(a);
    (ii) Capped rental items, as defined in Sec. 414.229(a), that are 
not purchased in accordance with Sec. 414.229(d); and
    (iii) Oxygen equipment, as defined in Sec. 414.226.
    (f) Replacement of equipment. Except as provided in Sec. 414.229(g), 
if a purchased item of DME or a prosthetic or orthotic device paid for 
under this subpart has been in continuous use by the patient for the 
equipment's reasonable useful lifetime or if the carrier determines that 
the item is lost or irreparably damaged, the patient may elect to obtain 
a new piece of equipment.
    (1) The reasonable useful lifetime of DME or prosthetic and orthotic 
devices is determined through program instructions. In the absence of 
program instructions, carriers may determine the reasonable useful 
lifetime of equipment but in no case can it be less than 5 years. 
Computation is based on when the equipment is delivered to the 
beneficiary, not the age of the equipment.
    (2) If the beneficiary elects to obtain replacement equipment, 
payment is made on a purchase basis.

[57 FR 57689, Dec. 7, 1992]



Sec. 414.220  Inexpensive or routinely purchased items.

    (a) Definitions. (1) Inexpensive equipment means equipment the 
average purchase price of which did not exceed $150 during the period 
July 1986 through June 1987.
    (2) Routinely purchased equipment means equipment that was acquired 
by purchase on a national basis at least 75 percent of the time during 
the period July 1986 through June 1987.
    (3) Accessories. Effective January 1, 1994, accessories used in 
conjunction with a nebulizer, aspirator, or ventilator excluded from 
Sec. 414.222 meet the definitions of ``inexpensive equipment'' and 
``routinely purchased equipment'' in paragraphs (a)(1) and (a)(2) of 
this section, respectively.
    (b) Payment rules. (1) Subject to the limitation in paragraph (b)(3) 
of this section, payment for inexpensive and routinely purchased items 
is made on a rental basis or in a lump sum amount for purchase of the 
item based on the applicable fee schedule amount.
    (2) Effective January 1, 1994, payment for ostomy supplies, 
tracheostomy supplies, urologicals, and surgical dressings not furnished 
as incident to a physician's professional service or furnished by an HHA 
is made using the methodology for the inexpensive and routinely 
purchased class.
    (3) The total amount of payments made for an item may not exceed the 
fee schedule amount recognized for the purchase of that item.
    (c) Fee schedule amount for 1989 and 1990. The fee schedule amount 
for payment of purchase or rental of inexpensive or routinely purchased 
items furnished in 1989 and 1990 is the local payment amount determined 
as follows:
    (1) The carrier determines the average reasonable charge for 
inexpensive or routinely purchased items that were furnished during the 
period July 1, 1986 through June 30, 1987 based on the mean of the 
carrier's allowed charges for the item. A separate determination of an 
average reasonable charge is made for rental equipment, new purchased 
equipment, and used purchased equipment.
    (2) The carrier adjusts the amount determined under paragraph (c)(1) 
of this section by the change in the level of the CPI-U for the 6-month 
period ending December 1987.
    (d) Updating the local payment amounts for years after 1990. For 
each

[[Page 495]]

year subsequent to 1990, the local payment amounts of the preceding year 
are increased or decreased by the covered item update. For 1991 and 
1992, the covered item update is reduced by 1 percentage point.
    (e) Calculating the fee schedule amounts for years after 1990. For 
years after 1990, the fee schedule amounts are equal to the national 
limited payment amount.
    (f) Calculating the national limited payment amount. The national 
limited payment amount is computed as follows:
    (1) The 1991 national limited payment amount is equal to:
    (i) 100 percent of the local payment amount if the local payment 
amount is neither greater than the weighted average nor less than 85 
percent of the weighted average of all local payment amounts;
    (ii) The sum of 67 percent of the local payment amount plus 33 
percent of the weighted average of all local payment amounts if the 
local payment amount exceeds the weighted average of all local payment 
amounts; or
    (iii) The sum of 67 percent of the local payment amount plus 33 
percent of 85 percent of the weighted average of all local payment 
amounts if the local payment amount is less than 85 percent of the 
weighted average of all local payment amounts.
    (2) The 1992 national limited payment amount is equal to:
    (i) 100 percent of the local payment amount if the local payment 
amount is neither greater than the weighted average nor less than 85 
percent of the weighted average of all local payment amounts;
    (ii) The sum of 33 percent of the local payment amount plus 67 
percent of the weighted average of all local payment amounts if the 
local payment amount exceeds the weighted average; or
    (iii) The sum of 33 percent of the local payment amount plus 67 
percent of 85 percent of the weighted average of all local payment 
amounts if the local payment amount is less than 85 percent of the 
weighted average.
    (3) For 1993, the national limited payment amount is equal to one of 
the following:
    (i) 100 percent of the local payment amount if the local payment 
amount is neither greater than the weighted average nor less than 85 
percent of the weighted average of all local payment amounts.
    (ii) 100 percent of the weighted average of all local payment 
amounts if the local payment amount exceeds the weighted average of all 
local payment amounts.
    (iii) 85 percent of the weighted average of all local payment 
amounts if the local payment amount is less than 85 percent of the 
weighted average of all local payment amounts.
    (4) For 1994 and subsequent years, the national limited payment 
amount is equal to one of the following:
    (i) If the local payment amount is not in excess of the median, nor 
less than 85 percent of the median, of all local payment amounts--100 
percent of the local payment amount.
    (ii) If the local payment amount exceeds the median--100 percent of 
the median of all local payment amounts.
    (iii) If the local payment amount is less than 85 percent of the 
median--85 percent of the median of all local payment amounts.
    (g) Payment for surgical dressings. For surgical dressings furnished 
after December 31, 1993, the national limited payment amount is computed 
based on local payment amounts using average reasonable charges for the 
12-month period ending December 31, 1992, increased by the covered item 
updates for 1993 and 1994.

[57 FR 57689, Dec. 7, 1992, as amended at 60 FR 35497, July 10, 1995]



Sec. 414.222  Items requiring frequent and substantial servicing.

    (a) Definition. Items requiring frequent and substantial servicing 
in order to avoid risk to the beneficiary's health are the following:
    (1) Ventilators (except those that are either continuous airway 
pressure devices or intermittent assist devices with continuous airway 
pressure devices).
    (2) Continuous and intermittent positive pressure breathing 
machines.
    (3) Continuous passive motion machines.
    (4) Other items specified in HCFA program instructions.

[[Page 496]]

    (5) Other items identified by the carrier.
    (b) Payment rule. Rental payments for items requiring frequent and 
substantial servicing are made on a monthly basis, and continue until 
medical necessity ends.
    (c) Fee schedule amount for 1989 and 1990. The fee schedule amount 
for items requiring frequent and substantial servicing is the local 
payment amount determined as follows:
    (1) The carrier determines the average reasonable charge for rental 
of items requiring frequent and substantial servicing that were 
furnished during the period July 1, 1986 through June 30, 1987 based on 
the mean of the carrier's allowed charges for the item.
    (2) The carrier adjusts the amounts determined under paragraph 
(c)(1) of this section by the change in the level of the CPI-U for the 
6-month period ending December 1987.
    (d) Updating the fee schedule amounts for years after 1990. For 
years after 1990, the fee schedules are determined using the methodology 
contained in paragraphs (d), (e), and (f) of Sec. 414.220.
    (e) Transition to other payment classes. For purposes of calculating 
the 15-month rental period, beginning January 1, 1994, if an item has 
been paid for under the frequent and substantial servicing class and is 
subsequently paid for under another payment class, the rental period 
begins with the first month of continuous rental, even if that period 
began before January 1, 1994. For example, if the rental period began on 
July 1, 1993, the carrier must use this date as beginning the first 
month of rental. Likewise, for purposes of calculating the 10-month 
purchase option, the rental period begins with the first month of 
continuous rental without regard to when that period started. For 
example, if the rental period began in August 1993, the 10-month 
purchase option must be offered to the beneficiary in May 1994, the 
tenth month of continuous rental.

[57 FR 57690, Dec. 7, 1992, as amended at 60 FR 35497, July 10, 1995]



Sec. 414.224  Customized items.

    (a) Criteria for a customized item. To be considered a customized 
item for payment purposes under paragraph (b) of this section, a covered 
item (including a wheelchair) must be uniquely constructed or 
substantially modified for a specific beneficiary according to the 
description and orders of a physician and be so different from another 
item used for the same purpose that the two items cannot be grouped 
together for pricing purposes.
    (b) Payment rule. Payment is made on a lump sum basis for the 
purchase of a customized item based on the carrier's individual 
consideration and judgment of a reasonable payment amount for each 
customized item. The carrier's individual consideration takes into 
account written documentation on the costs of the item including at 
least the cost of labor and materials used in customizing an item.

[56 FR 65998, Dec. 20, 1991, as amended at 58 FR 34919, June 30, 1993]



Sec. 414.226  Oxygen and oxygen equipment.

    (a) Payment rules. (1) Payment for rental of oxygen equipment and 
purchase of oxygen contents is made based on a monthly fee schedule 
amount.
    (2) Monthly fee schedule payments continue until medical necessity 
ends.
    (b) Monthly fee schedule amount. (1) Monthly fee schedule amounts 
are separately calculated for the following items:
    (i) Stationary oxygen equipment and oxygen contents (stationary and 
portable oxygen contents).
    (ii) Portable oxygen equipment only.
    (iii) Stationary and portable oxygen contents only.
    (iv) Portable oxygen contents only.
    (2) For 1989 and 1990, the monthly fee schedule amounts are the 
local payment amounts determined as follows:
    (i) The carrier determines the base local average monthly payment 
rate equal to the total reasonable charges for the item for the 12-month 
period ending December 1986 divided by the total number of months for 
all beneficiaries receiving the item for the same period. In determining 
the local average monthly payment rate, the following limitations apply:
    (A) Purchase charges for oxygen systems are not included as items 
classified under paragraph (b)(1)(i) of this section.

[[Page 497]]

    (B) Purchase charges for portable equipment are not included as 
items classified under paragraph (b)(1)(ii) of this section.
    (ii) The carrier determines the local monthly payment amount equal 
to 0.95 times the base local average monthly payment amount adjusted by 
the change in the CPI-U for the six-month period ending December 1987.
    (3) For years after 1990, the fee schedule amounts are determined 
using the methodology contained in Sec. 414.220 (d), (e), and (f).
    (c) Application of monthly fee schedule amounts. (1) The fee 
schedule amount for items described in paragraph (b)(1)(i) of this 
section is paid when the beneficiary rents a stationary oxygen system.
    (2) Subject to the limitation set forth in paragraph (d)(2) of this 
section, the fee schedule amount for items described in paragraph 
(b)(1)(ii) of this section is paid when the beneficiary rents a portable 
oxygen system.
    (3) The fee schedule amount for items described in paragraph 
(b)(1)(iii) of this section is paid when the beneficiary owns a 
stationary gaseous or liquid oxygen system.
    (4) The fee schedule amount for items described in paragraph 
(b)(1)(iv) of this section is paid when the beneficiary owns or rents a 
portable gaseous or portable liquid oxygen system and uses either a 
stationary oxygen concentrator or no stationary oxygen system.
    (d) Volume adjustments: (1) The fee schedule amount for an item 
described in paragraph (b)(1)(i) of this section is adjusted as follows:
    (i) If the attending physician prescribes an oxygen flow rate 
exceeding four liters per minute, the fee schedule amount is increased 
by 50 percent, subject to the limit in paragraph (d)(2) of this section.
    (ii) If the attending physician prescribes an oxygen flow rate of 
less than one liter per minute, the fee schedule amount is decreased by 
50 percent.
    (2) If portable oxygen equipment is used and the prescribed oxygen 
flow rate exceeds four liters per minute, the total fee schedule amount 
recognized for payment is limited to the higher of--
    (i) The sum of the monthly fee schedule amount for the items 
described in paragraphs (b)(1)(i) and (ii) of this section; or
    (ii) The adjusted fee schedule amount described in paragraph 
(d)(1)(i) of this section.
    (3) In establishing the volume adjustment for those beneficiaries 
whose physicians prescribe varying flow rates, the following rules 
apply:
    (i) If the prescribed flow rate is different for stationary oxygen 
equipment than for portable oxygen equipment, the flow rate for the 
stationary equipment is used.
    (ii) If the prescribed flow rate is different for the patient at 
rest than for the patient at exercise, the flow rate for the patient at 
rest is used.
    (iii) If the prescribed flow rate is different for nighttime use and 
daytime use, the average of the two flow rates is used.

[57 FR 57690, Dec. 7, 1992]



Sec. 414.228  Prosthetic and orthotic devices.

    (a) Payment rule. Payment is made on a lump-sum basis for prosthetic 
and orthotic devices subject to this subpart.
    (b) Fee schedule amounts. The fee schedule amount for prosthetic and 
orthotic devices is determined as follows:
    (1) The carrier determines a base local purchase price equal to the 
average reasonable charge for items purchased during the period July 1, 
1986 through June 30, 1987 based on the mean of the carrier's allowed 
charges for the item.
    (2) The carrier determines a local purchase price equal to the 
following:
    (i) For 1989 and 1990, the base local purchase price is adjusted by 
the change in the level of the CPI-U for the 6-month period ending 
December 1987.
    (ii) For 1991 through 1993, the local purchase price for the 
preceding year is adjusted by the applicable percentage increase for the 
year. The applicable percentage increase is equal to 0 percent for 1991. 
For 1992 and 1993, the applicable percentage increase is equal to the 
percentage increase in the CPI-U for the 12-month period ending with 
June of the previous year.

[[Page 498]]

    (iii) For 1994 and 1995, the applicable percentage increase is 0 
percent.
    (iv) For all subsequent years the applicable percentage increase is 
equal to the percentage increase in the CPI-U for the 12-month period 
ending with June of the previous year.
    (3) HCFA determines the regional purchase price equal to the 
following:
    (i) For 1992, the average (weighted by the relative volume of all 
claims among carriers) of the local purchase prices for the carriers in 
the region.
    (ii) For 1993 and subsequent years, the regional purchase price for 
the preceding year adjusted by the applicable percentage increase for 
the year.
    (4) HCFA determines a purchase price equal to the following:
    (i) For 1989, 1990 and 1991, 100 percent of the local purchase 
price.
    (ii) For 1992, 75 percent of the local purchase price plus 25 
percent of the regional purchase price.
    (iii) For 1993, 50 percent of the local purchase price plus 50 
percent of the regional purchase price.
    (iv) For 1994 and subsequent years, 100 percent of the regional 
purchase price.
    (5) For 1992 and subsequent years, HCFA determines a national 
average purchase price equal to the unweighted average of the purchase 
prices determined under paragraph (b)(4) of this section for all 
carriers.
    (6) HCFA determines the fee schedule amount equal to 100 percent of 
the purchase price determined under paragraph (b)(4) of this section, 
subject to the following limitations:
    (i) For 1992, the amount cannot be greater than 125 percent nor less 
than 85 percent of the national average purchase price determined under 
paragraph (b)(5) of this section.
    (ii) For 1993 and subsequent years, the amount cannot be greater 
than 120 percent of the national average nor less than 90 percent of the 
national average purchase price determined under paragraph (b)(5) of 
this section.

[57 FR 57691, Dec. 7, 1992, as amended at 60 FR 35498, July 10, 1995]



Sec. 414.229  Other durable medical equipment--capped rental items.

    (a) General payment rule. Subject to the limitation set forth in 
paragraph (b) of this section, payment is made on a rental or purchase 
option basis for other durable medical equipment that is not subject to 
the payment provisions set forth in Secs. 414.220 through 414.228.
    (b) Fee schedule amounts for rental. (1) For 1989 and 1990, the 
monthly fee schedule amount for rental of other covered durable medical 
equipment equals 10 percent of the purchase price recognized as 
determined under paragraph (c) of this section subject to the following 
limitation: For 1989 and 1990, the fee schedule amount cannot be greater 
than 115 percent nor less than 85 percent of the prevailing charge, as 
determined under Sec. 405.504 of this chapter, established for rental of 
the item in January 1987, as adjusted by the change in the level of the 
CPI-U for the 6-month period ending December 1987.
    (2) For 1991 and subsequent years, the monthly fee schedule amount 
for rental of other covered durable medical equipment equals 10 percent 
of the purchase price recognized as determined under paragraph (c) of 
this section for each of the first 3 months and 7.5 percent of the 
purchase price for each of the remaining months.
    (c) Determination of purchase price. The purchase price of other 
covered durable medical equipment is determined as follows:
    (1) For 1989 and 1990. (i) The carrier determines a base local 
purchase price amount equal to the average of the purchase prices 
submitted on an assignment-related basis of new items supplied during 
the 6-month period ending December 1986.
    (ii) The purchase price is equal to the base local purchase price 
adjusted by the change in the level of the CPI-U for the 6-month period 
ending December 1987.
    (2) For 1991. (i) The local payment amount is the purchase price for 
the preceding year adjusted by the covered item update for 1991 and 
decreased by the percentage by which the average of the reasonable 
charges for claims paid for all other items described in Sec. 414.229, 
is lower than the average of the purchase prices submitted for such 
items during the final 9 months of 1988.
    (ii) The purchase price for 1991 is the national limited payment 
amount as

[[Page 499]]

determined using the methodology contained in Sec. 414.220(f).
    (3) For years after 1991. The purchase price is determined using the 
methodology contained in paragraphs (d) through (f) of Sec. 414.220.
    (d) Purchase option. Suppliers must offer a purchase option to 
beneficiaries during the 10th continuous rental month and, for power-
driven wheelchairs, the purchase option must also be made available at 
the time the equipment is initially furnished.
    (1) Suppliers must offer beneficiaries the option of purchasing 
power-driven wheelchairs at the time the supplier first furnishes the 
item. Payment must be on a lump-sum fee schedule purchase basis if the 
beneficiary chooses the purchase option. The purchase fee is the amount 
established in Sec. 414.229(c).
    (2) Suppliers must offer beneficiaries the option of converting 
capped rental items (including power-driven wheelchairs not purchased 
when initially furnished) to purchased equipment during their 10th 
continuous rental month. Beneficiaries have one month from the date the 
supplier makes the offer to accept the purchase option.
    (i) If the beneficiary does not accept the purchase option, payment 
continues on a rental basis not to exceed a period of continuous use of 
longer than 15 months. After 15 months of rental payments have been 
paid, the supplier must continue to provide the item without charge, 
other than a charge for maintenance and servicing fees, until medical 
necessity ends or Medicare coverage ceases. A period of continuous use 
is determined under the provisions in Sec. 414.230.
    (ii) If the beneficiary accepts the purchase option, payment 
continues on a rental basis not to exceed a period of continuous use of 
longer than 13 months. On the first day after 13 continuous rental 
months during which payment is made, the supplier must transfer title to 
the equipment to the beneficiary.
    (e) Payment for maintenance and servicing. (1) The carrier 
establishes a reasonable fee for maintenance and servicing for each 
rented item of other durable medical equipment. The fee may not exceed 
10 percent of the purchase price recognized as determined under 
paragraph (c) of this section.
    (2) Payment of the fee for maintenance and servicing of other 
durable medical equipment that is rented is made only for equipment that 
continues to be used after 15 months of rental payments have been made 
and is limited to the following:
    (i) For the first 6-month period, no payments are to be made.
    (ii) For each succeeding 6-month period, payment may be made during 
the first month of that period.
    (3) Payment for maintenance and servicing DME purchased in 
accordance with paragraphs (d)(1) and (d)(2)(ii) of this section, is 
made on the basis of reasonable and necessary charges.
    (f) Transition to the fee schedules. For purposes of computing the 
10-month or 15-month period of continuous use for other durable medical 
equipment, as described in Sec. 414.230, the carrier counts the first 
month that the beneficiary continuously rented the equipment without 
regard to whether that month occurred before January 1, 1989 or after. 
If a beneficiary's 15-month rental period ends prior to January 1, 1989, 
no further purchase or rental payments are to be made except for 
maintenance and servicing of equipment as described in paragraph (e) of 
this section.
    (g) Replacement of equipment. If the item of equipment has been in 
continuous use by the patient on either a rental or purchase basis for 
the equipment's useful lifetime, or if the carrier determines that the 
item is lost or irreparably damaged, the patient may elect to obtain a 
new piece of equipment.
    (1) The reasonable useful lifetime of DME or prosthetic and orthotic 
devices is determined through program instructions. In the absence of 
program instructions, carriers may determine the reasonable useful 
lifetime of equipment but in no case can it be less than 5 years. 
Computation is based on when the equipment is delivered to the 
beneficiary, not the age of the equipment.
    (2) If the beneficiary elects to obtain replacement equipment, 
payment is made on a rental or purchase basis in accordance with 
paragraph (a) of this section or on a lump-sum purchase

[[Page 500]]

basis if a purchase agreement had been entered into in accordance with 
paragraph (d) of this section.

[57 FR 57691, Dec. 7, 1992, as amended at 60 FR 35498, July 10, 1995]



Sec. 414.230  Determining a period of continuous use.

    (a) Scope. This section sets forth the rules that apply in 
determining a period of continuous use for rental of durable medical 
equipment.
    (b) Continuous use. A period of continuous use begins with the first 
month of medical need and lasts until a beneficiary's medical need for a 
particular item of durable medical equipment ends.
    (c) Temporary interruption. (1) A period of continuous use allows 
for temporary interruptions in the use of equipment.
    (2) An interruption of not longer than 60 consecutive days plus the 
days remaining in the rental month in which use ceases is temporary, 
regardless of the reason for the interruption.
    (3) Unless there is a break in medical necessity that lasts lnnger 
than 60 consecutive days plus the days remaining in the rental month in 
which use ceases, medical necessity is presumed to continue.
    (d) Criteria for a new rental period. If an interruption in the use 
of equipment continues for more than 60 consecutive days plus the days 
remaining in the rental month in which use ceases, a new rental period 
begins if the supplier submits all of the following information--
    (1) A new prescription.
    (2) New medical necessity documentation.
    (3) A statement describing the reason for the interruption and 
demonstrating that medical necessity in the prior episode ended.
    (e) Beneficiary moves. A permanent or temporary move made by a 
beneficiary does not constitute an interruption in the period of 
continuous use.
    (f) New equipment. If a beneficiary changes equipment or requires 
additional equipment based on a physician's prescription, and the new or 
additional equipment is found to be necessary, a new period of 
continuous use begins for the new or additional equipment. A new period 
of continuous use does not begin for base equipment that is modified by 
an addition.
    (g) New supplier. If a beneficiary changes suppliers, a new period 
of continuous use does not begin.

[56 FR 50823, Oct. 9, 1991, as amended at 57 FR 57111, Dec. 3, 1992]



Sec. 414.232  Special payment rules for transcutaneous electrical nerve stimulators (TENS).

    (a) General payment rule. Except as provided in paragraph (b) of 
this section, payment for TENS is made on a purchase basis with the 
purchase price determined using the methodology for purchase of 
inexpensive or routinely purchased items as described in Sec. 414.220. 
The payment amount for TENS computed under Sec. 414.220(c)(2) is reduced 
according to the following formula:
    (1) Effective April 1, 1990--the original payment amount is reduced 
by 15 percent.
    (2) Effective January 1, 1991--the reduced payment amount in 
paragraph (a)(1) is reduced by 15 percent.
    (3) Effective January 1, 1994--the reduced payment amount in 
paragraph (a)(1) is reduced by 45 percent.
    (b) Exception. In order to permit an attending physician time to 
determine whether the purchase of the TENS is medically appropriate for 
a particular patient, two months of rental payments may be made in 
addition to the purchase price. The rental payments are equal to 10 
percent of the purchase price.

[57 FR 57692, Dec. 7, 1992, as amended at 60 FR 35498, July 10, 1995]



  Subpart E--Determination of Reasonable Charges Under the ESRD Program



Sec. 414.300  Scope of subpart.

    This subpart sets forth criteria and procedures for payment of the 
following services furnished to ESRD patients:
    (a) Physician services related to renal dialysis.
    (b) Physician services related to renal transplantation.

[[Page 501]]

    (c) Home dialysis equipment, supplies, and support services.
    (d) Epoetin (EPO) furnished by a supplier of home dialysis equipment 
and supplies to a home dialysis patient for use in the home.

[55 FR 23441, June 8, 1990, as amended at 56 FR 43710, Sept. 4, 1991; 59 
FR 1285, Jan. 10, 1994]



Sec. 414.310  Determination of reasonable charges for physician services furnished to renal dialysis patients.

    (a) Principle. Physician services furnished to renal dialysis 
patients are subject to payment if the services are otherwise covered by 
the Medicare program and if they are considered reasonable and medically 
necessary in accordance with section 1862(a)(1)(A) of the Act.
    (b) Scope and applicability--(1) Scope. This section pertains to 
physician services furnished to the following patients:
    (i) Outpatient maintenance dialysis patients who dialyze--
    (A) In an independent or hospital-based ESRD facility, or
    (B) At home.
    (ii) Hospital inpatients for which the physician elects to continue 
payment under the monthly capitation payment (MCP) method described in 
Sec. 414.314.
    (2) Applicability. These provisions apply to routine professional 
services of physicians. They do not apply to administrative services 
performed by physicians, which are paid for as part of a prospective 
payment for dialysis services made to the facility under Sec. 413.170 of 
this chapter.
    (c) Definitions. For purposes of this section, the following 
definitions apply:
    Administrative services are physician services that are 
differentiated from routine professional services and other physician 
services because they are supervision, as described in the definition of 
``supervision of staff'' of this section, or are not related directly to 
the care of an individual patient, but are supportive of the facility as 
a whole and of benefit to patients in general. Examples of 
administrative services include supervision of staff, staff training, 
participation in staff conferences and in the management of the 
facility, and advising staff on the procurement of supplies.
    Dialysis session is the period of time that begins when the patient 
arrives at the facility and ends when the patient departs from the 
facility. In the case of home dialysis, the period begins when the 
patient prepares for dialysis and generally ends when the patient is 
disconnected from the machine. In this context, a dialysis facility 
includes only those parts of the building used as a facility. It does 
not include any areas used as a physician's office.
    Medical direction, in contrast to supervision of staff, is a routine 
professional service that entails substantial direct involvement and the 
physical presence of the physician in the delivery of services directly 
to the patient.
    Routine professional services include all physicians' services 
furnished during a dialysis session and all services listed in paragraph 
(d) of this section that meet the following requirements:
    (1) They are personally furnished by a physician to an individual 
patient.
    (2) They contribute directly to the diagnosis or treatment of an 
individual patient.
    (3) They ordinarily must be performed by a physician.
    Supervision of staff, in contrast to medical direction, is an 
administrative service that does not necessarily require the physician 
to be present at the dialysis session. It is a general activity 
primarily concerned with monitoring performance of and giving guidance 
to other health care personnel (such as nurses and dialysis technicians) 
who deliver services to patients.
    (d) Types of routine professional services. Routine professional 
services include at least all of the following services when medically 
appropriate:
    (1) Visits to the patient during dialysis, and review of laboratory 
test results, nurses' notes and any other medical documentation, as a 
basis for--
    (i) Adjustment of the patient's medication or diet, or the dialysis 
procedure;
    (ii) Prescription of medical supplies; and
    (iii) Evaluation of the patient's psychosocial status and the 
appropriateness of the treatment modality.

[[Page 502]]

    (2) Medical direction of staff in delivering services to a patient 
during a dialysis session.
    (3) Pre-dialysis and post-dialysis examinations, or examinations 
that could have been furnished on a pre-dialysis or post-dialysis basis.
    (4) Insertion of catheters for patients who are on peritoneal 
dialysis and do not have indwelling catheters.
    (e) Payment for routine professional services. Beginning August 7, 
1990, routine professional services furnished by physicians may be paid 
under either the ``initial method'' of payment described in 
Sec. 414.313, (if all of the physicians at the facility elect the 
initial method) or under the ``physician MCP method'' described in 
Sec. 414.314. Physician services furnished after July 31, 1983 and 
before August 6, 1990, are payable only under the MCP method described 
in Sec. 414.314.



Sec. 414.313  Initial method of payment.

    (a) Basic rule. Under this method, the intermediary pays the 
facility for routine professional services furnished by physicians. 
Payment is in the form of an add-on to the facility's composite rate 
payment, which is described in part 413, subpart H of this subchapter.
    (b) Services for which payment is not included in the add-on 
payment. (1) Physician administrative services are considered to be 
facility services and are paid for as part of the facility's composite 
rate.
    (2) The carrier pays the physician or the beneficiary (as 
appropriate) under the reasonable charge criteria set forth in subpart E 
of part 405 of this chapter for the following services:
    (i) Physician services that must be furnished at a time other than 
during the dialysis session (excluding pre-dialysis and post-dialysis 
examinations and examinations that could have been furnished on a pre-
dialysis or post-dialysis basis), such as monthly and semi-annual 
examinations to review health status and treatment.
    (ii) Physician surgical services other than insertion of catheters 
for patients who are on peritoneal dialysis and do not have indwelling 
catheters.
    (iii) Physician services furnished to hospital inpatients who were 
not admitted solely to receive maintenance dialysis.
    (iv) Administration of hepatitis B vaccine.
    (c) Physician election of the initial method. (1) Each physician in 
a facility must submit to the appropriate carrier and intermediary that 
serve the facility a statement of election of the initial method of 
payment for all the ESRD facility patients that he or she attends.
    (2) The initial method of payment applies to dialysis services 
furnished beginning with the second calendar month after the month in 
which all physicians in the facility elect the initial method and 
continues until the effective date of a termination of the election 
described in paragraph (d) of this section.
    (d) Termination of the initial method. (1) Physicians may terminate 
the initial method of payment by written notice to the carrier(s) that 
serves each physician and to the intermediary that serves the facility.
    (2) If the notice terminating the initial method is received by the 
carrier(s) and intermediary--
    (i) On or before November 1, the effective date of the termination 
is January 1 of the year following the calendar year in which the 
termination notice is received by the carrier(s) and intermediary; or
    (ii) After November 1, the effective date of the termination is 
January 1 of the second year after the calendar year in which the notice 
is received by the carrier(s) and intermediary.
    (e) Determination of payment amount. The factors used in determining 
the add-on amount are related to program experience. They are re-
evaluated periodically and may be adjusted, as determined necessary by 
HCFA, to maintain the payment at a level commensurate with the 
prevailing charges of other physicians for comparable services.
    (f) Publication of payment amount. Revisions to the add-on amounts 
are published in the Federal Register in accordance with the 
Department's established rulemaking procedures.

[55 FR 23441, June 8, 1990, as amended at 62 FR 43674, Aug. 15, 1997]

[[Page 503]]



Sec. 414.314  Monthly capitation payment method.

    (a) Basic rules. (1) Under the monthly capitation payment (MCP) 
method, the carrier pays an MCP amount for each patient, to cover all 
professional services furnished by the physician, except those listed in 
paragraph (b) of this section.
    (2) The carrier pays the MCP amount, subject to the deductible and 
coinsurance provisions, either to the physician if the physician accepts 
assignment or to the beneficiary if the physician does not accept 
assignment.
    (3) The MCP method recognizes the need of maintenance dialysis 
patients for physician services furnished periodically over relatively 
long periods of time, and the capitation amounts are consistent with 
physicians' charging patterns in their localities.
    (4) Payment of the capitation amount for any particular month is 
contingent upon the physician furnishing to the patient all physician 
services required by the patient during the month, except those listed 
in paragraph (b) of this section.
    (5) Payment for physician administrative services (Sec. 414.310) is 
made to the dialysis facility as part of the facility's composite rate 
(part 413, subpart H of this subchapter) and not to the physician under 
the MCP.
    (b) Services not included in the MCP. (1) Services that are not 
included in the MCP and which may be paid in accordance with the 
reasonable charge rules set forth in subpart E of part 405 of this 
chapter are limited to the following:
    (i) Administration of hepatitis B vaccine.
    (ii) Covered physician services furnished by another physician when 
the patient is not available to receive, or the attending physician is 
not available to furnish, the outpatient services as usual (see 
paragraph (b)(3) of this section).
    (iii) Covered physician services furnished to hospital inpatients, 
including services related to inpatient dialysis, by a physician who 
elects not to continue to receive the MCP during the period of inpatient 
stay.
    (iv) Surgical services, including declotting of shunts, other than 
the insertion of catheters for patients on maintenance peritoneal 
dialysis who do not have indwelling catheters.
    (v) Needed physician services that are--
    (A) Furnished by the physician furnishing renal care or by another 
physician;
    (B) Not related to the treatment of the patient's renal condition; 
and
    (C) Not furnished during a dialysis session or an office visit 
required because of the patient's renal condition.
    (2) For the services described in paragraph (b)(1)(v) of this 
section, the following rules apply:
    (i) The physician must provide documentation to show that the 
services are not related to the treatment of the patient's renal 
condition and that additional visits are required.
    (ii) The carrier's medical staff, acting on the basis of the 
documentation and appropriate medical consultation obtained by the 
carrier, determines whether additional payment for the additional 
services is warranted.
    (3) The MCP is reduced in proportion to the number of days the 
patient is--
    (i) Hospitalized and the physician elects to bill separately for 
services furnished during hospitalization; or
    (ii) Not attended by the physician or his or her substitute for any 
reason, including when the physician is not available to furnish patient 
care or when the patient is not available to receive care.
    (c) Determination of payment amount. The amount of payment for the 
MCP is determined under the Medicare physician fee schedule described in 
this part 414.

[55 FR 23441, June 8, 1990, as amended at 59 FR 63463, Dec. 8, 1994; 62 
FR 43674, Aug. 15, 1997]



Sec. 414.316  Payment for physician services to patients in training for self-dialysis and home dialysis.

    (a) For each patient, the carrier pays a flat amount that covers all 
physician services required to create the capacity for self-dialysis and 
home dialysis.
    (b) HCFA determines the amount on the basis of program experience 
and reviews it periodically.
    (c) The payment is made at the end of the training course, is 
subject to the

[[Page 504]]

deductible and coinsurance provisions, and is in addition to any amounts 
payable under the initial or MCP methods set forth in Secs. 414.313 and 
414.314, respectively.
    (d) If the training is not completed, the payment amount is 
proportionate to the time spent in training.



Sec. 414.320  Determination of reasonable charges for physician renal transplantation services.

    (a) Comprehensive payment for services furnished during a 60-day 
period. (1) The comprehensive payment is subject to the deductible and 
coinsurance provisions and is for all surgeon services furnished during 
a period of 60 days in connection with a renal transplantation, 
including the usual preoperative and postoperative care, and for 
immunosuppressant therapy if supervised by the transplant surgeon.
    (2) Additional sums, in amounts established on the basis of program 
experience, may be included in the comprehensive payment for other 
surgery performed concurrently with the transplant operation.
    (3) The amount of the comprehensive payment may not exceed the lower 
of the following:
    (i) The actual charges made for the services.
    (ii) Overall national payment levels established under the ESRD 
program and adjusted to give effect to variations in physician's charges 
throughout the nation. (These adjusted amounts are the maximum 
allowances in a carrier's service area for renal transplantation surgery 
and related services by surgeons.)
    (4) Maximum allowances computed under these instructions are revised 
at the beginning of each calendar year to the extent permitted by the 
lesser of the following:
    (i) Changes in the economic index as described in 
Sec. 405.504(a)(3)(i) of this chapter.
    (ii) Percentage changes in the weighted average of the carrier's 
prevailing charges (before adjustment by the economic index) for--
    (A) A unilateral nephrectomy; or
    (B) Another medical or surgical service designated by HCFA for this 
purpose.
    (b) Other payments. Payments for covered medical services furnished 
to the transplant recipient by other specialists, as well as for 
services by the transplant surgeon after the 60-day period covered by 
the comprehensive payment, are made under the reasonable charge criteria 
set forth in Sec. 405.502 (a) through (d) of this chapter. The payments 
for physicians' services in connection with renal transplantations are 
changed on the basis of program experience and the expected advances in 
the medical art for this operation.



Sec. 414.330  Payment for home dialysis equipment, supplies, and support services.

    (a) Equipment and supplies--(1) Basic rule. Except as provided in 
paragraph (a)(2) of this section, Medicare pays for home dialysis 
equipment and supplies only under the prospective payment rates 
established at Sec. 413.170.
    (2) Exception. If the conditions in subparagraphs (a)(2) (i) through 
(iv) of this section are met, Medicare pays for home analysis equipment 
and supplies on a reasonable charge basis in accordance with subpart E 
(Criteria for Determination of Reasonable Charges; Reimbursement for 
Services of Hospital Interns, Residents, and Supervising Physicians) of 
part 405, but the amount of payment may not exceed the limit for 
equipment and supplies in paragraph (c)(2) of this section.
    (i) The patient elects to obtain home dialysis equipment and 
supplies from a supplier that is not a Medicare approved dialysis 
facility.
    (ii) The patient certifies to HCFA that he or she has only one 
supplier for all home dialysis equipment and supplies. This 
certification is made on HCFA Form 382 (the ``ESRD Beneficiary 
Selection'' form).
    (iii) In writing, the supplier--
    (A) Agrees to receive Medicare payment for home dialysis supplies 
and equipment only on an assignment-related basis; and
    (B) Certifies to HCFA that it has a written agreement with one 
Medicare approved dialysis facility or, if the beneficiary is also 
entitled to military or veteran's benefits, one military or Veterans 
Administration hospital, for each patient. (See subpart U of part 405 of

[[Page 505]]

this chapter for the requirements for a Medicare approved dialysis 
facility.) Under the agreement, the facility or military or VA hospital 
agrees to the following:
    (1) To furnish all home dialysis support services for each patient 
in accordance with subpart U (Conditions for Coverage of Suppliers of 
ESRD Services) of this chapter. (Sec. 410.52 sets forth the scope and 
conditions of Medicare Part B coverage of home dialysis services, 
supplies, and equipment.)
    (2) To furnish institutional dialysis services and supplies. 
(Sec. 410.50 sets forth the scope and conditions for Medicare Part B 
coverage of institutional dialysis services and supplies.)
    (3) To furnish dialysis-related emergency services.
    (4) To arrange for a Medicare approved laboratory to perform 
dialysis-related laboratory tests that are covered under the composite 
rate established at Sec. 413.170 and to arrange for the laboratory to 
seek payment from the facility. The facility then includes these 
laboratory services in its claim for payment for home dialysis support 
services.
    (5) To arrange for a Medicare approved laboratory to perform 
dialysis-related laboratory tests that are not covered under the 
composite rate established at Sec. 413.170 and for which the laboratory 
files a Medicare claim directly.
    (6) To furnish all other necessary dialysis services and supplies 
(that is, those which are not home dialysis equipment and supplies).
    (7) To satisfy all documentation, recordkeeping and reporting 
requirements in subpart U (Conditions for Coverage of Suppliers of ESRD 
Services) of this chapter. This includes maintaining a complete medical 
record of ESRD related items and services furnished by other parties. 
The facility must report, on the forms required by HCFA or the ESRD 
network, all data for each patient in accordance with subpart U.
    (iv) The facility with which the agreement is made must be located 
within a reasonable distance from the patient's home (that is, located 
so that the facility can actually furnish the needed services in a 
practical and timely manner, taking into account variables like the 
terrain, whether the patient's home is located in an urban or rural 
area, the availability of transportation, and the usual distances 
traveled by patients in the area to obtain health care services).
    (b) Support services--(1) Basic rule. Except as provided in 
paragraph (b)(2) of this section, Medicare pays for support services 
only under the prospective payment rates established in Sec. 413.170 of 
this chapter.
    (2) Exceptions. If the patient elects to obtain home dialysis 
equipment and supplies from a supplier that is not an approved ESRD 
facility, Medicare pays for support services, other than support 
services furnished by military or VA hospitals referred to in paragraph 
(a)(2)(iii)(B) of this section, under paragraphs (b)(2) (i) and (ii) of 
this section but in no case may the amount of payment exceed the limit 
for support services in paragraph (c)(1) of this section:
    (i) For support services furnished by a hospital-based ESRD 
facility, Medicare pays on a reasonable cost basis in accordance with 
part 413 of this chapter.
    (ii) For support services furnished by an independent ESRD facility, 
Medicare pays on the basis of reasonable charges that are related to 
costs and allowances that are reasonable when the services are furnished 
in an effective and economical manner.
    (c) Payment limits--(1) Support services. The amount of payment for 
home dialysis support services is limited to the national average 
Medicare-allowed charge per patient per month for home dialysis support 
services, as determined by HCFA, plus the median cost per treatment for 
all dialysis facilities for laboratory tests included under the 
composite rate, as determined by HCFA, multiplied by the national 
average number of treatments per month.
    (2) Equipment and supplies. Payment for home dialysis equipment and 
supplies is limited to an amount equal to the result obtained by 
subtracting the support services payment limit in paragraph (c)(1) of 
this section from the amount (or, in the case of continuous cycling 
peritoneal dialysis, 130 percent) of the national median payment as 
determined by HCFA that would have

[[Page 506]]

been made under the prospective payment rates established in 
Sec. 413.170 of this chapter for hospital-based facilities.
    (3) Notification of changes to the payment limits. Updated data are 
incorporated into the payment limits when the prospective payment rates 
established at Sec. 413.170 of this chapter are updated, and changes are 
announced by notice in the Federal Register without a public comment 
period. Revisions of the methodology for determining the limits are 
published in the Federal Register in accordance with the Department's 
established rulemaking procedures.

[57 FR 54187, Nov. 17, 1992]



Sec. 414.335  Payment for EPO furnished to a home dialysis patient for use in the home.

    (a) Payment for EPO used at home by a home dialysis patient is made 
only to either a Medicare approved ESRD facility or a supplier of home 
dialysis equipment and supplies.
    (b) Payment is made in accordance with the rules set forth in 
Sec. 413.170 of this chapter.

[56 FR 43710, Sept. 4, 1991]



                        Subparts F-H--[Reserved]



PART 415--SERVICES FURNISHED BY PHYSICIANS IN PROVIDERS, SUPERVISING PHYSICIANS IN TEACHING SETTINGS, AND RESIDENTS IN CERTAIN SETTINGS--Table of Contents




                      Subpart A--General Provisions

Sec.
415.1  Basis and scope.

   Subpart B--Fiscal Intermediary Payments to Providers for Physician 
                                Services

415.50  Scope.
415.55  General payment rules.
415.60  Allocation of physician compensation costs.
415.70  Limits on compensation for physician services in providers.

      Subpart C--Part B Carrier Payments for Physician Services to 
                       Beneficiaries in Providers

415.100  Scope.
415.102  Conditions for fee schedule payment for physician services to 
          beneficiaries in providers.
415.105  Amounts of payment for physician services to beneficiaries in 
          providers.
415.110  Conditions for payment: Anesthesiology services.
415.120  Conditions for payment: Radiology services.
415.130  Conditions for payment: Physician pathology services.

           Subpart D--Physician Services in Teaching Settings

415.150  Scope.
415.152  Definitions.
415.160  Election of reasonable cost payment for direct medical and 
          surgical services of physicians in teaching hospitals: General 
          provisions.
415.162  Determining payment for physician services furnished to 
          beneficiaries in teaching hospitals.
415.164  Payment to a fund.
415.170  Conditions for payment on a fee schedule basis for physician 
          services in a teaching setting.
415.172  Physician fee schedule payment for services of teaching 
          physicians.
415.174  Exception: Evaluation and management services furnished in 
          certain centers.
415.176  Renal dialysis services.
415.178  Anesthesia services.
415.180  Teaching setting requirements for the interpretation of 
          diagnostic radiology and other diagnostic tests.
415.184  Psychiatric services.
415.190  Conditions of payment: Assistants at surgery in teaching 
          hospitals.

                    Subpart E--Services of Residents

415.200  Services of residents in approved GME programs.
415.202  Services of residents not in approved GME programs.
415.204  Services of residents in skilled nursing facilities and home 
          health agencies.
415.206  Services of residents in nonprovider settings.
415.208  Services of moonlighting residents.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source:  60 FR 63178, Dec. 8, 1995, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 415.1  Basis and scope.

    (a) Basis. This part is based on the provisions of the following 
sections of the Act: Section 1848 establishes a fee schedule for payment 
for physician

[[Page 507]]

services. Section 1861(q) specifies what is included in the term 
``physician services'' covered under Medicare. Section 1862(a)(14) sets 
forth the exclusion of nonphysician services furnished to hospital 
patients under Part B of Medicare. Section 1886(d)(5)(B) provides for a 
payment adjustment under the prospective payment system for the 
operating costs of inpatient hospital services furnished to Medicare 
beneficiaries in cost reporting periods beginning on or after October 1, 
1983, to account for the indirect costs of medical education. Section 
1886(h) establishes the methodology for Medicare payment of the cost of 
direct GME activities.
    (b) Scope. This part sets forth rules for fiscal intermediary 
payments to providers for physician services, Part B carrier payments 
for physician services to beneficiaries in providers, physician services 
in teaching settings, and services of residents.



   Subpart B--Fiscal Intermediary Payments to Providers for Physician 
                                Services



Sec. 415.50  Scope.

    This subpart sets forth rules for payment by fiscal intermediaries 
to providers for services furnished by physicians. Payment for covered 
services is made either under the prospective payment system (PPS) to 
PPS-participating providers in accordance with part 412 of this chapter 
or under the reasonable cost method to non-PPS participating providers 
in accordance with part 413 of this chapter.



Sec. 415.55  General payment rules.

    (a) Allowable costs. Except as specified otherwise in Secs. 413.102 
of this chapter (concerning compensation of owners), 415.60 (concerning 
allocation of physician compensation costs), and 415.162 (concerning 
payment for physician services furnished to beneficiaries in teaching 
hospitals), costs a provider incurs for services of physicians are 
allowable only if the following conditions are met:
    (1) The services do not meet the conditions in Sec. 415.102(a) 
regarding fee schedule payment for services of physicians to a 
beneficiary in a provider.
    (2) The services include a surgeon's supervision of services of a 
qualified anesthetist, but do not include physician availability 
services, except for reasonable availability services furnished for 
emergency rooms and the services of standby surgical team physicians.
    (3) The provider has incurred a cost for salary or other 
compensation it furnished the physician for the services.
    (4) The costs incurred by the provider for the services meet the 
requirements in Sec. 413.9 of this chapter regarding costs related to 
patient care.
    (5) The costs do not include supervision of interns and residents 
unless the provider elects reasonable cost payment as specified in 
Sec. 415.160, or any other costs incurred in connection with an approved 
GME program that are payable under Sec. 413.86 of this chapter.
    (b) Allocation of allowable costs. The provider must follow the 
rules in Sec. 415.60 regarding allocation of physician compensation 
costs to determine its costs of services.
    (c) Limits on allowable costs. The intermediary must apply the 
limits on compensation set forth in Sec. 415.70 to determine its 
payments to a provider for the costs of services.



Sec. 415.60  Allocation of physician compensation costs.

    (a) Definition. For purposes of this subpart, physician compensation 
costs means monetary payments, fringe benefits, deferred compensation, 
and any other items of value (excluding office space or billing and 
collection services) that a provider or other organization furnishes a 
physician in return for the physician services. Other organizations are 
entities related to the provider within the meaning of Sec. 413.17 of 
this chapter or entities that furnish services for the provider under 
arrangements within the meaning of the Act.
    (b) General rule. Except as provided in paragraph (d) of this 
section, each provider that incurs physician compensation costs must 
allocate those costs, in proportion to the percentage of total time that 
is spent in furnishing each category of services, among--
    (1) Physician services to the provider (as described in 
Sec. 415.55);

[[Page 508]]

    (2) Physician services to patients (as described in Sec. 415.102); 
and
    (3) Activities of the physician, such as funded research, that are 
not paid under either Part A or Part B of Medicare.
    (c) Allowable physician compensation costs. Only costs allocated to 
payable physician services to the provider (as described in Sec. 415.55) 
are allowable costs to the provider under this subpart.
    (d) Allocation of all compensation to services to the provider. 
Generally, the total physician compensation received by a physician is 
allocated among all services furnished by the physician, unless--
    (1) The provider certifies that the compensation is attributable 
solely to the physician services furnished to the provider; and
    (2) The physician bills all patients for the physician services he 
or she furnishes to them and personally receives the payment from or on 
behalf of the patients. If returned directly or indirectly to the 
provider or an organization related to the provider within the meaning 
of Sec. 413.17 of this chapter, these payments are not compensation for 
physician services furnished to the provider.
    (e) Assumed allocation of all compensation to beneficiary services. 
If the provider and physician agree to accept the assumed allocation of 
all the physician services to direct services to beneficiaries as 
described under Sec. 415.102(a), HCFA does not require a written 
allocation agreement between the physician and the provider.
    (f) Determination and payment of allowable physician compensation 
costs. (1) Except as provided under paragraph (e) of this section, the 
intermediary pays the provider for these costs only if--
    (i) The provider submits to the intermediary a written allocation 
agreement between the provider and the physician that specifies the 
respective amounts of time the physician spends in furnishing physician 
services to the provider, physician services to patients, and services 
that are not payable under either Part A or Part B of Medicare; and
    (ii) The compensation is reasonable in terms of the time devoted to 
these services.
    (2) In the absence of a written allocation agreement, the 
intermediary assumes, for purposes of determining reasonable costs of 
the provider, that 100 percent of the physician compensation cost is 
allocated to services to beneficiaries as specified in paragraph (b)(2) 
of this section.
    (g) Recordkeeping requirements. Except for services furnished in 
accordance with the assumed allocation under paragraph (e) of this 
section, each provider that claims payment for services of physicians 
under this subpart must meet all of the following requirements:
    (1) Maintain the time records or other information it used to 
allocate physician compensation in a form that permits the information 
to be validated by the intermediary or the carrier.
    (2) Report the information on which the physician compensation 
allocation is based to the intermediary or the carrier on an annual 
basis and promptly notify the intermediary or carrier of any revisions 
to the compensation allocation.
    (3) Retain each physician compensation allocation, and the 
information on which it is based, for at least 4 years after the end of 
each cost reporting period to which the allocation applies.



Sec. 415.70  Limits on compensation for physician services in providers.

    (a) Principle and scope. (1) Except as provided in paragraphs (a)(2) 
and (a)(3) of this section, HCFA establishes reasonable compensation 
equivalency limits on the amount of compensation paid to physicians by 
providers. These limits are applied to a provider's costs incurred in 
compensating physicians for services to the provider, as described in 
Sec. 415.55(a).
    (2) Limits established under this section do not apply to costs of 
physician compensation attributable to furnishing inpatient hospital 
services that are paid for under the prospective payment system 
implemented under part 412 of this chapter or to costs of physician 
compensation attributable to approved GME programs that are payable 
under Sec. 413.86 of this chapter.
    (3) Compensation that a physician receives for activities that may 
not be paid for under either Part A or Part B

[[Page 509]]

of Medicare is not considered in applying these limits.
    (b) Methodology for establishing limits. HCFA establishes a 
methodology for determining annual reasonable compensation equivalency 
limits and, to the extent possible, considers average physician incomes 
by specialty and type of location using the best available data.
    (c) Application of limits. If the level of compensation exceeds the 
limits established under paragraph (b) of this section, Medicare payment 
is based on the level established by the limits.
    (d) Adjustment of the limits. The intermediary may adjust limits 
established under paragraph (b) of this section to account for costs 
incurred by the physician or the provider related to malpractice 
insurance, professional memberships, and continuing medical education.
    (1) For the costs of membership in professional societies and 
continuing medical education, the intermediary may adjust the limit by 
the lesser of--
    (i) The actual cost incurred by the provider or the physician for 
these activities; or
    (ii) Five percent of the appropriate limit.
    (2) For the cost of malpractice expenses incurred by either the 
provider or the physician, the intermediary may adjust the reasonable 
compensation equivalency limit by the cost of the malpractice insurance 
expense related to the physician service furnished to patients in 
providers.
    (e) Exception to limits. An intermediary may grant a provider an 
exception to the limits established under paragraph (b) of this section 
only if the provider can demonstrate to the intermediary that it is 
unable to recruit or maintain an adequate number of physicians at a 
compensation level within these limits.
    (f) Notification of changes in methodologies and payment limits. (1) 
Before the start of a cost reporting period to which limits established 
under this section will be applied, HCFA publishes a notice in the 
Federal Register that sets forth the amount of the limits and explains 
how it calculated the limits.
    (2) If HCFA proposes to revise the methodology for establishing 
payment limits under this section, HCFA publishes a notice, with 
opportunity for public comment, in the Federal Register. The notice 
explains the proposed basis and methodology for setting limits, 
specifies the limits that would result, and states the date of 
implementation of the limits.
    (3) If HCFA updates limits by applying the most recent economic 
index data without revising the limit methodology, HCFA publishes the 
revised limits in a notice in the Federal Register without prior 
publication of a proposal or public comment period.



      Subpart C--Part B Carrier Payments for Physician Services to 
                       Beneficiaries in Providers



Sec. 415.100  Scope.

    This subpart implements section 1887(a)(1)(A) of the Act by 
providing general conditions that must be met in order for services 
furnished by physicians to beneficiaries in providers to be paid for on 
the basis of the physician fee schedule under part 414 of this chapter. 
Section 415.102 sets forth the conditions for fee schedule payment for 
physician services to beneficiaries in providers. Section 415.105 sets 
forth general requirements for determining the amounts of payment for 
services that meet the conditions of this section. Sections 415.120 and 
415.130 set forth additional conditions for payment for physician 
services in the specialties of radiology and pathology (laboratory 
services).



Sec. 415.102  Conditions for fee schedule payment for physician services to beneficiaries in providers.

    (a) General rule. If the physician furnishes services to 
beneficiaries in providers, the carrier pays on a fee schedule basis 
provided the following requirements are met:
    (1) The services are personally furnished for an individual 
beneficiary by a physician.
    (2) The services contribute directly to the diagnosis or treatment 
of an individual beneficiary.
    (3) The services ordinarily require performance by a physician.

[[Page 510]]

    (4) In the case of radiology or laboratory services, the additional 
requirements in Sec. 415.120 or Sec. 415.130, respectively, are met.
    (b) Exception. If a physician furnishes services in a provider that 
do not meet the requirements in paragraph (a) of this section, but are 
related to beneficiary care furnished by the provider, the intermediary 
pays for those services, if otherwise covered. The intermediary follows 
the rules in Secs. 415.55 and 415.60 for payment on the basis of 
reasonable cost or PPS, as appropriate.
    (c) Effect of billing charges for physician services to a provider.
    (1) If a physician furnishes services that may be paid under the 
reasonable cost rules in Sec. 415.55 or Sec. 415.60, and paid by the 
intermediary, or would be paid under those rules except for the PPS 
rules in part 412 of this chapter, and under the payment rules for GME 
established by Sec. 413.86 of this chapter, neither the provider nor the 
physician may seek payment from the carrier, beneficiary, or another 
insurer.
    (2) If a physician furnishes services to an individual beneficiary 
that do not meet the applicable conditions in Secs. 415.120 (concerning 
conditions for payment for radiology services) and 415.130 (concerning 
conditions for payment for physician pathology services), the carrier 
does not pay on a fee schedule basis.
    (3) If the physician, the provider, or another entity bills the 
carrier or the beneficiary or another insurer for physician services 
furnished to the provider, as described in Sec. 415.55(a), HCFA 
considers the provider to which the services are furnished to have 
violated its provider participation agreement, and may terminate that 
agreement. See part 489 of this chapter for rules governing provider 
agreements.
    (d) Effect of physician assumption of operating costs. If a 
physician or other entity enters into an agreement (such as a lease or 
concession) with a provider, and the physician (or entity) assumes some 
or all of the operating costs of the provider department in which the 
physician furnishes physician services, the following rules apply:
    (1) If the conditions set forth in paragraph (a) of this section are 
met, the carrier pays for the physician services under the physician fee 
schedule in part 414 of this chapter.
    (2) To the extent the provider incurs a cost payable on a reasonable 
cost basis under part 413 of this chapter, the intermediary pays the 
provider on a reasonable cost basis for the costs associated with 
producing these services, including overhead, supplies, equipment costs, 
and services furnished by nonphysician personnel.
    (3) The physician (or other entity) is treated as being related to 
the provider within the meaning of Sec. 413.17 of this chapter 
(concerning cost to related organizations).
    (4) The physician (or other entity) must make its books and records 
available to the provider and the intermediary as necessary to verify 
the nature and extent of the costs of the services furnished by the 
physician (or other entity).



Sec. 415.105  Amounts of payment for physician services to beneficiaries in providers.

    (a) General rule. The carrier determines amounts of payment for 
physician services to beneficiaries in providers in accordance with the 
general rules governing the physician fee schedule payment in part 414 
of this chapter, except as provided in paragraph (b) of this section.
    (b) Application in certain settings--(1) Teaching hospitals. The 
carrier applies the rules in subpart D of this part (concerning 
physician services in teaching settings), in addition to those in this 
section, in determining whether fee schedule payment should be made for 
physician services to individual beneficiaries in a teaching hospital.
    (2) Hospital-based ESRD facilities. The carrier applies 
Secs. 414.310 through 414.314 of this chapter, which set forth 
determination of reasonable charges under the ESRD program, to determine 
the amount of payment for physician services furnished to individual 
beneficiaries in a hospital-based ESRD facility approved under part 405 
subpart U.



Sec. 415.110  Conditions for payment: Anesthesiology services.

    (a) Services furnished directly or concurrently. The carrier pays a 
physician

[[Page 511]]

for anesthesia services furnished to patients in a provider on a fee 
schedule basis only if the services meet the conditions in 
Sec. 415.102(a) and the following additional conditions:
    (1) For each patient, the physician--
    (i) Performs a pre-anesthetic examination and evaluation;
    (ii) Prescribes the anesthesia plan;
    (iii) Personally participates in the most demanding procedures in 
the anesthesia plan, including induction and emergence;
    (iv) Ensures that any procedures in the anesthesia plan that he or 
she does not perform are performed by a qualified individual as defined 
in program operating instructions;
    (v) Monitors the course of anesthesia administration at frequent 
intervals;
    (vi) Remains physically present and available for immediate 
diagnosis and treatment of emergencies; and
    (vii) Provides indicated post-anesthesia care.
    (2) The physician performs the procedure personally or directs no 
more than four anesthesia procedures concurrently and does not perform 
any other services while he or she is directing the concurrent 
procedures.
    (b) Supervision of more than four procedures concurrently. If a 
physician is involved in furnishing more than four procedures 
concurrently, or is performing other services while directing the 
concurrent procedures, the concurrent anesthesia services are physician 
services to the provider in which the procedures are performed. In these 
cases, the physician is not required to meet the criteria of paragraphs 
(a)(1) (iii) and (vii) of this section personally, but must ensure that 
a qualified individual performs any procedure in which the physician 
does not personally participate. In these cases, the intermediary pays 
for the services under the rules in Secs. 415.55 and 415.60 on 
reasonable cost payment for physician services to providers or under the 
rules in part 412 of this chapter for payment under the prospective 
payment system.



Sec. 415.120  Conditions for payment: Radiology services.

    (a) Services to beneficiaries. The carrier pays for radiology 
services furnished by a physician to a beneficiary on a fee schedule 
basis only if the services meet the conditions for fee schedule payment 
in Sec. 415.102(a) and are identifiable, direct, and discrete diagnostic 
or therapeutic services furnished to an individual beneficiary, such as 
interpretation of x-ray plates, angiograms, myelograms, pyelograms, or 
ultrasound procedures. The carrier pays for interpretations only if 
there is a written report prepared for inclusion in the patient's 
medical record maintained by the hospital.
    (b) Services to providers. The carrier does not pay on a fee 
schedule basis for physician services to the provider (for example, 
administrative or supervisory services) or for provider services needed 
to produce the x-ray films or other items that are interpreted by the 
radiologist. However, the intermediary pays the provider for these 
services in accordance with Sec. 415.55 for provider costs; 
Sec. 415.102(d)(2) for costs incurred by a physician, such as under a 
lease or concession agreement; or part 412 of this chapter for payment 
under PPS.



Sec. 415.130  Conditions for payment: Physician pathology services.

    (a) Physician pathology services. The carrier pays for pathology 
services furnished by a physician to an individual beneficiary on a fee 
schedule basis only if the services meet the conditions for payment in 
Sec. 415.102(a) and are one of the following services:
    (1) Surgical pathology services.
    (2) Specific cytopathology, hematology, and blood banking services 
that have been identified to require performance by a physician and are 
listed in program operating instructions.
    (3) Clinical consultation services that meet the requirements in 
paragraph (b) of this section.
    (4) Clinical laboratory interpretative services that meet the 
requirements of paragraphs (b)(1), (b)(3), and (b)(4) of this section 
and that are specifically listed in program operating instructions.
    (b) Clinical consultation services. For purposes of this section, 
clinical consultation services must meet the following requirements:
    (1) Be requested by the beneficiary's attending physician.

[[Page 512]]

    (2) Relate to a test result that lies outside the clinically 
significant normal or expected range in view of the condition of the 
beneficiary.
    (3) Result in a written narrative report included in the 
beneficiary's medical record.
    (4) Require the exercise of medical judgment by the consultant 
physician.
    (c) Physician pathology services furnished by an independent 
laboratory. Laboratory services, including the technical component of a 
service, furnished to a hospital inpatient or outpatient by an 
independent laboratory are paid on a fee schedule basis under this 
subpart only if they are physician pathology services as described in 
paragraph (a) of this section.



           Subpart D--Physician Services in Teaching Settings



Sec. 415.150  Scope.

    This subpart sets forth the rules governing payment for the services 
of physicians in teaching settings and the criteria for determining 
whether the payments are made as one of the following:
    (a) Services to the hospital under the reasonable cost election in 
Secs. 415.160 through 415.164.
    (b) Provider services through the direct GME payment mechanism in 
Sec. 413.86 of this chapter.
    (c) Physician services to beneficiaries under the physician fee 
schedule as set forth in part 414 of this chapter.



Sec. 415.152  Definitions.

    As used in this subpart--
    Approved graduate medical education (GME) program means one of the 
following:
    (1) A residency program approved by the Accreditation Council for 
Graduate Medical Education of the American Medical Association, by the 
Committee on Hospitals of the Bureau of Professional Education of the 
American Osteopathic Association, by the Commission on Dental 
Accreditation of the American Dental Association, or by the Council on 
Podiatric Medicine Education of the American Podiatric Medical 
Association.
    (2) A program otherwise recognized as an ``approved medical 
residency program'' under Sec. 413.86(b) of this chapter.
    Direct medical and surgical services means services to individual 
beneficiaries that are either personally furnished by a physician or 
furnished by a resident under the supervision of a physician in a 
teaching hospital making the cost election described in Secs. 415.160 
through 415.162.
    Nonprovider setting means a setting other than a hospital, skilled 
nursing facility, home health agency, or comprehensive outpatient 
rehabilitation facility in which residents furnish services. These 
include, but are not limited to, family practice or multispecialty 
clinics and physician offices.
    Resident means one of the following:
    (1) An individual who participates in an approved GME program, 
including programs in osteopathy, dentistry, and podiatry.
    (2) A physician who is not in an approved GME program, but who is 
authorized to practice only in a hospital, for example, individuals with 
temporary or restricted licenses, or unlicensed graduates of foreign 
medical schools. For purposes of this subpart, the term resident is 
synonymous with the terms intern and fellow.
    Teaching hospital means a hospital engaged in an approved GME 
residency program in medicine, osteopathy, dentistry, or podiatry.
    Teaching physician means a physician (other than another resident) 
who involves residents in the care of his or her patients.
    Teaching setting means any provider, hospital-based provider, or 
nonprovider settings in which Medicare payment for the services of 
residents is made under the direct GME payment provisions of 
Sec. 413.86, or on a reasonable-cost basis under the provisions of 
Sec. 409.26 or Sec. 409.40(f) for resident services furnished in skilled 
nursing facilities or home health agencies, respectively.

[60 FR 63178, Dec. 8, 1995, as amended at 61 FR 59554, Nov. 22, 1996; 63 
FR 26359, May 12, 1998]

[[Page 513]]



Sec. 415.160  Election of reasonable cost payment for direct medical and surgical services of physicians in teaching hospitals: General provisions.

    (a) Scope. A teaching hospital may elect to receive payment on a 
reasonable cost basis for the direct medical and surgical services of 
its physicians in lieu of fee schedule payments that might otherwise be 
made for these services.
    (b) Conditions. A teaching hospital may elect to receive these 
payments only if--
    (1) The hospital notifies its intermediary in writing of the 
election and meets the conditions of either paragraph (b)(2) or 
paragraph (b)(3) of this section;
    (2) All physicians who furnish services to Medicare beneficiaries in 
the hospital agree not to bill charges for these services; or
    (3) All physicians who furnish services to Medicare beneficiaries in 
the hospital are employees of the hospital and, as a condition of 
employment, are precluded from billing for these services.
    (c) Effect of election. If a teaching hospital elects to receive 
reasonable cost payment for physician direct medical and surgical 
services furnished to beneficiaries--
    (1) Those services and the supervision of interns and residents 
furnishing care to individual beneficiaries are covered as hospital 
services, and
    (2) The intermediary pays the hospital for those services on a 
reasonable cost basis under the rules in Sec. 415.162. (Payment for 
other physician compensation costs related to approved GME programs is 
made as described in Sec. 413.86 of this chapter.)
    (d) Election declined. If the teaching hospital does not make this 
election, payment is made--
    (1) For physician services furnished to beneficiaries on a fee 
schedule basis as described in part 414 subject to the rules in this 
subpart, and
    (2) For the supervision of interns and residents as described in 
Sec. 413.86.



Sec. 415.162  Determining payment for physician services furnished to beneficiaries in teaching hospitals.

    (a) General rule. Payments for direct medical and surgical services 
of physicians furnished to beneficiaries and supervision of interns and 
residents furnishing care to beneficiaries is made by Medicare on the 
basis of reasonable cost if the hospital exercises the election as 
provided for in Sec. 415.160. If this election is made, the following 
occurs:
    (1) Physician services furnished to beneficiaries and supervision of 
interns and residents furnishing care to beneficiaries are paid on a 
reasonable-cost basis, as provided for in paragraph (b) of this section.
    (2) Payment for certain medical school costs may be made as provided 
for in paragraph (c) of this section.
    (3) Payments for services donated by volunteer physicians to 
beneficiaries are made to a fund designated by the organized medical 
staff of the teaching hospital or medical school as provided for in 
paragraph (d) of this section.
    (b) Reasonable cost of physician services and supervision of interns 
and residents.
    (1) Physician services furnished to beneficiaries and supervision of 
interns and residents furnishing care to beneficiaries in a teaching 
hospital are payable as provider services on a reasonable-cost basis.
    (2) For purposes of this paragraph, reasonable cost is defined as 
the direct salary paid to these physicians, plus applicable fringe 
benefits.
    (3) The costs must be allocated to the services as provided by 
paragraph (j) of this section and apportioned to program beneficiaries 
as provided by paragraph (g) of this section.
    (4) Other allowable costs incurred by the provider related to the 
services described in this paragraph are payable subject to the 
requirements applicable to all other provider services.
    (c) Reasonable costs for the services furnished by a medical school 
or related organization in a hospital. An amount is payable to the 
hospital by HCFA under the Medicare program provided that the costs 
would be payable if incurred directly by the hospital rather than under 
the arrangement. The amount must not be in excess of the reasonable

[[Page 514]]

costs (as defined in paragraphs (c)(1) and (c)(2) of this section) 
incurred by a teaching hospital for services furnished by a medical 
school or organization as described in Sec. 413.17 of this chapter for 
certain costs to the medical school (or a related organization) in 
furnishing services in the hospital.
    (1) Reasonable costs of physician services.
    (i) When the medical school and the hospital are related 
organizations. If the medical school (or organization related to the 
medical school) and the hospital are related by common ownership or 
control as described in Sec. 413.17 of this chapter--
    (A) The costs of these services are allowable costs to the hospital 
under the provisions of Sec. 413.17 of this chapter; and
    (B) The reimbursable costs to the hospital are determined under the 
provisions of this section in the same manner as the costs incurred for 
physicians on the hospital staff and without regard to payments made to 
the medical school by the hospital.
    (ii) When the medical school and the hospital are not related 
organizations.
    (A) If the medical school and the hospital are not related 
organizations under the provisions of Sec. 413.17 of this chapter and 
the hospital makes payment to the medical school for the costs of those 
services furnished to all patients, payment is made by Medicare to the 
hospital for the reasonable cost incurred by the hospital for its 
payments to the medical school for services furnished to beneficiaries.
    (B) Costs incurred under an arrangement must be allocated to the 
full range of services furnished to the hospital by the medical school 
physicians on the same basis as provided for under paragraph (j) of this 
section, and costs allocated to direct medical and surgical services 
furnished to hospital patients must be apportioned to beneficiaries as 
provided for under paragraph (g) of this section.
    (C) If the medical school and the hospital are not related 
organizations under the provisions of Sec. 413.17 of this chapter and 
the hospital makes payment to the medical school only for the costs of 
those services furnished to beneficiaries, costs of the medical school 
not to exceed 105 percent of the sum of physician direct salaries, 
applicable fringe benefits, employer's portion of FICA taxes, Federal 
and State unemployment taxes, and workmen's compensation paid by the 
medical school or an organization related to the medical school may be 
recognized as allowable costs of the medical school.
    (D) These allowable medical school costs must be allocated to the 
full range of services furnished by the physicians of the medical school 
or organization related as provided by paragraph (j) of this section.
    (E) Costs allocated to direct medical and surgical services 
furnished to hospital patients must be apportioned to beneficiaries as 
provided by paragraph (g) of this section.
    (2) Reasonable costs of other than direct medical and surgical 
services. These costs are determined in accordance with paragraph (c)(1) 
of this section except that--
    (i) If the hospital makes payment to the medical school for other 
than direct medical and surgical services furnished to beneficiaries and 
supervision of interns and residents furnishing care to beneficiaries, 
these payments are subject to the required cost-finding and 
apportionment methods applicable to the cost of other hospital services 
(except for direct medical and surgical services furnished to 
beneficiaries); or
    (ii) If the hospital makes payment to the medical school only for 
these services furnished to beneficiaries, the cost of these services is 
not subject to cost-finding and apportionment as otherwise provided by 
this subpart, and the reasonable cost paid by Medicare must be 
determined on the basis of the health insurance ratio(s) used in the 
apportionment of all other provider costs (excluding physician direct 
medical and surgical services furnished to beneficiaries) applied to the 
allowable medical school costs incurred by the medical school for the 
services furnished to all patients of the hospital.
    (d) ``Salary equivalent'' payments for direct medical and surgical 
services furnished by physicians on the voluntary staff of the hospital.
    (1) HCFA makes payments under the Medicare program to a fund as 
defined

[[Page 515]]

in Sec. 415.164 for direct medical and surgical services furnished to 
beneficiaries on a regularly scheduled basis by physicians on the unpaid 
voluntary medical staff of the hospital (or medical school under 
arrangement with the hospital).
    (i) These payments represent compensation for contributed medical 
staff time which, if not contributed, would have to be obtained through 
employed staff on a payable basis.
    (ii) Payments for volunteer services are determined by applying to 
the regularly scheduled contributed time an hourly rate not to exceed 
the equivalent of the average direct salary (exclusive of fringe 
benefits) paid to all full-time, salaried physicians (other than interns 
and residents) on the hospital staff or, if the number of full-time 
salaried physicians is minimal in absolute terms or in relation to the 
number of physicians on the voluntary staff, to physicians at like 
institutions in the area.
    (iii) This ``salary equivalent'' is a single hourly rate covering 
all physicians regardless of specialty and is applied to the actual 
regularly scheduled time contributed by the physicians in furnishing 
direct medical and surgical services to beneficiaries including 
supervision of interns and residents in that care.
    (iv) A physician who receives any compensation from the hospital or 
a medical school related to the hospital by common ownership or control 
(within the meaning of Sec. 413.17 of this chapter) for direct medical 
and surgical services furnished to any patient in the hospital is not 
considered an unpaid voluntary physician for purposes of this paragraph.
    (v) If, however, a physician receives compensation from the hospital 
or related medical school or organization only for services that are 
other than direct medical and surgical services, a salary equivalent 
payment for the physician's regularly scheduled direct medical and 
surgical services to beneficiaries in the hospital may be imputed. 
However, the sum of the imputed value for volunteer services and the 
physician's actual compensation from the hospital and the related 
medical school (or organization) may not exceed the amount that would 
have been imputed if all of the physician's hospital and medical school 
services (compensated and volunteer) had been volunteer services, or 
paid at the rate of $30,000 per year, whichever is less.
    (2) The following examples illustrate how the allowable imputed 
value for volunteer services is determined. In each example, it has been 
assumed that the average salary equivalent hourly rate is equal to the 
hourly rate for the individual physician's compensated services.

    Example No: 1. Dr. Jones received $3,000 a year from Hospital X for 
services other than direct medical services to all patients, for 
example, utilization review and administrative services. Dr. Jones also 
voluntarily furnished direct medical services to beneficiaries. The 
imputed value of the volunteer services amounted to $10,000 for the cost 
reporting period. The full imputed value of Dr. Jones' volunteer direct 
medical services would be allowed since the total amount of the imputed 
value ($10,000) and the compensated services ($3,000) does not exceed 
$30,000.
    Example No: 2. Dr. Smith received $25,000 from Hospital X for 
services as a department head in a teaching hospital. Dr. Smith also 
voluntarily furnished direct medical services to beneficiaries. The 
imputed value of the volunteer services amounted to $10,000. Only $5,000 
of the imputed value of volunteer services would be allowed since the 
total amount of the imputed value ($10,000) and the compensated services 
($25,000) exceeds the $30,000 maximum amount allowable for all of Dr. 
Smith's services.

                              Computation:

Maximum amount allowable for all services performed by Dr.       $30,000
 Smith for purposes of this computation......................
Less compensation received from Hospital X for other than        $25,000
 direct medical services to individual patients..............
Allowable amount of imputed value for the volunteer services      $5,000
 furnished by Dr. Smith......................................
 

    Example No. 3. Dr. Brown is not compensated by Hospital X for any 
services furnished in the hospital. Dr. Brown voluntarily furnished 
direct surgical services to beneficiaries for a period of 6 months, and 
the imputed value of these services amounted to $20,000. The allowable 
amount of the imputed value for volunteer services furnished by Dr.

[[Page 516]]

Brown would be limited to $15,000 ($30,000 x 6/12).

    (3) The amount of the imputed value for volunteer services 
applicable to beneficiaries and payable to a fund is determined in 
accordance with the aggregate per diem method described in paragraph (g) 
of this section.
    (4) Medicare payments to a fund must be used by the fund solely for 
improvement of care of hospital patients or for educational or 
charitable purposes (which may include but are not limited to medical 
and other scientific research).
    (i) No personal financial gain, either direct or indirect, from 
benefits of the fund may inure to any of the hospital staff physicians, 
medical school faculty, or physicians for whom Medicare imputes costs 
for purposes of payment into the fund.
    (ii) Expenses met from contributions made to the hospital from a 
fund are not included as a reimbursable cost when expended by the 
hospital, and depreciation expense is not allowed with respect to 
equipment or facilities donated to the hospital by a fund or purchased 
by the hospital from monies in a fund.
    (e) Requirements for payment--(1) Physicians on the hospital staff. 
The requirements under which the costs of physician direct medical and 
surgical services (including supervision of interns and residents) to 
beneficiaries are the same as those applicable to the cost of all other 
covered provider services except that the costs of these services are 
separately determined as provided by this section and are not subject to 
cost-finding as described in Sec. 413.24 of this chapter.
    (2) Physicians on the medical school faculty. Payment is made to a 
hospital for the costs of services of physicians on the medical school 
faculty, provided that if the medical school is not related to the 
hospital (within the meaning of Sec. 413.17 of this chapter, concerning 
cost to related organizations), the hospital does not make payment to 
the medical school for services furnished to all patients and the 
following requirements are met: If the hospital makes payment to the 
medical school for services furnished to all patients, these 
requirements do not apply. (See paragraph (c)(1)(ii) of this section.)
    (i) There is a written agreement between the hospital and the 
medical school or organization, specifying the types and extent of 
services to be furnished by the medical school and specifying that the 
hospital must pay to the medical school an amount at least equal to the 
reasonable cost (as defined in paragraph (c) of this section) of 
furnishing the services to beneficiaries.
    (ii) The costs are paid to the medical school by the hospital no 
later than the date on which the cost report covering the period in 
which the services were furnished is due to HCFA.
    (iii) Payment for the services furnished under an arrangement would 
have been made to the hospital had the services been furnished directly 
by the hospital.
    (3) Physicians on the voluntary staff of the hospital (or medical 
school under arrangement with the hospital). If the conditions for 
payment to a fund outlined in Sec. 415.164 are met, payments are made on 
a ``salary equivalent'' basis (as defined in paragraph (d) of this 
section) to a fund.
    (f) Requirements for payment for medical school faculty services 
other than physician direct medical and surgical services. If the 
requirements for payment for physician direct medical and surgical 
services furnished to beneficiaries in a teaching hospital described in 
paragraph (e) of this section are met, payment is made to a hospital for 
the costs of medical school faculty services other than physician direct 
medical and surgical services furnished in a teaching hospital.
    (g) Aggregate per diem methods of apportionment--(1) For the costs 
of physician direct medical and surgical services. The cost of physician 
direct medical and surgical services furnished in a teaching hospital to 
beneficiaries is determined on the basis of an average cost per diem as 
defined in paragraph (h)(1) of this section for physician direct medical 
and surgical services to all patients (see Secs. 415.172 through 
415.184) for each of the following categories of physicians:
    (i) Physicians on the hospital staff.
    (ii) Physicians on the medical school faculty.

[[Page 517]]

    (2) For the imputed value of physician volunteer direct medical and 
surgical services. The imputed value of physician direct medical and 
surgical services furnished to beneficiaries in a teaching hospital is 
determined on the basis of an average per diem, as defined in paragraph 
(h)(1) of this section, for physician direct medical and surgical 
services to all patients except that the average per diem is derived 
from the imputed value of the physician volunteer direct medical and 
surgical services furnished to all patients.
    (h) Definitions. (1) Average cost per diem for physician direct 
medical and surgical services (including supervision of interns and 
residents) furnished in a teaching hospital to patients in each category 
of physician services described in paragraph (g)(1) of this section 
means the amount computed by dividing total reasonable costs of these 
services in each category by the sum of--
    (i) Inpatient days (as defined in paragraph (h)(2) of this section); 
and
    (ii) Outpatient visit days (as defined in paragraph (h)(3) of this 
section).
    (2) Inpatient days are determined by counting the day of admission 
as 3.5 days and each day after a patient's day of admission, except the 
day of discharge, as 1 day.
    (3) Outpatient visit days are determined by counting only one visit 
day for each calendar day that a patient visits an outpatient department 
or multiple outpatient departments.
    (i) Application. (1) The following illustrates how apportionment 
based on the aggregate per diem method for costs of physician direct 
medical and surgical services furnished in a teaching hospital to 
patients is determined.

                           Teaching Hospital Y

                     Statistical and financial data:

Total inpatient days as defined in paragraph (h)(2) of this       75,000
 section and outpatient visit days as defined in paragraph
 (h)(3) of this section....................................
Total inpatient Part A days................................       20,000
Total inpatient Part B days where Part A coverage is not           1,000
 available.................................................
Total outpatient Part B visit days.........................        5,000
Total cost of direct medical and surgical services            $1,500,000
 furnished to all patients by physicians on the hospital
 staff as determined in accordance with paragraph (i) of
 this section..............................................
Total cost of direct medical and surgical services            $1,650,000
 furnished to all patients by physicians on the medical
 school faculty as determined in accordance with paragraph
 (i) of this section.......................................
 


    Computation of cost applicable to program for physicians on the 
hospital staff:
    Average cost per diem for direct medical and surgical services to 
patients by physicians on the hospital staff: $1,500,000  75,000 
= $20 per diem.

Cost of physician direct medical and surgical services          $400,000
 furnished to inpatient beneficiaries covered under Part A:
 $20 per diem  x  20,000...................................
Cost of physician direct medical and surgical services           $20,000
 furnished to inpatient beneficiaries covered under Part B:
 $20 per diem  x  1,000....................................
Cost of physician direct medical and surgical services          $100,000
 furnished to outpatient beneficiaries covered under Part
 B: $20 per diem  x  5,000.................................
 

    Computation of cost applicable to program for physicians on the 
medical school faculty:
    Average cost per diem for direct medical and surgical services to 
patients by physicians on the medical school faculty: $1,650,000 
 75,000 = $22 per diem.

Cost of physician direct medical and surgical services          $440,000
 furnished to inpatient beneficiaries covered under Part A:
 $22 per diem  x  20,000...................................

[[Page 518]]

 
Cost of physician direct medical and surgical services           $22,000
 furnished to inpatient beneficiaries covered under Part B:
 $20 per diem  x  1,000....................................
Cost of physician direct medical and surgical services          $110,000
 furnished to outpatient beneficiaries covered under Part
 B: $22 per diem  x  5,000.................................
 

    (2) The following illustrates how the imputed value of physician 
volunteer direct medical and surgical services furnished in a teaching 
hospital to beneficiaries is determined.
    Example: The physicians on the medical staff of Teaching Hospital Y 
donated a total of 5,000 hours in furnishing direct medical and surgical 
services to patients of the hospital during a cost reporting period and 
did not receive any compensation from either the hospital or the medical 
school. Also, the imputed value for any physician volunteer services did 
not exceed the rate of $30,000 per year per physician.

                     Statistical and financial data:

Total salaries paid to the full-time salaried physicians by     $800,000
 the hospital (excluding interns and residents)............
Total physicians who were paid for an average of 40 hours             20
 per week or 2,080 (52 weeks x 40 hours per week) hours per
 year......................................................
Average hourly rate equivalent: $800,000  41,600          $19.23
 (2,080  x  20)............................................
 

    Computation of total imputed value of physician volunteer services 
applicable to all patients:

(Total donated hours  x  average hourly rate equivalent):        $96,150
 5,000  x  $19.23..........................................
Total inpatient days (as defined in paragraph (h)(2) of           75,000
 this section) and outpatient visit days (as defined in
 paragraph (h)(3) of this section).........................
Total inpatient Part A days................................       20,000
Total inpatient Part B days if Part A coverage is not              1,000
 available.................................................
Total outpatient Part B visit days.........................        5,000
 

    Computation of imputed value of physician volunteer direct medical 
and surgical services furnished to Medicare beneficiaries:
    Average per diem for physician direct medical and surgical services 
to all patients: $96,150  75,000 = $1.28 per diem

Imputed value of physician direct medical and surgical           $25,600
 services furnished to inpatient beneficiaries covered
 under Part A: $1.28 per diem  x  20,000...................
Imputed value of physician direct medical and surgical            $1,280
 services furnished to inpatient beneficiaries covered
 under Part B: $1.28 per diem  x  1,000....................
Imputed value of physician direct medical and surgical            $6,400
 services furnished to outpatient beneficiaries covered
 under Part B: $1.28 per diem  x  5,000....................
Total......................................................      $33,280
 


    (j) Allocation of compensation paid to physicians in a teaching 
hospital.
    (1) In determining reasonable cost under this section, the 
compensation paid by a teaching hospital, or a medical school or related 
organization under arrangement with the hospital, to physicians in a 
teaching hospital must be allocated to the full range of services 
implicit in the physician compensation arrangements. (However, see 
paragraph (d) of this section for the computation of the ``salary 
equivalent'' payments for volunteer services furnished to patients.)
    (2) This allocation must be made and must be capable of 
substantiation on the basis of the proportion of each physician's time 
spent in furnishing each type of service to the hospital or medical 
school.



Sec. 415.164  Payment to a fund.

    (a) General rules. Payment for certain voluntary services by 
physicians in teaching hospitals (as these services are described in 
Sec. 415.160) is made on a salary equivalent basis (as described in 
Sec. 415.162(d)) subject to the conditions and limitations contained in 
parts 405 and 413 of this chapter and this part 415, to a single fund 
(as defined in paragraph (b) of this section) designated by

[[Page 519]]

the organized medical staff of the hospital (or, if the services are 
furnished in the hospital by the faculty of a medical school, to a fund 
as may be designated by the faculty), if the following conditions are 
met:
    (1) The hospital (or medical school furnishing the services under 
arrangement with the hospital) incurs no actual cost in furnishing the 
services.
    (2) The hospital has an agreement with HCFA under part 489 of this 
chapter.
    (3) The intermediary, or HCFA as appropriate, has received written 
assurances that--
    (i) The payment is used solely for the improvement of care of 
hospital patients or for educational or charitable purposes; and
    (ii) Neither the individuals who are furnished the services nor any 
other persons are charged for the services (and if charged, provision is 
made for the return of any monies incorrectly collected).
    (b) Definition of a fund. For purposes of paragraph (a) of this 
section, a fund is an organization that meets either of the following 
requirements:
    (1) The organization has and retains exemption, as a governmental 
entity or under section 501(c)(3) of the Internal Revenue Code 
(nonprofit educational, charitable, and similar organizations), from 
Federal taxation.
    (2) The organization is an organization of physicians who, under the 
terms of their employment by an entity that meets the requirements of 
paragraph (b)(1) of this section, are required to turn over to that 
entity all income that the physician organization derives from the 
physician services.
    (c) Status of a fund. A fund approved for payment under paragraph 
(a) of this section has all the rights and responsibilities of a 
provider under Medicare except that it does not enter into an agreement 
with HCFA under part 489 of this chapter.



Sec. 415.170  Conditions for payment on a fee schedule basis for physician services in a teaching setting.

    Services meeting the conditions for payment in Sec. 415.102(a) 
furnished in teaching settings are payable under the physician fee 
schedule if--
    (a) The services are personally furnished by a physician who is not 
a resident; or
    (b) The services are furnished by a resident in the presence of a 
teaching physician except as provided in Sec. 415.172 (concerning 
physician fee schedule payment for services of teaching physicians), 
Sec. 415.174 (concerning an exception for services furnished in hospital 
outpatient and certain other ambulatory settings), Sec. 415.176 
(concerning renal dialysis services), and Sec. 415.184 (concerning 
psychiatric services), as applicable.



Sec. 415.172  Physician fee schedule payment for services of teaching physicians.

    (a) General rule. If a resident participates in a service furnished 
in a teaching setting, physician fee schedule payment is made only if a 
teaching physician is present during the key portion of any service or 
procedure for which payment is sought.
    (1) In the case of surgical, high-risk, or other complex procedures, 
the teaching physician must be present during all critical portions of 
the procedure and immediately available to furnish services during the 
entire service or procedure.
    (i) In the case of surgery, the teaching physician's presence is not 
required during opening and closing of the surgical field.
    (ii) In the case of procedures performed through an endoscope, the 
teaching physician must be present during the entire viewing.
    (2) In the case of evaluation and management services, the teaching 
physician must be present during the portion of the service that 
determines the level of service billed. (However, in the case of 
evaluation and management services furnished in hospital outpatient 
departments and certain other ambulatory settings, the requirements of 
Sec. 415.174 apply.)
    (b) Documentation. Except for services furnished as set forth in 
Secs. 415.174 (concerning an exception for services furnished in 
hospital outpatient and certain other ambulatory settings), 415.176 
(concerning renal dialysis services), and 415.184 (concerning 
psychiatric services), the medical records must

[[Page 520]]

document the teaching physician was present at the time the service is 
furnished. The presence of the teaching physician during procedures may 
be demonstrated by the notes in the medical records made by a physician, 
resident, or nurse. In the case of evaluation and management procedures, 
the teaching physician must personally document his or her participation 
in the service in the medical records.
    (c) Payment level. In the case of services such as evaluation and 
management for which there are several levels of service codes available 
for reporting purposes, the appropriate payment level must reflect the 
extent and complexity of the service when fully furnished by the 
teaching physician.



Sec. 415.174  Exception: Evaluation and management services furnished in certain centers.

    (a) In the case of certain evaluation and management codes of lower 
and mid-level complexity (as specified by HCFA in program instructions), 
carriers may make physician fee schedule payment for a service furnished 
by a resident without the presence of a teaching physician. For the 
exception to apply, all of the following conditions must be met:
    (1) The services must be furnished in a center that is located in an 
outpatient department of a hospital or another ambulatory care entity in 
which the time spent by residents in patient care activities is included 
in determining intermediary payments to a hospital under Sec. 413.86.
    (2) Any resident furnishing the service without the presence of a 
teaching physician must have completed more than 6 months of an approved 
residency program.
    (3) The teaching physician must not direct the care of more than 
four residents at any given time and must direct the care from such 
proximity as to constitute immediate availability. The teaching 
physician must--
    (i) Have no other responsibilities at the time;
    (ii) Assume management responsibility for those beneficiaries seen 
by the residents;
    (iii) Ensure that the services furnished are appropriate;
    (iv) Review with each resident during or immediately after each 
visit, the beneficiary's medical history, physical examination, 
diagnosis, and record of tests and therapies; and
    (v) Document the extent of the teaching physician's participation in 
the review and direction of the services furnished to each beneficiary.
    (4) The range of services furnished by residents in the center 
includes all of the following:
    (i) Acute care for undifferentiated problems or chronic care for 
ongoing conditions.
    (ii) Coordination of care furnished by other physicians and 
providers.
    (iii) Comprehensive care not limited by organ system, or diagnosis.
    (5) The patients seen must be an identifiable group of individuals 
who consider the center to be the continuing source of their health care 
and in which services are furnished by residents under the medical 
direction of teaching physicians.
    (b) Nothing in paragraph (a) of this section may be construed as 
providing a basis for the coverage of services not determined to be 
covered under Medicare, such as routine physical checkups.

[60 FR 63178, Dec. 8, 1995, as amended at 61 FR 59554, Nov. 22, 1996]



Sec. 415.176  Renal dialysis services.

    In the case of renal dialysis services, physicians who are not paid 
under the physician monthly capitation payment method (as described in 
Sec. 414.314 of this chapter) must meet the requirements of 
Secs. 415.170 and 415.172 (concerning physician fee schedule payment for 
services of teaching physicians).



Sec. 415.178  Anesthesia services.

    (a) General rule. An unreduced physician fee schedule payment may be 
made if a physician is involved in a single anesthesia procedure 
involving an anesthesia resident. In the case of anesthesia services, 
the teaching physician must be present during all critical portions of 
the procedure and immediately available to furnish services during the 
entire service or procedure. The teaching physician cannot receive an 
unreduced fee if he or she performs

[[Page 521]]

services involving other patients during the period the anesthesia 
resident is furnishing services in a single case. For additional rules 
for payment of anesthesia services involving residents, see 
Sec. 414.46(c)(1)(iii)).
    (b) Documentation. Documentation must indicate the physician's 
presence or participation in the administration of the anesthesia.

[60 FR 63178, Dec. 8, 1995; 61 FR 42385, Aug. 15, 1996]



Sec. 415.180  Teaching setting requirements for the interpretation of diagnostic radiology and other diagnostic tests.

    (a) General rule. Physician fee schedule payment is made for the 
interpretation of diagnostic radiology and other diagnostic tests if the 
interpretation is performed or reviewed by a physician other than a 
resident.
    (b) Documentation. Documentation must indicate that the physician 
personally performed the interpretation or reviewed the resident's 
interpretation with the resident.



Sec. 415.184  Psychiatric services.

    To qualify for physician fee schedule payment for psychiatric 
services furnished under an approved GME program, the physician must 
meet the requirements of Secs. 415.170 and 415.172, including 
documentation, except that the requirement for the presence of the 
teaching physician during the service in which a resident is involved 
may be met by observation of the service by use of a one-way mirror, 
video equipment, or similar device.



Sec. 415.190  Conditions of payment: Assistants at surgery in teaching hospitals.

    (a) Basis, purpose, and scope. This section describes the conditions 
under which Medicare pays on a fee schedule basis for the services of an 
assistant at surgery in a teaching hospital. This section is based on 
section 1842(b)(7)(D)(I) of the Act and applies only to hospitals with 
an approved GME residency program. Except as specified in paragraph (c) 
of this section, fee schedule payment is not available for assistants at 
surgery in hospitals with--
    (1) A training program relating to the medical specialty required 
for the surgical procedure; and
    (2) A resident in a training program relating to the specialty 
required for the surgery available to serve as an assistant at surgery.
    (b) Definition. Assistant at surgery means a physician who actively 
assists the physician in charge of a case in performing a surgical 
procedure.
    (c) Conditions for payment for assistants at surgery. Payment on a 
fee schedule basis is made for the services of an assistant at surgery 
in a teaching hospital only if the services meet one of the following 
conditions:
    (1) Are required as a result of exceptional medical circumstances.
    (2) Are complex medical procedures performed by a team of 
physicians, each performing a discrete, unique function integral to the 
performance of a complex medical procedure that requires the special 
skills of more than one physician.
    (3) Constitute concurrent medical care relating to a medical 
condition that requires the presence of, and active care by, a physician 
of another specialty during surgery.
    (4) Are medically required and are furnished by a physician who is 
primarily engaged in the field of surgery, and the primary surgeon does 
not use interns and residents in the surgical procedures that the 
surgeon performs (including preoperative and postoperative care).
    (5) Are not related to a surgical procedure for which HCFA 
determines that assistants are used less than 5 percent of the time.



                    Subpart E--Services of Residents



Sec. 415.200  Services of residents in approved GME programs.

    (a) General rules. Services furnished in hospitals by residents in 
approved GME programs are specifically excluded from being paid as 
``physician services'' defined in Sec. 414.2 of this chapter and are 
payable as hospital services. This exclusion applies whether or not the 
resident is licensed to practice under the laws of the State in which he

[[Page 522]]

or she performs the service. The payment methodology for services of 
residents in hospitals and hospital-based providers is set forth in 
Sec. 413.86 of this chapter.
    (b) Exception. For low and mid-level evaluation and management 
services furnished under certain conditions in centers located in 
hospital outpatient departments and other ambulatory settings, see 
Sec. 415.174.
    (c) Definitions. See Sec. 415.152 for definitions of terms used in 
this subpart E.



Sec. 415.202  Services of residents not in approved GME programs.

    (a) General rules. For services of a physician employed by a 
hospital who is authorized to practice only in a hospital setting and 
for the services of a resident who is not in any approved GME program, 
payment is made to the hospital on a Part B reasonable cost basis 
regardless of whether the services are furnished to hospital inpatients 
or outpatients.
    (b) Payment. For services described in paragraph (a) of this 
section, payment is made under Part B by reducing the reasonable costs 
of furnishing the services by the beneficiary deductible and paying 80 
percent of the remaining amount. No payment is made for other costs of 
unapproved programs, such as administrative costs related to teaching 
activities of physicians.



Sec. 415.204  Services of residents in skilled nursing facilities and home health agencies.

    (a) Medicare Part A payment. Payment is made under Medicare Part A 
for interns' and residents' services furnished in the following settings 
that meet the specified requirements:
    (1) Skilled nursing facility. Payment to a participating skilled 
nursing facility may include the cost of services of an intern or 
resident who is in an approved GME program in a hospital with which the 
skilled nursing facility has a transfer agreement that provides, in 
part, for the transfer of patients and the interchange of medical 
records.
    (2) Home health agency. A participating home health agency may 
receive payment for the cost of the services of an intern or resident 
who is under an approved GME program of a hospital with which the home 
health agency is affiliated or under common control if these services 
are furnished as part of the home health visits for a Medicare 
beneficiary. (Nevertheless, see Sec. 413.86 of this chapter for the 
costs of approved GME programs in hospital-based providers.)
    (b) Medicare Part B payment. Medical services of a resident of a 
hospital that are furnished by a skilled nursing facility or home health 
agency are paid under Medicare Part B if payment is not provided under 
Medicare Part A. Payment is made under Part B for a resident's services 
by reducing the reasonable costs of furnishing the services by the 
beneficiary deductible and paying 80 percent of the remaining amount.



Sec. 415.206  Services of residents in nonprovider settings.

    Patient care activities of residents in approved GME programs that 
are furnished in nonprovider settings are payable in one of the 
following two ways:
    (a) Direct GME payments. If the conditions in Sec. 413.86(f)(1)(iii) 
regarding patient care activities and training of residents are met, the 
time residents spend in nonprovider settings such as clinics, nursing 
facilities, and physician offices in connection with approved GME 
programs is included in determining the number of full-time equivalency 
residents in the calculation of a teaching hospital's resident count. 
The teaching physician rules on carrier payments in Secs. 415.170 
through 415.184 apply in these teaching settings.
    (b) Physician fee schedule. (1) Services furnished by a resident in 
a nonprovider setting are covered as physician services and payable 
under the physician fee schedule if the following requirements are met:
    (i) The resident is fully licensed to practice medicine, osteopathy, 
dentistry, or podiatry in the State in which the service is performed.
    (ii) The time spent in patient care activities in the nonprovider 
setting is not included in a teaching hospital's full-time equivalency 
resident count for the purpose of direct GME payments.
    (2) Payment may be made regardless of whether a resident is 
functioning

[[Page 523]]

within the scope of his or her GME program in the nonprovider setting.
    (3) If fee schedule payment is made for the resident's services in a 
nonprovider setting, payment must not be made for the services of a 
teaching physician.
    (4) The carrier must apply the physician fee schedule payment rules 
set forth in subpart A of part 414 of this chapter to payments for 
services furnished by a resident in a nonprovider setting.



Sec. 415.208  Services of moonlighting residents.

    (a) Definition. For purposes of this section, the term services of 
moonlighting residents refers to services that licensed residents 
perform that are outside the scope of an approved GME program.
    (b) Services in GME program hospitals. (1) The services of residents 
to inpatients of hospitals in which the residents have their approved 
GME program are not covered as physician services and are payable under 
Sec. 413.86 regarding direct GME payments.
    (2) Services of residents that are not related to their approved GME 
programs and are performed in an outpatient department or emergency 
department of a hospital in which they have their training program are 
covered as physician services and payable under the physician fee 
schedule if all of the following criteria are met:
    (i) The services are identifiable physician services and meet the 
conditions for payment of physician services to beneficiaries in 
providers in Sec. 415.102(a).
    (ii) The resident is fully licensed to practice medicine, 
osteopathy, dentistry, or podiatry by the State in which the services 
are performed.
    (iii) The services performed can be separately identified from those 
services that are required as part of the approved GME program.
    (3) If the criteria specified in paragraph (b)(2) of this section 
are met, the services of the moonlighting resident are considered to 
have been furnished by the individual in his or her capacity as a 
physician, rather than in the capacity of a resident. The carrier must 
review the contracts and agreements for these services to ensure 
compliance with the criteria specified in paragraph (b)(2) of this 
section.
    (4) No payment is made for services of a ``teaching physician'' 
associated with moonlighting services, and the time spent furnishing 
these services is not included in the teaching hospital's full-time 
equivalency count for the indirect GME payment (Sec. 412.105 of this 
chapter) and for the direct GME payment (Sec. 413.86 of this chapter).
    (c) Other settings. Moonlighting services of a licensed resident in 
an approved GME program furnished outside the scope of that program in a 
hospital or other setting that does not participate in the approved GME 
program are payable under the physician fee schedule as set forth in 
Sec. 415.206(b)(1).



PART 416--AMBULATORY SURGICAL SERVICES--Table of Contents




              Subpart A--General Provisions and Definitions

Sec.
416.1  Basis and scope.
416.2  Definitions.

             Subpart B--General Conditions and Requirements

416.25  Basic requirements.
416.26  Qualifying for an agreement.
416.30  Terms of agreement with HCFA.
416.35  Termination of agreement.

               Subpart C--Specific Conditions for Coverage

416.40  Condition for coverage--Compliance with State licensure law.
416.41  Condition for coverage--Governing body and management.
416.42  Condition for coverage--Surgical services.
416.43  Condition for coverage--Evaluation of quality.
416.44  Condition for coverage--Environment.
416.45  Condition for coverage--Medical staff.
416.46  Condition for coverage--Nursing services.
416.47  Condition for coverage--Medical records.
416.48  Condition for coverage--Pharmaceutical services.
416.49  Condition for coverage--Laboratory and radiologic services.

[[Page 524]]

                      Subpart D--Scope of Benefits

416.60  General rules.
416.61  Scope of facility services.
416.65  Covered surgical procedures.
416.75  Performance of listed surgical procedures on an inpatient 
          hospital basis.

                Subpart E--Payment for Facility Services

416.120  Basis for payment.
416.125  ASC facility services payment rate.
416.130  Publication of revised payment methodologies.
416.140  Surveys.
416.150  Beneficiary appeals.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 47 FR 34094, Aug. 5, 1982, unless otherwise noted.



              Subpart A--General Provisions and Definitions



Sec. 416.1  Basis and scope.

    (a) Statutory basis. (1) Section 1832(a)(2)(F)(i) of the Act 
provides for Medicare Part B coverage of facility services furnished in 
connection with surgical procedures specified by the Secretary under 
section 1833(i)(1) of the Act.
    (2) Section 1833(i)(1)(A) of the Act requires the Secretary to 
specify the surgical procedures that can be performed safely on an 
ambulatory basis in an ambulatory surgical center, or a hospital 
outpatient department.
    (3) Section 1833(i) (2)(A) and (3) specify the amounts to be paid 
for facility services furnished in connection with the specified 
surgical procedures when they are performed, respectively, in an ASC, or 
in a hospital outpatient department.
    (b) Scope. This part sets forth--
    (1) The conditions that an ASC must meet in order to participate in 
the Medicare program;
    (2) The scope of covered services; and
    (3) The conditions for Medicare payment for facility services.

[56 FR 8843, Mar. 1, 1991; 56 FR 23022, May 20, 1991]



Sec. 416.2  Definitions.

    As used in this part:
    Ambulatory surgical center or ASC means any distinct entity that 
operates exclusively for the purpose of providing surgical services to 
patients not requiring hospitalization, has an agreement with HCFA to 
participate in Medicare as an ASC, and meets the conditions set forth in 
subparts B and C of this part.
    ASC services means facility services that are furnished in an ASC.
    Covered surgical procedures means those surgical and other medical 
procedures that meet the criteria specified in Sec. 416.65 and are 
published by HCFA in the Federal Register.
    Facility services means services that are furnished in connection 
with covered surgical procedures performed in an ASC, or in a hospital 
on an outpatient basis.

[56 FR 8843, Mar. 1, 1991; 56 FR 23022, May 20, 1991]



             Subpart B--General Conditions and Requirements



Sec. 416.25  Basic requirements.

    Participation as an ASC is limited to facilities that--
    (a) Meet the definition in Sec. 416.2; and
    (b) Have in effect an agreement obtained in accordance with this 
subpart.

[56 FR 8843, Mar. 1, 1991]



Sec. 416.26  Qualifying for an agreement.

    (a) Deemed compliance. HCFA may deem an ASC to be in compliance with 
any or all of the conditions set forth in subpart C of this part if--
    (1) The ASC is accredited by a national accrediting body, or 
licensed by a State agency, that HCFA determines provides reasonable 
assurance that the conditions are met;
    (2) In the case of deemed status through accreditation by a national 
accrediting body, where State law requires licensure, the ASC complies 
with State licensure requirements; and
    (3) The ASC authorizes the release to HCFA, of the findings of the 
accreditation survey.
    (b) Survey of ASCs. (1) Unless HCFA deems the ASC to be in 
compliance with the conditions set forth in subpart C of this part, the 
State survey agency must survey the facility to ascertain compliance 
with those conditions, and report its findings to HCFA.

[[Page 525]]

    (2) HCFA surveys deemed ASCs on a sample basis as part of HCFA's 
validation process.
    (c) Acceptance of the ASC as qualified to furnish ambulatory 
surgical services. If HCFA determines, after reviewing the survey agency 
recommendation and other evidence relating to the qualification of the 
ASC, that the facility meets the requirements of this part, it sends to 
the ASC--
    (1) Written notice of the determination; and
    (2) Two copies of the ASC agreement.
    (d) Filing of agreement by the ASC. If the ASC wishes to participate 
in the program, it must--
    (1) Have both copies of the ASC agreement signed by its authorized 
representative; and
    (2) File them with HCFA.
    (e) Acceptance by HCFA. If HCFA accepts the agreement filed by the 
ASC, returns to the ASC one copy of the agreement, with a notice of 
acceptance specifying the effective date.
    (f) Appeal rights. If HCFA refuses to enter into an agreement or if 
HCFA terminates an agreement, the ASC is entitled to a hearing in 
accordance with part 498 of this chapter.

[56 FR 8843, Mar. 1, 1991]



Sec. 416.30  Terms of agreement with HCFA.

    As part of the agreement under Sec. 416.26 the ASC must agree to the 
following:
    (a) Compliance with coverage conditions. The ASC agrees to meet the 
conditions for coverage specified in subpart C of this part and to 
report promptly to HCFA any failure to do so.
    (b) Limitation on charges to beneficiaries.1 The ASC 
agrees to charge the beneficiary or any other person only the applicable 
deductible and coinsurance amounts for facility services for which the 
beneficiary--
---------------------------------------------------------------------------

    \1\ For facility services furnished before July 1987, the ASC had to 
agree to make no charge to the beneficiary, since those services were 
not subject to the part B deductible and coinsurance provisions.
---------------------------------------------------------------------------

    (1) Is entitled to have payment made on his or her behalf under this 
part; or
    (2) Would have been so entitled if the ASC had filed a request for 
payment in accordance with Sec. 410.165 of this chapter.
    (c) Refunds to beneficiaries. (1) The ASC agrees to refund as 
promptly as possible any money incorrectly collected from beneficiaries 
or from someone on their behalf.
    (2) As used in this section, money incorrectly collected means sums 
collected in excess of those specified in paragraph (b) of this section. 
It includes amounts collected for a period of time when the beneficiary 
was believed not to be entitled to Medicare benefits if--
    (i) The beneficiary is later determined to have been entitled to 
Medicare benefits; and
    (ii) The beneficiary's entitlement period falls within the time the 
ASC's agreement with HCFA is in effect.
    (d) Furnishing information. The ASC agrees to furnish to HCFA, if 
requested, information necessary to establish payment rates specified in 
Secs. 416.120-416.130 in the form and manner that HCFA requires.
    (e) Acceptance of assignment. The ASC agrees to accept assignment 
for all facility services furnished in connection with covered surgical 
procedures. For purposes of this section, assignment means an assignment 
under Sec. 424.55 of this chapter of the right to receive payment under 
Medicare Part B and payment under Sec. 424.64 of this chapter (when an 
individual dies before assigning the claim).
    (f) ASCs operated by a hopsital. In an ASC operated by a hospital--
    (1) The agreement is made effective on the first day of the next 
Medicare cost reporting period of the hospital that operates the ASC; 
and
    (2) The ASC participates and is paid only as an ASC, without the 
option of converting to or being paid as a hospital outpatient 
department, unless HCFA determines there is good cause to do otherwise.
    (3) Costs for the ASC are treated as a non-reimbursable cost center 
on the hopsital's cost report.
    (g) Additional provisions. The agreement may contain any additional 
provisions that HCFA finds necessary or desirable for the efficient and 
effective

[[Page 526]]

administration of the Medicare program.

[47 FR 34094, Aug. 5, 1982, as amended at 51 FR 41351, Nov. 14, 1986; 56 
FR 8844, Mar. 1, 1991]



Sec. 416.35  Termination of agreement.

    (a) Termination by the ASC--(1) Notice to HCFA. An ASC that wishes 
to terminate its agreement must send HCFA written notice of its intent.
    (2) Date of termination. The notice may state the intended date of 
termination which must be the first day of a calendar month.
    (i) If the notice does not specify a date, or the date is not 
acceptable to HCFA, HCFA may set a date that will not be more than 6 
months from the date on the ASC's notice of intent.
    (ii) HCFA may accept a termination date that is less than 6 months 
after the date on the ASC's notice if it determines that to do so would 
not unduly disrupt services to the community or otherwise interfere with 
the effective and efficient administration of the Medicare program.
    (3) Voluntary termination. If an ASC ceases to furnish services to 
the community, that shall be deemed to be a voluntary termination of the 
agreement by the ASC, effective on the last day of business with 
Medicare beneficiaries.
    (b) Termination by HCFA--(1) Cause for termination. HCFA may 
terminate an agreement if it determines that the ASC--
    (i) No longer meets the conditions for coverage as specified under 
Sec. 416.26; or
    (ii) Is not in substantial compliance with the provisions of the 
agreement, the requirements of this subpart, and other applicable 
regulations of subchapter B of this chapter, or any applicable 
provisions of title XVIII of the Act.
    (2) Notice of termination. HCFA sends notice of termination to the 
ASC at least 15 days before the effective date stated in the notice.
    (3) Appeal by the ASC. An ASC may appeal the termination of its 
agreement in accordance with the provisions set forth in part 498 of 
this chapter.
    (c) Effect of termination. Payment is not available for ASC services 
furnished on or after the effective date of termination.
    (d) Notice to the public. Prompt notice of the date and effect of 
termination is given to the public, through publication in local 
newspapers by--
    (1) The ASC, after HCFA has approved or set a termination date; or
    (2) HCFA, when it has terminated the agreement.
    (e) Conditions for reinstatement after termination of agreement by 
HCFA. When an agreement with an ASC is terminated by HCFA, the ASC may 
not file another agreement to participate in the Medicare program unless 
HCFA--
    (1) Finds that the reason for the termination of the prior agreement 
has been removed; and
    (2) Is assured that the reason for the termination will not recur.

[47 FR 34094, Aug. 5, 1982, as amended at 52 FR 22454, June 12, 1987; 56 
FR 8844, Mar. 1, 1991; 61 FR 40347, Aug. 2, 1996]



               Subpart C--Specific Conditions for Coverage



Sec. 416.40  Condition for coverage--Compliance with State licensure law.

    The ASC must comply with State licensure requirements.



Sec. 416.41  Condition for coverage--Governing body and management.

    The ASC must have a governing body, that assumes full legal 
responsibility for determining, implementing, and monitoring policies 
governing the ASC's total operation and for ensuring that these policies 
are administered so as to provide quality health care in a safe 
environment. When services are provided through a contract with an 
outside resource, the ASC must assure that these services are provided 
in a safe and effective manner. Standard: Hospitalization. The ASC must 
have an effective procedure for the immediate transfer to a hospital, of 
patients requiring emergency medical care beyond the capabilities of the 
ASC. This hospital must be a local, Medicare participating hospital or a 
local, nonparticipating hospital that meets the requirements for payment 
for emergency services under Sec. 482.2 of this chapter. The ASC must 
have a written

[[Page 527]]

transfer agreement with such a hospital, or all physicians performing 
surgery in the ASC must have admitting privileges at such a hospital.

[47 FR 34094, Aug. 5, 1982, as amended at 51 FR 22041, June 17, 1986]



Sec. 416.42  Condition for coverage--Surgical services.

    Surgical procedures must be performed in a safe manner by qualified 
physicians who have been granted clinical privileges by the governing 
body of the ASC in accordance with approved policies and procedures of 
the ASC.
    (a) Standard: Anesthetic risk and evaluation. A physician must 
examine the patient immediately before surgery to evaluate the risk of 
anesthesia and of the procedure to be performed. Before discharge from 
the ASC, each patient must be evaluated by a physician for proper 
anesthesia recovery.
    (b) Standard: Administration of anesthesia. Anesthetics must be 
administered by only--
    (1) A qualified anesthesiologist; or
    (2) A physician qualified to administer anesthesia, a certified 
registered nurse anesthetist or an anesthesiologist's assistant as 
defined in Sec. 410.68(b) of this chapter, or a supervised trainee in an 
approved educational program. In those cases in which a non-physician 
administers the anesthesia, the anesthetist must be under the 
supervision of the operating physician, and in the case of an 
anesthesiologist's assistant, under the supervision of an 
anesthesiologist.
    (c) Standard: Discharge. All patients are discharged in the company 
of a responsible adult, except those exempted by the attending 
physician.

[57 FR 33899, July 31, 1992]



Sec. 416.43  Condition for coverage--Evaluation of quality.

    The ASC, with the active participation of the medical staff, must 
conduct an ongoing, comprehensive self-assessment of the quality of care 
provided, including medical necessity of procedures performed and 
appropriateness of care, and use findings, when appropriate, in the 
revision of center policies and consideration of clinical privileges.



Sec. 416.44  Condition for coverage--Environment.

    The ASC must have a safe and sanitary environment, properly 
constructed, equipped, and maintained to protect the health and safety 
of patients.
    (a) Standard: Physical environment. The ASC must provide a 
functional and sanitary environment for the provision of surgical 
services.
    (1) Each operating room must be designed and equipped so that the 
types of surgery conducted can be performed in a manner that protects 
the lives and assures the physical safety of all individuals in the 
area.
    (2) The ASC must have a separate recovery room and waiting area.
    (3) The ASC must establish a program for identifying and preventing 
infections, maintaining a sanitary environment, and reporting the 
results to appropriate authorities.
    (b) Standard: Safety from fire. (1) Except as provided in paragraphs 
(b) (2) and (3) of this section, the ASC must meet the provisions of the 
1985 edition of the Life Safety Code of the National Fire Protection 
Association (which is incorporated by reference)1 that are 
applicable to ambulatory surgical centers.
---------------------------------------------------------------------------

    \1\ See footnote to Sec. 405.1134(a) of this chapter.
---------------------------------------------------------------------------

    (2) In consideration of a recommendation by the State survey agency, 
HCFA may waive, for periods deemed appropriate, specific provisions of 
the Life Safety Code which, if rigidly applied, would result in 
unreasonable hardship upon an ASC, but only if the waiver will not 
adversely affect the health and safety of the patients.
    (3) Any ASC that, on May 9, 1988, complies with the requirements of 
the 1981 edition of the Life Safety Code, with or without waivers, will 
be considered to be in compliance with this standard, so long as the ASC 
continues to remain in compliance with that edition of the Life Safety 
Code.
    (c) Standard: Emergency equipment. Emergency equipment available to 
the operating rooms must include at least the following:
    (1) Emergency call system.
    (2) Oxygen.

[[Page 528]]

    (3) Mechanical ventilatory assistance equipment including airways, 
manual breathing bag, and ventilator.
    (4) Cardiac defibrillator.
    (5) Cardiac monitoring equipment.
    (6) Tracheostomy set.
    (7) Laryngoscopes and endotracheal tubes.
    (8) Suction equipment.
    (9) Emergency medical equipment and supplies specified by the 
medical staff.
    (d) Standard: Emergency personnel. Personnel trained in the use of 
emergency equipment and in cardiopulmonary resuscitation must be 
available whenever there is a patient in the ASC.

[47 FR 34094, Aug. 5, 1982, amended at 53 FR 11508, Apr. 7, 1988; 54 FR 
4026, Jan. 27, 1989]



Sec. 416.45  Condition for coverage--Medical staff.

    The medical staff of the ASC must be accountable to the governing 
body.
    (a) Standard: Membership and clinical privileges. Members of the 
medical staff must be legally and professionally qualified for the 
positions to which they are appointed and for the performance of 
privileges granted. The ASC grants privileges in accordance with 
recommendations from qualified medical personnel.
    (b) Standard: Reappraisals. Medical staff privileges must be 
periodically reappraised by the ASC. The scope of procedures performed 
in the ASC must be periodically reviewed and amended as appropriate.
    (c) Standard: Other practitioners. If the ASC assigns patient care 
responsibilities to practitioners other than physicians, it must have 
established policies and procedures, approved by the governing body, for 
overseeing and evaluating their clinical activities.



Sec. 416.46  Condition for coverage--Nursing services.

    The nursing services of the ASC must be directed and staffed to 
assure that the nursing needs of all patients are met.
    (a) Standard: Organization and staffing. Patient care 
responsibilities must be delineated for all nursing service personnel. 
Nursing services must be provided in accordance with recognized 
standards of practice. There must be a registered nurse available for 
emergency treatment whenever there is a patient in the ASC.
    (b) [Reserved]



Sec. 416.47  Condition for coverage--Medical records.

    The ASC must maintain complete, comprehensive, and accurate medical 
records to ensure adequate patient care.
    (a) Standard: Organization. The ASC must develop and maintain a 
system for the proper collection, storage, and use of patient records.
    (b) Standard: Form and content of record. The ASC must maintain a 
medical record for each patient. Every record must be accurate, legible, 
and promptly completed. Medical records must include at least the 
following:
    (1) Patient identification.
    (2) Significant medical history and results of physical examination.
    (3) Pre-operative diagnostic studies (entered before surgery), if 
performed.
    (4) Findings and techniques of the operation, including a 
pathologist's report on all tissues removed during surgery, except those 
exempted by the governing body.
    (5) Any allergies and abnormal drug reactions.
    (6) Entries related to anesthesia administration.
    (7) Documentation of properly executed informed patient consent.
    (8) Discharge diagnosis.



Sec. 416.48  Condition for coverage--Pharmaceutical services.

    The ASC must provide drugs and biologicals in a safe and effective 
manner, in accordance with accepted professional practice, and under the 
direction of an individual designated responsible for pharmaceutical 
services.
    (a) Standard: Administration of drugs. Drugs must be prepared and 
administered according to established policies and acceptable standards 
of practice.
    (1) Adverse reactions must be reported to the physician responsible 
for the patient and must be documented in the record.
    (2) Blood and blood products must be administered by only physicians 
or registered nurses.

[[Page 529]]

    (3) Orders given orally for drugs and biologicals must be followed 
by a written order, signed by the prescribing physician.
    (b) [Reserved]



Sec. 416.49  Condition for coverage--Laboratory and radiologic services.

    If the ASC performs laboratory services, it must meet the 
requirements of part 493 of this chapter. If the ASC does not provide 
its own laboratory services, it must have procedures for obtaining 
routine and emergency laboratory services from a certified laboratory in 
accordance with part 493 of this chapter. The referral laboratory must 
be certified in the appropriate specialties and subspecialties of 
service to perform the referred tests in accordance with the 
requirements of part 493 of this chapter. The ASC must have procedures 
for obtaining radiologic services from a Medicare approved facility to 
meet the needs of patients.

[57 FR 7135, Feb. 28, 1992]



                      Subpart D--Scope of Benefits



Sec. 416.60  General rules.

    (a) The services payable under this part are facility services 
furnished to Medicare beneficiaries, by a participating facility, in 
connection with covered surgical procedures specified in Sec. 416.65.
    (b) The surgical procedures, including all preoperative and post-
operative services that are performed by a physician, are covered as 
physician services under part 410 of this chapter.

[56 FR 8844, Mar. 1, 1991]



Sec. 416.61  Scope of facility services.

    (a) Included services. Facility services include, but are not 
limited to--
    (1) Nursing, technician, and related services;
    (2) Use of the facilities where the surgical procedures are 
performed;
    (3) Drugs, biologicals, surgical dressings, supplies, splints, 
casts, and appliances and equipment directly related to the provision of 
surgical procedures;
    (4) Diagnostic or therapeutic services or items directly related to 
the provision of a surgical procedure;
    (5) Administrative, recordkeeping and housekeeping items and 
services; and
    (6) Materials for anesthesia.
    (7) Intra-ocular lenses (IOLs).
    (8) Supervision of the services of an anesthetist by the operating 
surgeon.
    (b) Excluded services. Facility services do not include items and 
services for which payment may be made under other provisions of part 
405 of this chapter, such as physicians' services, laboratory, X-ray or 
diagnostic procedures (other than those directly related to performance 
of the surgical procedure), prosthetic devices (except IOLs), ambulance 
services, leg, arm, back and neck braces, artificial limbs, and durable 
medical equipment for use in the patient's home. In addition, they do 
not include anesthetist services furnished on or after January 1, 1989.

[56 FR 8844, Mar. 1, 1991, as amended at 57 FR 33899, July 31, 1992]



Sec. 416.65  Covered surgical procedures.

    Covered surgical procedures are those procedures that meet the 
standards described in paragraphs (a) and (b) of this section and are 
included in the list published in accordance with paragraph (c) of this 
section.
    (a) General standards. Covered surgical procedures are those 
surgical and other medical procedures that--
    (1) Are commonly performed on an inpatient basis in hospitals, but 
may be safely performed in an ASC;
    (2) Are not of a type that are commonly performed, or that may be 
safely performed, in physicians' offices;
    (3) Are limited to those requiring a dedicated operating room (or 
suite), and generally requiring a post-operative recovery room or short-
term (not overnight) convalescent room; and
    (4) Are not otherwise excluded under Sec. 405.310 of this chapter.
    (b) Specific standards. (1) Covered surgical procedures are limited 
to those that do not generally exceed--
    (i) A total of 90 minutes operating time; and
    (ii) A total of 4 hours recovery or convalescent time.
    (2) If the covered surgical procedures require anesthesia, the 
anesthesia must be--
    (i) Local or regional anesthesia; or

[[Page 530]]

    (ii) General anesthesia of 90 minutes or less duration.
    (3) Covered surgical procedures may not be of a type that--
    (i) Generally result in extensive blood loss;
    (ii) Require major or prolonged invasion of body cavities;
    (iii) Directly involve major blood vessels; or
    (iv) Are generally emergency or life-threatening in nature.
    (c) Publication of covered procedures. HCFA will publish in the 
Federal Register a list of covered surgical procedures and revisions as 
appropriate.



Sec. 416.75  Performance of listed surgical procedures on an inpatient hospital basis.

    The inclusion of any procedure as a covered surgical procedure under 
Sec. 416.65 does not preclude its coverage in an inpatient hospital 
setting under Medicare.



                Subpart E--Payment for Facility Services



Sec. 416.120  Basis for payment.

    The basis for payment depends on where the services are furnished.
    (a) Hospital outpatient department. Payment is in accordance with 
part 413 of this chapter.
    (b) [Reserved]
    (c) ASC--(1) General rule. Payment is based on a prospectively 
determined rate. This rate covers the cost of services such as supplies, 
nursing services, equipment, etc., as specified in Sec. 416.61. The rate 
does not cover physician services or other medical services covered 
under part 410 of this chapter (for example, X-ray services or 
laboratory services) which are not directly related to the performance 
of the surgical procedures. Those services may be billed separately and 
paid on a reasonable charge basis.
    (2) Single and multiple surgical procedures. (i) If one covered 
surgical procedure is furnished to a beneficiary in an operative 
session, payment is based on the prospectively determined rate for that 
procedure.
    (ii) If more than one surgical procedure is furnished in a single 
operative session, payment is based on--
    (A) The full rate for the procedure with the highest prospectively 
determined rate; and
    (B) One half of the prospectively determined rate for each of the 
other procedures.
    (3) Deductibles and coinsurance. Part B deductible and coinsurance 
amounts apply as specified in Sec. 410.152 (a) and (i) of this chapter.

[56 FR 8844, Mar. 1, 1991; 56 FR 23022, May 20, 1991]



Sec. 416.125  ASC facility services payment rate.

    (a) The payment rate is based on a prospectively determined standard 
overhead amount per procedure derived from an estimate of the costs 
incurred by ambulatory surgical centers generally in providing services 
furnished in connection with the performance of that procedure.
    (b) The payment must be substantially less than would have been paid 
under the program if the procedure had been performed on an inpatient 
basis in a hospital.

[56 FR 8844, Mar. 1, 1991]



Sec. 416.130  Publication of revised payment methodologies.

    Whenever HCFA proposes to revise the payment rate for ASCs, HCFA 
publishes a notice in the Federal Register describing the revision. The 
notice also explains the basis on which the rates were established. 
After reviewing public comments, HCFA publishes a notice establishing 
the rates authorized by this section. In setting these rates, HCFA may 
adopt reasonable classifications of facilities and may establish 
different rates for different types of surgical procedures.

[47 FR 34094, Aug. 5, 1982, as amended at 56 FR 8844, Mar. 1, 1991]



Sec. 416.140  Surveys.

    (a) Timing, purpose, and procedures. (1) No more often than once a 
year, HCFA conducts a survey of a randomly selected sample of 
participating ASCs to collect data for analysis or reevaluation of 
payment rates.
    (2) HCFA notifies the selected ASCs by mail of their selection and 
of the form and content of the report the

[[Page 531]]

ASCs are required to submit within 60 days of the notice.
    (3) If the facility does not submit an adequate report in response 
to HCFA's survey request, HCFA may terminate the agreement to 
participate in the Medicare program as an ASC.
    (4) HCFA may grant a 30-day postponement of the due date for the 
survey report if it determines that the facility has demonstrated good 
cause for the delay.
    (b) Requirements for ASCs. ASCs must--
    (1) Maintain adequate financial records, in the form and containing 
the data required by HCFA, to allow determination of the payment rates 
for covered surgical procedures furnished to Medicare beneficiaries 
under this subpart.
    (2) Within 60 days of a request from HCFA submit, in the form and 
detail as may be required by HCFA, a report of--
    (i) Their operations, including the allowable costs actually 
incurred for the period and the actual number and kinds of surgical 
procedures furnished during the period; and
    (ii) Their customary charges for each surgical procedure furnished 
for the period.

[47 FR 34094, Aug. 5, 1982, as amended at 56 FR 8845, Mar. 1, 1991]



Sec. 416.150  Beneficiary appeals.

    A beneficiary (or ASC as his or her assignee) may request a hearing 
by a carrier (subject to the limitations and conditions set forth in 
part 405, subpart H of this chapter) if the beneficiary or the ASC--
    (a) Is dissatisfied with a carrier's denial of a request for payment 
made on his or her behalf by an ASC;
    (b) Is dissatisfied with the amount of payment; or
    (c) Believes the request for payment is not being acted upon with 
reasonable promptness.



PART 417--HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL PLANS, AND HEALTH CARE PREPAYMENT PLANS--Table of Contents




                      Subpart A--General Provisions

Sec.
417.1  Definitions.
417.2  Basis and scope.

     Subpart B--Qualified Health Maintenance Organizations: Services

417.101  Health benefits plan: Basic health services.
417.102  Health benefits plan: Supplemental health services.
417.103  Providers of basic and supplemental health services.
417.104  Payment for basic health services.
417.105  Payment for supplemental health services.
417.106  Quality assurance program; Availability, accessibility, and 
          continuity of basic and supplemental health services.

Subpart C--Qualified Health Maintenance Organizations: Organization and 
                                Operation

417.120  Fiscally sound operation and assumption of financial risk.
417.122  Protection of enrollees.
417.124  Administration and management.
417.126  Recordkeeping and reporting requirements.

            Subpart D--Application for Federal Qualification

417.140  Scope.
417.142  Requirements for qualification.
417.143  Application requirements.
417.144  Evaluation and determination procedures.

 Subpart E--Inclusion of Qualified Health Maintenance Organizations in 
                     Employee Health Benefits Plans

417.150  Definitions.
417.151  Applicability.
417.153  Offer of HMO alternative.
417.155  How the HMO option must be included in the health benefits 
          plan.
417.156  When the HMO must be offered to employees.
417.157  Contributions for the HMO alternative.
417.158  Payroll deductions.

[[Page 532]]

417.159  Relationship of section 1310 of the Public Health Service Act 
          to the National Labor Relations Act and the Railway Labor Act.

     Subpart F--Continued Regulation of Federally Qualified Health 
                        Maintenance Organizations

417.160  Applicability.
417.161  Compliance with assurances.
417.162  Reporting requirements.
417.163  Enforcement procedures.
417.164  Effect of revocation of qualification on inclusion in 
          employee's health benefit plans.
417.165  Reapplication for qualification.
417.166  Waiver of assurances.

                         Subpart G-I--[Reserved]

         Subpart J--Qualifying Conditions for Medicare Contracts

417.400  Basis and scope.
417.401  Definitions.
417.402  Effective date of initial regulations.
417.404  General requirements.
417.406  Application and determination.
417.407  Requirements for a Competitive Medical Plan (CMP).
417.408  Contract application process.
417.410  Qualifying conditions: General rules.
417.412  Qualifying condition: Administration and management.
417.413  Qualifying condition: Operating experience and enrollment.
417.414  Qualifying condition: Range of services.
417.416  Qualifying condition: Furnishing of services.
417.418  Qualifying condition: Quality assurance program.

  Subpart K--Enrollment, Entitlement, and Disenrollment under Medicare 
                                Contract

417.420  Basic rules on enrollment and entitlement.
417.422  Eligibility to enroll in an HMO or CMP.
417.423  Special rules: ESRD and hospice patients.
417.424  Denial of enrollment.
417.426  Open enrollment requirements.
417.428  Marketing activities.
417.430  Application procedures.
417.432  Conversion of enrollment.
417.434  Reenrollment.
417.436  Rules for enrollees.
417.440  Entitlement to health care services from an HMO or CMP.
417.442  Risk HMO's and CMP's: Conditions for provision of additional 
          benefits.
417.444  Special rules for certain enrollees of risk HMOs and CMPs.
417.446  [Reserved]
417.448  Restriction on payments for services received by Medicare 
          enrollees of risk HMOs or CMPs.
417.450  Effective date of coverage.
417.452  Liability of Medicare enrollees.
417.454  Charges to Medicare enrollees.
417.456  Refunds to Medicare enrollees.
417.458  Recoupment of uncollected deductible and coinsurance amounts.
417.460  Disenrollment of beneficiaries by an HMO or CMP.
417.461  Disenrollment by the enrollee.
417.464  End of HCFA's liability for payment: Disenrollment of 
          beneficiaries and termination or default of contract.

                Subpart L--Medicare Contract Requirements

417.470    Basis and scope.
417.472  Basic contract requirements.
417.474  Effective date and term of contract.
417.476  Waived conditions.
417.478  Requirements of other laws and regulations.
417.479  Requirements for physician incentive plans.
417.480  Maintenance of records: Cost HMOs and CMPs.
417.481  Maintenance of records: Risk HMOs or CMPs.
417.482  Access to facilities and records.
417.484  Requirement applicable to related entities.
417.486  Disclosure of information and confidentiality.
417.488  Notice of termination and of available alternatives: Risk 
          contract.
417.490  Renewal of contract.
417.492  Nonrenewal of contract.
417.494  Modification or termination of contract.
417.500  Sanctions against HMOs and CMPs.

  Subpart M--Change of Ownership and Leasing of Facilities: Effect on 
                            Medicare Contract

417.520  Effect on HMO and CMP contracts.

       Subpart N--Medicare Payment to HMOs and CMPs: General Rules

417.524  Payment to HMOs or CMPs: General.
417.526  Payment for covered services.
417.528  Payment when Medicare is not primary payer.

                 Subpart O--Medicare Payment: Cost Basis

417.530  Basis and scope.
417.531  Hospice care services.
417.532  General considerations.
417.533  Part B carrier responsibilities.
417.534  Allowable costs.
417.536  Cost payment principles.
417.538  Enrollment and marketing costs.

[[Page 533]]

417.540  Enrollment costs.
417.542  Reinsurance costs.
417.544  Physicians' services furnished directly by the HMO or CMP.
417.546  Physicians' services and other Part B supplier services 
          furnished under arrangements.
417.548  Provider services through arrangements.
417.550  Special Medicare program requirements.
417.552  Cost apportionment: General provisions.
417.554  Apportionment: Provider services furnished directly by the HMO 
          or CMP.
417.556  Apportionment: Provider services furnished by the HMO or CMP 
          through arrangements with others.
417.558  Emergency, urgently needed, and out-of-area services for which 
          the HMO or CMP accepts financial responsibility.
417.560  Apportionment: Part B physician and supplier services.
417.564  Apportionment and allocation of administrative and general 
          costs.
417.566  Other methods of allocation and apportionment.
417.568  Adequate financial records, statistical data, and cost finding.
417.570  Interim per capita payments.
417.572  Budget and enrollment forecast and interim reports.
417.574  Interim settlement.
417.576  Final settlement.

                 Subpart P--Medicare Payment: Risk Basis

417.580  Basis and scope.
417.582  Definitions.
417.584  Payment to HMOs or CMPs with risk contracts.
417.585  Special rules: Hospice care.
417.588  Computation of adjusted average per capita cost (AAPCC).
417.590  Computation of the average of the per capita rates of payment.
417.592  Additional benefits requirement.
417.594  Computation of adjusted community rate (ACR).
417.596  Establishment of a benefit stabilization fund.
417.597  Withdrawal from a benefit stabilization fund.
417.598  Annual enrollment reconciliation.

                     Subpart Q--Beneficiary Appeals

417.600  Basis and scope.
417.602  Definitions.
417.604  General provisions.
417.605  Immediate PRO review of a determination of noncoverage of 
          inpatient hospital care.
417.606  Organization determinations.
417.608  Notice of adverse organization determination.
417.609  Expediting certain organization determinations.
417.610  Parties to the organization determination.
417.612  Effect of organization determination.
417.614  Right to reconsideration.
417.616  Request for reconsideration.
417.617  Expediting certain reconsiderations.
417.618  Opportunity to submit evidence.
417.620  Responsibility for reconsiderations; time limits.
417.622  Reconsidered determination.
417.624  Notice of reconsidered determination.
417.626  Effect of reconsidered determination.
417.630  Right to a hearing.
417.632  Request for hearing.
417.634  Departmental Appeals Board (DAB) review.
417.636  Court review.
417.638  Reopening determinations and decisions.

                  Subpart R--Medicare Contract Appeals

417.640  Determinations subject to appeal.
417.642  Administrative actions that are not initial determinations.
417.644  Notice of initial determination.
417.646  Effect of initial determination.
417.648  Reconsideration: Applicability.
417.650  Request for reconsideration.
417.652  Opportunity to submit evidence.
417.654  Reconsidered determination.
417.656  Notice of reconsidered determination.
417.658  Effect of reconsidered determination.
417.660  Right to a hearing.
417.662  Request for hearing.
417.664  Postponement of effective date of initial determination.
417.666  Designation of hearing officer.
417.668  Disqualification of hearing officer.
417.670  Time and place of hearing.
417.672  Appointment of representatives.
417.674  Authority of representatives.
417.676  Conduct of hearing.
417.678  Evidence.
417.680  Witnesses.
417.682  Discovery.
417.684  Prehearing.
417.686  Record of hearing.
417.688  Authority of hearing officer.
417.690  Notice and effect of hearing decision.
417.692  Reopening of initial or reconsidered determination or decision 
          of a hearing officer.
417.694  Effect of revised determination.

                        Subparts S-T--[Reserved]

                 Subpart U--Health Care Prepayment Plans

417.800  Payment to HCPPs: Definitions and basic rules.
417.801  Agreements between HCFA and health care prepayment plans.

[[Page 534]]

417.802  Allowable costs.
417.804  Cost apportionment.
417.806  Financial records, statistical data, and cost finding.
417.808  Interim per capita payments.
417.810  Final settlement.
417.830  Scope of regulations on beneficiary appeals.
417.832  Applicability of requirements and procedures.
417.834  Responsibility for establishing administrative review 
          procedures.
417.836  Written description of administrative review procedures.
417.838  Organization determinations.
417.840  Administrative review procedures.

   Subpart V--Administration of Outstanding Loans and Loan Guarantees

417.910  Applicability.
417.911  Definitions.
417.920  Planning and initial development.
417.930  Initial costs of operation.
417.931  [Reserved]
417.934  Reserve requirement.
417.937  Loan and loan guarantee provisions.
417.940  Civil action to enforce compliance with assurances.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh), secs. 1301, 1306, and 1310 of the Public Health 
Service Act (42 U.S.C. 300e, 300e-5, and 300e-9), and 31 U.S.C. 9701.

    Editorial Note: Nomenclature changes to part 417 appear at 58 FR 
38083, July 15, 1993, and 59 FR 59941, Nov. 21, 1994.



                      Subpart A--General Provisions



Sec. 417.1  Definitions.

    As used in this part, unless the context indicates otherwise--
    Basic health services means health services described in 
Sec. 417.101(a).
    Community rating system means a system of fixing rates of payments 
for health services that meets the requirements of Sec. 417.104(a)(3).
    Comprehensive health services means as a minimum the following 
services which may be limited as to time and cost:
    (1) Physician services (Sec. 417.101(a)(1));
    (2) Outpatient services and inpatient hospital services 
(Sec. 417.101(a)(2));
    (3) Medically necessary emergency health services 
(Sec. 417.101(a)(3)); and
    (4) Diagnostic laboratory and diagnostic and therapeutic radiologic 
services (Sec. 417.101(a)(6)).
    Direct service contract means a contract for the provision of basic 
or supplemental health services or both between an HMO and (1) a health 
professional other than a member of the staff of the HMO, or (2) an 
entity other than a medical group or an IPA.
    Enrollee means an individual for whom an HMO, CMP, or HCPP assumes 
the responsibility, under a contract or agreement, for the furnishing of 
health care services on a prepaid basis.
    Full-time student means a student who is enrolled for a sufficient 
number of credit hours in a semester or other academic term to enable 
the student to complete the course of study within not more than the 
number of semesters or other academic terms normally required to 
complete that course of study on a full-time basis at the school in 
which the student is enrolled.
    Furnished, when used in connection with prepaid health care 
services, means services that are maid available to an enrollee either 
dierctly by, or under arrangements made by, the HMO, CMP, or HCPP.
    Health maintenance organization (HMO) means a legal entity that 
provides or arranges for the provision of basic and supplemental health 
services to its enrollees in the manner prescribed by, is organized and 
operated in the manner prescribed by, and otherwise meets the 
requirements of, section 1301 of the PHS Act and the regulations in 
subparts B and C of this part.
    Health professionals means physicians (doctors of medicine and 
doctors of osteopathy), dentists, nurses, podiatrists, optometrists, 
physicians' assistants, clinical psychologists, social workers, 
pharmacists, nutritionists, occupational therapists, physical 
therapists, and other professionals engaged in the delivery of health 
services who are licensed, practice under an institutional license, are 
certified, or practice under authority of the HMO, a medical group, 
individual practice association, or other authority consistent with 
State law.
    Individual practice association (IPA) means a partnership, 
association, corporation, or other legal entity that delivers or 
arranges for the delivery of health services and which has entered into 
written services arrangement or

[[Page 535]]

arrangements with health professionals, a majority of whom are licensed 
to practice medicine or osteopathy. The written services arrangement 
must provide:
    (1) That these health professionals will provide their professional 
services in accordance with a compensation arrangement established by 
the entity; and
    (2) To the extent feasible, for the sharing by these health 
professionals of health (including medical) and other records, 
equipment, and professional, technical, and administrative staff.
    Medical group means a partnership, association, corporation, or 
other group:
    (1) That is composed of health professionals licensed to practice 
medicine or osteopathy and of such other licensed health professionals 
(including dentists, optometrists, and podiatrists) as are necessary for 
the provision of health services for which the group is responsible;
    (2) A majority of the members of which are licensed to practice 
medicine or osteopathy; and
    (3) The members of which:
    (i) After the end of the 48 month period beginning after the month 
in which the HMO for which the group provides health services becomes a 
qualified HMO, as their principal professional activity (over 50 percent 
individually) engage in the coordinated practice of their profession and 
as a group responsibility have substantial responsibility (over 35 
percent in the aggregate of their professional activity) for the 
delivery of health services to enrollees of an HMO;
    (ii) Pool their income from practice as members of the group and 
distribute it among themselves according to a prearranged salary or 
drawing account or other similar plan unrelated to the provision of 
specific health services;
    (iii) Share health (including medical) records and substantial 
portions of major equipment and of professional, technical, and 
administrative staff;
    (iv) Establish an arrangement whereby an enrollee's enrollment 
status is not known to the health professional who provides health 
services to the enrollee.
    Medical group members means (1) a health professional engaged as a 
partner, associate, or shareholder in the medical group, or (2) any 
other health professional employed by the group who may be designated as 
a medical group member by the medical group.
    Medically underserved population means the population of an urban or 
rural area as described in Sec. 417.912(d).
    Nonmetropolitan area means an area no part of which is within a 
standard metropolitan statistical area as designated by the Office of 
Management and Budget and which does not contain a city whose population 
exceeds 50,000 individuals.
    Party in interest means: (1) Any director, officer, partner, or 
employee responsible for management or administration of an HMO, any 
person who is directly or indirectly the beneficial owner of more than 5 
percent of the equity of the HMO, any person who is the beneficial owner 
of a mortgage, deed of trust, note, or other interest secured by, and 
valuing more than 5 percent of the assets of the HMO, and, in the case 
of an HMO organized as a nonprofit corporation, an incorporator or 
member of the corporation under applicable State corporation law;
    (2) Any entity in which a person described in paragraph (1):
    (i) Is an officer or director;
    (ii) Is a partner (if the entity is organized as a partnership);
    (iii) Has directly or indirectly a beneficial interest of more than 
5 percent of the equity; or
    (iv) Has a mortgage, deed of trust, note, or other interest valuing 
more than 5 percent of the assets of such entity;
    (3) Any spouse, child, or parent of an individual described in 
paragraph (1).
    Policymaking body of an HMO means a board of directors, governing 
body, or other body of individuals that has the authority to establish 
policy for the HMO.
    Qualified HMO means an HMO found by HCFA to be qualified within the 
meaning of section 1310 of the PHS Act and subpart D of this part.
    Rural area means any area not listed as a place having a population 
of 2,500

[[Page 536]]

or more in Document PC(1)A, ``Number of Inhabitants,'' Table VI, 
``Population of Places,'' and not listed as an urbanized area in Table 
XI, ``Population of Urbanized Areas'' of the same document (1970 Census 
or most recent update of this document, Bureau of Census, U.S. 
Department of Commerce).
    Secretary means the Secretary of Health and Human Services and any 
other officer or employee of the Department of Health and Human Services 
to whom the authority involved has been delegated.
    Service area means a geographic area, defined through zip codes, 
census tracts, or other geographic measurements, that is the area, as 
determined by HCFA, within which the HMO furnishes basic and 
supplemental health services and makes them available and accessible to 
all its enrollees in accordance with Sec. 417.106(b).
    Significant business transaction means any business transaction or 
series of transactions during any one fiscal year of the HMO, the total 
value of which exceeds the lesser of $25,000 or 5 percent of the total 
operating expenses of the HMO.
    Staff of the HMO means health professionals who are employees of the 
HMO and who--
    (1) Provide services to HMO enrollees at an HMO facility subject to 
the staff policies and operational procedures of the HMO;
    (2) Engage in the coordinated practice of their profession and 
provide to enrollees of the HMO the health services that the HMO has 
contracted to provide;
    (3) Share medical and other records, equipment, and professional, 
technical, and administrative staff of the HMO; and
    (4) Provide their professional services in accordance with a 
compensation arrangement, other than fee-for-service, established by the 
HMO. This arrangement may include, but is not limited to, fee-for-time, 
retainer or salary.
    Subscriber means an enrollee who has entered into a contractual 
relationship with the HMO or who is responsible for making payments for 
basic health services (and contracted for supplemental health services) 
to the HMO or on whose behalf these payments are made.
    Supplemental health services means the health services described in 
Sec. 417.102(a).
    Unusual or infrequently used health services means:
    (1) Those health services that are projected to involve fewer than 1 
percent of the encounters per year for the entire HMO enrollment, or,
    (2) Those health services the provision of which, given the 
enrollment projection of the HMO and generally accepted staffing 
patterns, is projected will require less than 0.25 full time equivalent 
health professionals.

[45 FR 72528, Oct. 31, 1980, as amended at 47 FR 19338, May 5, 1982; 52 
FR 22321, June 11, 1987. Redesignated at 52 FR 36746, Sept. 30, 1987. 
Redesignated and amended at 56 FR 51985, Oct. 17, 1991; 58 FR 38067, 
July 15, 1993; 60 FR 34887, July 5, 1995; 60 FR 45674, Sept. 1, 1995]



Sec. 417.2  Basis and scope.

    (a) Subparts B through F of this part pertain to the Federal 
qualification of HMOs under title XIII of the Public Health Service 
(PHS) Act.
    (b) Subparts G through R of this part set forth the rules for 
Medicare contracts with, and payment to, HMOs and competitive medical 
plans (CMPs) under section 1876 of the Act.
    (c) Subpart U of this part pertains to Medicare payment to health 
care prepayment plans under section 1833(a)(1)(A) of the Act.
    (d) Subpart V of this part applies to the administration of 
outstanding loans and loan guarantees previously granted under title 
XIII of the PHS Act.

[56 FR 51985, Oct. 17, 1991, as amended at 60 FR 45675, Sept. 1, 1995]



     Subpart B--Qualified Health Maintenance Organizations: Services



Sec. 417.101  Health benefits plan: Basic health services.

    (a) An HMO must provide or arrange for the provision of basic health 
services to its enrollees as needed and without limitations as to time 
and cost other than those prescribed in the PHS Act and these 
regulations, as follows:

[[Page 537]]

    (1) Physician services (including consultant and referral services 
by a physician), which must be provided by a licensed physician, or if a 
service of a physician may also be provided under applicable State law 
by other health professionals, an HMO may provide the service through 
these other health professionals;
    (2)(i) Outpatient services, which must include diagnostic services, 
treatment services and x-ray services, for patients who are ambulatory 
and may be provided in a non-hospital based health care facility or at a 
hospital;
    (ii) Inpatient hospital services, which must include but not be 
limited to, room and board, general nursing care, meals and special 
diets when medically necessary, use of operating room and related 
facilities, use of intensive care unit and services, x-ray services, 
laboratory, and other diagnostic tests, drugs, medications, biologicals, 
anesthesia and oxygen services, special duty nursing when medically 
necessary, radiation therapy, inhalation therapy, and administration of 
whole blood and blood plasma;
    (iii) Outpatient services and inpatient hospital services must 
include short-term rehabilitation services and physical therapy, the 
provision of which the HMO determines can be expected to result in the 
significant improvement of a member's condition within a period of two 
months;
    (3) Instructions to its enrollees on procedures to be followed to 
secure medically necessary emergency health services both in the service 
area and out of the service area;
    (4) Twenty outpatient visits per enrollee per year, as may be 
necessary and appropriate for short-term evaluative or crisis 
intervention mental health services, or both;
    (5) Diagnosis, medical treatment and referral services (including 
referral services to appropriate ancillary services) for the abuse of or 
addiction to alcohol and drugs:
    (i) Diagnosis and medical treatment for the abuse of or addiction to 
alcohol and drugs must include detoxification for alcoholism or drug 
abuse on either an outpatient or inpatient basis, whichever is medically 
determined to be appropriate, in addition to the other required basic 
health services for the treatment of other medical conditions;
    (ii) Referral services may be either for medical or for nonmedical 
ancillary services. Medical services must be a part of basic health 
services; nonmedical ancillary services (such as vocational 
rehabilitation and employment counseling) and prolonged rehabilitation 
services in a specialized inpatient or residential facility need not be 
a part of basic health services;
    (6) Diagnostic laboratory and diagnostic and therapeutic radiologic 
services in support of basic health services;
    (7) Home health services provided at an enrollee's home by health 
care personnel, as prescribed or directed by the responsible physician 
or other authority designated by the HMO; and
    (8) Preventive health services, which must be made available to 
members and must include at least the following:
    (i) A broad range of voluntary family planning services;
    (ii) Services for infertility;
    (iii) Well-child care from birth;
    (iv) Periodic health evaluations for adults;
    (v) Eye and ear examinations for children through age 17, to 
determine the need for vision and hearing correction; and
    (vi) Pediatric and adult immunizations, in accord with accepted 
medical practice.
    (b) In addition, an HMO may include a health service described in 
Sec. 417.102 as a supplemental health service in the basic health 
services that it provides or arranges for its enrollees for a basic 
health services payment.
    (c) To the extent that a natural disaster, war, riot, civil 
insurrection, epidemic or any other emergency or similar event not 
within the control of an HMO results in the facilities, personnel, or 
financial resources of an HMO being unavailable to provide or arrange 
for the provision of a basic or supplemental health service in 
accordance with the requirements of Secs. 417.101 through 417.106 and 
Secs. 417.168 and 417.169, the HMO is required only to make a good-faith 
effort to provide or arrange for the provision of the service, taking 
into account the impact of the event. For purposes of this paragraph,

[[Page 538]]

an event is not within the control of an HMO if the HMO cannot exercise 
influence or dominion over its occurrence.
    (d) The following are not required to be provided as basic health 
services:
    (1) Corrective appliances and artificial aids;
    (2) Mental health services, except as required under section 
1302(1)(D) of the PHS Act and paragraph (a)(4) of this section;
    (3) Cosmetic surgery, unless medically necessary;
    (4) Prescribed drugs and medicines incidental to outpatient care;
    (5) Ambulance services, unless medically necessary;
    (6) Care for military service connected disabilities for which the 
enrollee is legally entitled to services and for which facilities are 
reasonably available to this enrollee;
    (7) Care for conditions that State or local law requires be treated 
in a public facility;
    (8) Dental services;
    (9) Vision and hearing care except as required by sections 
1302(1)(A) and 1302(1)(H)(vi) of the PHS Act and paragraphs (a)(1) and 
(a)(8) of this section;
    (10) Custodial or domiciliary care;
    (11) Experimental medical, surgical, or other experimental health 
care procedures, unless approved as a basic health service by the 
policymaking body of the HMO;
    (12) Personal or comfort items and private rooms, unless medically 
necessary during inpatient hospitalization;
    (13) Whole blood and blood plasma;
    (14) Long-term physical therapy and rehabilitation;
    (15) Durable medical equipment for home use (such as wheel chairs, 
surgical beds, respirators, dialysis machines); and
    (16) Health services that are unusual and infrequently provided and 
not necessary for the protection of individual health, as approved by 
HCFA upon application by the HMO.
    (e) An HMO may not offer to provide or arrange for the provision of 
basic health services on a prepayment basis that do not include all the 
basic health services set forth in paragraph (a) of this section or that 
are limited as to time and cost except in a manner prescribed by this 
subpart.

[45 FR 72528, Oct. 31, 1980. Redesignated at 52 FR 36746, Sept. 30, 
1987, and amended at 58 FR 38077, July 15, 1993]



Sec. 417.102  Health benefits plan: Supplemental health services.

    (a) An HMO may provide to its enrollees any health service that is 
not included as a basic health service under Sec. 417.101(a). These 
health services may be limited as to time and cost.
    (b) An HMO must determine the level and scope of supplemental health 
services included with basic health services provided to its enrollees 
for a basic health services payment or those services offered to its 
enrollees as supplemental health services.

[45 FR 72528, Oct. 31, 1980, as amended at 47 FR 19339, May 5, 1982. 
Redesignated at 52 FR 36746, Sept. 30, 1987, as amended at 58 FR 38082, 
38083, July 15, 1993]



Sec. 417.103  Providers of basic and supplemental health services.

    (a)(1) The HMO must provide that the services of health 
professionals that are provided as basic health services will, except as 
provided in paragraph (c) of this section, be provided or arranged for 
through (i) health professionals who are staff of the HMO, (ii) a 
medical group or groups, (iii) an IPA or IPAs, (iv) physicians or other 
health professionals under direct service contracts with the HMO for the 
provision of these services, or (v) any combination of staff, medical 
group or groups, IPA or IPAs, or physicians or other health 
professionals under direct service contracts with the HMO.
    (2) A staff or medical group model HMO may have as providers of 
basic health services physicians who have also entered into written 
services arrangements with an IPA or IPAs, but only if either (i) these 
physicians number less than 50 percent of the physicians who have 
entered into arrangements with the IPA or IPAs, or (ii) if the sharing 
is 50 percent or greater, HCFA approves the sharing as being consistent 
with the purposes of section 1310(b) of the PHS Act.
    (3) After the 4 year period beginning with the month following the 
month in that an HMO becomes a qualified HMO,

[[Page 539]]

an entity that meets the requirements of the definition of medical group 
in Sec. 417.100, except for subdivision (3)(i) of that definition, may 
be considered a medical group if HCFA determines that the principal 
professional activity (over 50 percent individually) of the entity's 
members is the coordinated practice of their profession, and if the HMO 
has demonstrated to the satisfaction of HCFA that the entity is 
committed to the delivery of medical services on a prepaid group 
practice basis by either:
    (i) Presenting a reasonable time-phased plan for the entity to 
achieve compliance with the ``substantial responsibility'' requirement 
of subdivision (3)(i) of the definition of ``medical group'' in 
Sec. 417.100. The HMO must update the plan annually and must demonstrate 
to the satisfaction of HCFA that the entity is making continuous efforts 
and progress towards compliance with the requirements of the definition 
of ``medical group,'' or
    (ii) Demonstrating that compliance by the entity with the 
``substantial responsibility'' requirement is unreasonable or 
impractical because (A) the HMO serves a non-metropolitan or rural area 
as defined in Sec. 417.100, or (B) the entity is a multi-speciality 
group that provides medical consultation upon referral on a regional or 
national basis, or (C) the majority of the residents of the HMO's 
service area are not eligible for employer-employee health benefits 
plans and the HMO has an insufficient number of enrollees to require 
utilization of at least 35 percent of the entity's services.
    (b) HMOs must have effective procedures to monitor utilization and 
to control cost of basic and supplemental health services and to achieve 
utilization goals, which may include mechanisms such as risk sharing, 
financial incentives, or other provisions agreed to by providers.
    (c) Paragraph (a) of this section does not apply to the provision of 
the services of a physician:
    (1) Which the HMO determines are unusual or infrequently used 
services; or
    (2) Which, because of an emergency, it was medically necessary to 
provide to the enrollee other than as required by paragraph (a) of this 
section; or
    (3) Which are provided as part of the inpatient hospital services by 
employees or staff of a hospital or provided by staff of other entities 
such as community mental health centers, home health agencies, visiting 
nurses' associations, independent laboratories, or family planning 
agencies.
    (d) Supplemental health services must be provided or arranged for by 
the HMO and need not be provided by providers of basic health services 
under contract with the HMO.
    (e) Each HMO must:
    (1) Pay the provider, or reimburse its enrollees for the payment of 
reasonable charges for basic health services (or supplemental health 
services that the HMO agreed to provide on a prepayment basis) for which 
its enrollees have contracted, which were medically necessary and 
immediately required to be obtained other than through the HMO because 
of an unforeseen illness, injury, or condition, as determined by the 
HMO;
    (2) Adopt procedures to review promptly all claims from enrollees 
for reimbursement for the provision of health services described in 
paragraph (e)(1) of this section, including a procedure for the 
determination of the medical necessity for obtaining the services other 
than through the HMO; and
    (3) Provide instructions to its enrollees on procedures to be 
followed to secure these health services.

(Sec. 215 of the Public Health Service Act, as amended, 58 Stat. 690, 67 
Stat. 631 (42 U.S.C. 216); secs. 1301-1318, as amended, Pub. L. 97-35, 
95 Stat. 572-578 (42 U.S.C. 300e-300e-17)

[45 FR 72528, Oct. 31, 1980; 45 FR 77031, Nov. 21, 1980, as amended at 
47 FR 19339, May 5, 1982; 50 FR 6174, Feb. 14, 1985. Redesignated at 52 
FR 36746, Sept. 30, 1987, as amended at 58 FR 38082, 38083, July 15, 
1993]



Sec. 417.104  Payment for basic health services.

    (a) Basic health services payment. Each HMO must provide or arrange 
for the provision of basic health services for a basic health services 
payment that:
    (1) Is to be paid on a periodic basis without regard to the dates 
these services are provided;
    (2) Is fixed without regard to the frequency, extent, or kind of 
basic health services actually furnished;

[[Page 540]]

    (3) Except as provided in paragraph (c) of this section, is fixed 
under a community rating system, as described in paragraph (b) of this 
section; and
    (4) May be supplemented by nominal copayments which may be required 
for the provision of specific basic health services. Each HMO may 
establish one or more copayment options calculated on the basis of a 
community rating system.
    (i) An HMO may not impose copayment charges that exceed 50 percent 
of the total cost of providing any single service to its enrollees, nor 
in the aggregate more than 20 percent of the total cost of providing all 
basic health services.
    (ii) To insure that copayments are not a barrier to the utilization 
of health services or enrollment in the HMO, an HMO may not impose 
copayment charges on any subscriber (or enrollees covered by the 
subscriber's contract with the HMO) in any calendar year, when the 
copayments made by the subscriber (or enrollees) in that calendar year 
total 200 percent of the total annual premium cost which that subscriber 
(or enrollees) would be required to pay if he (or they) were enrolled 
under an option with no copayments. This limitation applies only if the 
subscriber (or enrollees) demonstrates that copayments in that amount 
have been paid in that year.
    (b) Community rating system. Under a community rating system, rates 
of payment for health services may be determined on a per person or per 
family basis, as described in paragraph (b)(1) of this section or on a 
per group basis as described in paragraph (b)(2) of this section. An HMO 
may fix its rates of payment under the system described in paragraph 
(b)(1) or (b)(2) of this section or under both such systems, but an HMO 
may use only one such system for fixing its rates of payment for any one 
group.
    (1) A system of fixing rates of payment for health services may 
provide that the rates will be fixed on a per person or per family basis 
and may vary with the number of persons in a family. Except as otherwise 
authorized in this paragraph, these rates must be equivalent for all 
individuals and for all families of similar composition. Rates of 
payment may be based on either a schedule of rates charged to each 
subscriber group or on a per-enrollee-per-month (or per-subscriber-per-
month) revenue requirement for the HMO. In the former event, rates may 
vary from group to group if the projected total revenue from each group 
is substantially equivalent to the revenue that would be derived if the 
schedule of rates were uniform for all groups. In the latter event, the 
payments from each group of subscribers must be calculated to yield 
revenues substantially equivalent to the product of the total number of 
enrollees (or subscribers) expected to be enrolled from the group and 
the per-enrollee-per-month (or per-subscriber-per-month) revenue 
requirement for the HMO. Under the system described in this paragraph, 
rates of payment may not vary because of actual or anticipated 
utilization of services by individuals associated with any specific 
group of subscribers. These provisions do not preclude changes in the 
rates of payment that are established for new enrollments or re-
enrollments and that do not apply to existing contracts until the 
renewal of these contracts.
    (2) A system of fixing rates of payment for health services may 
provide that the rates will be fixed for individuals and families by 
groups. Except as otherwise authorized in this paragraph, such rates 
must be equivalent for all individuals in the same group and for all 
families of similar composition in the same group. If an HMO is to fix 
rates of payment for individuals and families by groups, it must:
    (i) Classify all of the enrollees of the organization into classes 
based on factors that the HMO determines predict the differences in the 
use of health services by the individuals or families in each class and 
which have not been disapproved by HCFA,
    (ii) Determine its revenue requirements for providing services to 
the enrollees of each class established under paragraph (b)(2)(i) of 
this section, and
    (iii) Fix the rates of payment for the individuals and families of a 
group on the basis of a composite of the organization's revenue 
requirements determined under paragraph (b)(2)(ii) of this section for 
providing services to them

[[Page 541]]

as members of the classes established under paragraph (b)(2)(i) of this 
section. HCFA will review the factors used by each HMO to establish 
classes under paragraph (b)(2)(i) of this section. If HCFA determines 
that any such factor may not reasonably be used to predict the use of 
the health services by individuals and families, HCFA will disapprove 
the factor for that purpose.
    (3)(i) Nominal differentials in rates may be established to reflect 
differences in marketing costs and the different administrative costs of 
collecting payments from the following categories of potential 
subscribers:
    (A) Individual (non-group) subscribers (including their families).
    (B) Small groups of subscribers (100 subscribers or fewer).
    (C) Large groups of subscribers (over 100 subscribers).
    (ii) Differentials in rates may be established for subscribers 
enrolled in an HMO: (A) Under a contract with a governmental authority 
under section 1079 (``Contracts for Medical Care for Spouses and 
Children: Plans'') or section 1086 (``Contracts for Health Benefits for 
Certain Members, Former Members and their Dependents'') of title 10 
(``Armed Forces''), United States Code; or (B) under any other 
governmental program (other than the health benefits program authorized 
by chapter 89 (``Health Insurance'') of title 5 (``Government 
Organization and Employees''), United States Code; or (C) under any 
health benefits program for employees of States, political subdivisions 
of states, and other public entities.
    (4) An HMO may establish a separate community rate for separate 
regional components of the organization upon satisfactory demonstration 
to HCFA of the following:
    (i) Each regional component is geographically distinct and separate 
from any other regional component; and
    (ii) Each regional component provides substantially the full range 
of basic health services to its enrollees, without extensive referral 
between components of the organization for these services, and without 
substantial utilization by any two components of the same health care 
facilities. The separate community rate for each regional component of 
the HMO must be based on the different costs of providing health 
services in the respective regions.
    (c) Exceptions to community rating requirement. (1) In the case of 
an HMO that provided comprehensive health services on a prepaid basis 
before it became a qualifed HMO, the requirement of community rating 
shall not apply to the HMO during the forty-eight month period beginning 
with the month following the month in which it became a qualifed HMO.
    (2) The requirement of community rating does not apply to the basic 
health services payment for basic health services provided an enrollee 
who is a full-time student at an accredited institution of higher 
education.
    (d) Late payment penalty. HMOs may charge a late payment penalty on 
accounts receivable that are in arrears.
    (e) Review procedures for evaluating the community rating by class 
system under paragraph (b)(2).1 An HMO may establish a 
community rating system under paragraph (b)(2) of this section or 
revised factors used to establish classes after it receives written 
approval of the factors from HCFA. HCFA will give approval if it 
concludes that the factors can reasonably be used to predict the use of 
health services by individuals and families.
---------------------------------------------------------------------------

    \1\ Further information entitled ``Guidelines for Rating by Class'' 
may be obtained from the Office of Prepaid Health Care, Division of 
Qualification Analysis, HHS Cohen Bldg., room 4360, 330 Independence 
Ave. SW., Washington, DC 20201.
---------------------------------------------------------------------------

    (1) An HMO must make a written request to HCFA, listing the factors 
to be used in the community rating by class system under paragraph 
(b)(2) of this section.
    (2) HCFA will notify each HMO within 30 days of receipt of the 
request and application of one of the following:
    (i) The application is approved;
    (ii) Additional information or data are required and HCFA will 
notify the HMO of its decision within 30 days from the date of receipt 
of this information or data; or
    (iii) HCFA needs additional time to review the written request and 
the

[[Page 542]]

HMO will be notified of HCFA's decision within 90 days.

(Approved by the Office of Management and Budget under control number 
0915-0051)

(Sec. 215 of the Public Health Service Act, as amended, 58 Stat. 690, 67 
Stat. 631 (42 U.S.C. 216); secs. 1301-1318, as amended, Pub. L. 97-35, 
95 Stat. 572-578 (42 U.S.C. 300e-300e-17)

[45 FR 72528, Oct. 31, 1980, as amended at 47 FR 19339, May 5, 1982; 50 
FR 6175, Feb. 14, 1985. Redesignated at 52 FR 36746, Sept. 30, 1987, as 
amended at 56 FR 8853, Mar. 1, 1991; 58 FR 38082, 38083, July 15, 1993]



Sec. 417.105  Payment for supplemental health services.

    (a) An HMO may require supplemental health services payments, in 
addition to the basic health services payments, for the provision of 
each health service included in the supplemental health services set 
forth in Sec. 417.102 for which subscribers have contracted, or it may 
include supplemental health services in the basic health services 
provided its enrollees for a basic health services payment.
    (b) Supplemental health services payments may be made in any agreed 
upon manner, such as prepayment or fee-for-service. Supplemental health 
services payments that are fixed on a prepayment basis, however, must be 
fixed under a community rating system, unless the supplemental health 
services payment is for a supplemental health service provided an 
enrollee who is a full-time student at an accredited institution of 
higher education. In the case of an HMO that provided comprehensive 
health services on a prepaid basis before it became a qualifed HMO, the 
community rating requirement shall not apply to that HMO during the 
forty-eight month period beginning with the month following the month in 
which it became a qualifed HMO.

(Sec. 215 of the Public Health Service Act, as amended, 58 Stat. 690, 67 
Stat. 631 (42 U.S.C. 216); secs. 1301-1318, as amended, Pub. L. 97-35, 
95 Stat. 572-578 (42 U.S.C. 300e-300e-17)

[45 FR 72528, Oct. 31, 1980, as amended at 50 FR 6175, Feb. 14, 1985. 
Redesignated at 52 FR 36746, Sept. 30, 1987, as amended at 58 FR 38082, 
38083, July 15, 1993]



Sec. 417.106  Quality assurance program; Availability, accessibility, and continuity of basic and supplemental health services.

    (a) Quality assurance program. Each HMO or CMP must have an ongoing 
quality assurance program for its health services that meets the 
following conditions:
    (1) Stresses health outcomes to the extent consistent with the state 
of the art.
    (2) Provides review by physicians and other health professionals of 
the process followed in the provision of health services.
    (3) Uses systematic data collection of performance and patient 
results, provides interpretation of these data to its practitioners, and 
institutes needed change.
    (4) Includes written procedures for taking appropriate remedial 
action whenever, as determined under the quality assurance program, 
inappropriate or substandard services have been provided or services 
that ought to have been furnished have not been provided.
    (b) Availability and accessibility of health care services. Basic 
health services and those supplemental health services for which 
enrollees have contracted must be provided or arranged for by the HMO in 
accordance with the following rules:
    (1) Except as provided in paragraph (b)(2) of this section, the 
services must be available to each enrollee within the HMO's service 
area.
    (2) Exception. If the HMO's service area is located wholly within a 
nonmetropolitan area, the HMO may make available outside its service 
area any basic health service that is not a primary care or emergency 
care service, if the number of providers of that basic health service 
who will provide the service to the HMO's enrollees is insufficient to 
meet the demand. As used in this paragraph, primary care includes 
general practice, family practice, general internal medicine, general 
pediatrics, and general obstetrics and gynecology. An HMO that provides 
the services covered by these fields through at least a general or 
family practitioner, or a pediatrician and a general internist, is 
considered to be providing primary care.

[[Page 543]]

    (3) The services must be available and accessible with reasonable 
promptness to each of the HMO's enrollees as ensured through--
    (i) Staffing patterns within generally accepted norms for meeting 
the projected enrollment needs; and
    (ii) Geographic location, hours of operation, and arrangements for 
after-hours services. (Medically necessary emergency services must be 
available 24 hours a day, 7 days a week.)
    (c) Continuity of care. The HMO must ensure continuity or care 
through arrangements that include but are not limited to the following:
    (1) Use of a health professional who is primarily responsible for 
coordinating the enrollee's overall health care.
    (2) A system of health and medical records that accumulates 
pertinent information about the enrollee's health care and makes it 
available to appropriate professionals.
    (3) Arrangements made directly or through the HMO's providers to 
ensure that the HMO or the health professional who coordinates the 
enrollee's overall health care is kept informed about the services that 
the referral resources furnish to the enrollee.
    (d) Confidentiality of health records. Each HMO must establish 
adequate procedures to ensure the confidentiality of the health and 
medical records of its enrollees.

[58 FR 38068, July 15, 1993]



Subpart C--Qualified Health Maintenance Organizations: Organization and 
                                Operation

    Source: 58 FR 38068, July 15, 1993, unless otherwise noted.



Sec. 417.120  Fiscally sound operation and assumption of financial risk.

    (a) Fiscally sound operation--(1) General requirements. Each HMO 
must have a fiscally sound operation, as demonstrated by the following:
    (i) Total assets greater than total unsubordinated liabilities. In 
evaluating assets and liabilities, loan funds awarded or guaranteed 
under section 1306 of the PHS Act are not included as liabilities.
    (ii) Sufficient cash flow and adequate liquidity to meet obligations 
as they become due.
    (iii) A net operating surplus, or a financial plan that meets the 
requirements of paragraph (a)(2) of this section.
    (iv) An insolvency protection plan that meets the requirements of 
Sec. 417.122(b) for protection of enrollees.
    (v) A fidelity bond or bonds, procured and maintained by the HMO, in 
an amount fixed by its policymaking body but not less than $100,000 per 
individual, covering each officer and employee entrusted with the 
handling of its funds. The bond may have reasonable deductibles, based 
upon the financial strength of the HMO.
    (vi) Insurance policies or other arrangements, secured and 
maintained by the HMO and approved by HCFA to insure the HMO against 
losses arising from professional liability claims, fire, theft, fraud, 
embezzlement, and other casualty risks.
    (2) Financial plan requirement. (i) If an HMO has not earned a 
cumulative net operating surplus during the three most recent fiscal 
years, did not earn a net operating surplus during the most recent 
fiscal year or does not have positive net worth, the HMO must submit a 
financial plan satisfactory to HCFA to achieve net operating surplus 
within available fiscal resources.
    (ii) This plan must include--
    (A) A detailed marketing plan;
    (B) Statements of revenue and expense on an accrual basis;
    (C) Sources and uses of funds statements; and
    (D) Balance sheets.
    (b) Assumption of financial risk. Each HMO must assume full 
financial risk on a prospective basis for the provision of basic health 
services, except that it may obtain insurance or make other arrangements 
as follows:
    (1) For the cost of providing to any enrollee basic health services 
with an aggregate value of more than $5,000 in any year.
    (2) For the cost of basic health services obtained by its enrollees 
from sources other than the HMO because medical necessity required that 
they be furnished before they could be secured through the HMO.

[[Page 544]]

    (3) For not more than 90 percent of the amount by which its costs 
for any of its fiscal years exceed 115 percent of its income for that 
fiscal year.
    (4) For physicians or other health professionals, health care 
institutions, or any other combination of such individuals or 
institutions to assume all or part of the financial risk on a 
prospective basis for their furnishing of basic health services to the 
HMO's enrollees.



Sec. 417.122  Protection of enrollees.

    (a) Liability protection. (1) Each HMO must adopt and maintain 
arrangements satisfactory to HCFA to protect its enrollees from 
incurring liability for payment of any fees that are the legal 
obligation of the HMO. These arrangements may include any of the 
following:
    (i) Contractual arrangements that prohibit health care providers 
used by the enrollees from holding any enrollee liable for payment of 
any fees that are the legal obligation of the HMO.
    (ii) Insurance, acceptable to HCFA.
    (iii) Financial reserves, acceptable to HCFA, that are held for the 
HMO and restricted for use only in the event of insolvency.
    (iv) Any other arrangements acceptable to HCFA.
    (2) The requirements of this paragraph do not apply to an HMO if 
HCFA determines that State law protects the HMO enrollees from liability 
for payment of any fees that are the legal obligation of the HMO.
    (b) Protection against loss of benefits if the HMO becomes 
insolvent. The insolvency protection plan required under Sec. 417.120(a) 
must provide for continuation of benefits as follows:
    (1) For all enrollees, for the duration of the contract period for 
which payment has been made.
    (2) For enrollees who are in an inpatient facility on the date of 
insolvency, until they are discharged from the facility.



Sec. 417.124  Administration and management.

    (a) General requirements. Each HMO must have administrative and 
managerial arrangements satisfactory to HCFA, as demonstrated by at 
least the following:
    (1) A policymaking body that exercises oversight and control over 
the HMO's policies and personnel to ensure that management actions are 
in the best interest of the HMO and its enrollees.
    (2) Personnel and systems sufficient for the HMO to organize, plan, 
control and evaluate the financial, marketing, health services, quality 
assurance program, administrative and management aspects of the HMO.
    (3) At a minimum, management by an executive whose appointment and 
removal are under the control of the HMO's policymaking body.
    (b) Full and fair disclosure--(1) Basic rule. Each HMO must prepare 
a written description of the following:
    (i) Benefits (including limitations and exclusions).
    (ii) Coverage (including a statement of conditions on eligibility 
for benefits).
    (iii) Procedures to be followed in obtaining benefits and a 
description of circumstances under which benefits may be denied.
    (iv) Rates.
    (v) Grievance procedures.
    (vi) Service area.
    (vii) Participating providers.
    (viii) Financial condition including at least the following most 
recently audited information: Current assets, other assets, total 
assets; current liabilities, long term liabilities; and net worth.
    (2) Requirements for the description. (i) The description must be 
written in a way that can be easily understood by the average person who 
might enroll in the HMO.
    (ii) The description of benefits and coverage may be in general 
terms if reference is made to a detailed statement of benefits and 
coverage that is available without cost to any person who enrolls in the 
HMO or to whom the opportunity for enrollment is offered.
    (iii) The HMO must provide the description to any enrollee or person 
who is eligible to elect the HMO option and who requests the material 
from the HMO or the administrator of a health benefits plan. For 
purposes of this requirement, ``administrator'' (of a health benefits 
plan) has the meaning

[[Page 545]]

it is given in the Employment Retirement Income Security Act of 1974 
(ERISA) at 29 U.S.C. 1002(16)(A).
    (iv) If the HMO provides health services through individual practice 
associations (IPAs), the HMO must specify the number of member 
physicians by specialty, and a listing of the hospitals where HMO 
enrollees will receive basic and supplemental health services.
    (v) If the HMO provides health services other than through IPAs, the 
HMO must specify, for each ambulatory care facility, the facility's 
address, days and hours of operation, and the number of physicians by 
specialty, and a listing of the hospitals where HMO enrollees will 
receive basic and supplemental health services.
    (c) Broadly representative enrollment. (1) Each HMO must offer 
enrollment to persons who are broadly representative of the various age, 
social, and income groups within its service area.
    (2) If an HMO has a medically underserved population located in its 
service area, not more than 75 percent of its enrollees may be from the 
medically underserved population unless the area in which that 
population resides is a rural area.
    (d) Health status and enrollment. (1) The HMO may not, on the basis 
of health status, health care needs, or age of the individual--
    (i) Expel or refuse to reenroll any enrollee; or
    (ii) Refuse to enroll individual members of a group.
    (2) For purposes of this paragraph, a ``group'' is composed of 
individuals who enroll in the HMO under a contract or other arrangement 
that covers two or more subscribers. Examples of groups are employees 
who enroll under a contract between their employer and the HMO, or 
members of an organization that arranges coverage for its membership.
    (3) Nothing in this subpart prohibits an HMO from requiring that, as 
a condition for continued eligibility for enrollment, enrolled dependent 
children, upon reaching a specified age, convert to individual 
enrollment, consistent with paragraph (e) of this section.
    (e) Conversion of enrollment. (1) Each HMO must offer individual 
enrollment to the following:
    (i) Each enrollee (and his or her enrolled dependents) leaving a 
group.
    (ii) Each enrollee who would otherwise cease to be eligible for HMO 
enrollment because of his or her age, or the death or divorce of an 
enrollee.
    (2) The individual enrollment offered must meet the conditions of 
subpart B of this part and this subpart C.
    (3) The HMO is not required to offer individual enrollment except to 
the enrollees specified in this paragraph.
    (4) The HMO must offer the enrollment on the same terms and 
conditions that it makes available to other nongroup enrollees.
    (f) [Reserved]
    (g) Grievance procedures. Each HMO must have and use meaningful 
procedures for hearing and resolving grievances between the HMO's 
enrollees and the HMO, including the HMO staff and medical groups and 
IPAs that furnish services. These procedures must ensure that:
    (1) Grievances and complaints are transmitted in a timely manner to 
appropriate HMO decisionmaking levels that have authority to take 
corrective action; and
    (2) Appropriate action is taken promptly, including a full 
investigation if necessary and notification of concerned parties as to 
the results of the HMO's investigation.
    (h) Certification of institutional providers. Each HMO must ensure 
that its affiliated institutional providers meet one of the following 
conditions:
    (1) In the case of hospitals, are either accredited by the Joint 
Commission on Accreditation of Health Care Organizations, or certified 
by Medicare.
    (2) In the case of laboratories, are either CLIA-exempt, or have in 
effect a valid certificate of one of the following types, issued by HCFA 
in accordance with section 353 of the PHS Act and part 493 of this 
chapter:
    (i) Registration certificate.
    (ii) Certificate.
    (iii) Certificate of waiver.
    (iv) Certificate of accreditation.
    (3) In the case of other affiliated institutional providers, are 
certified for participation in Medicare and Medicaid in accordance with 
part 405, 416, 418,

[[Page 546]]

488, or 491 of this chapter, as appropriate.

[58 FR 38068, July 15, 1993, as amended at 59 FR 49843, Sept. 30, 1994]



Sec. 417.126  Recordkeeping and reporting requirements.

    (a) General reporting and disclosure requirements. Each HMO must 
have an effective procedure to develop, compile, evaluate, and report to 
HCFA, to its enrollees, and to the general public, at the times and in 
the manner that HCFA requires, and while safeguarding the 
confidentiality of the doctor-patient relationship, statistics and other 
information with respect to the following:
    (1) The cost of its operations.
    (2) The patterns of utilization of its services.
    (3) The availability, accessibility, and acceptability of its 
services.
    (4) To the extent practical, developments in the health status of 
its enrollees.
    (5) Information demonstrating that the HMO has a fiscally sound 
operation.
    (6) Other matters that HCFA may require.
    (b) Significant business transactions. Each HMO must report to HCFA 
annually, within 120 days of the end of its fiscal year (unless for good 
cause shown, HCFA authorizes an extension of time), the following:
    (1) A description of significant business transactions (as defined 
in paragraph (c) of this section) between the HMO and a party in 
interest.
    (2) With respect to those transactions--
    (i) A showing that the costs of the transactions listed in paragraph 
(c) of this section do not exceed the costs that would be incurred if 
these transactions were with someone who is not a party in interest; or
    (ii) If they do exceed, a justification that the higher costs are 
consistent with prudent management and fiscal soundness requirements.
    (3) A combined financial statement for the HMO and a party in 
interest if either of the following conditions is met:
    (i) Thirty-five percent or more of the costs of operation of the HMO 
go to a party in interest.
    (ii) Thirty-five percent or more of the revenue of a party in 
interest is from the HMO.
    (c) ``Significant business transaction'' defined. As used in 
paragraph (b) of this section--
    (1) Business transaction means any of the following kinds of 
transactions:
    (i) Sale, exchange or lease of property. 
    (ii) Loan of money or extension of credit.
    (iii) Goods, services, or facilities furnished for a monetary 
consideration, including management services, but not including--
    (A) Salaries paid to employees for services performed in the normal 
course of their employment; or
    (B) Health services furnished to the HMO's enrollees by hospitals 
and other providers, and by HMO staff, medical groups, or IPAs, or by 
any combination of those entities.
    (2) Significant business transaction means any business transaction 
or series of transactions of the kind specified in paragraph (c)(1) of 
this section that, during any fiscal year of the HMO, have a total value 
that exceeds $25,000 or 5 percent of the HMO's total operating expenses, 
whichever is less.
    (d) Requirements for combined financial statements. (1) The combined 
financial statements required by paragraph (b)(3) of this section must 
display in separate columns the financial information for the HMO and 
each of these parties in interest.
    (2) Inter-entity transactions must be eliminated in the consolidated 
column.
    (3) These statements must have been examined by an independent 
auditor in accordance with generally accepted accounting principles, and 
must include appropriate opinions and notes.
    (4) Upon written request from an HMO showing good cause, HCFA may 
waive the requirement that its combined financial statement include the 
financial information required in this paragraph (d) with respect to a 
particular entity.
    (e) Reporting and disclosure under ERISA. (1) For any employees' 
health benefits plan that includes an HMO in

[[Page 547]]

its offerings, the HMO must furnish, upon request, the information the 
plan needs to fulfill its reporting and disclosure obligations (with 
respect to the particular HMO) under the Employee Retirement Income 
Security Act of 1974 (ERISA).
    (i) The HMO must furnish the information to the employer or the 
employer's designee, or to the plan administrator, as the term 
``administrator'' is defined in ERISA.
    (ii) Loan of money or extension of credit.
    (iii) Goods, services, or facilities furnished for a monetary 
consideration, including management services, but not including--
    (A) Salaries paid to employees for services performed in the normal 
course of their employment; or
    (B) Health services furnished to the HMO's enrollees by hospitals 
and other providers, and by HMO staff, medical groups, or IPAs, or by 
any combination of those entities.
    (2) Significant business transaction means any business transaction 
or series of transactions of the kind specified in paragraph (c)(1) of 
this section that, during any fiscal year of the HMO, have a total value 
that exceeds $25,000 or 5 percent of the HMO's total operating expenses, 
whichever is less.
    (d) Requirements for combined financial statements. (1) The combined 
financial statements required by paragraph (b)(3) of this section must 
display in separate columns the financial information for the HMO and 
each of these parties in interest.
    (2) Inter-entity transactions must be eliminated in the consolidated 
column.
    (3) These statements must have been examined by an independent 
auditor in accordance with generally accepted accounting principles, and 
must include appropriate opinions and notes.
    (4) Upon written request from an HMO showing good cause, HCFA may 
waive the requirement that its combined financial statement include the 
financial information required in this paragraph (d) with respect to a 
particular entity.
    (e) Reporting and disclosure under ERISA. (1) For any employees' 
health benefits plan that includes an HMO in its offerings, the HMO must 
furnish, upon request, the information the plan needs to fulfill its 
reporting and disclosure obligations (with respect to the particular 
HMO) under the Employee Retirement Income Security Act of 1974 (ERISA).
    (2) The HMO must furnish the information to the employer or the 
employer's designee, or to the plan administrator, as the term 
``administrator'' is defined in ERISA.



            Subpart D--Application for Federal Qualification



Sec. 417.140  Scope.

    This subpart sets forth--
    (a) The requirements for--
    (1) Entities that seek qualification as HMOs under title XIII of the 
PHS Act; and
    (2) HMOs that seek--
    (i) Qualification for their regional components; or
    (ii) Expansion of their service areas;
    (b) The procedures that HCFA follows to make determinations; and
    (c) Other related provisions, including application fees.

[59 FR 49836, Sept. 30, 1994]



Sec. 417.142  Requirements for qualification.

    (a) General rules. (1) An entity seeking qualification as an HMO 
must meet the requirements and provide the assurances specified in 
paragraphs (b) through (f) of this section, as appropriate.
    (2) HCFA determines whether the entity is an HMO on the basis of the 
entity's application and any additional information and investigation 
(including site visits) that HCFA may require.
    (3) HCFA may determine that an entity is any of the following:
    (i) An operational qualified HMO.
    (ii) A preoperational qualified HMO.
    (iii) A transitional qualified HMO.
    (b) Operational qualified HMO. HCFA determines that an entity is an 
operational qualified HMO if--
    (1) HCFA finds that the entity meets the requirements of subparts B 
and C of this part.

[[Page 548]]

    (2) The entity, within 30 days of HCFA's determination, provides 
written assurances, satisfactory to HCFA, that it--
    (i) Provides and will provide basic health services (and any 
supplemental health services included in any contract) to its enrollees;
    (ii) Provides and will provide these services in the manner 
prescribed in sections 1301(b) and 1301(c) of the PHS Act and subpart B 
of this part;
    (iii) Is organized and operated and will continue to be organized 
and operated in the manner prescribed in section 1301(c) of the PHS Act 
and subpart C of this part;
    (iv) Under arrangements that safeguard the confidentiality of 
patient information and records, will provide access to HCFA and the 
Comptroller General or any of their duly authorized representatives for 
the purpose of audit, examination or evaluation to any books, documents, 
papers, and records of the entity relating to its operation as an HMO, 
and to any facilities that it operates; and
    (v) Will continue to comply with any other assurances that it has 
given to HCFA.
    (c) Preoperational qualified HMO. (1) HCFA may determine that an 
entity is a preoperational qualified HMO if it provides, within 30 days 
of HCFA's determination, satisfactory assurances that it will become 
operational within 60 days following that determination and will, when 
it becomes operational, meet the requirements of subparts B and C of 
this part.
    (2) Within 30 days after receiving notice that the entity has begun 
operation, HCFA determines whether it is an operational qualified HMO. 
In the absence of this determination, the entity is not an operational 
qualified HMO even though it becomes operational.
    (d) Transitional qualified HMO: General rules--(1) Basic 
requirements. HCFA may determine that an entity is a transitional 
qualified HMO if the entity--
    (i) Meets the requirements of paragraph (d)(2) through (d)(4) of 
this section; and
    (ii) Provides the assurances specified in paragraphs (d)(5) through 
(d)(7) of this section within 30 days of HCFA's determination.
    (2) Organization and operation. The entity is organized and operated 
in accordance with subpart C of this part, except that it need not--
    (i) Assume full financial risk for the provision of basic health 
services as required by Sec. 417.120(b); or
    (ii) Comply with the limitations that are imposed on insurance by 
Sec. 417.120(b)(1).
    (3) Range of services. The entity is currently providing the 
following services on a prepaid basis:
    (i) Physician services.
    (ii) Outpatient services and inpatient hospital services. (The 
entity need not provide or pay for hospital inpatient or outpatient 
services that it can show are being provided directly, through 
insurance, or under arrangements, by other entities.)
    (iii) Medically necessary emergency services.
    (iv) Diagnostic laboratory services and diagnostic and therapeutic 
radiologic services.

These services must meet the requirement of Sec. 417.101, but may be 
limited in time and cost without regard to the constraints imposed by 
Sec. 417.101(a).
    (4) Payment for services--(i) General rule. The entity pays for 
basic health services in accordance with Sec. 417.104, except that it 
need not comply with the copayments limitations imposed by 
Sec. 417.104(a)(4).
    (ii) Determination of payment rates. In determining payment rates, 
the entity need not comply with the community rating requirements of 
Secs. 417.104(b) and 417.105(b).
    (5) Contracts in effect on the date of HCFA's determination. The 
entity gives assurances that it will meet the following conditions with 
respect to its group and individual contracts that are in effect on the 
date of HCFA's determination, and which are renewed or renegotiated 
during the period approved by HCFA under paragraph (d)(6) of this 
section:
    (i) Continue to provide services in accordance with paragraph (d)(3) 
of this section.
    (ii) Continue to be organized and operated and to pay for basic 
health services in accordance with paragraphs

[[Page 549]]

(d)(2) and (d)(4) of this section, respectively.
    (6) Time-phased plan. The entity gives assurances as follows:
    (i) It will implement a time-phased plan acceptable to HCFA that--
    (A) May not extend for more than 3 years from the date of HCFA's 
determination; and
    (B) Specifies definite steps for meeting, at the time of renewal of 
each group or individual contract, all the requirements of subparts B 
and C of this part.
    (ii) Upon completion of this time-phased plan, it will--
    (A) Provide basic and supplemental services to all of its enrollees; 
and
    (B) Be organized and operated, and provide services, in accordance 
with subparts B and C of this part.
    (7) Contracts entered into after the date of HCFA's determination. 
The entity gives assurances that, with respect to any group or 
individual contract entered into after the date of HCFA's determination, 
it will--
    (i) Be organized and operated in accordance with subpart C of this 
part; and
    (ii) Provide basic health services and any supplemental health 
services included in the contract, in accordance with subpart B of this 
part.
    (e) Failure to sign assurances timely. If HCFA determines that an 
entity meets the requirements for qualification and the entity fails to 
sign its assurances within 30 days following the date of the 
determination, HCFA gives the entity written notice that its application 
is considered withdrawn and that it is not a qualified HMO.
    (f) Qualification of regional components. An HMO that has more than 
one regional component is considered qualified for those regional 
components for which assurances have been signed in accordance with this 
section.
    (g) Special rules: Enrollees entitled to Medicare or Medicaid. For 
an HMO that accepts enrollees entitled to Medicare or Medicaid, the 
following rules apply:
    (1) The requirements of titles XVIII and XIX of the Act, as 
appropriate, take precedence over conflicting requirements of sections 
1301(b) and 1301(c) of the PHS Act.
    (2) The HMO must, with respect to its enrollees entitled to Medicare 
or Medicaid, comply with the applicable requirement of title XVIII or 
XIX, including those that pertain to--
    (i) Deductibles and coinsurance;
    (ii) Enrollment mix and enrollment practices;
    (iii) State plan rules on copayment options; and
    (iv) Grievance procedures.
    (3) An HMO that complies with paragraph (g)(2) of this section may 
obtain and retain Federal qualification if, for its other enrollees, the 
HMO meets the requirements of sections 1301(b) and 1301(c) of the PHS 
Act and implementing regulations in this subpart D and in subparts B and 
C of this part.
    (h) Special rules: Enrollees under the Federal employee health 
benefits program (FEHBP). An HMO that accepts enrollees under the FEHBP 
(Chapter 89 of title 5 of the U.S.C.) may obtain and retain Federal 
qualification if, for its other enrollees, it complies with the 
requirements of section 1301(b) and 1301(c) of the PHS Act and 
implementing regulations in this subpart D and subparts B and C of this 
part.

[59 FR 49836, Sept. 30, 1994]



Sec. 417.143  Application requirements.

    (a) General requirements. This section sets forth application 
requirements for entities that seek qualification as HMOs; HMOs that 
seek expansion of their service areas; and HMOs that seek qualification 
of their regional components as HMOs.
    (b) Completion of an application form. (1) In order to receive a 
determination concerning whether an entity is a qualified HMO, an 
individual authorized to act for the entity (the applicant) must 
complete an application form provided by HCFA.
    (2) The authorized individual must describe thoroughly how the 
entity meets, or will meet, the requirements for qualified HMOs 
described in the PHS Act and in subparts B and C of this part, this 
subpart D, and 417.168 and 417.169 of subpart F.
    (c) Collection of an application fee. In accordance with the 
requirements of 31 U.S.C. 9701, Fees and charges for Government services 
and things of value, HCFA determines the amount of the

[[Page 550]]

application fee that must be submitted with each type of application.
    (1) The fee is reasonably related to the Federal government's cost 
of qualifying an entity and may vary based on the type of application.
    (2) Each type of application has one set fee rather than a charge 
based on the specific cost of each determination. (For example, each 
Federally qualified HMO applicant seeking Federal qualification of one 
of its regional components as an HMO is charged the same amount, unless 
the amount of the fee has been changed under paragraph (f) of this 
section.)
    (d) Application fee amounts. The application fee amounts for 
applications completed on or after July 13, 1987 are as follows:
    (1) $18,400 for an entity seeking qualification as an HMO or 
qualification of a regional component of an HMO.

If, in the case of an HMO seeking qualification of a regional component, 
HCFA determines that there is no need for a site visit, $8,000 will be 
returned to the applicant.
    (2) $6,900 for an HMO seeking expansion of its service area.
    (3) $3,100 for a CMP seeking qualification as an HMO.
    (e) Refund of an application fee. HCFA refunds an application fee 
only if the entity withdraws its application within 10 working days 
after receipt by HCFA. Application fees are not returned in any other 
circumstance, even if qualification or certification is denied.
    (f) Procedure for changing the amount of an application fee. If HCFA 
determines that a change in the amount of a fee is appropriate, HCFA 
issues a notice of proposed rulemaking in the Federal Register to 
announce the proposed new amount.
    (g) New application after denial. An entity may not submit another 
application under this subpart for the same type of determination for 
four full months after the date of the notice in which HCFA denied the 
application.
    (h) Disclosure of application information under the Freedom of 
Information Act. An applicant submitting material that he or she 
believes is protected from disclosure under 5 U.S.C. 552, the Freedom of 
Information Act, or because of exceptions provided in 45 CFR part 5, the 
Department's regulations providing exceptions to disclosure, should 
label the material ``privileged'' and include an explanation of the 
applicability of an exception described in 45 CFR part 5.

[52 FR 22321, June 11, 1987. Redesignated at 52 FR 36746, Sept. 30, 
1987, as amended at 58 FR 38077, July 15, 1993]



Sec. 417.144  Evaluation and determination procedures.

    (a) Basis for evaluation and determination. (1) HCFA evaluates an 
application for Federal qualification on the basis of information 
contained in the application itself and any additional information that 
HCFA obtains through on-site visits, public hearings, and any other 
appropriate procedures.
    (2) If the application is incomplete, HCFA notifies the entity and 
allows 60 days from the date of the notice for the entity to furnish the 
missing information.
    (3) After evaluating all relevant information, HCFA determines 
whether the entity meets the applicable requirements of Secs. 417.142 
and 417.143.
    (b) Notice of determination. HCFA notifies each entity that applies 
for qualification under this subpart of its determination and the basis 
for the determination. The determination may be granting of 
qualification, intent to deny, or denial.
    (c) Intent to deny. (1) If HCFA finds that the entity does not 
appear to meet the requirements for qualification and appears to be able 
to meet those requirements within 60 days, HCFA gives the entity notice 
of intent to deny qualification and a summary of the basis for this 
preliminary finding.
    (2) Within 60 days from the date of the notice, the entity may 
respond in writing to the issues or other matters that were the basis 
for HCFA's preliminary finding, and may revise its application to remedy 
any defects identified by HCFA.
    (d) Denial and reconsideration of denial. (1) If HCFA denies an 
application for qualification under this subpart, HCFA gives the entity 
written notice of the denial and an opportunity to request 
reconsideration of that determination.

[[Page 551]]

    (2) A request for reconsideration must--
    (i) Be submitted in writing, within 60 days following the date of 
the notice of denial;
    (ii) Be addressed to the HCFA officer or employee who denied the 
application; and
    (iii) Set forth the grounds upon which the entity requests 
reconsideration, specifying the material issues of fact and of law upon 
which the entity relies.
    (3) HCFA bases its reconsideration upon the record compiled during 
the qualification review proceedings, materials submitted in support of 
the request for reconsideration, and other relevant materials available 
to HCFA.
    (4) HCFA gives the entity written notice of the reconsidered 
determination and the basis for the determination.
    (e) Information on qualified HMOs--(1) Federal Register notices. In 
quarterly Federal Register notices, HCFA gives the names, addresses, and 
service areas of newly qualified HMOs and describes the expanded service 
areas of other qualified HMOs.
    (2) Listings. A cumulative list of qualified HMOs is available from 
the following office, which is open from 8:30 a.m. to 5 p.m., Monday 
through Friday: Office of Managed Care, room 4360, Cohen Building, 400 
Independence Avenue SW., Washington, DC 20201.

[59 FR 49837, Sept. 30, 1994]



 Subpart E--Inclusion of Qualified Health Maintenance Organizations in 
                     Employee Health Benefits Plans

    Source: 45 FR 72517, Oct. 31, 1980, unless otherwise noted. 
Redesignated at 52 FR 36746, Sept. 30, 1987.



Sec. 417.150  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Agreement means a collective bargaining agreement.
    Bargaining representative means an individual or entity designated 
or selected, under any applicable Federal, State, or local law, or 
public entity collective bargaining agreement, to represent employees in 
collective bargaining, or any other employee representative designated 
or selected under any law.
    Carrier means a voluntary association, corporation, partnership, or 
other organization that is engaged in providing, paying for, or 
reimbursing all or part of the cost of health benefits under group 
insurance policies or contracts, medical or hospital service agreements, 
enrollment or subscription contracts, or similar group arrangements, in 
consideration of premiums or other periodic charges payable to the 
carrier.
    Collective bargaining agreement means an agreement entered into 
between an employing entity and the bargaining representative of its 
employees.
    Contract means an employer-employee or public entity-employee 
contract, or a contract for health benefits.
    Designee means any person or entity authorized to act on behalf of 
an employing entity or a group of employing entities to offer the option 
of enrollment in a qualified health maintenance organization to their 
eligible employees.
    Eligible employee means an employee who meets the employer's 
requirements for participation in the health benefits plan.
    Employee means any individual employed by an employer or public 
entity on a full-time or part-time basis.
    Employer has the meaning given that term in section 3(d) of the Fair 
Labor Standards Act of 1938, except that it--
    (1) Includes non-appropriated fund instrumentalities of the United 
States Government; and
    (2) Excludes the following:
    (i) The governments of the United States, the District of Columbia 
and the territories and possessions of the United States, the 50 States 
and their political subdivisions, and any agencies or instrumentalities 
of any of the foregoing, including the United States Postal Service and 
Postal Rate Commission.
    (ii) Any church, or convention or association of churches, and any 
organization operated, supervised, or controlled by a church, or 
convention or association of churches that meets the following 
conditions:

[[Page 552]]

    (A) Is an organization that is described in section 501(c)(3) of the 
Internal Revenue Code of 1954.
    (B) Does not discriminate, in the employment, compensation, 
promotion or termination of employment of any personnel, or in the 
granting of staff and other privileges to physicians or other health 
personnel, on the grounds that the individuals obtain health care 
through HMOs, or participate in furnishing health care through HMOs.
    Employing entity means an employer or public entity.
    Employing entity-employee contract means a legally enforceable 
agreement (other than a collective bargaining agreement) between an 
employing entity and its employees for the provision of, or payment for, 
health benefits for its employees, or for its employees and their 
eligible dependents.
    Group enrollment period means the period of at least 10 working days 
each calendar year during which each eligible employee is given the 
opportunity to select among the alternatives included in a health 
benefits plan.
    Health benefits means health benefits and services.
    Health benefits contract means a contract or other agreement between 
an employing entity or a designee and a carrier for the provision of, or 
payment for, health benefits to eligible employees or to eligible 
employees and their eligible dependents.
    Health benefits plan means any arrangement, to provide or pay for 
health services, that is offered to eligible employees, or to eligible 
employees and their eligible dependents, by or on behalf of an employing 
entity.
    Public entity means the 50 states, Puerto Rico, Guam, the Virgin 
Islands, the Northern Mariana Islands and American Samoa and their 
political subdivisions, the District of Columbia, and any agency or 
instrumentality of the foregoing, and political subdivisions include 
counties, parishes, townships, cities, municipalities, towns, villages, 
and incorporated villages.
    Qualified HMO means an HMO that has in effect a determination, made 
under subpart D of this part, that the HMO is an operational, 
preoperational, or transitional qualified HMO.
    To offer a health benefits plan means to make participation in a 
health benefits plan available to eligible employees, or to eligible 
employees and their eligible dependents regardless of whether the 
employing entity makes a financial contribution to the plan on behalf of 
these employees, directly or indirectly, for example, through payments 
on any basis into a health and welfare trust fund.

[45 FR 72517, Oct. 31, 1980, as amended at 47 FR 19341, May 5, 1982. 
Redesignated at 52 FR 36746, Sept. 30, 1987, as amended at 58 FR 38077, 
July 15, 1993; 59 FR 49837, 49843, Sept. 30, 1994]



Sec. 417.151  Applicability.

    (a) Basic rule. Effective October 24, 1995 1, this 
subpart applies to any employing entity that offers a health benefits 
plan to its employees, meets the conditions specified in paragraphs (b) 
through (e) of this section, and elects to include one or more qualified 
HMOs in the health plan alternatives it offers its employees.
---------------------------------------------------------------------------

    \1\  Before October 24, 1995, an employing entity that met the 
conditions specified in Sec. 417.151 was required to include one or more 
qualified HMOs, if it received from at least one qualified HMO a written 
request for inclusion and that request met the timing, content, and 
procedural requirements specified in Sec. 417.152.
---------------------------------------------------------------------------

    (b) Number of employees. During any calendar quarter of the 
preceding calendar year, the employer or public entity employed an 
average of not less than 25 employees.
    (c) Minimum wage. During any calendar quarter of the preceding 
calendar year, the employer was required to pay the minimum wage 
specified in section 6 of the Fair Labor Standards Act of 1938, or would 
have been required to pay that wage but for section 13(a) of that Act.
    (d) Federal assistance under section 317 of the PHS Act. The public 
entity has a pending application for, or is receiving, assistance under 
section 317 of the PHS Act.
    (e) Employees in HMO's service area. At least 25 of the employing 
entity's

[[Page 553]]

employees reside within the HMO's service area.

[59 FR 49838, Sept. 30, 1994, as amended at 61 FR 27287, May 31, 1996]



Sec. 417.153  Offer of HMO alternative.

    (a) Basic rule. An employing entity that is subject to this subpart 
and that elects to include one or more qualified HMOs must offer the HMO 
alternative in accordance with this section.
    (b) Employees to whom the HMO option must be offered. Each employing 
entity must offer the option of enrollment in a qualified HMO to each 
eligible employee and his or her eligible dependents who reside in the 
HMO's service area.
    (c) Manner of offering the HMO option. (1) For employees who are 
represented by a bargaining representative, the option of enrollment in 
a qualified HMO--
    (i) Must first be presented to the bargaining representative; and
    (ii) If the representative accepts the option, must then be offered 
to each represented employee.
    (2) For employees not represented by a bargaining representative, 
the option must be offered directly to those employees.

[59 FR 49839, Sept. 30, 1994, as amended at 61 FR 27287, May 31, 1996]



Sec. 417.155  How the HMO option must be included in the health benefits plan.

    (a) HMO access to employees--(1) Purpose and timing.
    (i) Purpose. The employing entity must provide each HMO included in 
its health benefits plan fair and reasonable access to all employees 
specified in Sec. 417.153(b), so that the HMO can explain its program in 
accordance with Sec. 417.124(b).
    (ii) Timing. The employing entity must provide access beginning at 
least 30 days before, and continuing during, the group enrollment 
period.
    (2) Nature of access. (i) Access must include, at a minimum, 
opportunity to distribute educational literature, brochures, 
announcements of meetings, and other relevant printed materials that 
meet the requirements of Sec. 417.124(b).
    (ii) Access may not be more restrictive or less favorable than the 
access the employing entity provides to other offerors of options 
included in the health benefits plan, whether or not those offerors 
elect to avail themselves of that access.
    (b) Review of HMO offering materials. (1) The HMO must give the 
employing entity or designee opportunity to review, revise, and approve 
HMO educational and offering materials before distribution.
    (2) Revisions must be limited to correcting factual errors and 
misleading or ambiguous statements, unless--
    (i) The HMO and the employing entity agree otherwise; or
    (ii) Other revisions are required by law.
    (3) The employing entity or designee must complete revision of the 
materials promptly so as not to delay or otherwise interfere with their 
use during the group enrollment period.
    (c) Group enrollment period; prohibition of restrictions; effective 
date of HMO coverage--(1) Prohibition of restrictions. If an employing 
entity or designee includes the option of enrollment in a qualified HMO 
in the health benefits plan offered to its eligible employees, it must 
provide a group enrollment period before the effective date of HMO 
coverage. The employing entity may not impose waiting periods as a 
condition of enrollment in the HMO or of transfer from HMO to non-HMO 
coverage, or exclusions, or limitations based on health status.
    (2) Effective date of coverage. Unless otherwise agreed to by the 
employing entity, or designee, and the HMO, coverage under the HMO 
contract for employees selecting the HMO option begins on the day the 
non-HMO contract expires or is renewed without lapse.
    (3) Coordination of benefits. Nothing in this subpart precludes the 
uniform application of coordination of benefits agreements between the 
HMOs and the other carriers that are included in the health benefits 
plan.
    (d) Continued eligibility for ``free-standing'' health benefits--(1) 
Basic requirement. At the request of a qualified HMO, the employing 
entity or its designee must provide that employees selecting the option 
of HMO membership will not, because of this selection, lose

[[Page 554]]

their eligibility for free-standing dental, optical, or prescription 
drug benefits for which they were previously eligible or would be 
eligible if selecting a non-HMO option and that are not included in the 
services provided by the HMO to its enrollees as part of the HMO prepaid 
benefit package.
    (2) ``Free-standing'' defined. For purposes of this paragraph, the 
term ``free-standing'' refers to a benefit that--
    (i) Is not integrated or incorporated into a basic health benefits 
package or major medical plan, and
    (ii) Is--
    (A) Offered by a carrier other than the one offering the basic 
health benefits package or major medical plan; or
    (B) Subject to a premium separate from the premium for the basic 
health benefits package or major medical plan.
    (3) Examples of the employing entity's obligation with respect to 
the continued eligibility. (i) The health benefits plan includes a free-
standing dental benefit. The HMO does not offer any dental coverage as 
part of its health services provided to members on a prepaid basis. The 
employing entity must provide that employees who select the HMO option 
continue to be eligible for dental coverage. (If the dental coverage is 
not optional for employees selecting the non-HMO option, nothing in this 
regulation requires that the coverage be made optional for employees 
selecting the HMO option. Conversely, if this coverage is optional for 
employees selecting the non-HMO option, nothing in this regulation 
requires that the coverage be mandatory for employees selecting the non-
HMO option.) -
    (ii) The non-HMO option provides free-standing coverage for optical 
services (such as refraction and the provision of eyeglasses), and the 
HMO does not. The employing entity must provide that employees who 
select the HMO option continue to be eligible for optical coverage.
    (iii) The non-HMO option includes dental coverage in its major 
medical package, with a common deductible applied to dental as well as 
non-dental benefits. The HMO provides no dental coverage as part of its 
pre-paid health services. Because the dental coverage is not free-
standing, the employing entity is not required to provide that employees 
who select the HMO option continue to be eligible for dental coverage, 
but is free to do so.
    (e) Opportunity to select among coverage options: Requirement for 
affirmative written selection--(1) Opportunity other than during a group 
enrollment period. The employing entity or designee must provide 
opportunity (in addition to the group enrollment period) for selection 
among coverage options, by eligible employees who meet any of the 
following conditions:
    (i) Are new employees.
    (ii) Have been transferred or have changed their place of residence, 
resulting in--
    (A) Eligibility for enrollment in a qualified HMO for which they 
were not previously eligible by place of residence; or
    (B) Residence outside the service area of a qualified HMO in which 
they were previously enrolled.
    (iii) Are covered by any coverage option that ceases operation.
    (2) Prohibition of restrictions. When the employees specified in 
paragraph (e)(1) of this section are eligible to participate in the 
health benefits plan, the employing entity or designee must make 
available, without waiting periods or exclusions based on health status 
as a condition, the opportunity to enroll in an HMO, or transfer from 
HMO coverage to non-HMO coverage.
    (3) Affirmative written selection. The employing entity or designee 
must require that the eligible employee make an affirmative written 
selection in any of the following circumstances:
    (i) Enrollment in a particular qualified HMO is offered for the 
first time.
    (ii) The eligible employee elects to change from one option to 
another.
    (iii) The eligible employee is one of those specified in paragraph 
(e)(1) of this section.
    (f) Determination of copayment levels and supplemental health 
services. The selection of a copayment level and of supplemental health 
services to be contracted for must be made as follows:
    (1) For employees represented by a collective bargaining 
representative, the selection of copayment levels and supplemental 
health services is subject to the collective bargaining process.

[[Page 555]]

    (2) For employees not represented by a bargaining representative, 
the selection of copayment levels and supplemental health services is 
subject to the same decisionmaking process used by the employing entity 
with respect to the non-HMO option in its health benefits plan.
    (3) In all cases, the HMO has the right to include, with the basic 
benefits package it provides to its enrollees for a basic health 
services payment, on a non-negotiable basis, those supplemental health 
services that meet the following conditions:
    (i) Are required to be offered under State law.
    (ii) Are included uniformly by the HMO in its prepaid benefit 
package.
    (iii) Are available to employees who select the non-HMO option but 
not available to those who select the HMO option.

[59 FR 49840, Sept. 30, 1994, as amended at 61 FR 27288, May 31, 1996]



Sec. 417.156  When the HMO must be offered to employees.

    (a) General rules. (1) The employing entity or designee must offer 
eligible employees the option of enrollment in a qualified HMO at the 
earliest date permitted under the terms of existing agreements or 
contracts.
    (2) If the HMO's request for inclusion in a health benefits plan is 
received at a time when existing contracts or agreements do not provide 
for inclusion, the employing entity must include the HMO option in the 
health benefits plan at the time that new agreements or contracts are 
offered or negotiated.
    (b) Specific requirements. Unless mutually agreed otherwise, the 
following rules apply:
    (1) Collective bargaining agreement. The employing entity or 
designee must raise the HMO's request during the collective bargaining 
process--
    (i) When a new agreement is negotiated;
    (ii) At the time prescribed, in an agreement with a fixed term of 
more than 1 year, for discussion of change in health benefits; or
    (iii) In accordance with a specific process for review of HMO 
offers.
    (2) Contracts. For employees not covered by a collective bargaining 
agreement, the employing entity or designee must include the HMO option 
in any health benefits plan offered to eligible employees when the 
existing contract is renewed or when a new health benefits contract or 
other arrangement is negotiated.
    (i) If a contract has no fixed term or has a term in excess of 1 
year, the contract must be treated as renewable on its earliest 
anniversary date.
    (ii) If the employing entity or designee is self-insured, the budget 
year must be treated as the term of the existing contract.
    (3) Multiple arrangements. In the case of a health benefits plan 
that includes multiple contracts or other arrangements with varying 
expiration or renewal dates, the employing entity must include the HMO 
option, in accordance with paragraphs (b)(1) and (b)(2) of this 
section,--
    (i) At the time each contract or arrangement is renewed or reissued; 
or
    (ii) The benefits provided under the contract or arrangement are 
offered to employees.

[59 FR 49841, Sept. 30, 1994]



Sec. 417.157  Contributions for the HMO alternative.

    (a) General principles--(1) Nondiscrimination. The employer 
contribution to an HMO must be in an amount that does not discriminate 
financially against an employee who enrolls in an HMO. A contribution 
does not discriminate financially if the method of determining the 
contribution is reasonable and is designed to ensure that employees have 
a fair choice among health benefits plan alternatives.
    (2) Effect of agreements or contracts. The employing entity or 
designee is not required to pay more for health benefits as a result of 
offering the HMO alternative than it would otherwise be required to pay 
under a collective bargaining agreement or contract that provides for 
health benefits and is in effect at the time the HMO alternative is 
included.

[[Page 556]]

    (3) Examples of acceptable employer contributions. The following are 
methods that are considered nondiscriminatory:
    (i) The employer contribution to the HMO is the same, per employee, 
as the contribution to non-HMO alternatives.
    (ii) The employer contribution reflects the composition of the HMO's 
enrollment in terms of enrollee attributes that can reasonably be used 
to predict utilization, experience, costs, or risk. For each enrollee in 
a given class established on the basis of those attributes, the employer 
contributes an equal amount, regardless of the health benefits plan 
chosen by the employee.
    (iii) The employer contribution is a fixed percentage of the premium 
for each of the alternatives offered.
    (iv) The employer contribution is determined under a mutually 
acceptable arrangement negotiated by the HMO and the employer. In 
negotiating the arrangement, the employer may not insist on terms that 
would cause the HMO to violate any of the requirements of this part.
    (4) Adjustment of employer contribution. An employer contribution 
determined by an acceptable method may in some cases be adjusted if it 
would result in a nominal payment or no payment at all by HMO enrollees 
(because the HMO premium is lower than the premiums for the other 
alternatives offered). If, for example the employer has a policy of 
requiring all employees to contribute to their health benefits plan, the 
employer may require HMO enrollees who would otherwise pay little or 
nothing at all, to make a payment that does not exceed 50 percent of the 
employee contribution to the principal non-HMO alternative. The 
principal non-HMO alternative is the one that covers the largest number 
of enrollees from the particular employer.
    (b) Administrative expenses. (1) In determining the amount of its 
contribution to the HMO, the employing entity or designee may not 
consider administrative expenses incurred in connection with offering 
any alternative in the health benefits plan.
    (2) However, if the employing entity or designee has special 
requirements for other than standard solicitation brochures and 
enrollment literature, it must, in the case of the HMO alternative, 
determine and distribute any administrative costs attributable to those 
requirements in a manner consistent with its method of determining and 
distributing those costs for the non-HMO alternatives.
    (c) Exclusion for contribution for certain benefits. In determining 
the amount of the employing entity's contribution or the designee's cost 
for the HMO alternative, the employing entity or designee may exclude 
those portions of the contribution allocable to benefits (such as life 
insurance or insurance for supplemental health benefits)--
    (1) For which eligible employees and their eligible dependents are 
covered notwithstanding selection of the HMO alternative; and
    (2) That are not offered on a prepayment basis by the HMO to the 
employing entity's employees.
    (d) Contributions determined by agreements or contracts or by law. 
If the specific amount of the employing entity's contribution for health 
benefits is fixed by an agreement or contract, or by law, that amount 
constitutes the employing entity's obligation for contribution toward 
the HMO premiums.
    (e) Allocation of portion of a contribution determined by an 
agreement. In some cases, the employing entity's contribution for health 
benefits is determined by an agreement that also provides for benefits 
other than health benefits. In that case, the employing entity must 
determine, or instruct its designee to determine, what portion of its 
contribution is applicable to health benefits.
    (f) Retention and availability of data. Each employing entity or 
designee must retain the following data for three years and make it 
available to HCFA upon request:
    (1) The data used to compute the level of contribution for each of 
the plans offered to employees.
    (2) Related data about the employees who are eligible to enroll in a 
plan.
    (3) A description of the methodology for computation.
    (g) HCFA review of data. (1) HCFA may request and review the data 
specified in paragraph (f) of this section on

[[Page 557]]

its own initiative or in response to requests from HMOs or employees.
    (2) The purpose of HCFA's review is to determine whether the 
methodology and the level of contribution comply with the requirements 
of this subpart.
    (3) HMOs and employees that request HCFA to review must set forth 
reasonable grounds for making the request.

[61 FR 27287, May 31, 1996]



Sec. 417.158  Payroll deductions.

    Each employing entity that provides payroll deductions as a means of 
paying employees' contributions for health benefits or provides a health 
benefits plan that does not require an employee contribution must, with 
the consent of an employee who selects the HMO option, arrange for the 
employee's contribution, if any, to be paid through payroll deductions.

[59 FR 49841, Sept. 30, 1994]



Sec. 417.159  Relationship of section 1310 of the Public Health Service Act to the National Labor Relations Act and the Railway Labor Act.

    The decision of an employing entity subject to this subpart to 
include the HMO alternative in any health benefits plan offered to its 
eligible employees must be carried out consistently with the obligations 
imposed on that employing entity under the National Labor Relations Act, 
the Railway Labor Act, and other laws of similar effect.

[59 FR 49841, Sept. 30, 1994, as amended at 61 FR 27288, May 31, 1996]



     Subpart F--Continued Regulation of Federally Qualified Health 
                        Maintenance Organizations

    Source: 43 FR 32255, July 25, 1978, unless otherwise noted. 
Redesignated at 52 FR 36746, Sept. 30, 1987.



Sec. 417.160  Applicability.

    This subpart applies to any entity that has been determined to be a 
qualified HMO under subpart D of this part.

[59 FR 49841, Sept. 30, 1994]



Sec. 417.161  Compliance with assurances.

    Any entity subject to this subpart must comply with the assurances 
that it provided to HCFA, unless compliance is waived under 
Sec. 417.166.

[58 FR 38071, July 15, 1993]



Sec. 417.162  Reporting requirements.

    Entities subject to this subpart must submit:
    (a) The reports that may be required by HCFA under Sec. 417.126, and
    (b) Any additional reports HCFA may reasonably require.

[58 FR 38071, July 15, 1993]



Sec. 417.163  Enforcement procedures.

    (a) Complaints. Any person, group, association, corporation, or 
other entity may file with HCFA a written complaint with respect to an 
HMO's compliance with assurances it gave under subpart D of this part. A 
complaint must--
    (1) State the grounds and underlying facts of the complaint;
    (2) Give the names of all persons involved; and
    (3) Assure that all appropriate grievance and appeals procedures 
established by the HMO and available to the complainant have been 
exhausted.
    (b) Investigations. (1) HCFA may initiate investigations when, based 
on a report, a complaint, or any other information, HCFA has reason to 
believe that a Federally qualified HMO is not in compliance with any of 
the assurances it gave under subpart D of this part.
    (2) When HCFA initiates an investigation, it gives the HMO written 
notice that includes a full statement of the pertinent facts and of the 
matters being investigated and indicates that the HMO may submit, within 
30 days of the date of the notice, a written report concerning these 
matters.
    (3) HCFA obtains any information it considers necessary to resolve 
issues related to the assurances, and may use site visits, public 
hearings, or any other procedures that HCFA considers appropriate in 
seeking this information.
    (c) Determination and notice by HCFA--(1) Determination. (i) On the

[[Page 558]]

basis of the investigation, HCFA determines whether the HMO has failed 
to comply with any of the assurances it gave under subpart D of this 
part.
    (ii) HCFA publishes in the Federal Register a notice of each 
determination of non-compliance.
    (2) Notice of determination: Corrective action. (i) HCFA gives the 
HMO written notice of the determination.
    (ii) The notice specifies the manner in which the HMO has not 
complied with its assurances and directs the HMO to initiate the 
corrective action that HCFA considers necessary to bring the HMO into 
compliance.
    (iii) The HMO must initiate this corrective action within 30 days of 
the date of the notice from HCFA, or within any longer period that HCFA 
determines to be reasonable and specifies in the notice. The HMO must 
carry out the corrective action within the time period specified by HCFA 
in the notice.
    (iv) The notice may provide the HMO an opportunity to submit, for 
HCFA's approval, proposed methods for achieving compliance.
    (d) Remedy: Revocation of qualification. If HCFA determines that a 
qualified HMO has failed to initiate or to carry out corrective action 
in accordance with paragraph (c)(2) of this section--(1) HCFA revokes 
the HMO's qualification and notifies the HMO of this action.
    (2) In the notice, HCFA provides the HMO with an opportunity for 
reconsideration of the revocation, including, at the HMO's election, a 
fair hearing.
    (3) The revocation of qualification is effective on the tenth 
calendar day after the day of the notice unless HCFA receives a request 
for reconsideration by that date.
    (4) If after reconsideration HCFA again determines to revoke the 
HMO's qualification, this revocation is effective on the tenth calendar 
day after the date of the notice of reconsidered determination.
    (5) HCFA publishes in the Federal Register each determination it 
makes under this paragraph (d).
    (6) A revocation under this paragraph (d) has the effect described 
in Sec. 417.164.
    (e) Notice by the HMO. Within 15 days after the date HCFA issues a 
notice of revocation, the HMO must prepare a notice that explains, in 
readily understandable language, the reasons for the determination that 
it is not a qualified HMO, and send the notice to the following:
    (1) The HMO's enrollees.
    (2) Each employer or public entity that has offered enrollment in 
the HMO in accordance with subpart E of this part.
    (3) Each lawfully recognized collective bargaining representative or 
other representative of the employees of the employer or public entity.
    (f) Reimbursement of enrollees for services improperly denied, or 
for charges improperly imposed. (1) If HCFA determines, under paragraph 
(c)(1) of this section, that an HMO is out of compliance, HCFA may 
require the HMO to reimburse its enrollees for the following--
    (i) Expenses for basic or supplemental health services that the 
enrollee obtained from other sources because the HMO failed to provide 
or arrange for them in accordance with its assurances.
    (ii) Any amounts the HMO charged the enrollee that are inconsistent 
with its assurances. (Rules applicable to charges for all enrollees are 
set forth in Secs. 417.104 and 417.105. The additional rules applicable 
to Medicare enrollees are in Sec. 415.454.)
    (2) This paragraph applies regardless of when the HMO failed to 
comply with the appropriate assurances.
    (g) Remedy: Civil suit--(1) Applicability. This paragraph applies to 
any HMO or other entity to which a grant, loan, or loan guarantee was 
awarded, as set forth in subpart V of this part, on the basis of its 
assurances regarding the furnishing of basic and supplemental services 
or its operation and organization, as the case may be.
    (2) Basis for action. If HCFA determines that the HMO or other 
entity has failed to initiate or refuses to carry out corrective action 
in accordance with paragraph (c)(2) of this section, HCFA may bring 
civil action in the U.S. district court for the district in which the 
HMO or other entity is located, to enforce compliance with the 
assurances it gave in applying for the grant, loan, or loan guarantee.

[59 FR 49841, Sept. 30, 1994]

[[Page 559]]



Sec. 417.164  Effect of revocation of qualification on inclusion in employee's health benefit plans.

    When an HMO's qualification is revoked under Sec. 417.163(d), the 
following rules apply:
    (a) The HMO may not seek inclusion in employees health benefits 
plans under subpart E of this part.
    (b) Inclusion of the HMO in an employer's health benefits plan--
    (1) Is disregarded in determining whether the employer is subject to 
the requirements of subpart E of this part; and
    (2) Does not constitute compliance with subpart E of this part by 
the employer.

[59 FR 49842, Sept. 30, 1994, as amended at 61 FR 27288, May 31, 1996]



Sec. 417.165  Reapplication for qualification.

    An entity whose qualification as an HMO has been revoked by HCFA for 
purposes of section 1310 of the PHS Act may, after completing the 
corrective action required under Sec. 417.163(c)(2), reapply for a 
determination of qualification in accordance with the procedures 
specified in subpart D of this part.

[43 FR 32255, July 25, 1978. Redesignated at 52 FR 36746, Sept. 30, 
1987, and amended at 58 FR 38078, July 15, 1993]



Sec. 417.166  Waiver of assurances.

    (a) General rule. HCFA may release an HMO from compliance with any 
assurances the HMO gives under subpart D of this part if--
    (1) The qualification requirements are changed by Federal law; or
    (2) The HMO shows good cause, consistent with the purposes of title 
XIII of the PHS Act.
    (b) Basis for finding of good cause. (1) Grounds upon which HCFA may 
find good cause include but are not limited to the following:
    (i) The HMO has filed for reorganization under Federal bankruptcy 
provisions and the reorganization can only be approved with the waiver 
of the assurances.
    (ii) State laws governing the entity have been changed after it 
signed the assurances so as to prohibit the HMO from being organized and 
operated in a manner consistent with the signed assurances.
    (2) Changes in State laws do not constitute good cause to the extent 
that the changes are preempted by Federal law under section 1311 of the 
PHS Act.
    (c) Consequences of waiver. If HCFA waives any assurances regarding 
compliance with section 1301 of the PHS Act, HCFA concurrently revokes 
the HMO's qualification unless the waiver is based on paragraph (a)(1) 
of this section.

[59 FR 49842, Sept. 30, 1994, as amended at 61 FR 27288, May 31, 1996]



                         Subpart G-I--[Reserved]



         Subpart J--Qualifying Conditions for Medicare Contracts

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.400  Basis and scope.

    (a) Statutory basis. The regulations in this subpart implement 
section 1876 of the Act, which authorizes Medicare payment to HMOs and 
CMPs that contract with HCFA to furnish covered services to Medicare 
beneficiaries.
    (b) Scope. (1) This subpart sets forth the requirements an HMO or 
CMP must meet in order to enter into a contract with HCFA under section 
1876 of the Act. It also specifies the procedures that HCFA follows to 
evaluate applications and make determinations.
    (2) The rules for payment to HMOs and CMPs are set forth in subparts 
N, O, and P of this part.
    (3) The rules for HCPP participation in Medicare under section 
1833(a)(1)(A) of the Act are set forth in subpart U of this part.

[60 FR 45675, Sept. 1, 1995]



Sec. 417.401  Definitions.

    As used in this subpart and subparts K through R of this part, 
unless the context indicates otherwise--
    Adjusted average per capita cost (AAPCC) means an actuarial estimate 
made by HCFA in advance of an HMO's or CMP's contract period that 
represents what the average per capita cost to the Medicare program 
would be for each class of the HMO's or CMP's

[[Page 560]]

Medicare enrollees if they had received covered services other than 
through the HMO or CMP in the same geographic area or in a similar area.
    Adjusted community rate (ACR) is the equivalent of the premium that 
a risk HMO or CMP would charge Medicare enrollees independently of 
Medicare payments if the HMO or CMP used the same rates it charges non-
Medicare enrollees for a benefit package limited to covered Medicare 
services.
    Arrangement means a written agreement between an HMO or CMP and 
another entity, under which--
    (1) The other entity agrees to furnish specified services to the 
HMO's or CMP's Medicare enrollees;
    (2) The HMO or CMP retains responsibility for the services; and
    (3) Medicare payment to the HMO or CMP discharges the beneficiary's 
obligation to pay for the services.
    Benefit stabilization fund means a fund established by HCFA, at the 
request of a risk HMO or CMP, to withhold a portion of the per capita 
payments available to the HMO or CMP and pay that portion in a 
subsequent contract period for the purpose of stabilizing fluctuations 
in the availability of the additional benefits the HMO or CMP provides 
to its Medicare enrollees.
    Cost contract means a Medicare contract under which HCFA pays the 
HMO or CMP on a reasonable cost basis.
    Cost HMO or CMP means an HMO or CMP that has in effect a cost 
contract with HCFA under section 1876 of the Act and subpart L of this 
part.
    Demonstration project means a demonstration project under section 
402 of the Social Security Amendments of 1967 (42 U.S.C. 1395b-1) or 
section 222(a) of the Social Security Amendments of 1972 (42 U.S.C. 
1395b-1 (note)), relating to the provision of services for which payment 
is made under Medicare on a prospectively determined basis.
    Emergency services means covered inpatient or outpatient services 
that are furnished by an appropriate source other than the HMO or CMP 
and that meet the following conditions:
    (1) Are needed immediately because of an injury or sudden illness.
    (2) Are such that the time required to reach the HMO's or CMP's 
providers or suppliers (or alternatives authorized by the HMO or CMP) 
would mean risk of permanent damage to the enrollee's health.

Once initiated, the services continue to be considered emergency 
services as long as transfer of the enrollee to the HMO's or CMP's 
source of health care or authorized alternative is precluded because of 
risk to the enrollee's health or because transfer would be unreasonable, 
given the distance and the nature of the medical condition.
    Geographic area means the area found by HCFA to be the area within 
which the HMO or CMP furnishes, or arranges for furnishing, the full 
range of services that it offers to its Medicare enrollees.
    Medicare enrollee means a Medicare beneficiary who has been 
identified on HCFA records as an enrollee of an HMO or CMP that has a 
contract with HCFA under section 1876 of the Act and subpart L of this 
part.
    New Medicare enrollee means a Medicare beneficiary who--
    (1) Enrolls with an HMO or CMP after the date on which the HMO or 
CMP first enters into a risk contract under subpart L of this part; and
    (2) Was not enrolled with the HMO or CMP at the time he or she 
became entitled to benefits under Part A or eligible to enroll in Part B 
of Medicare.
    Risk contract means a Medicare contract under which HCFA pays the 
HMO or CMP on a risk basis for Medicare covered services.
    Risk HMO or CMP means an HMO or CMP that has in effect a risk 
contract with HCFA under section 1876 of the Act and subpart L of this 
part.
    Urgently needed services means covered services that are needed by 
an enrollee who is temporarily absent from the HMO's or CMP's geographic 
area and that--
    (1) Are required in order to prevent serious deterioration of the 
enrollee's health as a result of unforeseen injury or illness; and
    (2) Cannot be delayed until the enrollee returns to the HMO's or 
CMP's geographic area.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 51986, Oct. 17, 1991; 58 
FR 38072, July 15, 1993; 60 FR 45675, Sept. 1, 1995]

[[Page 561]]



Sec. 417.402  Effective date of initial regulations.

    (a) The changes made to section 1876 of the Act by section 114 of 
the Tax Equity and Fiscal Responsibility Act of 1982 became effective on 
February 1, 1985, the effective date of the initial implementing 
regulations.
    (b) The changes made to section 1876 of the Act by section 4002 of 
the Balanced Budget Act (BBA) of 1997 are incorporated in section 422 
except for 1876 cost contracts. Upon enactment of the BBA (August 5, 
1997) no new cost contracts or service area expansions are accepted by 
HCFA except for current Health Care Prepayment Plans that may convert to 
1876 cost contracts. Also, 1876 cost contracts may not be extended or 
renewed beyond December 31, 2002.

[63 FR 35066, June 26, 1998]



Sec. 417.404  General requirements.

    (a) In order to contract with HCFA under the Medicare program, an 
entity must--
    (1) Be determined by HCFA to be an HMO or CMP (in accordance with 
Secs. 117.142 and 417.407, respectively); and
    (2) Comply with the contract requirements set forth in subpart L of 
this part.
    (b) HCFA enters into or renews a contract only if it determines that 
action would be consistent with the effective and efficient 
implementation of section 1876 of the Act.

[60 FR 45675, Sept. 1, 1995]



Sec. 417.406  Application and determination.

    (a) Responsibility for making determinations. HCFA is responsible 
for determining whether an entity meets the requirements to be an HMO or 
CMP.
    (b) Application requirements. (1) The application requirements for 
HMOs are set forth in Sec. 417.143.
    (2) The requirements of Sec. 417.143 also apply to CMPs except that 
there are no application fees.
    (c) Determination. HCFA uses the procedures set forth in 
Sec. 417.144(a) through (d) to determine whether an entity is an HMO or 
CMP.
    (d) Oversight of continuing compliance. (1) HCFA oversees an 
entity's continued compliance with the requirements for an HMO as 
defined in Sec. 417.1 or for a CMP as set forth in Sec. 417.407.
    (2) If an entity no longer meets those requirements, HCFA terminates 
the contract of that entity in accordance with Sec. 417.494.

[60 FR 45675, Sept. 1, 1995]



Sec. 417.407  Requirements for a Competitive Medical Plan (CMP).

    (a) General rule. To qualify as a CMP, an entity must be organized 
under the laws of a State and must meet the requirements of paragraphs 
(b) through (f) of this section.
    (b) Required services. (1) Basic rule. Except as provided in 
paragraph (b)(2) of this section, the entity furnishes to its enrollees 
at least the following services:
    (i) Physicians' services performed by physicians.
    (ii) Laboratory, x-ray, emergency, and preventive services.
    (iii) Out-of-area coverage.
    (iv) Inpatient hospital services.
    (2) Exception for Medicaid prepayment risk contracts. An entity that 
had, before 1970, a Medicaid prepayment risk contract that did not 
include provision of inpatient hospital services is not required to 
provide those services.
    (c) Compensation for services. The entity receives compensation 
(except for deductibles, coinsurance, and copayments) for the health 
care services it provides to enrollees on a periodic, prepaid capitation 
basis regardless of the frequency, extent, or kind of services provided 
to any enrollee.
    (d) Source of physicians' services. The entity provides physicians' 
services primarily through--
    (1) Physicians who are employees or partners of the entity; or
    (2) Physicians or groups of physicians (organized on a group or 
individual practice basis) under contract with the entity to provide 
physicians' services.
    (e) Assumption of financial risk. The rules set forth in 
Sec. 417.120(b) for HMOs apply also to CMPs except that reference to 
``basic services'' must be read as reference to the required services 
listed in paragraph (b) of this section.
    (f) Protection of enrollees. The entity provides adequately against 
the risk of

[[Page 562]]

insolvency by meeting the requirements of Secs. 417.120(a) and 417.122 
for protection of enrollees against loss of benefits and liability for 
payment of any fees that are the legal responsibility of the entity.

[60 FR 45675, Sept. 1, 1995]



Sec. 417.408  Contract application process.

    (a) Contents of application. (1) The application for a contract must 
include supporting information in the form and detail required by HCFA. 
(2) Whenever feasible, HCFA exempts the HMO or CMP from resubmittal of 
information it has already submitted to HCFA in connection with a 
determination made under the provisions of Sec. 417.406.
    (b) Approval of application. (1) If HCFA approves the application, 
it gives written notice to the HMO or CMP, indicating that it meets the 
requirements for either a risk or reasonable cost contract or only for a 
reasonable cost contract.
    (2) If the HMO or CMP is dissatisfied with a determination that it 
meets the requirements only for a reasonable cost contract, it may 
request reconsideration in accordance with the procedures specified in 
subpart R of this part.
    (c) Denial of application. If HCFA denies the application, it gives 
written notice to the HMO or CMP indicating--
    (1) That it does not meet the contract requirements under section 
1876 of the Act;
    (2) The reasons why the HMO or CMP does not meet the contract 
requirements; and
    (3) The HMO's or CMP's right to request reconsideration in 
accordance with the procedures specified in subpart R of this part.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 8853, Mar. 1, 1991; 58 
FR 38078, July 15, 1993; 60 FR 45676, Sept. 1, 1995]



Sec. 417.410  Qualifying conditions: General rules.

    (a) Basic requirement. In order to qualify for a contract with HCFA 
under this subpart, an HMO or CMP must demonstrate its ability to enroll 
Medicare beneficiaries and other individuals and groups and to deliver a 
specified comprehensive range of high quality services efficiently, 
effectively, and economically to its Medicare enrollees.
    (b) Other qualifying conditions. An HMO or CMP must meet qualifying 
conditions that pertain to operating experience, enrollment, range of 
services, furnishing of services, and a quality assurance program.
    (c) Standards. Generally, each qualifying condition is interpreted 
by a series of standards that are used in surveying an HMO or CMP to 
determine its qualifications for a Medicare contract.
    (d) Application of standards. Application of the standards enables 
the surveyor to determine--
    (1) The HMO's or CMP's activities;
    (2) The extent to which the HMO or CMP complies with each condition;
    (3) The nature and extent of any deficiencies; and
    (4) The need for improvement if HCFA should enter into a contract 
with the HMO or CMP.
    (e) Requirements for a risk contract. An HMO or CMP may enter into a 
risk contract with HCFA if it--
    (1) Meets all the applicable requirements in the statute and 
regulations;
    (2) Has at least 5,000 enrollees or 1,500 enrollees if it serves a 
primarily rural area as defined in Sec. 417.413(b)(3);
    (3) Has at least 75 Medicare enrollees or has an acceptable plan to 
achieve this Medicare membership within 2 years;
    (4) Satisfies HCFA that it can bear the potential losses of a risk 
contract; and
    (5) Has not previously terminated or failed to renew a risk contract 
within the preceding 5 years, unless HCFA determines that circumstances 
warrant special consideration.
    (f) Requirements for a reasonable cost sontract. An HMO or CMP may 
enter into a reasonable cost contract if it meets one of the following:
    (1) The HMO or CMP qualifies for a risk contract, but chooses a 
reasonable cost contract.
    (2) The HMO or CMP meets the conditions for entering into a risk 
contract specified in paragraph (e) of this section except that HCFA 
does not judge the HMO or CMP capable of bearing the potential losses of 
a risk contract.

[[Page 563]]

    (g) Regulations on reasonable cost and risk reimbursement are set 
forth in subparts O and P of this part.

[50 FR 20570, May 17, 1985, as amended at 58 FR 38078, July 15, 1993; 60 
FR 45676, Sept. 1, 1995]



Sec. 417.412  Qualifying condition: Administration and management.

    The HMO or CMP must demonstrate that it--
    (a) Has sufficient administrative capability to carry out the 
requirements of the contract; and
    (b) Does not have any agents or management staff or persons with 
ownership or control interests who have been convicted of criminal 
offenses related to their involvement in Medicaid, Medicare, or social 
service programs under title XX of the Act.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45676, Sept. 1, 1995]



Sec. 417.413  Qualifying condition: Operating experience and enrollment.

    (a) Condition. The HMO or CMP must demonstrate that it has operating 
experience and an enrolled population sufficient to provide a reasonable 
basis for establishing a prospective per capita reimbursement rate or a 
reasonable cost reimbursement rate, as appropriate.
    (b) Standard: Enrollment and operating experience for HMOs or CMPs 
to contract on a risk basis. To be eligible to contract on a risk 
basis--
    (1) A nonrural HMO or CMP must currently have the following:
    (i) At least 5,000 enrollees; and
    (ii) At least 75 Medicare enrollees or a plan acceptable to HCFA for 
achieving a Medicare enrollment of 75 within 2 years from the beginning 
of its initial contract period.
    (2) A rural HMO or CMP must currently have--
    (i) At least 1,500 enrollees; and
    (ii) At least 75 Medicare enrollees or a plan acceptable to HCFA for 
achieving a Medicare enrollment of 75 within 2 years from the beginning 
of its initial contract period.
    (3) For purposes of this paragraph, an HMO or CMP is considered 
rural if at least 50 percent of its enrollees reside in nonmetropolitan 
areas. A nonmetropolitan area is an area--
    (i) No part of which is within a metropolitan statistical area (MSA) 
as designated by the Executive Office of Management and Budget; and
    (ii) That does not contain a city whose population exceeds 50,000 
individuals.
    (4) A subdivision or subsidiary of an HMO or CMP that meets the 
requirements of paragraph (b)(1) or (b)(2) of this section need not 
demonstrate that it meets those requirements as an independent unit if 
the HMO or CMP assumes responsibility for the financial risk, and 
adequate management and supervision of health care services furnished by 
its subdivision or subsidiary.
    (c) Standard: Enrollment and operating experience for HMOs or CMPs 
to contract on a cost basis. To be eligible to contract on a reasonable 
cost basis, an HMO or CMP must currently have enrollees sufficient in 
number to provide a reasonable basis for entering into a contract, as 
follows:
    (1) At least 1,500 enrollees.
    (2) At least 75 Medicare enrollees, or a plan acceptable to HCFA for 
achieving--
    (i) A Medicare enrollment of 75 within 2 years from the beginning of 
its initial contract period; and
    (ii) At least 250 Medicare enrollees by the beginning of its fourth 
contract period.
    (d) Standard: Composition of enrollment--(1) Requirement. Except as 
specified in paragraphs (d)(2) and (e) of this section, not more than 50 
percent of an HMO's or CMP's enrollment may be Medicare beneficiaries.
    (2) Waiver of composition of enrollment standard. HCFA may waive 
compliance with the requirements of paragraph (d)(1) of this section if 
the HMO or CMP has made and is making reasonable efforts to enroll 
individuals who are not Medicare beneficiaries and it meets one of the 
following requirements:
    (i) The HMO or CMP serves a geographic area in which Medicare 
beneficiaries and Medicaid recipients constitute more than 50 percent of 
the population. (HCFA does not grant a waiver that would permit the 
percentage of Medicare and Medicaid enrollees to exceed the percentage 
of Medicare

[[Page 564]]

beneficiaries and Medicaid recipients in the population of the 
geographic area.)
    (ii) The HMO or CMP is owned and operated by a government entity. 
The waiver may be for a period up to three years after the date the HMO 
or CMP first enters into a contract under this subpart, and may not be 
extended.
    (iii) The HMO or CMP requests waiver of the composition rule because 
it is in the public interest. The organization provides documentation 
that supports one of the following:
    (A) The organization serves a medically underserved rural or urban 
area.
    (B) The organization demonstrates a long-term business and community 
service commitment to the area.
    (C) The organization believes that a waiver is necessary to promote 
managed care choices in an area with limited or no managed care choices.
    (3) Waiver granted on or before October 21, 1986. An HMO or CMP (or 
a successor HMO or CMP) that as of October 21, 1986, had been granted an 
exception, waiver, or modification of the requirements of paragraph 
(d)(1) of this section, but that does not meet the requirements of 
paragraph (d)(2) of this section, must make (and throughout the period 
of the exception, waiver, or modification continue to make) reasonable 
efforts to meet scheduled enrollment goals, consistent with a schedule 
of compliance approved by HCFA.
    (i) If HCFA determines that the HMO or CMP has complied, or made 
significant progress toward compliance, with the approved schedule, and 
that an extension is in the best interest of the Medicare program, HCFA 
may extend the waiver of modification.
    (ii) If HCFA determines that the HMO or CMP has not complied with 
the approved schedule, HCFA may apply the sanctions described in 
paragraphs (d)(6) and (d)(7) of this section.
    (4) Basis for application of sanctions. HCFA may, as an alternative 
to contract termination, apply the sanctions specified in paragraph 
(d)(6) of this section if HCFA determines that the HMO or CMP is not 
complying with the requirements in paragraphs (d)(1), (d)(2), or (d)(3) 
of this section, as applicable.
    (5) Notice of sanction. Before applying the sanctions specified in 
paragraph (d)(6) of this section, HCFA sends a written notice to the HMO 
or CMP stating the proposed action and its basis. HCFA gives the HMO or 
CMP 15 days after the date of the notice to provide evidence 
establishing the HMO's or CMP's compliance with the requirements in 
paragraph (d)(1), (d)(2), or (d)(3) of this section, as applicable.
    (6) Sanctions. If, following review of the HMO's or CMP's timely 
response to HCFA's notice, HCFA determines that an HMO or CMP does not 
comply with the requirements of paragraphs (d)(1), (d)(2), or (d)(3) of 
this section, HCFA may apply either of the following sanctions:
    (i) Require the HMO or CMP to stop accepting new enrollment 
applications after a date specified by HCFA.
    (ii) Deny payment for individuals who are formally added or 
``accreted'' to HCFA's records as Medicare enrollees after a date 
specified by HCFA.
    (7) Termination by HCFA. In addition to the sanctions described in 
paragraph (d)(6) of this section. HCFA may decline to renew an HMO's or 
CMP's contract in accordance with Sec. 417.492(b), or terminate its 
contract in accordance with Sec. 417.494(b) if HCFA determines that the 
HMO or CMP no longer substantially meets the requirements of paragraphs 
(d)(1), (d)(2), or (d)(3) of this section.
    (8) Termination of composition standard. The 50 percent composition 
of Medicare beneficiaries terminates for all managed care plans on 
December 31, 1998.
    (e) Standard: Open enrollment. (1) Except as specified in paragraph 
(e)(2) of this section, an HMO or CMP must enroll Medicare beneficiaries 
on a first-come, first-served basis to the limit of its capacity and 
provide annual open enrollment periods of at least 30 days duration for 
Medicare beneficiaries.
    (2) HCFA may waive the requirement of paragraph (e)(1) of this 
section if compliance would prevent compliance with the limitation on 
enrollment of Medicare beneficiaries and Medicaid recipients (paragraph 
(d) of this section) or result in an enrollment substantially 
nonrepresentative of the

[[Page 565]]

population of the HMO's or CMP's geographic area. The enrollment would 
be ``substantially nonrepresentative'' if the proportion of a subgroup 
to the total enrollment exceeded, by 10 percent or more, its proportion 
of the population in the HMO's or CMP's geographic area, as shown by 
census data or other data acceptable to HCFA. For purposes of this 
paragraph, a subgroup means a class of Medicare enrollees as defined in 
Sec. 417.582.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 46570, Sept. 13, 1991; 
58 FR 38082, July 15, 1993; 60 FR 45676, Sept. 1, 1995; 63 FR 35066, 
June 26, 1998]



Sec. 417.414  Qualifying condition: Range of services.

    (a) Condition. The HMO or CMP must demonstrate that it is capable of 
delivering to Medicare enrollees the range of services required in 
accordance with this section.
    (b) Standard: Range of services furnished by eligible HMOs or CMPs. 
(1) Basic requirement. Except as specified in paragraph (b)(3) of this 
section, an HMO or CMP must furnish to its Medicare enrollees (directly 
or through arrangements with others) all the Medicare services to which 
those enrollees are entitled to the extent that they are available to 
Medicare beneficiaries who reside in the HMO's or CMP's geographic area 
but are not enrolled in the HMO or CMP.
    (2) Criteria for availability. The services are considered available 
if--
    (i) The sources are located within the HMO's or CMP's geographic 
area; or
    (ii) It is common practice to refer patients to sources outside that 
geographic area.
    (3) Exception for hospice care. An HMO or CMP is not required to 
furnish hospice care as described in part 418 of this chapter. However, 
HMOs or CMPs must inform their Medicare enrollees about the availability 
of hospice care if--
    (i) A hospice participating in Medicare is located within the HMO's 
or CMP's geographic area; or
    (ii) It is common practice to refer patients to hospices outside the 
geographic area.
    (c) Standard: Financial responsibility for services furnished 
outside the HMO or CMP. (1) An HMO or CMP must assume financial 
responsibility and provide reasonable reimbursement for emergency 
services and urgently needed services (as defined in Sec. 417.401) that 
are obtained by its Medicare enrollees from providers and suppliers 
outside the HMO or CMP even in the absence of the HMO's or CMP's prior 
approval.
    (2) An HMO or CMP must assume financial responsibility for services 
that the Medicare enrollee attempted to obtain from the HMO or CMP, but 
that the HMO or CMP failed to furnish or unreasonably denied, and that 
are found, upon appeal by the enrollee under subpart Q of this part, to 
be services that the enrollee was entitled to have furnished to him or 
her by the HMO or CMP.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38078, July 15, 1993; 60 
FR 45677, Sept. 1, 1995]



Sec. 417.416  Qualifying condition: Furnishing of services.

    (a) Condition. The HMO or CMP must furnish the required services to 
its Medicare enrollees through providers and suppliers that meet 
applicable Medicare statutory definitions and implementing regulations. 
The HMO or CMP must also ensure that the required services, additional 
services, and any other supplemental services for which the Medicare 
enrollee has contracted are available and accessible and are furnished 
in a manner that ensures continuity.
    (b) Standard: Conformance with conditions of participation, 
conditions for coverage, and conditions for certification. (1) 
Hospitals, SNFs, HHAs, CORFs, and providers of outpatient physical 
therapy or speech-language pathology services must meet the applicable 
conditions of participation in Medicare, as set forth elsewhere in this 
chapter.
    (2) Suppliers must meet the conditions for coverage or conditions 
for certification of their services, as set forth elsewhere in this 
chapter.
    (3) If more than one type of practitioner is qualified to furnish a 
particular service, the HMO or CMP may select the type of practitioner 
to be used.
    (c) Standard: Physician supervision. The HMO or CMP must provide for 
supervision by a physician of other

[[Page 566]]

health care professionals who are directly involved in the provision of 
health care as generally authorized under section 1861 of the Act. 
Except as specified in paragraph (d) of this section, with respect to 
medical services furnished in an HMO's or CMP's clinic or the office of 
a physician with whom the HMO or CMP has a service agreement, the HMO or 
CMP must ensure that--
    (1) Services furnished by paramedical, ancillary, and other 
nonphysician personnel are furnished under the direct supervision of a 
physician;
    (2) A physician is present to perform medical (as opposed to 
administrative) services whenever the clinics or offices are open; and
    (3) Each patient is under the care of a physician.
    (d) Exceptions to physician supervision requirement. The following 
services may be furnished without the direct personal supervision of a 
physician:
    (1) Services of physician assistants and nurse practitioners (as 
defined in Sec. 491.2 of this chapter), and the services and supplies 
incident to their services. The conditions for payment, as set forth in 
Secs. 405.2414 and 405.2415 of this chapter for services furnished by 
rural health clinics and Federally qualified health centers, 
respectively, also apply when those services are furnished by an HMO or 
CMP.
    (2) When furnished by an HMO or CMP, services of clinical 
psychologists who meet the qualifications specified in Sec. 410.71(d) of 
this chapter, and the services and supplies incident to their 
professional services.
    (3) When an HMO or CMP contracts on--
    (i) A risk basis, the services of a clinical social worker (as 
defined at Sec. 410.73 of this chapter) and the services and supplies 
incident to their professional services; or
    (ii) A cost basis, the services of a clinical social worker (as 
defined in Sec. 410.73 of this chapter). Services incident to the 
professional services of a clinical social worker furnished by an HMO or 
CMP contracting on a cost basis are not covered by Medicare and payment 
will not be made for these services.
    (e) Standard: Accessibility and continuity. (1) The HMO or CMP must 
ensure that the required services and any other services for which 
Medicare enrollees have contracted are accessible, with reasonable 
promptness, to the enrollees with respect to geographic location, hours 
of operation, and provision of after hours service. Medically necessary 
emergency services must be available twenty-four hours a day, seven days 
a week.
    (2) The HMO or CMP must maintain a health (including medical) 
recordkeeping system through which pertinent information relating to the 
health care of its Medicare enrollees is accumulated and is readily 
available to appropriate professionals.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45677, Sept. 1, 1995; 63 FR 20130, Apr. 23, 1998]



Sec. 417.418  Qualifying condition: Quality assurance program.

    (a) Condition. The HMO or CMP must make arrangements for a quality 
assurance program that meets the requirements of this section.
    (b) Standard. An HMO or CMP must have an ongoing quality assurance 
program that meets the requirements set forth in Sec. 417.106(a).

[58 FR 38072, July 15, 1993]



  Subpart K--Enrollment, Entitlement, and Disenrollment under Medicare 
                                Contract

    Source: 50 FR 1346, Jan. 10, 1985, unless other wise noted.



Sec. 417.420  Basic rules on enrollment and entitlement.

    (a) Enrollment. Individuals who are entitled to benefits under both 
Part A and Part B of Medicare or only Part B may elect to receive those 
benefits through an HMO or CMP that has in effect a contract with HCFA 
under subpart L of this part.
    (b) Entitlement. If a Medicare beneficiary enrolls with an HMO or 
CMP, HCFA pays the HMO or CMP on his or her behalf for the services to 
which he or she is entitled.
    (c) Beneficiary liability. (1) The HMO or CMP may require payment, 
in the

[[Page 567]]

form of premiums or otherwise, from individuals for services not covered 
under Medicare, as well as deductible and coinsurance amounts 
attributable to Medicare covered services.
    (2) As described in Sec. 417.448, Medicare enrollees of risk HMOs or 
CMPs are liable for services that they obtain from sources other than 
the HMO or CMP, unless the services are--
    (i) Emergency or urgently needed; or
    (ii) Determined, on appeal under subpart Q of this part, to be 
services that should have been furnished by the HMO or CMP.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38078, July 15, 1993; 60 
FR 45677, Sept. 1, 1995]



Sec. 417.422  Eligibility to enroll in an HMO or CMP.

    Except as specified in Secs. 417.423 and 417.424, an HMO or CMP must 
enroll, either for an indefinite period or for a specified period of at 
least 12 months, any individual who--
    (a) Is entitled to Medicare benefits under Parts A and B or under 
Part B only;
    (b) Lives within the geographic area served by the HMO or CMP;
    (c) Is not enrolled in any other HMO or CMP that has entered into a 
contract under subpart L of this part;
    (d) During an enrollment period of the HMO or CMP, completes and 
signs the HMO's or CMP's application form and gives whatever information 
is required for enrollment;
    (e) Agrees to abide by the HMO's or CMP's rules after they are 
disclosed to him or her in connection with the enrollment process;
    (f) Is not denied enrollment by the HMO or CMP under a selection 
policy, if any, that has been approved by HCFA under Sec. 417.424(b); 
and
    (g) Is not denied enrollment by the HMO or CMP on the basis of any 
of the administrative criteria concerning denial of enrollment in 
Sec. 417.424(a).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38078, July 15, 1993; 60 
FR 45677, Sept. 1, 1995]



Sec. 417.423  Special rules: ESRD and hospice patients.

    (a) ESRD patients. (1) A Medicare beneficiary who has been medically 
determined to have end-stage renal disease is not eligible to enroll in 
an HMO or CMP.
    (2) However, if a beneficiary is already enrolled in an HMO or CMP 
when he or she is determined to have end-stage renal disease, the HMO or 
CMP--
    (i) Must reenroll the beneficiary as required by Sec. 417.434; and
    (ii) May not disenroll the beneficiary except as provided in 
Sec. 417.460.
    (b) Hospice patients. A Medicare beneficiary who elects hospice care 
under Sec. 418.24 of this chapter is not eligible to enroll in an HMO or 
CMP as long as the hospice election remains in effect.

[60 FR 45677, Sept. 1, 1995]



Sec. 417.424  Denial of enrollment.

    (a) Basis for denial. An HMO or CMP may deny enrollment to an 
individual who meets the criteria of Sec. 417.422 if acceptance would--
    (1) Cause the number of enrollees who are Medicare or Medicaid 
beneficiaries to exceed 50 percent of the HMO's or CMP's total 
enrollment;
    (2) Prevent the HMO or CMP from complying with any of the other 
contract qualifying conditions set forth in subpart J of this part;
    (3) Require the HMO or CMP to exceed its enrollment capacity; or
    (4) Cause the enrollment to become substantially nonrepresentative 
of the general population in the HMO's or CMP's geographic area.
    (b) Selection policies. (1) Denial under paragraph (a)(4) of this 
section must be in accordance with written selection policies approved 
by HCFA. (2) Enrollment of individuals will not be considered to make 
the enrollment of the HMO or CMP substantially nonrepresentative of the 
general population in the HMO's or CMP's geographic area unless, as a 
result of the enrollment, the proportion of the subgroup of enrollees to 
which the enrollee belongs as compared to the HMO's or CMP's total 
enrollment exceeds by at least ten percent the subgroup's proportion of 
the general population in the geographic area of the HMO or CMP. (A 
subgroup is a class of Medicare enrollees of an

[[Page 568]]

HMO or CMP that HCFA constructs on the basis of actuarial factors.)

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 58 
FR 38078, July 15, 1993; 60 FR 45677, Sept. 1, 1995]



Sec. 417.426  Open enrollment requirements.

    (a) Basic requirements. (1) HMOs or CMPs must provide open 
enrollment for Medicare beneficiaries for at least 30 consecutive days 
during each contract year.
    (2) During open enrollment, the HMO or CMP must enroll eligible 
Medicare beneficiaries in the order in which their applications are 
received and until its enrollment capacity is reached.
    (3) The HMO or CMP may accept applications from Medicare 
beneficiaries after it has reached capacity if it places those 
individuals on a waiting list and enrolls them in chronological order as 
vacancies occur.
    (4) An HMO or CMP with a risk contract must accept applications from 
eligible Medicare beneficiaries during the month of November 1998.
    (b) Capacity to accept new enrollees. (1) If an HMO or CMP chooses 
to limit enrollments because of its capacity, it must notify HCFA at 
least 90 days before the beginning of its open enrollment period and, at 
that time, provide HCFA with its reasons for limiting enrollment.
    (2) HCFA evaluates the HMO's or CMP's submittal under paragraph 
(b)(1) of this section.
    (3) The HMO or CMP must promptly notify HCFA if there is any change 
in its enrollment capacity.
    (c) Reserved vacancies. (1) Subject to HCFA's approval, an HMO or 
CMP may set aside a reasonable number of vacancies for an anticipated 
new group contract or for anticipated new enrollees under an existing 
group contract that will have its enrollment period after the Medicare 
open enrollment period during the contract year.
    (2) Any set aside vacancies that are not filled within a reasonable 
time after the beginning of the group contract enrollment period must be 
made available to Medicare beneficiaries and other nongroup applicants 
under the requirements of this subpart.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 60 
FR 45677, Sept. 1, 1995; 63 FR 35066, June 26, 1998]



Sec. 417.428  Marketing activities.

    (a) Required marketing activities. An HMO or CMP must meet the 
following requirements:
    (1) Offer its plan to Medicare beneficiaries and provide to those 
interested in enrolling, adequate written descriptions of the HMO's or 
CMP's rules, procedures, benefits, fees and other charges, services, and 
other information necessary for beneficiaries to make an informed 
decision about enrollment.
    (2) Notify the general public of its enrollment period (whether time 
limited or continuous) in an appropriate manner through appropriate 
media, throughout its enrollment area.
    (3) Submit all marketing materials to HCFA at least 45 days before 
their planned distribution.
    (4) Include in the HMO's or CMP's written materials provided to 
prospective enrollees prior to enrollment, notice that the HMO or CMP is 
authorized by law to terminate or refuse to renew its contract with 
HCFA, that HCFA may also choose to terminate or refuse to renew its 
contact with the HMO or CMP and that termination or nonrenewal may 
result in termination of the individual's enrollment in the HMO or CMP.
    (b) Prohibited marketing activities--general. In offering its plan 
to Medicare beneficiaries, an HMO or CMP may not engage in any of the 
following practices or activities:
    (1) Practices that are discriminatory. For example, the HMO or CMP 
may not engage in any activity intended to recruit Medicare 
beneficiaries from higher income areas (usually an indicator of better 
health) without making a comparable effort to enroll Medicare 
beneficiaries from lower income areas.
    (2) Activities that could mislead or confuse Medicare beneficiaries, 
or misrepresent the HMO or CMP its marketing representatives, or HCFA. 
For example, the HMO or CMP may not claim that it is recommended or 
endorsed by HCFA or that HCFA recommends that

[[Page 569]]

the beneficiary enroll in the HMO or CMP. It may, however, explain that 
the entity is approved as an HMO or CMP for purposes of participation in 
Medicare.
    (3) Offers of gifts or payment as an inducement to enroll in the HMO 
or CMP. This does not prohibit the explanation of any legitimate 
benefits the beneficiary might obtain as an enrollee of the HMO or CMP 
such as eligibility to enroll in a supplemental benefit plan that covers 
deductibles and coinsurance or preventive services.
    (4) Door-to-door solicitation of Medicare beneficiaries.
    (5) Distribution of marketing materials if, before the expiration of 
the 45-day period described in paragraph (a)(3) of this section, the HMO 
or CMP receives written notice from HCFA that HCFA has disapproved the 
material because it is inaccurate or misleading or it misrepresents the 
HMO or CMP, its marketing representatives or HCFA.
    (c) Marketing activities of risk HMOs or CMPs In addition to the 
generally permitted or prohibited marketing activities described in 
paragraphs (a) and (b) of this section, a risk HMO or CMP must provide 
potential Medicare enrollees with adequate written descriptions of the 
additional benefits or services, or reductions in premiums, deductible 
or copayments that may pertain under payment on a risk basis.

[50 FR 1346, Jan. 10, 1985, as amended at 52 FR 8901, Mar. 20, 1987; 56 
FR 46570, Sept. 13, 1991; 58 FR 38082, July 15, 1993; 60 FR 45677, Sept. 
1, 1995]



Sec. 417.430  Application procedures.

    (a) Application forms. (1) The application form must comply with 
HCFA instructions regarding format and content and must include the 
beneficiary's signature and authorization for disclosure and exchange of 
necessary information between HCFA and the HMO or CMP.
    (2) The HMO or CMP must file and retain application forms for the 
period specified in HCFA instructions.
    (b) Handling of applications. An HMO or CMP must have an effective 
system for receiving, controlling, and processing applications from 
Medicare beneficiaries. The system must meet the following conditions 
and requirements:
    (1) Each application is dated as of the day it is received.
    (2) Applications are processed in chronological order by date of 
receipt.
    (3) The HMO or CMP gives the beneficiary prompt written notice of 
acceptance or rejection of the application.
    (4) The notice of acceptance--
    (i) Specifies the date on which the HMO or CMP will request HCFA to 
make the enrollment effective; or
    (ii) If the HMO or CMP is currently enrolled to capacity, explains 
the procedures that will be followed when vacancies occur.
    (5) The notice of denial explains the reason for denial.
    (6) The HMO or CMP transmits the information necessary for HCFA to 
add the beneficiary to its records of the HMO's or CMP's Medicare 
enrollees--
    (i) Within 30 days from the date of application or from the date a 
vacancy occurs for an applicant who was accepted (for future enrollment) 
while there were no vacancies; or
    (ii) Within an additional period of time approved by HCFA on a 
showing by the HMO or CMP that it needs more time.
    (7) The HMO or CMP promptly notifies the beneficiary of the 
effective month of his or her enrollment as a Medicare enrollee, when it 
receives that information from HCFA.
    (8) If the HMO or CMP accepts applications while it is enrolled to 
capacity, its procedures ensure that vacancies are filled in 
chronological order by date of application of beneficiaries who are 
still eligible to enroll, unless that would result in failure to comply 
with any of the qualifying conditions set forth in Sec. 417.413.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45677, Sept. 1, 1995]



Sec. 417.432  Conversion of enrollment.

    (a) Basic rule. An HMO or CMP must accept as a Medicare enrollee any 
individual who is enrolled in the HMO or CMP for the month immediately 
before the month in which he or she is entitled to both Medicare Parts A 
and B or Part B only.
    (b) Effective date of conversion. Unless the individual chooses to 
disenroll

[[Page 570]]

from the HMO or CMP the individual's conversion to a Medicare enrollee 
is effective the month in which he or she is entitled to both Medicare 
Parts A and B or Part B only.
    (c) Prohibition against disenrollment. An HMO or CMP may not 
disenroll an individual who is converting under the provisions of 
paragraph (a) of this section unless one of the conditions specified in 
Sec. 417.460 is met.
    (d) Application form. The individual who is converting must sign an 
application form as described in Sec. 417.430(a).
    (e) Expedited submittal of information to HCFA. The HMO or CMP must 
notify HCFA, within the following time frames, of the enrollee's 
authorization for disclosure and exchange of information and the 
information necessary for HCFA to include the enrollee in its records as 
a Medicare enrollee of the HMO or CMP:
    (1) At least 30, but no earlier than 90, days before the enrollee--
    (i) Attains age 65; or
    (ii) Reaches his or her 25th month of entitlement to social security 
disability benefits under title II of the Act or railroad retirement 
disability benefits under section 7(d) of the Railroad Retirement Act of 
1974.
    (2) Within 30 days after the enrollee initiates a course of renal 
dialysis, or on or before the day he or she enters a hospital in 
anticipation of a kidney transplant.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 46570, Sept. 13, 1991; 
58 FR 38082, July 15, 1993; 60 FR 45677, Sept. 1, 1995]



Sec. 417.434  Reenrollment.

    If an HMO or CMP requires periodic reenrollment, it must reenroll 
Medicare enrollees unless there is a basis for disenrollment as set 
forth in Sec. 417.460.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.436  Rules for enrollees.

    (a) Maintaining rules. An HMO or CMP must maintain written rules 
that deal with, but need not be limited to the following:
    (1) All benefits provided under the contract, as described in 
Sec. 417.440.
    (2) How and where to obtain services from or through the HMO or CMP.
    (3) The restrictions on coverage for services furnished from sources 
outside a risk HMO or CMP, other than emergency services and urgently 
needed services (as defined in Sec. 417.401).
    (4) The obligation of the HMO or CMP to assume financial 
responsibility and provide reasonable reimbursement for emergency 
services and urgently needed services as required by Sec. 417.414(c).
    (5) Any services other than the emergency or urgently needed 
services that the HMO or CMP chooses to provide as permitted by this 
part, from sources outside the HMO or CMP. A cost HMO or CMP must 
disclose that the enrollee may receive services through any Medicare 
providers and suppliers.
    (6) Premium information, including the amount (or if the amount 
cannot be included, the telephone number of the source from which this 
information may be obtained) and the procedures for paying premiums and 
other charges for which enrollees may be liable.
    (7) Grievance and appeal procedures.
    (8) Disenrollment rights.
    (9) The obligation of an enrollee who is leaving the HMO's or CMP's 
geographic area for more than 90 days to notify the HMO or CMP of the 
move or extended absence and the HMO's or CMP's policies concerning 
retention of enrollees who leave the geographic area for more than 90 
days, as described in Sec. 417.460(a)(2).
    (10) The expiration date of the Medicare contract with HCFA and 
notice that both HCFA and the HMO or CMP are authorized by law to 
terminate or refuse to renew the contract, and that termination or 
nonrenewal of the contract may result in termination of the individual's 
enrollment in the HMO or CMP.
    (11) Advance directives as specified in paragraph (d) of this 
section.
    (12) Any other matters that HCFA may prescribe.
    (b) Availability of rules. The HMO or CMP must furnish a copy of the 
rules to each Medicare enrollee at the time of enrollment and at least 
annually thereafter.
    (c) Changes in rules. If an HMO or CMP changes its rules, it must 
submit the changes to HCFA in accordance

[[Page 571]]

with Sec. 417.428(a)(3), and notify its Medicare enrollees of the 
changes at least 30 days before the effective date of the changes.
    (d) Advance directives. (1) An HMO or CMP must maintain written 
policies and procedures concerning advance directives, as defined in 
Sec. 489.100 of this chapter, with respect to all adult individuals 
receiving medical care by or through the HMO or CMP and are required to:
    (i) Provide written information to those individuals concerning--
    (A) Their rights under the law of the State in which the 
organization furnishes services (whether statutory or recognized by the 
courts of the State) to make decisions concerning such medical care, 
including the right to accept or refuse medical or surgical treatment 
and the right to formulate, at the individual's option, advance 
directives. Providers are permitted to contract with other entities to 
furnish this information but are still legally responsible for ensuring 
that the requirements of this section are met. Such information must 
reflect changes in State law as soon as possible, but no later than 90 
days after the effective date of the State law; and
    (B) The HMO's or CMP's written policies respecting the 
implementation of those rights, including a clear and precise statement 
of limitation if the HMO or CMP cannot implement an advance directive as 
a matter of conscience. At a minimum, this statement should:
    (1) Clarify any differences between institution-wide conscience 
objections and those that may be raised by individual physicians;
    (2) Identify the state legal authority permitting such objection; 
and
    (3) Describe the range of medical conditions or procedures affected 
by the conscience objection.
    (ii) Provide the information specified in paragraphs (d)(1)(i) of 
this section to each enrollee at the time of initial enrollment. If an 
enrollee is incapacitated at the time of initial enrollment and is 
unable to receive information (due to the incapacitating condition or a 
mental disorder) or articulate whether or not he or she has executed an 
advance directive, the HMO or CMP may give advance directive information 
to the enrollee's family or surrogate in the same manner that it issues 
other materials about policies and procedures to the family of the 
incapacitated enrollee or to a surrogate or other concerned persons in 
accordance with State law. The HMO or CMP is not relieved of its 
obligation to provide this information to the enrollee once he or she is 
no longer incapacitated or unable to receive such information. Follow-up 
procedures must be in place to ensure that the information is given to 
the individual directly at the appropriate time.
    (iii) Document in the individual's medical record whether or not the 
individual has executed an advance directive;
    (iv) Not condition the provision of care or otherwise discriminate 
against an individual based on whether or not the individual has 
executed an advance directive;
    (v) Ensure compliance with requirements of State law (whether 
statutory or recognized by the courts of the State) regarding advance 
directives;
    (vi) Provide for education of staff concerning its policies and 
procedures on advance directives; and
    (vii) Provide for community education regarding advance directives 
that may include material required in paragraph (d)(1)(i)(A) of this 
section, either directly or in concert with other providers or entities. 
Separate community education materials may be developed and used, at the 
discretion of the HMO or CMP. The same written materials are not 
required for all settings, but the material should define what 
constitutes an advance directive, emphasizing that an advance directive 
is designed to enhance an incapacitated individual's control over 
medical treatment, and describe applicable State law concerning advance 
directives. An HMO or CMP must be able to document its community 
education efforts.
    (2) The HMO or CMP--(i) Is not required to provide care that 
conflicts with an advance directive.
    (ii) Is not required to implement an advance directive if, as a 
matter of conscience, the HMO or CMP cannot implement an advance 
directive and

[[Page 572]]

State law allows any health care provider or any agent of such provider 
to conscientiously object.
    (3) The HMO or CMP must inform individuals that complaints 
concerning non-compliance with the advance directive requirements may be 
filed with the State survey and certification agency.

[58 FR 38072, July 15, 1993, as amended at 59 FR 49843, Sept. 30, 1994; 
60 FR 33292, June 27, 1995]



Sec. 417.440  Entitlement to health care services from an HMO or CMP.

    (a) Basic rules. (1) Subject to the conditions and limitations set 
forth in this subpart, a Medicare enrollee of an HMO or CMP is entitled 
to receive health care services and supplies directly from, or through 
arrangements made by, the HMO or CMP as specified in this section and 
Secs. 417.442-417.446.
    (2) A Medicare enrollee is also entitled to receive timely and 
reasonable payment directly (or have payment made on his or her behalf) 
for services he or she obtained from a provider or supplier outside the 
HMO or CMP if those services are--
    (i) Emergency services or urgently needed services as defined 
Sec. 417.401;
    (ii) Services denied by the HMO or CMP and found (upon appeal under 
subpart Q of this part) to be services the enrollee was entitled to have 
furnished by the HMO or CMP.
    (b) Scope of services. (1) Part A and Part B services. Except as 
specified in paragraphs (c), (d), and (e) of this section, a Medicare 
enrollee is entitled to receive from an HMO or CMP all the Medicare-
covered services that are available to individuals residing in the HMO's 
or CMP's geographic area, as follows:
    (i) Medicare Part A and Part B services if the enrollee is entitled 
to benefits under both programs.
    (ii) Medicare Part B services if the enrollee is entitled only under 
that program.
    (2) Supplemental services elected by enrollee. A Medicare enrollee 
of an HMO or CMP may elect to pay for optional services that are offered 
by the HMO or CMP in addition to the covered Part A and Part B services, 
and, for risk HMOs or CMPs, in addition to the additional benefits 
required under Sec. 417.442. The HMO or CMP may not set health status 
standards for those enrollees whom it will accept for these optional 
supplemental services.
    (3) Supplemental services imposed by a risk HMO or CMP. (i) Subject 
to HCFA's approval, a risk HMO or CMP may require Medicare enrollees to 
accept and pay for services in addition to those covered by Medicare. 
(ii) If the HMO or CMP elects this option, it must impose the 
requirement on all Medicare enrollees, without regard to health status. 
(iii) HCFA approves supplemental benefits of this type if HCFA 
determines that imposition of the requirements will not discourage other 
Medicare beneficiaries from enrolling in the risk HMO or CMP.
    (4) Additional benefits from risk HMOs or CMPs required by statute. 
Subject to the conditions stated in Sec. 417.442, a new Medicare 
enrollee or a current nonrisk Medicare enrollee who converts to risk 
reimbursement under Sec. 417.444 is eligible to receive, in addition to 
the covered Part A and Part B benefits for which he or she is eligible, 
benefits consisting of one or both of the following:
    (i) A reduction in the HMO's or CMP's premium rate or in other 
charges for services furnished to Medicare enrollees.
    (ii) Provision of health benefits or services beyond the required 
Part A and Part B coverage.
    (5) Special supplemental benefits. Under conditions described in 
Sec. 417.444(c), current nonrisk Medicare enrollees who are not 
converted to the risk portion of the contract, may enroll in a special 
supplemental plan, if offered by the HMO or CMP, for some or all of the 
additional benefits described in paragraph (b)(4) of this section.
    (c) Limitation on hospice care. (1) Extent of limitation. (i) Basic 
rule. Except as provided in paragraph (c)(1)(ii) of this section, a 
Medicare enrollee who elects to receive hospice care under Sec. 418.24 
of this chapter waives the right to receive from the HMO or CMP any 
Medicare services (including services equivalent to hospice care) that 
are related to the terminal condition for which the enrollee elected 
hospice care, or to a related condition.

[[Page 573]]

    (ii) Exception. An enrollee who elects hospice care retains the 
right to services furnished by his or her attending physician if that 
physician--
    (A) Is an employee or contractor of the HMO or CMP; and
    (B) Is not an employee of the designated hospice and does not 
receive compensation from the hospice for those services.
    (2) Effective date of limitation. The limitation in paragraph (c)(1) 
of this section begins on the effective date of the beneficiary's 
election of hospice care and remains in effect until the earlier of the 
following:
    (i) The effective date of the enrollee's revocation of the election 
of hospice care as described in Sec. 418.28 of this chapter.
    (ii) The date the enrollee exhausts his or her hospice benefits.
    (3) Payment to HMO or CMP. For the period that the Medicare 
enrollee's election of hospice care is in effect, HCFA pays a cost HMO 
or CMP only as described in Sec. 417.585.
    (d) Limitation on provision of inpatient hospital services. If a 
beneficiary's effective date of coverage, as specified in Sec. 417.450, 
in a risk HMO or CMP occurs during an inpatient stay in a hospital paid 
for under part 412 of this chapter, the HMO or CMP--
    (1) Is not responsible for the provision of any of the inpatient 
hospital services under Part A during the stay and is not required to 
pay for those services;
    (2) Must assume responsibility for payment for or provision of 
inpatient hospital services under Part A on the day after the day of 
discharge from the inpatient stay; and
    (3) Is responsible for the full scope of services under paragraph 
(b) of this section, other than inpatient hospital services under Part 
A, beginning on the effective date of enrollment.
    (e) Extension of provision of inpatient hospital services. If an 
enrollee's effective date of disenrollment, as defined by Sec. 417.460, 
occurs during an inpatient stay in a hospital paid for under part 412 of 
this chapter and the stay is provided or arranged for by the HMO or CMP, 
or the HMO or CMP is financially responsible for the hospitalization 
under paragraph (a)(2) of this section, the HMO or CMP--
    (1) Is financially responsible for payment of the inpatient services 
under Part A through the date the beneficiary is discharged from the 
inpatient stay; and
    (2) Is not responsible for the provision of services, furnished on 
or after the effective date of disenrollment, other than inpatient 
hospital services under Part A.
    (f) Notice of noncoverage of inpatient hospital care. (1) If an 
enrollee is an inpatient of a hospital, entitlement to inpatient 
hospital care continues until he or she receives notice of noncoverage 
of that care.
    (2) Before giving notice of noncoverage, the HMO or CMP must obtain 
the concurrence of its affiliated physician responsible for the hospital 
care of the enrollee, or other physician as authorized by the HMO or 
CMP.
    (3) The HMO or CMP must give the enrollee written notice that 
includes the following:
    (i) The reason why inpatient hospital care is no longer needed.
    (ii) The effective date of the enrollee's liability for continued 
inpatient care.
    (iii) The enrollee's appeal rights.
    (4) If the HMO or CMP delegates to the hospital the determination of 
noncoverage of inpatient care, the hospital obtains the concurrence of 
the HMO- or CMP-affiliated physician responsible for the hospital care 
of the enrollee, or other physician as authorized by the HMO or CMP, and 
sends notice, following the procedures set forth in Sec. 412.42(c)(3) of 
this chapter.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 52 
FR 8901, Mar. 20, 1987; 58 FR 38079, July 15, 1993; 59 FR 59941, Nov. 
21, 1994; 60 FR 45678, Sept. 1, 1995]



Sec. 417.442  Risk HMO's and CMP's: Conditions for provision of additional benefits.

    (a) General rule. Except as provided in paragraph (b) of this 
section, a risk HMO or CMP must, during any contract period, provide to 
its Medicare enrollees the additional benefits described in 
Sec. 417.440(b)(4) if its ACRs (calculated in accordance with 
Sec. 417.594) are less than the average per capita rates

[[Page 574]]

that HCFA pays for the Medicare enrollees during the contract period.
    (b) Exceptions. (1) Reduced payment election. An HMO or CMP is not 
obligated to furnish additional services under paragraph (a) of this 
section if it has requested a reduction in its monthly payment from HCFA 
under Sec. 417.592(e), and it--
    (i) Elects to receive reduced payment so that there is no difference 
between the average of its per capita rates of payment and its ACR; or
    (ii) Elects to receive partially reduced payment and furnish 
Medicare enrollees with additional benefits described in Sec. 417.440 
(b)(4) so that the combined value of benefits and reduced payment is 
equivalent to the difference between the average of its per capita rates 
of payment and its ACR.
    (2) Benefit stabilization fund. An HMO or CMP may elect to have a 
part of the value of the additional benefits it must provide under 
paragraph (a) of this section withheld in a benefit stabilization fund 
as described in Sec. 417.596.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985; 58 FR 38082, July 
15, 1993; 60 FR 45678, Sept. 1, 1995]



Sec. 417.444  Special rules for certain enrollees of risk HMOs and CMPs.

    (a) Applicability. This section applies to any Medicare enrollee of 
a risk HMO or CMP who meets the following conditions:
    (1) On February 1, 1985, was enrolled--
    (i) In an HMO or CMP that had in effect a cost contract entered into 
under section 1876 of the Act in accordance with regulations in effect 
before February 1, 1985; or
    (ii) In an HCPP that was being reimbursed on a reasonable cost basis 
under section 1833(a)(1)(A) of the Act.
    (2) Has continued enrollment in the same entity without interruption 
or disenrolled after February 1, 1985, and later reenrolled in the same 
entity.
    (b) Retention of nonrisk status--(1) A ``nonrisk'' enrollee is a 
Medicare beneficiary who meets the conditions of paragraph (a) of this 
section and is enrolled in an entity that enters into a risk contract as 
an HMO or CMP. A ``nonrisk'' enrollee may retain nonrisk status 
indefinitely unless HCFA determines under paragraph (c)(1) of this 
section, that the enrollee's status must be changed, or the enrollee 
requests the change, as provided in paragraph (c)(2) of this section.
    (2) A nonrisk enrollee of a risk HMO or CMP is not entitled to 
additional benefits under Sec. 417.442.
    (c) Conversion to risk status--(1) Conversion based on HCFA 
determination. If HCFA determines that, for administrative reasons or 
because there are fewer than 75 current nonrisk Medicare enrollees 
remaining in the HMO or CMP, all of its nonrisk Medicare enrollees must 
be covered under the risk provisions of the contract, the conversion 
process is as follows:
    (i) HCFA notifies each affected enrollee of the decision at least 90 
days prior to the effective date.
    (ii) The nonrisk Medicare enrollees complete and sign forms stating 
that they understand and accept the new rules and benefits that will be 
applicable to them.
    (iii) The HMO or CMP notifies each affected enrollee, in writing, at 
least 30 days in advance, of the date upon which his or her coverage 
under the risk portion of the contract takes effect.
    (2) Conversion based on enrollee's request. A nonrisk Medicare 
enrollee requests, using a form identical or similar to the form 
described in paragraph (c)(1) of this section, that he or she be covered 
under the risk portion of the contract.
    (d) Notification. An HMO or CMP converting from a cost contract to a 
risk contract must, within 60 days of signing the risk contract, inform 
nonrisk enrollees of their right to remain nonrisk Medicare enrollees or 
to convert to risk enrollment at any time in accordance with paragraph 
(c)(2) of this section.

[58 FR 38073, July 15, 1993]



Sec. 417.446  [Reserved]



Sec. 417.448  Restriction on payments for services received by Medicare enrollees of risk HMOs or CMPs.

    (a) Basic rule. Except for emergency and urgently needed services as 
defined in Sec. 417.401, risk HMOs or CMPs are not

[[Page 575]]

required to make payments to or on behalf of certain Medicare enrollees, 
for any services received by the enrollees that are not provided--
    (1) Directly by the HMO or CMP; or
    (2) Through arrangements made by the HMO or CMP.
    (b) Application. The restriction on payments for services imposed by 
paragraph (a) of this section applies to services received by--
    (1) New Medicare enrollees;
    (2) Nonrisk Medicare enrollees who convert to risk reimbursement; 
and
    (3) Nonrisk Medicare enrollees who elect special supplemental 
benefit plans.
    (c) End of restriction. The restriction of payments imposed by 
paragraph (a) of this section ends when a Medicare enrollee leaves the 
HMO's or CMP's geographic area for an extended period as defined in 
Sec. 471.460(a)(2) and the HMO or CMP and the enrollee make arrangements 
for enrollment to continue as provided in Sec. 417.460(a)(2)(iv).
    (d) Timing. The effective date for the end of the restriction on 
payments, as discussed in paragraph (c) of this section is the first day 
of the first month following the month in which the enrollee notifies 
the HMO or CMP as required in Sec. 417.436(a)(9), that he or she has 
left the HMO's or CMP's geographic area for an extended period.

[51 FR 28573, Aug. 8, 1986, as amended at 56 FR 46571, Sept. 13, 1991; 
58 FR 38079, July 15, 1993]



Sec. 417.450  Effective date of coverage.

    (a) Basic rules. Except as specified in paragraph (b) of this 
section, and notwithstanding the provisions of Sec. 417.440(d).
    (1) HCFA's liability for payments to an HMO or CMP on behalf of a 
Medicare beneficiary begins on the first day of the month in which he or 
she is--
    (i) Entitled to Medicare benefits; and
    (ii) Enrolled in an HMO or CMP; and
    (2) The effective month of coverage may not be earlier than the 
first month after, nor later than the third month after the month in 
which HCFA receives the information necessary to include the beneficiary 
as a Medicare enrollee of the HMO or CMP in HCFA records.
    (b) Exceptions. (1) HCFA may approve a later month if it is 
requested by the HMO or CMP and the beneficiary.
    (2) If an individual becomes an HMO or CMP enrollee before becoming 
entitled to Medicare Part B benefits, the effective month of coverage is 
the first month for which he or she becomes entitled to Medicare Part B 
benefits.
    (c) Notice of effective date of coverage. For each beneficiary added 
to HCFA's records as an enrollee of an HMO or CMP, HCFA gives the HMO or 
CMP prompt written notice of the month with which HCFA's liability 
begins.

[50 FR 1346, Jan. 10, 1985, as amended at 52 FR 8901, Mar. 20, 1987; 58 
FR 38079, July 15, 1993; 60 FR 45678, Sept. 1, 1995]



Sec. 417.452  Liability of Medicare enrollees.

    (a) Deductibles and coinsurance. (1) A Medicare enrollee of an HMO 
or CMP is responsible for applicable Medicare deductible and coinsurance 
amounts, unless the HMO's or CMP's charges for these amounts are reduced 
under the additional benefits provision of Sec. 417.442.
    (2) The deductible and coinsurance amounts may be paid by or on 
behalf of the enrollee in the form of a premium, membership fee, charge 
per unit, or other similar charge.
    (3) The sum of the amounts the HMO or CMP charges its Medicare 
enrollees for Medicare deductibles and coinsurance may not exceed, on 
the average, the actuarial value of the deductible and coinsurance the 
Medicare enrollees otherwise would have been liable for had they not 
enrolled in the HMO or CMP or in another HMO or CMP.
    (b) Services not covered under Medicare. Unless the services are 
provided as additional benefits under Sec. 417.442, a Medicare enrollee 
of an HMO or CMP is liable for payment for--
    (1) All services that are not covered under Medicare Part A or Part 
B; or
    (2) If entitled only to Medicare Part B benefits, all services that 
are not covered under Medicare Part B.
    (c) Services for which Medicare is not primary payer. A Medicare 
enrollee of an HMO or CMP is liable for payments made to the enrollee 
for all covered services for which Medicare is not the primary payer as 
provided in Sec. 417.528.

[[Page 576]]

    (d) Optional supplemental benefits plan. (1) The HMO or CMP may 
offer its Medicare enrollees a supplemental benefit plan to cover 
deductible and coinsurance amounts, or services not covered under 
Medicare, or both.
    (2) If a supplemental benefit plan premium includes charges for both 
noncovered services and the deductible and coinsurance amounts 
applicable to covered services, the portion of the premium that is for 
deductibles and coinsurance must be computed separately and must be 
disclosed to the beneficiary during the enrollment process and before he 
or she elects coverage options.
    (3) The sum of the amounts an HMO or CMP charges its Medicare 
enrollees for services that are not covered under Part A or Part B may 
not exceed the ACR for these services.
    (e) Coverage of Part A services for Part B-only Medicare enrollees. 
If an HMO or CMP furnishes coverage of Medicare Part A services to a 
Medicare enrollee entitled to Part B only, the HMO's or CMP's premium 
(or other payment method) for these services may not exceed the ACR for 
these services. In addition, if a risk HMO or CMP furnishes these 
services and supplemental services, which are the same as the additional 
benefits furnished Medicare enrollees of the HMO or CMP who are entitled 
to benefits under both Parts A and B, the HMO's or CMP's combined 
premium for both these groups of services that the Part B enrollee must 
pay may not exceed 95 percent of the weighted average AAPCC for Part A 
services (or the Medicare payment for Part A services, if it is less) 
for the Medicare enrollee of the HMO or CMP.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 60 
FR 45678, Sept. 1, 1995]



Sec. 417.454  Charges to Medicare enrollees.

    (a) Limits on charges. The HMO or CMP must agree to charge its 
Medicare enrollees only for the--
    (1) Deductible and coinsurance amounts applicable to furnished 
covered services;
    (2) Charges for noncovered services or services for which the 
enrollee is liable as described in Sec. 417.452; and
    (3) Services for which Medicare is not the primary payor as provided 
in Sec. 417.528.
    (b) Limit on charges for inpatient hospital care. If a Medicare 
enrollee who is an inpatient of a hospital requests immediate PRO review 
(as provided in Sec. 417.605) of any determination by the hospital 
furnishing services or the HMO or CMP that the inpatient hospital 
services will no longer be covered, the HMO or CMP may not charge the 
enrollee for any inpatient care costs incured before noon of the first 
working day after the PRO issues its review decision.
    (c) Reporting requirements. A risk HMO or CMP must report, within 90 
days after the end of the contract period, all premiums, enrollment 
fees, and other charges collected from its Medicare enrollees during 
that period.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 59 
FR 59941, Nov. 21, 1994; 60 FR 45678, Sept. 1, 1995]



Sec. 417.456  Refunds to Medicare enrollees.

    (a) Definitions. As used in this section--
    Amounts incorrectly collected means amounts collected that are in 
excess of those specified in Sec. 417.452. It includes amounts collected 
when the enrollee was believed not entitled to Medicare benefits if the 
enrollee is later determined to have been entitled to Medicare benefits 
and HCFA is liable for payments as specified in Sec. 417.450.
    Other amounts due means amounts due a Medicare enrollee for services 
obtained outside the HMO or CMP if they were--
    (1) Emergency services;
    (2) Urgently needed services for which the HMO or CMP has assumed 
financial responsibility; or
    (3) On appeal under subpart Q of this part, found to be services the 
enrollee was entitled to have furnished by the HMO or CMP.
    (b) Basic commitment. An HMO or CMP must agree to refund all amounts 
incorrectly collected from its Medicare enrollees, or from others on 
behalf of the enrollees, and any other amounts due the enrollees or 
others on their behalf.

[[Page 577]]

    (c) Refund by lump sum payment. An HMO or CMP must make refunds to 
its current and former Medicare enrollees, or to others who have made 
payments on behalf of enrollees, by lump sum payment for the following:
    (1) Incorrectly collected amounts that were not collected as 
premiums.
    (2) Other amounts due.
    (3) All amounts due, if the HMO or CMP is going out of business.
    (d) Refund by premium adjustment or lump sum payment or both. An HMO 
or CMP may make refund by adjustment of future premiums, by lump sum 
payment, or by a combination of both methods, for amounts that were 
incorrectly collected in the form of premiums or through a combination 
of premium payments and other charges.
    (e) Refund when enrollee has died or cannot be located. If an 
enrollee has died or cannot be located after reasonable effort by the 
HMO or CMP, the HMO or CMP must make the refund in accordance with State 
law.
    (f) Reduction by HCFA. If the HMO or CMP does not make refund in 
accordance with paragraphs (b) through (d) of this section by the end of 
the contract period following the contract period during which an amount 
was determined to be due an enrollee, HCFA reduces its payment to the 
HMO or CMP by the amounts incorrectly collected or otherwise due, and 
arranges for those amounts to be paid to the Medicare enrollee.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 60 
FR 45678, Sept. 1, 1995]



Sec. 417.458  Recoupment of uncollected deductible and coinsurance amounts.

    An HMO or CMP agrees not to recoup deductible and coinsurance 
amounts for which Medicare enrollees were liable in a previous contract 
period except in the following circumstances:
    (a) The HMO or CMP failed to collect the deductible and coinsurance 
amounts during the contract period in which they were due because of--
    (1) Underestimation of the actuarial value of the deductible and 
coinsurance amounts; or
    (2) A billing error.
    (b) The HMO or CMP has identified the amounts and obtained advance 
HCFA approval of the recoupment and the method and timing of recoupment.
    (c) The HMO or CMP collects these amounts no later than the end of 
the contract period following the contract period during which they were 
found to be due.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45678, Sept. 1, 1995]



Sec. 417.460  Disenrollment of beneficiaries by an HMO or CMP.

    (a) General rule. Except as provided in paragraphs (b) through (i) 
of this section, an HMO or CMP may not--
    (1) Disenroll a Medicare beneficiary; or
    (2) Orally or in writing, or by any action or inaction, request or 
encourage a Medicare enrollee to disenroll.
    (b) Bases for disenrollment: Overview. (1) Optional disenrollment. 
Generally, an HMO or CMP may disenroll a Medicare enrollee if he or 
she--
    (i) Fails to pay the required premiums or other charges;
    (ii) Commits fraud or permits abuse of his or her enrollment card; 
or
    (iii) Behaves in a manner that seriously impairs the HMO's or CMP's 
ability to furnish health care services to the particular enrollee or to 
other enrollees.
    (2) Required disenrollment. Generally, an HMO or CMP must disenroll 
a Medicare enrollee if he or she--
    (i) Moves out of the HMO's or CMP's geographic area;
    (ii) Fails to convert to the risk provisions of the HMO's or CMP's 
Medicare contract;
    (iii) Loses entitlement to Medicare Part B benefits; or
    (iv) Dies.
    (3) Related provisions. Specific requirements, limitations, and 
exceptions are set forth in paragraphs (c) through (i) of this section.
    (c) Failure to pay premiums or other charges. (1) Basic rule. Except 
as specified in paragraph (c)(2) of this section, an HMO or CMP may 
disenroll a Medicare enrollee who fails to pay premiums or other charges 
imposed by the

[[Page 578]]

HMO or CMP for deductible and coinsurance amounts for which the enrollee 
is liable, if the HMO or CMP--
    (i) Can demonstrate to HCFA that it made reasonable efforts to 
collect the unpaid amount;
    (ii) Gives the enrollee written notice of disenrollment, including 
an explanation of the enrollee's right to a hearing under the HMO's or 
CMP's grievance procedures; and
    (iii) Sends the notice of disenrollment to the enrollee before it 
notifies HCFA.
    (2) Exception. If the enrollee fails to pay the premium for optional 
supplemental benefits (that is, a package of benefits that an enrollee 
is not required to accept), but pays the basic premium and other 
charges, the HMO or CMP may discontinue the optional benefits but may 
not disenroll the beneficiary.
    (d) Enrollee commits fraud or permits abuse of the enrollment card. 
(1) Basis for disenrollment. An HMO or CMP may disenroll a Medicare 
beneficiary if the beneficiary--
    (i) Knowingly provides, on the application form, fraudulent 
information that materially affects the beneficiary's eligibility to 
enroll in the HMO or CMP; or
    (ii) Intentionally permits others to use his or her enrollment card 
to obtain services from the HMO or CMP.
    (2) Notice requirement. If disenrollment is for either of the 
reasons specified in paragraph (d)(1) of this section, the HMO or CMP 
must give the beneficiary a written notice of termination of enrollment.
    (i) The notice must be mailed to the enrollee before submission of 
the disenrollment notice to HCFA.
    (ii) The notice must include an explanation of the enrollee's right 
to have the disenrollment heard under the grievance procedures 
established in accordance with Sec. 417.436.
    (3) Report to the Inspector General. The HMO or CMP must report to 
the Office of the Inspector General of the Department any disenrollment 
based on fraud or abuse by the enrollee.
    (e) Disenrollment for cause. (1) Basis for disenrollment. An HMO or 
CMP may disenroll a Medicare enrollee for cause if the enrollee's 
behavior is disruptive, unruly, abusive, or uncooperative to the extent 
that his or her continuing enrollment in the HMO or CMP seriously 
impairs the HMO's or CMP's ability to furnish services to either the 
particular enrollee or other enrollees.
    (2) Effort to resolve the problem. The HMO or CMP must make a 
serious effort to resolve the problem presented by the enrollee, 
including the use (or attempted use) of internal grievance procedures.
    (3) Consideration of extenuating circumstances. The HMO or CMP must 
ascertain that the enrollee's behavior is not related to the use of 
medical services or to mental illness.
    (4) Documentation. The HMO or CMP must document the problems, 
efforts, and medical conditions as described in paragraphs (e)(1) 
through (e)(3) of this section.
    (5) HCFA review of an HMO's or CMP's proposed disenrollment for 
cause. (i) HCFA decides on the basis of review of the documentation 
submitted by the HMO or CMP, whether disenrollment requirements have 
been met.
    (ii) HCFA makes this decision within 20 working days after receipt 
of the documentation material, and notifies the HMO or CMP within 5 
working days after making its decision.
    (6) Effective date of disenrollment. If HCFA permits an HMO or CMP 
to disenroll an enrollee for cause, the disenrollment takes effect on 
the first day of the calendar month after the month in which the HMO or 
CMP gives the enrollee a written notice of disenrollment that meets the 
requirements set forth in paragraphs (d)(2)(i) and (d)(2)(ii) of this 
section.
    (f) Enrollee moves out of the HMO's or CMP's geographic area. (1) 
Basic rules. (i) Disenrollment. Except as provided in paragraph (f)(2) 
of this section, an HMO or CMP must disenroll a Medicare enrollee who 
moves out of its geographic area if the HMO or CMP establishes, on the 
basis of a written statement from the enrollee, or other evidence 
acceptable to HCFA, that the enrollee has permanently moved out of its 
geographic area.
    (ii) Notice requirement. The HMO or CMP must comply with the notice 
requirements set forth in paragraph (d)(2) of this section.

[[Page 579]]

    (iii) Effect on geographic area. Failure to disenroll an enrollee 
who has moved out of the HMO's or CMP's geographic area does not expand 
that area to encompass the location of the enrollee's new residence.
    (2) Exception. An HMO or CMP may retain a Medicare enrollee who is 
absent from its geographic area for an extended period, but who remains 
within the United States as defined in Sec. 400.200 of this chapter if 
the enrollee agrees. For purposes of this exception, the following 
provisions apply:
    (i) An absence for an extended period means an uninterrupted absence 
from the HMO's or CMP's geographic area for more than 90 days but less 
than 1 year.
    (ii) The HMO or CMP and the enrollee may mutually agree upon 
restrictions for obtaining services while the enrollee is absent for an 
extended period from the HMO's or CMP's geographic area. However, 
restrictions may not be imposed on the scope of services described in 
Sec. 417.440.
    (iii) HMOs and CMPs that choose to exercise this exception must make 
the option available to all Medicare enrollees who are absent for an 
extended period from their geographic areas. However, HMOs and CMPs may 
limit this option to enrollees who go to a geographic area served by an 
affiliated HMO or CMP.
    (iv) As used in this paragraph, ``affiliated HMO or CMP'' means an 
HMO or CMP that--
    (A) Is under common ownership or control of the HMO or CMP that 
seeks to retain the absent enrollees; or
    (B) Has in effect an agreement to furnish services to enrollees who 
are on an extended absence from the geographic area of the HMO or CMP 
that seeks to retain them.
    (v) When the enrollee returns to the HMO's or CMP's geographic area 
(even temporarily), the restrictions of Sec. 417.448(a) (which limit 
payment for services not provided or arranged for by the HMO or CMP) 
apply again immediately.
    (vi) If the enrollee fails to return to the HMO's or CMP's 
geographic area within 1 year from the date he or she left that area, 
the HMO or CMP must disenroll the beneficiary on the first day of the 
month following the anniversary of the date the enrollee left that area 
in accordance with paragraph (f)(1) of this section.
    (g) Failure to convert to risk provisions of Medicare contract. (1) 
Basis for disenrollment. A risk HMO or CMP must disenroll a nonrisk 
Medicare enrollee who refuses to convert to the risk provisions of the 
Medicare contract after HCFA determines that all of the HMO's or CMP's 
nonrisk Medicare enrollees must convert.
    (2) Advance notice requirement. At least 30 days before it gives 
HCFA notice of disenrollment, the HMO or CMP must give the enrollee 
written notice of the fact that failure to convert will result in 
disenrollment.
    (h) Loss of entitlement to Medicare benefits. (1) Loss of 
entitlement to Part A benefits. If an enrollee loses entitlement to 
benefits under Part A of Medicare but remains entitled to benefits under 
Part B, the enrollee automatically continues as a Medicare enrollee of 
the HMO or CMP and is entitled to receive and have payment made for Part 
B services, beginning with the month immediately following the last 
month of his or her entitlement to Part A benefits.
    (2) Loss of entitlement to Part B benefits. If a Medicare enrollee 
loses entitlement to Part B benefits, the HMO or CMP must disenroll him 
or her as a Medicare enrollee effective with the month following the 
last month of entitlement to Part B benefits. However, the HMO or CMP 
may continue to enroll the individual under its regular plan if the 
individual so chooses.
    (i) Death of the enrollee. Disenrollment is effective with the month 
following the month of death.

[60 FR 45678, Sept. 1, 1995]



Sec. 417.461  Disenrollment by the enrollee.

    (a) Request for disenrollment. (1) A Medicare enrollee who wishes to 
disenroll may at any time give the HMO or CMP a signed, dated request in 
the form and manner prescribed by HCFA.
    (2) The enrollee may request a certain disenrollment date but it may 
be no earlier than the first day of the

[[Page 580]]

month following the month in which the HMO or CMP receives the request.
    (b) Responsibilities of the HMO or CMP. The HMO or CMP must--
    (1) Submit a disenrollment notice to HCFA promptly;
    (2) Provide the enrollee with a copy of the request for 
disenrollment; and
    (3) In the case of a risk HMO or CMP, also provide the enrollee with 
a statement explaining that he or she--
    (i) Remains enrolled until the effective date of disenrollment; and
    (ii) Until that date, is subject to the restrictions of 
Sec. 417.448(a) under which neither the HMO or CMP nor HCFA pays for 
services not provided or arranged for by the HMO or CMP.
    (c) Effect of failure to submit disenrollment notice to HCFA 
promptly. If the HMO or CMP fails to submit timely the correct and 
complete notice required in paragraph (b)(1) of this section, the HMO or 
CMP must reimburse HCFA for any capitation payments received after the 
month in which payments would have ceased if the requirement had been 
met timely.

[60 FR 45679, Sept. 1, 1995]



Sec. 417.464  End of HCFA's liability for payment: Disenrollment of beneficiaries and termination or default of contract.

    (a) Effect of disenrollment: General rule. (1) HCFA's liability for 
monthly capitation payments to the HMO or CMP generally ends as of the 
first day of the month following the month in which disenrollment is 
effective, as shown on HCFA's records.
    (2) Disenrollment is effective no earlier than the month immediately 
after, and no later than the third month after, the month in which HCFA 
receives the disenrollment notice in acceptable form.
    (b) Effect of disenrollment: Special rules. (1) Fraud or abuse by 
the enrollee. If disenrollment is on the basis of fraud committed or 
abuse permitted by the enrollee, HCFA's liability ends as of the first 
day of the month in which disenrollment is effective.
    (2) Loss of entitlement to Part B benefits. If disenrollment is on 
the basis of loss of entitlement to Part B benefits, HCFA's liability 
ends as of the first day of the month following the last month of Part B 
entitlement.
    (3) Death of enrollee. If the enrollee dies, HCFA's liability ends 
as of the first day of the month following the month of death.
    (4) Disenrollment at enrollee's request. If disenrollment is in 
response to the enrollee's request, HCFA's liability ends as of the 
first day of the month following the month of termination requested by 
the enrollee.
    (c) Effect of termination or default of contract. (1) Termination of 
contract. If the contract between HCFA and the HMO or CMP is terminated 
by mutual consent or by unilateral action of either party, HCFA's 
liability for payments ends as of the first day of the month after the 
last month for which the contract is in effect.
    (2) Default of contract. If the HMO or CMP defaults on the contract 
before the end of the contract year because of bankruptcy or other 
reasons, HCFA--
    (i) Determines the month in which its liability for payments ends; 
and
    (ii) Notifies the HMO or CMP and all affected Medicare enrollees as 
soon as practicable.

[60 FR 45680, Sept. 1, 1995]



                Subpart L--Medicare Contract Requirements

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.470  Basis and scope.

    (a) Basis. This subpart implements those portions of section 
1857(e)(2) of the Act pertaining to cost sharing in enrollment-related 
costs and section 1876(c), (g), (h), and (i) of the Act that pertain to 
the contract between HCFA and an HMO or CMP for participation in the 
Medicare program.
    (b) Scope. This subpart sets forth--
    (1) Specific contract requirements; and
    (2) Procedures for renewal, nonrenewal, or termination of a 
contract.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 62 
FR 63673, Dec. 2, 1997]

[[Page 581]]



Sec. 417.472  Basic contract requirements.

    (a) Submittal of contract. An HMO or CMP that wishes to contract 
with HCFA to furnish services to Medicare beneficiaries must submit a 
signed contract that meets the requirements of this subpart and any 
other requirements established by HCFA.
    (b) Agreement to comply with regulations and instructions. The 
contract must provide that the HMO or CMP agrees to comply with all the 
applicable requirements and conditions set forth in this subpart and in 
general instructions issued by HCFA.
    (c) Other contract provisions. In addition to the requirements set 
forth in Secs. 417.474 through 417.488, the contract must contain any 
other terms and conditions that HCFA requires to implement section 1876 
of the Act.
    (d) Exemption from Federal procurement regulations. The Federal 
Acquisition Regulations and HHS Acquisition Regulations contained in 
title 48 of the Code of Federal Regulations do not apply to Medicare 
contracts under section 1876 of the Act.
    (e) Compliance with civil rights laws. The HMO or CMP must comply 
with title VI of the Civil Rights Act of 1964 (regulations at 45 CFR 
part 80), section 504 of the Rehabilitation Act of 1973 (regulations at 
45 CFR part 84), and the Age Discrimination Act of 1975 (regulations at 
45 CFR part 91).
    (f) Requirements for advance directives. The HMO or CMP must meet 
all the requirements for advance directives at Sec. 417.436(d).
    (g) Authority to waive conflicting contract requirements. Under 
section 1876(i)(5) of the Act, HCFA is authorized to administer the 
terms of this subpart without regard to provisions of law or other 
regulations relating to the making, performance, amendment, or 
modification of contracts of the United States if it determines that 
those provisions are inconsistent with the efficient and effective 
administration of the Medicare program.
    (h) Collection of fees from risk HMOs and CMPs. (1) The rules set 
forth in Sec. 422.10 of this chapter for M+C plans also apply to 
collection of fees from risk HMOs and CMPs.
    (2) In applying the part 422 rules, references to ``M+C 
organizations'' or ``M+C plans'' must be read as references to ``risk 
HMOs and CMPs''.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 57 
FR 8202, Mar. 6, 1992; 58 FR 38079, July 15, 1993; 60 FR 45680, Sept. 1, 
1995; 62 FR 63673, Dec. 2, 1997; 63 FR 35067, June 26, 1998]



Sec. 417.474  Effective date and term of contract.

    (a) Effective date. The contract must specify its effective date, 
which may not be earlier than the date it is signed by both HCFA and the 
HMO or CMP.
    (b) Term. The contract must specify the duration of its term as 
follows:
    (1) For the initial term, at least 12 months, but no more than 23 
months.
    (2) For any subsequent term, 12 months.

[60 FR 45680, Sept. 1, 1995]



Sec. 417.476  Waived conditions.

    If HCFA waives any of the qualifying conditions required under 
subpart J of this part, the contract must specify the following 
information for each waived condition:
    (a) The specific terms of the waiver.
    (b) The expiration date of the waiver.
    (c) Any other information required by HCFA.

[60 FR 45680, Sept. 1, 1995]



Sec. 417.478  Requirements of other laws and regulations.

    The contract must provide that the HMO or CMP agrees to comply 
with--
    (a) The requirements for PRO review of services furnished to 
Medicare enrollees as set forth in subchapter D of this chapter;
    (b) Sections 1318(a) and (c) of the PHS Act, which pertain to 
disclosure of certain financial information;
    (c) Section 1301(c)(8) of the PHS Act, which relates to liability 
arrangements to protect enrollees of the HMO or CMP; and
    (d) The reporting requirements in Sec. 417.126(a), which pertain to 
the monitoring of an HMO's or CMP's continued compliance.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 56 
FR 8853, Mar. 1, 1991; 58 FR 38079, 38082, July 15, 1993]

[[Page 582]]



Sec. 417.479  Requirements for physician incentive plans.

    (a) The contract must specify that an HMO or CMP may operate a 
physician incentive plan only if--
    (1) No specific payment is made directly or indirectly under the 
plan to a physician or physician group as an inducement to reduce or 
limit medically necessary services furnished to an individual enrollee; 
and
    (2) The stop-loss protection, enrollee survey, and disclosure 
requirements of this section are met.
    (b) Applicability. The requirements in this section apply to 
physician incentive plans between HMOs and CMP and individual physicians 
or physician groups with which they contract to provide medical services 
to enrollees. The requirements in this section also apply to 
subcontracting arrangements as specified in Sec. 417.479(i). These 
requirements apply only to physician incentive plans that base 
compensation (in whole or in part) on the use or cost of services 
furnished to Medicare beneficiaries or Medicaid recipients.
    (c) Definitions. For purposes of this section:
    Bonus means a payment an HMO or CMP makes to a physician or 
physician group beyond any salary, fee-for-service payments, capitation, 
or returned withhold.
    Capitation means a set dollar payment per patient per unit of time 
(usually per month) that an organization pays a physician or physician 
group to cover a specified set of services and administrative costs 
without regard to the actual number of services provided. The services 
covered may include the physician's own services, referral services, or 
all medical services.
    Payments means any amounts the HMO or CMP pays physicians or 
physician groups for services they furnish directly, plus amounts paid 
for administration and amounts paid (in whole or in part) based on use 
and costs of referral services (such as withhold amounts, bonuses based 
on referral levels, and any other compensation to the physician or 
physician group to influence the use of referral services). Bonuses and 
other compensation that are not based on referral levels (such as 
bonuses based solely on quality of care furnished, patient satisfaction, 
and participation on committees) are not considered payments for 
purposes of this section.
    Physician group means a partnership, association, corporation, 
individual practice association, or other group that distributes income 
from the practice among members. An individual practice association is a 
physician group only if it is composed of individual physicians and has 
no subcontracts with physician groups.
    Physician incentive plan means any compensation arrangement between 
an HMO or CMP and a physician or physician group that may directly or 
indirectly have the effect of reducing or limiting services furnished to 
Medicare beneficiaries or Medicaid recipients enrolled in the HMO or 
CMP.
    Referral services means any specialty, inpatient, outpatient, or 
laboratory services that a physician or physician group orders or 
arranges, but does not furnish directly.
    Risk threshold means the maximum risk, if the risk is based on 
referral services, to which a physician or physician group may be 
exposed under a physician incentive plan without being at substantial 
financial risk.
    Withhold means a percentage of payments or set dollar amounts that 
an HMO or CMP deducts from a physician's service fee, capitation, or 
salary payment, and that may or may not be returned to the physician, 
depending on specific predetermined factors.
    (d) Prohibited physician payments. No specific payment of any kind 
may be made directly or indirectly under the incentive plan to a 
physician or physician group as an inducement to reduce or limit covered 
medically necessary services covered under the HMO's or CMP's contract 
furnished to an individual enrollee. Indirect payments include offerings 
of monetary value (such as stock options or waivers of debt) measured in 
the present or future.
    (e) General rule: Determination of substantial financial risk. 
Substantial financial risk occurs when the incentive arrangements place 
the physician or physician group at risk for amounts beyond the risk 
threshold, if the risk is based on the use or costs of referral 
services. Amounts at risk based solely

[[Page 583]]

on factors other than a physician's or physician group's referral levels 
do not contribute to the determination of substantial financial risk. 
The risk threshold is 25 percent.
    (f) Arrangements that cause substantial financial risk. For purposes 
of this paragraph, potential payments means the maximum anticipated 
total payments (based on the most recent year's utilization and 
experience and any current or anticipated factors that may affect 
payment amounts) that could be received if use or costs of referral 
services were low enough. The following physician incentive plans cause 
substantial financial risk if risk is based (in whole or in part) on use 
or costs of referral services and the patient panel size is not greater 
than 25,000 patients:
    (1) Withholds greater than 25 percent of potential payments.
    (2) Withholds less than 25 percent of potential payments if the 
physician or physician group is potentially liable for amounts exceeding 
25 percent of potential payments.
    (3) Bonuses that are greater than 33 percent of potential payments 
minus the bonus.
    (4) Withholds plus bonuses if the withholds plus bonuses equal more 
than 25 percent of potential payments. The threshold bonus percentage 
for a particular withhold percentage may be calculated using the 
formula--
Withhold %=-0.75 (Bonus %)+25%.
    (5) Capitation, arrangements, if--
    (i) The difference between the maximum potential payments and the 
minimum potential payments is more than 25 percent of the maximum 
potential payments; or
    (ii) The maximum and minimum potential payments are not clearly 
explained in the physician's or physician group's contract.
    (6) Any other incentive arrangements that have the potential to hold 
a physician or physician group liable for more than 25 percent of 
potential payments.
    (g) Requirements for physician incentive plans that place physicians 
at substantial financial risk. HMOs and CMPs that operate incentive 
plans that place physicians or physician groups at substantial financial 
risk must do the following:
    (1) Conduct enrollee surveys. These surveys must--
    (i) Include either all current Medicare/Medicaid enrollees in the 
HMO or CMP and those who have disenrolled (other than because of loss of 
eligibility in Medicaid or relocation outside the HMO's or CMP's service 
area) in the past 12 months, or a sample of these same enrollees and 
disenrollees;
    (ii) Be designed, implemented, and analyzed in accordance with 
commonly accepted principles of survey design and statistical analysis;
    (iii) Address enrollees/disenrollees satisfaction with the quality 
of the services provided and their degree of access to the services; and
    (iv) Be conducted no later than 1 year after the effective date of 
the Medicare contract and at least annually thereafter.
    (2) Ensure that all physicians and physician groups at substantial 
financial risk have either aggregate or per-patient stop-loss protection 
in accordance with the following requirements:
    (i) If aggregate stop-loss protection is provided, it must cover 90 
percent of the costs of referral services (beyond allocated amounts) 
that exceed 25 percent of potential payments.
    (ii) If the stop-loss protection provided is based on a per-patient 
limit, the stop-loss limit per patient must be determined based on the 
size of the patient panel and may be a single combined limit or consist 
of separate limits for professional services and institutional services. 
In determining patient panel size, the patients may be pooled in 
accordance with paragraph (h)(1)(v) of this section. Stop-loss 
protection must cover 90 percent of the costs of referral services that 
exceed the per patient limit. The per-patient stop-loss limit is as 
follows:

------------------------------------------------------------------------
                                   Single       Separate      Separate
          Panel size              combined   institutional  professional
                                   limit         limit          limit
------------------------------------------------------------------------
1-1000........................       $6,000       $10,000         $3,000
1,001-5000....................       30,000        40,000         10,000
5,001-8,000...................       40,000        60,000         15,000

[[Page 584]]

 
8,001-10,000..................       75,000       100,000         20,000
10,001-25,000.................      150,000       200,000         25,000
>25,000.......................         none          none           none
------------------------------------------------------------------------

    (h) Disclosure requirements for organizations with physician 
incentive plans--(1) Disclosure to HCFA. Each HMO or CMP must provide to 
HCFA information concerning its physician incentive plans as required or 
requested. The disclosure must contain the following information in 
detail sufficient to enable HCFA to determine whether the incentive plan 
complies with the requirements specified in this section:
    (i) Whether services not furnished by the physician or physician 
group are covered by the incentive plan. If only the services furnished 
by the physician or physician group are covered by the incentive plan, 
disclosure of other aspects of the plan need not be made.
    (ii) The type of incentive arrangement; for example, withhold, 
bonus, capitation.
    (iii) If the incentive plan involves a withhold or bonus, the 
percent of the withhold or bonus.
    (iv) Proof that the physician or physician group has adequate stop-
loss protection, including the amount and type of stop-loss protection.
    (v) The panel size and, if patients are pooled, the method used. 
Pooling is permitted only if: it is otherwise consistent with the 
relevant contracts governing the compensation arrangements for the 
physician or physician group; the physician or physician group is at 
risk for referral services with respect to each of the categories of 
patients being pooled; the terms of the compensation arrangements permit 
the physician or physician group to spread the risk across the 
categories of patients being pooled; the distribution of payments to 
physicians from the risk pool is not calculated separately by patient 
category; and the terms of the risk borne by the physician or physician 
group are comparable for all categories of patients being pooled. If 
these conditions are met, the physician or physician group may use 
either or both of the following methods to pool patients:
    (A) Pooling any combination of commercial, Medicare, or Medicaid 
patients enrolled in a specific HMO or CMP in the calculation of the 
panel size.
    (B) Pooling together, by a physician group that contracts with more 
than one HMO, CMP, health insuring organization (as defined in 
Sec. 434.2 of this chapter), or prepaid health plan (as defined in 
Sec. 434.2 of this chapter) the patients of each of those entities.
    (vi) In the case of capitated physicians or physician groups, 
capitation payments paid to primary care physicians for the most recent 
year broken down by percent for primary care services, referral services 
to specialists, and hospital and other types of provider (for example, 
nursing home and home health agency) services.
    (vii) In the case of those prepaid plans that are required to 
conduct beneficiary surveys, the survey results.
    (2) When disclosure must be made to HCFA. (i) HCFA will not approve 
an HMO's or CMP's application for a contract unless the HMO or CMP has 
provided to it the information required by paragraphs (h)(1)(i) through 
(h)(1)(v) of this section. In addition, an HMO or CMP must provide this 
information to HCFA upon the effective date of its contract renewal.
    (ii) An HMO or CMP must provide the capitation data required under 
paragraph (h)(1)(vi) for the previous calendar year to HCFA by April 1 
of each year.
    (3) Disclosure to Medicare beneficiaries. An HMO or CMP must provide 
the following information to any Medicare beneficiary who requests it:
    (i) Whether the prepaid plan uses a physician incentive plan that 
affects the use of referral services.
    (ii) The type of incentive arrangement.

[[Page 585]]

    (iii) Whether stop-loss protection is provided.
    (iv) If the prepaid plan was required to conduct a survey, a summary 
of the survey results.
    (i) Requirements related to subcontracting arrangements--(1) 
Physician groups. An HMO or CMP that contracts with a physician group 
that places the individual physician members at substantial financial 
risk for services they do not furnish must do the following:
    (i) Disclose to HCFA any incentive plan between the physician group 
and its individual physicians that bases compensation to the physician 
on the use or cost of services furnished to Medicare beneficiaries or 
Medicaid recipients. The disclosure must include the information 
specified in paragraphs (h)(1)(i) through (h)(1)(vii) of this section 
and be made at the times specified in paragraph (h)(2) of this section.
    (ii) Provide adequate stop-loss protection to the individual 
physicians.
    (iii) Conduct enrollee surveys as specified in paragraph (g)(1) of 
this section.
    (2) Intermediate entities. An HMO or CMP that contracts with an 
entity (other than a physician group) for the provision of services to 
Medicare beneficiaries must do the following:
    (i) Disclose to HCFA any incentive plan between the entity and a 
physician or physician group that bases compensation to the physician or 
physician group on the use or cost of services furnished to Medicare 
beneficiaries or Medicaid recipients. The disclosure must include the 
information required to be disclosed under paragraphs (h)(1)(i) through 
(h)(1)(vii) of this section and be made at the times specified in 
paragraph (h)(2) of this section.
    (ii) If the physician incentive plan puts a physician or physician 
group at substantial financial risk for the cost of services the 
physician or physician group does not furnish--
    (A) Meet the stop-loss protection requirements of this subpart; and
    (B) Conduct enrollee surveys as specified in paragraph (g)(1) of 
this section.
    (3) For purposes of paragraph (i)(2) of this section, an entity 
includes, but is not limited to, an individual practice association that 
contracts with one or more physician groups and a physician hospital 
organization.
    (j) Sanctions against the HMO or CMP. HCFA may apply intermediate 
sanctions, or the Office of Inspector General may apply civil money 
penalties described at Sec. 417.500, if HCFA determines that an HMO or 
CMP fails to comply with the requirements of this section.

[61 FR 13446, Mar. 27, 1996; 61 FR 46385, Sept. 3, 1996, as amended at 
61 FR 69049, Dec. 31, 1996]



Sec. 417.480  Maintenance of records: Cost HMOs and CMPs.

    A reasonable cost contract must provide that the HMO or CMP agrees 
to maintain books, records, documents, and other evidence of accounting 
procedures and practices that--
    (a) Are sufficient to--
    (1) Ensure an audit trail; and
    (2) Properly reflect all direct and indirect costs claimed to have 
been incurred under the contract; and
    (b) Include at least records of the following:
    (1) Ownership, HMO or CMP, and operation of the HMO's or CMP's 
financial, medical, and other recordkeeping systems.
    (2) Financial statements for the current contract period and three 
prior periods.
    (3) Federal income tax or information returns for the current 
contract period and three prior periods.
    (4) Asset acquisition, lease, sale, or other action.
    (5) Agreements, contracts, and subcontracts.
    (6) Franchise, marketing, and management agreements.
    (7) Schedules of charges for the HMO's or CMP's fee-for-service 
patients.
    (8) Matters pertaining to costs of operations.
    (9) Amounts of income received by source and payment.
    (10) Cash flow statements.
    (11) Any financial reports filed with other Federal programs or 
State authorities.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45680, Sept. 1, 1995]

[[Page 586]]



Sec. 417.481  Maintenance of records: Risk HMOs and CMPs.

    A risk contract must provide that the HMO or CMP agrees to maintain 
and make available to HCFA upon request, books, records, documents, and 
other evidence of acounting procedures and practices that--
    (a) Are sufficient to--
    (1) Establish component rates of the ACR for determining additional 
and supplementary benefits; and
    (2) Determine the rates utilized in setting premiums for State 
insurance agency purposes; and
    (b) Include at least any records or financial reports filed with 
other Federal agencies or State authorities.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45680, Sept. 1, 1995]



Sec. 417.482  Access to facilities and records.

    The contract must provide that the HMO or CMP agrees to the 
following:
    (a) HHS may evaluate, through inspection or other means, the 
quality, appropriateness, and timeliness of services furnished under the 
contract to its Medicare enrollees.
    (b) HHS may evaluate, through inspection or other means, the 
facilities of the HMO or CMP when there is reasonable evidence of some 
need for that inspection.
    (c) HHS, the Comptroller General, or their designees may audit or 
inspect any books and records of the HMO or CMP or its transferee that 
pertain to any aspect of services performed, reconciliation of benefit 
liabilities, and determination of amounts payable under the contract.
    (d) HHS may evaluate, through inspection or other means, the 
enrollment and disenrollment records for the current contract period and 
three prior periods, when there is reasonable evidence of some need for 
that inspection.
    (e) In the case of a reasonable cost HMO or CMP to make available 
for the purposes specified in paragraphs (a), (b), (c), and (d) of this 
section, its premises, physical facilities, and equipment, its records 
relating to its Medicare enrollees, the records specified in 
Sec. 417.480 and any additional relevant information that HCFA may 
require.
    (f) That the right to inspect, evaluate, and audit, will extend 
through three years from the date of the final settlement for any 
contract period unless--
    (1) HCFA determines there is a special need to retain a particular 
record or group of records for a longer period and notifies the HMO or 
CMP at least 30 days before the normal disposition date;
    (2) There has been a termination, dispute, fraud, or similar fault 
by the HMO or CMP, in which case the retention may be extended to three 
years from the date of any resulting final settlement; or
    (3) HCFA determines that there is a reasonable possibility of fraud, 
in which case it may reopen a final settlement at any time.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.484  Requirement applicable to related entities.

    (a) Definition. As used in this section, related entity means any 
entity that is related to the HMO or CMP by common ownership or control 
and--
    (1) Performs some of the HMO's or CMP's management functions under 
contract or delegation;
    (2) Furnishes services to Medicare enrollees under an oral or 
written agreement; or
    (3) Leases real property or sells materials to the HMO or CMP at a 
cost of more than $2,500 during a contract period.
    (b) Requirement. The contract must provide that the HMO or CMP 
agrees to require all related entities to agree that--
    (1) HHS, the Comptroller General, or their designees have the right 
to inspect, evaluate, and audit any pertinent books, documents, papers, 
and records of the subcontractor involving transactions related to the 
subcontract; and
    (2) The right under paragraph (b)(1) of this section to information 
for any particular contract period will exist for a period equivalent to 
that specified in Sec. 417.482(f).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]

[[Page 587]]



Sec. 417.486  Disclosure of information and confidentiality.

    The contract must provide that the HMO or CMP agrees to the 
following:
    (a) To submit to HCFA--
    (1) All financial information required under subpart O of this part 
and for final settlement; and
    (2) Any other information necessary for the administration or 
evaluation of the Medicare program.
    (b) To comply with the requirements set forth in part 420, subpart 
C, of this chapter pertaining to the disclosure of ownership and control 
information.
    (c) To comply with the requirements of the Privacy Act, as 
implemented by 45 CFR part 5b and subpart B of part 401 of this chapter, 
with respect to any system of records developed in performing carrier or 
intermediary functions under Secs. 417.532 and 417.533.
    (d) To meet the confidentiality requirements of Sec. 482.24(b)(3) of 
this chapter for medical records and for all other enrollee information 
that is--
    (1) Contained in its records or obtained from HCFA or other sources; 
and
    (2) Not covered under paragraph (c) of this section.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45680, Sept. 1, 1995]



Sec. 417.488  Notice of termination and of available alternatives: Risk contract.

    A risk contract must provide that the HMO or CMP agrees to give 
notice as follows if the contract is terminated:
    (a) At least 60 days before the effective date of termination, to 
give its Medicare enrollees a written notice that--
    (1) Specifies the termination date; and
    (2) Describes the alternatives available for obtaining Medicare 
services after termination.
    (b) To pay the cost of the written notices.

[60 FR 45680, Sept. 1, 1995]



Sec. 417.490  Renewal of contract.

    A contract with an HMO or CMP is renewed automatically for the next 
12-month period unless HCFA or the HMO or CMP decides not to renew, in 
accordance with Sec. 417.492.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.492  Nonrenewal of contract.

    (a) Nonrenewal by the HMO or CMP. (1) If an HMO or CMP does not 
intend to renew its contract, it must--
    (i) Give written notice to HCFA at least 90 days before the end of 
the current contract period;
    (ii) Notify each Medicare enrollee by mail at least 60 days before 
the end of the contract period; and
    (iii) Notify the general public at least 30 days before the end of 
the contract period, by publishing a notice in one or more newspapers of 
general circulation in each community or county located in the HMO's or 
CMP's geographic area.
    (2) HCFA may accept a nonrenewal notice submitted less than 90 days 
before the end of a contract period if--
    (i) The HMO or CMP notifies its Medicare enrollees and the public in 
accordance with paragraph (a)(1) of this section; and
    (ii) Acceptance would not otherwise jeopardize the effective and 
efficient administration of the Medicare program.
    (b) Nonrenewal by HCFA. (1) Notice of nonrenewal. If HCFA decides 
not to renew a contract, it gives written notice of nonrenewal as 
follows:
    (i) To the HMO or CMP at least 90 days before the end of the 
contract period.
    (ii) To the HMO's or CMP's Medicare enrollees at least 60 days 
before the end of the contract period.
    (iii) To the general public at least 30 days before the end of the 
contract period.
    (2) Notice of appeal rights. HCFA gives the HMO or CMP written 
notice of its right to appeal the nonrenewal decision, in accordance 
with subpart R of this part, if HCFA's decision was based on any of the 
reasons specified in Sec. 417.494(b).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 60 
FR 45681, Sept. 1, 1995]

[[Page 588]]



Sec. 417.494  Modification or termination of contract.

    (a) Modification or termination by mutual consent. (1) HCFA and an 
HMO or CMP may modify or terminate a contract at any time by written 
mutual consent.
    (2) If the contract is modified, the HMO or CMP must notify its 
Medicare enrollees of any changes that HCFA determines are appropriate 
for notification.
    (3) If the contract is terminated, the HMO or CMP must notify its 
Medicare enrollees, and HCFA notifies the general public, at least 30 
days before the termination date.
    (b) Termination by HCFA. (1) HCFA may terminate a contract for any 
of the following reasons:
    (i) The HMO or CMP has failed substantially to carry out the terms 
of the contract.
    (ii) The HMO or CMP is carrying out the contract in a manner that is 
inconsistent with the effective and efficient implementation of section 
1876 of the Act.
    (iii) The HMO or CMP has failed substantially to comply with the 
composition of enrollment requirements specified in Sec. 417.413(d).
    (iv) HCFA determines that the HMO or CMP no longer meets the 
requirements of section 1876 of the Act and this subpart for being an 
HMO or CMP.
    (2) If HCFA decides to terminate a contract, it sends a written 
notice informing the HMO or CMP of its right to appeal the termination 
in accordance with subpart R of this part.
    (3) An HMO or CMP with a risk contract must notify its Medicare 
enrollees of the termination as described in Sec. 417.488.
    (4) HCFA notifies the HMO's or CMP's Medicare enrollees and the 
general public of the termination at least 30 days before the effective 
date of termination.
    (c) Termination by the HMO or CMP. The HMO or CMP may terminate the 
contract if HCFA has failed substantially to carry out the terms of the 
contract.
    (1) The HMO or CMP must notify HCFA at least 90 days before the 
effective date of the termination and must include in its notice the 
reasons for the termination.
    (2) The HMO or CMP must notify its Medicare enrollees of the 
termination at least 60 days before the termination date. Risk HMOs or 
CMPs must also provide a written description of alternatives available 
for obtaining Medicare services after termination of the contract. The 
HMO or CMP is responsible for the cost of these notices.
    (3) The HMO or CMP must notify the general public of the termination 
at least 30 days before the termination date.
    (4) The contract is terminated effective 60 days after the HMO or 
CMP mails the notice to Medicare enrollees as required in paragraph 
(c)(2) of this section.
    (5) HCFA's liability for payment ends as of the first day of the 
month after the last month for which the contract is in effect.

[50 FR 1346, Jan. 10, 1985, as amended at 52 FR 22322, June 11, 1987; 56 
FR 46571, Sept. 13, 1991; 58 FR 38079, 38082, July 15, 1993; 60 FR 
45681, Sept. 1, 1995]



Sec. 417.500  Sanctions against HMOs and CMPs.

    (a) Basis for imposition of sanctions. HCFA may impose the 
intermediate sanctions specified in paragraph (d) of this section, as an 
alternative to termination of contract, if HCFA determines that an HMO 
or CMP does one or more of the following:
    (1) Fails substantially to provide the medically necessary services 
required to be provided to a Medicare enrollee and the failure adversely 
affects (or has a substantial likelihood of adversely affecting) the 
enrollee.
    (2) Requires Medicare enrollees to pay amounts in excess of premiums 
permitted.
    (3) Acts, in violation of the provisions of subpart K of this part, 
to expel or to refuse to reenroll an individual.
    (4) Engages in any practice that could reasonably be expected to 
have the effect of denying or discouraging enrollment (except as 
permitted by subpart K of this part) by eligible individuals whose 
medical conditions or histories indicate a need for substantial future 
medical services.

[[Page 589]]

    (5) Misrepresents or falsifies information that it furnishes under 
this part to HCFA, an individual, or to any other entity.
    (6) Fails to comply with the requirements of section 1876(g)(6)(A) 
of the Act relating to the prompt payment of claims.
    (7) Fails to meet the requirement in section 1876(f)(1) of the Act 
that not more than 50 percent of the organization's enrollment be 
Medicare beneficiaries and Medicaid recipients.
    (8) Has a Medicare risk contract and--
    (i) Employs or contracts with individuals or entities excluded from 
participation in Medicare under section 1128 or section 1128A of the Act 
for the provision of health care, utilization review, medical social 
work, or administrative services; or
    (ii) Employs or contracts with any entity for the provision of those 
services (directly or indirectly) through an excluded individual or 
entity.
    (9) Fails to comply with the requirements of Secs. 417.479(d) 
through (i) relating to physician incentive plans.
    (b) Notice of sanction and opportunity to respond. (1) Notice of 
sanction. Before imposing the intermediate sanctions specified in 
paragraph (d) of this section, HCFA--
    (i) Sends a written notice to the HMO or CMP stating the nature and 
basis of the proposed sanction; and
    (ii) Sends the OIG a copy of the notice (other than a notice 
regarding the restriction on Medicare and Medicaid enrollees as 
described in paragraph (a)(7) of this section), once the sanction has 
been confirmed following the notice period or the reconsideration.
    (2) Opportunity to respond. HCFA allows the HMO or CMP 15 days from 
receipt of the notice to provide evidence that it has not committed an 
act or failed to comply with a requirement described in paragraph (a) of 
this section, as applicable. HCFA may allow a 15-day addition to the 
original 15 days upon receipt of a written request from the HMO or CMP. 
To be approved, the request must provide a credible explanation of why 
additional time is necessary and be received by HCFA before the end of 
the 15-day period following the date of receipt of the sanction notice. 
HCFA does not grant an extension if it determines that the HMO's or 
CMP's conduct poses a threat to an enrollee's health and safety.
    (c) Informal reconsideration. If, consistent with paragraph (b)(2) 
of this section, the HMO or CMP submits a timely response to HCFA's 
notice of sanction, HCFA conducts an informal reconsideration that:
    (1) Consists of a review of the evidence by a HCFA official who did 
not participate in the initial decision to impose a sanction; and
    (2) Gives the HMO or CMP a concise written decision setting forth 
the factual and legal basis for the decision that affirms or rescinds 
the original determination.
    (d) Specific sanctions. If HCFA determines that an HMO or CMP has 
acted or failed to act as specified in paragraph (a) of this section and 
affirms this determination in accordance with paragraph (c) of this 
section, HCFA may--
    (1) Require the HMO or CMP to suspend acceptance of applications for 
enrollment made by Medicare beneficiaries during the sanction period;
    (2) Suspend payments to the HMO or CMP for Medicare beneficiaries 
enrolled during the sanction period; and
    (3) Require the HMO or CMP to suspend all marketing activities to 
Medicare enrollees.
    (e) Effective date and duration of sanctions--(1) Effective date. 
Except as provided in paragraph (e)(2) of this section, a sanction is 
effective 15 days after the date that the organization is notified of 
the decision to impose the sanction or, if the HMO or CMP timely seeks 
reconsideration under paragraph (c) of this section, on the date 
specified in the notice of HCFA's reconsidered determination.
    (2) Exception. If HCFA determines that the HMO's or CMP's conduct 
poses a serious threat to an enrollee's health and safety, HCFA may make 
the sanction effective on a date before issuance of HCFA's reconsidered 
determination.
    (3) Duration of sanction. The sanction remains in effect until HCFA 
notifies the HMO or CMP that HCFA is satisfied that the basis for 
imposing the sanction has been corrected and is not likely to recur.

[[Page 590]]

    (f) Termination by HCFA. In addition to or as an alternative to the 
sanctions described in paragraph (d) of this section, HCFA may decline 
to renew a HMO's or CMP's contract in accordance with Sec. 417.492(b), 
or terminate the contract in accordance with Sec. 417.494(b).
    (g) Civil money penalties. If HCFA determines that a HMO or CMP has 
committed an act or failed to comply with a requirement described in 
paragraph (a) of this section (with the exception of the requirement to 
limit the percentage of Medicare and Medicaid enrollees described in 
paragraph (a)(7) of this section), HCFA notifies the OIG of that 
determination. HCFA also conveys to the OIG information when it reverses 
or terminates a sanction imposed under this subpart. In accordance with 
the provisions of 42 CFR part 1003, the OIG may impose civil money 
penalties on the HMO or CMP in addition to or in place of the sanctions 
that HCFA may impose under paragraph (d) of this section.

[59 FR 36083, July 15, 1994, as amended at 60 FR 45681, Sept. 1, 1995; 
61 FR 13448, Mar. 27, 1996]



  Subpart M--Change of Ownership and Leasing of Facilities: Effect on 
                            Medicare Contract



Sec. 417.520  Effect on HMO and CMP contracts.

    (a) The provisions set forth in subpart L of part 422 of this 
chapter also apply to Medicare contracts with HMOs and CMPs under 
section 1876 of the Act.
    (b) In applying these provisions, references to ``M+C 
organizations'' must be read as references to ``HMOs and CMPs''.
    (c) In Sec. 422.550, reference to ``subpart K of this part'' must be 
read as reference to ``subpart L of part 417 of this chapter''.
    (d) In Sec. 422.553, reference to ``subpart K of this part'' must be 
read as reference to ``subpart J of part 417 of this chapter''.

[63 FR 35067, June 26, 1998]



       Subpart N--Medicare Payment to HMOs and CMPs: General Rules



Sec. 417.524  Payment to HMOs or CMPs: General.

    (a) Basic rule. The payments that HCFA makes to an HMO or CMP under 
this subpart and subparts O and P of this part for furnishing covered 
Medicare services are in place of any payment that HCFA would otherwise 
make to a beneficiary or the HMO or CMP under sections 1814(b) and 
1833(a) of the Act.
    (b) Basis of payment. (1) HCFA pays the HMOs or CMPs on either a 
reasonable cost basis or a risk basis depending on the type of contract 
the HMO or CMP has with HCFA.
    (2) In certain cases a risk HMO or CMP also receives payments on a 
reasonable cost basis for certain Medicare enrollees who retain nonrisk 
status, as provided in Sec. 417.444, after the HMO or CMP enters into a 
risk contract.

[60 FR 46229, Sept. 6, 1995]



Sec. 417.526  Payment for covered services.

    Subpart O of this part set forth the principles that HCFA follows in 
determining Medicare payment to an HMO or CMP that has a reasonable cost 
contract. Subpart P of this part describes the per capita method of 
Medicare payment to HMOs or CMPs that contract on a risk basis.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985; as amended at 58 
FR 38080, July 15, 1993; 60 FR 46229, Sept. 6, 1995]



Sec. 417.528  Payment when Medicare is not primary payer.

    (a) Limits on payments and charges. (1) HCFA may not pay for 
services to the extent that Medicare is not the primary payer under 
section 1862(b) of the Act and part 411 of this chapter.
    (2) The circumstances under which an HMO or CMP may charge, or 
authorize a provider to charge, for covered Medicare services for which 
Medicare is not the primary payer are stated in paragraphs (b) and (c) 
of this section.
    (b) Charge to other insurers or the enrollee. If a Medicare enrollee 
receives from an HMO or CMP covered services

[[Page 591]]

that are also covered under State or Federal worker's compensation, 
automobile medical, or any no-fault insurance, or any liability 
insurance policy or plan, including a self-insured plan, the HMO or CMP 
may charge, or authorize a provider that furnished the service to 
charge--
    (1) The insurance carrier, employer, or other entity that is liable 
to pay for these services; or
    (2) The Medicare enrollee, to the extent that he or she has been 
paid by the carrier, employer, or other entity.
    (c) Charge to group health plans (GHPs) or large group health plans 
(LGHPs). An HMO or CMP may charge a GHP or LGHP for covered services it 
furnished to a Medicare enrollee and may charge the Medicare enrollee to 
the extent that he or she has been paid by the GHP or LGHP for these 
covered services if--
    (1) The Medicare enrollee is covered under the plan; and
    (2) Under section 1862(b) of the Act, HCFA is precluded from paying 
for the covered services .
    (d) Responsibilities of HMO or CMP. An HMO or CMP must--
    (1) Identify payers that are primary to Medicare under section 
1862(b) of the Act;
    (2) Determine the amounts payable by these payers; and
    (3) Coordinate the benefits of its Medicare enrollees with these 
payers.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38080, July 15, 1993; 60 
FR 46229, Sept. 6, 1995]



                 Subpart O--Medicare Payment: Cost Basis

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.530  Basis and scope.

    This subpart sets forth the principles that HCFA follows to 
determine the amount it pays for services furnished by a cost HMO or CMP 
to its Medicare enrollees. These principles are based on sections 
1861(v) and 1876 of the Act and are, for the most part, the same as 
those set forth--
    (a) In part 412 of this chapter, for paying the costs of inpatient 
hospital services which, for cost HMOs and CMPs, are considered 
``reasonable'' only if they do not exceed the amounts allowed under the 
prospective payment system; and
    (b) In part 413 of this chapter, for the costs of all other covered 
services.

[60 FR 46230, Sept. 6, 1995]



Sec. 417.531  Hospice care services.

    (a) If a Medicare enrollee of an HMO or CMP with a reasonable cost 
contract makes an election under Sec. 418.24 of this chapter to receive 
hospice care services, payment for these services is made to the hospice 
that furnishes the services in accordance with part 418 of this chapter.
    (b) While the enrollee's hospice election is in effect, HCFA pays 
the HMO or CMP on a reasonable cost basis for only the following covered 
Medicare services furnished to the Medicare enrollee:
    (1) Services of the enrollee's attending physician if the physician 
is an employee or contractor of the HMO or CMP and is not employed by or 
under contract to the enrollee's hospice.
    (2) Services not related to the treatment of the terminal condition 
for which hospice care was elected or a condition related to the 
terminal condition.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.532  General considerations.

    (a) Conditions and criteria for payment. (1) The costs incurred by 
the HMO or CMP to furnish services covered by Medicare are reimbursable 
if they are--
    (i) Proper and necessary;
    (ii) Reasonable in amount; and
    (iii) Except as provided in Sec. 417.550, appropriately apportioned 
among the HMO's or CMP's Medicare enrollees, other enrollees, and 
nonenrolled patients.
    (2) In determining fair and equitable payment for the HMOs or CMPs, 
HCFA generally applies the cost payment principles set forth in 
Sec. 413.5 of this chapter.
    (3) In judging whether costs are reasonable, HCFA applies the 
weighted average of the AAPCCs of each class of the HMO's or CMP's 
Medicare enrollees

[[Page 592]]

(as defined in Sec. 417.582) for the HMO's or CMP's geographic area as 
an absolute limitation on the total amount payable.
    (b) Method and amount of payment to the HMO or CMP. (1) HCFA makes 
interim per capita payments each month for each Medicare enrollee, 
equivalent to the interim per capita cost rate determined in accordance 
with Sec. 417.570.
    (2) HCFA adjusts the interim per capita rate as necessary during the 
contract period and makes final adjustments at the end of the contract 
period.
    (3) In determining the amount due the HMO or CMP, HCFA deducts from 
the reasonable cost actually incurred by the HMO or CMP for covered 
services furnished to its Medicare enrollees, an amount equal to the 
actuarial value of the applicable Medicare Part A and Part B deductible 
and coinsurance amounts that would have applied to the covered services 
for which payment is being made if these enrollees had not enrolled in 
the HMO or CMP or another HMO or CMP.
    (c) Election by HMO or CMP. An HMO or CMP must elect, on an 
individual provider basis, one of the following methods for payment for 
hospital and SNF services it furnishes to Medicare enrollees:
    (1) Direct payment by HCFA.
    (2) Direct payment by the HMO or CMP.
    (d) Notice of election. The election must be made in writing before 
the beginning of the contract period and is binding for that period.
    (e) Payment by HMO or CMP. If the HMO or CMP elects to pay providers 
directly, as provided in paragraph (c) of this section, it must--
    (1) Determine the eligibility of its Medicare enrollees to receive 
covered services through the HMO or CMP;
    (2) Make proper coverage decisions and appropriate payments, in 
accordance with Secs. 421.100 and 421.200 of this chapter, for the 
services furnished to its Medicare enrollees;
    (3) Ensure that providers maintain and furnish appropriate 
documentation of physician certification and recertification, to the 
extent required under subpart B of part 424 of this chapter; and
    (4) Carry out any other procedures required by HCFA.
    (f) Review of HMO's or CMP's bill processing capabilities. If the 
HMO or CMP elects to pay providers directly, HCFA determines whether the 
HMO or CMP has the experience and capability to carry out the 
responsibilities specified in paragraph (e) of this section in an 
efficient and effective manner.
    (g) Direct payment by HCFA. (1) If the HMO or CMP elects to have 
HCFA pay for provider services, HCFA pays each provider on a reasonable 
cost basis or under the PPS system, whichever is appropriate for the 
particular provider under part 412 or part 413 of this chapter.
    (2) In computing the Medicare payment to the HMO or CMP, HCFA 
deducts these payments and any other payments made by the Medicare 
intermediary or carrier on behalf of the HMO or CMP (such as payment for 
emergency or urgently needed services under Sec. 417.558).
    (h) Payment for services furnished to Medicare beneficiaries not 
enrolled in the HMO or CMP. HCFA pays the HMO or CMP for services it 
furnishes to Medicare beneficiaries who are not its enrollees through 
the HMO's or CMP's Medicare intermediary or carrier, as appropriate.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 53 
FR 6648, Mar. 2, 1988; 58 FR 38082, July 15, 1993; 60 FR 46230, Sept. 6, 
1995]



Sec. 417.533  Part B carrier responsibilities.

    In paying for Part B services furnished to its enrollees by 
suppliers, the HMO or CMP must--
    (a) Determine the eligibility of individuals to receive those 
services through the HMO or CMP;
    (b) Make proper coverage decisions and appropriate payment as 
authorized under Sec. 421.200 of this chapter for the services for which 
its Medicare enrollees are eligible; and
    (c) Carry out any other procedures that HCFA may require.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]

[[Page 593]]



Sec. 417.534  Allowable costs.

    (a) Definition--Allowable costs means the direct and indirect costs, 
including normal standby costs incurred by the HMO or CMP, that are 
proper and necessary for efficient delivery of needed health care 
services. They include the costs of furnishing services to the HMO's or 
CMP's Medicare enrollees, other enrollees, and nonenrolled patients, 
which are typical ``provider'' costs, and costs (such as marketing, 
enrollment, membership, and operation of the HMO or CMP) that are 
peculiar to health care prepayment organizations.
    (b) Basic rules. (1) The allowability of an HMO's or CMP's costs for 
furnishing services is generally determined in accordance with 
principles applicable to provider costs, as set forth in Sec. 417.536.
    (2) The allowability of other costs is determined in accordance with 
principles set forth in Secs. 417.538 through 417.550.
    (3) Costs for covered services for which Medicare is not the primary 
payor, as described in Sec. 417.528, are not allowable.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.536  Cost payment principles.

    (a) Applicability. Unless otherwise specified in this subpart, the 
principles set forth in parts 412 and 413 of this chapter are applicable 
to the costs incurred by an HMO or CMP or by providers and other 
facilities owned or operated by the HMO or CMP or related to it by 
common ownership or control. The most common examples of these costs are 
set forth in this section.
    (b) Depreciation. An appropriate allowance for depreciation on 
buildings and equipment is an allowable cost, in accordance with 
Secs. 413.134, 413.144, and 413.149 of this chapter.
    (c) Interest expense. Necessary and proper interest on both current 
and capital indebtedness is an allowable cost, in accordance with 
Sec. 413.153 of this chapter.
    (d) Cost of educational activities. An appropriate part of the net 
cost of approved educational activities of a provider or other health 
care facility owned or operated by an HMO or CMP is an allowable cost in 
accordance with Sec. 413.85 of this chapter.
    (e) Compensation of owners. An appropriate amount of compensation 
for services of owners is an allowable cost, if the services are 
actually performed and are necessary, as specified in Sec. 413.102 of 
this chapter.
    (f) Bad debts. (1) In accordance with Sec. 413.80 of this chapter, 
bad debts are deductions from revenue and may be included as allowable 
costs only if--
    (i) They are attributable to Medicare deductible and coinsurance 
amounts for which the Medicare enrollee is liable; and
    (ii) The HMO or CMP has made a reasonable, but unsuccessful, effort 
to collect those amounts.
    (2) If all or part of the deductible and coinsurance amounts is 
payable through a monthly premium or other periodic payment, the amount 
allowed as a bad debt may not exceed three times the monthly rate for 
the actuarial value of the deductible and coinsurance amounts, or its 
equivalent, if the periodic payment is on other than a monthly basis.
    (3) Any bad debt related to a service furnished to a Medicare 
enrollee of the HMO or CMP, and claimed on a cost report submitted for 
payment by a provider or other facility reimbursed on a cost basis, may 
not be claimed as a bad debt by the HMO or CMP.
    (g) Charity and courtesy allowances. As specified in Sec. 413.80 of 
this chapter, charity and courtesy allowances are deductions from 
revenue and may not be included as allowable costs.
    (h) Research costs. As specified in Sec. 413.90 of this chapter, 
costs incurred for research purposes, over and above patient care, are 
not allowable costs.
    (i) Value of services of nonpaid workers. The value of services of 
nonpaid workers of an organization is not an allowable cost, except as 
provided in Sec. 413.94 of this chapter.
    (j) Purchase discounts and allowances and refund of expenses. 
Discounts and allowances that an HMO or CMP receives on purchases of 
goods and services and refunds of previous expense payments must be 
deducted from the costs to which they relate, in accordance with 
Sec. 413.98 of this chapter.

[[Page 594]]

    (k) Cost to related entities. (1) The costs of services, facilities, 
or supplies furnished to an HMO or CMP by a related entity are allowable 
at the cost to the related entity in accordance with Sec. 413.17 of this 
chapter.
    (2) An entity is not considered related to the HMO or CMP merely 
because--
    (i) It has a risk or incentive agreement under which the HMO or CMP 
reimburses or compensates the entity for services it furnishes to the 
HMOs' or CMPs' enrollees; or
    (ii) Substantially all the services the entity furnishes are 
furnished to the HMO's or CMP's enrollees.
    (3) However, an entity described in paragraph (k)(2) of this section 
and an HMO or CMP are considered related if either of them is in a 
position to exercise significant management or ownership influence or 
control over the other.
    (l) Return on equity capital of proprietary providers owned by the 
HMO or CMP. An allowance for a reasonable return on equity capital 
invested and used in providing services is allowable in addition to the 
reasonable cost of services furnished by a proprietary provider owned by 
the HMO or CMP. The amount of the allowance is determined in accordance 
with Sec. 413.157 of this chapter.
    (m) Limitations on payment. Medicare payment for covered services 
furnished by entities owned by or operated by, or related to, an HMO or 
CMP paid on a reasonable cost basis is subject to certain provisions of 
parts 412 and 413 of this chapter that pertain to reasonable cost and 
reasonable charge. Those provisions include, but are not necessarily 
limited to, the following:
    (1) For ESRD treatment, the limitations authorized under 
Sec. 413.170 of this chapter.
    (2) For services of physical, occupational, and speech therapists 
and other therapists and nonphysician health specialists, the 
limitations set forth in Sec. 413.106 of this chapter.
    (3) For drugs, the allowable cost as determined under Secs. 405.517 
and 410.29 of this chapter.
    (4) The overall cost limits established in accordance with 
Sec. 413.30 of this chapter.
    (5) The limitation to the lesser of reasonable cost or customary 
charges, as set forth in Sec. 413.13 of this chapter.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 51 
FR 34832, Sept. 30, 1986; 51 FR 37398, Oct. 22, 1986; 58 FR 38080, July 
15, 1993; 60 FR 46230, Sept. 6, 1995]



Sec. 417.538  Enrollment and marketing costs.

    (a) Principle. Costs incurred by an HMO or CMP in performing the 
enrollment and marketing activities described in subpart k of this part 
are allowable.
    (b) Included costs. Allowable enrollment and marketing costs are 
those necessary and proper costs incurred in offering the HMO's or CMP's 
plan to potential enrollees in accordance with this part. Those costs 
include selling, advertising, promotional, and other marketing costs and 
may not exceed an amount that would be incurred by a prudent and cost-
conscious management.
    (c) Application. Enrollment and marketing costs are allowable, 
whether incurred directly by HMO or CMP staff or under contract with 
marketing specialists or other outside consultants.
    (d) Limitation on payment. The relatively higher costs that an HMO 
or CMP is likely to incur in initially offering its plan to Medicare 
beneficiaries are taken into account in determining whether enrollment 
and marketing costs are reasonable in amount. However, if those costs 
exceed amounts that would be paid by prudent management, the excess is 
not allowable.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.540  Enrollment costs.

    (a) Principle. Enrollment costs are allowable if incurred in 
maintaining and servicing subscriber contracts for prepayment enrollees.
    (b) Kind of costs included. Enrollment costs include, but are not 
limited to, reasonable costs incurred in connection with maintaining 
statistical, financial, and other data on enrollees.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]

[[Page 595]]



Sec. 417.542  Reinsurance costs.

    Reinsurance costs are not allowable.



Sec. 417.544  Physicians' services furnished directly by the HMO or CMP.

    (a) Principles. (1) Compensation paid by an HMO or CMP to physicians 
is an allowable cost to the extent that it is commensurate with the 
compensation paid for similar services performed by similar physicians 
practicing in the same or a similar locality.
    (2) Physician compensation may take various forms, but the aggregate 
compensation allowable must be reasonable in relation to the services 
personally furnished.
    (3) If aggregate physician compensation costs exceed what is 
normally incurred, the excess is not a reasonable cost.
    (b) Application. (1) In determining the allowability of the costs of 
physicians' services, the cost of personal services (for example, 
expenses attributable to salaries, wages, incentive payments, fringe 
benefits) must be distinguished from the cost of nonpersonal services 
(for example, expenses attributable to facilities, equipment, support 
personnel, supplies).
    (2) To be allowable, compensation must be reasonable in relation to 
the personal services furnished.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.546  Physicians' services and other Part B supplier services furnished under arrangements.

    General principle. The amount paid by an HMO or CMP for physicians' 
services and other Part B supplier services furnished under arrangements 
is an allowable cost to the extent it is reasonable. Costs are 
considered reasonable if they--
    (a) Do not exceed those that a prudent and cost-conscious buyer 
would incur to purchase those services; and
    (b) Are comparable to costs incurred for similar services furnished 
by similar physicians or other suppliers in the same or a similar 
geographic area.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 34887, July 5, 1995; 60 FR 45372, Aug. 31, 1995]



Sec. 417.548  Provider services through arrangements.

    (a) Principle. The cost incurred by an HMO or CMP for covered 
services furnished under arrangement with a provider is allowable to the 
extent that it would be allowable and payable under parts 412 and 413 of 
this chapter, unless the HMO or CMP petitions HCFA and demonstrates to 
HFCA's satisfaction that payment in excess of the amount authorized 
under parts 412 and 413 of this chapter is justified on the basis of 
advantages gained by the HMO or CMP.
    (b) Application. An advantage gained must represent a real and 
tangible benefit received by the HMO or CMP for the excess cost 
incurred, and any excess payment is subject to other applicable 
requirements of parts 405, 412 and 413 of this chapter, including tests 
of reasonableness.
    (c) Example. In the case of an arrangement an HMO or CMP has with a 
provider that is located outside the HMO's or CMP's geographic area and 
that is not related to the HMO or CMP by common ownership or control, 
payment of the provider's charges to the HMO or CMP (rather than the 
payment amounts determined under part 412 or part 413 of this chapter) 
may be justified in exchange for the advantages of not having to incur 
the administrative costs of determining the provider's reasonable cost 
and of making a more timely final settlement with the HMO or CMP. 
However, repayment of the provider's charges would be acceptable only 
if--
    (1) The provider furnishes services to the HMO's or CMP's enrollees 
infrequently;
    (2) The charges represent an insignificant portion of total Medicare 
reimbursement to the HMO or CMP; and
    (3) The charges do not exceed the customary charges by the provider 
to its other patients for similar services.

[50 FR 1346, Jan. 10, 1985, as amended at 51 FR 34832, Sept. 30, 1986; 
58 FR 38080, July 15, 1993; 60 FR 46230, Sept. 6, 1995]



Sec. 417.550  Special Medicare program requirements.

    (a) Principle. HCFA pays the full reasonable cost incurred by an HMO 
or CMP for activities that are solely for

[[Page 596]]

Medicare purposes and unique to Medicare contracts under section 1876 of 
the Act.
    (b) Application. HCFA pays the full reasonable cost of the following 
activities:
    (1) Reporting increases and decreases in the number of Medicare 
enrollees.
    (2) Obtaining independent certification of the HMO's or CMP's cost 
report to the extent that it is for Medicare purposes.
    (3) Reporting special data that HCFA requires solely for program 
planning and evaluation.
    (c) Prior approval requirement. The costs specified in paragraph (b) 
of this section must be separately budgeted and approved by HCFA before 
the contract period begins.
    (d) Limit on full payment. Full payment is limited to the costs 
specified in paragraph (b) of this section. All other administrative 
costs must be apportioned in accordance with Sec. 417.552.

[60 FR 46230, Sept. 6, 1995]



Sec. 417.552  Cost apportionment: General provisions.

    (a) Basic rule. The HMO or CMP must apportion its total allowable 
direct and indirect costs among its Medicare enrollees, its other 
enrollees, and its nonenrolled patients--
    (1) In accordance with this subpart; and
    (2) Using methods approved by HCFA.
    (b) Purpose of apportionment. The purpose of apportionment is to 
ensure that--
    (1) The cost of services furnished to Medicare enrollees is not 
borne by other enrollees and nonenrolled patients; and
    (2) The cost of the services furnished to other enrollees and 
nonenrolled patients is not borne by Medicare.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.554  Apportionment: Provider services furnished directly by the HMO or CMP.

    The Medicare share of the cost of covered services furnished to 
Medicare enrollees by providers that are owned or operated by the HMO or 
CMP or are related to the HMO or CMP by common ownership or control must 
be determined in accordance with the apportionment methods set forth in 
part 412, Secs. 413.24, 413.55, and 415.55 of this chapter.

[51 FR 28574, Aug. 8, 1986, as amended at 51 FR 34832, Sept. 30, 1986; 
58 FR 38082, July 15, 1993; 60 FR 46231, Sept. 6, 1995; 60 FR 63189, 
Dec. 8, 1995]



Sec. 417.556  Apportionment: Provider services furnished by the HMO or CMP through arrangements with others.

    The Medicare share of the cost of covered services furnished to 
Medicare enrollees through arrangements with providers other than those 
specified in Sec. 417.554 must be determined as follows:
    (a) The Medicare share must be based on the cost the HMO or CMP pays 
the provider under their arrangement, to the extent that cost is 
reasonable and within the limits established by Secs. 417.534 through 
417.548.
    (b) Except as specified in paragraph (c) of this section, 
apportionment must be on the same approved basis that is used by the 
provider for Medicare beneficiaries who are not Medicare enrollees of 
the HMO or CMP, subject to the conditions and limitations set forth in 
Sec. 417.548.
    (c) If, because of the special nature or terms of the HMO's or CMP's 
arrangement with the provider, apportionment on the basis specified in 
paragraph (b) of this section would result in Medicare's bearing the 
costs of furnishing services to individuals other than the HMO's or 
CMP's Medicare enrollees, apportionment must be on another basis that is 
approved by HCFA and that will ensure that Medicare does not pay any of 
the cost of furnishing services to individuals who are not Medicare 
enrollees of the HMO or CMP.
    (d) If the HMO or CMP elects to have providers reimbursed by the 
HMO's or CMP's Medicare intermediary, the Medicare share is the amount 
the intermediary paid the provider.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]

[[Page 597]]



Sec. 417.558  Emergency, urgently needed, and out-of-area services for which the HMO or CMP accepts responsibility.

    (a) Source of payment. Either HCFA or the HMO or CMP may pay a 
provider for emergency or urgently needed services or other covered out-
of-area services for which the HMO or CMP accepts responsibility.
    (b) Limits on payment. If the HMO or CMP pays, the payment amount 
may not exceed the amount that is allowable under part 412 or part 413 
of this chapter.
    (c) Exception to limit on payment. Payment in excess of the limit 
imposed by paragraph (b) of this section is allowable only if the HMO or 
CMP demonstrates to HCFA's satisfaction that it is justified on the 
basis of advantages gained by the HMO or CMP, as set forth in 
Sec. 417.548.

[60 FR 46231, Sept. 6, 1995]



Sec. 417.560  Apportionment: Part B physician and supplier services.

    (a) Medical services furnished directly by the HMO or CMP. The total 
allowable cost of Part B physician and supplier services furnished by 
employees or partners of the HMO or CMP or by a related entity of the 
HMO or CMP must be apportioned on the basis of the ratio of covered Part 
B services furnished to Medicare enrollees to total services furnished 
to all the HMO's or CMP's enrollees and nonenrolled patients. The HMO or 
CMP must use a method for reporting costs that is approved by HCFA. HCFA 
bases its approval on a finding that the method--
    (1) Results in an accurate and equitable allocation of allowable 
costs; and
    (2) Is justifiable from an administrative and cost efficiency 
standpoint.
    (b) Medical services furnished under arrangements made by the HMO or 
CMP. When the HMO or CMP pays for Part B physician and supplier services 
on some basis other than fee-for-service, the reasonable cost the HMO or 
CMP pays under its financial arrangement with the physician or supplier 
must be apportioned between Medicare enrollees and others based on the 
ratio of covered services furnished to Medicare enrollees to the total 
services furnished to all enrollees and nonenrolled patients. If 
apportionment on this basis would result in Medicare bearing the cost of 
furnishing services to individuals who are not Medicare enrollees, the 
Medicare share must be determined on another basis (approved by HCFA) to 
ensure that Medicare pays only for services furnished to Medicare 
enrollees.
    (c) Medical services furnished under an arrangement that provides 
for the HMO or CMP to pay on a fee-for-service basis. The Medicare share 
of the cost of Part B physician and supplier services furnished to 
Medicare enrollees under arrangements, and paid for by the HMO or CMP on 
a fee-for-service basis, is determined by multiplying the total amount 
for all such services by the ratio of charges for covered services 
furnished to Medicare enrollees to the total charges for all such 
services.
    (d) Emergency services, urgently needed services, and other covered 
medical services for which the HMO or CMP assumes financial 
responsibility. The Medicare share of the cost of Part B emergency or 
urgently needed services or other Part B services that are not furnished 
by a provider and for which the HMO or CMP accepts financial 
responsibility is determined in accordance with paragraphs (b) and (c) 
of this section.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 34888, July 5, 1995]



Sec. 417.564  Apportionment and allocation of administrative and general costs.

    (a) Costs not directly associated with providing medical care. 
Enrollment, marketing, and other administrative and general costs that 
benefit the total enrollment of the HMO or CMP and are not directly 
associated with furnishing medical care must be apportioned on the basis 
of a ratio of Medicare enrollees to the total HMO or CMP enrollment.
    (b) Costs significantly related to providing medical services. (1) 
The following administrative and general costs, which bear a significant 
relationship to the services furnished, are not apportioned to Medicare 
directly; they must be allocated or distributed to the HMO

[[Page 598]]

or CMP components and then apportioned to Medicare in accordance with 
Secs. 417.552 through 417.560:
    (i) Facility costs.
    (ii) Interest expense.
    (iii) Medical record costs.
    (iv) Centralized purchasing costs.
    (v) Accounting and data processing costs.
    (vi) Other administrative and general costs that are not included in 
paragraph (a) of this section.
    (2) The allocation or distribution process must be as follows:
    (i) If a separate entity or department of an HMO or CMP performs 
administrative functions the benefit of which can be quantitatively 
measured (such as centralized purchasing and data processing), the total 
allowable costs of this entity or department must be allocated or 
distributed to the components of the HMO or CMP in reasonable proportion 
to the benefits received by these components.
    (ii) If a separate entity or department of an HMO or CMP performs 
administrative functions the benefit of which cannot be quantitatively 
measured (such as facility costs), the total allowable costs of this 
entity or department must be allocated or distributed to the components 
of the HMO or CMP on the basis of a ratio of total incurred and 
distributed costs per component to the total incurred and distributed 
costs for all components.

[60 FR 46231, Sept. 6, 1995]



Sec. 417.566  Other methods of allocation and apportionment.

    (a) Justification. A method of apportionment or allocation of costs, 
other than the methods prescribed in this subpart may be used if it 
results in a more accurate and equitable apportionment of allowable 
costs and is justifiable from an administrative and cost standpoint.
    (b) Required approval. (1) An HMO or CMP that desires to use an 
alternative method must submit a written request for HCFA approval at 
least 90 days before the beginning of the period for which the different 
method is to be used.
    (2) If HCFA approves use of a different method, the HMO or CMP may 
not revert to another method without first obtaining HCFA's approval.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.568  Adequate financial records, statistical data, and cost finding.

    (a) Maintenance of records. (1) An HMO or CMP must maintain 
sufficient financial records and statistical data for proper 
determination of costs payable by HCFA for covered services the HMO or 
CMP furnished to its Medicare enrollees either directly or under 
arrangements with others. These include accurate and sufficient detail 
of incurred costs and enrollment data.
    (2) Unless otherwise provided for in this subpart, the HMO or CMP 
must follow standardized definitions and accounting, statistics, and 
reporting practices that are widely accepted in the health care 
industry.
    (b) Provision of data. (1) The HMO or CMP must provide adequate cost 
and statistical data, based on its financial and statistical records, 
that can be verified by qualified auditors.
    (2) The cost data must be based on an approved method of cost 
finding and, except as provided in paragraph (b)(3) of this section, on 
the accrual method of accounting.
    (3) For governmental institutions that use a cash basis of 
accounting, cost data developed on this basis is acceptable. However, 
only depreciation on capital assets, rather than the expenditure for the 
capital asset, is allowable.
    (c) Provider services furnished directly by the HMO or CMP. If the 
HMO or CMP furnishes provider services directly, the provider is subject 
to the cost-finding and cost-reporting requirements set forth in parts 
412 and 413 of this chapter. The provider must use an approved cost-
finding method described in Sec. 413.24 of this chapter to determine the 
actual cost of these covered services.
    (d) Supplier services furnished directly by the HMO or CMP. If the 
HMO or CMP furnishes Part B physician and supplier services directly, it 
must furnish statistics that indicate the frequency and type of service 
provided, in the form and detail prescribed by HCFA.

[[Page 599]]

    (e) Part B physician and supplier services furnished through 
arrangement. If the HMO or CMP furnishes Part B physician and supplier 
services under arrangements with others, it must furnish to HCFA 
statistical, financial, and other information with respect to those 
services in the form and detail prescribed by HCFA.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46231, Sept. 6, 1995]



Sec. 417.570  Interim per capita payments.

    (a) Principle of payment. (1) HCFA makes monthly advance payments 
equivalent to the HMO's or CMP's interim per capita rate for each 
beneficiary who is registered in HCFA records as a Medicare enrollee of 
the HMO or CMP.
    (2) Additional lump-sum payments may be made at other times during 
the contract period, at HCFA's discretion, to adjust the total amounts 
paid during the contract period to the level of incurred costs.
    (b) Determination of rate. The interim per capita rate of payment is 
equal to the estimated per capita cost of providing covered services to 
the HMO's or CMP's Medicare enrollees, based upon the types and 
components of costs that are reimbursable under this part. The interim 
per capita rate is determined annually by HCFA on the basis of the HMO's 
or CMP's annual operating and enrollment forecast (as set forth in 
Sec. 417.572) and may be revised during the contract period as explained 
in paragraphs (c) and (d) of this section.
    (c) Adjustments of payments. In order to maintain the interim 
payments at the level of current reasonable costs, HCFA will adjust the 
interim per capita rate, to the extent necessary, on the basis of 
adequate data supplied by the HMO or CMP in its interim estimated cost 
and enrollment reports or on other evidence showing that the rate based 
on actual costs is more or less than the current rate. Adjustments may 
also be made if there is--
    (1) A change in the number of Medicare enrollees that affects the 
per capita rate;
    (2) A material variation from the costs estimated when the annual 
operating budget was prepared; or
    (3) A significant change in the use of covered services by the HMO's 
or CMP's Medicare enrollees.
    (d) Reduction of interim payments. If the HMO or CMP does not 
submit, on time, the reports and other data required to determine the 
proper amount of payment, HCFA may reduce interim payments to the extent 
appropriate, or may take any other action authorized under this part. An 
interim payment reduction remains in effect until HCFA can make a 
reasonable estimate of per capita costs.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.572  Budget and enrollment forecast and interim reports.

    (a) Annual submittal. The HMO or CMP must submit an annual operating 
budget and enrollment forecast, in the form and detail required by HCFA, 
at least 90 days before the beginning of each contract period. The 
forecast must be based on financial and statistical data and records 
that can be verified if HCFA requires a detailed review of supporting 
records. The data and records include, but are not limited to, all 
ledgers, books, records, and original evidence of costs, and statistical 
data used in the determination of reasonable cost.
    (b) Effect of failure to submit on time. If the HMO or CMP does not 
submit the budget and enrollment forecast on time, HCFA may--
    (1) Establish an interim per capita rate of payment on the basis of 
the best available data and adjust payments on the basis of that rate 
until the required reports are submitted and a new interim per capita 
rate can be established; or
    (2) If there is not enough data on which to base an interim per 
capita rate, inform the HMO or CMP that interim payments will not be 
made until the required reports are submitted.
    (c) Interim cost reports. (1) An HMO or CMP must submit interim cost 
reports on a quarterly basis in the form and detail prescribed by HCFA. 
These interim cost reports must be submitted no later than 60 days after 
the close of each quarter of the contract period.
    (2) HCFA may reduce the frequency of the reports required under 
paragraph

[[Page 600]]

(c)(1) of this section if HCFA determines that, on the basis of the 
HMO's or CMP's reporting experience, there is good cause to do so.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.574  Interim settlement.

    (a) Determination. Within 30 days following the receipt of the HMO's 
or CMP's final interim cost and enrollment reports, HCFA will make an 
interim determination of the estimated amount payable to the HMO or CMP 
for the reasonable cost of covered services furnished to its Medicare 
enrollees during the contract period. HCFA will base the determination 
on the interim cost report and enrollment data submitted by the HMO or 
CMP, and any other relevant data HCFA finds appropriate. For this 
purpose, HCFA will accept costs as reported, subject to later review or 
audit, unless there are obvious errors or inconsistencies.
    (b) Payment. Any difference between the total amount of interim 
payments and the amount found payable on the basis of the interim 
determination under paragraph (a) of this section, must be paid by the 
HMO or CMP or will be paid by HCFA, whichever is appropriate, no later 
than 30 days after HCFA's determination.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.576  Final settlement.

    (a) General rule. Final settlement and payment of amounts due the 
HMO or CMP or the appropriate Medicare trust funds are made following 
the HMO's or CMP's submission and HCFA's review of an independently 
certified cost report and supporting documents as described in paragraph 
(b) of this section.
    (b) Certified cost report as basis for final settlement--(1) Timing 
of cost report. The HMO or CMP must submit to HCFA an independently 
certified cost report and supporting documents, in the form and detail 
required by HCFA, no later than 180 days after the end of each contract 
period, unless HCFA extends the period for good cause shown by the HMO 
or CMP.
    (2) Content of cost report. The cost report and supporting documents 
must include the following:
    (i) The per capita costs incurred in furnishing covered services to 
its Medicare enrollees, determined in accordance with subpart O of this 
part and including--
    (A) The costs incurred by entities related to the HMO or CMP by 
common ownership or control; and
    (B) For reports for cost-reporting periods that begin on or after 
January 1, 1996, the costs of hospital and SNF services paid by 
Medicare's intermediaries under the option provided by Sec. 417.532(d).
    (ii) The HMO's or CMP's methods of apportioning cost among Medicare 
enrollees, and nonenrolled patients, in accordance with the payment 
procedures specified in this subpart (as, applicable, in parts 412 and 
413 of this chapter); and
    (iii) Any other information required by HCFA.
    (3) Failure to report required financial information. If the HMO or 
CMP fails to submit the required cost report and supporting documents 
within 180 days (or an extended period approved by HCFA under paragraph 
(b)(1) of this section), HCFA may--
    (i) Consider the failure to report as evidence of likely 
overpayment; and
    (ii) Initiate recovery of amounts previously paid, or reduce interim 
payments, or both.
    (c) Final determination and adjustment. (1) After receipt of 
acceptable reports as specified in paragraph (b) of this section, HCFA 
determines the total payment due the HMO or CMP for furnishing covered 
services to its Medicare enrollees (which is subject to the audit 
provisions of this subpart) and makes a retroactive adjustment to bring 
interim payments into agreement with the payable amount due the HMO or 
CMP.
    (2) A final settlement may be made with the HMO or CMP even though a 
provider that is not owned or operated by the HMO or CMP or related to 
the HMO or CMP by common ownership or control and that provides services 
to the HMO's or CMP's Medicare enrollees has not had a final settlement 
with HCFA under parts 412 and 413 of this

[[Page 601]]

chapter for services furnished by the provider to Medicare beneficiaries 
who are not enrolled in the HMO or CMP. In this situation--
    (i) HCFA must be satisfied that the costs of covered services 
furnished to the HMO's or CMP's Medicare enrollees, as shown in the 
reports specified in paragraph (b) of this section, are reasonable and 
that the interest of the Medicare program would best be served by not 
delaying final settlement with the HMO or CMP until there is a final 
settlement with the provider for services furnished to Medicare 
beneficiaries not enrolled in the HMO or CMP; and
    (ii) Prompt settlement with the HMO or CMP would be in the best 
interest of the Medicare program if, for instance, the provider's costs 
represent an insignificant portion of total payment due to the HMO or 
CMP; or if HCFA is satisfied that the provider's costs, as shown in the 
reports specified in paragraph (b) of this section, will not be 
modified, to any significant extent, by the final settlement with the 
provider under parts 412 and 413 of this chapter.
    (d) Notice of amount of payment. The notice of amount of Medicare 
payment--
    (1) Explains HCFA's determination regarding total Medicare payment 
due the HMO or CMP for the contract period covered by the financial 
information specified in paragraph (b) of this section;
    (2) Relates this determination to the HMO's or CMP's claimed total 
payable cost for that period;
    (3) Explains the amounts and reasons, by appropriate reference to 
law, regulations, and Medicare program policy and procedures, if the 
determined amounts differ from the HMO's or CMP's claim; and
    (4) Informs the HMO or CMP of its right to a hearing in accordance 
with subpart R of part 405 of this chapter.
    (e) Basis for retroactive adjustment.
    (1) HCFA's determination (as contained in the notice of amount of 
Medicare payment) constitutes the basis for making retroactive 
adjustments to any Medicare payment made to the HMO or CMP during the 
period to which the determination applies.
    (2) Further payments to the HMO or CMP may be withheld or offset in 
order to recover, or to aid in the recovery of, any overpayment 
identified in the determination as having been made to the HMO or CMP, 
even if the HMO or CMP requests a hearing under subpart R of part 405 of 
this chapter.
    (3) Any withholding continues until the earliest of the following 
occurs:
    (i) The overpayment is liquidated.
    (ii) The HMO or CMP enters into an agreement with HCFA to refund the 
overpaid amount.
    (iii) HCFA, on the basis of subsequently acquired information, 
determines that there was no overpayment.
    (iv) The decision of a hearing specified in paragraph (d)(4) of this 
section is that there was no overpayment.

[50 FR 1346, Jan. 10, 1985, as amended at 51 FR 34833, Sept. 30, 1986; 
58 FR 38082, July 15, 1993; 60 FR 34888, July 5, 1995; 60 FR 46231, 
Sept. 6, 1995]



                 Subpart P--Medicare Payment: Risk Basis

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.580  Basis and scope.

    (a) Basis. This subpart implements those portions of section 1876 
(a), (e), and (g) of the Act that pertain to the amount HCFA pays an 
organization for its Medicare enrollees who are enrolled on a risk 
basis.
    (b) Scope. This subpart sets forth--
    (1) Method of payment;
    (2) Procedures for determining the HMO's or CMP's payment rate; and
    (3) Procedures for determining the additional benefits (and their 
value) the HMO or CMP must provide to its Medicare enrollees.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 58 
FR 38080, July 15, 1993; 60 FR 46231, Sept. 6, 1995]



Sec. 417.582  Definitions.

    As used in this subpart--
    AAPCC stands for adjusted average per capita cost.
    ACR stands for adjusted community rate.
    Actuarial factors means factors such as the age, sex, and disability 
level distribution of the population and any

[[Page 602]]

other relevant factors that HCFA determines have a significant effect on 
the level of utilization and cost of health services.
    APCRP stands for average of per capita rates of payment.
    Class of Medicare enrollees means a group of Medicare enrollees of 
an HMO or CMP that HCFA constructs on the basis of actuarial factors.
    Similar area means an area similar to the HMO's or CMP's geographic 
area but free from special characteristics that would distort the 
determination of the AAPCC.
    U.S. per capita incurred cost means the average per capita cost, 
including intermediary or carrier administrative costs, incurred by 
Medicare, as determined on an accrual basis, for covered services 
furnished to Medicare beneficiaries nationwide during the most recent 
period for which HCFA has complete data.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 58 
FR 38080, July 15, 1993; 60 FR 46232, Sept. 6, 1995]



Sec. 417.584  Payment to HMOs or CMPs with risk contracts.

    Except in the circumstances specified in Sec. 417.440(d) for 
inpatient hospital care, and as provided in Sec. 417.585 for hospice 
care, HCFA makes payment for covered services only to the HMO or CMP.
    (a) Principle of payment. HCFA makes monthly advance payments 
equivalent to the HMO's or CMP's per capita rate of payment for each 
beneficiary who is registered in HCFA records as a Medicare enrollee of 
the HMO or CMP.
    (b) Determination of rate. (1) The annual per capita rate of payment 
for each class of Medicare enrollees is equal to 95 percent of the AAPCC 
(as determined under the provisions of Sec. 417.588) for that class of 
Medicare enrollees.
    (2) HCFA furnishes each HMO or CMP with its per capita rate of 
payment for each class of Medicare enrollees not later than 90 days 
before the beginning of the HMO's or CMP's contract period.
    (c) Adjustments to payments. If the actual number of Medicare 
enrollees differs from the estimated number on which the amount of 
advance monthly payment was based, HCFA adjusts subsequent monthly 
payments to take account of the difference.
    (d) Reduction of payments. If an HMO or CMP requests a reduction in 
its monthly payment in accordance with Sec. 417.592(b)(2), HCFA reduces 
the amount of payment by the appropriate amount.
    (e) Determination of rate for calendar year 1998. For calendar year 
1998, HMOs or CMPs with risk contracts will be paid in accordance with 
principles contained in subpart F of part 422 of this chapter.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 52 
FR 8901, Mar. 20, 1987; 58 FR 38082, July 15, 1993; 60 FR 46232, Sept. 
6, 1995; 63 FR 35067, June 26, 1998]



Sec. 417.585  Special rules: Hospice care.

    (a) No payment is made to an HMO or CMP on behalf of a Medicare 
enrollee who has elected hospice care under Sec. 418.24 of this chapter 
except for the portion of the payment applicable to the additional 
benefits described in Sec. 417.592. This no-payment rule is effective 
from the first day of the month following the month of election to 
receive hospice care, until the first day of the month following the 
month in which the enrollee resumes normal Medicare coverage.
    (b) During the time the election is in effect, the HMO or CMP may 
bill HCFA on a fee-for-service basis (subject to the usual Medicare 
rules of payment) but only for the following covered Medicare services:
    (1) Services of the enrollee's attending physician if the physician 
is an employee or contractor of the HMO or CMP and is not employed by or 
under contract to the enrollee's hospice.
    (2) Services not related to the treatment of the terminal condition 
for which the enrollee elected hospice care or a condition related to 
the terminal condition.
    (3) Services furnished after the revocation or expiration of the 
enrollee's hospice election until the full monthly capitation payments 
begin again.
    (c) Payment for hospice care services furnished to Medicare 
enrollees of an HMO or CMP is made to the Medicare-

[[Page 603]]

participating hospice elected by the enrollee.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46232, Sept. 6, 1995]



Sec. 417.588  Computation of adjusted average per capita cost (AAPCC).

    (a) Basic data. In computing the AAPCC, HCFA uses the U.S. per 
capita incurred cost and adjusts it by the factors specified in 
paragraph (c) of this section to establish an AAPCC for each class of 
Medicare enrollees.
    (b) Advance notice to the HMO or CMP. Before the beginning of a 
contract period, HCFA informs the HMO or CMP of the specific adjustment 
factors it will use in computing the AAPCC.
    (c) Adjustment factors. (1) Geographic. HCFA makes an adjustment to 
reflect the relative level of Medicare expenditures for beneficiaries 
who reside in the HMO's or CMP's geographic area (or a similar area). 
This adjustment is based on reimbursement for Medicare covered services 
and uses the most accurate and timely data that pertain to the HMO's or 
CMP's geographic area and that is available to HCFA when it makes the 
determination.
    (2) Enrollment. HCFA makes a further adjustment to remove the cost 
effect of all area Medicare beneficiaries who are enrolled in the HMO or 
CMP or another HMO or CMP.
    (3) Age, sex, and disability status. HCFA makes adjustments to 
reflect the age and sex distribution and the disability status of the 
HMO's or CMP's enrollees based on Medicare program experience and 
available data that indicate cost differences that result from those 
factors.
    (4) Other relevant factors. If accurate data are available and 
appropriate, HCFA makes adjustments to reflect welfare and institutional 
status and other relevant factors.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993; 60 
FR 46232, Sept. 6, 1995]



Sec. 417.590  Computation of the average of the per capita rates of payment.

    (a) Computation by the HMO or CMP. As indicated in Sec. 417.584(b), 
before an HMO's or CMP's contract period begins, HCFA determines a per 
capita rate of payment for each class of the HMO's or CMP's Medicare 
enrollees. In order to determine the additional benefits required under 
Sec. 417.592, weighted averages of those per capita rates must be 
computed separately for enrollees entitled to Part A and Part B, and for 
enrollees entitled only to Part B. Except as provided in paragraph (b) 
of this section, the HMO or CMP must make the computations.
    (b) Computation by HCFA. If the HMO or CMP claims to have 
insufficient enrollment experience to make the computations required by 
paragraph (a) of this section, and HCFA agrees with the claim, HCFA 
makes the computations, using the best available information, which may 
include the enrollment experience of other risk HMOs and CMPs.

[58 FR 38075, July 15, 1993]



Sec. 417.592  Additional benefits requirement.

    (a) General rules. (1) An HMO or CMP that has an APCRP (as 
determined under Sec. 417.590) greater than its ACR (as determined under 
Sec. 417.594) must elect one of the options specified in paragraph (b) 
of this section.
    (2) The dollar value of the elected option must, over the course of 
a contract period, be at least equal to the difference between the APCRP 
and the proposed ACR.
    (b) Options. (1) Additional benefits. Provide its Medicare enrollees 
with additional benefits in accordance with paragraph (c) of this 
section.
    (2) Payment reduction. Request HCFA to reduce its monthly payments.
    (3) Combination of additional benefits and payment reduction. 
Provide fewer than the additional benefits required under paragraph 
(b)(1) of this section and request HCFA to reduce the monthly payments 
by the remaining difference between the APCRP and the ACR.
    (4) Combination of additional benefits and withholding in a 
stabilization fund. Provide fewer than the additional benefits required 
under paragraph (b)(1) of this section, and request HCFA to withhold in 
a stabilization fund (as provided in Sec. 417.596) the remaining 
difference between the APCRP and the ACR.

[[Page 604]]

    (c) Special rules: Additional benefits option. (1) The HMO or CMP 
must determine additional benefits separately for enrollees entitled to 
both Part A and Part B benefits and those entitled only to Part B.
    (2) The HMO or CMP may elect to provide additional benefits in any 
of the following forms--
    (i) A reduction in the HMO's or CMP's premium or in other charges it 
imposes in the form of deductibles or coinsurance.
    (ii) Health benefits in addition to the required Part A and Part B 
covered services.
    (iii) A combination of reduced charges and additional benefits.
    (d) Notification to HCFA. (1) The HMO or CMP must give HCFA notice 
of its ACR and its weighted APCRP at least 45 days before its contract 
period begins.
    (2) An HMO or CMP that elects the option of providing additional 
benefits must include in its submittal--
    (i) A description of the additional benefits it will provide to its 
Medicare enrollees; and
    (ii) Supporting evidence to show that the selected benefits meet the 
requirements of paragraph (a)(2) of this section with respect to dollar 
value equivalence.

[60 FR 46232, Sept. 6, 1995]



Sec. 417.594  Computation of adjusted community rate (ACR).

    (a) Basic rule. Each HMO or CMP must compute its basic rate as 
follows:
    (1) Compute an initial rate in accordance with paragraph (b) of this 
section.
    (2) Adjust and reduce the initial rate in accordance with paragraphs 
(c) and (d) of this section.
    (b) Computation of initial rates. (1) The HMO or CMP must compute 
its initial rate using either of the following systems:
    (i) A community rating system as defined in Sec. 417.104(b); or
    (ii) A system, approved by HCFA, under which the HMO or CMP develops 
an aggregate premium for all its enrollees and weights the aggregate by 
the size of the various enrolled groups that compose its enrollment.

(For purposes of this section, enrolled groups are defined as employee 
groups or other bodies of subscribers that enroll in the HMO or CMP 
through payment of premiums.)
    (2) Regardless of which method the HMO or CMP uses--
    (i) The initial rate must be equal to the premium it would charge 
its non-Medicare enrollees for the Medicare-covered services;
    (ii) The HMO or CMP must compute the rates separately for enrollees 
entitled to Medicare Part A and Part B and for those entitled only to 
Part B; and
    (iii) The HMO or CMP must identify and take into account anticipated 
revenue from health insurance payers for those services for which 
Medicare is not the primary payer as provided in Sec. 417.528.
    (3) Except as provided in paragraph (b)(4) of this section, the HMO 
or CMP must identify in its initial rate calculation, the following 
components whose rates must be consistent with rates used by the HMO or 
CMP in calculating premiums for non-Medicare enrollees:
    (i) Hospital services (services covered under Medicare Part A and 
Part B shown separately).
    (ii) Physicians' services.
    (iii) Other medical services (for example, X-ray and laboratory 
services).
    (iv) Home health services.
    (v) Out-of-plan claims for emergency services.
    (vi) Skilled nursing care services.
    (vii) Ambulance services.
    (viii) Other Medicare covered services.
    (ix) General and administrative.
    (x) Noncovered Medicare services (for example, eyeglasses).
    (xi) Services for which Medicare is the secondary payer.
    (xii) Enrollee liabilities (for example, deductibles, coinsurance, 
or copayments) for covered services.
    (4) An HMO or CMP that does not usually separate its premium 
components as described in paragraph (b)(3) of this section may 
calculate its initial rate with the methods it uses for its other 
enrolled groups if the HMO or CMP provides HCFA with the documentation 
necessary to support any adjustments the HMO or CMP makes to the initial 
rate in accordance with paragraph (e) of this section.

[[Page 605]]

    (5) The initial rate calculation must not carry forward any losses 
experienced by the HMO or CMP during prior contract periods. The HMO or 
CMP must submit supporting documentation to assure HCFA that rates do 
not include past losses but only premiums for the price of additional 
benefits and services of the upcoming contract period.
    (c) Adjustment of initial rates. (1) Purpose of adjustment. The 
purpose of adjustment is to reflect the utilization characteristics of 
Medicare enrollees.
    (2) Adjustment by the HMO or CMP. The HMO or CMP may adjust the rate 
for a particular service using more than one of the following factors if 
they do not duplicate each other:
    (i) Unit of service. If the HMO or CMP purchases or identifies 
services on a unit of service basis and the unit of service is defined 
the same for all enrollees, the HMO or CMP may make an adjustment in its 
initial rate to reflect the number of units of services furnished to its 
Medicare enrollees in comparison to those furnished to other enrollees.
    (ii) Complexity or intensity of services. The HMO or CMP may make an 
adjustment to reflect the differences in the complexity or intensity of 
services furnished to its Medicare enrollees if the calculation of its 
initial rate includes the elements of this adjustment.
    (3) Support documentation. All adjustments made by the HMO or CMP 
must be accompanied by adequate supporting data. If an HMO or CMP does 
not have sufficient enrollment experience to develop this data, it may, 
during its initial contract period, use documented statistics from a 
nationally recognized statistical source.
    (4) Adjustment by HCFA. If the HMO or CMP does not have adequate 
data to adjust the initial rate calculated under paragraph (b) of this 
section to reflect the utilization characteristics of its Medicare 
enrollees, HCFA will, at the HMO's or CMP's request, adjust the initial 
rate. HCFA adjusts the rate on the basis of differences in the 
utilization characteristics of--
    (i) Medicare and non-Medicare enrollees in other HMOs or CMPs; or
    (ii) Medicare beneficiaries (in the HMO's or CMP's area, or State, 
or the United States) who are eligible to enroll in an HMO or CMP and 
other individuals in that same area, or State, or the United States.
    (d) Reduction of adjusted rates. The HMO or CMP or HCFA further 
reduces the adjusted rates by the actuarial value of applicable Medicare 
deductibles and coinsurance.
    (e) HCFA review. (1) Submission of data. The HMO or CMP must submit 
its ACR and the methodology used to compute it for HCFA review and 
approval, and must include adequate supporting data.
    (2) Appeals procedures. (i) If HCFA determines that an HMO's or 
CMP's ACR computation is not acceptable, the HMO or CMP may, within 30 
days after receipt of notice of the determination, file with HCFA a 
request for a hearing.
    (ii) The request must state why the HMO or CMP believes the 
determination is incorrect, and include any supporting evidence the HMO 
or CMP considers pertinent.
    (iii) A hearing officer designated by HCFA conducts the hearing in 
accordance with the hearing procedures set forth in Secs. 405.1819 
through 405.1833 of this chapter.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38080, July 15, 1993; 60 
FR 46232, Sept. 6, 1995]



Sec. 417.596  Establishment of a benefit stabilization fund.

    (a) General. If an HMO or CMP is required to provide its Medicare 
enrollees with additional benefits as described in Sec. 417.592, the 
organization may request that HCFA withhold a part of its monthly per 
capita payment in a benefit stabilization fund. The fund will be used to 
prevent excessive fluctuation in the provision of those additional 
benefits in subsequent contract periods.
    (b) Notification to HCFA. An HMO's or CMP's request to have monies 
withheld in a benefit stabilization fund must be made when the HMO or 
CMP notifies HCFA under Sec. 417.592(d) of its ACR and its APCRP in 
preparation for its next contract period.
    (c) Limitations on the amounts withheld--(1) Limit per contract 
period. Except as provided in paragraph (c)(3) of this section, HCFA 
does not withhold

[[Page 606]]

in a benefit stabilization fund more than 15 percent of the difference 
between an HMO's or CMP's ACR and its ACPRP for a given contract period.
    (2) Cumulative limit. If HCFA has established a benefit 
stabilization fund for an HMO or CMP, it does not approve a request for 
withholding made by that HMO or CMP for a subsequent contract period 
that would cause the total value of the benefit stabilization fund to 
exceed 25 percent of the difference between the HMO's or CMP's ACR and 
the average of its per capita rates of payment for that subsequent 
contract period.
    (3) Exception. HCFA may grant an exception to the limit described in 
paragraph (c)(1) of this section if an HMO or CMP can demonstrate to 
HCFA's satisfaction that the value of the additional benefits it 
provides to its Medicare enrollees fluctuates substantially in excess of 
15 percent from one contract period to another.
    (d) Financial management of benefit stabilization funds. (1) The 
amounts withheld by HCFA to establish and maintain a benefit 
stabilization fund are in the custody of the Federal Health Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund.
    (2) The amounts withheld in a benefit stabilization fund are 
accounted for by HCFA in accounts in which interest does not accrue to 
the HMO or CMP.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended by 56 
FR 46571, Sept. 13, 1991; 58 FR 38083, July 15, 1993; 60 FR 46233, Sept. 
6, 1995]



Sec. 417.597  Withdrawal from a benefit stabilization fund.

    (a) Notification to HCFA. An HMO's or CMP's request to make a 
withdrawal from its benefit stabilization fund for use during a contract 
period must be made when the HMO or CMP notifies HCFA of its ACR and its 
ACPRP for that contract period. In making its request, the HMO or CMP 
must--
    (1) Indicate how it intends to use the withdrawn amounts;
    (2) Justify the need for the withdrawal in terms of stabilizing the 
additional benefits it provides to Medicare enrollees;
    (3) Document the HMO's or CMP's experience with fluctuations of 
revenue requirements relative to the additional benefits it provides to 
Medicare enrollees; and
    (4) Document its experience during the contract period previous to 
the one for which it requests withdrawal to ensure that the HMO or CMP 
will not be using the withdrawn amounts to refinance losses suffered 
during that previous contract period.
    (b) Criteria for HCFA approval. HCFA approves a request for a 
withdrawal from a benefit stabilization fund for use during the next 
contract period only if--
    (1) The HMO's or CMP's average of its per capita rates of payment 
for the next contract period is less than that of the previous contract 
period;
    (2) The HMO's or CMP's ACR for the next contract period is 
significantly higher than that of the previous contract period; or
    (3) The HMO's or CMP's revenue requirements for the next contract 
period for providing the additional benefits it provided during the 
previous contract period is significantly higher than the requirements 
for that previous period and the ACR for the next contract period 
results in an additional benefits package that is less in total value 
than that of the previous contract period.
    (c) Basis for denial. HCFA does not approve a request for a 
withdrawal from a benefit stabilization fund if the withdrawal would 
allow the HMO or CMP to--
    (1) Offer without charge the supplemental services it provides to 
its Medicare enrollees under the provisions of Sec. 417.440 (b)(2) or 
(b)(3); or
    (2) Refinance prior contract period losses or to avoid losses in the 
upcoming contract period.
    (d) Form of payment. Payment of monies withdrawn from a benefit 
stabilization fund is made, in equal parts, as an additional amount to 
the monthly advance payment made to the HMO or CMP under Sec. 417.584 
during the period of the contract.

[58 FR 38075, July 15, 1993, as amended at 60 FR 46233, Sept. 6, 1995]

[[Page 607]]



Sec. 417.598  Annual enrollment reconciliation.

    HCFA's payment to an HMO or CMP may be subject to an enrollment 
reconciliation at least annually. HCFA conducts this reconciliation as 
necessary to ensure that the payments made do not exceed or fall short 
of the appropriate per capita rate of payment for each Medicare enrollee 
of the HMO or CMP during the contract period. The HMO or CMP must submit 
any information or reports required by HCFA to conduct the 
reconciliation.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38080, July 15, 1993; 60 
FR 46233, Sept. 6, 1995]



                     Subpart Q--Beneficiary Appeals



Sec. 417.600  Basis and scope.

    (a) Statutory basis. (1) Section 1869 of the Act provides the right 
to a hearing and to judicial review for any individual dissatisfied with 
a determination regarding his or her Medicare benefits.
    (2) Section 1876 of the Act provides for Medicare payments to HMOs 
and CMPs that contract with HCFA to enroll Medicare beneficiaries and 
furnish Medicare-covered health care services to them. Section 
1876(c)(5) provides that--
    (i) An HMO or CMP must establish grievance and appeals procedures; 
and
    (ii) Medicare enrollees dissatisfied because they do not receive 
health care services to which they believe they are entitled, at no 
greater cost than they believe they are required to pay, have the 
following appeal rights:
    (A) The right to an ALJ hearing if the amount in controversy is $100 
or more.
    (B) The right to judicial review of the hearing decision if the 
amount in controversy is $1000 or more.
    (iii) The Medicare enrollee and the HMO or CMP are parties to the 
hearing and to the judicial review.
    (b) Scope. This subpart sets forth--
    (1) The appeals procedures, as required by section 1876(c)(5)(B) of 
the Act for Medicare enrollees who are dissatisfied with an 
``organization determination'' as defined in Sec. 417.606;
    (2) The applicability of grievance procedures established by the HMO 
or CMP under section 1876(c)(5)(A) of the Act and Sec. 417.604(a) for 
complaints that do not involve an organization determination;
    (3) The responsibility of the HMO or CMP--
    (i) To develop and maintain procedures; and
    (ii) To ensure all Medicare enrollees have a complete written 
explanation of their grievance and appeal rights, the availability of 
expedited reviews, the steps to follow, and the time limits for each 
procedure; and
    (4) The special rules that apply when a beneficiary requests 
immediate PRO review of a determination that he or she no longer needs 
inpatient hospital care.

[60 FR 46233, Sept. 6, 1995, as amended at 62 FR 23374, Apr. 30, 1997]



Sec. 417.602  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    ALJ stands for administrative law judge.
    RRB stands for Railroad Retirement Board.

[50 FR 1346, Jan. 10, 1985, and amended at 58 FR 38080, July 15, 1993; 
60 FR 46233, Sept. 6, 1995]



Sec. 417.604  General provisions.

    (a) Responsibilities of the HMO or CMP. (1) The HMO or CMP must 
establish and maintain--
    (i) Appeals procedures that meet the requirements of this subpart 
for issues that involve organization determinations; and
    (ii) Grievance procedures for dealing with issues that do not 
involve organization determinations.
    (2) The HMO or CMP must ensure that all enrollees receive written 
information about the grievance and appeals procedures that are 
available to them.
    (b) Limits on applicability of this subpart. (1) If an enrollee 
requests immediate PRO review (as provided in Sec. 417.605) of a 
determination of noncoverage of inpatient hospital care--
    (i) The enrollee is not entitled to subsequent review of that issue 
under this subpart; and

[[Page 608]]

    (ii) The PRO review decision is subject to the appeals procedures 
set forth in part 473 of this chapter.
    (2) Any determination regarding services that were furnished by the 
HMO or CMP, either directly or under arrangement, for which the enrollee 
has no further liability for payment are not subject to appeal.
    (3) Services included in an optional supplemental plan under 
(Sec. 417.440(b)(2)) are subject only to a grievance procedure.
    (4) Physicians and other individuals who furnish services under 
arrangement with an HMO or CMP have no right of appeal under this 
subpart, except as provided in Secs. 417.609(c)(4) and 417.617(c)(4), 
which allow physicians and other health professionals to act on behalf 
of an enrollee in time-sensitive situations when an organization 
determination or reconsideration is being requested.
    (c) Applicability of other regulations. Unless otherwise provided in 
this subpart, regulations at 20 CFR, part 404, subparts J and R, 
(pertaining respectively to conduct of hearings and representation of 
parties under title II of the Act) are applicable under this subpart.

[60 FR 46233, Sept. 6, 1995, as amended at 62 FR 23374, Apr. 30, 1997]



Sec. 417.605  Immediate PRO review of a determination of noncoverage of inpatient hospital care.

    (a) Right to review. A Medicare enrollee who disagrees with a 
determination made by an HMO, CMP, or a hospital that inpatient care is 
no longer necessary may remain in the hospital and may (directly or 
through his or her authorized representative) request immediate PRO 
review of the determination.
    (b) Procedures. For the immediate PRO review process, the following 
rules apply:
    (1) The enrollee or authorized representative must submit the 
request for immediate review--
    (i) To the PRO that has an agreement with the hospital under 
Sec. 466.78 of this chapter;
    (ii) In writing or by telephone; and
    (iii) By noon of the first working day after receipt of the written 
notice of the determination that the hospital stay is no longer 
necessary.
    (2) On the date it receives the enrollee's request, the PRO must 
notify the HMO or CMP that a request for immediate review has been 
filed.
    (3) The HMO or CMP must supply any information that the PRO requires 
to conduct its review and must make it available, by phone or in 
writing, by the close of business of the first full working day 
immediately following the day the enrollee submits the request for 
review.
    (4) In response to a request from the HMO or CMP, the hospital must 
submit medical records and other pertinent information to the PRO by 
close of business of the first full working day immediately following 
the day the HMO or CMP makes its request.
    (5) The PRO must solicit the views of the enrollee who requested the 
immediate PRO review (or the enrollee's representative).
    (6) The PRO must make a determination and notify the enrollee, the 
hospital, and the HMO or CMP by close of business of the first working 
day after it receives the information from the hospital, or the HMO or 
CMP, or both.
    (c) Financial responsibility. (1) General rule. Except as provided 
in paragraph (c)(2) of this section, the HMO or CMP continues to be 
financially responsible for the costs of the hospital stay until noon of 
the calendar day following the day the PRO notifies the enrollee of its 
review determination.
    (2) Exception. The hospital may not charge the HMO or CMP (or the 
enrollee) if--
    (i) It was the hospital (acting on behalf of the enrollee) that 
filed the request for immediate PRO review; and
    (ii) The PRO upholds the noncoverage determination made by the HMO 
or CMP.

[59 FR 59941, Nov. 21, 1994]



Sec. 417.606  Organization determinations.

    (a) Actions that are organization determinations. An organization 
determination is any determination made by an HMO or CMP with respect to 
any of the following:
    (1) Payment for emergency or urgently needed services.

[[Page 609]]

    (2) Any other health services furnished by a provider or supplier 
other than the HMO or CMP that the enrollee believes--
    (i) Are covered under Medicare; and
    (ii) Should have been furnished, arranged for, or reimbursed by the 
HMO or CMP.
    (3) The HMO's or CMP's refusal to provide services that the enrollee 
believes should be furnished or arranged for by the HMO or CMP and the 
enrollee has not received the services outside the HMO or CMP.
    (4) Discontinuation of a service (such as a skilled nursing facility 
discharge), if the enrollee disagrees with the determination that the 
service is no longer medically necessary.
    (b) Actions that are not organization determinations. The following 
are not organization determinations for purposes of this subpart:
    (1) A determination regarding services that were furnished by the 
HMO or CMP, either directly or under arrangement, for which the enrollee 
has no further obligation for payment.
    (2) A determination regarding services included in an optional 
supplemental plan (see Sec. 417.440(b)(2)).
    (c) Relation to grievances. A determination that is not an 
organization determination is subject only to a grievance procedure 
under Sec. 417.436(a)(2).

[59 FR 59942, Nov. 21, 1994, as amended at 62 FR 23374, Apr. 30, 1997]



Sec. 417.608  Notice of adverse organization determination.

    (a) If an HMO or CMP makes an organization determination that is 
partially or fully adverse to the enrollee, it must notify the enrollee 
of the determination--
    (1) Within 60 days of receiving the enrollee's request for payment 
for services; or
    (2) As specified in Sec. 417.609(c)(3) for expedited organization 
determinations.
    (b) The notice must--
    (1) State the specific reasons for the determination; and
    (2) Inform the enrollee of his or her right to a reconsideration, 
including the right to and conditions for obtaining an expedited 
reconsidered determination.
    (c) The failure to provide the enrollee with timely notification of 
an adverse organization determination as specified in paragraph (a) of 
this section or in Sec. 417.609(b) (concerning time frames for 
expediting certain organization determinations) constitutes an adverse 
organization determination and may be appealed.

[50 FR 1346, Jan. 10, 1985, as amended at 59 FR 59942, Nov. 21, 1994; 62 
FR 23375, Apr. 30, 1997]



Sec. 417.609  Expediting certain organization determinations.

    (a) An enrollee, or an authorized representative of the enrollee, 
may request that an organization determination as defined in 
Secs. 417.606(a)(3) and (a)(4) be expedited. The request may be made 
orally to the HMO or CMP.
    (b) The HMO or CMP must maintain procedures for expediting 
organization determinations when, upon request from an enrollee or 
authorized representative of the enrollee, the organization decides that 
making the determination according to the procedures and time frames set 
forth in Sec. 417.608(a)(1) could seriously jeopardize the life or 
health of the enrollee or the enrollee's ability to regain maximum 
function.
    (c) The procedures must include the following:
    (1) Receipt of oral requests, followed by written documentation of 
the oral requests.
    (2) Prompt decision-making regarding whether the request will be 
expedited, or handled within the standard time frame set forth at 
Sec. 417.608(a)(1), including notification of the enrollee if the 
request is not expedited.
    (3) Notification of the enrollee, and the physician as appropriate, 
as expeditiously as the enrollee's health condition requires, but within 
72 hours of the request. An extension of up to 10 working days is 
permitted if requested by the enrollee or if the HMO or CMP finds that 
additional information is necessary and the delay is in the interest of 
the enrollee.
    (i) Notification must comply with Sec. 417.608(b), concerning the 
content of a notice of adverse organization determination.

[[Page 610]]

    (ii) If the initial notification is not in writing, written 
confirmation must be mailed to the enrollee within 2 working days.
    (iii) In cases for which the HMO or CMP must receive medical 
information from a physician or provider not affiliated with the HMO or 
CMP, the time standard begins with receipt of the information.
    (4) Granting the request of a physician, regardless of whether the 
physician is affiliated with the organization or not, to expedite the 
enrollee's request.

[62 FR 23375, Apr. 30, 1997]



Sec. 417.610  Parties to the organization determination.

    The parties to the organization determination are--
    (a) The enrollee;
    (b) An assignee of the enrollee (that is, a physician or other 
supplier who has provided a service to the enrollee and formally agrees 
to waive any right to payment from the enrolee for that service);
    (c) The legal representative of a deceased enrollee's estate; or
    (d) Any other entity determined to have an appealable interest in 
the proceeding.

[50 FR 1346, Jan. 10, 1985, as amended at 59 FR 59942, Nov. 21, 1994]



Sec. 417.612  Effect of organization determination.

    The organization determination is binding on all parties unless it 
is reconsidered in accordance with Secs. 417.614 through 417.626, or 
revised in accordance with Sec. 417.638.

[50 FR 1346, Jan. 10, 1985, as amended at 59 FR 59941, Nov. 21, 1994; 62 
FR 25855, May 12, 1997]



Sec. 417.614  Right to reconsideration.

    Any party who is dissatisfied with an organization determination or 
with one that has been reopened and revised may request reconsideration 
of the determination in accordance with the procedures of Sec. 417.616, 
concerning a request for reconsideration, or Sec. 417.617, concerning 
certain expedited reconsiderations.

[62 FR 23375, Apr. 30, 1997]



Sec. 417.616  Request for reconsideration.

    (a) Method and place for filing a request. A request for 
reconsideration must be made in writing and filed with--(1) The HMO or 
CMP that made the organization determination;
    (2) An SSA office; or
    (3) In the case of a qualified railroad retirement beneficiary, an 
RRB office.
    (4) In the case of a request for an expedited reconsideration, as 
provided for in Sec. 417.617 (concerning certain expedited 
reconsiderations), the HMO or CMP.
    (b) Time for filing a request. Except as provided in paragraph (c) 
of this section, the request for reconsideration must be filed within 60 
days from the date of the notice of the organization determination.
    (c) Extension of time to file a request. (1) Rule. If good cause is 
shown, the HMO or CMP that made the organization determination may 
extend the time for filing the request for reconsideration.
    (2) Method of requesting an extension. If the time limit in 
paragraph (b) of this section has expired, a party to the organization 
determination may file a request for reconsideration with the HMO or 
CMP, HCFA, SSA, or, in the case of qualified railroad retirement 
beneficiary, and RRB office. The request to extend the time limit must--
    (i) Be in writing; and
    (ii) State why the request for reconsideration was not filed timely.
    (d) Parties to the reconsideration. The parties to the 
reconsideration are the parties to the initial determination as 
described in Sec. 417.610, and any other person or entity whose rights 
with respect to the initial determination may be affected by the 
reconsideration, as determined by the entity that conducts the 
reconsideration.
    (e) Withdrawal of request. A request for reconsideration may be 
withdrawn by the party who filed the request. The request for withdrawal 
must be filed at one of the places specified in paragraph (c)(2) of this 
section.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 59 
FR 59942, Nov. 21, 1994; 62 FR 23375, Apr. 30, 1997]

[[Page 611]]



Sec. 417.617  Expediting certain reconsiderations.

    (a) An enrollee, or an authorized representative of the enrollee, 
may request that a reconsideration be expedited. The request may be made 
orally to the HMO or CMP.
    (b) The HMO or CMP must maintain procedures for expediting 
reconsiderations when, upon request from an enrollee or an authorized 
representative of the enrollee, the organization decides that the longer 
time frames permitted in Sec. 417.620(c) could seriously jeopardize the 
life or health of the enrollee or the enrollee's ability to regain 
maximum function.
    (c) The procedures must comply with the requirements for 
reconsidered determinations set forth in Secs. 417.614 through 417.626 
and include the following items:
    (1) Receipt of oral requests, followed by written documentation of 
the oral requests.
    (2) Prompt decision-making regarding whether the request will be 
expedited or handled within the standard time frame of Sec. 417.620(c), 
including notification of the enrollee if the request is not expedited.
    (3) Notification of the enrollee, and the physician as appropriate, 
as expeditiously as the enrollee's health condition requires, but within 
72 hours of the request. An extension of up to 10 working days is 
permitted if requested by the enrollee or if the HMO or CMP finds that 
additional information is necessary and the delay is in the interest of 
the enrollee.
    (i) Notification must comply with Sec. 417.624(b), concerning the 
content of a notice of a reconsidered determination.
    (ii) If the initial notification is not in writing, written 
confirmation must be mailed to the enrollee within 2 working days.
    (iii) In cases for which the HMO or CMP must receive medical 
information from a physician or provider not affiliated with the HMO or 
CMP, the time standard begins with receipt of the information.
    (4) Granting the request of a physician, regardless of whether the 
physician is affiliated with the organization or not, to expedite the 
request.

[62 FR 23375, Apr. 30, 1997]



Sec. 417.618  Opportunity to submit evidence.

    The HMO or CMP must provide the parties to the reconsideration 
reasonable opportunity to present evidence and allegations of fact or 
law, related to the issue in dispute, in person as well as in writing. 
In the case of an expedited reconsideration, the opportunity to present 
evidence is limited by the short time frames for making decisions, and 
the organization must inform the enrollee, or the authorized 
representative of the enrollee, of the conditions for submitting the 
evidence.

[62 FR 23375, Apr. 30, 1997]



Sec. 417.620  Responsibility for reconsiderations; time limits.

    (a) If the HMO or CMP can make a reconsidered determination that is 
completely favorable to the enrollee, the HMO or CMP issues the 
reconsidered determination.
    (b) If the HMO or CMO recommends partial or complete affirmation of 
its adverse determination, the HMO or CMP must prepare a written 
explanation and send the entire case to HFCA. HCFA makes the 
reconsidered datermination.
    (c) The HMO or CMP must issue the reconsidered determination to the 
enrollee, or submit the explanation and file to HCFA within 60 calendar 
days from the date of receipt of the request for reconsideration. In the 
case of an expedited reconsideration, the HMO or CMP must issue the 
reconsidered determination as specified in Sec. 417.617(c)(3) or submit 
the explanation and file to HCFA within 24 hours of its determination, 
the expiration of the 72-hour review period, or the expiration of the 
extension.
    (d) For good cause shown, HCFA may allow extensions to the time 
limit set forth in paragraph (c) of this section.
    (e) Failure by the HMO or CMP to provide the enrollee with a 
reconsidered determination within the time limits described in paragraph 
(c) of this section or to obtain a good cause extension described in 
paragraph (d) of

[[Page 612]]

this section constitutes an adverse determination, and the HMO or CMP 
must submit the file to HCFA.
    (f) If the HMO or CMP refers the matter to HCFA, it must 
concurrently notify the beneficiary of that action.

[59 FR 59942, Nov. 21, 1994, as amended at 62 FR 23376, Apr. 30, 1997]



Sec. 417.622  Reconsidered determination.

    A reconsidered determination is a new determination that--
    (a) Is based on a review of the organization determination, the 
evidence and findings upon which it was based, and any other evidence 
submitted by the parties or obtained by HCFA or the HMO or CMP; and
    (b) Is made by a person or persons who were not involved in making 
the organization determination.

[50 FR 1346, Jan. 10, 1985, as amended at 59 FR 59941, 59942, Nov. 21, 
1994]



Sec. 417.624  Notice of reconsidered determination.

    (a) Responsibility for notice. The entity that makes the 
reconsidered determination is responsible for mailing notice to the 
parties and, if that entity is not HCFA, for sending a copy to HCFA.
    (b) Content of notice. The notice must--
    (1) State the specific reasons for the reconsidered determination;
    (2) Inform the party of his or her right to a hearing if the amount 
in controversy is $100 or more; and
    (3) Describe the procedures that the party must follow to obtain a 
hearing.

[50 FR 1346, Jan. 10, 1985]



Sec. 417.626  Effect of reconsidered determination.

    A reconsidered determination is binding on all parties unless a 
request for a hearing is filed in accordance with the provisions of 
Sec. 417.632, or unless it is revised in accordance with Sec. 417.638.

[50 FR 1346, Jan. 10, 1985, as amended at 62 FR 25855, May 12, 1997]



Sec. 417.630  Right to a hearing.

    If the amount remaining in controversy is $100 or more, any party to 
the reconsideration who is dissatisfied with the reconsidered 
determination has a right to a hearing. (The amount remaining in 
controversy, which can include any combination of Part A and Part B 
services, is computed in accordance with Sec. 405.740 of this chapter 
for Part A services and Sec. 405.820(b) of this chapter for Part B 
services. If the basis for the appeal is the refusal of services, the 
projected value of those services is used in computing the amount 
remaining in controversy.)

[59 FR 59942, Nov. 21, 1994]



Sec. 417.632  Request for hearing.

    (a) Method and place for filing a request. A request for a hearing 
must be made in writing and filed at one of the places specified in 
Sec. 417.616(a).
    (b) Time for filing a request. Except when the time is extended by 
an ALJ as provided in 20 CFR 404.933(c), a request for a hearing must be 
filed within 60 days of the date of the notice of reconsidered 
determination.
    (c) Parties to a hearing. (1) The parties to a hearing must be the 
parties to the reconsideration and any other person or entity whose 
rights with respect to the reconsideration may be affected by the 
hearing, as determined by the ALJ.
    (2) The HMO or CMP must be made a party to the hearing but does not 
have a right to request a hearing.
    (d) ALJ action when the amount in controversy is less than $100. (1) 
If the request plainly shows that the amount in controversy is less than 
$100, the ALJ dismisses the request.
    (2) If, after a hearing is initiated, the ALJ finds that the amount 
in controversy is less than $100, he or she discontinues the hearing and 
does not rule on the substantive issues raised in the appeal.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 60 
FR 46234, Sept. 6, 1995; 62 FR 25855, May 12, 1997]



Sec. 417.634  Departmental Appeals Board (DAB) review.

    Any party to the hearing, including the HMO or CMP, who is 
dissatisfied with the hearing decision, may request the DAB to review 
the ALJ's decision or dismissal. Regulations beginning at 20 CFR 404.967 
regarding SSA Appeals Council Review are applicable to DAB

[[Page 613]]

review for matters addressed by this subpart.

[62 FR 25855, May 12, 1997]



Sec. 417.636  Court review.

    (a) Review of ALJ's decision. A party or the HMO or CMP may request 
judicial review of an ALJ's decision if--
    (1) The Departmental Appeals Board denied the party's or the HMO's 
or CMP's request for review; and
    (2) The amount in controversy is $1,000 or more.
    (b) Review of Departmental Appeals Board decision. A party or the 
HMO or CMP may request judicial review of the Departmental Appeals Board 
decision if--
    (1) It is the final decision of HCFA; and
    (2) The amount in controversy is $1,000 or more.
    (c) Request for review. The civil action must be filed in a district 
court of the United States in accordance with section 205(g) of the Act 
(see 20 CFR 422.210 for a description of the procedures to follow in 
requesting judicial review).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993; 61 
FR 32348, June 24, 1996]



Sec. 417.638  Reopening determinations and decisions.

    An organization, reconsidered, or revised determination made by an 
HMO, CMP, or HCFA, or a decision or revised decision of an ALJ or the 
Departmental Appeals Board, may be reopened in accordance with the 
provisions of Sec. 405.750 of this chapter.

[59 FR 59942, Nov. 21, 1994, as amended at 61 FR 32348, June 24, 1996]



                  Subpart R--Medicare Contract Appeals

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.640  Determinations subject to appeal.

    This subpart establishes the procedures for making and reviewing the 
following initial determinations:
    (a) A determination that an HMO or CMP is not qualified to enter 
into a contract with HCFA under section 1876 of the Act.
    (b) A determination that an HMO or CMP is qualified only for a 
reasonable cost contract.
    (c) A determination to terminate, or to refuse to renew, a contract 
with an HMO or CMP because--
    (1) The HMO or CMP has failed substantially to carry out the terms 
of the contract;
    (2) The HMO or CMP is carrying out the contract in a manner that is 
inconsistent with the efficient and effective administration of section 
1876 of the Act;
    (3) The HMO or CMP no longer meets the applicable conditions 
necessary to qualify as an HMO or CMP under section 1876 of the Act and 
this subpart; or
    (4) The HMO or CMP has failed to comply with the composition of 
enrollment requirements specified in Sec. 417.413(d).

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 46572, Sept. 13, 1991; 
58 FR 38080, July 15, 1993]



Sec. 417.642  Administrative actions that are not initial determinations.

    Administrative actions that are not initial determinations under 
this subpart include, but are not limited to, HCFA's refusal to renew a 
contract with an HMO or CMP when the refusal is not based on the causes 
specifed in Sec. 417.640(c).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38080, July 15, 1993]



Sec. 417.644  Notice of initial determination.

    (a) When HCFA makes an initial determination, it gives the HMO or 
CMP written notice.
    (b) The notice specifies--
    (1) The reasons for the determination; and
    (2) The HMO's or CMP's right to request reconsideration.
    (c) HCFA mails the notice to the HMO or CMP at least 90 days before 
the end of the contract period, or in the case of termination, at least 
90 days before the effective date of the termination.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993; 60 
FR 46234, Sept. 6, 1995]

[[Page 614]]



Sec. 417.646  Effect of initial determination.

    The initial determination is final and binding on all parties 
unless--
    (a) It is reconsidered in accordance with Secs. 417.648 through 
417.658;
    (b) In the case of an initial determination described in 
Sec. 417.640(c), a request for a hearing is filed; or
    (c) It is revised as a result of a reopening under Sec. 417.692.



Sec. 417.648  Reconsideration: Applicability.

    (a) Reconsideration is the first step for appealing an organization 
determination specified in Sec. 417.640(a) or (b).
    (b) HCFA reconsiders either of the specified determinations if the 
HMO or CMP files a written request in accordance with Sec. 417.650.

[60 FR 46234, Sept. 6, 1995]



Sec. 417.650  Request for reconsideration.

    (a) Method and place for filing a request. A request for 
reconsideration must be made in writing and filed with any HCFA office.
    (b) Time for filing a request. Except as provided in paragraph (c) 
of this section, the request for reconsideration must be filed within 60 
days from the date of the notice of the initial determination.
    (c) Extension of time to file a request. HCFA may, in response to a 
party's written petition showing good cause, accept a request for 
reconsideration after the expiration of the 60 day period.
    (d) Proper party to file a request. Only an authorized official of 
the entity that was a party to an initial determination may file the 
request for reconsideration.
    (e) Withdrawal of a request. A request for reconsideration may be 
withdrawn by the party who filed the request at any time before the 
notice of the reconsidered determination is mailed. The request for 
withdrawal must be in writing and filed with HCFA. If HCFA approves, the 
request for reconsideration is withdrawn.



Sec. 417.652  Opportunity to submit evidence.

    HCFA provides the parties to the reconsideration reasonable 
opportunity to present as evidence any documents or written statements 
that are relevant and material to the matters at issue.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.654  Reconsidered determination.

    A reconsidered determination is a new determination that--
    (a) Is based on a review of the initial determination, the evidence 
and findings upon which that was based, and any other written evidence 
submitted before notice of the reconsidered determination is mailed, 
including facts relating to the status of the entity subsequent to the 
initial determination; and
    (b) Affirms, reverses, or modifies the initial determination.



Sec. 417.656  Notice of reconsidered determination.

    (a) HCFA gives the parties written notice of the reconsidered 
determination.
    (b) The notice--
    (1) Contains findings with respect to the HMO's or CMP's 
qualifications to enter into a contract with HCFA under section 1876 of 
the Act;
    (2) States the specific reasons for the reconsidered determination; 
and
    (3) Informs the party of its right to a hearing if it is 
dissatisfied with the determination.

[60 FR 46234, Sept. 6, 1995]



Sec. 417.658  Effect of reconsidered determination.

    A reconsidered determination is final and binding on all parties 
unless a request for a hearing is filed in accordance with Sec. 417.662 
or it is revised in accordance with Sec. 417.692.



Sec. 417.660  Right to a hearing.

    The following parties are entitled to a hearing:
    (a) An entity that has been determined in a reconsidered 
determination

[[Page 615]]

to be unqualified to enter into a contract with HCFA under section 1876 
of the Act.
    (b) An HMO or CMP that has been determined in a reconsidered 
determination to be qualified only for a reasonable cost contract.
    (c) An HMO or CMP whose contract with HCFA has been terminated or 
has not been renewed as a result of an initial determination as provided 
in Sec. 417.640(c).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993]



Sec. 417.662  Request for hearing.

    (a) Method and place for filing a request. A request for a hearing 
must be made in writing and filed by an authorized official of the 
entity or HMO or CMP that was the party to the determination under 
appeal. The request for a hearing must be filed with any HCFA office.
    (b) Time for filing a request. Except as provided in paragraph (c) 
of this section, a request for a hearing must be filed within 60 days 
after the date of receipt of the notice of initial or reconsidered 
determination.
    (c) Extension of time to file a request. If good cause is shown, the 
60-day period to request a hearing may be extended by HCFA.
    (d) Parties to a hearing. The parties to a hearing must be--
    (1) The parties described in Sec. 417.660;
    (2) At the discretion of the hearing officer, any interested parties 
who make a showing that their rights may be prejudiced by the decision 
to be rendered at the hearing; and
    (3) HCFA.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993]



Sec. 417.664  Postponement of effective date of initial determination.

    When a request for a hearing with respect to an initial 
determination is filed timely--
    (a) The effective date of the initial determination to terminate a 
contract with an HMO or CMP will be postponed until a hearing decision 
is reached; and
    (b) The current contract will be extended at the end of the contract 
period (in the case of a determination not to renew) only--
    (1) If HCFA finds that an extension of the contract will be 
consistent with the purpose of section 1876 of the Act; and
    (2) For such period as HCFA and the HMO or CMP agree.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993]



Sec. 417.666  Designation of hearing officer.

    HCFA designates a hearing officer to conduct the hearing. The 
hearing officer need not be an ALJ.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.668  Disqualification of hearing officer.

    (a) A hearing officer may not conduct a hearing in a case in which 
he or she is prejudiced or partial to any party or has any interest in 
the matter pending for decision.
    (b) A party to the hearing who objects to the designated hearing 
officer must notify that officer in writing at the earliest opportunity.
    (c) The hearing officer must consider the objections, and may, at 
his or her discretion, either proceed with the hearing or withdraw.
    (1) If the hearing officer withdraws, HCFA designates another 
hearing officer to conduct the hearing.
    (2) If the hearing officer does not withdraw, the objecting party 
may, after the hearing, present objections and request that the 
officer's decision be revised or a new hearing be held before another 
hearing officer. The objections must be submitted to HCFA.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.670  Time and place of hearing.

    (a) The hearing officer fixes a time and place for the hearing and 
sends written notice to the parties. The notice also informs the parties 
of the general and specific issues to be resolved and information about 
the hearing procedure.
    (b) The hearing officer may, on his or her own motion, or at the 
request of a party, change the time and place for the hearing. The 
hearing officer may adjourn or postpone the hearing.

[[Page 616]]

    (c) The hearing officer will give the parties reasonable notice of 
any change in the time or place of hearing, or of adjournment or 
postponement.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38081, July 15, 1993; 60 
FR 46234, Sept. 6, 1995]



Sec. 417.672  Appointment of representatives.

    A party may appoint as its representative at the hearing anyone not 
disqualified or suspended from acting as a representative before HCFA or 
otherwise prohibited by law.



Sec. 417.674  Authority of representatives.

    (a) A representative appointed and qualified in accordance with 
Sec. 417.672 may, on behalf of the represented party--
    (1) Give or accept any notice or request pertinent to the 
proceedings set forth in this subpart;
    (2) Present evidence and allegations as to facts and law in any 
proceedings affecting that party; and
    (3) Obtain information to the same extent as the party.
    (b) A notice or request sent to the representative has the same 
force and effect as if it had been sent to the party.



Sec. 417.676  Conduct of hearing.

    (a) The hearing is open to the parties and to the public.
    (b) The hearing officer inquires fully into all the matters at issue 
and receives in evidence the testimony of witnesses and any documents 
that are relevant and material.
    (c) The hearing officer provides the parties an opportunity to enter 
any objection to the inclusion of any document.
    (d) The hearing officer decides the order in which the evidence and 
the arguments of the parties are presented and the conduct of the 
hearing.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.678  Evidence.

    The hearing officer rules on the admissibility of evidence and may 
admit evidence that would be inadmissible under rules applicable to 
court procedures.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.680  Witnesses.

    (a) The hearing officer may examine the witnesses.
    (b) The parties or their representatives are permitted to examine 
their witnesses and cross-examine witnesses of other parties.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.682  Discovery.

    (a) Prehearing discovery is permitted upon timely request of a 
party.
    (b) A request is timely if it is made before the beginning of the 
hearing.
    (c) A reasonable time for inspection and reproduction of documents 
is provided by order of the hearing officer.
    (d) The hearing officer's order on all discovery matters is final.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.684  Prehearing.

    The hearing officer may schedule a prehearing conference if he or 
she believes that a conference would more clearly define the issues.



Sec. 417.686  Record of hearing.

    (a) A complete record of the proceedings at the hearing is made and 
transcribed and made available to all parties upon request.
    (b) The record may not be closed until a hearing decision has been 
issued.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.688  Authority of hearing officer.

    In exercising his or her authority, the hearing officer must comply 
with the provisions of title XVIII and related provisions of the Act, 
the regulations issued by HCFA, and general instructions issued by HCFA 
in implementing that Act.

[[Page 617]]



Sec. 417.690  Notice and effect of hearing decision.

    (a) As soon as practical after the close of the hearing, the hearing 
officer issues a written decision that--
    (1) Is based upon the evidence of record; and
    (2) Contains separately numbered findings of fact and conclusions of 
law.
    (b) The hearing officer provides a copy of the hearing decision to 
each party.
    (c) The hearing decision is final and binding unless it is reopened 
and revised in accordance with Sec. 417.692.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.692  Reopening of initial or reconsidered determination or decision of a hearing officer.

    (a) Initial or reconsidered determination. An initial or 
reconsidered determination may be reopened and revised by HCFA upon its 
own motion within one year of the date of the notice of determination.
    (b) Decision of hearing officer. A decision of a hearing officer 
that is unfavorable to any party and is otherwise final may be reopened 
and revised by the hearing officer upon the officer's own motion within 
one year of the notice of the hearing decision. It may be reopened and 
revised by another hearing officer designated by HCFA if the hearing 
officer who issued the decision is unavailable.
    (c) Notices. (1) The notice of reopening and of any revisions 
following the reopening is mailed to the parties.
    (2) The notice of revision specifies the reasons for revisions.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.694  Effect of revised determination.

    The revision of an initial or reconsidered determination is binding 
unless a party files a written request for hearing of the revised 
determination in accordance with Sec. 417.662.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



                        Subparts S-T--[Reserved]



                 Subpart U--Health Care Prepayment Plans

    Source: 50 FR 1375, Jan. 10, 1985, unless otherwise noted.



Sec. 417.800  Payment to HCPPs: Definitions and basic rules.

    (a) Definitions. As used in this subpart, unless the context 
indicates otherwise--
    Covered Part B services means physicians' services, diagnostic X-ray 
tests, laboratory, other diagnostic tests, and any additional medical 
and other health services, that the HCPP furnishes to its Medicare 
enrollees.
    Health care prepayment plan (HCPP) means an organization that meets 
the following conditions:
    (1) Effective January 1, 1999, (or on the effective date of the HCPP 
agreement in the case of a 1998 applicant) either--
    (A) Is union or employer sponsored; or
    (B) Does not provide, or arrange for the provision of, any inpatient 
hospital services.
    (2) Is responsible for the organization, financing, and delivery of 
covered Part B services to a defined population on a prepayment basis.
    (3) Meets the conditions specified in paragraph (b) of this section.
    (4) Elects to be reimbursed on a reasonable cost basis.
    Medicare enrollee means a beneficiary under Part B of Medicare who 
has been identified on HCFA records as an enrollee of the HCPP. 
Reporting period means the period specified by HCFA for which an HCPP 
must report its costs and utilization.
    (b) Qualifying conditions. (1) Except as provided in paragraph 
(b)(2) of this section, an organization wishing to participate as an 
HCPP must--
    (i) Enter into a written agreement with HCFA as specified in 
Sec. 417.801;
    (ii) Furnish physicians' services through its employees or under a 
formal arrangement with a medical group, independent practice 
association or individual physicians; and

[[Page 618]]

    (iii) Furnish covered Part B services to its Medicare enrollees 
through institutions, entities, and persons that have qualified under 
the applicable requirements of title XVIII of the Social Security Act 
and section 353 of the PHS Act.
    (2) An organization that, as of January 31, 1983, was being 
reimbursed on a reasonable cost basis under section 1833(a)(1)(A) of the 
Act, and that would not otherwise meet the conditions specified in 
paragraph (b)(1) of this section, may receive reimbursement on a 
reasonable cost basis as an HCPP, provided it files an agreement with 
HCFA as required by Sec. 417.801.
    (c) Payment of reasonable cost. (1) Except as otherwise provided in 
this subpart, HCFA pays an HCPP on the basis of the reasonable cost it 
incurs, as specified in subpart O of this part, for the covered Part B 
services furnished to its Medicare enrollees.
    (2) Payment for Part B services: Basic rules. (i) Cost basis 
payment. Except as provided in paragraph (d) of this section, HCFA pays 
an HCPP on the basis of the reasonable costs it incurs, as specified in 
subpart O of this part, for the covered Part B services furnished to its 
Medicare enrollees.
    (ii) Deductions. In determining the amount due an HCPP for covered 
Part B services furnished to its Medicare enrollees, HCFA deducts, from 
the reasonable cost actually incurred by the HCPP, the following:
    (A) The actuarial value of the Part B deductible.
    (B) An amount equal to 20 percent of the cost incurred for any 
service that is subject to the Medicare coinsurance.
    (d) Covered services not reimbursed to an HCPP. (1) Services 
reimbursed under Part A are not reimbursable to an HCPP. HCFA makes 
payment for these services directly to the hospital, or other provider 
of services, on a reasonable cost basis through the provider's Medicare 
fiscal intermediary (for more details, see parts 412 and 413 of this 
chapter).
    (2) Covered Part B services furnished by a provider of services to 
an HCPP's Medicare enrollees are not payable to the HCPP. HCFA makes 
payment for these services to the provider on behalf of the Medicare 
enrollee through the provider's Medicare fiscal intermediary. This 
requirement does not affect Medicare payment to the HCPP for physicians' 
services furnished to its Medicare enrollees for which the physicians 
are compensated by the HCPP.
    (e) Payment for services to nonenrollees. HCFA makes payment to an 
HCPP for covered Part B services furnished by the HCPP to a Medicare 
beneficiary who is not enrolled in the HCPP if the beneficiary assigns 
his rights to payment in accordance with Sec. 424.55 of this chapter. 
Payment is made on a reasonable charge basis through the HCPP's Medicare 
carrier.

[50 FR 1346, Jan. 10, 1985, as amended at 51 FR 34833, Sept. 30, 1986; 
53 FR 6648, Mar. 2, 1988; 57 FR 7135, Feb. 28, 1992; 58 FR 38081, July 
15, 1993; 60 FR 34888, July 5, 1995; 63 FR 35067, June 26, 1998; 63 FR 
52611, Oct. 1, 1998]



Sec. 417.801  Agreements between HCFA and health care prepayment plans.

    (a) General requirement. (1) In order to participate and receive 
payment under the Medicare program as an HCPP as defined in 
Sec. 417.800, an organization must enter into a written agreement with 
HCFA.
    (2) An existing group practice prepayment plan (GPPP) that continues 
as an HCPP under this subpart U must have entered into a written 
agreement with HCFA within 60 days of January 31, 1983.
    (b) Terms. The agreement must provide that the HCPP agrees to--
    (1) Maintain compliance with the requirements for participation and 
reimbursement on a reasonable cost basis of HCPPs as specified in 
Sec. 417.800;
    (2) Not charge the Medicare enrollee or any other person for items 
or services for which that enrollee is entitled to have payment made 
under the provisions of this part, except for any deductible or 
coinsurance amounts for which the enrollee is liable;
    (3) Refund, as promptly as possible, any money incorrectly collected 
as charges or premiums, or in any other way from Medicare enrollees in 
the HCPP in accordance with the requirements specified in Sec. 417.456;
    (4) Not impose any limitations on the acceptance of Medicare 
enrollees or beneficiaries for care and treatment

[[Page 619]]

that it does not impose on all other individuals;
    (5) Meet the advance directives requirements specified in 
Sec. 417.436(d) of this part;
    (6) Establish administrative review procedures in accordance with 
Secs. 417.830 through 417.840 for Medicare enrollees who are 
dissatisfied with denied services or claims; and
    (7) Consider any additional requirements that HCFA finds necessary 
or desirable for efficient and effective program administration.
    (c) Duration of agreement. Except for the term of the initial 
agreement, the agreement is for a term of one year and may be renewed 
annually by mutual consent. The term of the initial agreement is set by 
HCFA.
    (d) Termination or nonrenewal of agreement by HCFA. (1) HCFA may 
terminate or not renew an agreement if it determines that--
    (i) The HCPP no longer meets the requirements for participation and 
reimbursement as an HCPP as specified in Sec. 417.800;
    (ii) The HCPP is not in substantial compliance with the provisions 
of the agreement, applicable HCFA regulations, or applicable provisions 
of the Medicare law; or
    (iii) The HCPP undergoes a change in ownership as specified in 
subpart M of this part.
    (2) HCFA will give notice of termination or nonrenewal to the HCPP 
at least 90 days before the effective date stated in the notice.
    (e) Termination or nonrenewal of agreement by HCPP. (1) If an HCPP 
does not wish to renew its agreement at the end of the term, it must 
give written notice to HCFA at least 90 days before the end of the term 
of the agreement. If an HCPP wishes to terminate its agreement before 
the end of the term, it must file a written notice with HCFA stating the 
intended effective date of termination.
    (2) HCFA may approve the termination date proposed by the HCPP, or 
set a different date no later than 6 months after that date. HCFA makes 
this decision based on a finding that termination on a specific date 
would not--
    (i) Unduly disrupt the furnishing of services to the community 
serviced by the HCPP; or
    (ii) Otherwise interfere with the efficient administration of the 
Medicare program.

[50 FR 1375, Jan. 10, 1985, as amended at 57 FR 8202, Mar. 6, 1992; 58 
FR 38081, July 15, 1993; 59 FR 49843, Sept. 30, 1994; 59 FR 59943, Nov. 
21, 1994]



Sec. 417.802  Allowable costs.

    (a) General rule. The costs that are considered allowable for HCPP 
reimbursement are the same as those for reasonable cost HMOs and CMPs 
specified in subpart O of this part, except those in Secs. 417.531, 
417.532 (a)(3) and (c) through (g), 417.536 (l) and (m), 417.546, 
417.548, and 417.550(b)(2).
    (b) Physicians' services and other Part B supplier services 
furnished under arrangements--(1) Principle. The amount paid by an HCPP 
for physicians' services and other Part B supplier services furnished 
under arrangements is an allowable cost to the extent it is reasonable.
    (2) Application: Payment on other than a fee-for-service basis. If 
the HCPP pays for physicians' services and other Part B supplier 
services on other than a fee-for-service basis--
    (i) Except as specified in paragraph (b)(2)(ii) of this section, the 
costs incurred by the HCPP may be considered reasonable if they--
    (A) Do not exceed those that a prudent and cost-conscious buyer 
would incur to purchase those services; and
    (B) Are comparable to costs incurred for similar services furnished 
by similar physicians and other suppliers in the same or a similar 
locality.
    (ii)(A) If a physician group to whom the HCPP makes payment 
compensates its physicians on a fee-for-service basis, the HCPP's 
payment to the group may not exceed the reasonable charges for those 
services, as defined in subpart E of part 405 of this chapter.
    (B) Payment in excess of the limits specified in paragraph 
(b)(2)(ii)(A) of this section is allowable if the group has procedures 
under which members of the group accept effective incentives, such as 
risk-sharing, designed to avoid unnecessary or unduly costly utilization 
of health services. In such

[[Page 620]]

cases, the amount paid by the HCPP is considered reasonable if it meets 
the conditions specified in paragraph (b)(2)(i) of this section.
    (3) Application: Payment on a fee-for-service basis. If the HCPP 
pays for physicians' services and other Part B supplier services on a 
fee-for-service basis--
    (i) Except as specified in paragraph (b)(3)(ii) of this section, the 
costs incurred by the HCPP are considered reasonable if they do not 
exceed--
    (A) The reasonable charges for those services, as defined in subpart 
E of part 405 of this chapter; and
    (B) The amount that HCFA would pay for those services if they were 
furnished to beneficiaries who are not enrolled in the HCPP and who 
receive the services from sources other than providers of services or 
other entities that are reimbursed on a reasonable cost basis.
    (ii) Payment to a physician group organized on an individual-
practice basis is not subject to the paragraph (b)(3)(i) of this section 
if the group pays its physicians on a fee-for-service basis and has 
procedures under which the members of the group accept effective 
incentives, such as risk-sharing, designed to avoid unnecessary or 
unduly costly utilization of health services. In these cases, the amount 
paid by an HCPP is considered reasonable if it meets the conditions 
specified in paragraph (b)(2)(i) of this section.

[50 FR 1375, Jan. 10, 1985, as amended at 58 FR 38081, July 15, 1993]



Sec. 417.804  Cost apportionment.

    (a) The HCPP follows the cost apportionment principles specified in 
Secs. 417.552 through 417.566, except for provisions on provider costs 
and provisions on departmental apportionment.
    (b) The HCPP may use a method for reporting costs that is approved 
by HCFA. HCFA bases its approval on a finding that the method--
    (1) Results in an accurate and equitable allocation of allowable 
costs; and
    (2) Is justifiable from an administrative and cost efficiency 
standpoint.



Sec. 417.806  Financial records, statistical data, and cost finding.

    (a) The principles specified in Sec. 417.568 apply to HCPPs, except 
those in paragraph (c) of that section.
    (b) The HCPP may use a method for reporting costs that is approved 
by HCFA. HCFA bases its approval on a finding that the method--
    (1) Results in an accurate and equitable allocation of allowable 
costs; and
    (2) Is justifiable from an administrative and cost efficiency 
standpoint.
    (c) An HCPP must permit the Department and the Comptroller General 
to audit or inspect any books and records of the HCPP and of any related 
organization that pertain to the determination of amounts payable for 
covered Part B services furnished its Medicare enrollees. For purposes 
of this requirement, the principles specified in Sec. 417.486 apply to 
HCPPs.

[50 FR 1375, Jan. 10, 1985, as amended at 58 FR 38081, July 15, 1993]



Sec. 417.808  Interim per capita payments.

    The HCPP follows the principles specified in Secs. 417.570 and 
417.572 on interim per capita payments, except for the following:
    (a) When applying these principles to HCPPs, the term ``reporting 
period'' should be used instead of the term ``contract period'' 
contained in that section.
    (b) An HCPP must submit to HCFA an annual operating budget and 
enrollment forecast, in the form and detail specified by HCFA, at least 
60 days before the beginning of each reporting period. A reporting 
period must be 12 consecutive months, except that the HCPP's initial 
reporting period for participating in Medicare may be as short as 6 
months or as long as 18 months.
    (c) An HCPP must submit to HCFA an interim cost report and 
enrollment data applicable to the first 6-month period of the HCPP's 
reporting period in the form and detail specified by HCFA. The interim 
cost report must be submitted not later than 45 days after the close of 
the first 6-month period of the HCPP's reporting period.
    (d) In lieu of an interim payment based on the actual monthly 
enrollment in an HCPP, HCFA and the HCPP

[[Page 621]]

may agree to a uniform monthly interim reimbursement rate for a 
reporting period. This interim rate is based on the HCPP's budget and 
enrollment forecast, if HCFA is satisfied that the rate is consistent 
with efficiency and economy, and will not result in excessive adjustment 
at the end of the reporting period.



Sec. 417.810  Final settlement.

    (a) General requirement. HCFA and an HCPP must make a final 
settlement, and payment of amounts due either to the HCPP or to HCFA, 
following the submission and review of the HCPP's annual cost report and 
the supporting documents specified in paragraph (b) of this section.
    (b) Annual cost report as basis for final settlement--(1) Form and 
due date. An HCPP must submit to HCFA a cost report and supporting 
documents in the form and detail specified by HCFA, no later than 120 
days following the close of a reporting period.
    (2) Contents. The report must include--
    (i) The HCPP's per capita incurred costs of providing covered Part B 
services to its Medicare enrollees during the reporting period, 
including any costs incurred by another organization related to the HCPP 
by common ownership or control;
    (ii) The HCPP's methods of apportioning costs among its Medicare 
enrollees, enrollees who are not Medicare beneficiaries, and other 
nonenrollees, including Medicare beneficiaries receiving health care 
services on a fee-for-service or other basis; and
    (iii) Information on enrollment and other data as specified by HCFA.
    (3) Extension of time to submit cost report. HCFA may grant an HCPP 
an extension of time to submit a cost report for good cause shown.
    (4) Failure to report required financial information. If an HCPP 
does not submit the required cost report and supporting documents within 
the time specified in paragraph (b)(1) of this section, and has not 
requested and received an extension of time for good cause shown, HCFA 
may--
    (i) Regard the failure to report this information as evidence of 
likely overpayment and reduce or suspend interim payments to the HCPP; 
and
    (ii) Determine that amounts previously paid are overpayments, and 
make appropriate recovery.
    (c) Determination of final settlement. Following the HCPP's 
submission of the reports specified in paragraph (b) of this section in 
acceptable form, HCFA makes a determination of the total reimbursement 
due the HCPP for the reporting period and the difference, if any, 
between this amount and the total interim payments made to the HCPP. 
HCFA sends to the HCPP a notice of the amount of reimbursement by the 
Medicare program. This notice--
    (1) Explains HCFA's determination of total reimbursement due the 
HCPP for the reporting period; and
    (2) Informs the HCPP of its right to have the determination reviewed 
at a hearing as provided in part 405, subpart R of this chapter.
    (d) Payment of amounts due. (1) Within 30 days of HCFA's 
determination, HCFA or the HCPP, as appropriate, will make payment of 
any difference between the total amount due and the total interim 
payments made to the HCPP by HCFA.
    (2) If the HCPP does not pay HCFA within 30 days of HCFA's 
determination of any amounts the HCPP owes HCFA, HCFA may offset further 
payments to the HCPP to recover, or to aid in the recovery of, any 
overpayment identified in its determination.
    (3) Any offset of payments HCFA makes under paragraph (d)(2) of this 
section will remain in effect even if the HCPP has requested a hearing 
on the determination under the provisions of part 405, subpart R of this 
chapter.
    (e) Tentative settlement. (1) If a final settlement cannot be made 
within 90 days after the HCPP submits the report specified in paragraph 
(b) of this section, HCFA will make an interim settlement by estimating 
the amount payable to the HCPP.
    (2) HCFA or the HCPP will make payment within 30 days of HCFA's 
determination under the tentative settlement of any estimated amounts 
due.

[[Page 622]]

    (3) The tentative settlement is subject to adjustment at the time of 
a final settlement.

[50 FR 1375, Jan. 10, 1985, as amended at 58 FR 38081, July 15, 1993]



Sec. 417.830  Scope of regulations on beneficiary appeals.

    Sections 417.832 through 417.840 establish procedures for the 
presentation and resolution of organization determinations, 
reconsiderations, hearings, Departmental Appeals Board review, court 
reviews, and finality of decisions that are applicable to Medicare 
enrollees of an HCPP.

[59 FR 59943, Nov. 21, 1994, as amended at 61 FR 32348, June 24, 1996]



Sec. 417.832  Applicability of requirements and procedures.

    (a) The administrative review rights and procedures specified in 
Secs. 417.834 through 417.840 pertain to disputes involving an 
organization determination, as defined in Sec. 417.838, with which the 
enrollee is dissatisfied.
    (b) Physicians and other individuals who furnish items or services 
under arrangements with an HCPP have no right of administrative review 
under Secs. 417.834 through 417.840.
    (c) The provisions of subpart R of 20 CFR part 404 dealing with 
representation of parties under title II of the Act are, unless 
otherwise provided, also applicable.

[59 FR 59943, Nov. 21, 1994]



Sec. 417.834  Responsibility for establishing administrative review procedures.

    The HCPP is responsible for establishing and maintaining the 
administrative review procedures that are specified in Secs. 417.830 
through 417.840.

[59 FR 59943, Nov. 21, 1994]



Sec. 417.836  Written description of administrative review procedures.

    Each HCPP is responsible for ensuring that all Medicare enrollees 
are informed in writing of the administrative review procedures that are 
available to them.

[59 FR 59943, Nov. 21, 1994]



Sec. 417.838  Organization determinations.

    (a) Actions that are organization determinations. For purposes of 
Secs. 417.830 through 417.840, an organization determination is a 
refusal to furnish or arrange for services, or reimburse the party for 
services provided to the beneficiary, on the grounds that the services 
are not covered by Medicare.
    (b) Actions that are not organization determinations. The following 
are not organization determinations for purposes of Secs. 417.830 
through 417.840:
    (1) A determination regarding services that were furnished by the 
HCPP, either directly or under arrangement, for which the enrollee has 
no further obligation for payment.
    (2) A determination regarding services that are not covered under 
the HCPP's agreement with HCFA.

[59 FR 59943, Nov. 21, 1994]



Sec. 417.840  Administrative review procedures.

    The HCPP must apply Secs. 417.608 through 417.638 to organization 
determinations that affect its Medicare enrollees, and to 
reconsideration, hearings, Departmental Appeals Board review, and 
judicial review of those organization determinations.

[59 FR 59943, Nov. 21, 1994, as amended at 61 FR 32348, June 24, 1996]



   Subpart V--Administration of Outstanding Loans and Loan Guarantees



Sec. 417.910  Applicability.

    The regulations in this subpart apply, as appropriate, to public and 
private entities that have loans or loan guarantees that--
    (a) Were awarded to them before October 1986 under section 1304 or 
section 1305 of the PHS Act; and
    (b) Are still outstanding.

[59 FR 49842, Sept. 30, 1994]



Sec. 417.911  Definitions.

    As used in this subpart--
    Any 12-month period means the 12-month period beginning on the first 
day of any month.

[[Page 623]]

    Expansion of services means--(1) The addition of any health service 
not previously provided by or through the HMO, that requires an increase 
in the facilities, equipment, or health professionals of the HMO; or
    (2) The improvement or upgrading of existing facilities or 
equipment, or an increase in the number of categories of health 
professionals, of the HMO so that the HMO could provide directly 
services that it previously provided through contract or referral or 
which it could not previously provide with its existing facilities or 
equipment.
    First 60 months of operation or expansion means the 60-month period 
beginning on the first day of the month during which the HMO first 
provided services to enrollees, or in the case of significant expansion, 
first provided services in accordance with its expansion plan.
    Health system agency means an entity that has been designated in 
accordance with section 1515 of the PHS Act; and the term State health 
planning and development agency means an agency that has been designated 
in accordance with section 1521 of the PHS Act.
    Initial costs of operation means any cost incurred in the first 60 
months of an operation or expansion that met any of the following 
requirements:
    (1) Under generally accepted accounting principles or under 
accounting practices prescribed or permitted by State regulatory 
authority, was not a capital cost.
    (2) Was required by State regulatory authority to meet reserves or 
tangible net equity requirements.
    (3) Was for a payment made to reduce balance sheet liabilities 
existing at the beginning of the 60-month period, but only if--(i) The 
payment had been approved in writing by the Secretary; and
    (ii) The total of these payments did not exceed 20 percent of the 
amount of the loan.
    (4) Was for a small capital expenditure, but only if--(i) The cost 
had been approved in writing by the Secretary; and
    (ii) The total of these costs did not exceed $200,000 in any 12-
month period, and $400,000 during the first 60 months of operation or 
expansion.
    Nonprofit as applied to a private entity, means a private agency, 
institution, or organization, no part of the net earnings of which 
inures, or may lawfully inure, to the benefit of any private shareholder 
or individual.
    Significant expansion means--(1) A planned substantial increase in 
the enrollment of the HMO, that requires an increase in the number of 
health professionals serving enrollees of the HMO or an expansion of the 
physical capacity of the HMO's total health facilities; or
    (2) A planned expansion of the service area beyond the current 
service area, that would be made possible by the addition of health 
service delivery facilities and health professionals to serve enrollees 
at a new site or sites in areas previously without service sites.
    Small capital expenditure means expenditures for--(1) Equipment as 
defined in 45 CFR 74.132; or
    (2) Alterations and renovations required to change the interior 
arrangements or other physical characteristics of an existing facility 
or installed equipment, so that it may be more effectively used for its 
currently designated purpose, or adapted to a changed use.

[58 FR 38076, July 15, 1993, as amended at 59 FR 49842, Sept. 30, 1994]



Sec. 417.920  Planning and initial development.

    (a) Under section 1304 of the PHS Act, grants and loan guarantees 
were awarded for projects for planning and initial development of HMOs.
    (b) Planning projects included projects for any of the following:
    (1) Establishment of an HMO.
    (2) Significant expansion of the HMO's enrollment or geographic 
area.
    (c) Initial development projects included projects for any of the 
following:
    (1) Establishment of an HMO.
    (2) Significant expansion of the HMO's enrollment or geographic 
area.
    (3) Expansion of the range or amount of services furnished by the 
HMO.

[58 FR 38076, July 15, 1993]

[[Page 624]]



Sec. 417.930  Initial costs of operation.

    Under section 1305 of the PHS, loans and loan guarantees were 
awarded for initial costs of operation of HMOs.

[58 FR 38077, July 15, 1993]



Sec. 417.931  [Reserved]



Sec. 417.934  Reserve requirement.

    (a) Timing. Unless the Secretary approved a longer period, an entity 
that received a loan or loan guarantee under section 1305 of the PHS Act 
was required to establish a restricted reserve account on the earlier of 
the following:
    (1) When the HMO's revenues and costs of operation reached the 
break-even point.
    (2) At the end of the 60-month period following the Secretary's 
endorsement of the loan or loan guarantee.
    (b) Purpose and amount of reserve. The reserve had to be constituted 
so as to accumulate, no later than 12 years after endorsement of the 
loan or loan guarantee, an amount equal to 1 year's principal and 
interest.

[59 FR 49842, Sept. 30, 1994]



Sec. 417.937  Loan and loan guarantee provisions.

    (a) Disbursement of loan proceeds. The principal amount of any loan 
made or guaranteed by the Secretary under this subpart was disbursed to 
the entity in accordance with an agreement entered into between the 
parties to the loan and approved by the Secretary.
    (b) Length and maturity of loans. The principal amount of each loan 
or loan guarantee, together with interest thereon, is repayable over a 
period of 22 years, beginning on the date of endorsement of the loan, or 
loan guarantee by the Secretary. The Secretary could approve a shorter 
repayment period if he or she determined that a repayment period of less 
than 22 years is more appropriate to an entity's total financial plan.
    (c) Repayment. The principal amount of each loan or loan guarantee, 
together with interest thereon is repayable in accordance with a 
repayment schedule that is agreed upon by the parties to the loan or 
loan guarantee and approved by the Secretary before or at the time of 
endorsement of the loan. Unless otherwise specifically authorized by the 
Secretary, each loan made or guaranteed by the Secretary is repayable in 
substantially level combined installments of principal and interest to 
be paid at intervals not less frequently than annually, sufficient in 
amount to amortize the loan through the final year of the life of the 
loan. Principal repayment during the first 60 months of operation could 
be deferred with payment of interest only during that period. The 
Secretary could set rates of interest for each disbursement at a rate 
comparable to the rate of interest prevailing on the date of 
disbursement for marketable obligations of the United States of 
comparable maturities, adjusted to provide for appropriate 
administrative charges.

[59 FR 49842, Sept. 30, 1994]



Sec. 417.940  Civil action to enforce compliance with assurances.

    The provisions of Sec. 417.163(g) apply to entities that have 
outstanding loans or loan guarantees administered under this subpart.

[59 FR 49843, Sept. 30, 1994]



PART 418--HOSPICE CARE--Table of Contents




              Subpart A--General Provision and Definitions

Sec.
418.1  Statutory basis.
418.2  Scope of part.
418.3  Definitions.

        Subpart B--Eligibility, Election and Duration of Benefits

418.20  Eligibility requirements.
418.21  Duration of hospice care coverage--Election periods.
418.22  Certification of terminal illness.
418.24  Election of hospice care.
418.28  Revoking the election of hospice care.
418.30  Change of the designated hospice.

     Subpart C--Conditions of Participation--General Provisions and 
                             Administration

418.50  Condition of participation--General provisions.
418.52  Condition of participation--Governing body.
418.54  Condition of participation--Medical director.
418.56  Condition of participation--Professional management.

[[Page 625]]

418.58  Condition of participation--Plan of care.
418.60  Condition of participation--Continuation of care.
418.62  Condition of participation--Informed consent.
418.64  Condition of participation--Inservice training.
418.66  Condition of participation--Quality assurance.
418.68  Condition of participation--Interdisciplinary group.
418.70  Condition of participation--Volunteers.
418.72  Condition of participation--Licensure.
418.74  Condition of participation--Central clinical records.

          Subpart D--Conditions of Participation: Core Services

418.80  Condition of participation--Furnishing of core services.
418.82  Condition of participation--Nursing services.
418.83  Nursing services--Waiver of requirement that substantially all 
          nursing services be routinely provided directly by a hospice.
418.84  Condition of participation--Medical social services.
418.86  Condition of participation--Physician services.
418.88  Condition of participation--Counseling services.

         Subpart E--Conditions of Participation: Other Services

418.90  Condition of participation--Furnishing of other services.
418.92  Condition of participation--Physical therapy, occupational 
          therapy, and speech-language pathology.
418.94  Condition of participation--Home health aide and homemaker 
          services.
418.96  Condition of participation--Medical supplies.
418.98  Condition of participation--Short term inpatient care.
418.100  Condition of participation--Hospices that provide inpatient 
          care directly.

                       Subpart F--Covered Services

418.200  Requirements for coverage.
418.202  Covered services.
418.204  Special coverage requirements.

                   Subpart G--Payment for Hospice Care

418.301  Basic rules.
418.302  Payment procedures for hospice care.
418.304  Payment for physician services.
418.306  Determination of payment rates.
418.307  Periodic interim payments.
418.308  Limitation on the amount of hospice payments.
418.309  Hospice cap amount.
418.310  Reporting and recordkeeping requirements.
418.311  Administrative appeals.

                         Subpart H--Coinsurance

418.400  Individual liability for coinsurance for hospice care.
418.402  Individual liability for services that are not considered 
          hospice care.
418.405  Effect of coinsurance liability on Medicare payment.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 48 FR 56026, Dec. 16, 1983, unless otherwise noted.



              Subpart A--General Provision and Definitions



Sec. 418.1  Statutory basis.

    This part implements section 1861(dd) of the Social Security Act. 
Section 1861(dd) specifies services covered as hospice care and the 
conditions that a hospice program must meet in order to participate in 
the Medicare program. The following sections of the Act are also 
pertinent:
    (a) Sections 1812(a) (4) and (d) of the Act specify eligibility 
requirements for the individual and the benefit periods.
    (b) Section 1813(a)(4) of the Act specifies coinsurance amounts.
    (c) Sections 1814(a)(7) and 1814(i) of the Act contain conditions 
and limitations on coverage of, and payment for, hospice care.
    (d) Sections 1862(a) (1), (6) and (9) of the Act establish limits on 
hospice coverage.

[48 FR 56026, Dec. 16, 1983, as amended at 57 FR 36017, Aug. 12, 1992]



Sec. 418.2  Scope of part.

    Subpart A of this part sets forth the statutory basis and scope and 
defines terms used in this part. Subpart B specifies the eligibility 
requirements and the benefit periods. Subpart C specifies conditions of 
participation for hospices. Subpart D describes the covered services and 
specifies the limits on services covered as hospice care. Subpart E 
specifies the reimbursement methods and procedures. Subpart F

[[Page 626]]

specifies coinsurance amounts applicable to hospice care.



Sec. 418.3  Definitions.

    For purposes of this part--
    Attending physician means a physician who--
    (a) Is a doctor of medicine or osteopathy; and
    (b) Is identified by the individual, at the time he or she elects to 
receive hospice care, as having the most significant role in the 
determination and delivery of the individual's medical care.
    Bereavement counseling means counseling services provided to the 
individual's family after the individual's death.
    Cap period means the twelve-month period ending October 31 used in 
the application of the cap on overall hospice reimbursement specified in 
Sec. 418.309.
    Employee means an employee (defined by section 210(j) of the Act) of 
the hospice or, if the hospice is a subdivision of an agency or 
organization, an employee of the agency or organization who is 
appropriately trained and assigned to the hospice unit. ``Employee'' 
also refers to a volunteer under the jurisdiction of the hospice.
    Hospice means a public agency or private organization or subdivision 
of either of these that--is primarily engaged in providing care to 
terminally ill individuals.
    Physician means physician as defined in Sec. 410.20 of this chapter.
    Representative means an individual who has been authorized under 
State law to terminate medical care or to elect or revoke the election 
of hospice care on behalf of a terminally ill individual who is mentally 
or physically incapacitated.
    Social worker means a person who has at least a bachelor's degree 
from a school accredited or approved by the Council on Social Work 
Education.
    Terminally ill means that the individual has a medical prognosis 
that his or her life expectancy is 6 months or less if the illness runs 
its normal course.

[48 FR 56026, Dec. 16, 1983, as amended at 52 FR 4499, Feb. 12, 1987; 50 
FR 50834, Dec. 11, 1990]



        Subpart B--Eligibility, Election and Duration of Benefits



Sec. 418.20  Eligibility requirements.

    In order to be eligible to elect hospice care under Medicare, an 
individual must be--
    (a) Entitled to Part A of Medicare; and
    (b) Certified as being terminally ill in accordance with 
Sec. 418.22.



Sec. 418.21  Duration of hospice care coverage--Election periods.

    (a) Subject to the conditions set forth in this part, an individual 
may elect to receive hospice care during one or more of the following 
election periods:
    (1) An initial 90-day period.
    (2) A subsequent 90-day period.
    (3) A subsequent 30-day period.
    (4) A subsequent extension period of unlimited duration during the 
individual's lifetime.
    (b) The periods of care are available in the order listed and may be 
elected separately at different times.

[55 FR 50834, Dec. 11, 1990, as amended at 57 FR 36017, Aug. 12, 1992]



Sec. 418.22  Certification of terminal illness.

    (a) Timing of certification--(1) General rule. The hospice must 
obtain written certification of terminal illness for each of the periods 
listed in Sec. 418.21, even if a single election continues in effect for 
two, three, or four periods, as provided in Sec. 418.24(c).
    (2) Basic requirement. Except as provided in paragraph (a)(3) of 
this section, the hospice must obtain the written certification no later 
than two calendar days after the period begins.
    (3) Exception. For the initial 90-day period, if the hospice cannot 
obtain the written certifications within two calendar days, it must 
obtain oral certifications within two calendar days, and written 
certifications no later than eight calendar days after the period 
begins.
    (b) Content of certification. The certification must specify that 
the individual's prognosis is for a life expectancy of 6 months or less 
if the terminal illness runs its normal course.

[[Page 627]]

    (c) Sources of certification. (1) For the initial 90-day period, the 
hospice must obtain written certification statements (and oral 
certification statements if required under paragraph (a)(3) of this 
section) from--
    (i) The medical director of the hospice or the physician member of 
the hospice interdisciplinary group; and
    (ii) The individual's attending physician if the individual has an 
attending physician.
    (2) For subsequent periods, the only requirement is certification by 
one of the physicians listed in paragraph (c)(1)(i) of this section.
    (d) Maintenance of records. Hospice staff must--
    (1) Make an appropriate entry in the patient's medical record as 
soon as they receive an oral certification; and
    (2) File written certifications in the medical record.

[55 FR 50834, Dec. 11, 1990, as amended at 57 FR 36017, Aug. 12, 1992]



Sec. 418.24  Election of hospice care.

    (a) Filing an election statement. An individual who meets the 
eligibility requirement of Sec. 418.20 may file an election statement 
with a particular hospice. If the individual is physically or mentally 
incapacitated, his or her representative (as defined in Sec. 418.3) may 
file the election statement.
    (b) Content of election statement. The election statement must 
include the following:
    (1) Identification of the particular hospice that will provide care 
to the individual.
    (2) The individual's or representative's acknowledgement that he or 
she has been given a full understanding of the palliative rather than 
curative nature of hospice care, as it relates to the individual's 
terminal illness.
    (3) Acknowledgement that certain Medicare services, as set forth in 
paragraph (d) of this section, are waived by the election.
    (4) The effective date of the election, which may be the first day 
of hospice care or a later date, but may be no earlier than the date of 
the election statement.
    (5) The signature of the individual or representative.
    (c) Duration of election. An election to receive hospice care will 
be considered to continue through the initial election period and 
through the subsequent election periods without a break in care as long 
as the individual--
    (1) Remains in the care of a hospice; and
    (2) Does not revoke the election under the provisions of 
Sec. 418.28.
    (d) Waiver of other benefits. For the duration of an election of 
hospice care, an individual waives all rights to Medicare payments for 
the following services:
    (1) Hospice care provided by a hospice other than the hospice 
designated by the individual (unless provided under arrangements made by 
the designated hospice).
    (2) Any Medicare services that are related to the treatment of the 
terminal condition for which hospice care was elected or a related 
condition or that are equivalent to hospice care except for services--
    (i) Provided by the designated hospice:
    (ii) Provided by another hospice under arrangements made by the 
designated hospice; and
    (iii) Provided by the individual's attending physician if that 
physician is not an employee of the designated hospice or receiving 
compensation from the hospice for those services.
    (e) Re-election of hospice benefits. If an election has been revoked 
in accordance with Sec. 418.28, the individual (or his or her 
representative if the individual is mentally or physically 
incapacitated) may at any time file an election, in accordance with this 
section, for any other election period that is still available to the 
individual.

[55 FR 50834, Dec. 11, 1990]



Sec. 418.28  Revoking the election of hospice care.

    (a) An individual or representative may revoke the individual's 
election of hospice care at any time during an election period.
    (b) To revoke the election of hospice care, the individual or 
representative must file a statement with the hospice that includes the 
following information:

[[Page 628]]

    (1) A signed statement that the individual or representative revokes 
the individual's election for Medicare coverage of hospice care for the 
remainder of that election period.
    (2) The date that the revocation is to be effective. (An individual 
or representative may not designate an effective date earlier than the 
date that the revocation is made).
    (c) An individual, upon revocation of the election of Medicare 
coverage of hospice care for a particular election period--
    (1) Is no longer covered under Medicare for hospice care;
    (2) Resumes Medicare coverage of the benefits waived under 
Sec. 418.24(e)(2); and
    (3) May at any time elect to receive hospice coverage for any other 
hospice election periods that he or she is eligible to receive.



Sec. 418.30  Change of the designated hospice.

    (a) An individual or representative may change, once in each 
election period, the designation of the particular hospice from which 
hospice care will be received.
    (b) The change of the designated hospice is not a revocation of the 
election for the period in which it is made.
    (c) To change the designation of hospice programs, the individual or 
representative must file, with the hospice from which care has been 
received and with the newly designated hospice, a statement that 
includes the following information:
    (1) The name of the hospice from which the individual has received 
care and the name of the hospice from which he or she plans to receive 
care.
    (2) The date the change is to be effective.



     Subpart C--Conditions of Participation--General Provisions and 
                             Administration



Sec. 418.50  Condition of participation--General provisions.

    (a) Standard: Compliance. A hospice must maintain compliance with 
the conditions of this subpart and subparts D and E of this part.
    (b) Standard: Required services. A hospice must be primarily engaged 
in providing the care and services described in Sec. 418.202, must 
provide bereavement counseling and must--
    (1) Make nursing services, physician services, and drugs and 
biologicals routinely available on a 24-hour basis;
    (2) Make all other covered services available on a 24-hour basis to 
the extent necessary to meet the needs of individuals for care that is 
reasonable and necessary for the palliation and management of terminal 
illness and related conditions; and
    (3) Provide these services in a manner consistent with accepted 
standards of practice.
    (c) Standard: Disclosure of information. The hospice must meet the 
disclosure of information requirements at Sec. 420.206 of this chapter.

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50834, Dec. 11, 1990]



Sec. 418.52  Condition of participation--Governing body.

    A hospice must have a governing body that assumes full legal 
responsibility for determining, implementing and monitoring policies 
governing the hospice's total operation. The governing body must 
designate an individual who is responsible for the day to day management 
of the hospice program. The governing body must also ensure that all 
services provided are consistent with accepted standards of practice.



Sec. 418.54  Condition of participation--Medical director.

    The medical director must be a hospice employee who is a doctor of 
medicine or osteopathy who assumes overall responsibility for the 
medical component of the hospice's patient care program.



Sec. 418.56  Condition of participation--Professional management.

    Subject to the conditions of participation pertaining to services in 
Secs. 418.80 and 418.90, a hospice may arrange for another individual or 
entity to furnish services to the hospice's patients. If services are 
provided under arrangement, the hospice must meet the following 
standards:
    (a) Standard: Continuity of care. The hospice program assures the 
continuity

[[Page 629]]

of patient/family care in home, outpatient, and inpatient settings.
    (b) Standard: Written agreement. The hospice has a legally binding 
written agreement for the provision of arranged services. The agreement 
includes at least the following:
    (1) Identification of the services to be provided.
    (2) A stipulation that services may be provided only with the 
express authorization of the hospice.
    (3) The manner in which the contracted services are coordinated, 
supervised, and evaluated by the hospice.
    (4) The delineation of the role(s) of the hospice and the contractor 
in the admission process, patient/family assessment, and the 
interdisciplinary group care conferences.
    (5) Requirements for documenting that services are furnished in 
accordance with the agreement.
    (6) The qualifications of the personnel providing the services.
    (c) Standard: Professional management responsibility. The hospice 
retains professional management responsibility for those services and 
ensures that they are furnished in a safe and effective manner by 
persons meeting the qualifications of this part, and in accordance with 
the patient's plan of care and the other requirements of this part.
    (d) Standard: Financial responsibility. The hospice retains 
responsibility for payment for services.
    (e) Standard: Inpatient care. The hospice ensures that inpatient 
care is furnished only in a facility which meets the requirements in 
Sec. 418.98 and its arrangement for inpatient care is described in a 
legally binding written agreement that meets the requirements of 
paragraph (b) and that also specifies, at a minimum--
    (1) That the hospice furnishes to the inpatient provider a copy of 
the patient's plan of care and specifies the inpatient services to be 
furnished;
    (2) That the inpatient provider has established policies consistent 
with those of the hospice and agrees to abide by the patient care 
protocols established by the hospice for its patients;
    (3) That the medical record includes a record of all inpatient 
services and events and that a copy of the discharge summary and, if 
requested, a copy of the medical record are provided to the hospice;
    (4) The party responsible for the implementation of the provisions 
of the agreement; and
    (5) That the hospice retains responsibility for appropriate hospice 
care training of the personnel who provide the care under the agreement.

[48 FR 56026, Dec. 16, 1983; 48 FR 57282, Dec. 29, 1983]



Sec. 418.58  Condition of participation--Plan of care.

    A written plan of care must be established and maintained for each 
individual admitted to a hospice program, and the care provided to an 
individual must be in accordance with the plan.
    (a) Standard: Establishment of plan. The plan must be established by 
the attending physician, the medical director or physician designee and 
interdisciplinary group prior to providing care.
    (b) Standard: Review of plan. The plan must be reviewed and updated, 
at intervals specified in the plan, by the attending physician, the 
medical director or physician designee and interdisciplinary group. 
These reviews must be documented.
    (c) Standard: Content of plan. The plan must include an assessment 
of the individual's needs and identification of the services including 
the management of discomfort and symptom relief. It must state in detail 
the scope and frequency of services needed to meet the patient's and 
family's needs.



Sec. 418.60  Condition of participation--Continuation of care.

    A hospice may not discontinue or diminish care provided to a 
Medicare beneficiary because of the beneficiary's inability to pay for 
that care.



Sec. 418.62  Condition of participation--Informed consent.

    A hospice must demonstrate respect for an individual's rights by 
ensuring that an informed consent form that specifies the type of care 
and services that may be provided as hospice care during the course of 
the illness has been obtained for every individual, either from the 
individual or representative as defined in Sec. 418.3.

[[Page 630]]



Sec. 418.64  Condition of participation--Inservice training.

    A hospice must provide an ongoing program for the training of its 
employees.



Sec. 418.66  Condition of participation--Quality assurance.

    A hospice must conduct an ongoing, comprehensive, integrated, self-
assessment of the quality and appropriateness of care provided, 
including inpatient care, home care and care provided under 
arrangements. The findings are used by the hospice to correct identified 
problems and to revise hospice policies if necessary. Those responsible 
for the quality assurance program must--
    (a) Implement and report on activities and mechanisms for monitoring 
the quality of patient care;
    (b) Identify and resolve problems; and
    (c) Make suggestions for improving patient care.



Sec. 418.68  Condition of participation--Interdisciplinary group.

    The hospice must designate an interdisciplinary group or groups 
composed of individuals who provide or supervise the care and services 
offered by the hospice.
    (a) Standard: Composition of group. The hospice must have an 
interdisciplinary group or groups that include at least the following 
individuals who are employees of the hospice:
    (1) A doctor of medicine or osteopathy.
    (2) A registered nurse.
    (3) A social worker.
    (4) A pastoral or other counselor.
    (b) Standard: Role of group. The interdisciplinary group is 
responsible for--
    (1) Participation in the establishment of the plan of care;
    (2) Provision or supervision of hospice care and services;
    (3) Periodic review and updating of the plan of care for each 
individual receiving hospice care; and
    (4) Establishment of policies governing the day-to-day provision of 
hospice care and services.
    (c) If a hospice has more than one interdisciplinary group, it must 
designate in advance the group it chooses to execute the functions 
described in paragraph (b)(4) of this section.
    (d) Standard: Coordinator. The hospice must designate a registered 
nurse to coordinate the implementation of the plan of care for each 
patient.



Sec. 418.70  Condition of participation--Volunteers.

    The hospice in accordance with the numerical standards, specified in 
paragraph (e) of this section, uses volunteers, in defined roles, under 
the supervision of a designated hospice employee.
    (a) Standard: Training. The hospice must provide appropriate 
orientation and training that is consistent with acceptable standards of 
hospice practice.
    (b) Standard: Role. Volunteers must be used in administrative or 
direct patient care roles.
    (c) Standard: Recruiting and retaining. The hospice must document 
active and ongoing efforts to recruit and retain volunteers.
    (d) Standard: Cost saving. The hospice must document the cost 
savings achieved through the use of volunteers. Documentation must 
include--
    (1) The identification of necessary positions which are occupied by 
volunteers;
    (2) The work time spent by volunteers occupying those positions; and
    (3) Estimates of the dollar costs which the hospice would have 
incurred if paid employees occupied the positions identified in 
paragraph (d)(1) for the amount of time specified in paragraph (d)(2).
    (e) Standard: Level of activity. A hospice must document and 
maintain a volunteer staff sufficient to provide administrative or 
direct patient care in an amount that, at a minimum, equals 5 percent of 
the total patient care hours of all paid hospice employees and contract 
staff. The hospice must document a continuing level of volunteer 
activity. Expansion of care and services achieved through the use of 
volunteers, including the type of services and the time worked, must be 
recorded.
    (f) Standard: Availability of clergy. The hospice must make 
reasonable efforts to arrange for visits of clergy and other members of 
religious organizations in the community to patients who request

[[Page 631]]

such visits and must advise patients of this opportunity.



Sec. 418.72  Condition of participation--Licensure.

    The hospice and all hospice employees must be licensed in accordance 
with applicable Federal, State and local laws and regulations.
    (a) Standard: Licensure of program. If State or local law provides 
for licensing of hospices, the hospice must be licensed.
    (b) Standard: Licensure of employees. Employees who provide services 
must be licensed, certified or registered in accordance with applicable 
Federal or State laws.



Sec. 418.74  Condition of participation--Central clinical records.

    In accordance with accepted principles of practice, the hospice must 
establish and maintain a clinical record for every individual receiving 
care and services. The record must be complete, promptly and accurately 
documented, readily accessible and systematically organized to 
facilitate retrieval.
    (a) Standard: Content. Each clinical record is a comprehensive 
compilation of information. Entries are made for all services provided. 
Entries are made and signed by the person providing the services. The 
record includes all services whether furnished directly or under 
arrangements made by the hospice. Each individual's record contains--
    (1) The initial and subsequent assessments;
    (2) The plan of care;
    (3) Identification data;
    (4) Consent and authorization and election forms;
    (5) Pertinent medical history; and
    (6) Complete documentation of all services and events (including 
evaluations, treatments, progress notes, etc.).
    (b) Standard; Protection of information. The hospice must safeguard 
the clinical record against loss, destruction and unauthorized use.



          Subpart D--Conditions of Participation: Core Services



Sec. 418.80  Condition of participation--Furnishing of core services.

    Except as permitted in Sec. 418.83, a hospice must ensure that 
substantially all the core services described in this subpart are 
routinely provided directly by hospice employees. A hospice may use 
contracted staff if necessary to supplement hospice employees in order 
to meet the needs of patients during periods of peak patient loads or 
under extraordinary circumstances. If contracting is used, the hospice 
must maintain professional, financial, and administrative responsibility 
for the services and must assure that the qualifications of staff and 
services provided meet the requirements specified in this subpart.

[52 FR 7416, Mar. 11, 1987, as amended at 55 FR 50835, Dec. 11, 1990]



Sec. 418.82  Condition of participation--Nursing services.

    The hospice must provide nursing care and services by or under the 
supervision of a registered nurse.
    (a) Nursing services must be directed and staffed to assure that the 
nursing needs of patients are met.
    (b) Patient care responsibilities of nursing personnel must be 
specified.
    (c) Services must be provided in accordance with recognized 
standards of practice.



Sec. 418.83  Nursing services--Waiver of requirement that substantially all nursing services be routinely provided directly by a hospice.

    (a) HCFA may approve a waiver of the requirement in Sec. 418.80 for 
nursing services provided by a hospice which is located in a non-
urbanized area. The location of a hospice that operates in several areas 
is considered to be the location of its central office. The hospice must 
provide evidence that it was operational on or before January 1, 1983, 
and that it made a good faith effort to hire a sufficient number of 
nurses to provide services directly. HCFA bases its decision as to 
whether to approve a waiver application on the following:

[[Page 632]]

    (1) The current Bureau of the Census designations for determining 
non-urbanized areas.
    (2) Evidence that a hospice was operational on or before January 1, 
1983 including:
    (i) Proof that the organization was established to provide hospice 
services on or before January 1, 1983;
    (ii) Evidence that hospice-type services were furnished to patients 
on or before January 1, 1983; and
    (iii) Evidence that the hospice care was a discrete activity rather 
than an aspect of another type of provider's patient care program on or 
before January 1, 1983.
    (3) Evidence that a hospice made a good faith effort to hire nurses, 
including:
    (i) Copies of advertisements in local newspapers that demonstrate 
recruitment efforts;
    (ii) Job descriptions for nurse employees;
    (iii) Evidence that salary and benefits are competitive for the 
area; and
    (iv) Evidence of any other recruiting activities (e.g., recruiting 
efforts at health fairs and contacts with nurses at other providers in 
the area);
    (b) Any waiver request is deemed to be granted unless it is denied 
within 60 days after it is received.
    (c) Waivers will remain effective for one year at a time.
    (d) HCFA may approve a maximum of two one-year extensions for each 
initial waiver. If a hospice wishes to receive a one-year extension, the 
hospice must submit a certification to HCFA, prior to the expiration of 
the waiver period, that the employment market for nurses has not changed 
significantly since the time the initial waiver was granted.

[52 FR 7416, Mar. 11, 1987]



Sec. 418.84  Condition of participation--Medical social services.

    Medical social services must be provided by a qualified social 
worker, under the direction of a physician.



Sec. 418.86  Condition of participation--Physician services.

    In addition to palliation and management of terminal illness and 
related conditions, physician employees of the hospice, including the 
physician member(s) of the interdisciplinary group, must also meet the 
general medical needs of the patients to the extent that these needs are 
not met by the attending physician.



Sec. 418.88  Condition of participation--Counseling services.

    Counseling services must be available to both the individual and the 
family. Counseling includes bereavement counseling, provided after the 
patient's death as well as dietary, spiritual and any other counseling 
services for the individual and family provided while the individual is 
enrolled in the hospice.
    (a) Standard: Bereavement counseling. There must be an organized 
program for the provision of bereavement services under the supervision 
of a qualified professional. The plan of care for these services should 
reflect family needs, as well as a clear delineation of services to be 
provided and the frequency of service delivery (up to one year following 
the death of the patient). A special coverage provision for bereavement 
counseling is specified Sec. 418.204(c).
    (b) Standard: Dietary counseling. Dietary counseling, when required, 
must be provided by a qualified individual.
    (c) Standard: Spiritual counseling. Spiritual counseling must 
include notice to patients as to the availability of clergy as provided 
in Sec. 418.70(f).
    (d) Standard: Additional counseling. Counseling may be provided by 
other members of the interdisciplinary group as well as by other 
qualified professionals as determined by the hospice.



         Subpart E--Conditions of Participation: Other Services



Sec. 418.90  Condition of participation--Furnishing of other services.

    A hospice must ensure that the services described in this subpart 
are provided directly by hospice employees or under arrangements made by 
the hospice as specified in Sec. 418.56.

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50835, Dec. 11, 1990]

[[Page 633]]



Sec. 418.92  Condition of participation--Physical therapy, occupational therapy, and speech-language pathology.

    (a) Physical therapy services, occupational therapy services, and 
speech-language patholgy services must be available, and when provided, 
offered in a manner consistent with accepted standards of practice.
    (b)(1) If the hospice engages in laboratory testing outside of the 
context of assisting an individual in self-administering a test with an 
appliance that has been cleared for that purpose by the FDA, such 
testing must be in compliance with all applicable requirements of part 
493 of this chapter.
    (2) If the hospice chooses to refer specimens for laboratory testing 
to another laboratory, the referral laboratory must be certified in the 
appropriate specialties and subspecialties of services in accordance 
with the applicable requirements of part 493 of this chapter.

[57 FR 7135, Feb. 28, 1992]



Sec. 418.94  Condition of participation-- Home health aide and homemaker services.

    Home health aide and homemaker services must be available and 
adequate in frequency to meet the needs of the patients. A home health 
aide is a person who meets the training, attitude and skill requirements 
specified in Sec. 484.36 of this chapter.
    (a) Standard: Supervision. A registered nurse must visit the home 
site at least every two weeks when aide services are being provided, and 
the visit must include an assessment of the aide services.
    (b) Standard: Duties. Written instructions for patient care are 
prepared by a registered nurse. Duties include, but may not be limited 
to, the duties specified in Sec. 484.36(c) of this chapter.

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50835, Dec. 11, 1990]



Sec. 418.96  Condition of participation--Medical supplies.

    Medical supplies and appliances including drugs and biologicals, 
must be provided as needed for the palliation and management of the 
terminal illness and related conditions.
    (a) Standard: Administration. All drugs and biologicals must be 
administered in accordance with accepted standards of practice.
    (b) Standard: Controlled drugs in the patient's home. The hospice 
must have a policy for the disposal of controlled drugs maintained in 
the patient's home when those drugs are no longer needed by the patient.
    (c) Standard: Administration of drugs and biologicals. Drugs and 
biologicals are administered only by the following individuals:
    (1) A licensed nurse or physician.
    (2) An employee who has completed a State-approved training program 
in medication administration.
    (3) The patient if his or her attending physician has approved.
    (4) Any other individual in accordance with applicable State and 
local laws. The persons, and each drug and biological they are 
authorized to administer, must be specified in the patient's plan of 
care.



Sec. 418.98  Condition of participation--Short term inpatient care.

    Inpatient care must be available for pain control, symptom 
management and respite purposes, and must be provided in a participating 
Medicare or Medicaid facility.
    (a) Standard: Inpatient care for symptom control. Inpatient care for 
pain control and symptom management must be provided in one of the 
following:
    (1) A hospice that meets the condition of participation for 
providing inpatient care directly as specified in Sec. 418.100.
    (2) A hospital or an SNF that also meets the standards specified in 
Sec. 418.100 (a) and (e) regarding 24-hour nursing service and patient 
areas.
    (b) Standard: Inpatient care for respite purposes. Inpatient care 
for respite purposes must be provided by one of the following:
    (1) A provider specified in paragraph (a) of this section.
    (2) An ICF that also meets the standards specified in Sec. 418.100 
(a) and (e) regarding 24-hour nursing service and patient areas.

[[Page 634]]

    (c) Standard: Inpatient care limitation. The total number of 
inpatient days used by Medicare beneficiaries who elected hospice 
coverage in any 12-month period preceding a certification survey in a 
particular hospice may not exceed 20 percent of the total number of 
hospice days for this group of beneficiaries.
    (d) Standard: Exemption from limitation. Until October 1, 1986, any 
hospice that began operation before January 1, 1975 is not subject to 
the limitation specified in paragraph (c).

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50835, Dec. 11, 1990]



Sec. 418.100  Condition of participation: Hospices that provide inpatient care directly.

    A hospice that provides inpatient care directly must comply with all 
of the following standards.
    (a) Standard: Twenty-four-hour nursing services. (1) The facility 
provides 24-hour nursing services which are sufficient to meet total 
nursing needs and which are in accordance with the patient plan of care. 
Each patient receives treatments, medications, and diet as prescribed, 
and is kept comfortable, clean, well-groomed, and protected from 
accident, injury, and infection.
    (2) Each shift must include a registered nurse who provides direct 
patient care.
    (b) Standard: Disaster preparedness. The hospice has an acceptable 
written plan, periodically rehearsed with staff, with procedures to be 
followed in the event of an internal or external disaster and for the 
care of casualties (patients and personnel) arising from such disasters.
    (c) Standard: Health and safety laws. The hospice must meet all 
Federal, State, and local laws, regulations, and codes pertaining to 
health and safety, such as provisions regulating--
    (1) Construction, maintenance, and equipment for the hospice;
    (2) Sanitation;
    (3) Communicable and reportable diseases; and
    (4) Post mortem procedures.
    (d) Standard: Fire protection. (1) Except as provided in paragraphs 
(d) (2) and (3) of this section, the hospice must meet the provisions of 
the 1985 edition of the Life Safety Code of the National Fire Protection 
Association (which is incorporated by reference)1 that are 
applicable to hospices.
---------------------------------------------------------------------------

    \1\ See footnote to Sec. 405.1134(a) of this chapter.
---------------------------------------------------------------------------

    (2) In consideration of a recommendation by the State survey agency, 
HCFA may waive, for periods deemed appropriate, specific provisions of 
the Life Safety Code which, if rigidly applied would result in 
unreasonable hardship for the hospice, but only if the waiver would not 
adversely affect the health and safety of the patients.
    (3) Any hospice that, on May 9, 1988, complies with the requirements 
of the 1981 edition of the Life Safety Code, with or without waivers, 
will be considered to be in compliance with this standard, as long as 
the hospice continues to remain in compliance with that edition of the 
Life Safety Code.
    (4) Any facility of two or more stories that is not of fire 
resistive construction and is participating on the basis of a waiver of 
construction type or height, may not house blind, nonambulatory, or 
physically handicapped patients above the street-level floor unless the 
facility--
    (i) Is one of the following construction types (as defined in the 
Life Safety Code):
    (A) Type II (1, 1, 1)--protected non-combustible.
    (B) Fully sprinklered Type II (0, 0, 0)--non-combustible.
    (C) Fully sprinklered Type III (2, 1, 1)--protected ordinary.
    (D) Fully sprinklered Type V (1, 1, 1)--protected wood frame; or
    (ii) Achieves a passing score on the Fire Safety Evaluation System 
(FSES).
    (e) Standard: Patient areas. (1) The hospice must design and equip 
areas for the comfort and privacy of each patient and family members.
    (2) The hospice must have--
    (i) Physical space for private patient/family visiting;
    (ii) Accommodations for family members to remain with the patient 
throughout the night;
    (iii) Accommodations for family privacy after a patient's death; and

[[Page 635]]

    (iv) Decor which is homelike in design and function.
    (3) Patients must be permitted to receive visitors at any hour, 
including small children.
    (f) Standard: Patient rooms and toilet facilities. Patient rooms are 
designed and equipped for adequate nursing care and the comfort and 
privacy of patients.
    (1) Each patient's room must--
    (i) Be equipped with or conveniently located near toilet and bathing 
facilities;
    (ii) Be at or above grade level;
    (iii) Contain a suitable bed for each patient and other appropriate 
furniture;
    (iv) Have closet space that provides security and privacy for 
clothing and personal belongings;
    (v) Contain no more than four beds;
    (vi) Measure at least 100 square feet for a single patient room or 
80 square feet for each patient for a multipatient room; and
    (vii) Be equipped with a device for calling the staff member on 
duty.
    (2) For an existing building, HCFA may waive the space and occupancy 
requirements of paragraphs (f)(1) (v) and (vi) of this section for as 
long as it is considered appropriate if it finds that--
    (i) The requirements would result in unreasonable hardship on the 
hospice if strictly enforced; and
    (ii) The waiver serves the particular needs of the patients and does 
not adversely affect their health and safety.
    (g) Standard: Bathroom facilities. The hospice must--
    (1) Provide an adequate supply of hot water at all times for patient 
use; and
    (2) Have plumbing fixtures with control valves that automatically 
regulate the temperature of the hot water used by patients.
    (h) Standard: Linen. The hospice has available at all times a 
quantity of linen essential for proper care and comfort of patients. 
Linens are handled, stored, processed, and transported in such a manner 
as to prevent the spread of infection.
    (i) Standard: Isolation areas. The hospice must make provision for 
isolating patients with infectious diseases.
    (j) Standard: Meal service, menu planning, and supervision. The 
hospice must--
    (1) Serve at least three meals or their equivalent each day at 
regular times, with not more than 14 hours between a substantial evening 
meal and breakfast;
    (2) Procure, store, prepare, distribute, and serve all food under 
sanitary conditions;
    (3) Have a staff member trained or experienced in food management or 
nutrition who is responsible for--
    (i) Planning menus that meet the nutritional needs of each patient, 
following the orders of the patient's physician and, to the extent 
medically possible, the recommended dietary allowances of the Food and 
Nutrition Board of the National Research Council, National Academy of 
Sciences (Recommended Dietary Allowances (9th ed., 1981) is available 
from the Printing and Publications Office, National Academy of Sciences, 
Washington, DC 20418); and
    (ii) Supervising the meal preparation and service to ensure that the 
menu plan is followed; and
    (4) If the hospice has patients who require medically prescribed 
special diets, have the menus for those patients planned by a 
professionally qualified dietitian and supervise the preparation and 
serving of meals to ensure that the patient accepts the special diet.
    (k) Standard: Pharmaceutical services. The hospice provides 
appropriate methods and procedures for the dispensing and administering 
of drugs and biologicals. Whether drugs and biologicals are obtained 
from community or institutional pharmacists or stocked by the facility, 
the facility is responsible for drugs and biologicals for its patients, 
insofar as they are covered under the program and for ensuring that 
pharmaceutical services are provided in accordance with accepted 
professional principles and appropriate Federal, State, and local laws. 
(See Sec. 405.1124(g), (h), and (i) of this chapter.)
    (1) Licensed pharmacist. The hospice must--
    (i) Employ a licensed pharmacist; or

[[Page 636]]

    (ii) Have a formal agreement with a licensed pharmacist to advise 
the hospice on ordering, storage, administration, disposal, and 
recordkeeping of drugs and biologicals.
    (2) Orders for medications. (i) A physician must order all 
medications for the patient.
    (ii) If the medication order is verbal--
    (A) The physician must give it only to a licensed nurse, pharmacist, 
or another physician; and
    (B) The individual receiving the order must record and sign it 
immediately and have the prescribing physician sign it in a manner 
consistent with good medical practice.
    (3) Administering medications. Medications are administered only by 
one of the following individuals:
    (i) A licensed nurse or physician.
    (ii) An employee who has completed a State-approved training program 
in medication administration.
    (iii) The patient if his or her attending physician has approved.
    (4) Control and accountability. The pharmaceutical service has 
procedures for control and accountability of all drugs and biologicals 
throughout the facility. Drugs are dispensed in compliance with Federal 
and State laws. Records of receipt and disposition of all controlled 
drugs are maintained in sufficient detail to enable an accurate 
reconciliation. The pharmacist determines that drug records are in order 
and that an account of all controlled drugs is maintained and 
reconciled.
    (5) Labeling of drugs and biologicals. The labeling of drugs and 
biologicals is based on currently accepted professional principles, and 
includes the appropriate accessory and cautionary instructions, as well 
as the expiration date when applicable.
    (6) Storage. In accordance with State and Federal laws, all drugs 
and biologicals are stored in locked compartments under proper 
temperature controls and only authorized personnel have access to the 
keys. Separately locked compartments are provided for storage of 
controlled drugs listed in Schedule II of the Comprehensive Drug Abuse 
Prevention & Control Act of 1970 and other drugs subject to abuse, 
except under single unit package drug distribution systems in which the 
quantity stored is minimal and a missing dose can be readily detected. 
An emergency medication kit is kept readily available.
    (7) Drug disposal. Controlled drugs no longer needed by the patient 
are disposed of in compliance with State requirements. In the absence of 
State requirements, the pharmacist and a registered nurse dispose of the 
drugs and prepare a record of the disposal.

[48 FR 56026, Dec. 16, 1983; 48 FR 57282, Dec. 29, 1983; 49 FR 23010, 
June 1, 1984, as amended at 53 FR 11509, Apr. 7, 1988; 55 FR 50835, Dec. 
11, 1990]



                       Subpart F--Covered Services



Sec. 418.200  Requirements for coverage.

    To be covered, hospice services must meet the following 
requirements. They must be reasonable and necessary for the palliation 
or management of the terminal illness as well as related conditions. The 
individual must elect hospice care in accordance with Sec. 418.24 and a 
plan of care must be established as set forth in Sec. 418.58 before 
services are provided. The services must be consistent with the plan of 
care. A certification that the individual is terminally ill must be 
completed as set forth in Sec. 418.22.



Sec. 418.202  Covered services.

    All services must be performed by appropriately qualified personnel, 
but it is the nature of the service, rather than the qualification of 
the person who provides it, that determines the coverage category of the 
service. The following services are covered hospice services:
    (a) Nursing care provided by or under the supervision of a 
registered nurse.
    (b) Medical social services provided by a social worker under the 
direction of a physician.
    (c) Physicians' services performed by a physician as defined in 
Sec. 410.20 of this chapter except that the services of the hospice 
medical director or the physician member of the interdisciplinary group 
must be performed by a doctor of medicine or osteopathy.
    (d) Counseling services provided to the terminally ill individual 
and the

[[Page 637]]

family members or other persons caring for the individual at home. 
Counseling, including dietary counseling, may be provided both for the 
purpose of training the individual's family or other caregiver to 
provide care, and for the purpose of helping the individual and those 
caring for him or her to adjust to the individual's approaching death.
    (e) Short-term inpatient care provided in a participating hospice 
inpatient unit, or a participating hospital or SNF, that additionally 
meets the standards in Sec. 418.202 (a) and (e) regarding staffing and 
patient areas. Services provided in an inpatient setting must conform to 
the written plan of care. Inpatient care may be required for procedures 
necessary for pain control or acute or chronic symptom management.

Inpatient care may also be furnished as a means of providing respite for 
the individual's family or other persons caring for the individual at 
home. Respite care must be furnished as specified in Sec. 418.98(b). 
Payment for inpatient care will be made at the rate appropriate to the 
level of care as specified in Sec. 418.302.
    (f) Medical appliances and supplies, including drugs and 
biologicals. Only drugs as defined in section 1861(t) of the Act and 
which are used primarily for the relief of pain and symptom control 
related to the individual's terminal illness are covered. Appliances may 
include covered durable medical equipment as described in Sec. 410.38 of 
this chapter as well as other self-help and personal comfort items 
related to the palliation or management of the patient's terminal 
illness. Equipment is provided by the hospice for use in the patient's 
home while he or she is under hospice care. Medical supplies include 
those that are part of the written plan of care.
    (g) Home health aide services furnished by qualified aides as 
designated in Sec. 418.94 and homemaker services. Home health aides may 
provide personal care services as defined in Sec. 409.45(b) of this 
chapter. Aides may perform household services to maintain a safe and 
sanitary environment in areas of the home used by the patient, such as 
changing bed linens or light cleaning and laundering essential to the 
comfort and cleanliness of the patient. Aide services must be provided 
under the general supervision of a registered nurse. Homemaker services 
may include assistance in maintenance of a safe and healthy environment 
and services to enable the individual to carry out the treatment plan.
    (h) Physical therapy, occupational therapy and speech-language 
pathology services in addition to the services described in Sec. 409.33 
(b) and (c) of this chapter provided for purposes of symptom control or 
to enable the patient to maintain activities of daily living and basic 
functional skills.

[48 FR 56026, Dec. 16, 1983, as amended at 51 FR 41351, Nov. 14, 1986; 
55 FR 50835, Dec. 11, 1990; 59 FR 65498, Dec. 20, 1994]



Sec. 418.204  Special coverage requirements.

    (a) Periods of crisis. Nursing care may be covered on a continuous 
basis for as much as 24 hours a day during periods of crisis as 
necessary to maintain an individual at home. Either homemaker or home 
health aide services or both may be covered on a 24-hour continuous 
basis during periods of crisis but care during these periods must be 
predominantly nursing care. A period of crisis is a period in which the 
individual requires continuous care to achieve palliation or management 
of acute medical symptoms.
    (b) Respite care. (1) Respite care is short-term inpatient care 
provided to the individual only when necessary to relieve the family 
members or other persons caring for the individual.
    (2) Respite care may be provided only on an occasional basis and may 
not be reimbursed for more than five consecutive days at a time.
    (c) Bereavement counseling. Bereavement counseling is a required 
hospice service but it is not reimbursable.

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50835, Dec. 11, 1990]



                   Subpart G--Payment for Hospice Care



Sec. 418.301  Basic rules.

    (a) Medicare payment for covered hospice care is made in accordance 
with the method set forth in Sec. 418.302.

[[Page 638]]

    (b) Medicare reimbursement to a hospice in a cap period is limited 
to a cap amount specified in Sec. 418.309.

[48 FR 56026, Dec. 16, 1983, as amended at 56 FR 26919, June 12, 1991]



Sec. 418.302  Payment procedures for hospice care.

    (a) HCFA establishes payment amounts for specific categories of 
covered hospice care.
    (b) Payment amounts are determined within each of the following 
categories:
    (1) Routine home care day. A routine home care day is a day on which 
an individual who has elected to receive hospice care is at home and is 
not receiving continuous care as defined in paragraph (b)(2) of this 
section.
    (2) Continuous home care day. A continuous home care day is a day on 
which an individual who has elected to receive hospice care is not in an 
inpatient facility and receives hospice care consisting predominantly of 
nursing care on a continuous basis at home. Home health aide or 
homemaker services or both may also be provided on a continuous basis. 
Continuous home care is only furnished during brief periods of crisis as 
described in Sec. 418.204(a) and only as necessary to maintain the 
terminally ill patient at home.
    (3) Inpatient respite care day. An inpatient respite care day is a 
day on which the individual who has elected hospice care receives care 
in an approved facility on a short-term basis for respite.
    (4) General inpatient care day. A general inpatient care day is a 
day on which an individual who has elected hospice care receives general 
inpatient care in an inpatient facility for pain control or acute or 
chronic symptom management which cannot be managed in other settings.
    (c) The payment amounts for the categories of hospice care are fixed 
payment rates that are established by HCFA in accordance with the 
procedures described in Sec. 418.306. Payment rates are determined for 
the following categories:
    (1) Routine home care.
    (2) Continuous home care.
    (3) Inpatient respite care.
    (4) General inpatient care.
    (d) The intermediary reimburses the hospice at the appropriate 
payment amount for each day for which an eligible Medicare beneficiary 
is under the hospice's care.
    (e) The intermediary makes payment according to the following 
procedures:
    (1) Payment is made to the hospice for each day during which the 
beneficiary is eligible and under the care of the hospice, regardless of 
the amount of services furnished on any given day.
    (2) Payment is made for only one of the categories of hospice care 
described in Sec. 418.302(b) for any particular day.
    (3) On any day on which the beneficiary is not an inpatient, the 
hospice is paid the routine home care rate, unless the patient receives 
continuous care as defined in paragraph (b)(2) of this section for a 
period of at least 8 hours. In that case, a portion of the continuous 
care day rate is paid in accordance with paragraph (e)(4) of this 
section.
    (4) The hospice payment on a continuous care day varies depending on 
the number of hours of continuous services provided. The continuous home 
care rate is divided by 24 to yield an hourly rate. The number of hours 
of continuous care provided during a continuous home care day is then 
multiplied by the hourly rate to yield the continuous home care payment 
for that day. A minimum of 8 hours of care must be furnished on a 
particular day to qualify for the continuous home care rate.
    (5) Subject to the limitations described in paragraph (f) of this 
section, on any day on which the beneficiary is an inpatient in an 
approved facility for inpatient care, the appropriate inpatient rate 
(general or respite) is paid depending on the category of care 
furnished. The inpatient rate (general or respite) is paid for the date 
of admission and all subsequent inpatient days, except the day on which 
the patient is discharged. For the day of discharge, the appropriate 
home care rate is paid unless the patient dies as an inpatient. In the 
case where the beneficiary is discharged deceased, the inpatient rate 
(general or respite) is paid for the discharge day. Payment for 
inpatient respite care is subject to the requirement that it may not be 
provided consecutively for more than 5 days at a time.

[[Page 639]]

Payment for the sixth and any subsequent day of respite care is made at 
the routine home care rate.
    (f) Payment for inpatient care is limited as follows: (1) The total 
payment to the hospice for inpatient care (general or respite) is 
subject to a limitation that total inpatient care days for Medicare 
patients not exceed 20 percent of the total days for which these 
patients had elected hospice care.
    (2) At the end of a cap period, the intermediary calculates a 
limitation on payment for inpatient care to ensure that Medicare payment 
is not made for days of inpatient care in excess of 20 percent of the 
total number of days of hospice care furnished to Medicare patients.
    (3) If the number of days of inpatient care furnished to Medicare 
patients is equal to or less than 20 percent of the total days of 
hospice care to Medicare patients, no adjustment is necessary. Overall 
payments to a hospice are subject to the cap amount specified in 
Sec. 418.309.
    (4) If the number of days of inpatient care furnished to Medicare 
patients exceeds 20 percent of the total days of hospice care to 
Medicare patients, the total payment for inpatient care is determined in 
accordance with the procedures specified in paragraph (f)(5) of this 
section. That amount is compared to actual payments for inpatient care, 
and any excess reimbursement must be refunded by the hospice. Overall 
payments to the hospice are subject to the cap amount specified in 
Sec. 418.309.
    (5) If a hospice exceeds the number of inpatient care days described 
in paragraph (f)(4), the total payment for inpatient care is determined 
as follows:
    (i) Calculate the ratio of the maximum number of allowable inpatient 
days to the actual number of inpatient care days furnished by the 
hospice to Medicare patients.
    (ii) Multiply this ratio by the total reimbursement for inpatient 
care made by the intermediary.
    (iii) Multiply the number of actual inpatient days in excess of the 
limitation by the routine home care rate.
    (iv) Add the amounts calculated in paragraphs (f)(5)(ii) and (iii) 
of this section.

[48 FR 56026, Dec. 16, 1983, as amended at 56 FR 26919, June 12, 1991]



Sec. 418.304  Payment for physician services.

    (a) The following services performed by hospice physicians are 
included in the rates described in Sec. 418.302:
    (1) General supervisory services of the medical director.
    (2) Participation in the establishment of plans of care, supervision 
of care and services, periodic review and updating of plans of care, and 
establishment of governing policies by the physician member of the 
interdisciplinary group.
    (b) For services not described in paragraph (a) of this section, a 
specified Medicare contractor pays the hospice an amount equivalent to 
100 percent of the physician's reasonable charge for those physician 
services furnished by hospice employees or under arrangements with the 
hospice. Reimbursement for these physician services is included in the 
amount subject to the hospice payment limit described in Sec. 418.309. 
Services furnished voluntarily by physicians are not reimbursable.
    (c) Services of the patient's attending physician, if he or she is 
not an employee of the hospice or providing services under arrangements 
with the hospice, are not considered hospice services and are not 
included in the amount subject to the hospice payment limit described in 
Sec. 418.309. These services are paid by the carrier under the 
procedures in subparts D or E, part 405 of this chapter.



Sec. 418.306  Determination of payment rates.

    (a) Applicability. HCFA establishes payment rates for each of the 
categories of hospice care described in Sec. 418.302(b). The rates are 
established using the methodology described in section 1814(i)(1)(C) of 
the Act.
    (b) Payment rates. The payment rates for routine home care and other 
services included in hospice care are as follows:

[[Page 640]]

    (1) The following rates, which are 120 percent of the rates in 
effect on September 30, 1989, are effective January 1, 1990 through 
September 30, 1990 and October 21, 1990 through December 31, 1990:

Routine home care.............................................    $75.80
Continuous home care:
  Full rate for 24 hours......................................    442.40
  Hourly rate.................................................     18.43
Inpatient respite care........................................     78.40
General inpatient care........................................    337.20
 

    (2) Except for the period beginning October 21, 1990, through 
December 31, 1990, the payment rates for routine home care and other 
services included in hospice care for Federal fiscal years 1991, 1992, 
and 1993 and those that begin on or after October 1, 1997, are the 
payment rates in effect under this paragraph during the previous fiscal 
year increased by the market basket percentage increase as defined in 
section 1886(b)(3)(B)(iii) of the Act, otherwise applicable to 
discharges occurring in the fiscal year. The payment rates for the 
period beginning October 21, 1990, through December 31, 1990, are the 
same as those shown in paragraph (b)(1) of this section.
    (3) For Federal fiscal years 1994 through 1997, the payment rate is 
the payment rate in effect during the previous fiscal year increased by 
a factor equal to the market basket percentage increase minus--
    (i) 2 percentage points in FY 1994;
    (ii) 1.5 percentage points in FYs 1995 and 1996; and
    (iii) 0.5 percentage points in FY 1997.
    (c) Adjustment for wage differences. HCFA will issue annually, in 
the Federal Register, a hospice wage index based on the most current 
available HCFA hospital wage data, including any changes to the 
definitions of Metropolitan Statistical Areas. The payment rates 
established by HCFA are adjusted by the intermediary to reflect local 
differences in wages according to the revised wage index.
    (d) Federal Register notices. HCFA publishes as a notice in the 
Federal Register any proposal to change the methodology for determining 
the payment rates.

[56 FR 26919, June 12, 1991, as amended at 59 FR 26960, May 25, 1994; 62 
FR 42882, Aug. 8, 1997]



Sec. 418.307  Periodic interim payments.

    Subject to the provisions of Sec. 413.64(h) of this chapter, a 
hospice may elect to receive periodic interim payments (PIP) effective 
with claims received on or after July 1, 1987. Payment is made biweekly 
under the PIP method unless the hospice requests a longer fixed interval 
(not to exceed one month) between payments. The biweekly interim payment 
amount is based on the total estimated Medicare payments for the 
reporting period (as described in Secs. 418.302-418.306). Each payment 
is made 2 weeks after the end of a biweekly period of service as 
described in Sec. 413.64(h)(5) of this chapter. Under certain 
circumstances that are described in Sec. 413.64(g) of this chapter, a 
hospice that is not receiving PIP may request an accelerated payment.

[59 FR 36713, July 19, 1994]



Sec. 418.308  Limitation on the amount of hospice payments.

    (a) Except as specified in paragraph (b) of this section, the total 
Medicare payment to a hospice for care furnished during a cap period is 
limited by the hospice cap amount specified in Sec. 418.309.
    (b) Until October 1, 1986, payment to a hospice that began operation 
before January 1, 1975 is not limited by the amount of the hospice cap 
specified in Sec. 418.309.
    (c) The intermediary notifies the hospice of the determination of 
program reimbursement at the end of the cap year in accordance with 
procedures similar to those described in Sec. 405.1803 of this chapter.
    (d) Payments made to a hospice during a cap period that exceed the 
cap amount are overpayments and must be refunded.

[48 FR 56026, Dec. 16, 1983; 48 FR 57282, Dec. 29, 1983]



Sec. 418.309  Hospice cap amount.

    The hospice cap amount is calculated using the following procedures:
    (a) The cap amount is $6,500 per year and is adjusted for inflation 
or deflation for cap years that end after October 1, 1984, by using the 
percentage change in the medical care expenditure category of the 
Consumer Price Index

[[Page 641]]

(CPI) for urban consumers that is published by the Bureau of Labor 
Statistics. This adjustment is made using the change in the CPI from 
March 1984 to the fifth month of the cap year. The cap year runs from 
November 1 of each year until October 31 of the following year.
    (b) Each hospice's cap amount is calculated by the intermediary by 
multiplying the adjusted cap amount determined in paragraph (a) of this 
section by the number of Medicare beneficiaries who elected to receive 
hospice care from that hospice during the cap period. For purposes of 
this calculation, the number of Medicare beneficiaries includes--
    (1) Those Medicare beneficiaries who have not previously been 
included in the calculation of any hospice cap and who have filed an 
election to receive hospice care, in accordance with Sec. 418.24, from 
the hospice during the period beginning on September 28 (35 days before 
the beginning of the cap period) and ending on September 27 (35 days 
before the end of the cap period).
    (2) In the case in which a beneficiary has elected to receive care 
from more than one hospice, each hospice includes in its number of 
Medicare beneficiaries only that fraction which represents the portion 
of a patient's total stay in all hospices that was spent in that 
hospice. (The hospice can obtain this information by contacting the 
intermediary.)



Sec. 418.310  Reporting and recordkeeping requirements.

    Hospices must provide reports and keep records as the Secretary 
determines necessary to administer the program.



Sec. 418.311  Administrative appeals.

    A hospice that believes its payments have not been properly 
determined in accordance with these regulations may request a review 
from the intermediary or the Provider Reimbursement Review Board (PRRB) 
if the amount in controversy is at least $1,000 or $10,000, 
respectively. In such a case, the procedure in 42 CFR part 405, subpart 
R, will be followed to the extent that it is applicable. The PRRB, 
subject to review by the Secretary under Sec. 405.1874 of this chapter, 
shall have the authority to determine the issues raised. The methods and 
standards for the calculation of the payment rates by HCFA are not 
subject to appeal.



                         Subpart H--Coinsurance



Sec. 418.400  Individual liability for coinsurance for hospice care.

    An individual who has filed an election for hospice care in 
accordance with Sec. 418.24 is liable for the following coinsurance 
payments. Hospices may charge individuals the applicable coinsurance 
amounts.
    (a) Drugs and biologicals. An individual is liable for a coinsurance 
payment for each palliative drug and biological prescription furnished 
by the hospice while the individual is not an inpatient. The amount of 
coinsurance for each prescription approximates 5 percent of the cost of 
the drug or biological to the hospice determined in accordance with the 
drug copayment schedule established by the hospice, except that the 
amount of coinsurance for each prescription may not exceed $5. The cost 
of the drug or biological may not exceed what a prudent buyer would pay 
in similar circumstances. The drug copayment schedule must be reviewed 
for reasonableness and approved by the intermediary before it is used.
    (b) Respite care. (1) The amount of coinsurance for each respite 
care day is equal to 5 percent of the payment made by HCFA for a respite 
care day.
    (2) The amount of the individual's coinsurance liability for respite 
care during a hospice coinsurance period may not exceed the inpatient 
hospital deductible applicable for the year in which the hospice 
coinsurance period began.
    (3) The individual hospice coinsurance period--
    (i) Begins on the first day an election filed in accordance with 
Sec. 418.24 is in effect for the beneficiary; and
    (ii) Ends with the close of the first period of 14 consecutive days 
on each of which an election is not in effect for the beneficiary.

[[Page 642]]



Sec. 418.402  Individual liability for services that are not considered hospice care.

    Medicare payment to the hospice discharges an individual's liability 
for payment for all services, other than the hospice coinsurance amounts 
described in Sec. 418.400, that are considered covered hospice care (as 
described in Sec. 418.202). The individual is liable for the Medicare 
deductibles and coinsurance payments and for the difference between the 
reasonable and actual charge on unassigned claims on other covered 
services that are not considered hospice care. Examples of services not 
considered hospice care include: Services furnished before or after a 
hospice election period; services of the individual's attending 
physician, if the attending physician is not an employee of or working 
under an arrangement with the hospice; or Medicare services received for 
the treatment of an illness or injury not related to the individual's 
terminal condition.



Sec. 418.405  Effect of coinsurance liability on Medicare payment.

    The Medicare payment rates established by HCFA in accordance with 
Sec. 418.306 are not reduced when the individual is liable for 
coinsurance payments. Instead, when establishing the payment rates, HCFA 
offsets the estimated cost of services by an estimate of average 
coinsurance amounts hospices collect.

[56 FR 26919, June 12, 1991]



PART 420--PROGRAM INTEGRITY: MEDICARE--Table of Contents




                      Subpart A--General Provisions

Sec.
420.1  Scope and purpose.
420.3  Other related regulations.

                          Subpart B--[Reserved]

       Subpart C--Disclosure of Ownership and Control Information

420.200  Purpose.
420.201  Definitions.
420.202  Determination of ownership or control percentages.
420.203  Disclosure of hiring of intermediary's former employees.
420.204  Principals convicted of a program-related crime.
420.205  Disclosure by providers and part B suppliers of business 
          transaction information.
420.206  Disclosure of persons having ownership, financial, or control 
          interest.

  Subpart D--Access to Books, Documents, and Records of Subcontractors

420.300  Basis, purpose, and scope.
420.301  Definitions.
420.302  Requirement for access clause in contracts.
420.303  HHS criteria for requesting books, documents, and records.
420.304  Procedures for obtaining access to books, documents, and 
          records.

 Subpart E--Rewards for Information Relating to Medicare Fraud and Abuse

420.400  Basis and scope.
420.405  Rewards for information relating to Medicare fraud and abuse.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 44 FR 31142, May 30, 1979, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 420.1  Scope and purpose.

    This part sets forth requirements for Medicare providers, 
intermediaries, and carriers to disclose ownership and control 
information. It also deals with access to records pertaining to certain 
contracts entered into by Medicare providers. These rules are aimed at 
protecting the integrity of the Medicare program. The statutory basis 
for these requirements is explained in each of the other subparts.

[51 FR 34787, Sept. 30, 1986]



Sec. 420.3  Other related regulations.

    (a) Appeals procedures. Part 498 of this chapter sets forth the 
appeals procedures available to providers whose provider agreements HCFA 
terminates for failure to comply with the disclosure of information 
requirements set forth in subpart C of this part.
    (b) Exclusion, termination, or suspension. Part 1001 of this title 
sets forth the rules applicable to exclusion, termination, or suspension 
from the Medicare program because of fraud or abuse

[[Page 643]]

or conviction of program-related crimes.

[51 FR 34787, Sept. 30, 1986, as amended at 52 FR 22454, June 12, 1987]



                          Subpart B--[Reserved]



       Subpart C--Disclosure of Ownership and Control Information



Sec. 420.200  Purpose.

    This subpart implements sections 1124, 1124A, 1126, and 
1861(v)(1)(i) of the Social Security Act. It sets forth requirements for 
providers, Part B suppliers, intermediaries, and carriers to disclose 
ownership and control information and the identities of managing 
employees. It also sets forth requirements for disclosure of information 
about a provider's or Part B supplier's owners, those with a controlling 
interest, or managing employees convicted of criminal offenses against 
Medicare, Medicaid, or the title V (Maternal and Child Health Services) 
and title XX (Social Services) programs.

[57 FR 27306, June 18, 1992, as amended at 60 FR 50442, Sept. 29, 1995]



Sec. 420.201  Definitions.

    As used in this subpart unless the context indicates otherwise:
    Agent means any person who has been delegated the authority to 
obligate or act on behalf of a provider.
    Disclosing entity means:
    (1) A provider of services, an independent clinical laboratory, a 
renal disease facility, a rural health clinic, a Federally qualified 
health center, or a health maintenance organization (as defined in 
section 1301(a) of the Public Health Service Act);
    (2) A carrier or other agency or organization that is acting for one 
or more providers of services for purposes of part A and part B of 
Medicare; and
    (3) A part B supplier, as defined in Sec. 400.202 of this chapter.
    Other disclosing entity means any other Medicare disclosing entity 
and any entity that does not participate in Medicare, but is required to 
disclose certain ownership and control information because of 
participation in any of the programs established under title V, XIX, or 
XX of the Act. This includes:
    (1) An entity (other than an individual practitioner or group of 
practitioners) that furnishes, or arranges for the furnishing of, items 
or services for which payment may be claimed by the entity under any 
plan or program established under title V of the Social Security Act or 
under an approved State Medicaid plan;
    (2) An entity (other than an individual practitioner or group of 
practitioners) that furnishes, or arranges for the furnishing of, 
health-related services for which payment may be claimed by the entity 
under an approved State plan and services program under title XX of the 
Act; or
    (3) A Medicaid fiscal agent.
    Group of practitioners means two or more health care practitioners 
who practice their profession at a common location (whether or not they 
share common facilities, common supporting staff, or common equipment).
    Indirect ownership interest means any ownership interest in an 
entity that has an ownership interest in the disclosing entity. The term 
includes an ownership interest in any entity that has an indirect 
ownership interest in the disclosing entity.
    Managing employee means a general manager, business manager, 
administrator, director, or other individual who exercises operational 
or managerial control over, or who directly or indirectly conducts, the 
day-to-day operation of the institution, organization, or agency.
    Ownership interest means the possession of equity in the capital, 
the stock, or the profits of the disclosing entity.
    Person with an ownership or control interest means a person or 
corporation that--
    (1) Has an ownership interest totaling 5 percent or more in a 
disclosing entity;
    (2) Has an indirect ownership interest equal to 5 percent or more in 
a disclosing entity;
    (3) Has a combination of direct and indirect ownership interests 
equal to 5 percent or more in a disclosing entity;
    (4) Owns an interest of 5 percent or more in any mortgage, deed of 
trust, note, or other obligation secured by the disclosing entity if 
that interest equals at least 5 percent of the value of

[[Page 644]]

the property or assets of the disclosing entity;
    (5) Is an officer or director of a disclosing entity that is 
organized as a corporation; or
    (6) Is a partner in a disclosing entity that is organized as a 
partnership.
    Significant business transaction means any business transaction or 
series of transactions during any one fiscal year, the total of which 
exceeds the lesser of $25,000 and 5 percent of the total operating 
expenses of the provider.
    Subcontractor means--
    (1) An individual, agency, or organization to which a disclosing 
entity has contracted or delegated some of its management functions or 
responsibilities of providing medical care to its patients; or
    (2) An individual, agency, or organization with which an 
intermediary or carrier has entered into a contract, agreement, purchase 
order or lease (or leases of real property) to obtain space, supplies, 
equipment, or services provided under the Medicare agreement.
    Wholly owned supplier means a supplier whose total ownership 
interest is held by a provider or by a person, persons, or other entity 
with an ownership or control interest in a provider.

[44 FR 41642, July 17, 1979, as amended at 57 FR 24982, June 12, 1992; 
57 FR 27306, June 18, 1992; 57 FR 35760, Aug. 11, 1992]



Sec. 420.202  Determination of ownership or control percentages.

    (a) Indirect ownership interest. The amount of indirect ownership 
interest is determined by multiplying the percentages of ownership in 
each entity. For example, if A owns 10 percent of the stock in a 
corporation that owns 80 percent of the disclosing entity, A's interest 
equates to an 8 percent indirect ownership interest in the disclosing 
entity and must be reported. Conversely, if B owns 80 percent of the 
stock of a corporation that owns 5 percent of the stock of the 
disclosing entity, B's interest equates to a 4 percent indirect 
ownership interest in the disclosing entity and need not be reported.
    (b) Person with an ownership or control interest. In order to 
determine the percentage of ownership interest in any mortgage, deed of 
trust, note, or other obligation, the percentage of interest owned in 
obligation is multiplied by the percentage of the disclosing entity's 
assets used to secure the obligation. For example, if A owns 10 percent 
of a note secured by 60 percent of the provider's assets, A's interest 
in the provider's assets equates to 6 percent and must be reported. 
Conversely, if B owns 40 percent of a note secured by 10 percent of the 
provider's assets, B's interest in the provider's assets equates to 4 
percent and need not be reported.



Sec. 420.203  Disclosure of hiring of intermediary's former employees.

    A provider must notify the Secretary promptly if it, or its home 
office (in the case of a chain organization), employs or obtains the 
services of an individual who, at any time during the year preceding 
such employment, was employed in a managerial, accounting, auditing, or 
similar capacity by an agency or organization which currently serves, or 
at any time during the preceding year, served as a Medicare fiscal 
intermediary or carrier for the provider. Similar capacity means the 
performance of essentially the same work functions as those of a 
manager, accountant, or auditor even though the individual is not so 
designated by title.



Sec. 420.204  Principals convicted of a program-related crime.

    (a) Information required. Prior to HCFA's acceptance of a provider 
agreement or issuance or reissuance of a supplier billing number, or at 
any time upon written request by HCFA, the provider or part B supplier 
must furnish HCFA with the identity of any person who:
    (1) Has an ownership or control interest in the provider or part B 
supplier;
    (2) Is an agent or managing employee of the provider or part B 
supplier; or
    (3) Is a person identified in paragraph (a)(1) or (a)(2) of this 
section and has been convicted of, or was an owner of, had a controlling 
interest in, or was a managing employee of a corporation that has been 
convicted of a criminal offense, subjected to any civil monetary 
penalty, or excluded from the programs for any activities related to 
involvement in the Medicare, Medicaid,

[[Page 645]]

title V or title XX social services program, since the inception of 
those programs.
    (b) Refusal to enter into or renew agreement or to issue or reissue 
billing numbers. HCFA may refuse to enter into or renew an agreement 
with a provider of services, or to issue or reissue a billing number to 
a part B supplier, if any person who has an ownership or control 
interest in the provider or supplier, or who is an agent or managing 
employee, has been convicted of a criminal offense or subjected to any 
civil penalty or sanction related to the involvement of that person in 
Medicare, Medicaid, title V or title XX social services programs. In 
making this decision, HCFA considers the facts and circumstances of the 
specific case, including the nature and severity of the crime, penalty 
or sanction and the extent to which it adversely affected beneficiaries 
and the programs involved. HCFA also considers whether it has been given 
reasonable assurance that the person will not commit any further 
criminal or civil offense against the programs.
    (c) Notification of Inspector General. HCFA promptly notifies the 
Inspector General of the Department of the receipt of any application or 
request for participation, certification, re-certification, or for a 
billing number that identifies any person described in paragraph (a)(3) 
of this section and the action taken on that application or request.

[57 FR 27306, June 18, 1992]



Sec. 420.205  Disclosure by providers and part B suppliers of business transaction information.

    A provider or part B supplier must submit to HCFA, within 35 days 
after the date of a written request, full and complete information on--
    (a) The ownership of a subcontractor with which the provider or part 
B supplier has had, during the previous 12 months, business transactions 
in an aggregate amount in excess of $25,000;
    (b) Any significant business transactions between the provider or 
part B supplier and any wholly owned supplier or between the provider or 
part B supplier and any subcontractor, during the 5 year period ending 
on the date of the request;
    (c) The names of managing employees of the subcontractors;
    (d) The identity of any other entities to which payment may be made 
by Medicare, which a person with an ownership or control interest or a 
managing employee in the subcontractor has or has had an ownership or 
control interest in the 3-year period preceding disclosure; and
    (e) Any penalties, assessments, or exclusions under sections 1128, 
1128A and 1128B of the Act incurred by the subcontractor, its owners, 
managing employees or those with a controlling interest in the 
subcontract.

[57 FR 27306, June 18, 1992]



Sec. 420.206  Disclosure of persons having ownership, financial, or control interest.

    (a) Information that must be disclosed. A disclosing entity must 
submit the following information in the manner specified in paragraph 
(b) of this section:
    (1) The name and address of each person with an ownership or control 
interest in the entity or in any subcontractor in which the entity has 
direct or indirect ownership interest totaling 5 percent or more. In the 
case of a part B supplier that is a joint venture, ownership of 5 
percent or more of any company participating in the joint venture should 
be reported. Any physician who has been issued a Unique Physician 
Identification Number by the Medicare program must provide this number.
    (2) Whether any of the persons named, in compliance with paragraph 
(a)(1) of this section, is related to another as spouse, parent, child, 
or sibling.
    (3) The name of any other disclosing entity in which any person with 
an ownership or control interest, or who is a managing employee in the 
reporting disclosing entity, has, or has had in the previous three-year 
period, an ownership or control interest or position as managing 
employee, and the nature of the relationship with the other disclosing 
entity. If any of these other disclosing entities has been convicted of 
a criminal offense or received a civil monetary or other administrative 
sanction related to participation in Medicare, Medicaid, title V 
(Maternal

[[Page 646]]

and Child Health) or title XX (Social Services) programs, such as 
penalties assessments and exclusions under sections 1128, 1128A or 1128B 
of the Act, the disclosing entity must also provide that information.
    (b) Time and manner of disclosure. (1) Any disclosing entity that is 
subject to periodic survey and certification of its compliance with 
Medicare standards must supply the information specified in paragraph 
(a) of this section to the State survey agency at the time it is 
surveyed. The survey agency will promptly furnish the information to the 
Secretary.
    (2) Any disclosing entity that is not subject to periodic survey and 
certification must supply the information specified in paragraph (a) of 
this section to HCFA before entering into a contract or agreement with 
Medicare or before being issued or reissued a billing number as a part B 
supplier.
    (3) A disclosing entity must furnish updated information to HCFA at 
intervals between recertification, or re-enrollment, or contract 
renewals, within 35 days of a written request. In the case of a part B 
supplier, the supplier must report also within 35 days, on its own 
initiative, any changes in the information it previously supplied.
    (c) Consequences of failure to disclose. (1) HCFA does not approve 
an agreement or contract with, or make a determination of eligibility 
for, or (in the case of a part B supplier) issue or reissue a billing 
number to, any disclosing entity that fails to comply with paragraph (b) 
of this section.
    (2) HCFA terminates any existing agreement or contract with, or 
withdraws a determination of eligibility for or (in the case of a part B 
supplier) revokes the billing number of, any disclosing entity that 
fails to comply with paragraph (b) of this section.
    (d) Public disclosure. Information furnished to the Secretary under 
the provisions of this section shall be subject to public disclosure as 
specified in 20 CFR part 422.

[44 FR 41642, July 17, 1979, as amended at 57 FR 27306, June 18, 1992]



  Subpart D--Access to Books, Documents, and Records of Subcontractors

    Source: 47 FR 58267, Dec. 30, 1982, unless otherwise noted.



Sec. 420.300  Basis, purpose, and scope.

    This subpart implements section 1861(v)(1)(I) of the Act, which 
requires, for Medicare payment under certain provider contracts, access 
by the Secretary, upon written request, and the Comptroller General, and 
their duly authorized representatives, to certain contracts for services 
and to books, documents, and records necessary to verify the costs of 
the services. The contracts affected are those between providers and 
their subcontractors, and between the subcontractors and organizations 
related to the subcontractor by control or common ownership. It also 
specifies the criteria by which HHS will determine whether to request 
access to books, documents, and records.



Sec. 420.301  Definitions.

    For purposes of this subpart--
    Books, documents, and records means all writings, recordings, 
transcriptions and tapes of any description necessary to verify the 
nature and extent of the costs of the services provided by the 
subcontractor.
    Common ownership means that an individual or individuals possess 
significant ownership or equity in the subcontractor and the entity 
providing the services under the contract.
    Contract for services means a contract through which a provider 
obtains the performance of an act or acts, as distinguished from 
supplies or equipment. It includes any contract for both goods and 
services to the extent the value or cost of the service component is 
$10,000 or more within a 12-month period.
    Control means that an individual or an organization has the power, 
directly or indirectly, significantly to influence or direct the actions 
of policies of an organization.
    Provider means a hospital, skilled nursing facility, home health 
agency, hospice or comprehensive outpatient

[[Page 647]]

rehabilitation facility, or a related organization (as defined in 
Sec. 413.17 of this chapter) of any of these providers.
    Related to the subcontractor means that the subcontractor is, to a 
significant extent, associated or affiliated with, owns, or is owned by, 
or has control of or is controlled by, the organization furnishing the 
services, facilities, or supplies.
    Subcontractor means any entity, including an individual or 
individuals, that contracts with a provider to supply a service, either 
to the provider or directly to a beneficiary, for which Medicare 
reimburses the provider the cost of the service. This includes 
organizations related to the subcontractor that have a contract with the 
subcontractor for which the cost or value is $10,000 or more in a 12-
month period.

[47 FR 58267, Dec. 30, 1982, as amended at 49 FR 13703, Apr. 6, 1984; 51 
FR 34833, Sept. 30, 1986]



Sec. 420.302  Requirement for access clause in contracts.

    (a) Applicability. This subpart applies to contracts--
    (1) Between a provider and a subcontractor and, where subject to 
section 1861(v)(l)(I)(ii) of the Act, between a subcontractor and an 
organization related to the subcontractor;
    (2) Entered into or renewed after December 5, 1980; and
    (3) For services the cost or value of which is $10,000 or more over 
a 12-month period, including contracts for both goods and services in 
which the service component is worth $10,000 or more over a 12-month 
period.
    (b) Requirement. Any contract meeting the conditions of paragraph 
(a) of this section must include a clause that allows the Comptroller 
General of the United States, HHS, and their duly authorized 
representatives access to the subcontractor's contract, books, 
documents, and records until the expiration of four years after the 
services are furnished under the contract or subcontract. The access 
must be provided for in accordance with the provisions of this subpart. 
The clause must also allow similar access by HHS, the Comptroller 
General, and their duly authorized representatives to contracts subject 
to section 1861(v)(l)(I)(ii) of the Act between a subcontractor and 
organizations related to the subcontractor and to books, documents, and 
records.
    (c) Prohibition against Medicare reimbursement. If a contract 
subject to the requirements of this subpart does not contain the clause 
required by paragraph (b) of this section, HCFA will not reimburse the 
provider for the cost of the services furnished under the contract and 
will recoup any payments previously made for services under the 
contract. However, in order to avoid nonreimbursement or recoupment, 
providers will have until July 30, 1983, to amend those contracts 
entered into or renewed after December 5, 1980, and before January 31, 
1983, that do not conform to the requirements of paragraph (b) of this 
section.

[47 FR 58267, Dec. 30, 1982, as amended at 49 FR 13703, Apr. 6, 1984]



Sec. 420.303  HHS criteria for requesting books, documents, and records.

    HHS will generally request books, documents, and records from a 
subcontractor only if one of the following situations exists and the 
question cannot satisfactorily and efficiently be resolved without 
access to the books, documents, and records:
    (a) HHS has reason to believe that the costs claimed for services of 
the subcontractor are excessive or inappropriate.
    (b) There is insufficient information to judge the appropriateness 
of the costs.
    (c) There is a written accusation with suitable evidence against the 
provider or subcontractor of kickbacks, bribes, rebates, or other 
illegal activities.
    (d) There is evidence of a possible nondisclosure of the existence 
of a related organization.



Sec. 420.304  Procedures for obtaining access to books, documents, and records.

    (a) Contents of the request. Requests for access will be in writing 
and contain the following elements:
    (1) Reasonable identification of the books, documents, and records 
to which access is being requested.
    (2) Identification of the contract or subcontract in which costs are 
being

[[Page 648]]

questioned as excessive or inappropriate.
    (3) The reason that the appropriateness of the costs or value of the 
services of the subcontractor in question cannot be adequately or 
efficiently determined without access to the subcontractor's books and 
records.
    (4) The authority in the statute and regulations for the access 
requested.
    (5) To the extent possible, the identification of those individuals 
who will be visiting the subcontractor to obtain access to the books, 
documents, and records.
    (6) The time and date of the scheduled visit.
    (7) The name of the duly authorized representative of HHS to contact 
if there are any questions.
    (b) Subcontractor response to a request for access to books, 
documents, and records. (1) The subcontractor will have 30 days from the 
date of a written request for access to books, documents, and records to 
make them available in accordance with the request.
    (2) If the subcontractor believes the request is inadequate because 
it does not fully meet one or more of the required elements in paragraph 
(a) of this section, the subcontractor must advise the requesting 
organization of the additional information needed.
    (i) The subcontractor must notify the requesting organization within 
20 days of the date of the request that it was improperly completed.
    (ii) The subcontractor must make the books, documents, and records 
available within 20 days after the date of the requesting organization's 
response.
    (3) If the subcontractor believes, for good cause, that the 
requested books, documents, and records cannot be made available as 
requested with the 30-day period under paragraph (b)(1) of this section, 
the subcontractor may request an extension of time within which to 
comply with the request from the requesting organization. The requesting 
organization may, at its discretion, grant the request for an extension, 
in whole or in part, for good cause shown.
    (4) The subcontractor must make the books, documents, and records 
available during its regular business hours for inspection, audit, and 
reproduction.
    (5) If HHS asks the subcontractor to reproduce books, documents, and 
records, HHS will pay the reasonable cost of reproduction. However, if 
the subcontractor reproduces books, documents, and records as a means of 
making them available, the subcontractor must bear the cost of the 
reproduction and no Medicare reimbursement will be made for that 
purpose.
    (6) HHS reserves the right to examine the originals of any requested 
contracts, books, documents, and records, if they exist.
    (c) Refusal by subcontractor to furnish access to records. If HCFA 
determines that the books, documents, and records are necessary for the 
reimbursement determination and the subcontractor refuses to make them 
available, HHS may initiate legal action against the subcontractor.



 Subpart E--Rewards for Information Relating to Medicare Fraud and Abuse

    Source: 63 FR 31128, June 8, 1998, unless otherwise noted.



Sec. 420.400  Basis and scope.

    This subpart implements section 203 (b) of Public Law 104-191, which 
requires the establishment of a program to encourage individuals to 
report suspected cases of fraud and abuse. Sections 203 (b) of Public 
Law 104-191 also provides the authority for HCFA to reward individuals 
for reporting fraud and abuse. This subpart sets forth procedures for 
rewarding individuals.



Sec. 420.405  Rewards for information relating to Medicare fraud and abuse.

    (a) General rule. HCFA pays a monetary reward for information that 
leads to the recovery of at least $100 of Medicare funds from 
individuals and entities that are engaging in, or have engaged in, acts 
or omissions that constitute grounds for the imposition of a sanction 
under section 1128, section 1128A, or section 1128B of the Act or that 
have otherwise engaged in sanctionable fraud and abuse against the 
Medicare program. The determination of whether an individual meets the 
criteria for an award, and the amount of the award, is at the discretion 
of

[[Page 649]]

HCFA. HCFA pays rewards only if a reward is not otherwise provided for 
by law. When HCFA applies the criteria specified in paragraphs (b), (c), 
and (e) of this section to determine the eligibility and the amount of 
the reward, it notifies the recipient as specified in paragraph (d) of 
this section.
    (b) Information eligible for reward. (1) In order for an individual 
to be eligible to receive a reward, the information he or she supplied 
must relate to the activities of a specific individual or entity and 
must specify the time period of the alleged activities.
    (2) HCFA does not give a reward for information relating to an 
individual or entity that, at the time the information is provided, is 
already the subject of a review or investigation by HCFA or its 
contractors, or the OIG, the Department of Justice, the Federal Bureau 
of Investigation, or any other Federal, State, or local law enforcement 
agency.
    (c) Persons eligible to receive a reward--(1) General rule. Any 
person (other than one excluded under paragraph (c)(2) of this section) 
is eligible to receive a reward under this section if the person submits 
the information in the manner set forth in paragraph (f) of this 
section.
    (2) Excluded individuals. (i) An individual who was, or is an 
immediate family member of, an officer or employee of HHS or its 
contractors, the SSA, the OIG, a State Medicaid Agency, or the 
Department of Justice, the Federal Bureau of Investigation, or any other 
Federal, State, or local law enforcement agency at the time he or she 
came into possession of, or divulged, information leading to a recovery 
of Medicare funds is not eligible to receive a reward under this 
section.
    (ii) Any other Federal or State employee or contractor or an HHS 
grantee is not eligible for a reward under this section if the 
information submitted came to his or her knowledge in the course of his 
or her official duties.
    (iii) An individual who illegally obtained the information he or she 
submitted is excluded from receiving a reward under this section.
    (iv) An individual who participated in the sanctionable offense with 
respect to which payment would be made is excluded from receiving a 
reward under this section.
    (d) Notification of eligibility--(1) General rule. After all 
Medicare funds have been recovered and HCFA has determined a participant 
eligible to receive a reward under the provisions of this section, it 
notifies the informant of his or her eligibility, by mail, at the most 
recent address supplied by the individual. It is the individual's 
responsibility to ensure that the reward program has been notified of 
any change in his or her address or other relevant personal information 
(for example, change of name, phone number).
    (2) Special circumstances. (i) If the individual has relocated to an 
unknown address, the individual or his or her legal representative may 
claim the reward by contacting HCFA within 1 year from the date on which 
HCFA first attempted to notify the individual about a reward. HCFA does 
not consider the individual or his or her legal representative eligible 
for a reward more than 1 year after the date on which it first attempted 
to give notice. HCFA does not pay interest on rewards that are not 
immediately claimed.
    (ii) If the individual has become incapacitated or has died, an 
executor, administrator, or other legal representative may claim the 
reward on behalf of the individual or the individual's estate. The 
claimant must submit certified copies of the letters testamentary, 
letters of administration, or other similar evidence to show his or her 
authority to claim the reward. The claim must be filed within 1 year 
from the date on which HCFA first gave or attempted to give notice of 
the reward.
    (e) Amount and payment of reward. (1) In determining whether it will 
pay a reward and, if so, the amount of the reward, HCFA takes into 
account all relevant factors, including the significance of the 
information furnished in relation to the ultimate resolution of the case 
and the recovery of Medicare funds.
    (2) The amount of a reward represents what HCFA considers to be 
adequate compensation in the particular case, not to exceed 10 percent 
of the overpayments recovered in the case or $1,000, whichever is less.

[[Page 650]]

    (3) If more than one person is eligible to receive a reward in a 
particular case, HCFA allocates the total reward amount (not to exceed 
10 percent of the overpayments recovered in that case or $1,000, 
whichever is less) among the participants.
    (4) HCFA bases rewards only on recovered Medicare payments and not 
on amounts collected as penalties or fines.
    (5) HCFA makes payments as promptly as the circumstances of the case 
permit, but not until it has collected all Medicare overpayments, fines, 
and penalties.
    (6) No person may make any offer or promise or otherwise bind HCFA 
or HHS with respect to the payment of any reward under this section or 
the amount of the reward.
    (f) Submission of information. (1) An individual may submit 
information on persons or entities engaging in, or that have engaged in, 
fraud and abuse against the Medicare program to the Office of the 
Inspector General, or to the Medicare intermediary or carrier that has 
jurisdiction over the suspected fraudulent provider or supplier.
    (2) A participant interested in receiving a reward must provide his 
or her name, address, telephone number, and any other requested 
identifying information so that he or she may be contacted, if 
necessary, for additional information and, when applicable, for the 
payment of a reward upon resolution of the case.
    (g) Confidentiality. HCFA does not reveal a participant's identity 
to any person, except as required by law.
    (h) Finding of ineligibility after reward is accepted. If, after a 
reward is accepted, HCFA finds that the awardee was ineligible to 
receive the reward, the Government is not liable for the reward and the 
awardee must refund all monies received.



PART 421--INTERMEDIARIES AND CARRIERS--Table of Contents




          Subpart A--Scope, Definitions, and General Provisions

Sec.
421.1  Basis and scope.
421.3  Definitions.
421.5  General provisions.

                        Subpart B--Intermediaries

421.100  Intermediary functions.
421.103  Options available to providers and HCFA.
421.104  Nominations for intermediary.
421.105  Notification of action on nomination.
421.106  Change to another intermediary or to direct payment.
421.110  Requirements for approval of an agreement.
421.112  Considerations relating to the effective and efficient 
          administration of the program.
421.114  Assignment and reassignment of providers by HCFA.
421.116  Designation of national or regional intermediaries.
421.117  Designation of regional and alternative designated regional 
          intermediaries for home health agencies and hospices.
421.118  Awarding of experimental contracts.
421.120  Performance criteria.
421.122  Performance standards.
421.124  Intermediary's failure to perform efficiently and effectively.
421.126  Termination of agreements.
421.128  Intermediary's opportunity for hearing and right to judicial 
          review.

                           Subpart C--Carriers

421.200  Carrier functions.
421.201  Performance criteria and standards.
421.202  Requirements and conditions.
421.203  Carrier's failure to perform efficiently and effectively.
421.205  Termination by the Secretary.
421.210  Designations of regional carriers to process claims for durable 
          medical equipment, prosthetics, orthotics and supplies.
421.212  Railroad Retirement Board contracts.
421.214  Advance payments to suppliers furnishing items or services 
          under Part B.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 45 FR 42179, June 23, 1980, unless otherwise noted.



          Subpart A--Scope, Definitions, and General Provisions



Sec. 421.1  Basis and scope.

    (a) This part is based on the indicated provisions of the following 
sections of the Act:

    1124--Requirements for disclosure of certain information.
    1816 and 1842--Use of organizations and agencies in making Medicare 
payments to providers and suppliers of services.


[[Page 651]]


    (b) Section 421.118 is also based on 42 U.S.C.1395b-1(a)(1)(F), 
which authorizes demonstration projects involving intermediary 
agreements and carrier contracts.
    (c) The provisions of this part apply to agreements with Part A 
(Hospital Insurance) intermediaries and contracts with Part B 
(Supplementary Medical Insurance) carriers. They also state that HCFA 
may perform certain functions directly or by contract. They specify 
criteria and standards to be used in selecting intermediaries and 
evaluating their performance, in assigning or reassigning a provider or 
providers to particular intermediaries, and in designating regional or 
national intermediaries for certain classes of providers. The provisions 
set forth the instances where there is the opportunity for a hearing for 
intermediaries and carriers affected by certain adverse actions. In some 
circumstances, the adversely affected intermediaries may request a 
judicial review of hearings decisions on--
    (1) Assignment or reassignment of a provider or providers; or
    (2) Designation of an intermediary or intermediaries to serve a 
class of providers.

[49 FR 3659, Jan. 30, 1984, as amended at 60 FR 50442, Sept. 29, 1995]



Sec. 421.3  Definitions.

    Intermediary means an entity that has a contract with HCFA to 
determine and make Medicare payments for Part A or Part B benefits 
payable on a cost basis (or under the Prospective Payment System for 
hospitals) and to perform other related functions. For purposes of 
designating regional or alternative regional intermediaries for home 
health agencies and of designating intermediaries for hospices under 
Sec. 421.117 as well as for applying the performance criteria in 
Sec. 421.120 and the performance standards in Sec. 421.122 and any 
adverse action resulting from such application, the term intermediary 
also means a Blue Cross Plan which has entered into a subcontract 
approved by HCFA with the Blue Cross and Blue Shield Association to 
perform intermediary functions.

[59 FR 681, Jan. 6, 1994]



Sec. 421.5  General provisions.

    (a) Competitive bidding not required for carriers. HCFA may enter 
into contracts with carriers, or with intermediaries to act as carriers 
in certain circumstances, without regard to section 3709 of the U.S. 
Revised Statutes or any other provision of law that requires competitive 
bidding.
    (b) Indemnification of intermediaries and carriers. Intermediaries 
and carriers act on behalf of HCFA in carrying out certain 
administrative responsibilities that the law imposes. Accordingly, their 
agreements and contracts contain clauses providing for indemnification 
with respect to actions taken on behalf of HCFA and HCFA is the real 
party of interest in any litigation involving the administration of the 
program.
    (c) Use of intermediaries to perform carrier functions. HCFA may 
contract with an intermediary to perform carrier functions with respect 
to services for which Part B payment is made to a provider.
    (d) Nonrenewal of agreement or contract. Notwithstanding any of the 
provisions of this part, HCFA has the authority not to renew an 
agreement or contract when its term expires.
    (e) Intermediary availability in an area. For more effective and 
efficient administration of the program, HCFA retains the right to 
expand or diminish the geographical area in which an intermediary is 
available to serve providers.
    (f) Provision for automatic renewal. Agreements and contracts under 
this part may contain automatic renewal clauses for continuation from 
term to term unless either party gives notice, within timeframes 
specified in the agreement or contract, of its intention not to renew.

[45 FR 42179, June 23, 1980, as amended at 54 FR 4026, Jan. 27, 1989]



                        Subpart B--Intermediaries



Sec. 421.100  Intermediary functions.

    An agreement between HCFA and an intermediary specifies the 
functions to be performed by the intermediary, which must include, but 
are not necessarily limited to, the following:

[[Page 652]]

    (a) Coverage. (1) The intermediary ensures that it makes payments 
only for services that are:
    (i) Furnished to Medicare beneficiaries;
    (ii) Covered under Medicare; and
    (iii) In accordance with PRO determinations when they are services 
for which the PRO has assumed review responsibility under its contract 
with HCFA.
    (2) The intermediary takes appropriate action to reject or adjust 
the claim if--
    (i) The intermediary or the PRO determines that the services 
furnished or proposed to be furnished were not reasonable, not medically 
necessary, or not furnished in the most appropriate setting; or
    (ii) The intermediary determines that the claim does not properly 
reflect the kind and amount of services furnished.
    (b) Fiscal management. The intermediary must receive, disburse, and 
account for funds in making Medicare payments.
    (c) Provider audits. The intermediary must audit the records of 
providers of services as necessary to assure proper payments.
    (d) Utilization patterns. The intermediary must assist providers 
to--
    (1) Develop procedures relating to utilization practices;
    (2) Make studies of the effectiveness of those procedures and 
recommend methods to improve them;
    (3) Evaluate the results of utilization review activity; and
    (4) Assist in the application of safeguards against unnecessary 
utilization of services.
    (e) Resolution of cost report disputes. The intermediary must 
establish and maintain procedures approved by HCFA to consider and 
resolve any disputes that may result from provider dissatisfaction with 
an intermediary's determinations concerning provider cost reports.
    (f) Reconsideration of determinations. The intermediary must 
establish and maintain procedures approved by HCFA for the 
reconsideration of its determinations to deny payments to an individual 
or to the provider that furnished services to the individual. The PRO 
performs reconsideration of cases in which it made a determination 
subject to reconsideration.
    (g) Information and reports. The intermediary must furnish to HCFA 
any information and reports that HCFA requests in order to carry out its 
responsibilities in the administration of the Medicare program.
    (h) Other terms and conditions. The intermediary must comply with 
all applicable laws and regulations and with any other terms and 
conditions included in its agreement.
    (i) Dual intermediary responsibilities. With respect to the 
responsibility for service to provider-based HHAs and provider-based 
hospices, where the HHA or hospice and its parent provider will be 
served by different intermediaries under Sec. 421.117 of this part, the 
designated regional intermediary will process bills, make coverage 
determinations and make payments to the HHAs and hospices. The 
intermediary serving the parent provider will perform all fiscal 
functions, including audits and settlement of the Medicare cost reports 
and the HHA and hospice supplement worksheets.

[45 FR 42179, June 23, 1980, as amended at 48 FR 7178, Feb. 18, 1983; 49 
FR 3659, Jan. 30, 1984; 51 FR 43198, Dec. 1, 1986; 53 FR 17944, May 19, 
1988; 54 FR 4026, Jan. 27, 1989]



Sec. 421.103  Options available to providers and HCFA.

    (a) Except for hospices (which are covered under Sec. 421.117), a 
provider may elect to receive payment for covered services furnished to 
Medicare beneficiaries--
    (1) Directly from HCFA (subject to the provisions of paragraph (b) 
of this section); or
    (2) Through an intermediary, when both HCFA and the intermediary 
consent.
    (b) Whenever HCFA determines it appropriate, it may contract with 
any organization (including an intermediary with which HCFA has 
previously entered into an agreement under Sec. 421.105 and Sec. 421.110 
or designated as a regional or alternative regional intermediary under 
Sec. 421.117) for the purposes of making payments to any provider that 
does

[[Page 653]]

not elect to receive payment from an intermediary.

[49 FR 3659, Jan. 30, 1984; 49 FR 9174, Mar. 12, 1984]



Sec. 421.104  Nominations for intermediary.

    (a) Nomination by groups or associations of providers. (1) An 
association of providers, except for hospices, may nominate an 
organization or agency to serve as intermediary for its members.
    (2) The nomination is not binding on any member of the association 
if it notifies HCFA of its nonconcurrence with the nomination.
    (3) The nomination must be made in writing, to HCFA, and must--
    (i) Identify the proposed intermediary by giving the complete name 
and address;
    (ii) Include, or furnish as an attachment, the name, address, and 
bed capacity (or patient care capacity in the case of home health 
agencies) of each member of the association;
    (iii) List the members that have concurred in the nomination of the 
proposed intermediary; and
    (iv) Be signed by an authorized representative of the association.
    (b) Action by nonmembers or nonconcurring members. Providers that 
nonconcur in their association's nomination, or are not members of an 
association, may--
    (1) Form a group of 2 or more providers for the specific purpose of 
nominating an intermediary, in accordance with provisions of paragraph 
(a) of this section;
    (2) Elect to receive payments from a fiscal intermediary with which 
HCFA already has an agreement, if HCFA and the intermediary agree to it 
(see Sec. 421.106); or
    (3) Elect to receive payment from HCFA as provided in Sec. 421.103.
    (c) HCFA is not required to enter into an agreement with a proposed 
intermediary solely because it has been nominated.

[45 FR 42179, June 23, 1980, as amended at 48 FR 56035, Dec. 16, 1983; 
49 FR 3659, Jan. 30, 1984]



Sec. 421.105  Notification of action on nomination.

    (a) HCFA will send, to each member of a nominating association or 
group, written notice of a decision to enter into or not enter into an 
agreement with the nominated organization or agency.
    (b) Any member of a group or association having more than one 
nominated intermediary approved by HCFA to act on its behalf must 
withdraw its nomination from all but one or exercise the option provided 
in Sec. 421.103(a), subject to Sec. 421.103(b), to receive payment 
directly from HCFA.

[45 FR 42179, June 23, 1980, as amended at 49 FR 3660, Jan. 30, 1984]



Sec. 421.106  Change to another intermediary or to direct payment.

    (a) Any provider may request a change of intermediary, or except for 
a hospice, that it be paid directly by HCFA, by--
    (1) Giving HCFA written notice of its desire at least 120 days 
before the end of its current fiscal year; and
    (2) Concurrently giving written notice to its intermediary.
    (b) If HCFA finds the change is consistent with effective and 
efficient administration of the program and approves the request under 
paragraph (a) of this section, it will notify the provider, the outgoing 
intermediary, and the newly-elected intermediary (if any) that the 
change will be effective on the first day following the close of the 
fiscal year in which the request was filed.

[45 FR 42179, June 23, 1980, as amended at 49 FR 56036, Dec. 16, 1983; 
49 FR 3660, Jan. 30, 1984]



Sec. 421.110  Requirements for approval of an agreement.

    Before entering into or renewing an intermediary agreement, HCFA 
will--
    (a) Determine that to do so is consistent with the effective and 
efficient administration of the Medicare program;
    (b) Review the performance of the intermediary as measured by the 
criteria (Sec. 421.120) and standards (Sec. 421.122); and
    (c) Determine that the intermediary or prospective intermediary--

[[Page 654]]

    (1) Is willing and able to assist providers in the application of 
safeguards against unnecessary utilization of services;
    (2) Meets all solvency and financial responsibility requirements 
imposed by the statutes and regulatory authorities of the State or 
States in which it, or any subcontractor performing some or all of its 
functions, would serve;
    (3) Has the overall resources and experience to administer its 
responsibilities under the Medicare program and has an existing 
operational, statistical, and recordkeeping capacity to carry out the 
additional program responsibilities it proposes to assume. HCFA will 
presume that an intermediary or prospective intermediary meets this 
requirement if it has at least 5 years experience in paying for or 
reimbursing the cost of health services;
    (4) Will serve a sufficient number of providers to permit a finding 
of effective and efficient administration. Under this criterion no 
intermediary or prospective intermediary shall be found to be not 
efficient or effective solely on the grounds that it serves only 
providers located in a single State;
    (5) Has acted in good faith to achieve effective cooperation with 
the providers it will service and with the physicians and medical 
societies in the area;
    (6) Has established a record of integrity and satisfactory service 
to the public; and
    (7) Has an affirmative equal employment opportunity program that 
complies with the fair employment provisions of the Civil Rights Act of 
1964 and Executive Order 11246, as amended.



Sec. 421.112  Considerations relating to the effective and efficient administration of the program.

    (a) In order to accomplish the most effective and efficient 
administration of the Medicare program, determinations may be made by 
the Secretary with respect to the termination of an intermediary 
agreement, or by HCFA with respect to the--
    (1) Renewal of an intermediary agreement (Sec. 421.110);
    (2) Assignment or reassignment of providers to an intermediary 
(Sec. 421.114); or
    (3) Designation of a regional or national intermediary to serve a 
class of providers (Sec. 421.116).
    (b) When taking the actions listed in paragraph (a), the Secretary 
or HCFA will consider the performance of the individual intermediary in 
its Medicare operations using the factors contained in the performance 
criteria (Sec. 421.120) and performance standards (Sec. 421.122).
    (c) In addition, when taking the actions listed in paragraph (a) of 
this section, the Secretary or HCFA may consider factors relating to--
    (1) Consistency in the administration of program policy;
    (2) Development of intermediary expertise in difficult areas of 
program administration;
    (3) Individual capacity of available intermediaries to serve 
providers as it is affected by such considerations as--
    (i) Program emphasis on the number or type of providers to be 
served; or
    (ii) Changes in data processing technology;
    (4) Overdependence of the program on the capacity of an intermediary 
to an extent that services could be interrupted;
    (5) Economy in the delivery of intermediary services;
    (6) Timeliness in the delivery of intermediary services;
    (7) Duplication in the availability of intermediaries;
    (8) Conflict of interest between an intermediary and provider; and
    (9) Any additional pertinent factors.

[45 FR 42179, June 23, 1980, as amended at 59 FR 682, Jan. 6, 1994]



Sec. 421.114  Assignment and reassignment of providers by HCFA.

    HCFA may assign or reassign any provider to any intermediary if it 
determines that the assignment or reassignment will result in a more 
effective and efficient administration of the Medicare program. Before 
making this determination HCFA will consider--
    (a) The preferences of the provider;
    (b) The availability of an intermediary as specified in 
Sec. 421.5(e); and
    (c) Intermediary performance measured against the criteria and 
standards specified in Secs. 421.120 and 421.122.

[45 FR 42179, June 23, 1980, as amended at 49 FR 3660, Jan. 30, 1984]

[[Page 655]]



Sec. 421.116  Designation of national or regional intermediaries.

    (a) After considering intermediary performance measured against the 
criteria and standards specified in Secs. 421.120 and 421.122, HCFA may 
designate a particular intermediary to serve a class of providers 
nationwide or in any geographic area it defines. HCFA may make this 
designation if it determines that the designation will result in a 
greater degree of effectiveness and efficiency in the administration of 
the Medicare program than could be achieved by an assignment of 
providers to an intermediary preferred by the providers.
    (b) No designation may be made until the affected providers and 
intermediaries are given an explanation and the intermediaries are 
advised of their right to a hearing and judicial review as specified in 
Sec. 421.128. This provision does not apply to experimental contracts 
awarded under Sec. 421.118.
    (c) To designate an intermediary, HCFA may establish classes of 
providers on the basis of--
    (1) The type of provider, for example, hospital, skilled nursing 
facility, home health agency; or
    (2) Common characteristics.

[45 FR 42179, June 23, 1980, as amended at 49 FR 3660, Jan. 30, 1984]



Sec. 421.117  Designation of regional and alternative designated regional intermediaries for home health agencies and hospices.

    (a) This section is based on section 1816(e)(4) of the Social 
Security Act, which requires the Secretary to designate regional 
intermediaries for home health agencies (HHAs) other than hospital-based 
HHAs but permits him or her to designate regional intermediaries for 
hospital-based HHAs only if the designation meets promulgated criteria 
concerning administrative efficiency and effectiveness; on section 
1816(e)(5) of the Social Security Act, which requires the Secretary to 
designate intermediaries for hospices; and on section 1874 of the Act, 
which permits HCFA to contract with any organization for the purpose of 
making payments to any provider that elects to receive payment directly 
from HCFA.
    (b) HCFA applies the following criteria to determine whether the 
assignment of hospital-based HHAs to designated regional intermediaries 
will result in the more effective and efficient administration of the 
Medicare program:
    (1) Uniform interpretation of Medicare rules;
    (2) Expertise in bill processing;
    (3) Control of administrative costs;
    (4) Ease of communication of program policy and issues to affected 
providers;
    (5) Ease of data collection;
    (6) Ease of HCFA's monitoring of intermediary performance; and
    (7) Other criteria as the Secretary believes to be pertinent.
    (c) Except as provided in paragraphs (e), (f), and (g) of this 
section, an HHA must receive payment through a regional intermediary 
designated by HCFA.
    (d) Except as provided in paragraphs (f) through (h) of this 
section, a hospice must receive payment for covered services furnished 
to Medicare beneficiaries through an intermediary designated by HCFA.
    (e) An HHA chain not desiring to receive payment from designated 
regional intermediaries may request service by one lead intermediary 
with the assistance of a local designated regional intermediary. 
Alternatively, the chain may request to be serviced by a single 
intermediary. A lead, local, or a single intermediary must be an 
organization that is a designated regional intermediary. Any request 
made under this paragraph is evaluated by HCFA in accordance with the 
criteria contained at Sec. 421.106 of this subpart.
    (f) An HHA or hospice not wishing to receive payment from a regional 
intermediary designated under paragraph (c) or (d) of this section may 
submit a request to the HCFA Regional Office to receive payment through 
an alternative regional intermediary designated by HCFA.
    (g) Except as provided in paragraph (h) of this section, any request 
that an HHA or hospice may make to change from a designated regional 
intermediary to an alternative designated regional intermediary, in 
accordance with paragraph (f) of this section, is

[[Page 656]]

evaluated by HCFA in accordance with the criteria set forth at 
Sec. 421.106(b) of this subpart and must be filed within the timeframe 
established at Sec. 421.106(a) of this subpart.
    (h) Exception: An HHA or a hospice that, as of June 20, 1988 is 
receiving payment from a designated regional intermediary may, without 
regard to the limitations contained in Sec. 421.106 of this subpart, 
continue to receive payment from that intermediary. It may do so even if 
that intermediary is not the designated regional intermediary or the 
alternative designated regional intermediary for the particular State in 
which the HHA or hospice is located.

[53 FR 17944, May 19, 1988]



Sec. 421.118  Awarding of experimental contracts.

    Notwithstanding the provisions of Secs. 421.103 and 421.104, HCFA 
may award a fixed price or performance incentive contract under the 
experimental authority contained in 42 U.S.C. 1395b-1 for performance of 
any of the functions specified in Sec. 421.100. Action taken by HCFA 
under this paragraph is not subject to--
    (a) The administrative and judicial review which would otherwise be 
available under Sec. 421.128; or
    (b) Performance criteria and performance standards review as 
provided for in Secs. 421.120 and 421.122.

[45 FR 42179, June 23, 1980, as amended at 59 FR 682, Jan. 6, 1994]



Sec. 421.120  Performance criteria.

    (a) Application of performance criteria. As part of the intermediary 
evaluations authorized by section 1816(f) of the Act, HCFA periodically 
assesses the performance of intermediaries in their Medicare operations 
using performance criteria. The criteria measure and evaluate 
intermediary performance of functional responsibilities such as--
    (1) Correct coverage and payment determinations;
    (2) Responsiveness to beneficiary concerns; and
    (3) Proper management of administrative funds.
    (b) Basis for criteria. HCFA will base the performance criteria on--
    (1) Nationwide intermediary experience;
    (2) Changes in intermediary operations due to fiscal constraints; 
and
    (3) HFCA's objectives in achieving better performance.
    (c) Publication of criteria. The development and revision of 
criteria for evaluating intermediary performance is a continuing 
process. Therefore, before the beginning of each evaluation period, HCFA 
will publish the performance criteria as a notice in the Federal 
Register.

[48 FR 7178, Feb. 18, 1983]



Sec. 421.122  Performance standards.

    (a) Development of standards. In addition to the performance 
criteria (Sec. 421.120), HCFA develops detailed performance standards 
for use in evaluating intermediary performance which may be based on 
historical performance, application of acceptable statistical measures 
of variation to nationwide intermediary experience during a base period, 
or changing program emphases or requirements. These standards are also 
developed considering intermediary experience and evaluate the specific 
requirements of each functional responsibility or criterion.
    (b) Factors beyond intermediary's control. To identify measurable 
factors that significantly affect an intermediary's performance, but 
that are not within the intermediary's control, HCFA will--
    (1) Study the performance of intermediaries during the base period, 
and
    (2) Consider the noncontrollable factors in developing performance 
standards.
    (c) Publication of standards. The development and revision of 
standards for evaluating intermediary performance is a continuing 
process. Therefore, before the beginning of each evaluation period, 
which usually coincides with the Federal fiscal year period of October 
1-September 30, HCFA publishes the performance standards as part of the 
Federal Register notice describing the performance criteria issued under 
Sec. 421.120(c). HCFA may not necessarily publish the criteria and 
standards every year. HCFA interprets the statutory phrase ``before the 
beginning of each evaluation period'' as allowing

[[Page 657]]

publication of the criteria and standards after the Federal fiscal year 
begins, as long as the evaluation period of the intermediaries for the 
new criteria and standards begins after the publication of the notice.

[59 FR 682, Jan. 6, 1994]



Sec. 421.124  Intermediary's failure to perform efficiently and effectively.

    (a) Failure by an intermediary to meet, or to demonstrate the 
capacity to meet, the criteria or standards specified in Secs. 421.120 
and 421.122 may be grounds for adverse action by the Secretary or by 
HCFA, such as reassignment of providers, offer of a short-term 
agreement, termination of a contract, or non-renewal of a contract. If 
an intermediary meets all criteria and standards in its overall 
performance, but does not meet them with respect to a specific provider 
or class of providers, HCFA may reassign that provider or class of 
providers to another intermediary in accordance with Sec. 421.114.
    (b) In addition, notwithstanding whether an intermediary meets the 
criteria and standards, if the cost incurred by the intermediary to meet 
its contractual requirements exceeds the amount which HCFA finds to be 
reasonable and adequate to meet the cost which must be incurred by an 
efficiently and economically operated intermediary, those high costs may 
also be grounds for adverse action.

[59 FR 682, Jan. 6, 1994]



Sec. 421.126  Termination of agreements.

    (a) Termination by intermediary. An intermediary may terminate its 
agreement at any time by--
    (1) Giving written notice of its intention to HCFA and to the 
providers it services at least 180 days before its intended termination 
date; and
    (2) Giving public notice of its intention by publishing a statement 
of the effective date of termination at least 60 days before that date. 
Publication must be in a newspaper of general circulation in each 
community served by the intermediary.
    (b) Termination by the Secretary, and right of appeal. (1) The 
Secretary may terminate an agreement if--
    (i) The intermediary fails to comply with the requirements of this 
subpart;
    (ii) The intermediary fails to meet the criteria or standards 
specified in Secs. 421.120 and 421.122; or
    (iii) HCFA has reassigned, under Sec. 421.114 or Sec. 421.116, all 
of the providers assigned to the intermediary.
    (2) If the Secretary decides to terminate an agreement, he or she 
will offer the intermediary an opportunity for a hearing, in accordance 
with Sec. 421.128.
    (3) If the intermediary does not request a hearing, or if the 
hearing decision affirms the Secretary's decision, the Secretary will 
provide reasonable notice of the effective date of termination to--
    (i) The intermediary;
    (ii) The providers served by the intermediary; and
    (iii) The general public.
    (4) The providers served by the intermediary will be given the 
opportunity to nominate another intermediary, in accordance with 
Sec. 421.104.



Sec. 421.128  Intermediary's opportunity for hearing and right to judicial review.

    (a) Basis for appeal. An intermediary adversely affected by any of 
the following actions shall be granted an opportunity for a hearing:
    (1) Assignment or reassignment of providers to another intermediary.
    (2) Designation of a national or regional intermediary to serve a 
class of providers.
    (3) Termination of the agreement.
    (b) Request for hearing. The intermediary shall file the request 
with HCFA within 20 days from the date on the notice of intended action.
    (c) Hearing procedures. The hearing officer shall be a 
representative of the Secretary and not otherwise a party to the initial 
administrative decision. The intermediary may be represented by counsel 
and may present evidence and examine witnesses. A complete recording of 
the proceedings at the hearing will be made and transcribed.
    (d) Judicial review. An adverse hearing decision concerning action 
under paragraph (a)(1) or (a)(2) of this section is subject to judicial 
review in accordance with 5 U.S.C. chapter 7.

[[Page 658]]

    (e) As specified in Sec. 421.118, contracts awarded under the 
experimental authority of HCFA are not subject to the provisions of this 
section.
    (f) Exception. An intermediary adversely affected by the designation 
of a regional intermediary or an alternative regional intermediary for 
HHAs, or an intermediary for hospices, under Sec. 421.117 of this 
subpart is not entitled to a hearing or judicial review concerning 
adverse effects caused by the designation of an intermediary.

[45 FR 42179, June 23, 1980, as amended at 47 FR 38540, Sept. 1, 1982; 
49 FR 3660, Jan. 30, 1984; 53 FR 17945, May 19, 1988]



                           Subpart C--Carriers



Sec. 421.200  Carrier functions.

    A contract between HCFA and a carrier, other than a regional DMEPOS 
carrier, specifies the functions to be performed by the carrier which 
must include, but are not necessarily limited to, the following:
    (a) Coverage. (1) The carrier ensures that payment is made only for 
services that are:
    (i) Furnished to Medicare beneficiaries;
    (ii) Covered under Medicare; and
    (iii) In accordance with PRO determinations when they are services 
for which the PRO has assumed review responsibility under its contract 
with HCFA.
    (2) The carrier takes appropriate action to reject or adjust the 
claim if--
    (i) The carrier or the PRO determines that the services furnished or 
proposed to be furnished were not reasonable, not medically necessary, 
or not furnished in the most appropriate setting;
    (ii) The carrier determines that the claim does not properly reflect 
the kind and amount of services furnished.
    (b) Payment on a cost basis. If payment is on a cost basis, the 
carrier must assure that payments are based on reasonable costs, as 
determined under part 413 of this chapter.
    (c) Payment on a charge basis. If payment is on a charge basis, 
under part 405, subpart E of this chapter, the carrier must ensure 
that--
    (1) Charges are reasonable and not higher than the charge for a 
comparable service furnished under comparable circumstances to the 
carrier's policy holders and subscribers; and
    (2) The payment is based on one of the following--
    (i) An itemized bill.
    (ii) An assignment under the terms of which the reasonable charge is 
the full charge for the service, as specified in Sec. 424.55 of this 
chapter.
    (iii) If the beneficiary has died, the procedures set forth in 
Secs. 424.62 and 424.64 of this chapter.
    (d) Fiscal management. The carrier must receive, disburse, and 
account for funds in making payments under Medicare.
    (e) Provider audits. The carrier must audit the records of providers 
to whom it makes Medicare Part B payments to assure that payments are 
made properly.
    (f) Utilization patterns. (1) The carrier must have methods and 
procedures for identifying utilization patterns that deviate from 
professionally established norms and bring the deviant patterns to the 
attention of appropriate professional groups.
    (2) The carrier must assist providers and other persons who furnish 
Medicare Part B services to--
    (i) Develop procedures relating to utilization practices;
    (ii) Make studies of the effectiveness of those procedures and 
devise methods to improve them;
    (iii) Apply safeguards against unnecessary utilization of services; 
and
    (iv) Develop procedures for utilization review, and establish groups 
to perform such reviews of providers to whom it makes Medicare Part B 
payments.
    (g) Information and reports. The carrier must furnish to HCFA any 
information and reports that HCFA requests in order to carry out HCFA's 
responsibilities in the administration of the Medicare program. The 
carrier must be responsive to requests for information from the public.
    (h) Maintenance and availability of records. The carrier must 
maintain and make available to HCFA the records necessary for 
verification of payments and for other related purposes.
    (i) Hearings to Part B beneficiaries. (1) The carrier must provide 
an opportunity for a fair hearing if it denies the

[[Page 659]]

beneficiary's request for payment, does not act upon the request with 
reasonable promptness, or pays less than the amount claimed.
    (2) The hearing procedures must be in accordance with part 405, 
subpart H, of this chapter (Review and Hearing Under the Supplementary 
Medical Insurance Program).
    (j) Other terms and conditions. The carrier must comply with any 
other terms and conditions included in its contract.

[45 FR 42183, Jun. 23, 1980; 45 FR 64913, Oct. 1, 1980, as amended at 49 
FR 3660, Jan. 30, 1984; 49 FR 9174, Mar. 12, 1984; 51 FR 34833, Sept. 
30, 1986; 51 FR 41350, Nov. 14, 1986; 51 FR 43198, Dec. 1, 1986; 52 FR 
4499, Feb. 12, 1987; 53 FR 6648, Mar. 2, 1988; 54 FR 4027, Jan. 27, 
1989; 57 FR 27307, June 18, 1992]



Sec. 421.201  Performance criteria and standards.

    (a) Application of performance criteria and standards. As part of 
the carrier evaluations mandated by section 1842(b)(2) of the Act, HCFA 
periodically assesses the performance of carriers in their Medicare 
operations using performance criteria and standards.
    (1) The criteria measure and evaluate carrier performance of 
functional responsibilities such as--
    (i) Accurate and timely payment determinations;
    (ii) Responsiveness to beneficiary, physician, and supplier 
concerns; and
    (iii) Proper management of administrative funds.
    (2) The standards evaluate the specific requirements of each 
functional responsibility or criterion.
    (b) Basis for criteria and standards. HCFA bases the performance 
criteria and standards on--
    (1) Nationwide carrier experience;
    (2) Changes in carrier operations due to fiscal constraints; and
    (3) HCFA's objectives in achieving better performance.
    (c) Publication of criteria and standards. Before the beginning of 
each evaluation period, which usually coincides with the Federal fiscal 
year period of October 1-September 30, HCFA publishes the performance 
criteria and standards as a notice in the Federal Register. HCFA may not 
necessarily publish the criteria and standards every year. HCFA 
interprets the statutory phrase ``before the beginning of each 
evaluation period'' as allowing publication of the criteria and 
standards after the Federal fiscal year begins, as long as the 
evaluation period of the carriers for the new criteria and standards 
begins after the publication of the notice.

[59 FR 682, Jan. 6, 1994]



Sec. 421.202  Requirements and conditions.

    Before entering into or renewing a carrier contract, HCFA determines 
that the carrier--
    (a) Has the capacity to perform its contractual responsibilities 
effectively and efficiently;
    (b) Has the financial responsibility and legal authority necessary 
to carry out its responsibilities; and
    (c) Will be able to meet any other requirements HCFA considers 
pertinent, and, if designated a regional DMEPOS carrier, any special 
requirements for regional carriers under Sec. 421.210 of this subpart.

[45 FR 42179, June 23, 1980, as amended at 57 FR 27307, June 18, 1992]



Sec. 421.203  Carrier's failure to perform efficiently and effectively.

    (a) Failure by a carrier to meet, or demonstrate the capacity to 
meet, the criteria and standards specified in Sec. 421.201 may be 
grounds for adverse action by the Secretary, such as contract 
termination or non-renewal.
    (b) Notwithstanding whether or not a carrier meets the criteria and 
standards specified in Sec. 421.201, if the cost incurred by the carrier 
to meet its contractual requirements exceeds the amount that HCFA finds 
to be reasonable and adequate to meet the cost which must be incurred by 
an efficiently and economically operated carrier, those high costs may 
also be grounds for adverse action.

[59 FR 682, Jan. 6, 1994]



Sec. 421.205  Termination by the Secretary.

    (a) Cause for termination. The Secretary may terminate a contract 
with a carrier at any time if he or she determines that the carrier has 
failed substantially to carry out any material

[[Page 660]]

terms of the contract or has performed its function in a manner 
inconsistent with the effective and efficient administration of the 
Medicare Part B program.
    (b) Notice and opportunity for hearing. Upon notification of the 
Secretary's intent to terminate the contract, the carrier may request a 
hearing within 20 days after the date on the notice of intent to 
terminate.
    (c) Hearing procedures. The hearing procedures will be those 
specified in Sec. 421.128(c).



Sec. 421.210  Designations of regional carriers to process claims for durable medical equipment, prosthetics, orthotics and supplies.

    (a) Basis. This section is based on sections 1834(a) and 1834(h) of 
the Act which authorize the Secretary to designate one or more carriers 
by specific regions to process claims for durable medical equipment, 
prosthetic devices, prosthetics, orthotics and other supplies (DMEPOS). 
This authority has been delegated to HCFA.
    (b) Types of claims. Claims for the following, except for items 
incident to a physician's professional service as defined in 
Sec. 410.26, incident to a physician's service in a rural health clinic 
as defined in Sec. 405.2413, or bundled into payment to a provider, 
ambulatory surgical center, or other facility, are processed by the 
designated carrier for its designated region and not by other carriers--
    (1) Durable medical equipment (and related supplies) as defined in 
section 1861(n) of the Act;
    (2) Prosthetic devices (and related supplies) as described in 
section 1861(s)(8) of the Act, (including intraocular lenses and 
parenteral and enteral nutrients, supplies, and equipment, when 
furnished under the prosthetic device benefit);
    (3) Orthotics and prosthetics (and related supplies) as described in 
section 1861(s)(9);
    (4) Home dialysis supplies and equipment as described in section 
1861(s)(2)(F);
    (5) Surgical dressings and other devices as described in section 
1861(s)(5);
    (6) Immunosuppressive drugs as described in section 1861(s)(2)(J); 
and
    (7) Other items or services which are designated by HCFA.
    (c) Region designation. The boundaries of the four regions for 
processing claims described in paragraph (b) of this section coincide 
with the boundaries of 1 or more sectors or areas designated for the 
Common Working File. These four regions contain the following States and 
territories: Region A: Maine, New Hampshire, Vermont, Massachusetts, 
Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, and 
Delaware. Region B: Maryland, the District of Columbia, Virginia, West 
Virginia, Ohio, Michigan, Indiana, Illinois, Wiconsin and Minnesota. 
Region C: North Carolina, South Carolina, Kentucky, Tennessee, Georgia, 
Florida, Alabama, Mississippi, Louisiana, Texas, Arkansas, Oklahoma, New 
Mexico, Colorado, Puerto Rico and the Virgin Islands. Region D: Alaska, 
Hawaii, American Samoa, Guam, the Northern Mariana Islands, California, 
Nevada, Arizona, Washington, Oregon, Montana, Idaho, Utah, Wyoming, 
North Dakota, South Dakota, Nebraska, Kansas, Iowa and Missouri.
    (d) Criteria for designating regional carriers. HCFA designates 
regional carriers to achieve a greater degree of effectiveness and 
efficiency in the administration of the Medicare program as measured 
by--
    (1) Timeliness of claim processing;
    (2) Cost per claim;
    (3) Claim processing quality;
    (4) Experience in claim processing, and in establishing local 
medical review policy; and
    (5) Other criteria that HCFA believes to be pertinent.
    (e) Carrier designation. (1) Each carrier designated a regional 
carrier is responsible, using the payment rates applicable for the State 
of residence of a beneficiary, including a qualified Railroad Retirement 
beneficiary, for processing claims for items listed in paragraph (b) of 
this section for beneficiaries whose permanent residence is within the 
area designated in paragraph (c) of this section. A beneficiary's 
permanent residence is the address at which he or she intends to spend 6 
months or more of the calendar year.

[[Page 661]]

    (2) The regional carriers designated to process DMEPOS claims (as 
defined in paragraph (b) of this section) for all Medicare beneficiaries 
residing in their respective regions (as designated in paragraph (c) of 
this section), including those entitled under the Railroad Retirement 
Act, are the following:
    (i) The Travelers Insurance Company (Region A), which will be 
processing claims in Pennsylvania.
    (ii) Associated Insurance Companies, Inc.--AdminaStar (Region B), 
which will be processing claims in Indiana.
    (iii) Blue Cross and Blue Shield of South Carolina (doing business 
as Palmetto Governments Benefits Administrators) (Region C), which will 
be processing claims in South Carolina.
    (iv) Connecticut General Life Insurance Co. (a CIGNA Company) 
(Region D), which will be processing claims in Tennessee.
    (3) Blue Cross and Blue Shield of South Carolina (Palmetto 
Government Benefits Administrators) has been selected to serve as the 
National Supplier Clearinghouse and the Statistical Analysis DME 
regional carrier.
    (4) The contracts for the four DME regional carriers will be 
periodically recompeted. The National Supplier Clearinghouse and 
Statistical Analysis DME regional carrier do not constitute separate 
contracts, but are contract amendments to one of the DME regional 
carrier contracts. The National Supplier Clearinghouse and Statistical 
Analysis DME regional carrier contract amendments will also be 
periodically recompeted.
    (f) Collecting information of ownership. Carriers designated as 
regional claims processors must obtain from each supplier of items 
listed in paragraph (b) of this section information concerning ownership 
and control as required by section 1124A of the Act and part 420 of this 
chapter, and certifications that supplier standards are met as required 
by part 424 of this chapter.

[57 FR 27307, June 18, 1992, as amended at 58 FR 60796, Nov. 18, 1993]



Sec. 421.212  Railroad Retirement Board contracts.

    In accordance with this subpart C, the Railroad Retirement Board 
contracts with DMEPOS regional carriers designated by HCFA, as set forth 
in Sec. 421.210(e)(2), for processing claims for Medicare-eligible 
Railroad Retirement beneficiaries, for the same contract period as the 
contracts entered into between HCFA and the DMEPOS regional carriers.

[58 FR 60797, Nov. 18, 1993]



Sec. 421.214  Advance payments to suppliers furnishing items or services under Part B.

    (a) Scope and applicability. This section provides for the 
following:
    (1) Sets forth requirements and procedures for the issuance and 
recovery of advance payments to suppliers of Part B services and the 
rights and responsibilities of suppliers under the payment and recovery 
process.
    (2) Does not limit HCFA's right to recover unadjusted advance 
payment balances.
    (3) Does not affect suppliers' appeal rights under part 405, subpart 
H of this chapter relating to substantive determinations on suppliers' 
claims.
    (4) Does not apply to claims for Part B services furnished by 
suppliers that have in effect provider agreements under section 1866 of 
the Act and part 489 of this chapter, and are paid by intermediaries.
    (b) Definition. As used in this section, advance payment means a 
conditional partial payment made by the carrier in response to a claim 
that it is unable to process within established time limits.
    (c) When advance payments may be made. An advance payment may be 
made if all of the following conditions are met:
    (1) The carrier is unable to process the claim timely.
    (2) HCFA determines that the prompt payment interest provision 
specified in section 1842(c) of the Act is insufficient to make a 
claimant whole.
    (3) HCFA approves, in writing to the carrier, the making of an 
advance payment by the carrier.
    (d) When advance payments are not made. Advance payments are not 
made to any supplier that meets any of the following conditions:
    (1) Is delinquent in repaying a Medicare overpayment.

[[Page 662]]

    (2) Has been advised of being under active medical review or program 
integrity investigation.
    (3) Has not submitted any claims.
    (4) Has not accepted claims' assignments within the most recent 180-
day period preceding the system malfunction.
    (e) Requirements for suppliers. (1) Except as provided for in 
paragraph (g)(1) of this section, a supplier must request, in writing to 
the carrier, an advance payment for Part B services it furnished.
    (2) A supplier must accept an advance payment as a conditional 
payment subject to adjustment, recoupment, or both, based on an eventual 
determination of the actual amount due on the claim and subject to the 
provisions of this section.
    (f) Requirements for carriers. (1) A carrier must notify a supplier 
as soon as it is determined that payment will not be made in a timely 
manner, and an advance payment option is to be offered to the supplier.
    (i) A carrier must calculate an advance payment for a particular 
claim at no more than 80 percent of the anticipated payment for that 
claim based upon the historical assigned claims payment data for claims 
paid the supplier.
    (ii) ``Historical data'' are defined as a representative 90-day 
assigned claims payment trend within the most recent 180-day experience 
before the system malfunction.
    (iii) Based on this amount and the number of claims pending for the 
supplier, the carrier must determine and issue advance payments.
    (iv) If historical data are not available or if backlogged claims 
cannot be identified, the carrier must determine and issue advance 
payments based on some other methodology approved by HCFA.
    (v) Advance payments can be made no more frequently than once every 
2 weeks to a supplier.
    (2) Generally, a supplier will not receive advance payments for more 
assigned claims than were paid, on a daily average, for the 90-day 
period before the system malfunction.
    (3) A carrier must recover an advance payment by applying it against 
the amount due on the claim on which the advance was made. If the 
advance payment exceeds the Medicare payment amount, the carrier must 
apply the unadjusted balance of the advance payment against future 
Medicare payments due the supplier.
    (4) In accordance with HCFA instructions, a carrier must maintain a 
financial system of data in accordance with the Statement of Federal 
Financial Accounting Standards for tracking each advance payment and its 
recoupment.
    (g) Requirements for HCFA. (1) In accordance with the provisions of 
this section, HCFA may determine that circumstances warrant the issuance 
of advance payments to all affected suppliers furnishing Part B 
services. HCFA may waive the requirement in paragraph (e)(1) of this 
section as part of that determination.
    (2) If adjusting Medicare payments fails to recover an advance 
payment, HCFA may authorize the use of any other recoupment method 
available (for example, lump sum repayment or an extended repayment 
schedule) including, upon written notice from the carrier to the 
supplier, converting any unpaid balances of advance payments to 
overpayments. Overpayments are recovered in accordance with part 401, 
subpart F of this chapter concerning claims collection and compromise 
and part 405, subpart C of this chapter concerning recovery of 
overpayments.
    (h) Prompt payment interest. An advance payment is a ``payment'' 
under section 1842(c)(2)(C) of the Act for purposes of meeting the time 
limit for the payment of clean claims, to the extent of the advance 
payment.
    (i) Notice, review, and appeal rights. (1) The decision to advance 
payments and the determination of the amount of any advance payment are 
committed to HCFA's discretion and are not subject to review or appeal.
    (2) The carrier must notify the supplier receiving an advance 
payment about the amounts advanced and recouped and how any Medicare 
payment amounts have been adjusted.
    (3) The supplier may request an administrative review from the 
carrier if it believes the carrier's reconciliation of the amounts 
advanced and recouped is incorrectly computed. If a review is

[[Page 663]]

requested, the carrier must provide a written explanation of the 
adjustments.
    (4) The review and explanation described in paragraph (i)(3) of this 
section is separate from a supplier's right to appeal the amount and 
computation of benefits paid on the claim, as provided at part 405, 
subpart H of this chapter. The carrier's reconciliation of amounts 
advanced and recouped is not an initial determination as defined at 
Sec. 405.803 of this chapter, and any written explanation of a 
reconciliation is not subject to further administrative review.

[61 FR 49275, Sept. 19, 1996]



PART 422--MEDICARE+CHOICE PROGRAM--Table of Contents




                      Subpart A--General Provisions

Sec.
422.1  Basis and scope.
422.2  Definitions.
422.4  Types of M+C plans.
422.6  Application requirements.
422.8  Evaluation and determination procedures.
422.10  Cost-sharing in enrollment-related costs.

            Subpart B--Eligibility, Election, and Enrollment

422.50  Eligibility to elect an M+C plan.
422.54  Continuation of enrollment.
422.56  Limitations on enrollment in an M+C MSA plan.
422.57  Limited enrollment under M+C RFB plans.
422.60  Election process
422.62  Election of coverage under an M+C plan.
422.64  Information about the M+C program.
422.66  Coordination of enrollment and disenrollment through M+C 
          organizations.
422.68  Effective dates of coverage and change of coverage.
422.74  Disenrollment by the M+C organization.
422.80  Approval of marketing materials and election forms.

             Subpart C--Benefits and Beneficiary Protections

422.100  General requirements.
422.101  Requirements relating to basic benefits.
422.102  Supplemental benefits.
422.103  Benefits under an M+C MSA plan.
422.104  Special rules on supplemental benefits for M+C MSA plans.
422.105  Special rules for point of service option.
422.106  Special arrangements with employer groups.
422.108  Medicare secondary payer (MSP) procedures.
422.109  Effect of national coverage determinations (NCDs).
422.110  Discrimination against beneficiaries prohibited.
422.111  Disclosure requirements.
422.112  Access to services.
422.114  Access to services under an M+C private fee-for-service plan.
422.118  Confidentiality and accuracy of enrollee records.
422.128  Information on advance directives.
422.132  Protection against liability and loss of benefits.

                      Subpart D--Quality Assurance

422.152  Quality assessment and performance improvement program.
422.154  External review.
422.156  Compliance deemed on the basis of accreditation.
422.157  Accreditation organizations.
422.158  Procedures for approval of accreditation as a basis for deeming 
          compliance.

                 Subpart E--Relationships With Providers

422.200  Basis and scope.
422.202  Participation procedures.
422.204  Provider credentialing and provider rights.
422.206  Interference with health care professionals' advice to 
          enrollees prohibited.
422.208  Physician incentive plans: requirements and limitations.
422.210  Disclosure of physician incentive plans
422.212  Limitations on provider indemnification.
422.214  Special rules for services furnished by noncontract providers.
422.216  Special rules for M+C private fee-for-service plans.
422.220  Exclusion of services furnished under a private contract.

          Subpart F--Payments to Medicare+Choice Organizations

422.249  Terminology
422.250  General provisions.
422.252  Annual capitation rates.
422.254  Calculation and adjustment factors.
422.256  Adjustments to capitation rates and aggregate payments.
422.257  Encounter data.
422.258  Announcement of annual capitation rates and methodology 
          changes.
422.262  Special rules for beneficiaries enrolled in M+C MSA plans.

[[Page 664]]

422.264  Special rules for coverage that begins or ends during an 
          inpatient hospital stay.
422.266  Special rules for hospice care.
422.268  Source of payment and effect of election of the M+C plan 
          election on payment.

                  Subpart G--Premiums and Cost-Sharing

422.300  Basis and scope.
422.302  Terminology.
422.304  Rules governing premiums and cost-sharing.
422.306  Submission of proposed premiums and related information.
422.308  Limits on premiums and cost-sharing amounts.
422.309  Incorrect collections of premiums and cost-sharing.
422.310  Adjusted community rate (ACR) approval process.
422.312  Requirement for additional benefits.

               Subpart H--Provider-Sponsored Organizations

422.350  Basis, scope, and definitions.
422.352  Basic requirements.
422.354  Requirements for affiliated providers.
422.356  Determining substantial financial risk and majority financial 
          interest.
422.370  Waiver of State licensure.
422.372  Basis for waiver of State licensure.
422.374  Waiver request and approval process.
422.376  Conditions of the waiver.
422.378  Relationship to State law.
422.380  Solvency standards.
422.382  Minimum net worth amount.
422.384  Financial plan requirement.
422.386  Liquidity.
422.388  Deposits.
422.390  Guarantees.

  Subpart I--Organization Compliance With State Law and Preemption by 
                               Federal Law

422.400  State licensure requirement.
422.402  Federal preemption of State law.
422.404  State premium taxes prohibited.

                          Subpart J [Reserved]

         Subpart K--Contracts With Medicare+Choice Organizations

422.500  Definitions.
422.501  General provisions.
422.502  Contract provisions.
422.504  Effective date and term of contract.
422.506  Nonrenewal of contract.
422.508  Modification or termination of contract by mutual consent.
422.510  Termination of contract by HCFA.
422.512  Termination of contract by the M+C organization.
422.514  Minimum enrollment requirements.
422.516  Reporting requirements.
422.520  Prompt payment by M+C organization.
422.524  Special rules for RFB societies.

Subpart L--Effect of Change of Ownership or Leasing of Facilities During 
                            Term of Contract

422.550  General provisions.
422.552  Novation agreement requirements.
422.553  Effect of leasing of an M+C organization's facilities.

     Subpart M--Grievances, Organization Determinations and Appeals

422.560  Basis and scope.
422.561  Definitions.
422.562  General provisions.
422.564  Grievance procedures.
422.566  Organization determinations.
422.568  Standard timeframes and notice requirements for organization 
          determinations.
422.570  Expediting certain organization determinations.
422.572  Timeframes and notice requirements for expedited organization 
          determinations.
422.574  Parties to the organization determination.
422.576  Effect of an organization determination.
422.578  Right to a reconsideration.
422.580  Reconsideration defined.
422.582  Request for a standard reconsideration.
422.584  Expediting certain reconsiderations.
422.586  Opportunity to submit evidence.
422.590  Timeframes and responsibility for reconsiderations.
422.592  Reconsideration by an independent entity.
422.594  Notice of reconsidered determination by the independent entity.
422.596  Effect of a reconsidered determination.
422.600  Right to a hearing.
422.602  Request for an ALJ hearing.
422.608  Departmental Appeals Board (the Board) review.
422.612  Judicial review.
422.616  Reopening and revising determinations and decisions.
422.618  How an M+C organization must effectuate reconsidered 
          determinations or decisions.
422.620  How M+C organizations must notify enrollees of noncoverage of 
          inpatient hospital care.
422.622  Requesting immediate PRO review of noncoverage of inpatient 
          hospital care.

[[Page 665]]

         Subpart N--Medicare Contract Determinations and Appeals

422.641  Contract determinations.
422.644  Notice of contract determination.
422.646  Effect of contract determination.
422.648  Reconsideration: Applicability.
422.650  Request for reconsideration.
422.652  Opportunity to submit evidence.
422.654  Reconsidered determination.
422.656  Notice of reconsidered determination.
422.658  Effect of reconsidered determination.
422.660  Right to a hearing.
422.662  Request for hearing.
422.664  Postponement of effective date of a contract determination when 
          a request for a hearing with respect to a contract 
          determination is filed timely.
422.666  Designation of hearing officer.
422.668  Disqualification of hearing officer.
422.670  Time and place of hearing.
422.672  Appointment of representatives.
422.674  Authority of representatives.
422.676  Conduct of hearing.
422.678  Evidence.
422.680  Witnesses.
422.682  Discovery.
422.684  Prehearing.
422.686  Record of hearing.
422.688  Authority of hearing officer.
422.690  Notice and effect of hearing decision.
422.692  Review by the Administrator.
422.694  Effect of Administrator's decision.
422.696  Reopening of contract or reconsidered determination or decision 
          of a hearing officer or the Administrator.
422.698  Effect of revised determination.

                    Subpart O--Intermediate Sanctions

422.750  Kinds of sanctions.
422.752  Basis for imposing sanctions.
422.756  Procedures for imposing sanctions.
422.758  Maximum amount of civil money penalties imposed by HCFA.
422.760  Other applicable provisions.

    Authority: Secs. 1851 and 1855 of the Social Security Act.

    Source: 63 FR 18134, Apr. 14, 1998, unless otherwise noted.



                      Subpart A--General Provisions

    Source: 63 FR 35068, June 26, 1998, unless otherwise noted.



Sec. 422.1  Basis and scope.

    (a) Basis. This part is based on the indicated provisions of the 
following sections of the Act:

1851--Eligibility, election, and enrollment.
1852--Benefits and beneficiary protections.
1853--Payments to Medicare+Choice (M+C) organizations.
1854--Premiums.
1855--Organization, licensure, and solvency of M+C organizations.
1856--Standards.
1857--Contract requirements.
1859--Definitions; enrollment restriction for certain M+C plans.

    (b) Scope. This part establishes standards and sets forth the 
requirements, limitations, and procedures for Medicare services 
furnished, or paid for, by Medicare+Choice organizations through 
Medicare+Choice plans.



Sec. 422.2  Definitions.

    As used in this part--
    ACR stands for adjusted community rate.
    Additional benefits are health care services not covered by 
Medicare, and reductions in premiums or cost-sharing for Medicare 
covered services, funded from adjusted excess amounts as calculated in 
the ACR.
    Adjusted community rate (ACR) is the equivalent of the maximum 
amount allowed under Sec. 422.310.
    Arrangement means a written agreement between an M+C organization 
and a provider or provider network, under which--
    (1) The provider or provider network agrees to furnish for a 
specific M+C plan(s) specified services to the organization's M+C 
enrollees;
    (2) The organization retains responsibilities for the services; and
    (3) Medicare payment to the organization discharges the enrollee's 
obligation to pay for the services.
    Balance billing generally refers to an amount billed by a provider 
that represents the difference between the amount the provider charges 
an individual for a service and the sum of the amount the individual's 
health insurer (for example, the original Medicare program) will pay for 
the service plus any cost-sharing by the individual.
    Basic benefits means all Medicare-covered benefits, except hospice 
services, and additional benefits.
    Benefits are health care services that are intended to maintain or 
improve the health status of enrollees, for which the M+C organization 
incurs a cost or liability under an M+C plan,

[[Page 666]]

and that are approved in the Benefit/ACR process.
    Coinsurance is a fixed percentage of the total amount paid for a 
health care service that can be charged to an M+C enrollee on a per-
service basis.
    Copayment is a fixed amount that can be charged to an M+C plan 
enrollee on a per-service basis.
    Cost-sharing includes deductibles, coinsurance, and copayments.
    Emergency medical condition means a medical condition manifesting 
itself by acute symptoms of sufficient severity (including severe pain) 
such that a prudent layperson, with an average knowledge of health and 
medicine, could reasonably expect the absence of immediate medical 
attention to result in--
    (1) Serious jeopardy to the health of the individual or, in the case 
of a pregnant woman, the health of the woman or her unborn child;
    (2) Serious impairment to bodily functions; or
    (3) Serious dysfunction of any bodily organ or part.
    Emergency services means covered inpatient and outpatient services 
that are--
    (1) Furnished by a provider qualified to furnish emergency services; 
and
    (2) Needed to evaluate or stabilize an emergency medical condition.
    Licensed by the State as a risk-bearing entity means the entity is 
licensed or otherwise authorized by the State to assume risk for 
offering health insurance or health benefits coverage, such that the 
entity is authorized to accept prepaid capitation for providing, 
arranging, or paying for comprehensive health services under an M+C 
contract.
    M+C stands for Medicare+Choice.
    M+C eligible individual means an individual who meets the 
requirements of Sec. 422.50.
    M+C organization means a public or private entity organized and 
licensed by a State as a risk-bearing entity (with the exception of 
provider-sponsored organizations receiving waivers) that is certified by 
HCFA as meeting the M+C contract requirements.
    M+C plan means health benefits coverage offered under a policy or 
contract by an M+C organization that includes a specific set of health 
benefits offered at a uniform premium and uniform level of cost-sharing 
to all Medicare beneficiaries residing in the service area of the M+C 
plan.
    M+C plan enrollee is an M+C eligible individual who has elected an 
M+C plan offered by an M+C organization.
    Mandatory supplemental benefits are services not covered by Medicare 
that an M+C enrollee must purchase as part of an M+C plan that are paid 
for directly by (or on behalf of) Medicare enrollees, in the form of 
premiums or cost-sharing.
    MSA stands for medical savings account.
    MSA trustee means a person or business with which an enrollee 
establishes an M+C MSA. A trustee may be a bank, an insurance company, 
or any other entity that--
    (1) Is approved by the Internal Revenue Service to be a trustee or 
custodian of an individual retirement account (IRA); and
    (2) Meets the requirements of Sec. 422.262(b).
    Original Medicare means health insurance available under Medicare 
Part A and Part B through the traditional fee-for service payment 
system.
    Optional supplemental benefits means health benefits normally not 
covered by Medicare purchased at the option of the M+C enrollee and that 
are paid for directly by (or on behalf of) the Medicare enrollee, in the 
form of premiums or cost-sharing. These services may be grouped or 
offered individually.
    Point of service (POS) is a benefit option that an M+C coordinated 
care plan can offer to its Medicare enrollees as an additional, 
mandatory supplemental, or optional supplemental benefit. Under the POS 
benefit option, the M+C plan allows members the option of receiving 
specified services outside of the M+C plan's provider network. In return 
for this flexibility, members typically have higher cost-sharing 
requirements for services received and, where offered as a mandatory or 
optional supplemental benefit, may also be charged a premium for the POS 
benefit option.
    Provider means--
    (1) Any individual who is engaged in the delivery of health care 
services in a State and is licensed or certified by the State to engage 
in that activity in the State; and

[[Page 667]]

    (2) Any entity that is engaged in the delivery of health care 
services in a State and is licensed or certified to deliver those 
services if such licensing or certification is required by State law or 
regulation.
    Provider network means the providers with which an M+C organization 
contracts or makes arrangements to furnish covered health care services 
to Medicare enrollees under an M+C coordinated care or network MSA plan.
    Religious and fraternal (RFB) society means an organization that--
    (1) Is described in section 501(c)(8) of the Internal Revenue Code 
of 1986 and is exempt from taxation under section 501(a) of that Act; 
and
    (2) Is affiliated with, carries out the tenets of, and shares a 
religious bond with, a church or convention or association of churches 
or an affiliated group of churches.
    RFB plan means a coordinated care plan that is offered by an RFB 
society.
    Service area means a geographic area approved by HCFA within which 
an M+C eligible individual may enroll in a particular M+C plan offered 
by the organization. For coordinated care plans and network medical 
savings account (MSA) plans only, the service area also is the area 
within which a network of providers exists that meets the access 
standards in Sec. 422.112. The service area also defines the area where 
a uniform benefit package is offered. In deciding whether to approve a 
service area proposed by an M+C organization for an M+C plan, HCFA 
considers the M+C organization's commercial service area for the type of 
plan in question (if applicable), community practices generally, whether 
the boundaries of the service area are discriminatory in effect, and, in 
the case of coordinated care and network MSA plans, the adequacy of the 
provider network in the proposed service area. HCFA may approve single 
county M+C non-network MSA plans even if the M+C organization has a 
different commercial service area.
    Urgently needed services means covered services provided when an 
enrollee is temporarily absent from the M+C plan's service (or, if 
applicable, continuation) area (or, under unusual and extraordinary 
circumstances, provided when the enrollee is in the service or 
continuation area but the organization's provider network is temporarily 
unavailable or inaccessible) when such services are medically necessary 
and immediately required--
    (1) As a result of an unforeseen illness, injury, or condition; and
    (2) It was not reasonable given the circumstances to obtain the 
services through the organization offering the M+C plan.



Sec. 422.4  Types of M+C plans.

    (a) General rule. An M+C plan may be a coordinated care plan, a 
combination of an M+C MSA plan and a contribution into an M+C MSA 
established in accordance with Sec. 422.262, or an M+C private fee-for-
service plan.
    (1) A coordinated care plan. A coordinated care plan is a plan that 
includes a network of providers that are under contract or arrangement 
with the organization to deliver the benefit package approved by HCFA.
    (i) The network is approved by HCFA to ensure that all applicable 
requirements are met, including access and availability, service area, 
and quality.
    (ii) Coordinated care plans may include mechanisms to control 
utilization, such as referrals from a gatekeeper for an enrollee to 
receive services within the plan, and financial arrangements that offer 
incentives to providers to furnish high quality and cost-effective care.
    (iii) Coordinated care plans include health maintenance 
organizations (HMOs), provider-sponsored organizations (PSOs) and 
preferred provider organizations (PPOs), RFBs, and other network plans 
(except network MSA plans).
    (2) A combination of an M+C MSA plan and a contribution into the M+C 
MSA established in accordance with Sec. 422.262. (i) M+C MSA plan means 
a plan that--
    (A) Pays at least for the services described in Sec. 422.101, after 
the enrollee has incurred countable expenses (as specified in the plan) 
equal in amount to the annual deductible specified in Sec. 422.103(d); 
and
    (B) Meets all other applicable requirements of this part.
    (ii) An M+C MSA plan may be either a network plan or a non-network 
plan.

[[Page 668]]

    (A) M+C network MSA plan means an MSA plan under which enrollees 
must receive services through a defined provider network that is 
approved by HCFA to ensure that all applicable requirements are met, 
including access and availability, service area, and quality.
    (B) M+C non-network MSA plan means an MSA plan under which enrollees 
are not required to receive services through a provider network.
    (iii) M+C MSA means a trust or custodial account--
    (A) That is established in conjunction with an MSA plan for the 
purpose of paying the qualified expenses of the account holder; and
    (B) Into which no deposits are made other than contributions by HCFA 
under the M+C program, or a trustee-to-trustee transfer or rollover from 
another M+C MSA of the same account holder, in accordance with the 
requirements of sections 138 and 220 of the Internal Revenue Code.
    (3) M+C private fee-for-service plan. An M+C private fee-for-service 
plan is an M+C plan that--
    (i) Pays providers of services at a rate determined by the plan on a 
fee-for-service basis without placing the provider at financial risk;
    (ii) Does not vary the rates for a provider based on the utilization 
of that provider's services; and
    (iii) Does not restrict enrollees' choices among providers that are 
lawfully authorized to provide services and agree to accept the plan's 
terms and conditions of payment.
    (b) Multiple plans. Under its contract, an M+C organization may 
offer multiple plans, regardless of type, provided that the M+C 
organization is licensed or approved under State law to provide those 
types of plans (or, in the case of a PSO plan, has received from HCFA a 
waiver of the State licensing requirement). If an M+C organization has 
received a waiver for the licensing requirement to offer a PSO plan, 
that waiver does not apply to the licensing requirement for any other 
type of M+C plan.



Sec. 422.6  Application requirements.

    (a) Scope. This section sets forth application requirements for 
entities that seek a contract as an M+C organization offering an M+C 
plan.
    (b) Completion of an application. (1) In order to obtain a 
determination on whether it meets the requirements to become an M+C 
organization and is qualified to provide a particular type of M+C plan, 
an entity, or an individual authorized to act for the entity (the 
applicant) must complete a certified application, in the form and manner 
required by HCFA, including the following:
    (i) Documentation of appropriate State licensure or State 
certification that the entity is able to offer health insurance or 
health benefits coverage that meets State-specified standards applicable 
to M+C plans, and is authorized by the State to accept prepaid 
capitation for providing, arranging, or paying for the comprehensive 
health care services to be offered under the M+C contract; or
    (ii) Federal waiver as described in subpart H of this part.
    (2) The authorized individual must describe thoroughly how the 
entity and M+C plan meet, or will meet, the requirements described in 
this part.
    (c) Responsibility for making determinations. HCFA is responsible 
for determining whether an entity qualifies as an M+C organization and 
whether proposed M+C plans meet the requirements of this part.
    (d) Resubmittal of application. An application that has been denied 
by HCFA may not be resubmitted for 4 months after the date of the notice 
from HCFA denying the application.
    (e) Disclosure of application information under the Freedom of 
Information Act. An applicant submitting material that he or she 
believes is protected from disclosure under 5 U.S.C. 552, the Freedom of 
Information Act, or because of exceptions provided in 45 CFR part 5 (the 
Department's regulations providing exceptions to disclosure), should 
label the material ``privileged'' and include an explanation of the 
applicability of an exception described in 45 CFR part 5.



Sec. 422.8  Evaluation and determination procedures.

    (a) Basis for evaluation and determination. (1) HCFA evaluates an 
application

[[Page 669]]

for an M+C contract on the basis of information contained in the 
application itself and any additional information that HCFA obtains 
through on-site visits, public hearings, and any other appropriate 
procedures.
    (2) If the application is incomplete, HCFA notifies the entity and 
allows 60 days from the date of the notice for the entity to furnish the 
missing information.
    (3) After evaluating all relevant information, HCFA determines 
whether the entity's application meets the applicable requirements of 
Sec. 422.6.
    (b) Use of information from a prior contracting period. If an entity 
has failed to comply with the terms of a previous year's contract with 
HCFA under title XVIII of the Act as an HMO, competitive medical plan, 
health care prepayment plan, or M+C organization or an entity has failed 
to complete a corrective action plan during the term of the contract, 
HCFA may deny an application based on the entity's failure to comply 
with that prior contract with HCFA even if the entity meets all of the 
current requirements.
    (c) Notice of determination. HCFA notifies each entity that applies 
for an M+C contract under this part of its determination and the basis 
for the determination. The determination may be approval, intent to 
deny, or denial.
    (d) Approval of application. If HCFA approves the application, it 
gives written notice to the M+C organization, indicating that it meets 
the requirements for an M+C contract.
    (e) Intent to deny. (1) If HCFA finds that the entity does not 
appear to meet the requirements of an M+C organization and appears to be 
able to meet those requirements within 60 days, HCFA gives the entity 
notice of intent to deny qualification and a summary of the basis for 
this preliminary finding.
    (2) Within 60 days from the date of the notice, the entity may 
respond in writing to the issues or other matters that were the basis 
for HCFA's preliminary finding and may revise its application to remedy 
any defects HCFA identified.
    (f) Denial of application. If HCFA denies the application, it gives 
written notice to the M+C organization indicating--
    (1) That the M+C organization does not meet the contract 
requirements under part C of title XVIII of the Act;
    (2) The reasons why the M+C organization does not meet the contract 
requirements; and
    (3) The M+C organization's right to request reconsideration in 
accordance with the procedures specified in subpart N of this part.
    (g) Oversight of continuing compliance. (1) HCFA oversees an 
entity's continued compliance with the requirements for an M+C 
organization.
    (2) If an entity no longer meets those requirements, HCFA terminates 
the contract in accordance with Sec. 422.510.



Sec. 422.10  Cost-sharing in enrollment-related costs.

    (a) Basis and scope. This section implements that portion of section 
1857 of the Act that pertains to cost-sharing in enrollment-related 
costs. It sets forth the procedures that HCFA follows to assess the 
required fees on M+C plans offered by M+C organizations.
    (b) Purpose of assessment. Section 1857(e)(2) of the Act authorizes 
HCFA to charge and collect from each M+C plan offered by an M+C 
organization its pro rata share of fees for administering section 1851 
of the Act, relating to dissemination of enrollment information; and 
section 4360 of the Omnibus Budget Reconciliation Act of 1990, relating 
to the health insurance counseling and assistance program.
    (c) Applicability. The fee assessment also applies to those 
demonstrations for which enrollment is effected or coordinated under 
section 1851 of the Act.
    (d) Collection of fees--(1) Timing of collection. HCFA collects the 
fees over nine consecutive months beginning with January of each fiscal 
year.
    (2) Amount to be collected. The aggregate amount of fees for a 
fiscal year is the lesser of the following:
    (i) The estimated costs to be incurred by HCFA in that fiscal year 
to carry out the activities described in paragraph (b) of this section.
    (ii) The amount authorized in the DHHS appropriation for the fiscal 
year.
    (e) Assessment methodology. (1) The amount assessed is a percentage 
of the

[[Page 670]]

total Medicare payments to each organization. HCFA determines the 
percentage rate using the following formula:

    A times B divided by C where--
    A is the total of the estimated January payments to all 
organizations subject to assessment;
    B is the nine-month (January through September) assessment period; 
and
    C is the total assessment amount authorized for the particular 
fiscal year in accordance with paragraph (d)(2) of this section.

    (2) HCFA determines each organization's pro rata share of the annual 
fee on the basis of that organization's calculated monthly payment 
amount during the nine consecutive months beginning with January. HCFA 
calculates each organization's monthly pro rata share by multiplying the 
established percentage rate by the total monthly calculated Medicare 
payment amount to the organization as recorded in HCFA's payment system 
on the first day of the month.
    (3) HCFA deducts the organization's fee from the amount of Federal 
funds otherwise payable to the organization for that month under the M+C 
program.
    (4) If assessments reach the amount authorized for the year before 
the end of September, HCFA discontinues assessment.
    (5) If there are delays in determining the amount of the annual 
aggregate fees specified in paragraph (d)(2) of this section or the fee 
percentage rate specified in paragraph (e), HCFA may adjust the 
assessment time period and the fee percentage amount.



            Subpart B--Eligibility, Election, and Enrollment

    Source: 63 FR 35071, June 26, 1998, unless otherwise noted.



Sec. 422.50  Eligibility to elect an M+C plan.

    (a) An individual is eligible to elect an M+C plan if he or she--
    (1) Is entitled to Medicare under Part A and enrolled in Part B 
(except that an individual entitled only to Part B and who is (or was) 
enrolled in an HMO or CMP with a risk contract under part 417 of this 
chapter on December 31, 1998 may continue to be enrolled in the M+C 
organization as an M+C plan enrollee);
    (2) Has not been medically determined to have end-stage renal 
disease, except that an individual who develops end-stage renal disease 
while enrolled in an M+C plan or in a health plan offered by the M+C 
organization offering an M+C plan in the service area or continuation 
area in which the individual resides may continue to be enrolled in the 
M+C organization as an M+C plan enrollee;
    (3) Resides in the service area of the plan, except that an 
individual who resides in a continuation area of an M+C plan while 
enrolled in a health plan offered by the M+C organization may continue 
to be enrolled in the M+C organization as an M+C plan enrollee;
    (4) Completes and signs an election form and gives information 
required for enrollment; and
    (5) Agrees to abide by the rules of the M+C organization after they 
are disclosed to him or her in connection with the election process.
    (b) An M+C eligible individual may not be enrolled in more than one 
M+C plan at any given time.

[63 FR 35071, June 26, 1998; 63 FR 52611, Oct. 1, 1998]



Sec. 422.54  Continuation of enrollment.

    (a) Definition. Continuation area means an additional area (outside 
the service area) within which the M+C organization furnishes or 
arranges for furnishing services to its continuation-of-enrollment 
enrollees. Enrollees must reside in a continuation area on a permanent 
basis. A continuation area does not expand the service area of any plan.
    (b) Basis rule. An M+C organization may offer a continuation of 
enrollment option to enrollees when they no longer reside in the service 
area of a plan and permanently move into the geographic area designated 
by the M+C organization as a continuation of enrollment area. The intent 
to no longer reside in an area and permanently live in another area is 
verified through documentation that establishes residency, such as, 
driver's license, voter registration.

[[Page 671]]

    (c) General requirements. (1) An M+C organization that wishes to 
offer a continuation of enrollment option must meet the following 
requirements:
    (i) Obtain HCFA's approval of the continuation area, the marketing 
materials that describe the option, and the M+C organization's 
assurances of access to services.
    (ii) Describe the option(s) in the member materials it offers and 
make the option available to all enrollees residing in the continuation 
area.
    (2) An enrollee who moves out of the service area and into the 
geographic area designated as the continuation area has the choice of 
continuing enrollment or disenrolling from the plan.
    (d) Specific requirements--(1) Basic benefits. The M+C organization 
must, at a minimum, provide or arrange for the Medicare-covered benefits 
described in Sec. 422.101(a).
    (2) Reasonable access. The M+C organization must ensure reasonable 
access in the continuation area--
    (i) Through contracts with providers, or through direct payment of 
claims that satisfy the requirements in Sec. 422.100(b)(2), to other 
providers who meet the requirement in subpart E of this part; and
    (ii) By ensuring that the access requirements of Sec. 422.112 are 
met.
    (3) Reasonable cost-sharing. For services furnished in the 
continuation area, an enrollee's cost-sharing liability is limited to--
    (i) The cost-sharing amounts required in the M+C plan's service area 
(in which the enrollee no longer resides) if provided by contract 
providers;
    (ii) The cost-sharing amounts required by the continuation area plan 
if provided through agreements with another M+C plan; or
    (iii) The amount for which a beneficiary would be liable under 
original Medicare if noncontracting providers furnish the services.
    (4) Protection of enrollee rights. An M+C organization that offers a 
continuation of enrollment option must convey all enrollee rights 
conferred under this rule, with the understanding that--
    (i) The ultimate responsibility for all appeals and grievance 
requirements remain with the organization that is receiving payment from 
HCFA; and
    (ii) Organizations that require enrollees to give advance notice of 
intent to use the continuation of enrollment option, must stipulate the 
notification process in the marketing materials.
    (e) Capitation payments. HCFA's capitation payments to all M+C 
organizations, for all Medicare enrollees, are based on rates 
established on the basis of the enrollee's permanent residence, 
regardless of where he or she receives services.

[63 FR 35071, June 26, 1998; 63 FR 52611, Oct. 1, 1998]



Sec. 422.56  Limitations on enrollment in an M+C MSA plan.

    (a) General. An individual is not eligible to elect an M+C MSA 
plan--
    (1) If the number of individuals enrolled in M+C MSA plans has 
reached 390,000;
    (2) Unless the individual provides assurances that are satisfactory 
to HCFA that he or she will reside in the United States for at least 183 
days during the year for which the election is effective; or
    (3) On or after January 1, 2003, unless the enrollment is the 
continuation of an enrollment in effect as of that date.
    (b) Individuals eligible for or covered under other health benefits 
program. An individual who is enrolled in a Federal Employee Health 
Benefit plan under 5 U.S.C. chapter 89, or is eligible for health care 
benefits through the Veteran's Administration under 10 U.S.C. chapter 55 
or the Department of Defense under 38 U.S.C. chapter 17, may not enroll 
in an M+C MSA plan.
    (c) Individuals eligible for Medicare cost-sharing under Medicaid 
State plans. An individual who is entitled to coverage of Medicare cost-
sharing under a State plan under title XIX of the Act is not eligible to 
enroll in an M+C MSA plan.
    (d) Other limitations. An individual who receives health benefits 
that cover all or part of the annual deductible under the M+C MSA plan 
may not enroll in an M+C MSA plan. Examples of this type of coverage 
include, but are not limited to, primary health care coverage other than 
Medicare, current coverage under the Medicare hospice

[[Page 672]]

benefit, supplemental insurance policies not specifically permitted 
under Sec. 422.104, and retirement health benefits.

[63 FR 35071, June 26, 1998; 63 FR 52512, Oct. 1, 1998]



Sec. 422.57  Limited enrollment under M+C RFB plans.

    An RFB society that offers an M+C RFB plan may offer that plan only 
to members of the church, or convention or group of churches with which 
the society is affiliated.



Sec. 422.60  Election process.

    (a) Acceptance of enrollees: General rule. (1) Except for the 
limitations on enrollment in an M+C MSA plan provided by 
Sec. 422.62(d)(1) and except as specified in paragraph (a)(2) of this 
section, each M+C organization must accept without restriction (except 
for an M+C RFB plan as provided by Sec. 422.57) individuals who are 
eligible to elect an M+C plan that the M+C organization offers and who 
elect an M+C plan during initial coverage election periods, annual 
election periods, and special election periods specified in Sec. 422.62 
(a)(1), (a)(2), and (b).
    (2) M+C organizations must accept elections during the open 
enrollment periods specified in Sec. 422.62(a)(3), (a)(4), and (a)(5) if 
their M+C plans are open to new enrollees.
    (b) Capacity to accept new enrollees. (1) M+C organizations must 
submit information on enrollment capacity of plans they offer by May 1 
of each year as provided by Sec. 422.306(a)(1).
    (2) If HCFA determines that an M+C plan offered by an M+C 
organization has a capacity limit, and the number of M+C eligible 
individuals who elect to enroll in that plan exceeds the limit, the M+C 
organization offering the plan may limit enrollment in the plan under 
this part, but only if it provides priority in acceptance as follows:
    (i) First, for individuals who elected the plan prior to the HCFA 
determination that capacity has been exceeded, elections will be 
processed in chronological order by date of receipt of their election 
forms.
    (ii) Then for other individuals in a manner that does not 
discriminate on the basis of any factor related to health as described 
in Sec. 422.110.
    (c) Election forms. (1) The election form must comply with HCFA 
instructions regarding content and format and have been approved by HCFA 
as described in Sec. 422.80. The form must be completed and signed by 
the M+C eligible individual (or the individual who will soon become 
entitled to Medicare benefits) and include authorization for disclosure 
and exchange of necessary information between the U.S. Department of 
Health and Human Services and its designees and the M+C organization. 
Persons who assist beneficiaries in completing forms must sign the form 
and indicate their relationship to the beneficiary.
    (2) The M+C organization must file and retain election forms for the 
period specified in HCFA instructions.
    (d) When an election is considered to have been made. An election in 
an M+C plan is considered to have been made on the date the election 
form is received by the M+C organization.
    (e) Handling of election forms. The M+C organization must have an 
effective system for receiving, controlling, and processing election 
forms. The system must meet the following conditions and requirements:
    (1) Each election form is dated as of the day it is received.
    (2) Election forms are processed in chronological order, by date of 
receipt.
    (3) The M+C organization gives the beneficiary prompt written notice 
of acceptance or denial in a format specified by HCFA.
    (4) In a format specified by HCFA, a notice of acceptance--
    (i) Informs the beneficiary of the date on which enrollment will be 
effective under Sec. 422.68; and
    (ii) If the M+C plan is enrolled to capacity, explains the 
procedures that will be followed when vacancies occur.
    (5) A notice of denial explains the reasons for denial in a format 
specified by HCFA.
    (6) Within 30 days from receipt of the election form (or from the 
date a vacancy occurs for an individual who was accepted for future 
enrollment), the M+C organization transmits the information necessary 
for HCFA to add the

[[Page 673]]

beneficiary to its records as an enrollee of the M+C organization.
    (f) Exception for employer group health plans. (1) In cases in which 
an M+C organization has both a Medicare contract and a contract with an 
employer group health plan, and in which the M+C organization arranges 
for the employer to process election forms for Medicare-entitled group 
members who wish to enroll under the Medicare contract, the effective 
date of the election may be up to, but may not exceed, 90 days before 
the date the M+C organization received the election from the employer. 
Any adjustment in effective date must conform with adjustments in 
payment, as described under Sec. 422.250(b).
    (2) In order to obtain the effective date described in paragraph 
(f)(1) of this section, the beneficiary must certify that, at the time 
of enrollment in the M+C organization, he or she received the disclosure 
statement specified in Sec. 422.111.
    (3) The M+C organization must submit the enrollment within 30 days 
from receipt of the election form from the employer.

[63 FR 35071, June 26, 1998; 63 FR 52612, Oct. 1, 1998; 63 FR 54526, 
Oct. 9, 1998]



Sec. 422.62  Election of coverage under an M+C plan.

    (a) General: Coverage election periods--(1) Initial coverage 
election period. The initial coverage election period is the period 
during which a new M+C eligible individual may make an initial election. 
This period begins 3 months prior to the month the individual is first 
entitled to both Part A and Part B and ends the last day of the month 
preceding the month of entitlement.
    (2) Annual election period. (i) Beginning in 1999, the month of 
November is the annual election period for the following calendar year. 
Organizations offering M+C plans in January 1999 must open enrollment to 
Medicare beneficiaries in November 1998.
    (ii) During the annual election period, an individual eligible to 
enroll in an M+C plan may change his or her election from an M+C plan to 
original Medicare or to a different M+C plan, or from original Medicare 
to an M+C plan.
    (3) Open enrollment and disenrollment opportunities through 2001. 
From 1998 through 2001, the number of elections or changes that an M+C 
eligible individual may make is not limited (except as provided for in 
paragraph (d) of this section for M+C MSA plans). Subject to the M+C 
plan being open to enrollees as provide under Sec. 422.60(a)(2), an 
individual eligible to elect an M+C plan may change his or her election 
from an M+C plan to original Medicare or to a different M+C plan, or 
from original Medicare to an M+C plan.
    (4) Open enrollment and disenrollment during 2002. (i) Except as 
provided in paragraphs (a)(4)(ii) and (a)(4)(iii) of this section, an 
individual who is eligible to elect an M+C plan in 2002 may elect an M+C 
plan or change his or her election from an M+C plan to original Medicare 
or to a different M+C plan, or from original Medicare to an M+C plan, 
but only once during the first 6 months of the year.
    (ii) Newly eligible M+C individual. An individual who becomes an M+C 
eligible individual during 2002 may elect an M+C plan or original 
Medicare and then change his or her election once during the period that 
begins the month the individual is entitled to both Part A and Part B 
and ends on the last day of the 6th month of such entitlement, or on 
December 31, whichever is earlier. The individual can change the 
election from an M+C plan to original Medicare or to a different M+C 
plan, or from original Medicare to an M+C plan during this period.
    (iii) The limitation to one election or change in paragraphs 
(a)(4)(i) and (a)(4)(ii) of this section does not apply to elections or 
changes made during the annual election period specified in (a)(2) of 
this section or during a special enrollment period specified in 
paragraph (b) of this section.
    (5) Open enrollment and disenrollment beginning in 2003. (i) For 
2003 and subsequent years, except as provided in paragraphs (a)(5)(ii) 
and (a)(5)(iii) of this section, an individual who is eligible to elect 
an M+C plan may elect an M+C plan or change his or her election from an 
M+C plan to original Medicare or to a different M+C plan, or from 
original Medicare to an M+C plan, but

[[Page 674]]

only once during the first 3 months of the year.
    (ii) Newly eligible M+C individual. An individual who becomes an M+C 
eligible individual during 2003 or later may elect an M+C plan or 
original Medicare and then change his or her election once during the 
period that begins the month the individual is entitled to both Part A 
and Part B and ends on the last day of the 3rd month of such 
entitlement, or on December 31, whichever is earlier. The individual can 
change the election from an M+C plan to original Medicare or to a 
different M+C plan, or from original Medicare to an M+C plan during this 
period.
    (iii) The limitation to one election or change in paragraphs 
(a)(5)(i) and (a)(5)(ii) of this section does not apply to elections or 
changes made during the annual election period specified in paragraph 
(a)(2) of this section or during a special election period specified in 
paragraph (b) of this section.
    (b) Special election periods. Effective as of January 1, 1999 for 
M+C MSA plans, and as of January 1, 2002, for all other types of M+C 
plans, an individual may at any time (that is, not limited to the annual 
election period) discontinue the election of an M+C plan offered by an 
M+C organization and change his or her election, in the form and manner 
specified by HCFA, from an M+C plan to original Medicare or to a 
different M+C plan under any of the following circumstances:
    (1) HCFA has terminated the organization's contract for that plan or 
the organization has terminated or discontinued offering the plan in the 
service area or continuation area in which the individual resides.
    (2) The individual is not eligible to remain enrolled in the plan 
because of a change in his or her place of residence to a location out 
of the service area or continuation area or other change in 
circumstances as determined by HCFA but not including terminations 
resulting from a failure to make timely payment of an M+C monthly or 
supplemental beneficiary premium, or from disruptive behavior.
    (3) The individual demonstrates to HCFA, in accordance with 
guidelines issued by HCFA, that--
    (i) The organization offering the plan substantially violated a 
material provision of its contract under this part in relation to the 
individual, including, but not limited to the following:
    (A) Failure to provide the beneficiary on a timely basis medically 
necessary services for which benefits are available under the plan.
    (B) Failure to provide medical services in accordance with 
applicable quality standards; or
    (ii) The organization (or its agent, representative, or plan 
provider) materially misrepresented the plan's provisions in marketing 
the plan to the individual.
    (4) The individual meets such other exceptional conditions as HCFA 
may provide.
    (c) Special election period for individual age 65. Effective January 
1, 2002, an M+C eligible individual who elects an M+C plan during the 
initial enrollment period, as defined under section 1837(d) of the Act, 
that surrounds his or her 65th birthday (this period begins 3 months 
before and ends 3 months after the month of the individual's 65th 
birthday) may discontinue the election of that plan and elect coverage 
under original Medicare at any time during the 12-month period that 
begins on the effective date of enrollment in the M+C plan.
    (d) Special rules for M+C MSA plans--(1) Enrollment. An individual 
may enroll in an M+C MSA plan only during an initial or annual election 
period described in paragraphs (a)(1) and (a)(2) of this section or 
during November 1998.
    (2) Disenrollment. (i) Except as provided in paragraph (d)(2)(ii) of 
this section, an individual may disenroll from an M+C MSA plan only 
during--
    (A) November 1998;
    (B) An annual election period; or
    (C) The special election period described in paragraph (b) of this 
section.
    (ii) Exception. An individual who elects an M+C MSA plan during an 
annual election period and has never before elected an M+C MSA plan may 
revoke that election, no later than December 15 of that same year, by 
submitting to the organization that offers the M+C MSA plan a signed and 
dated

[[Page 675]]

request in the form and manner prescribed by HCFA or by filing the 
appropriate disenrollment form through other mechanisms as determined by 
HCFA.

[63 FR 35071, June 26, 1998; 63 FR 52612, Oct. 1, 1998]



Sec. 422.64  Information about the M+C program.

    (a) Source of information. Each M+C organization must provide, on an 
annual basis and in a format and using standard terminology that may be 
specified by HCFA, the information necessary to enable HCFA to provide 
to current and potential beneficiaries the information they need to make 
informed decisions with respect to the available choices for Medicare 
coverage.
    (b) Timing and recipients of the information. HCFA mails a notice 
containing the information described in paragraph (c) of this section--
    (1) At least 15 days before each annual election period, to each 
individual eligible to elect an M+C plan; and
    (2) To the extent practicable, not later than 30 days before his or 
her initial coverage election period to each individual who will become 
eligible to elect an M+C plan.
    (c) Content of notice--(1) Benefits under original Medicare. (i) 
Covered services.
    (ii) Beneficiary cost sharing, such as deductibles, coinsurance, and 
copayment amounts.
    (iii) Any beneficiary liability for balance billing.
    (2) Enrollment procedures. Information and instructions on how to 
exercise election options under this subpart.
    (3) Rights. A general description of procedural rights (including 
grievance and appeals procedures) under original Medicare and the M+C 
program and the right to be protected against discrimination based on 
factors related to health status in accordance with Sec. 422.110.
    (4) Medigap and Medicare Select. A general description of the 
benefits, enrollment rights, and requirements applicable to Medicare 
supplemental policies under section 1882 of the Act, and provisions 
relating to Medicare Select policies under section 1882(t) of the Act.
    (5) Potential for contract termination. The fact that an M+C 
organization may terminate or refuse to renew its contract, or reduce 
the service area included in its contract, and the effect that any of 
those actions may have on individuals enrolled in that organization's 
M+C plan.
    (6) Comparative information. A list of M+C plans that are or will be 
available to residents of the service area in the following calendar 
year, and, for each available plan, information on the aspects described 
in paragraphs (c)(7) through (c)(11) of this section, presented in a 
manner that facilitates comparison among the plans.
    (7) Benefits. (i) Covered services beyond those provided under 
original Medicare.
    (ii) Any beneficiary cost sharing.
    (iii) Any maximum limitations on out-of-pocket expenses.
    (iv) In the case of an M+C MSA plan, the amount of the annual MSA 
deposit and the differences in cost-sharing, enrollee premiums, and 
balance billing, as compared to M+C plans.
    (v) In the case of a M+C private fee-for-service plan, differences 
in cost-sharing, enrollee premiums, and balance billing, as compared to 
M+C plans.
    (vi) The extent to which an enrollee may obtain benefits through 
out-of-network health care providers.
    (vii) The types of providers that participate in the plan's network 
and the extent to which an enrollee may select among those providers.
    (viii) The coverage of emergency and urgently needed services.
    (8) Premiums. (i) The M+C monthly basic beneficiary premiums.
    (ii) The M+C monthly supplemental beneficiary premium.
    (9) The plan's service area.
    (10) Quality and performance indicators for benefits under a plan to 
the extent they are available as follows (and how they compare with 
indicators under original Medicare):
    (i) Disenrollment rates for Medicare enrollees for the 2 previous 
years, excluding disenrollment due to death or moving outside the plan's 
service area,

[[Page 676]]

calculated according to HCFA guidelines.
    (ii) Medicare enrollee satisfaction.
    (iii) Health outcomes.
    (iv) Plan-level appeal data.
    (v) The recent record of plan compliance with the requirements of 
this part, as determined by the Secretary.
    (vi) Other performance indicators.
    (11) Supplemental benefits. Whether the plan offers mandatory 
supplemental benefits or offers optional supplemental benefits and the 
premiums and other terms and conditions for those benefits.
    (d) Format and updating. The information is written and formatted 
using language that is easily understandable, and is updated at least 
annually.
    (e) Mailing. The mailing is coordinated, to the extent practicable, 
with the mailing of the annual notice of Medicare benefits under section 
1804 of the Act.



Sec. 422.66  Coordination of enrollment and disenrollment through M+C organizations.

    (a) Enrollment. An individual who wishes to elect an M+C plan 
offered by an M+C organization may make or change his or her election 
during the election periods specified in Sec. 422.62 by filing the 
appropriate election form with the organization or through other 
mechanisms as determined by HCFA.
    (b) Disenrollment--(1) Basic rule. An individual who wishes to 
disenroll from an M+C plan may change his or her election during the 
election periods specified in Sec. 422.62 in either of the following 
manners:
    (i) Elect a different M+C plan by filing the appropriate election 
form with the M+C organization or through other mechanisms as determined 
by HCFA.
    (ii) Submit a signed and dated request for disenrollment to the M+C 
organization in the form and manner prescribed by HCFA or file the 
appropriate disenrollment form through other mechanisms as determined by 
HCFA.
    (2) When a disenrollment request is considered to have been made. A 
disenrollment request is considered to have been made on the date the 
disenrollment request is received by the M+C organization.
    (3) Responsibilities of the M+C organization. The M+C organization 
must--
    (i) Submit a disenrollment notice to HCFA within 15 days of receipt;
    (ii) Provide the enrollee with a copy of the request for 
disenrollment; and
    (iii) In the case of a plan where lock-in applies, also provide the 
enrollee with a statement explaining that he or she--
    (A) Remains enrolled until the effective date of disenrollment; and
    (B) Until that date, neither the M+C organization nor HCFA pays for 
services not provided or arranged for by the M+C plan in which the 
enrollee is enrolled; and
    (iv) File and retain disenrollment requests for the period specified 
in HCFA instructions.
    (4) Effect of failure to submit disenrollment notice to HCFA 
promptly. If the M+C organization fails to submit the correct and 
complete notice required in paragraph (b)(3)(i) of this section, the M+C 
organization must reimburse HCFA for any capitation payments received 
after the month in which payment would have ceased if the requirement 
had been met timely.
    (5) Retroactive disenrollment. HCFA may grant retroactive 
disenrollment in the following cases:
    (i) There never was a legally valid enrollment.
    (ii) A valid request for disenrollment was properly made but not 
processed or acted upon.
    (c) Election by default: Initial coverage election period. An 
individual who fails to make an election during the initial coverage 
election period is deemed to have elected original Medicare.
    (d) Conversion of enrollment (seamless continuation of coverage)--
(1) Basic rule. An M+C plan offered by an M+C organization must accept 
any individual (residing in the service area or continuation area of the 
M+C plan) who is enrolled in a health plan offered by an M+C 
organization (regardless of whether the individual has end-stage renal 
disease) during the month immediately preceding the month in which he or 
she is entitled to both Part A and Part B as provided by 
Sec. 422.50(a)(2) and (a)(3).
    (2) Reserved vacancies. Subject to HCFA's approval, an M+C 
organization may set aside a reasonable number of

[[Page 677]]

vacancies in order to accommodate enrollment of conversions. Any set 
aside vacancies that are not filled within a reasonable time must be 
made available to other M+C eligible individuals.
    (3) Effective date of conversion. Unless the individual chooses to 
disenroll from the health plan offered by the M+C organization, the 
individual's conversion to an M+C enrollee is effective the month in 
which he or she is entitled to both Part A and Part B.
    (4) Prohibition against disenrollment. The M+C organization may 
disenroll an individual who is converting under the provisions of 
paragraph (a) of this section only under the conditions specified in 
Sec. 422.74.
    (5) Election form. The individual who is converting must complete 
and sign an election form as described in Sec. 422.60(c)(1).
    (6) Submittal of information to HCFA. The M+C organization must 
transmit the information necessary for HCFA to add the individual to its 
records as specified in Sec. 422.60(e)(6).
    (e) Maintenance of enrollment. An individual who has made or is 
deemed to have made an election under this section is considered to have 
continued to have made that election until either of the following, 
whichever occurs first:
    (1) The individual changes the election under this section.
    (2) The elected M+C plan is discontinued or no longer serves the 
service area in which the individual resides, and the organization does 
not offer or the individual does not elect the option of continuing 
enrollment, as provided in Sec. 422.54.
    (f) Exception for employer group health plans. (1) In cases when an 
M+C organization has both a Medicare contract and a contract with an 
employer group health plan, and when the M+C organization arranges for 
the employer to process election forms for Medicare-entitled group 
members who wish to disenroll from the Medicare contract, the effective 
date of the election may be up to, but may not exceed, 90 days before 
the date the M+C organization received the election from the employer. 
Any adjustment in effective date must conform with adjustments in 
payment, as described under Sec. 422.250(b).
    (2) The M+C organization must submit a disenrollment notice to NCFA 
within 15 days of receipt of the notice from the employer.

[63 FR 35071, June 26, 1998; 63 FR 52612, Oct. 1, 1998]



422.68  Effective dates of coverage and change of coverage.

    (a) Initial coverage election period. An election made during an 
initial coverage election period as described in Sec. 422.62(a)(1) is 
effective as of the first day of the month of entitlement to both Part A 
and Part B.
    (b) Annual election periods. For an election or change of election 
made during an annual election period as described in Sec. 422.62(a)(2), 
coverage is effective as of the first day of the following calendar 
year.
    (c) Open enrollment periods. For an election or change of election 
made during an open enrollment period as described in Sec. 422.62(a)(3) 
through (a)(5), coverage is effective as of the first day of the first 
calendar month following the month in which the election is made.
    (d) Special election periods. For an election or change of election 
made during a special election period as described in Sec. 422.62(b), 
the effective date of coverage shall be determined by HCFA, to the 
extent practicable, in a manner consistent with protecting the 
continuity of health benefits coverage.
    (e) Special election period for individual age 65. For an election 
of coverage under original Medicare made during a special election 
period for an individual age 65 as described in Sec. 422.62(c), coverage 
is effective as of the first day of the first calendar month following 
the month in which the election is made.



Sec. 422.74  Disenrollment by the M+C organization.

    (a) General rule. Except as provided in paragraphs (b) through (d) 
of this section, an M+C organization may not--
    (1) Disenroll an individual from any M+C plan it offers; or
    (2) Orally or in writing, or by any action or inaction, request or 
encourage an individual to disenroll.

[[Page 678]]

    (b) Basis for disenrollment--(1) Optional disenrollment. An M+C 
organization may disenroll an individual from an M+C plan it offers in 
any of the following circumstances:
    (i) Any monthly basic and supplementary beneficiary premiums are not 
paid on a timely basis, subject to the grace period for late payment 
established under paragraph (d)(1) of this section.
    (ii) The individual has engaged in disruptive behaviors specified at 
paragraph (d)(2) of this section.
    (iii) The individual provides fraudulent information on his or her 
election form or permits abuse of his or her enrollment card as 
specified in paragraph (d)(3) of this section.
    (2) Required disenrollment. An M+C organization must disenroll an 
individual from an M+C plan it offers in any of the following 
circumstances:
    (i) The individual no longer resides in the M+C plan's service area 
as specified in paragraph (d)(4) of this section, and optional continued 
enrollment has not been offered or elected pursuant to Sec. 422.54.
    (ii) The individual loses entitlement to Part A or Part B benefits 
as described in paragraph (d)(5) of this section.
    (iii) Death of the individual as described in paragraph (d)(6) of 
this section.
    (3) Plan termination or reduction of service area or continuation 
area. An M+C plan offered by an M+C organization that terminates with 
respect to all M+C individuals in the area where the individual resides 
or is terminated or reduces the service area or continuation area must 
comply with the process for disenrollment set forth at paragraph (d)(7) 
of this section.
    (c) Notice requirement. If the disenrollment is for any of the 
reasons specified in paragraphs (b)(1) through (b)(2)(i) and (b)(3) of 
this section, that is, other than death or loss of entitlement to Part A 
or Part B, the M+C organization must give the individual a written 
notice of the disenrollment with an explanation of why the M+C 
organization is planning to disenroll the individual.
    (1) The notice must be mailed to the individual before submission of 
the disenrollment notice to HCFA.
    (2) The notice must include an explanation of the individual's right 
to a hearing under the M+C organization's grievance procedures.
    (d) Process for disenrollment--(1) Monthly basic and supplementary 
premiums are not paid timely. An M+C organization may disenroll an 
individual from the M+C plan for failure to pay any basic or 
supplementary premiums if the M+C organization--
    (i) Makes a reasonable effort to collect unpaid premium amounts by 
sending a written notice of nonpayment to the enrollee within 20 days 
after the date that the delinquent charges were due--
    (A) Alerting the individual that the premiums are delinquent;
    (B) Providing the individual with an explanation of the 
disenrollment procedures and any lock-in requirements of the M+C plan; 
and
    (C) Advising that failure to pay the premiums within the 90-day 
grace period will result in termination of M+C coverage;
    (ii) Only disenrolls a Medicare enrollee when the organization has 
not received payment within 90 days after the date it has sent the 
notice of nonpayment to the enrollee; and
    (iii) Gives the individual a written notice of disenrollment that 
meets the requirements set forth in paragraph (c) of this section.
    (2) Disenrollment for disruptive behavior--(i) Basis for 
disenrollment. An M+C organization may disenroll an individual from the 
M+C plan if the individual's behavior is disruptive, unruly, abusive, or 
uncooperative to the extent that his or her continued enrollment in the 
plan seriously impairs the M+C plan's ability to furnish services to 
either the particular individual or other individuals enrolled in the 
plan.
    (ii) Effort to resolve the problem. The M+C organization must make a 
serious effort to resolve the problems presented by the individual, 
including the use (or attempted use) of the M+C organization's grievance 
procedures. The beneficiary has a right to submit any information or 
explanation that he or

[[Page 679]]

she may wish to submit to the M+C organization.
    (iii) Consideration of extenuating circumstances. The M+C 
organization must establish that the individual's behavior is not 
related to the use of medical services or to diminished mental capacity.
    (iv) Documentation. The M+C organization must document the 
enrollee's behavior, its own efforts to resolve any problems, and any 
extenuating circumstances, as described in paragraphs (d)(2)(i) through 
(d)(2)(iii) of this section.
    (v) HCFA review of the M+C organization's proposed disenrollment. 
(A) HCFA decides after reviewing the documentation submitted by the M+C 
organization and any information submitted by the beneficiary (which the 
M+C organization must forward to HCFA) whether the M+C organization has 
met the disenrollment requirements.
    (B) HCFA makes the decision within 20 working days after receipt of 
the documentation and notifies the M+C organization within 5 working 
days after making its decision.
    (vi) Effective date of disenrollment. If HCFA permits an M+C 
organization to disenroll an individual for disruptive behavior, the 
termination is effective the first day of the calendar month after the 
month in which the M+C organization gives the individual written notice 
of the disenrollment that meets the requirements set forth in paragraph 
(c) of this section.
    (3) Individual commits fraud or permits abuse of enrollment care. 
(i) Basis for disenrollment. An M+C organization may disenroll the 
individual from an M+C plan if the individual--
    (A) Knowingly provides, on the election form, fraudulent information 
that materially affects the individual's eligibility to enroll in the 
M+C plan; or
    (B) Intentionally permits others to use his or her enrollment card 
to obtain services under the M+C plan.
    (ii) Notice of disenrollment. The M+C organization must give the 
individual a written notice of the disenrollment that meets the 
requirements set forth in paragraph (c) of this section.
    (iii) Report to HCFA. The M+C organization must report to HCFA any 
disenrollment based on fraud or abuse by the individual.
    (4) Individual no longer resides in the M+C plan's service area--(i) 
Basis for disenrollment. Unless continuation of enrollment is elected 
under Sec. 422.54, the M+C organization must disenroll an individual who 
moves out of a plan's service area if the M+C organization establishes, 
on the basis of a written statement from the individual, or other 
evidence acceptable to HCFA, that the individual has moved out of a 
plan's service area for over 12 months.
    (ii) Notice of disenrollment. The M+C organization must give the 
individual a written notice of the disenrollment that meets the 
requirements set forth in paragraph (c) of this section.
    (5) Loss of entitlement to Part A or Part B benefits. If an 
individual is no longer entitled to Part A or Part B benefits, HCFA 
notifies the M+C organization that the disenrollment is effective the 
first day of the calendar month following the last month of entitlement 
to Part A or Part B benefits.
    (6) Death of the individual. If the individual dies, disenrollment 
is effective the first day of the calendar month following the month of 
death.
    (7) Plan termination or area reduction. (i) If the plan terminates 
or is terminated or the service area or continuation area are reduced 
with respect to all M+C enrollees in the area in which they reside, the 
M+C organization must give each Medicare enrollee a written notice of 
the effective date of the plan termination or area reduction and a 
description of alternatives for obtaining benefits under the M+C 
program.
    (ii) The notice must be sent before the effective date of the plan 
termination or area reduction.
    (e) Consequences of disenrollment--(1) Disenrollment for non-payment 
of premiums, disruptive behavior, fraud or abuse, loss of Part A or Part 
B. An individual who is disenrolled under paragraph (b)(1)(i), 
(b)(1)(ii), (b)(1)(iii), or paragraph (b)(2)(ii) of this section is 
deemed to have elected original Medicare.
    (2) Disenrollment based on plan termination, area reduction, or 
individual moves out of area. (i) An individual who is disenrolled under 
paragraph (b)(2)(i)

[[Page 680]]

or (b)(3) of this section has a special election period in which to make 
a new election as provided in Sec. 422.62(b)(1) and (b)(2).
    (ii) An individual who fails to make an election during the special 
election period is deemed to have elected original Medicare.

[63 FR 35071, June 26, 1998; 63 FR 52612, Oct. 1, 1998]



Sec. 422.80  Approval of marketing materials and election forms.

    (a) HCFA review of marketing materials. An M+C organization may not 
distribute any marketing materials (as defined in paragraph (b)), or 
election forms, or make such materials or forms available to individuals 
eligible to elect an M+C plan, unless--
    (1) At least 45 days before the date of distribution the M+C 
organization has submitted the material or form to HCFA for review under 
the guidelines in paragraph (c); and
    (2) HCFA has not disapproved the distribution of the material or 
form.
    (b) Definition of marketing materials. Marketing materials include 
any informational materials targeted to Medicare beneficiaries which:
    (1) Promote the M+C organization, or any M+C plan offered by the M+C 
organization;
    (2) Inform Medicare beneficiaries that they may enroll, or remain 
enrolled in, an M+C plan offered by the M+C organization;
    (3) Explain the benefits of enrollment in an M+C plan, or rules that 
apply to enrollees;
    (4) Explain how Medicare services are covered under an M+C plan, 
including conditions that apply to such coverage;
    (5) Examples of marketing materials include, but are not limited to:
    (i) General audience materials such as general circulation 
brochures, newspapers, magazines, television, radio, billboards, yellow 
pages, or the internet.
    (ii) Marketing representative materials such as scripts or outlines 
for telemarketing or other presentations.
    (iii) Presentation materials such as slides and charts.
    (iv) Promotional materials such as brochures or leaflets, including 
materials for circulation by third parties (e.g., physicians or other 
providers).
    (v) Membership communication materials such as membership rules, 
subscriber agreements (evidence of coverage), member handbooks, and 
newsletters.
    (vi) Letters to members about contractual changes; changes in 
providers, premiums, benefits, plan procedures etc.
    (vii) Membership or claims processing activities (e.g., materials on 
rules involving non-payment of premiums, confirmation of enrollment or 
disenrollment, or annual notification information).
    (c) Guidelines for HCFA review. In reviewing marketing material or 
election forms under paragraph (a) of this section, HCFA determines that 
the marketing materials:
    (1) Provide, in a format (and, where appropriate, print size), and 
using standard terminology that may be specified by HCFA, the following 
information to Medicare beneficiaries interested in enrolling:
    (i) Adequate written description of rules (including any limitations 
on the providers from whom services can be obtained), procedures, basic 
benefits and services, and fees and other charges.
    (ii) Adequate written description of any supplemental benefits and 
services.
    (iii) Adequate written explanation of the grievance and appeals 
process, including differences between the two, and when it is 
appropriate to use each.
    (iv) Any other information necessary to enable beneficiaries to make 
an informed decision about enrollment.
    (2) Notify the general public of its enrollment period (whether 
time-limited or continuous) in an appropriate manner, through 
appropriate media, throughout its service and continuation area.
    (3) Include in the written materials notice that the M+C 
organization is authorized by law to refuse to renew its contract with 
HCFA, that HCFA also may refuse to renew the contract, and that 
termination or non-renewal may result in termination of the 
beneficiary's enrollment in the plan.

[[Page 681]]

    (4) Contain no statements that are inaccurate or misleading or 
otherwise make misrepresentations.
    (5) For markets with a significant non-English speaking population, 
provide materials in the language of these individuals.
    (d) Deemed approval (one-stop shopping). If HCFA has not disapproved 
the distribution of marketing materials or forms submitted by an M+C 
organization with respect to an M+C plan in an area, HCFA is deemed not 
to have disapproved the distribution in all other areas covered by the 
M+C plan and organization except with regard to any portion of the 
material or form that is specific to the particular area.
    (e) Standards for M+C organization marketing. (1) In conducting 
marketing activities, M+C organizations may not:
    (i) Provide for cash or other monetary rebates as an inducement for 
enrollment or otherwise. This does not prohibit explanation of any 
legitimate benefits the beneficiary might obtain as an enrollee of the 
M+C plan, such as eligibility to enroll in a supplemental benefit plan 
that covers deductibles and coinsurance, or preventive services.
    (ii) Engage in any discriminatory activity such as, for example, 
attempts to recruit Medicare beneficiaries from higher income areas 
without making comparable efforts to enroll Medicare beneficiaries from 
lower income areas.
    (iii) Solicit door-to-door for Medicare beneficiaries.
    (iv) Engage in activities that could mislead or confuse Medicare 
beneficiaries, or misrepresent the M+C organization. The M+C 
organization may not claim that it is recommended or endorsed by HCFA or 
Medicare or that HCFA or Medicare recommends that the beneficiary enroll 
in the M+C plan. It may, however, explain that the organization is 
approved for participation in Medicare.
    (v) Distribute marketing materials for which, before expiration of 
the 45-day period, the M+C organization receives from HCFA written 
notice of disapproval because it is inaccurate or misleading, or 
misrepresents the M+C organization, its marketing representatives, or 
HCFA.
    (2) In its marketing, the M+C organization must:
    (i) Demonstrate to HCFA's satisfaction that marketing resources are 
allocated to marketing to the disabled Medicare population as well as 
beneficiaries age 65 and over.
    (ii) Establish and maintain a system for confirming that enrolled 
beneficiaries have in fact, enrolled in the M+C plan, and understand the 
rules applicable under the plan.
    (f) Employer group retiree Marketing. HCFA may permit M+C 
organizations to develop marketing materials designed for members of an 
employer group who are eligible for employer-sponsored benefits through 
the M+C organization, and to furnish these materials only to such group 
members. While such materials must be submitted for approval under 
paragraph (a) of this section, HCFA will only review portions of these 
materials that related to M+C plan benefits.

[63 FR 35071, June 26, 1998; 63 FR 52612, Oct. 1, 1998]



             Subpart C--Benefits and Beneficiary Protections

    Source: 63 FR 35077, June 26, 1998, unless otherwise noted.



Sec. 422.100  General requirements.

    (a) Basic rule. Subject to the conditions and limitations set forth 
in this subpart, an M+C organization offering an M+C plan must provide 
enrollees in that plan with coverage of the basic benefits described in 
Sec. 422.101 (and, to the extent applicable, the benefits described in 
Sec. 422.102) by furnishing the benefits directly or through 
arrangements, or by paying for the benefits. HCFA reviews these benefits 
subject to the requirements of Sec. 422.100(g) and the requirements in 
subpart G of this part.
    (b) Services of noncontracting providers and suppliers.  (1) An M+C 
organization must make timely and reasonable payment to or on behalf of 
the plan enrollee for the following services obtained from a provider or 
supplier that does not contract with the M+C organization to provide 
services covered by the M+C plan:

[[Page 682]]

    (i) Emergency services as defined in Sec. 422.2.
    (ii) Urgently needed services as defined Sec. 422.2.
    (iii) Renal dialysis services provided while the enrollee was 
temporarily outside the plan's service area.
    (iv) Post-stabilization care services that were--
    (A) Pre-approved by the organization; or
    (B) Were not pre-approved by the organization because the 
organization did not respond to the provider of post-stabilization care 
services' request for pre-approval within 1 hour after being requested 
to approve such care, or could not be contacted for pre-approval.
    (v) Services for which coverage has been denied by the M+C 
organization and found (upon appeal under subpart M of this part) to be 
services the enrollee was entitled to have furnished, or paid for, by 
the M+C organization.
    (2) An M+C plan (other than an M+C MSA plan) offered by an M+C 
organization satisfies paragraph (a) of this section with respect to 
benefits for services furnished by a noncontracting provider if that M+C 
plan provides payment in an amount the provider would have received 
under original Medicare (including balance billing permitted under 
Medicare Part A and Part B).
    (c) Types of benefits. An M+C plan may include two types of 
benefits:
    (1) Basic benefits as defined in Sec. 422.2.
    (2) Supplemental benefits, which consist of--
    (i) Mandatory supplemental benefits as defined in Sec. 422.2; and
    (ii) Optional supplemental benefits as defined in Sec. 422.2.
    (d) Availability and structure of plans. An M+C organization 
offering an M+C plan must offer it--
    (1) To all Medicare beneficiaries residing in the service area of 
the M+C plan;
    (2) At a uniform premium; and
    (3) With a uniform level of cost-sharing, as defined in Sec. 422.2.
    (e) Terms of M+C plans. Terms of M+C plans described in instructions 
to beneficiaries, as required by Sec. 422.111, will include basic and 
supplemental benefits and terms of coverage for those benefits.
    (f) Multiple plans in one service area. An M+C organization may 
offer more than one M+C plan in the same service area subject to the 
conditions and limitations set forth in this subpart for each M+C plan.
    (g) HCFA review and approval of M+C plans. HCFA reviews and approves 
each M+C plan to ensure that the plan does not--
    (1) Promote discrimination;
    (2) Discourage enrollment;
    (3) Steer specific subsets of Medicare beneficiaries to particular 
M+C plans; or
    (4) Inhibit access to services.
    (h) Benefits affecting screening mammography, influenza vaccine, and 
pneumococcal vaccine. (1) Enrollees of M+C organizations may directly 
access (through self-referral) screening mammography and influenza 
vaccine.
    (2) M+C organizations may not impose cost-sharing for influenza 
vaccine and pneumococcal vaccine.
    (i) Requirements relating to Medicare conditions of participation. 
Basic benefits must be provided through providers meeting the 
requirements in Sec. 422.204(a)(3).
    (j) Choice of practitioners. Consistent with the requirements of 
Sec. 422.204 relating to the prohibition of discrimination against 
providers, if more than one type of practitioner is qualified to furnish 
a particular service, the M+C organization may select the type of 
practitioner to be used.



Sec. 422.101  Requirements relating to basic benefits.

    Except as specified in Sec. 422.264 (for entitlement that begins or 
ends during a hospital stay) and Sec. 422.266 (with respect to hospice 
care), each M+C organization must--
    (a) Provide coverage of, through the provision of or payment for, 
all services that are covered by Part A and Part B of Medicare (if the 
enrollee is entitled to benefits under both parts) or by Medicare Part B 
(if entitled only under Part B) and that are available to beneficiaries 
residing in the geographic area in which services are covered under the 
M+C plan (or to Part A and Part B services obtained outside the

[[Page 683]]

geographic area if it is common practice to refer patients to sources 
outside that geographic area); and
    (b) Comply with--
    (1) HCFA's national coverage decisions; and
    (2) Written coverage decisions of local carriers and intermediaries 
with jurisdiction for claims in the geographic area in which services 
are covered under the M+C plan.



Sec. 422.102  Supplemental benefits.

    (a) Mandatory supplemental benefits. (1) Subject to HCFA's approval, 
an M+C organization may require Medicare enrollees of an M+C plan other 
than an MSA plan to accept and pay for services in addition to those 
included in the basic benefits described in Sec. 422.101.
    (2) If the M+C organization imposes mandatory supplemental benefits, 
it must impose them on all Medicare beneficiaries enrolled in the M+C 
plan.
    (3) HCFA approves mandatory supplemental benefits if it determines 
that imposition of the mandatory benefits will not substantially 
discourage Medicare beneficiaries from enrolling in the M+C plan.
    (b) Optional supplemental benefits. Except as provided in 
Sec. 422.104 in the case of MSA plans, each M+C organization may offer 
(for election by the enrollee and without regard to health status) 
services that are in addition to those included in the basic benefits 
described in Sec. 422.101 and any mandatory supplemental benefits 
described in paragraph (a) of this section. Optional supplemental 
benefits must be offered to all Medicare beneficiaries enrolled in the 
M+C plan.
    (c) Payment for supplemental services. All supplemental benefits are 
paid for directly by (or on behalf of) the enrollee of the M+C plan.



Sec. 422.103  Benefits under an M+C MSA plan.

    (a) General rule. An M+C organization offering an M+C MSA plan must 
make available to an enrollee, or provide reimbursement for, at least 
the services described under in Sec. 422.101 after the enrollee incurs 
countable expenses equal to the amount of the plan's annual deductible.
    (b) Countable expenses. An M+C organization offering an M+C MSA plan 
must count toward the annual deductible at least all amounts that would 
be paid for the particular service under original Medicare, including 
amounts that would be paid by the enrollee as deductibles or 
coinsurance.
    (c) Services after the deductible. For services received by the 
enrollee after the annual deductible is satisfied, an M+C organization 
offering an M+C MSA plan must pay, at a minimum, the lesser of the 
following amounts:
    (1) 100 percent of the expense of the services.
    (2) 100 percent of the amounts that would have been paid for the 
services under original Medicare, including amounts that would be paid 
by the enrollee as deductibles and coinsurance.
    (d) Annual deductible. The annual deductible for an M+C MSA plan--
    (1) For contract year 1999, may not exceed $6,000; and
    (2) For subsequent contract years may not exceed the deductible for 
the preceding contract year, increased by the national per capita growth 
percentage determined under Sec. 422.252(b).



Sec. 422.104  Special rules on supplemental benefits for M+C MSA plans.

    (a) An M+C organization offering an M+C MSA plan may not provide 
supplemental benefits that cover expenses that count towards the 
deductible specified in Sec. 422.103(d).
    (b) In applying the limitation of paragraph (a) of this section, the 
following kinds of policies are not considered as covering the 
deductible:
    (1) A policy that provides coverage (whether through insurance or 
otherwise) for accidents, disability, dental care, vision care, or long-
term care.
    (2) A policy of insurance in which substantially all of the coverage 
relates to liabilities incurred under workers' compensation laws, tort 
liabilities, liabilities relating to use or ownership of property, and 
any other similar liabilities that HCFA may specify by regulation.
    (3) A policy of insurance that provides coverage for a specified 
disease or illness or pays a fixed amount per day (or other period) of 
hospitalization.

[[Page 684]]



Sec. 422.105  Special rules for point of service option.

    (a) A POS benefit is an option that an M+C organization may offer in 
an M+C coordinated care plan or network M+C MSA plan to provide 
enrollees with additional choice in obtaining specified health care 
services from individuals or entities that do not have a contract with 
the M+C organization to provide service through the M+C coordinated care 
plan or network M+C MSA plan offering the POS option. The plan may offer 
a POS option--
    (1) Under a coordinated care plan only as an additional benefit as 
described in Sec. 422.312;
    (2) Under a coordinated care plan only as a mandatory supplemental 
benefit as described in Sec. 422.102(a); or
    (3) Under a coordinated care plan or network MSA plan as an optional 
supplemental benefit as described in Sec. 422.102(b).
    (b) Approval required. An M+C organization may not implement a POS 
benefit until it has been approved by HCFA.
    (c) Ensuring availability and continuity of care. An M+C network 
plan that includes a POS benefit must continue to provide all benefits 
and ensure access as required under this subpart.
    (d) Enrollee information and disclosure. The disclosure requirements 
specified in Sec. 422.111 apply in addition to the following 
requirements:
    (1) Written rules. M+C organizations must maintain written rules on 
how to obtain health benefits through the POS benefit.
    (2) Evidence of coverage document. The M+C organization must provide 
to beneficiaries enrolling in a plan with a POS benefit an ``evidence of 
coverage'' document, or otherwise provide written documentation, that 
specifies all costs and possible financial risks to the enrollee, 
including--
    (i) Any premiums and cost-sharing for which the enrollee is 
responsible;
    (ii) Annual limits on benefits and on out-of-pocket expenditures;
    (iii) Potential financial responsibility for services for which the 
plan denies payment because they were not covered under the POS benefit, 
or exceeded the dollar limit for the benefit; and
    (iv) The annual maximum out-of-pocket expense an enrollee could 
incur.
    (e) Prompt payment. Health benefits payable under the POS benefit 
are subject to the prompt payment requirements in Sec. 422.520.
    (f) POS related data. An M+C organization that offers a POS benefit 
must report data on the POS benefit in the form and manner prescribed by 
HCFA.



Sec. 422.106  Special arrangements with employer groups.

    An M+C organization may negotiate with an employer group to provide 
benefits to members of the employer group who are enrolled in an M+C 
plan offered by the organization. While these negotiated employer group 
benefits may be designed to complement the benefits available to 
Medicare beneficiaries enrolled in the M+C plan, they are offered by the 
employer group independently as the product of private negotiation. 
Examples of such employer-benefits include the following:
    (a) Reductions in the portion of the premium that the M+C 
organization charges to the beneficiary.
    (b) Reductions in portion of other cost sharing amounts the M+C 
organization charges to the beneficiary.
    (c) The addition of benefits that may require additional premium and 
cost sharing. The addition of benefits and the charges for those 
benefits are not subject to HCFA review or approval.



Sec. 422.108  Medicare secondary payer (MSP) procedures.

    (a) Basic rule. HCFA does not pay for services to the extent that 
Medicare is not the primary payer under section 1862(b) of the Act and 
part 411 of this chapter.
    (b) Responsibilities of the M+C organization. The M+C organization 
must, for each M+C plan--
    (1) Identify payers that are primary to Medicare under section 
1862(b) of the Act and part 411 of this chapter;
    (2) Determine the amounts payable by those payers; and
    (3) Coordinate its benefits to Medicare enrollees with the benefits 
of the primary payers.
    (c) Charges to other entities. The M+C organization may charge, or 
authorize a provider to charge, other individuals

[[Page 685]]

or entities for covered Medicare services for which Medicare is not the 
primary payer, as specified in paragraphs (d) and (e) of this section.
    (d) Charge to other insurers or the enrollee. If a Medicare enrollee 
receives from an M+C organization covered services that are also covered 
under State or Federal workers' compensation, any no-fault insurance, or 
any liability insurance policy or plan, including a self-insured plan, 
the M+C organization may charge, or authorize a provider to charge any 
of the following--
    (1) The insurance carrier, the employer, or any other entity that is 
liable for payment for the services under section 1862(b) of the Act and 
part 411 of this chapter.
    (2) The Medicare enrollee, to the extent that he or she has been 
paid by the carrier, employer, or entity for covered medical expenses.
    (e) Charge to group health plans (GHPs) and large group health plans 
(LGHPs). An M+C organization may charge a GHP or LGHP for services it 
furnishes to a Medicare enrollee who is also covered under the GHP or 
LGHP and may charge the Medicare enrollee to the extent that he or she 
has been paid by the GHP or LGHP.



Sec. 422.109  Effect of national coverage determinations (NCDs).

    (a) If HCFA determines and announces that an NCD meets the criteria 
for ``significant cost'' described in paragraph (c) of this section, an 
M+C organization is not required to assume risk for the costs of that 
service until the contract year for which the annual M+C capitation rate 
is determined on a basis that includes the cost of the NCD service.
    (b) The M+C organization must furnish, arrange or pay for an NCD 
``significant cost'' service prior to the adjustment of the annual M+C 
capitation rate. The following rules apply to such services:
    (1) Medicare payment for the service is:
    (i) In addition to the capitation payment to the M+C organization; 
and
    (ii) Made directly by the fiscal intermediary and carrier to the M+C 
organization in accordance with original Medicare payment rules, 
methods, and requirements.
    (2) NCD costs for which HCFA intermediaries and carriers will not 
make payment and are the responsibility of the M+C organization are--
    (i) Services necessary to diagnose a condition covered by the NCD;
    (ii) Most services furnished as follow-up care to the NCD service;
    (iii) Any service that is already a Medicare-covered service and 
included in the annual M+C capitation rate; and
    (iv) Any service, including the costs of the NCD service itself, to 
the extent the M+C organization is already obligated to cover it as an 
additional benefit under Sec. 422.312 or supplemental benefit under 
Sec. 422.102.
    (3) NCD costs for which HCFA intermediaries and carriers make 
payment are--
    (i) Costs relating directly to the provision of services related to 
the NCD that were noncovered services prior to the issuance of the NCD; 
and
    (ii) A service that is not included in the M+C per capita payment 
rate.
    (4) If the M+C organization does not provide or arrange for the 
service consistent with HCFA's NCD, enrollees may obtain the services 
through qualified providers not under contract to the M+C organization, 
and the organization will pay for the services consistent with 
Sec. 422.109(c).
    (5) Beneficiaries are liable for Part A deductible and any 
applicable coinsurance amounts.
    (c) The term ``significant cost'' as it relates to a particular NCD 
means either of the following:
    (1) The average cost of furnishing a single service exceeds a cost 
threshold that--
    (i) For calendar years 1998 and 1999, is $100,000;
    (ii) For calendar year 2000 and subsequent calendar years, is the 
preceding year's dollar threshold adjusted to reflect the national per 
capita growth percentage described in Sec. 422.254(b).
    (2) The estimated cost of all of Medicare services furnished 
nationwide as a result of a particular NCD represents at least 0.1 
percent of the national standardized annual capitation rate (see 
Sec. 422.254(f)), multiplied by the total

[[Page 686]]

number of Medicare beneficiaries nationwide for the applicable calendar 
year.



Sec. 422.110  Discrimination against beneficiaries prohibited.

    (a) General prohibition. Except as provided in paragraph (b) of this 
section, an M+C organization may not deny, limit, or condition the 
coverage or furnishing of benefits to individuals eligible to enroll in 
an M+C plan offered by the organization on the basis of any factor that 
is related to health status, including, but not limited to the 
following:
    (1) Medical condition, including mental as well as physical illness.
    (2) Claims experience.
    (3) Receipt of health care.
    (4) Medical history.
    (5) Genetic information.
    (6) Evidence of insurability, including conditions arising out of 
acts of domestic violence.
    (7) Disability.
    (b) Exception. An M+C organization may not enroll an individual who 
has been medically determined to have end-stage renal disease. However, 
an enrollee who develops end-stage renal disease while enrolled in a 
particular M+C organization may not be disenrolled for that reason. An 
individual who is an enrollee of a particular M+C organization, and 
resides in the M+C plan service area at the time he or she first becomes 
M+C eligible, is considered to be ``enrolled'' in the M+C organization 
for purposes of the preceding sentence.
    (c) Plans are required to observe the provisions of the Civil Rights 
Act, Age Discrimination Act, and Americans with Disabilities Act (see 
Sec. 422.502(h)).

[63 FR 35077, June 26, 1998; 63 FR 52612, Oct. 1, 1998]



Sec. 422.111  Disclosure requirements.

    (a) Detailed description of plan provisions. An M+C organization 
must disclose the information specified in Sec. 422.64 and in paragraph 
(b) of this section--
    (1) To each enrollee electing an M+C plan it offers;
    (2) In clear, accurate, and standardized form; and
    (3) At the time of enrollment and at least annually thereafter.
    (b) Content of plan description. The description must include the 
following information:
    (1) Service area. The M+C plan's service area and any enrollment 
continuation area.
    (2) Benefits. The benefits offered under the plan, including 
applicable conditions and limitations, premiums and cost-sharing (such 
as copayments, deductibles, and coinsurance) and any other conditions 
associated with receipt or use of benefits; and for purposes of 
comparison--
    (i) The benefits offered under original Medicare, including the 
content specified in Sec. 422.64(c);
    (ii) For an M+C MSA plan, the benefits under other types of M+C 
plans; and
    (iii) The availability of the Medicare hospice option and any 
approved hospices in the service area, including those the M+C 
organization owns, controls, or has a financial interest in.
    (3) Access. The number, mix, and distribution (addresses) of 
providers from whom enrollees may obtain services; any out-of network 
coverage; any point-of-service option, including the supplemental 
premium for that option; and how the M+C organization meets the 
requirements of Secs. 422.112 and 422.114 for access to services offered 
under the plan.
    (4) Out-of-area coverage. Out-of-area coverage provided by the plan.
    (5) Emergency coverage. Coverage of emergency services, including--
    (i) Explanation of what constitutes an emergency, referencing the 
definitions of emergency services and emergency medical condition at 
Sec. 422.2;
    (ii) The appropriate use of emergency services, stating that prior 
authorization cannot be required;
    (iii) The process and procedures for obtaining emergency services, 
including use of the 911 telephone system or its local equivalent; and
    (iv) The locations where emergency care can be obtained and other 
locations at which contracting physicians and hospitals provide 
emergency services and post-stabilization care included in the M+C plan.

[[Page 687]]

    (6) Supplemental benefits. Any mandatory or optional supplemental 
benefits and the premium for those benefits.
    (7) Prior authorization and review rules. Prior authorization rules 
and other review requirements that must be met in order to ensure 
payment for the services. The M+C organization must instruct enrollees 
that, in cases where noncontracting providers submit a bill directly to 
the enrollee, the enrollee should not pay the bill, but submit it to the 
M+C organization for processing and determination of enrollee liability, 
if any.
    (8) Grievance and appeals procedures. All grievance and appeals 
rights and procedures.
    (9) Quality assurance program. A description of the quality 
assurance program required under Sec. 422.152.
    (10) Disenrollment rights and responsibilities.
    (c) Disclosure upon request. Upon request of an individual eligible 
to elect an M+C plan, an M+C organization must provide to the individual 
the following information:
    (1) The information required under Sec. 422.64(c).
    (2) The procedures the organization uses to control utilization of 
services and expenditures.
    (3) The number of disputes, and the disposition in the aggregate, in 
a manner and form described by the Secretary. Such disputes shall be 
categorized as
    (i) Grievances according to Sec. 422.564; and
    (ii) Appeals according to Sec. 422.578 et. seq.
    (4) A summary description of the method of compensation for 
physicians.
    (5) Financial condition of the M+C organization, including the most 
recently audited information regarding, at least, a description of the 
financial condition of the M+C organization offering the plan.
    (d) Changes in rules. If an M+C organization intends to change its 
rules for an M+C plan, it must--
    (1) Submit the changes for HCFA review under the procedures of 
Sec. 422.80; and
    (2) Give notice to all enrollees 30 days before the intended 
effective date of the changes.
    (e) Changes to provider network. The M+C organization must make a 
good faith effort to provide written notice of a termination of a 
contracted provider within 15 working days of receipt or issuance of a 
notice of termination, as described in Sec. 422.204(c)(4), to all 
enrollees who are patients seen on a regular basis by the provider whose 
contract is terminating, irrespective of whether the termination was for 
cause or without cause. When a contract termination involves a primary 
care professional, all enrollees who are patients of that primary care 
professional must also be notified.



Sec. 422.112  Access to services.

    (a) Rules for coordinated care plans and network M+C MSA plans. An 
M+C organization that offers an M+C coordinated care plan or network M+C 
MSA plan may specify the networks of providers from whom enrollees may 
obtain services if the M+C organization ensures that all covered 
services, including additional or supplemental services contracted for 
by (or on behalf of) the Medicare enrollee, are available and accessible 
under the plan. To accomplish this, the M+C organization must meet the 
following requirements:
    (1) Provider network. Maintain and monitor a network of appropriate 
providers that is supported by written agreements and is sufficient to 
provide adequate access to covered services to meet the needs of the 
population served. These providers are typically utilized in the network 
as primary care providers (PCPs), specialists, hospitals, skilled 
nursing facilities, home health agencies, ambulatory clinics, and other 
providers.
    (2) PCP panel. Establish the panel of PCPs from which the enrollee 
selects a PCP.
    (3) Specialty care. Provide or arrange for necessary specialty care, 
and in particular give women enrollees the option of direct access to a 
women's health specialist within the network for women's routine and 
preventive health care services provided as basic benefits (as defined 
in Sec. 422.2) notwithstanding that the plan maintains a

[[Page 688]]

PCP or some other means for continuity of care.
    (4) Serious medical conditions. Ensure that each plan has in effect 
HCFA-approved procedures that enable the plan to--
    (i) Identify individuals with complex or serious medical conditions;
    (ii) Assess those conditions, and use medical procedures to diagnose 
and monitor them on an ongoing basis; and
    (iii) Establish and implement a treatment plan that--
    (A) Is appropriate to those conditions;
    (B) Includes an adequate number of direct access visits to 
specialists consistent with the treatment plan; and
    (C) Is time-specific and updated periodically by the PCP.
    (5) Involuntary termination. If the M+C organization terminates an 
M+C plan or any specialists for a reason other than for cause, the M+C 
organization must do the following:
    (i) Inform beneficiaries, at the time of termination, of their right 
to maintain access to specialists.
    (ii) Provide the names of other M+C plans in the area that contract 
with specialists of the beneficiary's choice.
    (iii) Explain the process the beneficiary would need to follow 
should he or she decide to return to original Medicare.
    (6) Service area expansion. If seeking a service area expansion for 
an M+C plan, demonstrate that the number and type of providers available 
to plan enrollees are sufficient to meet projected needs of the 
population to be served.
    (7) Credentialed providers. Demonstrate to HCFA that its providers 
in an M+C plan are credentialed through the process set forth at 
Sec. 422.204(a).
    (8) Written standards. Establish written standards for the 
following:
    (i) Timeliness of access to care and member services that meet or 
exceed standards established by HCFA. Timely access to care and member 
services within a plan's provider network must be continuously monitored 
to ensure compliance with these standards, and the M+C organization must 
take corrective action as necessary.
    (ii) Policies and procedures (coverage rules, practice guidelines, 
payment policies, and utilization management) that allow for individual 
medical necessity determinations.
    (iii) Provider consideration of beneficiary input into the 
provider's proposed treatment plan.
    (9) Hours of operation. Ensure, for each M+C plan, that--
    (i) The hours of operation of its M+C plan providers are convenient 
to the population served by the plan and do not discriminate against 
Medicare enrollees; and
    (ii) The plan makes plan services available 24 hours a day, 7 days a 
week, when medically necessary.
    (10) Cultural considerations. (i) Ensure that services are provided 
in a culturally competent manner to all enrollees, including those with 
limited English proficiency or reading skills, diverse cultural and 
ethnic backgrounds, and physical or mental disabilities.
    (ii) Provide coverage for emergency and urgent care services in 
accordance with paragraph (c) of this section.
    (b) Rules for all M+C organizations to ensure continuity of care. 
The M+C organization must ensure continuity of care and integration of 
services through arrangements that include, but are not limited to the 
following--
    (1) Use of a practitioner who is specifically designated as having 
primary responsibility for coordinating the enrollee's overall health 
care.
    (2) Policies that specify whether services are coordinated by the 
enrollee's primary care practitioner or through some other means.
    (3) An ongoing source of primary care, regardless of the mechanism 
adopted for coordination of services.
    (4) Programs for coordination of plan services with community and 
social services generally available through contracting or 
noncontracting providers in the area served by the M+C plan, including 
nursing home and community-based services.
    (5) Procedures to ensure that the M+C organization and its provider 
network have the information required for effective and continuous 
patient care and quality review, including procedures to ensure that--
    (i) An initial assessment of each enrollee's health care needs is 
completed

[[Page 689]]

within 90 days of the effective date of enrollment;
    (ii) Each provider, supplier, and practitioner furnishing services 
to enrollees maintains an enrollee health record in accordance with 
standards established by the M+C organization, taking into account 
professional standards; and
    (iii) That there is appropriate and confidential exchange of 
information among provider network components.
    (6) Procedures to ensure that enrollees are informed of specific 
health care needs that require follow-up and receive, as appropriate, 
training in self-care and other measures they may take to promote their 
own health; and
    (7) Systems to address barriers to enrollee compliance with 
prescribed treatments or regimens.
    (c) Special rules for all M+C organizations for emergency and 
urgently needed services--(1) Coverage. The M+C organization covers 
emergency and urgently needed services--
    (i) Regardless of whether the services are obtained within or 
outside the organization; and
    (ii) Without required prior authorization.
    (2) Financial Responsibility. The M+C organization may not deny 
payment for a condition--
    (i) That is an emergency medical condition as defined in Sec. 422.2; 
or
    (ii) For which a plan provider or other M+C organization 
representative instructs an enrollee to seek emergency services within 
or outside the plan.
    (3) Stabilized condition. The physician treating the enrollee must 
decide when the enrollee may be considered stabilized for transfer or 
discharge, and that decision is binding on the M+C organization.
    (4) Limits on charges to enrollees. For emergency services obtained 
outside the M+C plan's provider network, the organization may not charge 
the enrollee more than $50 or what it would charge the enrollee if he or 
she obtained the services through the organization, whichever is less.

[63 FR 35077, June 26, 1998; 63 FR 52612, Oct. 1, 1998]



Sec. 422.114  Access to services under an M+C private fee-for-service plan.

    (a) Sufficient access. (1) An M+C organization that offers an M+C 
private fee-for-service plan must demonstrate to HCFA that it has 
sufficient number and range of providers willing to furnish services 
under the plan.
    (2) HCFA finds that an M+C organization meets the requirement in 
paragraph (a)(1) of this section if, with respect to a particular 
category of health care providers, the M+C organization has--
    (i) Payment rates that are not less than the rates that apply under 
original Medicare for the provider in question;
    (ii) Contracts or agreements with a sufficient number and range of 
providers to furnish the services covered under the M+C private fee-for-
service plan; or
    (iii) A combination of paragraphs (a)(2)(i) and (a)(2)(ii) of this 
section.
    (b) Freedom of choice. M+C fee-for-service plans must permit 
enrollees to obtain services from any entity that is authorized to 
provide services under Medicare Part A and Part B and agrees to provide 
services under the terms of the plan.



Sec. 422.118  Confidentiality and accuracy of enrollee records.

    For any medical records or other health and enrollment information 
it maintains with respect to enrollees, an M+C organization must 
establish procedures to do the following:
    (a) Safeguard the privacy of any information that identifies a 
particular enrollee. Information from, or copies of, records may be 
released only to authorized individuals, and the M+C organization must 
ensure that unauthorized individuals cannot gain access to or alter 
patient records. Original medical records must be released only in 
accordance with Federal or State laws, court orders, or subpoenas.
    (b) Maintain the records and information in an accurate and timely 
manner.
    (c) Ensure timely access by enrollees to the records and information 
that pertain to them.

[[Page 690]]

    (d) Abide by all Federal and State laws regarding confidentiality 
and disclosure for mental health records, medical records, other health 
information, and enrollee information.



Sec. 422.128  Information on advance directives.

    (a) Each M+C organization must maintain written policies and 
procedures that meet the requirements for advance directives, as set 
forth in subpart I of part 489 of this chapter. For purposes of this 
part, advance directive has the meaning given the term in Sec. 489.100 
of this chapter.
    (b) An M+C organization must maintain written policies and 
procedures concerning advance directives with respect to all adult 
individuals receiving medical care by or through the M+C organization.
    (1) An M+C organization must provide written information to those 
individuals with respect to the following:
    (i) Their rights under the law of the State in which the 
organization furnishes services (whether statutory or recognized by the 
courts of the State) to make decisions concerning their medical care, 
including the right to accept or refuse medical or surgical treatment 
and the right to formulate advance directives. Providers may contract 
with other entities to furnish this information but remain legally 
responsible for ensuring that the requirements of this section are met. 
The information must reflect changes in State law as soon as possible, 
but no later than 90 days after the effective date of the State law.
    (ii) The M+C organization's written policies respecting the 
implementation of those rights, including a clear and precise statement 
of limitation if the M+C organization cannot implement an advance 
directive as a matter of conscience. At a minimum, this statement must 
do the following:
    (A) Clarify any differences between institution-wide conscientious 
objections and those that may be raised by individual physicians.
    (B) Identify the state legal authority permitting such objection.
    (C) Describe the range of medical conditions or procedures affected 
by the conscience objection.
    (D) Provide the information specified in paragraph (a)(1) of this 
section to each enrollee at the time of initial enrollment. If an 
enrollee is incapacitated at the time of initial enrollment and is 
unable to receive information (due to the incapacitating condition or a 
mental disorder) or articulate whether or not he or she has executed an 
advance directive, the M+C organization may give advance directive 
information to the enrollee's family or surrogate in the same manner 
that it issues other materials about policies and procedures to the 
family of the incapacitated enrollee or to a surrogate or other 
concerned persons in accordance with State law. The M+C organization is 
not relieved of its obligation to provide this information to the 
enrollee once he or she is no longer incapacitated or unable to receive 
such information. Follow-up procedures must be in place to ensure that 
the information is given to the individual directly at the appropriate 
time.
    (E) Document in a prominent part of the individual's current medical 
record whether or not the individual has executed an advance directive.
    (F) Not condition the provision of care or otherwise discriminate 
against an individual based on whether or not the individual has 
executed an advance directive.
    (G) Ensure compliance with requirements of State law (whether 
statutory or recognized by the courts of the State) regarding advance 
directives.
    (H) Provide for education of staff concerning its policies and 
procedures on advance directives.
    (I) Provide for community education regarding advance directives 
that may include material required in paragraph (a)(1)(i) of this 
section, either directly or in concert with other providers or entities. 
Separate community education materials may be developed and used, at the 
discretion of the M+C organization. The same written materials are not 
required for all settings, but the material should define what 
constitutes an advance directive, emphasizing that an advance directive 
is designed to enhance an incapacitated individual's control over 
medical treatment, and describe applicable State law concerning advance 
directives. An

[[Page 691]]

M+C organization must be able to document its community education 
efforts.
    (2) The M+C organization--
    (i) Is not required to provide care that conflicts with an advance 
directive; and
    (ii) Is not required to implement an advance directive if, as a 
matter of conscience, the M+C organization cannot implement an advance 
directive and State law allows any health care provider or any agent of 
the provider to conscientiously object.
    (3) The M+C organization must inform individuals that complaints 
concerning noncompliance with the advance directive requirements may be 
filed with the State survey and certification agency.



Sec. 422.132  Protection against liability and loss of benefits.

    Enrollees of M+C organizations are entitled to the protections 
specified in Sec. 422.502(g).



                      Subpart D--Quality Assurance

    Source: 63 FR 35082, June 26, 1998, unless otherwise noted.



Sec. 422.152  Quality assessment and performance improvement program.

    (a) General rule. Each M+C organization that offers one or more M+C 
plans must have, for each of those plans, an ongoing quality assessment 
and performance improvement program that meets the applicable 
requirements of this section for the services it furnishes to its M+C 
enrollees.
    (b) Requirements for M+C coordinated care plans and network M+C MSA 
plans. An organization offering an M+C coordinated care plan or M+C 
network MSA plan must do the following:
    (1) Meet the requirements in paragraph (c)(1) of this section 
concerning performance measurement and reporting. With respect to an M+C 
coordinated care plan, an organization must also meet the requirements 
of paragraph (c)(2) of this section concerning the achievement of 
minimum performance levels. The requirements of paragraph (c)(2) of this 
section do not apply with respect to an M+C MSA plan.
    (2) Conduct performance improvement projects as described in 
paragraph (d) of this section. These projects must achieve, through 
ongoing measurement and intervention, demonstrable and sustained 
improvement in significant aspects of clinical care and nonclinical care 
areas that can be expected to have a favorable effect on health outcomes 
and enrollee satisfaction.
    (3) In processing requests for initial or continued authorization of 
services, follow written policies and procedures that reflect current 
standards of medical practice.
    (4) Have in effect mechanisms to detect both underutilization and 
overutilization of services.
    (5) Make available to HCFA information on quality and outcomes 
measures that will enable beneficiaries to compare health coverage 
options and select among them, as provided in Sec. 422.64(c)(10).
    (c) Performance measurement and reporting. The organization offering 
the plan must do the following:
    (1) Measure performance under the plan, using standard measures 
required by HCFA, and report its performance to HCFA. The standard 
measures may be specified in uniform data collection and reporting 
instruments required by HCFA, and will relate to--
    (i) Clinical areas including effectiveness of care, enrollee 
perception of care, and use of services; and
    (ii) Nonclinical areas including access to and availability of 
services, appeals and grievances, and organizational characteristics.
    (2) Achieve any minimum performance levels that HCFA establishes 
locally, regionally, or nationally with respect to the standard 
measures.
    (i) In establishing minimum performance levels, HCFA considers 
historical plan and original Medicare performance data and trends.
    (ii) HCFA establishes the minimum performance levels prospectively 
upon contract initiation and renewal.
    (iii) The organization must meet the minimum performance levels by 
the end of the contract year.
    (iv) In accordance with Sec. 422.506, HCFA may decline to renew the 
organization's contract in the year that

[[Page 692]]

HCFA determines that it did not meet the minimum performance levels.
    (d) Performance improvement projects. (1) Performance improvement 
projects are organization initiatives that focus on specified clinical 
and nonclinical areas and that involve the following:
    (i) Measurement of performance.
    (ii) System interventions, including the establishment or alteration 
of practice guidelines.
    (iii) Improving performance.
    (iv) Systematic follow-up on the effect of the interventions.
    (2) Each project must address the entire population to which the 
measurement specified in paragraph (d)(1)(i) of this section is 
relevant.
    (3) HCFA establishes M+C organization and M+C plan-specific 
obligations for the number and distribution of projects among the 
required clinical and nonclinical areas, in accordance with paragraphs 
(d)(4) and (d)(5) of this section, to ensure that the projects are 
representative of the entire spectrum of clinical and nonclinical care 
areas associated with a plan.
    (4) The required clinical areas include:
    (i) Prevention and care of acute and chronic conditions.
    (ii) High-volume services.
    (iii) High-risk services.
    (iv) Continuity and coordination of care.
    (5) The required nonclinical areas include:
    (i) Appeals, grievances, and other complaints.
    (ii) Access to, and availability of, services.
    (6) In addition to requiring that the organization initiate its own 
performance improvement projects, HCFA may require that the 
organization--
    (i) Conduct particular performance improvement projects that are 
specific to the organization; and
    (ii) Participate in national or statewide performance improvement 
projects.
    (7) For each project, the organization must assess performance under 
the plan using quality indicators that are--
    (i) Objective, clearly and unambiguously defined, and based on 
current clinical knowledge or health services research; and
    (ii) Capable of measuring outcomes such as changes in health status, 
functional status and enrollee satisfaction, or valid proxies of those 
outcomes.
    (8) Performance assessment on the selected indicators must be based 
on systematic ongoing collection and analysis of valid and reliable 
data.
    (9) Interventions must achieve improvement that is significant and 
sustained over time.
    (10) The organization must report the status and results of each 
project to HCFA as requested.
    (e) Requirements for non-network M+C MSA plans and M+C private fee-
for-service plans. An organization offering an M+C non-network MSA plan 
or an M+C private fee-for-service plan must do the following:
    (1) Measure performance under the plan using standard measures 
required by HCFA and report its performance to HCFA. The standard 
measures may be specified in uniform data collection and reporting 
instruments required by HCFA and will relate to--
    (i) Prevention and care of acute and chronic conditions;
    (ii) High-volume services;
    (iii) High-risk services; and
    (iv) Enrollee satisfaction.
    (2) Evaluate the continuity and coordination of care furnished to 
enrollees.
    (3) If the organization uses written protocols for utilization 
review, the organization must--
    (i) Base those protocols on current standards of medical practice; 
and
    (ii) Have mechanisms to evaluate utilization of services and to 
inform enrollees and providers of services of the results of the 
evaluation.
    (f) Requirements for all types of plans--(1) Health information. For 
all types of plans that it offers, an organization must--
    (i) Maintain a health information system that collects, analyzes, 
and integrates the data necessary to implement its quality assessment 
and performance improvement program;
    (ii) Ensure that the information it receives from providers of 
services is reliable and complete; and
    (iii) Make all collected information available to HCFA.

[[Page 693]]

    (2) Program review. For each plan, there must be in effect a process 
for formal evaluation, at least annually, of the impact and 
effectiveness of its quality assessment and performance improvement 
program.



Sec. 422.154  External review.

    (a) Basic rule. Except as provided in paragraph (c) of this section, 
each M+C organization must, for each M+C plan it operates, have an 
agreement with an independent quality review and improvement 
organization (review organization) approved by HCFA to perform functions 
of the type described in part 466 of this chapter.
    (b) Terms of the agreement. The agreement must be consistent with 
HCFA guidelines and include the following provisions:
    (1) Require that the organization--
    (i) Allocate adequate space for use of the review organization 
whenever it is conducting review activities; and
    (ii) Provide all pertinent data, including patient care data, at the 
time the review organization needs the data to carry out the reviews and 
make its determinations.
    (2) Except in the case of complaints about quality, exclude review 
activities that HCFA determines would duplicate review activities 
conducted as part of an accreditation process or as part of HCFA 
monitoring.
    (c) Exceptions. The requirement of paragraph (a) of this section 
does not apply for an M+C private fee-for-service plan or a non-network 
M+C MSA plan if the organization does not carry out utilization review 
with respect to the plan.



Sec. 422.156  Compliance deemed on the basis of accreditation.

    (a) General rule. An M+C organization may be deemed to meet any of 
the requirements of paragraph (b) of this section if--
    (1) The M+C organization is fully accredited (and periodically 
reaccredited) by a private, national accreditation organization approved 
by HCFA; and
    (2) The accreditation organization used the standards approved by 
HCFA for the purposes of assessing the M+C organization's compliance 
with Medicare requirements.
    (b) Deeming requirements. The following requirements are deemable:
    (1) The quality assessment and performance improvement requirements 
of Sec. 422.152.
    (2) The confidentiality and accuracy of enrollee records 
requirements of Sec. 422.118.
    (c) Effective date of deemed status. The date on which the 
organization is deemed to meet the applicable requirements is the later 
of the following:
    (1) The date on which the accreditation organization is approved by 
HCFA.
    (2) The date the M+C organization is accredited by the accreditation 
organization.
    (d) Obligations of deemed M+C organizations. An M+C organization 
deemed to meet Medicare requirements must--
    (1) Submit to surveys by HCFA to validate its accreditation 
organization's accreditation process; and
    (2) Authorize its accreditation organization to release to HCFA a 
copy of its most recent accreditation survey, together with any survey-
related information that HCFA may require (including corrective action 
plans and summaries of unmet HCFA requirements).
    (e) Removal of deemed status. HCFA removes part or all of an M+C 
organization's deemed status for any of the following reasons:
    (1) HCFA determines, on the basis of its own survey or the results 
of the accreditation survey, that the M+C organization does not meet the 
Medicare requirements for which deemed status was granted.
    (2) HCFA withdraws its approval of the accreditation organization 
that accredited the M+C organization.
    (3) The M+C organization fails to meet the requirements of paragraph 
(d) of this section.
    (f) Enforcement authority. HCFA retains the authority to initiate 
enforcement action against any M+C organization that it determines, on 
the basis of its own survey or the results of an accreditation survey, 
no longer meets the Medicare requirements for which deemed status was 
granted.



Sec. 422.157  Accreditation organizations.

    (a) Conditions for approval. HCFA may approve an accreditation 
organization

[[Page 694]]

with respect to a given standard under this part if it meets the 
following conditions:
    (1) In accrediting M+C organizations, it applies and enforces 
standards that are at least as stringent as Medicare requirements with 
respect to the standard or standards in question.
    (2) It complies with the application and reapplication procedures 
set forth in Sec. 422.158.
    (3) It is not controlled, as defined in Sec. 413.17 of this chapter, 
by the entities it accredits.
    (b) Notice and comment--(1) Proposed notice. HCFA publishes a 
proposed notice in the Federal Register whenever it is considering 
granting an accreditation organization's application for approval. The 
notice--
    (i) Specifies the basis for granting approval;
    (ii) Describes how the accreditation organization's accreditation 
program meets or exceeds all of the Medicare requirements for which HCFA 
would deem compliance on the basis of the organization's accreditation; 
and
    (iii) Provides opportunity for public comment.
    (2) Final notice. (i) After reviewing public comments, HCFA 
publishes a final Federal Register notice indicating whether it has 
granted the accreditation organization's request for approval.
    (ii) If HCFA grants the request, the final notice specifies the 
effective date and the term of the approval, which may not exceed 6 
years.
    (c) Ongoing responsibilities of an approved accreditation 
organization. An accreditation organization approved by HCFA must 
undertake the following activities on an ongoing basis:
    (1) Provide to HCFA in written form and on a monthly basis all of 
the following:
    (i) Copies of all accreditation surveys, together with any survey-
related information that HCFA may require (including corrective action 
plans and summaries of unmet HCFA requirements).
    (ii) Notice of all accreditation decisions.
    (iii) Notice of all complaints related to deemed M+C organizations.
    (iv) Information about any M+C organization against which the 
accrediting organization has taken remedial or adverse action, including 
revocation, withdrawal or revision of the M+C organization's 
accreditation. (The accreditation organization must provide this 
information within 30 days of taking the remedial or adverse action.)
    (v) Notice of any proposed changes in its accreditation standards or 
requirements or survey process. If the organization implements the 
changes before or without HCFA approval, HCFA may withdraw its approval 
of the accreditation organization.
    (2) Within 30 days of a change in HCFA requirements, submit to 
HCFA--
    (i) An acknowledgment of HCFA's notification of the change;
    (ii) A revised cross-walk reflecting the new requirements; and
    (iii) An explanation of how the accreditation organization plans to 
alter its standards to conform to HCFA's new requirements, within the 
time-frames specified in the notification of change it receives from 
HCFA.
    (3) Permit its surveyors to serve as witnesses if HCFA takes an 
adverse action based on accreditation findings.
    (4) Within 3 days of identifying, in an accredited M+C organization, 
a deficiency that poses immediate jeopardy to the organization's 
enrollees or to the general public, give HCFA written notice of the 
deficiency.
    (5) Within 10 days of HCFA's notice of withdrawal of approval, give 
written notice of the withdrawal to all accredited M+C organizations.
    (d) Continuing Federal oversight of approved accreditation 
organizations. This paragraph establishes specific criteria and 
procedures for continuing oversight and for withdrawing approval of an 
accreditation organization.
    (1) Equivalency review. HCFA compares the accreditation 
organization's standards and its application and enforcement of those 
standards to the comparable HCFA requirements and processes when--
    (i) HCFA imposes new requirements or changes its survey process;
    (ii) An accreditation organization proposes to adopt new standards 
or changes in its survey process; or

[[Page 695]]

    (iii) The term of an accreditation organization's approval expires.
    (2) Validation review. HCFA or its agent may conduct a survey of an 
accredited organization, examine the results of the accreditation 
organization's own survey, or attend the accreditation organization's 
survey, in order to validate the organization's accreditation process. 
At the conclusion of the review, HCFA identifies any accreditation 
programs for which validation survey results--
    (i) Indicate a 20 percent rate of disparity between certification by 
the accreditation organization and certification by HCFA or its agent on 
standards that do not constitute immediate jeopardy to patient health 
and safety if unmet;
    (ii) Indicate any disparity between certification by the 
accreditation organization and certification by HCFA or its agent on 
standards that constitute immediate jeopardy to patient health and 
safety if unmet; or
    (iii) Indicate that, irrespective of the rate of disparity, there 
are widespread or systematic problems in an organization's accreditation 
process such that accreditation no longer provides assurance that the 
Medicare requirements are met or exceeded.
    (3) Onsite observation. HCFA may conduct an onsite inspection of the 
accreditation organization's operations and offices to verify the 
organization's representations and assess the organization's compliance 
with its own policies and procedures. The onsite inspection may include, 
but is not limited to, reviewing documents, auditing meetings concerning 
the accreditation process, evaluating survey results or the 
accreditation status decision making process, and interviewing the 
organization's staff.
    (4) Notice of intent to withdraw approval. If an equivalency review, 
validation review, onsite observation, or HCFA's daily experience with 
the accreditation organization suggests that the accreditation 
organization is not meeting the requirements of this subpart, HCFA gives 
the organization written notice of its intent to withdraw approval.
    (5) Withdrawal of approval. HCFA may withdraw its approval of an 
accreditation organization at any time if HCFA determines that--
    (i) Deeming based on accreditation no longer guarantees that the M+C 
organization meets the M+C requirements, and failure to meet those 
requirements could jeopardize the health or safety of Medicare enrollees 
and constitute a significant hazard to the public health; or
    (ii) The accreditation organization has failed to meet its 
obligations under this section or under Sec. 422.156 or Sec. 422.158.
    (6) Reconsideration of withdrawal of approval. An accreditation 
organization dissatisfied with a determination to withdraw HCFA approval 
may request a reconsideration of that determination in accordance with 
subpart D of part 488 of this chapter.



Sec. 422.158  Procedures for approval of accreditation as a basis for deeming compliance.

    (a) Required information and materials. A private, national 
accreditation organization applying for approval must furnish to HCFA 
all of the following information and materials. (When reapplying for 
approval, the organization need furnish only the particular information 
and materials requested by HCFA.)
    (1) The types of M+C plans that it would review as part of its 
accreditation process.
    (2) A detailed comparison of the organization's accreditation 
requirements and standards with the Medicare requirements (for example, 
a crosswalk).
    (3) Detailed information about the organization's survey process, 
including--
    (i) Frequency of surveys and whether surveys are announced or 
unannounced.
    (ii) Copies of survey forms, and guidelines and instructions to 
surveyors.
    (iii) Descriptions of--
    (A) The survey review process and the accreditation status decision 
making process;
    (B) The procedures used to notify accredited M+C organizations of 
deficiencies and to monitor the correction of those deficiencies; and

[[Page 696]]

    (C) The procedures used to enforce compliance with accreditation 
requirements.
    (4) Detailed information about the individuals who perform surveys 
for the accreditation organization, including--
    (i) The size and composition of accreditation survey teams for each 
type of plan reviewed as part of the accreditation process;
    (ii) The education and experience requirements surveyors must meet;
    (iii) The content and frequency of the in-service training provided 
to survey personnel;
    (iv) The evaluation systems used to monitor the performance of 
individual surveyors and survey teams; and
    (v) The organization's policies and practice with respect to the 
participation, in surveys or in the accreditation decision process by an 
individual who is professionally or financially affiliated with the 
entity being surveyed.
    (5) A description of the organization's data management and analysis 
system with respect to its surveys and accreditation decisions, 
including the kinds of reports, tables, and other displays generated by 
that system.
    (6) A description of the organization's procedures for responding to 
and investigating complaints against accredited organizations, including 
policies and procedures regarding coordination of these activities with 
appropriate licensing bodies and ombudsmen programs.
    (7) A description of the organization's policies and procedures with 
respect to the withholding or removal of accreditation for failure to 
meet the accreditation organization's standards or requirements, and 
other actions the organization takes in response to noncompliance with 
its standards and requirements.
    (8) A description of all types (for example, full, partial) and 
categories (for example, provisional, conditional, temporary) of 
accreditation offered by the organization, the duration of each type and 
category of accreditation and a statement identifying the types and 
categories that would serve as a basis for accreditation if HCFA 
approves the accreditation organization.
    (9) A list of all currently accredited M+C organizations and the 
type, category, and expiration date of the accreditation held by each of 
them.
    (10) A list of all full and partial accreditation surveys scheduled 
to be performed by the accreditation organization as requested by HCFA.
    (11) The name and address of each person with an ownership or 
control interest in the accreditation organization.
    (b) Required supporting documentation. A private, national 
accreditation organization applying or reapplying for approval must also 
submit the following supporting documentation:
    (1) A written presentation that demonstrates its ability to furnish 
HCFA with electronic data in HCFA compatible format.
    (2) A resource analysis that demonstrates that its staffing, 
funding, and other resources are adequate to perform the required 
surveys and related activities.
    (3) A statement acknowledging that, as a condition for approval, it 
agrees to comply with the ongoing responsibility requirements of 
Sec. 422.157(c).
    (c) Additional information. If HCFA determines that it needs 
additional information for a determination to grant or deny the 
accreditation organization's request for approval, it notifies the 
organization and allows time for the organization to provide the 
additional information.
    (d) Onsite visit. HCFA may visit the accreditation organization's 
offices to verify representations made by the organization in its 
application, including, but not limited to, review of documents, and 
interviews with the organization's staff.
    (e) Notice of determination. HCFA gives the accreditation 
organization a formal notice that--
    (1) States whether the request for approval has been granted or 
denied;
    (2) Gives the rationale for any denial; and
    (3) Describes the reconsideration and reapplication procedures.
    (f) Withdrawal. An accreditation organization may withdraw its 
application for approval at any time before it receives the formal 
notice specified in paragraph (e) of this section.

[[Page 697]]

    (g) Reconsideration of adverse determination. An accreditation 
organization that has received notice of denial of its request for 
approval may request reconsideration in accordance with subpart D of 
part 488 of this chapter.
    (h) Request for approval following denial. (1) Except as provided in 
paragraph (h)(2) of this section, an accreditation organization that has 
received notice of denial of its request for approval may submit a new 
request if it--
    (i) Has revised its accreditation program to correct the 
deficiencies on which the denial was based;
    (ii) Can demonstrate that the M+C organizations that it has 
accredited meet or exceed applicable Medicare requirements; and
    (iii) Resubmits the application in its entirety.
    (2) An accreditation organization that has requested reconsideration 
of HCFA's denial of its request for approval may not submit a new 
request until the reconsideration is administratively final.



                 Subpart E--Relationships With Providers

    Source: 63 FR 35085, June 26, 1998, unless otherwise noted.



422.200  Basis and scope.

    This subpart is based on sections 1852(a)(1), (a)(2), (b)(2), 
(c)(2)(D), (j), and (k) of the Act; section 1859(b)(2)(A) of the Act; 
and the general authority under 1856(b) of the Act requiring the 
establishment of standards. It sets forth the requirements and standards 
for the M+C organization's relationships with providers including 
physicians, other health care professionals, institutional providers and 
suppliers, under contracts or arrangements or deemed contracts under M+C 
private fee-for-service plans. This subpart also contains some 
requirements that apply to noncontracting providers.



Sec. 422.202  Participation procedures.

    (a) Notice and appeal rights. An M+C organization that operates a 
coordinated care plan or network MSA plan must provide for the 
participation of individual health care professionals, and the 
management and members of groups of health care professionals, through 
reasonable procedures that include the following:
    (1) Written notice of rules of participation such as terms for 
payment, utilization review, quality improvement programs, 
credentialing, data reporting, confidentiality, guidelines or criteria 
for the furnishing of particular services, and other rules related to 
administrative policy.
    (2) Written notice of material changes in participation rules before 
the changes are put into effect.
    (3) Written notice of participation decisions that are adverse to 
health care professionals.
    (4) A process for appealing adverse decisions, including the right 
of physicians and other health care professionals to present information 
and their views on the decision. In the case of a termination of a 
provider contract by the M+C organization, this process must conform to 
the rules in Sec. 422.204(c).
    (b) Consultation. The M+C organization must consult with the 
physicians, and other health care professionals who have agreed to 
provide services under an M+C plan offered by the organization, 
regarding the organization's medical policy, quality assurance program, 
and medical management procedures and ensure that the following 
standards are met:
    (1) Practice guidelines and utilization management guidelines--
    (i) Are based on reasonable medical evidence or a consensus of 
health care professionals in the particular field;
    (ii) Consider the needs of the enrolled population;
    (iii) Are developed in consultation with contracting health care 
professionals; and
    (iv) Are reviewed and updated periodically.
    (2) The guidelines are communicated to providers and, as 
appropriate, to enrollees.
    (3) Decisions with respect to utilization management, enrollee 
education, coverage of services, and other areas in which the guidelines 
apply are consistent with the guidelines.

[[Page 698]]

    (c) An M+C organization that operates an M+C plan through 
subcontracted physician groups or other subcontracted networks of health 
care professionals must provide that the participation procedures in 
this section apply equally to physicians and other health care 
professionals within those subcontracted groups.



Sec. 422.204  Provider credentialing and provider rights.

    (a) Basic requirements. An M+C organization must follow a documented 
process with respect to providers and suppliers who have signed 
contracts or participation agreements that--
    (1) For providers (other than physicians and other health care 
professionals) requires determination, and redetermination at specified 
intervals, that each provider--
    (i) Licensed to operate in the State, and in compliance with any 
other applicable State or Federal requirements; and
    (ii) Reviewed and approved by an accrediting body, or meets the 
standards established by the organization itself;
    (2) For physicians and other health care professionals, including 
members of physician groups, covers--
    (i) Initial credentialing that includes written application, 
verification of licensure and other information from primary sources, 
disciplinary status, eligibility for payment under Medicare, and site 
visits as appropriate. The application must be signed and dated and 
include an attestation by the applicant of the correctness and 
completeness of the application and other information submitted in 
support of the application;
    (ii) Recredentialing at least every 2 years that updates information 
obtained during initial credentialing and considers performance 
indicators such as those collected through quality assurance programs, 
utilization management systems, handling of grievances and appeals, 
enrollee satisfaction surveys, and other plan activities, and that 
includes an attestation of the correctness and completeness of the new 
information; and
    (iii) A process for receiving advice from contracting health care 
professionals with respect to criteria for credentialing and 
recredentialing; and
    (iv) Requiring that, to the extent applicable, the requirements in 
paragraphs (a)(2)(i) and (a)(2)(iii) of this section are satisfied; and
    (3)(i) Specify that basic benefits must be provided through, or 
payments must be made to, providers that meet applicable requirements of 
title XVIII and part A of title XI of the Act. In the case of providers 
meeting the definition of ``provider of services'' in section 1861(u), 
basic benefits may only be provided through such providers if they have 
a provider agreement with HCFA permitting them to provide services under 
original Medicare.
    (ii) Ensures compliance with the requirements at Sec. 422.752(a)(8) 
that prohibit employment or contracts with individuals (or with an 
entity that employs or contracts with such an individual) excluded from 
participation under Medicare and with the requirements at Sec. 422.220 
regarding physicians and practitioners who opt out of Medicare.
    (b) Discrimination prohibited--(1) General rule. An M+C organization 
may not discriminate, in terms of participation, reimbursement, or 
indemnification, against any health care professional who is acting 
within the scope of his or her license or certification under State law, 
solely on the basis of the license or certification.
    (2) Construction. The prohibition in paragraph (b)(1) of this 
section does not preclude any of the following by the M+C organization:
    (i) Refusal to grant participation to health care professionals in 
excess of the number necessary to meet the needs of the plan's enrollees 
(except for M+C private-fee-for-service plans, which may not refuse to 
contract on this basis).
    (ii) Use of different reimbursement amounts for different 
specialties.
    (iii) Implementation of measures designed to maintain quality and 
control costs consistent with its responsibilities.
    (c) Denial, suspension, or termination of contract. The requirements 
in this paragraph (c) apply to an M+C organization that operates a 
coordinated care

[[Page 699]]

plan or network MSA plan providing benefits through contracting 
providers.
    (1) Notice to health care professional. An M+C organization that 
denies, suspends, or terminates an agreement under which the health care 
professional provides services to M+C plan enrollees must give the 
affected individual written notice of the following:
    (i) The reasons for the action.
    (ii) The standards and the profiling data the organization used to 
evaluate the health care professional.
    (iii) The numbers and mix of health care professionals the 
organization needs.
    (iv) The affected health care professional's right to appeal the 
action and the process and timing for requesting a hearing.
    (2) Composition of hearing panel. The M+C organization must ensure 
that the majority of the hearing panel members are peers of the affected 
health care professional.
    (3) Notice to licensing or disciplinary bodies. An M+C organization 
that suspends or terminates a contract with a health care professional 
because of deficiencies in the quality of care must give written notice 
of that action to licensing or disciplinary bodies or to other 
appropriate authorities.
    (4) Timeframes. An M+C organization and a contracting provider must 
provide at least 60 days written notice to each other before terminating 
the contract without cause.



Sec. 422.206  Interference with health care professionals' advice to enrollees prohibited.

    (a) General rule. (1) An M+C organization may not prohibit or 
otherwise restrict a health care professional, acting within the lawful 
scope of practice, from advising, or advocating on behalf of, an 
individual who is a patient and enrolled under an M+C plan about--
    (i) The patient's health status, medical care, or treatment options 
(including any alternative treatments that may be self-administered), 
including the provision of sufficient information to the individual to 
provide an opportunity to decide among all relevant treatment options;
    (ii) The risks, benefits, and consequences of treatment or non-
treatment; or
    (iii) The opportunity for the individual to refuse treatment and to 
express preferences about future treatment decisions.
    (2) Health care professionals must provide information regarding 
treatment options in a culturally-competent manner, including the option 
of no treatment. Health care professionals must ensure that individuals 
with disabilities have effective communications with participants 
throughout the health system in making decisions regarding treatment 
options.
    (b) Conscience protection. The general rule in paragraph (a) of this 
section does not require the M+C plan to cover, furnish, or pay for a 
particular counseling or referral service if the M+C organization that 
offers the plan--
    (1) Objects to the provision of that service on moral or religious 
grounds; and
    (2) Through appropriate written means, makes available information 
on these policies as follows:
    (i) To HCFA, with its application for a Medicare contract, or within 
10 days of submitting its ACR proposal, as appropriate.
    (ii) To prospective enrollees, before or during enrollment.
    (iii) With respect to current enrollees, the organization is 
eligible for the exception provided in paragraph (a)(1) of this section 
if it provides notice within 90 days after adopting the policy at issue; 
however, under Sec. 422.111(d), notice of such a change must be given in 
advance.
    (c) Construction. Nothing in paragraph (b) of this section may be 
construed to affect disclosure requirements under State law or under the 
Employee Retirement Income Security Act of 1974.
    (d) Sanctions. An M+C organization that violates the prohibition of 
paragraph (a) of this section or the conditions in paragraph (b) of this 
section is subject to intermediate sanctions under subpart O of this 
part.

[[Page 700]]



Sec. 422.208  Physician incentive plans: requirements and limitations.

    (a) Definitions. In this subpart, the following definitions apply:
    Bonus means a payment made to a physician or physician group beyond 
any salary, fee-for-service payments, capitation, or returned withhold.
    Capitation means a set dollar payment per patient per unit of time 
(usually per month) paid to a physician or physician group to cover a 
specified set of services and administrative costs without regard to the 
actual number of services provided. The services covered may include the 
physician's own services, referral services, or all medical services.
    Physician group means a partnership, association, corporation, 
individual practice association, or other group of physicians that 
distributes income from the practice among members. An individual 
practice association is defined as a physician group for this section 
only if it is composed of individual physicians and has no subcontracts 
with physician groups.
    Physician incentive plan means any compensation arrangement to pay a 
physician or physician group that may directly or indirectly have the 
effect of reducing or limiting the services provided to any plan 
enrollee.
    Potential payments means the maximum payments possible to physicians 
or physician groups including payments for services they furnish 
directly, and additional payments based on use and costs of referral 
services, such as withholds, bonuses, capitation, or any other 
compensation to the physician or physician group. Bonuses and other 
compensation that are not based on use of referrals, such as quality of 
care furnished, patient satisfaction or committee participation, are not 
considered payments in the determination of substantial financial risk.
    Referral services means any specialty, inpatient, outpatient, or 
laboratory services that a physician or physician group orders or 
arranges, but does not furnish directly.
    Risk threshold means the maximum risk, if the risk is based on 
referral services, to which a physician or physician group may be 
exposed under a physician incentive plan without being at substantial 
financial risk. This is set at 25 percent risk.
    Substantial financial risk, for purposes of this section, means risk 
for referral services that exceeds the risk threshold.
    Withhold means a percentage of payments or set dollar amounts 
deducted from a physician's service fee, capitation, or salary payment, 
and that may or may not be returned to the physician, depending on 
specific predetermined factors.
    (b) Applicability. The requirements in this section apply to an M+C 
organization and any of its subcontracting arrangements that utilize a 
physician incentive plan in their payment arrangements with individual 
physicians or physician groups. Subcontracting arrangements may include 
an intermediate entity, which includes but is not limited to, an 
individual practice association that contracts with one or more 
physician groups or any other organized group such as those specified in 
Sec. 422.4.
    (c) Basic requirements. Any physician incentive plan operated by an 
M+C organization must meet the following requirements:
    (1) The M+C organization makes no specific payment, directly or 
indirectly, to a physician or physician group as an inducement to reduce 
or limit medically necessary services furnished to any particular 
enrollee. Indirect payments may include offerings of monetary value 
(such as stock options or waivers of debt) measured in the present or 
future.
    (2) If the physician incentive plan places a physician or physician 
group at substantial financial risk (as determined under paragraph (d) 
of this section) for services that the physician or physician group does 
not furnish itself, the M+C organization provides aggregate or per-
patient stop-loss protection in accordance with paragraph (f) of this 
section, and conducts periodic surveys in accordance with paragraph (g) 
of this section.
    (3) For all physician incentive plans, the M+C organization provides 
to HCFA the information specified in Sec. 422.210.

[[Page 701]]

    (d) Determination of substantial financial risk--(1) Basis. 
Substantial financial risk occurs when risk is based on the use or costs 
of referral services, and that risk exceeds the risk threshold. Payments 
based on other factors, such as quality of care furnished, are not 
considered in this determination.
    (2) Risk threshold. The risk threshold is 25 percent of potential 
payments.
    (3) Arrangements that cause substantial financial risk. The 
following incentive arrangements cause substantial financial risk within 
the meaning of this section, if the physician's or physician group's 
patient panel size is not greater than 25,000 patients, as shown in the 
table at paragraph (f)(2)(iii) of this section:
    (i) Withholds greater than 25 percent of potential payments.
    (ii) Withholds less than 25 percent of potential payments if the 
physician or physician group is potentially liable for amounts exceeding 
25 percent of potential payments.
    (iii) Bonuses that are greater than 33 percent of potential payments 
minus the bonus.
    (iv) Withholds plus bonuses if the withholds plus bonuses equal more 
than 25 percent of potential payments. The threshold bonus percentage 
for a particular withhold percentage may be calculated using the 
formula--Withhold % = -0.75 (Bonus %) +25%.
    (v) Capitation arrangements, if--
    (A) The difference between the maximum potential payments and the 
minimum potential payments is more than 25 percent of the maximum 
potential payments;
    (B) The maximum and minimum potential payments are not clearly 
explained in the contract with the physician or physician group.
    (vi) Any other incentive arrangements that have the potential to 
hold a physician or physician group liable for more than 25 percent of 
potential payments.
    (e) An M+C fee-for-service plan may not operate a physician 
incentive plan.
    (f) Stop-loss protection requirements--(1) Basic rule. The M+C 
organization must assure that all physicians and physician groups at 
substantial financial risk have either aggregate or per-patient stop-
loss protection in accordance with the following requirements:
    (2) Specific requirements. (i) Aggregate stop-loss protection must 
cover 90 percent of the costs of referral services that exceed 25 
percent of potential payments.
    (ii) For per-patient stop-loss protection if the stop-loss 
protection provided is on a per-patient basis, the stop-loss limit 
(deductible) per patient must be determined based on the size of the 
patient panel and may be a combined policy or consist of separate 
policies for professional services and institutional services. In 
determining patient panel size, the patients may be pooled in accordance 
with paragraph (g) of this section.
    (iii) Stop-loss protection must cover 90 percent of the costs of 
referral services that exceed the per patient deductible limit. The per-
patient stop-loss deductible limits are as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                 Separate           Separate
                       Panel size                         Single combined     institutional       professional
                                                             deductible         deductible         deductible
----------------------------------------------------------------------------------------------------------------
1-1,000................................................             $6,000            $10,000             $3,000
1,001-5,000............................................             30,000             40,000             10,000
5,001-8,000............................................             40,000             60,000             15,000
8,001-10,000...........................................             75,000            100,000             20,000
10,001-25,000..........................................            150,000            200,000             25,000
>25,000................................................              (\1\)              (\1\)              (\1\)
----------------------------------------------------------------------------------------------------------------
\1\ None.

    (g) Pooling of patients. Any entity that meets the pooling 
conditions of this section may pool commercial, Medicare, and Medicaid 
enrollees or the enrollees of several M+C organizations with which a 
physician or physician group has contracts. The conditions for pooling 
are as follows:
    (1) It is otherwise consistent with the relevant contracts governing 
the compensation arrangements for the physician or physician group.

[[Page 702]]

    (2) The physician or physician group is at risk for referral 
services with respect to each of the categories of patients being 
pooled.
    (3) The terms of the compensation arrangements permit the physician 
or physician group to spread the risk across the categories of patients 
being pooled.
    (4) The distribution of payments to physicians from the risk pool is 
not calculated separately by patient category.
    (5) The terms of the risk borne by the physician or physician group 
are comparable for all categories of patients being pooled.
    (h) Periodic surveys of current and former enrollees. An M+C 
organization must conduct periodic surveys of current and former 
enrollees where substantial financial risk exists. These periodic 
surveys must--
    (1) Include either a sample of, or all, current Medicare/Medicaid 
enrollees in the M+C organization and individuals disenrolled in the 
past 12 months for reasons other than--
    (i) The loss of Medicare or Medicaid eligibility;
    (ii) Relocation outside the M+C organization's service area;
    (iii) For failure to pay premiums or other charges;
    (iv) For abusive behavior; and
    (v) Retroactive disenrollment.
    (2) Be designed, implemented, and analyzed in accordance with 
commonly accepted principles of survey design and statistical analysis;
    (3) Measure the degree of enrollees/disenrollees' satisfaction with 
the quality of the services provided and the degree to which the 
enrollees/disenrollees have or had access to the services provided under 
the M+C organization; and
    (4) Be conducted no later than 1 year after the effective date of 
the M+C organization's contract and at least annually thereafter.
    (i) Sanctions. An M+C organization that fails to comply with the 
requirements of this section is subject to intermediate sanctions under 
subpart O of this part.



Sec. 422.210  Disclosure of physician incentive plans

    (a) Disclosure to HCFA--(1) Basic requirement. Each M+C organization 
must provide to HCFA descriptive information about its physician 
incentive plan in sufficient detail to enable HCFA to determine whether 
that plan complies with the requirements of Sec. 422.208. Reporting 
should be on the HCFA PIP Disclosure Form (OMB No. 0938-0700).
    (2) Content. The information must include at least the following:
    (i) Whether services not furnished by the physician or physician 
group are covered by the incentive plan.
    (ii) The type or types of incentive arrangements, such as, 
withholds, bonus, capitation.
    (iii) The percent of any withhold or bonus the plan uses.
    (iv) Assurance that the physicians or physician group has adequate 
stop-loss protection, and the amount and type of stop-loss protection.
    (v) The patient panel size and, if the plan uses pooling, the 
pooling method.
    (vi) If the M+C organization is required to conduct enrollee 
surveys, a summary of the survey results.
    (3) When disclosure must be made to HCFA. An M+C organization must 
disclose annually to HCFA the physician incentive arrangements that are 
effective at the start of each year. In addition, HCFA does not approve 
an M+C organization's application for a contract unless the M+C 
organization discloses the physician incentive arrangements effective 
for that contract.
    (b) Disclosure to Medicare beneficiaries--Basic requirement. An M+C 
organization must provide the following information to any Medicare 
beneficiary who requests it:
    (1) Whether the M+C organization uses a physician incentive plan 
that affects the use of referral services.
    (2) The type of incentive arrangement.
    (3) Whether stop-loss protection is provided.
    (4) If the M+C organization was required to conduct a survey, a 
summary of the survey results.

[[Page 703]]



Sec. 422.212  Limitations on provider indemnification.

    An M+C organization may not contract or otherwise provide, directly 
or indirectly, for any of the following individuals, organizations, or 
entities to indemnify the organization against any civil liability for 
damage caused to an enrollee as a result of the M+C organization's 
denial of medically necessary care:
    (a) A physician or health care professional.
    (b) Provider of services.
    (c) Other entity providing health care services.
    (d) Group of such professionals, providers, or entities.



Sec. 422.214  Special rules for services furnished by noncontract providers.

    (a) Services furnished to enrollees of coordinated care plans by 
providers. (1) Any provider (other than a provider of services as 
defined in section 1861(u) of the Act) that does not have in effect a 
contract establishing payment amounts for services furnished to a 
beneficiary enrolled in an M+C coordinated care plan must accept, as 
payment in full, the amounts that the provider could collect if the 
beneficiary were enrolled in original Medicare.
    (2) Any statutory provisions (including penalty provisions) that 
apply to payment for services furnished to a beneficiary not enrolled in 
an M+C plan also apply to the payment described in paragraph (a)(1) of 
this section.
    (b) Services furnished by providers of service. Any provider of 
services as defined in section 1861(u) of the Act that does not have in 
effect a contract establishing payment amounts for services furnished to 
a beneficiary enrolled in an M+C coordinated care plan must accept as 
payment in full the amounts (less any payments under Secs. 412.105(g) 
and 413.86(d)) that it could collect if the beneficiary were enrolled in 
original Medicare.



Sec. 422.216  Special rules for M+C private fee-for-service plans.

    (a) Payment to providers--(1) Payment rate. (i) The M+C organization 
must establish uniform payment rates for items and services that apply 
to all contracting providers, regardless of whether the contract is 
signed or deemed under paragraph (f) of this section.
    (ii) Contracting providers must be reimbursed on a fee-for-service 
basis.
    (iii) The M+C organization must make information on its payment 
rates available to providers that furnish services that may be covered 
under the M+C private fee-for-service plan.
    (2) Payment to contract providers. For each service, the M+C 
organization pays a contract provider (including one deemed to have a 
contract) an amount that is equal to the payment rate under paragraph 
(a)(1) of this section minus any applicable cost-sharing.
    (3) Noncontract providers. The organization pays for services of 
noncontract providers in accordance with Sec. 422.100(b)(2).
    (4) Service furnished by providers of service. Any provider of 
services as defined in section 1861(u) of the Act that does not have in 
effect a contract establishing payment mounts for services furnished to 
a beneficiary enrolled in an M+C private fee-for-service plan must 
accept as payment in full the amounts (less any payments under 
Secs. 412.109(g) and 413.86(d) of this chapter) that it could collect if 
the beneficiary were enrolled in original Medicare.
    (b) Charges to enrollees--(1) Contract providers. (i) Contract 
providers and ``deemed'' contract providers may charge enrollees no more 
than the cost-sharing and, subject to the limit in paragraph (b)(1)(ii) 
of this section, balance billing amounts that are permitted under the 
plan, and these amounts must be the same for ``deemed'' contract 
providers as for those that have signed contracts in effect.
    (ii) The organization may permit balance billing no greater than 15 
percent of the payment rate established under paragraph (a)(1) of this 
section.
    (iii) The M+C organization must specify the amount of cost-sharing 
and balance billing in its contracts with providers and these amounts 
must be the same for ``deemed'' contract providers as for those that 
have signed contracts in effect.

[[Page 704]]

    (iv) The M+C organization is subject to intermediate sanctions under 
Sec. 422.752(a)(7), under the rules in subpart O of this part, if it 
fails to enforce the limit specified in paragraph (b)(1)(i) of this 
section.
    (2) Noncontract providers. A noncontract provider may not collect 
from an enrollee more than the cost-sharing established by the M+C 
private fee-for-service plan as specified in Sec. 422.308(b).
    (c) Enforcement of limit--(1) Contract providers. An M+C 
organization that offers an M+C fee-for-service plan must enforce the 
limit specified in paragraph (b)(1) of this section.
    (2) Noncontract providers. An M+C organization that offers an M+C 
private fee-for-service plan must monitor the amount collected by 
noncontract providers to ensure that those amounts do not exceed the 
amounts permitted to be collected under paragraph (b)(2) of this 
section. The M+C organization must develop and document violations 
specified in instructions and must forward documented cases to HCFA.
    (d) Information on enrollee liability--(1) General information. An 
M+C organization that offers an M+C fee-for-service plan must provide to 
plan enrollees, for each claim filed by the enrollee or the provider 
that furnished the service, an appropriate explanation of benefits. The 
explanation must include a clear statement of the enrollee's liability 
for deductibles, coinsurance, copayment, and balance billing.
    (2) Advance notice for hospital services. In its terms and 
conditions of payment to hospitals, the M+C organization must require 
the hospital, if it imposes balance billing, to provide to the enrollee, 
before furnishing any services for which balance billing could amount to 
not less than $500--
    (i) Notice that balance billing is permitted for those services;
    (ii) A good faith estimate of the likely amount of balance billing, 
based on the enrollees presenting condition; and
    (iii) The amount of any deductible, coinsurance, and copayment that 
may be due in addition to the balance billing amount.
    (e) Coverage determinations. The M+C organization must make coverage 
determinations in accordance with subpart M of this part.
    (f) Rules describing deemed contract providers. Any provider 
furnishing health services to an enrollee in an M+C private fee-for-
service plan, and who has not previously entered into a contract or 
agreement to furnish services under the plan, is treated as having a 
contract in effect and is subject to the limitations of this section 
that apply to contract providers if the following conditions are met:
    (1) The services are covered under the plan and are furnished--
    (i) To an enrollee of an M+C fee-for-service plan; and
    (ii) Provided by a provider including a provider of services (as 
defined in section 1861(u) of the Act) that does not have in effect a 
signed contract with the M+C organization.
    (2) Before furnishing the services, the provider--
    (i) Was informed of the individual's enrollment in the plan; and
    (ii) Was informed (or given a reasonable opportunity to obtain 
information) about the terms and conditions of payment under the plan, 
including the information described in Sec. 422.202(a)(1).
    (3) The information was provided in a manner that was reasonably 
designed to effect informed agreement and met the requirements of 
paragraphs (g) and (h) of this section.
    (g) Enrollment information. Enrollment information was provided by 
one of the following methods or a similar method:
    (1) Presentation of an enrollment card or other document attesting 
to enrollment.
    (2) Notice of enrollment from HCFA, a Medicare intermediary or 
carrier, or the M+C organization itself.
    (h) Information on payment terms and conditions. Information on 
payment terms and conditions was made available through either of the 
following methods:
    (1) The M+C organization used postal service, electronic mail, FAX, 
or telephone to communicate the information to one of the following:
    (i) The provider.
    (ii) The employer or billing agent of the provider.
    (iii) A partnership of which the provider is a member.

[[Page 705]]

    (iv) Any party to which the provider makes assignment or reassigns 
benefits.
    (2) The M+C organization has in effect a procedure under which--
    (i) Any provider furnishing services to an enrollee in an M+C 
private fee-for-service plan, and who has not previously entered into a 
contract or agreement to furnish services under the plan, can receive 
instructions on how to request the payment information;
    (ii) The organization responds to the request before the entity 
furnishes the service; and
    (iii) The information the organization provides includes the 
following:
    (A) Billing procedures.
    (B) The amount the organization will pay towards the service.
    (C) The amount the provider is permitted to collect from the 
enrollee.
    (D) The information described in Sec. 422.202(a)(1).
    (3) Announcements in newspapers, journals, or magazines or on radio 
or television are not considered communication of the terms and 
conditions of payment.
    (i) Provider credentialing requirements. Contracts with providers 
must provide that, in order to be paid to provide services to plan 
enrollees, providers must meet the requirements specified in 
Sec. 422.204(a)(1) and (a)(1)(iii).



Sec. 422.220  Exclusion of services furnished under a private contract.

    An M+C organization may not pay, directly or indirectly, on any 
basis, for services (other than emergency or urgently needed services as 
defined in Sec. 422.2) furnished to a Medicare enrollee by a physician 
(as defined in section 1861(r)(1) of the Act) or other practitioner (as 
defined in section 1842(b)(18)(C) of the Act) who has filed with the 
Medicare carrier an affidavit promising to furnish Medicare-covered 
services to Medicare beneficiaries only through private contracts under 
section 1802(b) of the Act with the beneficiaries. An M+C organization 
must pay for emergency or urgently needed services furnished by a 
physician or practitioner who has not signed a private contract with the 
beneficiary.



          Subpart F--Payments to Medicare+Choice Organizations

    Source: 63 FR 35090, June 26, 1998, unless otherwise noted.



Sec. 422.249  Terminology.

    In this subpart--
    (a) The terms ``per capita rate'' and ``capitation rate'' (see 
Sec. 422.252) are used interchangeably; and
    (b) In the term ``area-specific,'' ``area'' refers to any of the 
payment areas described in Sec. 422.250(c).



Sec. 422.250  General provisions.

    (a) Monthly payments--(1) General rule. Except as provided in 
paragraph (a)(2) of this section, HCFA makes advance monthly payments 
equal to \1/12\th of the annual M+C capitation rate for the payment area 
described in paragraph (c) of this section adjusted for such demographic 
risk factors as an individual's age, disability status, sex, 
institutional status, and other such factors as it determines to be 
appropriate to ensure actuarial equivalence. Effective January 1, 2000, 
HCFA adjusts for health status as provided in Sec. 422.256(c). When the 
new risk adjustment is implemented, \1/12\th of the annual capitation 
rate for the payment area described in paragraph (c) of this section 
will be adjusted by the risk adjustment methodology under 
Sec. 422.256(d).
    (2) Special rules--(i) Enrollees with end-stage renal disease. (A) 
For enrollees determined to have end-stage renal disease (ESRD), HCFA 
establishes special rates that are determined under an actuarially 
equivalent approach to that used in establishing the rates under 
original Medicare.
    (B) HCFA reduces the payment rate by the equivalent of 50 cents per 
renal dialysis treatment. These funds will be used to help pay for the 
ESRD network program in the same manner as similar reductions are used 
in original Medicare.
    (ii) MSA enrollees. For MSA enrollees, HCFA makes advanced monthly 
payments as described in paragraph (a)(1) less the amount (if any) 
identified in Sec. 422.262(c)(1)(ii) to be deposited in the M+C MSA. In 
addition, HCFA deposits in the M+C MSA the lump sum

[[Page 706]]

amounts (if any) determined in accordance with Sec. 422.262(c).
    (iii) RFB plan enrollees. For RFB plan enrollees, HCFA adjusts the 
capitation payments otherwise determined under this subpart to ensure 
that the payment level is appropriate for the actuarial characteristics 
and experience of these enrollees. Such adjustment can be made on an 
individual or organization basis.
    (b) Adjustment of payments to reflect number of Medicare enrollees--
(1) General rule. HCFA adjusts payments retroactively to take into 
account any difference between the actual number of Medicare enrollees 
and the number on which it based an advance monthly payment.
    (2) Special rules for certain enrollees. (i) Subject to paragraph 
(b)(2)(ii) of this section, HCFA may make adjustments, for a period (not 
to exceed 90 days) that begins when a beneficiary elects a group health 
plan (as defined in Sec. 411.101 of this chapter) offered by an M+C 
organization, and ends when the beneficiary is enrolled in an M+C plan 
offered by the M+C organization.
    (ii) HCFA does not make an adjustment unless the beneficiary 
certifies that, at the time of enrollment under the M+C plan, he or she 
received from the organization the disclosure statement specified in 
Sec. 422.111.
    (c) Payment areas--(1) General rule. Except as provided in paragraph 
(e) of this section, the M+C payment area is a county or an equivalent 
geographic area specified by HCFA.
    (2) Special rule for ESRD enrollees. For ESRD enrollees, the M+C 
payment area is a State or other geographic area specified by HCFA.
    (d) Terminology. As used in paragraph (e) of this section, 
``metropolitan statistical area,'' ``consolidated metropolitan 
statistical area,'' and ``primary metropolitan statistical area'' mean 
any areas so designated by the Secretary of Commerce.
    (e) Geographic adjustment of payment areas. For contract years 
beginning after 1999--
    (1) State request. A State's chief executive may request, no later 
than February 1 of any year, a geographic adjustment of the State's 
payment areas for the following calendar year. The chief executive may 
request any of the following adjustments to the payment area specified 
in paragraph (c)(1) of this section:
    (i) A single Statewide M+C payment area.
    (ii) A metropolitan-based system in which all nonmetropolitan areas 
within the State constitute a single payment area and any of the 
following constitutes a separate M+C payment area:
    (A) All portions of each single metropolitan statistical area within 
the State.
    (B) All portions of each primary metropolitan statistical area 
within each consolidated metropolitan statistical area within the State.
    (iii) A consolidation of noncontiguous counties.
    (2) HCFA response. In response to the request, HCFA makes the 
payment adjustment requested by the chief executive.
    (3) Budget neutrality adjustment for geographically adjusted payment 
areas. If HCFA adjusts a State's payment areas in accordance with 
paragraph (e)(2) of this section, HCFA at that time, and each year 
thereafter, adjusts the capitation rates so that the aggregate Medicare 
payments do not exceed the aggregate Medicare payments that would have 
been made to all the State's payments areas, absent the geographic 
adjustment.
    (f) Determination and applicability of payment rates. (1) All 
payment rates are annual rates, determined and promulgated no later than 
March 1st, for the following calendar year.
    (2) For purposes of paragraphs (b) and (c) of Sec. 422.252, except 
as provided in Sec. 422.254(e)(4), the ``capitation payment rate for 
1997'' is the rate determined under section 1876(a)(1)(c) of the Act.

[63 FR 35090, June 26, 1998; 63 FR 52613, Oct. 1, 1998]



Sec. 422.252  Annual capitation rates.

    Subject to the adjustments specified in this subpart, the annual 
capitation rate for a particular payment area is equal to the largest of 
the following:
    (a) Blended capitation rate. The blended capitation rate is the sum 
of--
    (1) The area-specific percentage (specified in Sec. 422.254(a)) for 
the year

[[Page 707]]

multiplied by the annual area-specific capitation rate for the payment 
area as determined under Sec. 422.254(e) for the year, and
    (2) The national percentage (specified in Sec. 422.254(a)) for the 
year multiplied by the national input-price-adjusted capitation rate for 
the payment area as determined under Sec. 422.254(g) for the year.
    (3) Multiplied by the budget neutrality adjustment factor determined 
under Sec. 422.254(d).
    (b) Minimum amount rate. (1) For 1998--
    (i) For the 50 States and the District of Columbia, the minimum 
amount rate is 12 times $367.
    (ii) For all other jurisdictions the minimum amount rate is the 
lesser of the rate described in (b)(1)(i) or 150 percent of the 
capitation payment rate for 1997.
    (2) For each succeeding year, the minimum amount rate is the minimum 
amount rate for the preceding year, increased by the national per capita 
growth percentage (specified in Sec. 422.254(b)) for the year.
    (c) Minimum percentage increase rate. (1) For 1998, the minimum 
percentage increase rate is 102 percent of the annual capitation rate 
for 1997.
    (2) For each succeeding year, the minimum percentage increase rate 
is 102 percent of the annual capitation rate for the preceding year.



Sec. 422.254  Calculation and adjustment factors.

    The following are the factors used in calculating the per capita 
payment rates:
    (a) Area-specific and national percentages. For purposes of 
Sec. 422.252(a)(1), the area-specific percentage and the national 
percentage, for each year, are as follows:

------------------------------------------------------------------------
                                                     Area-
                                                   specific    National
------------------------------------------------------------------------
For 1998........................................          90          10
For 1999........................................          82          18
For 2000........................................          74          26
For 2001........................................          66          34
For 2002........................................          58          42
For years after 2002............................          50          50
------------------------------------------------------------------------

    (b) National per capita growth percentage. For purposes of 
Sec. 422.252(a)(2),
    (1) The national per capita growth percentage for a year is HCFA's 
estimate of the rate of growth in per capita expenditures, reduced by 
the percentage points specified in paragraph (b)(2) of this section for 
the year. HCFA may make separate estimates for aged enrollees, disabled 
enrollees, and enrollees who have ESRD.
    (2) The percentage points that HCFA uses to reduce its estimates are 
as follows:
    (i) For 1998, 0.8 percentage points.
    (ii) For years 1999-2002, 0.5 percentage points.
    (iii) For years after 2002, 0 percentage points.
    (c) Medical education payment adjustments. For purposes of paragraph 
(e)(2) the medical education payment adjustments are amounts that HCFA 
estimates were payable to teaching hospitals during 1997 for--
    (1) the indirect costs of medical education under section 
1886(d)(5)(B) of the Act; and
    (2) The direct costs of graduate medical education under section 
1886(h) of the Act.
    (d) General budget neutrality factor. For each year, HCFA applies a 
budget neutrality factor to the blended capitation rates under 
Sec. 422.252(a) so that the estimated aggregate payments made under this 
part equal the estimated aggregate payments that would have been made if 
based entirely on area-specific capitation rates.
    (e) Annual Area-specific capitation rate (1) Basic rule. Subject to 
the provisions of paragraphs (e)(2) and (e)(3) of this section, the 
annual area-specific capitation rate for a particular payment area is--
    (i) For 1998, subject to paragraph (e)(4) of this section, the per 
capita rate determined for that area for 1997 under section 
1876(a)(1)(c) of the Act, increased by the national per capita growth 
percentage for 1998; and
    (ii) For a subsequent year, the area-specific capitation rate 
determined for the previous year, increased by the national per capita 
growth percentage for the year.
    (2) Exclusion of medical education costs. In calculating the area-
specific capitation rates, the following percentages of the amounts 
estimated by HCFA under

[[Page 708]]

Sec. 422.254(c) as medical education payment adjustments to hospitals, 
are excluded:

For 1998.................................  20 percent.
For 1999.................................  40 percent.
For 2000.................................  60 percent.
For 2001.................................  80 percent.
For years after 2001.....................  100 percent.
 

    (3) Payments under the State hospital reimbursement system. To the 
extent that HCFA estimates that a 1997 per capita rate reflects payments 
to hospitals under section 1814(b)(3) of the Act, HCFA makes a payment 
adjustment that is comparable to the adjustment that would have been 
made under paragraph (e)(2) of this section if the hospitals had not 
been reimbursed under section 1814(b)(3) of the Act.
    (4) Areas with highly variable per capita rates. With respect to a 
payment area for which the per capita rate for 1997 varies by more than 
20 percent from the per capita rate for 1996, HCFA may substitute for 
the 1997 rate a rate that is more representative of the costs of the 
enrollees in the area.
    (f) National standardized annual capitation rate. The national 
standardized annual capitation rate is equal to--
    (1) The sum, for all payment areas, of the products of--
    (i) The annual area-specific capitation rate and
    (ii) The average number of Medicare beneficiaries residing in the 
area multiplied by the average of the risk-factor weights used to adjust 
payments under Sec. 422.256(c);
    (2) Divided by the sum, for all payment areas, of the products 
specified in paragraph (f)(1)(ii) of this section for all payment areas.
    (g) The input-price-adjusted annual national capitation rate--(1) 
General rule. The input-price-adjusted annual national capitation rate 
for a M+C payment area for a year is equal to the sum, for all the types 
of Medicare services (as classified by HCFA), of the product (for each 
service) of--
    (i) The national standardized annual M+C capitation rate (determined 
under paragraph (f) of this section) for the year;
    (ii) The proportion of such rates for the year which is attributable 
to such type of services; and
    (iii) An index that reflects (for that year and that type of 
services) the relative input price of such services in the area compared 
to the national average input price for such services.
    (2) HCFA may, subject to the special rules for 1988, use indices 
that are used in applying or updating national payment rates for 
particular areas and localities.
    (3) Special rules for 1988. In applying this paragraph for 1998--
    (i) Medicare services are classified as Part A and Part B services;
    (ii) The proportion attributable to Part A services is the ratio 
(expressed as a percentage) of the national average per capita rate of 
payment for Part A services for 1997 to the national average per capita 
rate of payment for Part A and Part B services for that year;
    (iii) The proportion attributed to part B services is 100 percent 
minus the ratio described in paragraph (g)(3)(ii) of this section;
    (iv) For Part A services, 70 percent of the payments attributable to 
those services are adjusted by the index used under section 
1886(d)(3)(E) of the Act to adjust payment rates for relative hospital 
wage levels for hospitals located in the particular payment area; and
    (v) For part B services--
    (A) 66 percent of payments attributable to those services are 
adjusted by the index of the geographic area factors under section 
1848(e) of the Act used to adjust payment rates for physician services 
in the particular payment area; and
    (B) Of the remaining 34 percent, 40 percent is adjusted by the index 
specified in paragraph (g)(3)(iv) of this section.



Sec. 422.256  Adjustments to capitation rates and aggregate payments.

    (a) Adjustment for over or under projection of national per capita 
growth percentages. (1) Beginning with rates for 1999, HCFA adjusts all 
area-specific and national capitation rates for the previous year to 
reflect any differences between the projected national per capita growth 
percentages for that year and previous years, and the current estimates 
of those percentages for such years.

[[Page 709]]

    (2) Beginning with rates for 2000, HCFA also adjusts the minimum 
amount rate (calculated under Sec. 422.252(b)) in the same manner.
    (b) Adjustment for national coverage determination (NCD) services. 
If HCFA determines that the cost of furnishing an NCD service is 
``significant,'' HCFA adjusts capitation rates for the next calendar 
year to take account of the cost of that service. Until the new 
capitation rates are in effect, the M+C organization is paid for the 
``significant cost'' service on a fee-for-service basis as provided 
under section 422.105(b).
    (c) Risk adjustment: General rule. Capitation payments are adjusted 
for age, gender, institutional status, and other appropriate factors, 
including health status.
    (d) Risk adjustment: Health status--(1) Data collection. To adjust 
for health status, HCFA applies a risk factor based on data obtained in 
accordance with Sec. 422.257.
    (2) Initial implementation. HCFA applies this adjustment factor to 
payments beginning January 1, 2000.
    (3) Uniform application. Except as provided for M+C RFB plans under 
Sec. 422.250(a)(2)(iii), HCFA applies this adjustment factor to all 
types of plans.



Sec. 422.257  Encounter data.

    (a) Data collection: Basic rule. Each M+C organization must submit 
to HCFA (in accordance with HCFA instructions) all data necessary to 
characterize the context and purposes of each encounter between a 
Medicare enrollee and a provider, supplier, physician, or other 
practitioner.
    (b) Types of service and timing of submittal. M+C organizations must 
submit data as follows:
    (1) Beginning on a date determined by HCFA, inpatient hospital care 
data for all discharges that occur on or after July 1, 1997.
    (2) HCFA will provide advance notice to M+C organizations to collect 
and submit data for services that occur on or after July 1, 1998, as 
follow:
    (i) Physician, outpatient hospital, SNF, and HHA data beginning no 
earlier than October 1, 1999; and
    (ii) All other data HCFA deems necessary beginning no earlier than 
October 1, 2000.
    (c) Sources and extent of data. (1) To the extent required by HCFA, 
the data must account for services covered under the original Medicare 
program, for Medicare covered services for which Medicare is not the 
primary payor, or for other additional or supplemental benefits that the 
M+C organization may provide.
    (2) The data must account separately for each provider, supplier, 
physician, or other practitioner that would be permitted to bill 
separately under the Medicare fee-for-service program, even if they 
participate jointly in the same encounter.
    (d) Other data requirements. The data must--
    (1) Conform to the requirements for equivalent data for Medicare 
fee-for-service when appropriate, and to all relevant national 
standards; and
    (2) Be submitted electronically to the appropriate HCFA contractor.
    (e) Validation of data. M+C organizations and their providers and 
practitioners will be required to submit medical records for the 
validation of encounter data, as prescribed by HCFA.
    (f) Use of data. HCFA uses the data obtained under this section to 
determine the risk adjustment factor that it applies to annual 
capitation rates under Sec. 422.256(c). HCFA may also use the data for 
other purposes.



Sec. 422.258  Announcement of annual capitation rates and methodology changes.

    (a) Capitation rates. (1) No later than March 1 of each year, HCFA 
announces to M+C organizations and other interested parties the 
capitation rates for the following calendar year.
    (2) HCFA includes in the announcement a description of the risk and 
other factors and explains the methodology in sufficient detail to 
enable M+C organizations to compute monthly adjusted capitation rates 
for individuals in each of its payment areas.
    (b) Advance notice of changes in methodology. (1) No later than 
January 15 of each year, HCFA notifies M+C organizations of changes it 
proposes to make in the factors and the methodology it used in the 
previous determination of capitation rates.

[[Page 710]]

    (2) The M+C organizations have 15 days to comment on the proposed 
changes.



Sec. 422.262  Special rules for beneficiaries enrolled in M+C MSA plans.

    (a) Establishment and designation of medical savings account (MSA). 
A beneficiary who elects coverage under an M+C MSA plan--
    (1) Must establish an M+C MSA with a trustee that meets the 
requirements of paragraph (b) of this section; and
    (2) If he or she has more than one M+C MSA, designate the particular 
account to which payments under the M+C MSA plan are to be made.
    (b) Requirements for MSA trustees. An entity that acts as a trustee 
for an M+C MSA must--
    (1) Register with HCFA;
    (2) Certify that it is a licensed bank, insurance company, or other 
entity qualified, under sections 408(a)(2) or 408(h) of the IRS Code, to 
act as a trustee of individual retirement accounts;
    (3) Agree to comply with the M+C MSA provisions of section 138 of 
the IRS Code of 1986; and
    (4) Provide any other information that HCFA may require.
    (c) Deposit in the M+C MSA. (1) The payment is calculated as 
follows:
    (i) The monthly M+C MSA premium is compared with \1/12\ of the 
annual capitation rate for the area determined under Sec. 422.252.
    (ii) If the monthly M+C MSA premium is less than \1/12\ of the 
annual capitation rate, the difference is the amount to be deposited in 
the M+C MSA for each month for which the beneficiary is enrolled in the 
MSA plan.
    (2) HCFA deposits the full amount to which a beneficiary is entitled 
under paragraph (c)(1)(ii) of this section for the calendar year, 
beginning with the month in which M+C MSA coverage begins.
    (3) If the beneficiary's coverage under the M+C MSA plan ends before 
the end of the calendar year, HCFA recovers the amount that corresponds 
to the remaining months of that year.



Sec. 422.264  Special rules for coverage that begins or ends during an inpatient hospital stay.

    (a) Applicability. This section applies to inpatient services in a 
``subsection (d) hospital'' as defined in section 1886(d)(1)(B) of the 
Act.
    (b) Coverage that begins during an inpatient hospital stay. If 
coverage under an M+C plan offered by an M+C organization begins while 
the beneficiary is an inpatient in a subsection (d) hospital--
    (1) Payment for inpatient services until the date of the 
beneficiary's discharge is made by the previous M+C organization or 
original Medicare, as appropriate.
    (2) The M+C organization offering the newly-elected M+C plan is not 
responsible for the inpatient services until the date after the 
beneficiary's discharge; and
    (3) The M+C organization offering the newly-elected M+C plan is paid 
the full amount otherwise payable under this subpart.
    (c) Coverage that ends during an inpatient hospital stay. If 
coverage under an M+C plan offered by an M+C organization ends while the 
beneficiary is an inpatient in a subsection (d) hospital--
    (1) The M+C organization is responsible for the inpatient services 
until the date of the beneficiary's discharge;
    (2) Payment for those services during the remainder of the stay is 
not made by original Medicare or by any succeeding M+C organization 
offering a newly-elected M+C plan; and
    (3) The M+C organization that no longer provides coverage receives 
no payment for the beneficiary for the period after coverage ends.



Sec. 422.266  Special rules for hospice care.

    (a) Information. An M+C organization that has a contract under 
subpart K of this part must inform each Medicare enrollee eligible to 
elect hospice care under section 1812(d)(1) of the Act about the 
availability of hospice care (in a manner that objectively presents all 
available hospice providers, including a statement of any ownership 
interest in a hospice held by the M+C organization or a related entity) 
if--

[[Page 711]]

    (1) A Medicare hospice program is located within the plan's service 
area; or
    (2) It is common practice to refer patients to hospice programs 
outside that area.
    (b) Enrollment status. Unless the enrollee disenrolls from the M+C 
plan, a beneficiary electing hospice continues his or her enrollment in 
the M+C plan and is entitled to receive, through the M+C plan, any 
benefits other than those that are the responsibility of the Medicare 
hospice.
    (c) Payment. During the time the hospice election is in effect, 
HCFA's monthly capitation payment to the M+C organization is reduced to 
an amount equal to the adjusted excess amount determined under 
Sec. 422.312. In addition, HCFA pays through the original Medicare 
program (subject to the usual rules of payment)--
    (1) The hospice program for hospice care furnished to the Medicare 
enrollee; and
    (2) The M+C organization, provider or supplier for other Medicare-
covered services furnished to the enrollee.



Sec. 422.268  Source of payment and effect of election of the M+C plan election on payment.

    (a) Source of payments. Payments under this subpart, to M+C 
organizations or M+C MSAs, are made from the Federal Hospital Insurance 
Trust Fund or the Supplementary Medical Insurance Trust Fund. HCFA 
determines the proportions to reflect the relative weight that benefits 
under Part A, and benefits under Part B represents of the actuarial 
value of the total benefits under title XVIII of the Act.
    (b) Payments to the M+C organization. Subject to Secs. 412.105(g) 
and 413.86(d) of this chapter and Secs. 422.109, 422.264, and 422.266, 
HCFA's payments under a contract with an M+C organization (described in 
Sec. 422.250) with respect to an individual electing an M+C plan offered 
by the organization are instead of the amounts which (in the absence of 
the contract) would otherwise be payable under original Medicare for 
items and services furnished to the individual.
    (c) Only the M+C organization entitled to payment. Subject to 
Sec. 422.262, 422.264, 422.266, and 422.520 of this part and sections 
1886(d)(11) and 1886(h)(3)(D) of the Act, only the M+C organization is 
entitled to receive payment from HCFA under title XVIII of the Act for 
items and services furnished to the individual.

[63 FR 35090, June 26, 1998; 63 FR 52613, Oct. 1, 1998]



                  Subpart G--Premiums and Cost-Sharing

    Source: 63 FR 35093, June 26, 1998, unless otherwise noted.



Sec. 422.300  Basis and scope.

    (a) General. This subpart is based on section 1854 of the Act. It 
sets forth the requirements and limitations for payments by and on 
behalf of Medicare beneficiaries who elect an M+C plan.
    (b) Transition period. For contract periods beginning before January 
1, 2002, HCFA applies the following special rules.
    (1) M+C organizations may, with HCFA's agreement, modify an M+C plan 
offered prior to January 1, 2002 by--
    (i) Adding benefits at no additional cost to the M+C plan enrollee; 
and
    (ii) Lowering the premiums approved through the ACR process;
    (iii) Lowering other cost-sharing amounts approved through the ACR 
process.
    (2) For contracts beginning on a date other than January 1 
(according to Sec. 422.504(d)), M+C organizations may submit ACRs on a 
date other than May 1 approved by HCFA.



Sec. 422.302  Terminology.

    As used in this subpart, unless specified otherwise--
    Additional revenues are revenues collected or expected to be 
collected from charges for M+C plans offered by an M+C organization in 
excess of costs actually incurred or expected to be incurred. Additional 
revenues would include such things as revenues in excess of expenses of 
an M+C plan, profits, contribution to surplus, risk margins, 
contributions to risk reserves, assessments by a related entity that do 
not represent a direct medical or related

[[Page 712]]

administrative cost, and any other premium component not reflected in 
direct medical care costs and administrative costs.
    APR stands for the M+C plan's average per capita rates of payment. 
The APR is the average amount the M+C organization estimates HCFA will 
pay (without any needed offsets or reductions, such as, those required 
by Sec. 422.250(a)(2)(ii) for M+C MSA plan enrollees) for the period 
covered by the ACR for all of the Medicare beneficiaries electing the 
M+C plan.
    M+C monthly basic beneficiary premium means, with respect to an M+C 
coordinated care plan, the amount authorized to be charged under 
Sec. 422.308(a)(1) for the plan, or, with respect to a M+C private fee-
for-service plan, the amount filed under Sec. 422.306(d)(1).
    M+C monthly supplemental beneficiary premium means, with respect to 
an M+C coordinated care plan, the amount authorized to be charged under 
Sec. 422.308(a)(2) for the M+C plan, or, with respect to an MSA or an 
M+C private fee-for-service plan, the amount filed under 
Sec. 422.306(c)(2) or Sec. 422.306(d)(2).
    M+C monthly MSA premium means, with respect to an M+C plan, the 
amount of such premium filed under Sec. 422.306(c)(1).



Sec. 422.304  Rules governing premiums and cost-sharing.

    (a) Monthly premiums. The monthly premium charged to the beneficiary 
is--
    (1) For an individual enrolled in an M+C plan (other than an M+C MSA 
plan) offered by an M+C organization, the sum of the M+C monthly basic 
beneficiary premium plus the M+C monthly supplemental beneficiary 
premium (if any); or
    (2) For an individual enrolled in an M+C MSA plan offered by an M+C 
organization, the M+C monthly supplemental beneficiary premium (if any).
    (b) Uniformity. The M+C monthly basic beneficiary premium, the M+C 
monthly supplemental beneficiary premiums, and the M+C monthly MSA 
premium of an M+C organization may not vary among individuals enrolled 
in the M+C plan. In addition, the M+C organization may not vary the 
level of copayments, coinsurance, or deductibles charged for basic 
benefits or supplemental benefits (if any), among individuals enrolled 
in the M+C plan.
    (c) Timing of payments. The M+C organization must permit payments of 
M+C monthly basic and supplemental beneficiary premium on a monthly 
basis and may not terminate coverage for failure to make timely payments 
except as provided in Sec. 422.74(b)(1).
    (d) Monetary inducements prohibited. An M+C organization may not 
provide for cash or other monetary rebates as an inducement for 
enrollment or for any other reason or purpose.



Sec. 422.306  Submission of proposed premiums and related information.

    (a) General rule. (1) Not later than May 1 of each year, each M+C 
organization and any organization intending to contract as an M+C 
organization in the subsequent year must submit to HCFA, in the manner 
and form prescribed by HCFA, for each M+C plan it intends to offer in 
the following year--
    (i) The information specified in paragraph (b), (c), or paragraph 
(d) of this section for the type of M+C plan involved; and
    (ii) The service area and enrollment capacity (if any).
    (2) If the submission is not complete, timely, or accurate, HCFA has 
the authority to impose sanctions under subpart O of this part or may 
choose not to renew the contract.
    (b) Information required for coordinated care plans--(1) Basic 
benefits. For basic benefits, the following information is required:
    (i) The ACR as specified in Sec. 422.310.
    (ii) The M+C monthly basic beneficiary premium.
    (iii) A description of cost-sharing to be imposed under the plan, 
and its actuarial value.
    (iv) A description of any additional benefits to be provided 
pursuant to Sec. 422.312 and the actuarial value determined for those 
benefits.
    (v) Amounts collected in the previous contract period for basic 
benefits.
    (2) Supplemental benefits. For supplemental benefits, the following 
information is required:
    (i) The ACR.

[[Page 713]]

    (ii) The M+C monthly supplemental beneficiary premium.
    (iii) A description of supplemental benefits being offered, the cost 
sharing to be imposed, and their actuarial value.
    (iv) Amounts collected in the previous contract period for 
supplemental benefits.
    (c) Information required for MSA plans. (1) The monthly MSA premium 
for basic benefits.
    (2) The M+C monthly supplementary beneficiary premium for 
supplemental benefits.
    (3) A description of all benefits offered under the M+C MSA plan.
    (4) The amount of the deductible imposed under the plan.
    (5) Amounts collected in the previous contract period for 
supplemental benefits.
    (d) Information required for M+C private fee-for-service plans. (1) 
The information specified under paragraph (b)(1) of this section.
    (2) The amount of the M+C monthly supplemental beneficiary premium.
    (3) A description of all benefits offered under the plan.
    (4) Amounts collected in the previous contract period for basic and 
supplemental benefits.
    (e) HCFA review--(1) Basic rule. Except as specified in paragraph 
(e)(2) of this section, HCFA reviews and approves or disapproves the 
information submitted under this section.
    (2) Exception. HCFA does not review or approve or disapprove the 
following information:
    (i) Any amounts submitted with respect to M+C MSA plans.
    (ii) The M+C monthly basic and supplementary beneficiary premiums 
for M+C private fee-for-service plans.



Sec. 422.308  Limits on premiums and cost sharing amounts.

    (a) Rules for coordinated care plans. (1) For basic benefits, the 
M+C monthly basic beneficiary premium (multiplied by 12) charged, plus 
the actuarial value of the cost-sharing applicable, on average, to 
beneficiaries enrolled under this part may not exceed the annual 
actuarial value of the deductibles and coinsurance that would be 
applicable, on average, to beneficiaries entitled to Medicare Part A and 
enrolled in Medicare Part B if they were not enrollees of an M+C 
organization as determined in the ACR under Sec. 422.310. For those M+C 
plan enrollees that are enrolled in Medicare Part B only, the M+C 
monthly basic beneficiary premium (multiplied by 12) charged, plus the 
actuarial value of the deductibles, coinsurance and copayments 
applicable, on average, to those beneficiaries enrolled under this part 
may not exceed the annual actuarial value of the deductibles and 
coinsurance that would be applicable, on average, to beneficiaries 
enrolled in Medicare Part B if they were not enrollees of an M+C 
organization as determined in the ACR under Sec. 422.310.
    (2) For supplemental benefits, the M+C monthly supplemental 
beneficiary premium (multiplied by 12) charged, plus the actuarial value 
of its cost-sharing, may not exceed the amounts approved in the ACR for 
those benefits, as determined under Sec. 422.310 on an annual basis.
    (3) Coverage of Part A services for Part B-only Medicare enrollees. 
If an M+C organization furnishes coverage of Medicare Part A-type 
services to a Medicare enrollee entitled to Part B only, the M+C plan's 
premium plus the actuarial value of its cost-sharing for these services 
may not exceed the lesser of--
    (i) The APR that is payable for these services for those 
beneficiaries entitled to Part A plus the actuarial value of Medicare 
deductibles and Coinsurance for the services;
    (ii) or the ACR for such services.
    (b) Rule for M+C private fee-for-service plans. (1) The average 
actuarial value of the cost-sharing for basic benefits may not exceed 
the actuarial value of the cost-sharing that would apply, on average, to 
beneficiaries entitled to Medicare Part A and enrolled in Medicare Part 
B if they were not enrolled in an M+C plan as determined in the ACR 
under Sec. 422.310.
    (2) For supplemental benefits, the actuarial value of its cost-
sharing may not exceed the amounts approved in the ACR for those 
benefits, as determined under Sec. 422.310 on an annual basis.
    (c) Special rules for determination of actuarial value. If HCFA 
determines that

[[Page 714]]

adequate data are not available to determine actuarial value under 
paragraph (a) or (b) of this section, HCFA may make the determination 
with respect to all M+C eligible individuals in the same geographic area 
or State or in the United States, or on the basis of other appropriate 
data.

[63 FR 35093, June 26, 1998; 63 FR 52614, Oct. 1, 1998]



Sec. 422.309  Incorrect collections of premiums and cost-sharing.

    (a) Definitions. As used in this section--
    (1) Amounts incorrectly collected
    (i) Means amounts that:
    (A) Exceed the limits imposed by Sec. 422.308;
    (B) In the case of a M+C private fee-for-service plan, exceed the 
M+C monthly basic beneficiary premium or the M+C monthly supplemental 
premium submitted under Sec. 422.306; and
    (C) In the case of a M+C MSA plan, exceed the M+C monthly 
supplemental premium submitted under Sec. 422.306 and the deductible for 
basic benefits; and
    (ii) Includes amounts collected from an enrollee who was believed 
not entitled to Medicare benefits but was later found to be entitled.
    (2) Other amounts due are amounts due for services that were--
    (i) Emergency, urgently needed services, or other services obtained 
outside the M+C plan; or
    (ii) Initially denied but, upon appeal, found to be services the 
enrollee was entitled to have furnished by the M+C organization.
    (b) Basic commitments. An M+C organization must agree to refund all 
amounts incorrectly collected from its Medicare enrollees, or from 
others on behalf of the enrollees, and to pay any other amounts due the 
enrollees or others on their behalf.
    (c) Refund methods--(1) Lump-sum payment. The M+C organization must 
use lump-sum payments for the following:
    (i) Amounts incorrectly collected that were not collected as 
premiums.
    (ii) Other amounts due.
    (iii) All amounts due if the M+C organization is going out of 
business or terminating its M+C contract for an M+C plan(s).
    (2) Premium adjustment or lump-sum payment, or both. If the amounts 
incorrectly collected were in the form of premiums, or included premiums 
as well as other charges, the M+C organization may refund by adjustment 
of future premiums or by a combination of premium adjustment and lump-
sum payments.
    (3) Refund when enrollee has died or cannot be located. If an 
enrollee has died or cannot be located after reasonable effort, the M+C 
organization must make the refund in accordance with State law.
    (d) Reduction by HCFA. If the M+C organization does not make the 
refund required under this section by the end of the contract period 
following the contract period during which an amount was determined to 
be due an enrollee, HCFA reduces the premium the M+C organization is 
allowed to charge an M+C plan enrollee by the amounts incorrectly 
collected or otherwise due. In addition, the M+C organization would be 
subject to sanction under subpart O for failure to refund amounts 
incorrectly collected from M+C plan enrollees.



Sec. 422.310  Adjusted community rate (ACR) approval process.

    (a) General rule. (1) Except with respect to M+C MSA plans, each M+C 
organization must compute a separate ACR for each M+C coordinated care 
or private fee-for-service plan offered to Medicare beneficiaries. In 
computing the ACR, the M+C organization calculates an initial rate (for 
years after 1999, using the methods described in paragraph (b), for 
1999, under Sec. 417.594(b)) that represents the ``commercial premium'' 
the M+C organization would charge its general non-Medicare eligible 
enrollment population for the basic benefits, and any mandatory 
supplemental benefits covered under the M+C plan. The M+C organization 
should also calculate a separate initial rate (using the same approach) 
for each optional supplemental benefit package it offers under an M+C 
plan. For years after 1999 the M+C organization then either adjusts that 
rate by the factors specified in paragraph (c) of this section or 
requests

[[Page 715]]

that HCFA adjust the rate in accordance with the procedures specified in 
paragraph (c)(6) of this section. For 1999, adjustments are made under 
section 417.594(c). All data submitted as part of the ACR process is 
subject to audit by HCFA or any person or organization designated by 
HCFA.
    (2) To calculate the adjusted excess described in section 422.312, 
the M+C organization or HCFA further reduces the rate for Medicare-
covered services by the actuarial value of applicable Medicare 
coinsurance and deductibles.
    (3) Separate ACRs must be calculated for Part A and Part B enrollees 
and Part B-only enrollees for each M+C plan offered, and for each 
optional supplemental benefit option.
    (4) In calculating its initial rate, the M+C organization must 
identify and take into account anticipated revenue collectible from 
other payers for those services for which Medicare is not the primary 
payer as described in Sec. 422.108.
    (5) Except as provided in paragraph (a)(6) of this section, the M+C 
organization must have an adequate accounting system that is accrual 
based and uses generally-accepted accounting principles to develop its 
ACR.
    (6) For M+C organizations that are part of a government entity that 
uses a cash basis of accounting, ACR cost data developed on this basis 
is acceptable. However, only depreciation on capital assets, rather than 
the expenditure for the asset, is acceptable.
    (b) Initial rate calculation for years after 1999. (1) The M+C 
organization's initial rate for each M+C plan is calculated on a 12-
month basis for non-Medicare enrollees, using either, at the M+C 
organization's election--
    (i) A community rating system (as defined in section 1308(8) of the 
PHS Act, other than subparagraph (C)); or
    (ii) A system, approved by HCFA, under which the M+C organization 
develops an aggregate premium for each M+C plan for all enrollees of 
that M+C plan that is weighted by the size of the various enrolled 
groups and individuals that compose the M+C organization's enrollment in 
that M+C plan. For purposes of this section, enrolled groups are defined 
as employee groups or other bodies of subscribers (including individual 
subscribers) that enroll in the M+C plan on a premium basis.
    (2) Regardless of which method the M+C organization uses to 
calculate its initial rate, the initial rate must be equal to the 
premium the M+C organization would charge its non-Medicare enrollees on 
a yearly basis for services included in the M+C plan.
    (3) Except as provided in paragraph (b)(4) of this section, the M+C 
organization must identify in its initial rate calculation for an M+C 
plan, the following components whose rates must be consistent with rates 
used by the M+C organization in calculating premiums for non-Medicare 
enrollees:
    (i) Direct medical care.
    (ii) Administration.
    (iii) Additional Revenues.
    (iv) Enrollee cost sharing (for example, deductibles, coinsurance, 
or copayments) for Medicare-covered services and for additional and 
supplemental benefits.
    (4) An M+C organization that does not usually separate its premium 
components as described in paragraph (b)(3) of this section may 
calculate its initial rate with the methods it uses for its other 
enrolled groups if the M+C organization provides HCFA with the 
documentation necessary to support any adjustments the M+C organization 
makes to the initial rate in accordance with paragraph (c)(5) of this 
section.
    (5) The initial rate calculation must not carry forward any losses 
experienced by the M+C organization during prior contract periods. The 
M+C organization must submit supporting documentation to assure HCFA 
that ACR values do not include past losses but only premiums for covered 
services, additional services, and supplemental benefits for the 
upcoming 12-month period.
    (c) Adjustment factors for years after 1999. Adjustment factors are 
designed to adjust on a component basis the initial rate calculated 
under paragraph (b) of this section to reflect differences in 
utilization characteristics of the M+C organization's Medicare enrollees 
electing an M+C plan using a relative cost ratio. Adjustment factors are 
as follows:
    (1) Direct medical care. The relative cost ratio for direct medical 
care for an

[[Page 716]]

M+an is determined by comparing the direct medical care costs actually 
incurred on an accrual basis during the most recently ended calendar 
year prior to submission of the ACR for Medicare enrollees that elected 
the M+C plan to the direct medical care costs of non-Medicare enrollees 
incurred over the same period. The non-Medicare enrollees included in 
this computation must be consistent with the non-Medicare enrollees 
included in the initial rate computation.
    (2) Administration. The relative cost ratio for Administration for 
an M+C plan is determined by comparing the administrative costs actually 
incurred on an accrual basis during the most recently ended calendar 
year prior to submission of the ACR for Medicare enrollees that elected 
the M+C plan to the administrative costs of non-Medicare enrollees 
incurred over the same period. The non-Medicare enrollees included in 
this computation must be consistent with the non-Medicare enrollees 
included in the initial rate computation.
    (3) Additional revenues. The relative cost ratio for additional 
revenues for an M+C plan is determined by comparing the additional 
revenues collected on an accrual basis during the most recently ended 
calendar year prior to submission of the ACR for Medicare enrollees that 
elected the M+C plan to the additional revenues of non-Medicare 
enrollees collected over the same period. The non-Medicare enrollees 
included in this computation must be consistent with the non-Medicare 
enrollees included in the initial rate computation.
    (4) Additional adjustments. Additional adjustments may be necessary 
if the M+C organization, with agreement of HCFA, determines that the 
adjustment of the initial rate by the relative cost ratios does not 
represent an accurate ACR value of the initial rate component. In 
addition, adjustments will be allowed that are designed to reduce ACR 
values to equal the actuarial value of the M+C plan charge structure.
    (5) Supporting documentation. All adjustments made by the M+C 
organization must be accompanied by adequate supporting data. If an M+C 
organization does not have sufficient enrollment experience to develop 
this data, it may, during its initial contract period use reasonable 
estimates acceptable to HCFA to establish its ACR values.
    (6) Adjustment by HCFA. If it is determined that the M+C 
organization does not have adequate data to adjust the initial rate 
calculated under paragraph (b) of this section to reflect the 
utilization characteristics of Medicare enrollees, HCFA adjusts the 
initial rate. HCFA adjusts the rate on the basis of differences in the 
utilization characteristics of--
    (i) Medicare and non-Medicare enrollees in other M+C plans; or
    (ii) Medicare beneficiaries in the M+C organization's area, State, 
or the United States who are eligible to elect an M+C plan and other 
individuals in that same area, State, or the United States.
    (d) Special rules for certain organizations. An M+C organization 
that does not have non-Medicare enrollees or sufficient Medicare 
enrollment experience to adequately calculate ACR values may calculate 
its ACR using estimates described in paragraphs (a)(1) and (a)(2) of 
this section as an additional adjustment described in paragraph (c)(4) 
of this section.
    (1) The M+C organization may use an estimate of the ACR value for 
the direct medical and administrative components of a service or 
services offered using generally-accepted accounting principles.
    (2) The M+C organization may use an estimate of the ACR value for 
the additional revenue component of a service or services offered based 
on the lesser of (if the information is available)--
    (i) The average of additional revenues received through risk 
payments for health services contracted to be furnished to an enrolled 
population of other organizations;
    (ii) The average of additional revenues received for health services 
furnished; or
    (iii) A reasonable estimate of additional revenues of other M+C 
organizations in the general marketplace.
    (e) Adjustment by HCFA. If HCFA finds that there is insufficient 
enrollment experience to determine the APR

[[Page 717]]

or ACR for a M+C plan at the beginning of a contract period, HCFA may--
    (1) Determine the APR based on the enrollment experience of other 
M+C organizations;
    (2) Determine ACR using data in the general commercial marketplace; 
or
    (3) Determine either or both rates using the best available 
information, which may include enrollment experience of other M+C 
organizations and section 1876 risk contractors.
    (f) HCFA review. (1) The M+C organization's methodology and 
computation of its ACR are subject to review and approval by HCFA. When 
the M+C organization submits the ACR computation, it must include 
adequate supporting data. Except as provided in Sec. 422.306(e)(2), HCFA 
authorizes the M+C organization to collect premiums and other cost 
sharing amounts described in Sec. 422.306 that are equal to the amounts 
calculated in the ACR.
    (2) If the M+C organization is dissatisfied with an HCFA 
determination that the M+C organization's computation is not acceptable, 
the M+C organization may within 2 weeks after the date of receipt of 
notification of this determination, file a request for a hearing with 
HCFA. The request must state why the M+C organization believes the 
determination is incorrect and must be accompanied by any supporting 
evidence the M+C organization wishes to submit. The hearing is conducted 
by a hearing officer designated by HCFA under the hearing procedures 
described in subpart N.

[63 FR 35093, June 26, 1998; 63 FR 52614, Oct. 1, 1998]



Sec. 422.312  Requirement for additional benefits.

    (a) Definitions. As used in this section--
    (1) Excess amount is the amount by which the APR exceeds the 
actuarial value of the Medicare covered services required under 
Sec. 422.101(a), as determined on the basis of the ACR determined under 
Sec. 422.310, as reduced for the actuarial value of the cost-sharing 
under Medicare Parts A and B. A separate excess amount must be 
determined for Part B-only enrollees.
    (2) Adjusted excess amount is the excess amount minus any amount 
withheld and reserved for the organization in a stabilization fund, as 
provided in paragraph (c) of this section.
    (b) Requirement for additional benefits. If there is an adjusted 
excess amount for the plan it offers, the M+C organization must--
    (1) Provide additional benefits with an actuarial value (less the 
actuarial value of any copayment or coinsurance associated with the 
benefit) which HCFA determines is at least equal to the adjusted excess 
amount; and
    (2) Provide those benefits uniformly for all Medicare enrollees 
electing the plan.
    (c) Stabilization fund. (1) An M+C organization may request for part 
of an excess amount to be withheld and reserved, for a specified number 
of contract periods, in the Federal Hospital Insurance Trust Fund, or 
the Federal Supplementary Insurance Trust Fund in the proportions that 
HCFA determines to be appropriate.
    (2) The reserved funds are to be used to stabilize and prevent undue 
fluctuations in the additional benefits that are required under this 
section and are provided during subsequent contract periods.
    (3) Any amounts not provided as additional benefits during the 
period specified by the M+C organization for which the stabilization 
fund is established, reverts for the use of the trust funds.
    (4) Establishment of a stabilization fund. An M+C organization's 
request to have monies withheld in a stabilization fund for a specific 
M+C plan must be made when the M+C organization notifies HCFA under 
Sec. 422.306 of its proposed premiums, other cost-sharing amounts, and 
related information in preparation for its next contract period.
    (i) Limit per contract period. Except as provided in paragraph 
(c)(4)(iii) of this section, HCFA does not withhold in a stabilization 
fund more than 15 percent of the excess amount for a given contract 
period.
    (ii) Cumulative limit. If HCFA has established a stabilization fund 
for an M+C plan, it does not approve a request for withholding made by 
that M+C organization for a subsequent contract period that would cause 
the total value

[[Page 718]]

of the stabilization fund to exceed 25 percent of the excess amount 
applicable to the M+C plan for that subsequent contract period.
    (iii) Exception. HCFA may grant an exception to the limit described 
in paragraph (c)(3)(i) of this section if the M+C organization can 
demonstrate to HCFA's satisfaction that the value of the additional 
benefits it provides to its Medicare enrollees electing this M+C plan 
fluctuates substantially in excess of 15 percent from one contract 
period to another.
    (iv) Interest. The amounts withheld in a stabilization fund are 
accounted for by HCFA in accounts for which interest does not accrue to 
the M+C organization.
    (5) Withdrawal from a stabilization fund. An M+C organization's 
request to make a withdrawal from the stabilization fund established for 
an M+C plan to be used during a contract period must be made when the 
M+C organization notifies HCFA under Sec. 422.306 of its proposed 
premiums, cost-sharing amounts, and related information in preparation 
for its next contract period.
    (i) Notification requirements. An M+C organization must--
    (A) Indicate how it intends to use the withdrawn amounts;
    (B) Justify the need for the withdrawal in terms of stabilizing the 
additional benefits it provides to Medicare enrollees;
    (C) Document the M+C plan's experience with fluctuations of revenue 
requirements relative to the additional benefits it provides to Medicare 
enrollees; and
    (D) Document its experience during the contract period previous to 
the one for which it requests withdrawal to ensure that the M+C 
organization will not be using the withdrawn amounts to refinance losses 
suffered during that previous contract period.
    (ii) Criteria for HCFA approval. HCFA approves a request for a 
withdrawal from a benefit stabilization fund for use during the next 
contract period only if--
    (A) The average of the APR for the M+C plan's next contract period 
of the M+C plan is less than that of the previous contract period;
    (B) The M+C plan's ACR for the next contract period is significantly 
higher than that of the previous contract period;
    (C) The M+C plan's revenue requirements for the next contract period 
for providing the additional benefits it provided during the previous 
contract period is significantly higher than the requirements for that 
previous period; or
    (D) The ACR for the next contract period results in additional 
benefits that are significantly less in total value than that of the 
previous contract period.
    (iii) Basis for denial. HCFA does not approve a request for a 
withdrawal from a stabilization fund if the withdrawal would allow the 
M+C organization to refinance prior contract period losses or to avoid 
losses in the upcoming contract period.
    (iv) Form of payment. Payment of monies withdrawn from a 
stabilization fund is made, in equal parts, as an additional amount to 
the monthly advance payment made to the M+C organization for Medicare 
beneficiaries electing the M+C plan during the period of the contract.
    (d) Construction. Nothing in this section may be construed as 
preventing an M+C organization from providing supplemental benefits in 
addition to those required under this section and from imposing a 
premium for those supplemental benefits.



               Subpart H--Provider-Sponsored Organizations

    Editorial Note: Nomenclature changes to subpart H appear at 63 FR 
35098, 35099, June 26, 1998.



Sec. 422.350  Basis, scope, and definitions.

    (a) Basis and scope. This subpart is based on sections 1851 and 1855 
of the Act which, in part,--
    (1) Authorize provider sponsored organizations, (PSOs), to contract 
as a M+C plan;
    (2) Require that a PSO meet certain qualifying requirements; and
    (3) Provide for waiver of State licensure for PSOs under specified 
conditions.

[[Page 719]]

    (b) Definitions. As used in this subpart (unless otherwise 
specified)--
    Capitation payment means a fixed per enrollee per month amount paid 
for contracted services without regard to the type, cost, or frequency 
of services furnished.
    Cash equivalent means those assets excluding accounts receivable 
that can be exchanged on an equivalent basis as cash, or converted into 
cash within 90 days from their presentation for exchange.
    Control means that an individual, group of individuals, or entity 
has the power, directly or indirectly, to direct or influence 
significantly the actions or policies of an organization or institution.
    Current ratio means total current assets divided by total current 
liabilities.
    Deferred acquisition costs are those costs incurred in starting or 
purchasing a business. These costs are capitalized as intangible assets 
and carried on the balance sheet as deferred charges since they benefit 
the business for periods after the period in which the costs were 
incurred.
    Engaged in the delivery of health care services means--
    (1) For an individual, that the individual directly furnishes health 
care services, or
    (2) For an entity, that the entity is organized and operated 
primarily for the purpose of furnishing health care services directly or 
through its provider members or entities.
    Generally accepted accounting principles (GAAP) means broad rules 
adopted by the accounting profession as guides in measuring, recording, 
and reporting the financial affairs and activities of a business to its 
owners, creditors and other interested parties.
    Guarantor means an entity that--
    (1) Has been approved by HCFA as meeting the requirements to be a 
guarantor; and
    (2) Obligates its resources to a PSO to enable the PSO to meet the 
solvency requirements required to contract with HCFA as an M+C 
organization.
    Health care delivery assets (HCDAs) means any tangible assets that 
are part of a PSO's operation, including hospitals and other medical 
facilities and their ancillary equipment, and such property as may be 
reasonably required for the PSO's principal office or for such other 
purposes as the PSO may need for transacting its business.
    Insolvency means a condition in which the liabilities of the debtor 
exceed the fair valuation of its assets.
    Net worth means the excess of total assets over total liabilities, 
excluding fully subordinated debt or subordinated liabilities.
    Provider-sponsored organization (PSO) means a public or private 
entity that--
    (1) Is established or organized, and operated, by a provider or 
group of affiliated providers;
    (2) Provides a substantial proportion (as defined in Sec. 422.352) 
of the health care services under the M+C contract directly through the 
provider or affiliated group of providers; and
    (3) When it is a group, is composed of affiliated providers who--
    (i) Share, directly or indirectly, substantial financial risk, as 
determined under Sec. 422.356, for the provision of services that are 
the obligation of the PSO under the M+C contract; and
    (ii) Have at least a majority financial interest in the PSO.
    Qualified actuary means a member in good standing of the American 
Academy of Actuaries or a person recognized by the Academy as qualified 
for membership, or a person who has otherwise demonstrated competency in 
the field of actuarial determination and is satisfactory to HCFA.
    Statutory accounting practices means those accounting principles or 
practices prescribed or permitted by the domiciliary State insurance 
department in the State that PSO operates.
    Subordinated debt means an obligation that is owed by an 
organization, that the creditor of the obligation, by law, agreement, or 
otherwise, has a lower repayment rank in the hierarchy of creditors than 
another creditor. The creditor would be entitled to repayment only after 
all higher ranking creditors' claims have been satisfied. A debt is 
fully subordinated if it has a lower repayment rank than all other 
classes of creditors.
    Subordinated liability means claims liabilities otherwise due to 
providers that are retained by the PSO to meet

[[Page 720]]

net worth requirements and are fully subordinated to all other 
creditors.
    Uncovered expenditures means those expenditures for health care 
services that are the obligation of an organization, for which an 
enrollee may also be liable in the event of the organization's 
insolvency and for which no alternative arrangements have been made that 
are acceptable to HCFA. They include expenditures for health care 
services for which the organization is at risk, such as out-of-area 
services, referral services and hospital services. However, they do not 
include expenditures for services when a provider has agreed not to bill 
the enrollee.

[63 FR 18134, Apr. 14, 1998, as amended at 63 FR 25376, May 7, 1998; 63 
FR 35098, June 26, 1998]



Sec. 422.352  Basic requirements.

    (a) General rule. An organization is considered a PSO for purposes 
of a M+C contract if the organization--
    (1) Is licensed by the State or has obtained a waiver of State 
licensure as provided for under Sec. 422.370;
    (2) Meets the definition of a PSO set forth in Sec. 422.350 and 
other applicable requirements of this subpart; and
    (3) Is effectively controlled by the provider or, in the case of a 
group, by one or more of the affiliated providers that established and 
operate the PSO.
    (b) Provision of services. A PSO must demonstrate to HCFA's 
satisfaction that it is capable of delivering to Medicare enrollees the 
range of services required under a contract with HCFA. Each PSO must 
deliver a substantial proportion of those services directly through the 
provider or the affiliated providers responsible for operating the PSO. 
Substantial proportion means--
    (1) For a non-rural PSO, not less than 70% of Medicare services 
covered under the contract.
    (2) For a rural PSO, not less than 60% of Medicare services covered 
under the contract.
    (c) Rural PSO. To qualify as a rural PSO, a PSO must--
    (1) Demonstrate to HCFA that--
    (i) It has available in the rural area, as defined in Sec. 412.62(f) 
of this chapter, routine services including but not limited to primary 
care, routine specialty care, and emergency services; and
    (ii) The level of use of providers outside the rural area is 
consistent with general referral patterns for the area; and
    (2) Enroll Medicare beneficiaries, the majority of which reside in 
the rural area the PSO serves.

[63 FR 18134, Apr. 14, 1998, as amended at 63 FR 35098, June 26, 1998]



Sec. 422.354  Requirements for affiliated providers.

    A PSO that consists of two or more providers must demonstrate to 
HCFA'S satisfaction that it meets the following requirements:
    (a) The providers are affiliated. For purposes of this subpart, 
providers are affiliated if, through contract, ownership, or otherwise--
    (1) One provider, directly or indirectly, controls, is controlled 
by, or is under common control with another;
    (2) Each provider is part of a lawful combination under which each 
shares substantial financial risk in connection with the PSO's 
operations;
    (3) Both, or all, providers are part of a controlled group of 
corporations under section 1563 of the Internal Revenue Code of 1986; or
    (4) Both, or all, providers are part of an affiliated service group 
under section 414 of that Code.
    (b) Each affiliated provider of the PSO shares, directly or 
indirectly, substantial financial risk for the furnishing of services 
the PSO is obligated to provide under the contract.
    (c) Affiliated providers, as a whole or in part, have at least a 
majority financial interest in the PSO.
    (d) For purposes of paragraph(a)(1) of this section, control is 
presumed to exist if one party, directly or indirectly, owns, controls, 
or holds the power to vote, or proxies for, not less than 51 percent of 
the voting rights or governance right of another.

[63 FR 18134, Apr. 14, 1998, as amended at 63 FR 35098, June 26, 1998]



Sec. 422.356  Determining substantial financial risk and majority financial interest.

    (a) Determining substantial financial risk. The PSO must demonstrate 
to HCFA's satisfaction that it apportions a significant part of the 
financial risk

[[Page 721]]

of the PSO enterprise under the M+C contract to each affiliated 
provider. The PSO must demonstrate that the financial arrangements among 
its affiliated providers constitute ``substantial'' risk in the PSO for 
each affiliated provider. The following mechanisms may constitute risk-
sharing arrangements, and may have to be used in combination to 
demonstrate substantial financial risk in the PSO enterprise.
    (1) Agreement by a provider to accept capitation payment for each 
Medicare enrollee.
    (2) Agreement by a provider to accept as payment a predetermined 
percentage of the PSO premium or the PSO's revenue.
    (3) The PSO's use of significant financial incentives for its 
affiliated providers, with the aim of achieving utilization management 
and cost containment goals. Permissible methods include the following:
    (i) Affiliated providers agree to a withholding of a significant 
amount of the compensation due them, to be used for any of the 
following:
    (A) To cover losses of the PSO.
    (B) To cover losses of other affiliated providers.
    (C) To be returned to the affiliated provider if the PSO meets its 
utilization management or cost containment goals for the specified time 
period.
    (D) To be distributed among affiliated providers if the PSO meets 
its utilization management or cost-containment goals for the specified 
time period.
    (ii) Affiliated providers agree to preestablished cost or 
utilization targets for the PSO and to subsequent significant financial 
rewards and penalties (which may include a reduction in payments to the 
provider) based on the PSO's performance in meeting the targets.
    (4) Other mechanisms that demonstrate significant shared financial 
risk.
    (b) Determining majority financial interest. Majority financial 
interest means maintaining effective control of the PSO.

[63 FR 18134, Apr. 14, 1998, as amended at 63 FR 35098, June 26, 1998]



Sec. 422.370  Waiver of State licensure.

    For an organization that seeks to contract to offer an M+C plan 
under this subpart, HCFA may waive the State licensure requirement of 
section 1855(a)(1) of the Act if--
    (a) The organization requests a waiver no later than November 1, 
2002; and
    (b) HCFA determines there is a basis for a waiver under 
Sec. 422.372.

[63 FR 25376, May 7, 1998, as amended at 63 FR 35098, June 26, 1998]



Sec. 422.372  Basis for waiver of State licensure.

    (a) General rule. Subject to this section and to paragraphs (a) and 
(e) of Sec. 422.374, HCFA may waive the State licensure requirement if 
the organization has applied (except as provided in paragraph (b)(4) of 
this section) for the most closely appropriate State license or 
authority to conduct business as an M+C plan.
    (b) Basis for waiver of State licensure. Any of the following may 
constitute a basis for HCFA's waiver of State licensure.
    (1) Failure to act timely on application. The State failed to 
complete action on the licensing application within 90 days of the date 
the State received a substantially complete application.
    (2) Denial of application based on discriminatory treatment. The 
State has--
    (i) Denied the license application on the basis of material 
requirements, procedures, or standards (other than solvency 
requirements) not generally applied by the State to other entities 
engaged in a substantially similar business; or
    (ii) Required, as a condition of licensure that the organization 
offer any product or plan other than an M+C plan.
    (3) Denial of application based on different solvency requirements. 
(i) The State has denied the application, in whole or in part, on the 
basis of the organization's failure to meet solvency requirements that 
are different from those set forth in Secs. 422.380 through 422.390; or
    (ii) HCFA determines that the State has imposed, as a condition of 
licensure, any documentation or information requirements relating to 
solvency

[[Page 722]]

or other material requirements, procedures, or standards relating to 
solvency that are different from the requirements, procedures, or 
standards set forth by HCFA to implement, monitor, and enforce 
Secs. 422.380 through 422.390.
    (4) State declines to accept licensure application. The appropriate 
State licensing authority has given the organization written notice that 
it will not accept its licensure application.

[63 FR 35098, June 26, 1998]



Sec. 422.374  Waiver request and approval process.

    (a) Substantially complete waiver request. The organization must 
submit a substantially complete waiver request that clearly demonstrates 
and documents its eligibility for a waiver under Sec. 422.372.
    (b) HCFA gives the organization written notice of granting or denial 
of waiver within 60 days of receipt of a substantially complete waiver 
request.
    (c) Subsequent waiver requests. An organization that has had a 
waiver request denied, may submit subsequent waiver requests until 
November 1, 2002.
    (d) Effective date. A waiver granted under Sec. 422.370 will be 
effective on the effective date of the organization's M+C contract.
    (e) Consistency in application. HCFA reserves the right to revoke 
waiver eligibility if it subsequently determines that the organization's 
M+C application is significantly different from the application 
submitted by the organization to the State licensing authority.

[63 FR 25377, May 7, 1998, as amended at 63 FR 35098, June 26, 1998]



Sec. 422.376  Conditions of the waiver.

    A waiver granted under this section is subject to the following 
conditions:
    (a) Limitation to State. The waiver is effective only for the 
particular State for which it is granted and does not apply to any other 
State. For each State in which the organization wishes to operate 
without a State license, it must submit a waiver request and receive a 
waiver.
    (b) Limitation to 36-month period. The waiver is effective for 36 
months or through the end of the calendar year in which the 36 month 
period ends unless it is revoked based on paragraph (c) of this section.
    (c) Mid-period revocation. During the waiver period (set forth in 
paragraph (b) of this section), the waiver is automatically revoked 
upon--
    (1) Termination of the M+C contract;
    (2) The organization's compliance with the State licensure 
requirement of section 1855(a)(1) of the Act; or
    (3) The organization's failure to comply with Sec. 422.378.

[63 FR 25377, May 7, 1998]



Sec. 422.378  Relationship to State law.

    (a) Preemption of State law. Any provisions of State law that relate 
to the licensing of the organization and that prohibit the organization 
from providing coverage under a contract as specified in this subpart, 
are superseded.
    (b) Consumer protection and quality standards. (1) A waiver of State 
licensure granted under this subpart is conditioned upon the 
organization's compliance with all State consumer protection and quality 
standards that--
    (i) Would apply to the organization if it were licensed under State 
law;
    (ii) Generally apply to other M+C organizations and plans in the 
State; and
    (iii) Are consistent with the standards established under this part.
    (2) The standards specified in paragraph (b)(1) of this section do 
not include any standard preempted under section 1856(b)(3)(B) of the 
Act.
    (c) Incorporation into contract. In contracting with an organization 
that has a waiver of State licensure, HCFA incorporates into the 
contract the requirements specified in paragraph (b) of this section.
    (d) Enforcement. HCFA may enter into an agreement with a State for 
the State to monitor and enforce compliance with the requirements 
specified in paragraph (b) of this section by an organization that has 
obtained a waiver under this subpart.

[63 FR 25377, May 7, 1998]



Sec. 422.380  Solvency standards.

    General rule. A PSO or the legal entity of which the PSO is a 
component that has been granted a waiver under

[[Page 723]]

Sec. 422.370 must have a fiscally sound operation that meets the 
requirements of Secs. 422.382 through 422.390.

[63 FR 25377, May 7, 1998]



Sec. 422.382  Minimum net worth amount.

    (a) At the time an organization applies to contract with HCFA as a 
PSO under this part, the organization must have a minimum net worth 
amount, as determined under paragraph (c) of this section, of:
    (1) At least $1,500,000, except as provided in paragraph (a)(2) of 
this section.
    (2) No less than $1,000,000 based on evidence from the 
organization's financial plan (under Sec. 422.384) demonstrating to 
HCFA's satisfaction that the organization has available to it an 
administrative infrastructure that HCFA considers appropriate to reduce, 
control or eliminate start-up administrative costs.
    (b) After the effective date of a PSO's M+C contract, a PSO must 
maintain a minimum net worth amount equal to the greater of--
    (1) One million dollars;
    (2) Two percent of annual premium revenues as reported on the most 
recent annual financial statement filed with HCFA for up to and 
including the first $150,000,000 of annual premiums and 1 percent of 
annual premium revenues on premiums in excess of $150,000,000;
    (3) An amount equal to the sum of three months of uncovered health 
care expenditures as reported on the most recent financial statement 
filed with HCFA; or
    (4) Using the most recent annual financial statement filed with 
HCFA, an amount equal to the sum of--
    (i) Eight percent of annual health care expenditures paid on a non-
capitated basis to non-affiliated providers; and
    (ii) Four percent of annual health care expenditures paid on a 
capitated basis to non-affiliated providers plus annual health care 
expenditures paid on a non-capitated basis to affiliated providers.
    (iii) Annual health care expenditures that are paid on a capitated 
basis to affiliated providers are not included in the calculation of the 
net worth requirement under paragraphs (a) and (b)(4) of this section.
    (c) Calculation of the minimum net worth amount--(1) Cash 
requirement. (i) At the time of application, the organization must 
maintain at least $750,000 of the minimum net worth amount in cash or 
cash equivalents.
    (ii) After the effective date of a PSO's M+C contract, a PSO must 
maintain the greater of $750,000 or 40 percent of the minimum net worth 
amount in cash or cash equivalents.
    (2) Intangible assets. An organization may include intangible 
assets, the value of which is based on Generally Accepted Accounting 
Principles (GAAP), in the minimum net worth amount calculation subject 
to the following limitations--
    (i) At the time of application. (A) Up to 20 percent of the minimum 
net worth amount, provided at least $1,000,000 of the minimum net worth 
amount is met through cash or cash equivalents; or
    (B) Up to 10 percent of the minimum net worth amount, if less than 
$1,000,000 of the minimum net worth amount is met through cash or cash 
equivalents, or if HCFA has used its discretion under paragraph (a)(2) 
of this section.
    (ii) From the effective date of the contract. (A) Up to 20 percent 
of the minimum net worth amount if the greater of $1,000,000 or 67 
percent of the minimum net worth amount is met by cash or cash 
equivalents; or
    (B) Up to ten percent of the minimum net worth amount if the greater 
of $1,000,000 or 67 percent of the minimum net worth amount is not met 
by cash or cash equivalents.
    (3) Health care delivery assets. Subject to the other provisions of 
this section, a PSO may apply 100 percent of the GAAP depreciated value 
of health care delivery assets (HCDAs) to satisfy the minimum net worth 
amount.
    (4) Other assets. A PSO may apply other assets not used in the 
delivery of health care provided that those assets are valued according 
to statutory accounting practices (SAP) as defined by the State.
    (5) Subordinated debts and subordinated liabilities. Fully 
subordinated debt and subordinated liabilities are

[[Page 724]]

excluded from the minimum net worth amount calculation.
    (6) Deferred acquisition costs. Deferred acquisition costs are 
excluded from the calculation of the minimum net worth amount.

[63 FR 25377, May 7, 1998]



Sec. 422.384  Financial plan requirement.

    (a) General rule. At the time of application, an organization must 
submit a financial plan acceptable to HCFA.
    (b) Content of plan. A financial plan must include--
    (1) A detailed marketing plan;
    (2) Statements of revenue and expense on an accrual basis;
    (3) Cash-flow statements;
    (4) Balance sheets;
    (5) Detailed justifications and assumptions in support of the 
financial plan including, where appropriate, certification of reserves 
and actuarial liabilities by a qualified health maintenance organization 
actuary; and
    (6) If applicable, statements of the availability of financial 
resources to meet projected losses.
    (c) Period covered by the plan. A financial plan must--
    (1) Cover the first 12 months after the estimated effective date of 
a PSO's M+C contract; or
    (2) If the PSO is projecting losses, cover 12 months beyond the end 
of the period for which losses are projected.
    (d) Funding for projected losses. Except for the use of guarantees, 
LOC, and other means as provided in Sec. 422.384(e), (f) and (g), an 
organization must have the resources for meeting projected losses on its 
balance sheet in cash or a form that is convertible to cash in a timely 
manner, in accordance with the PSO's financial plan.
    (e) Guarantees and projected losses. Guarantees will be an 
acceptable resource to fund projected losses, provided that a PSO--
    (1) Meets HCFA's requirements for guarantors and guarantee documents 
as specified in Sec. 422.390; and
    (2) Obtains from the guarantor cash or cash equivalents to fund the 
projected losses timely, as follows--
    (i) Prior to the effective date of a PSO's M+C contract, the amount 
of the projected losses for the first two quarters;
    (ii) During the first quarter and prior to the beginning of the 
second quarter of a PSO's M+C contract, the amount of projected losses 
through the end of the third quarter; and
    (iii) During the second quarter and prior to the beginning of the 
third quarter of a PSO's M+C contract, the amount of projected losses 
through the end of the fourth quarter.
    (3) If the guarantor complies with the requirements in paragraph 
(e)(2) of this section, the PSO, in the third quarter, may notify HCFA 
of its intent to reduce the period of advance funding of projected 
losses. HCFA will notify the PSO within 60 days of receiving the PSO's 
request if the requested reduction in the period of advance funding will 
not be accepted.
    (4) If the guarantee requirements in paragraph (e)(2) of this 
section are not met, HCFA may take appropriate action, such as requiring 
funding of projected losses through means other than a guarantee. HCFA 
retains discretion to require other methods or timing of funding, 
considering factors such as the financial condition of the guarantor and 
the accuracy of the financial plan.
    (f) Letters of credit. Letters of credit are an acceptable resource 
to fund projected losses, provided they are irrevocable, unconditional, 
and satisfactory to HCFA. They must be capable of being promptly paid 
upon presentation of a sight draft under the letters of credt without 
further reference to any other agreement, document, or entity.
    (g) Other means. If satisfactory to HCFA, and for periods beginning 
one year after the effective date of a PSO's M+C contract, a PSO may use 
the following to fund projected losses--
    (1) Lines of credit from regulated financial institutions;
    (2) Legally binding agreements for capital contributions; or
    (3) Legally binding agreements of a similar quality and reliability 
as permitted in paragraphs (g)(1) and (2) of this section.
    (h) Application of guarantees, Letters of credit or other means of 
funding projected losses. Notwithstanding any other provision of this 
section, a PSO may use guarantees, letters of credit and, beginning one 
year after the effective date

[[Page 725]]

of a PSO's M+C contract, other means of funding projected losses, but 
only in a combination or sequence that HCFA considers appropriate.

[63 FR 25378, May 7, 1998, as amended at 63 FR 35098, June 26, 1998]



Sec. 422.386  Liquidity.

    (a) A PSO must have sufficient cash flow to meet its financial 
obligations as they become due and payable.
    (b) To determine whether the PSO meets the requirement in paragraph 
(a) of this section, HCFA will examine the following--
    (1) The PSO's timeliness in meeting current obligations;
    (2) The extent to which the PSO's current ratio of assets to 
liabilities is maintained at 1:1 including whether there is a declining 
trend in the current ratio over time; and
    (3) The availability of outside financial resources to the PSO.
    (c) If HCFA determines that a PSO fails to meet the requirement in 
paragraph (b)(1) of this section, HCFA will require the PSO to initiate 
corrective action and pay all overdue obligations.
    (d) If HCFA determines that a PSO fails to meet the requirement of 
paragraph (b)(2) of this section, HCFA will require the PSO to initiate 
corrective action to--
    (1) Change the distribution of its assets;
    (2) Reduce its liabilities; or
    (3) Make alternative arrangements to secure additional funding to 
restore the PSO's current ratio to 1:1.
    (e) If HCFA determines that a PSO fails to meet the requirement of 
paragraph (b)(3) of this section, HCFA will require the PSO to obtain 
funding from alternative financial resources.

[63 FR 25378, May 7, 1998]



Sec. 422.388  Deposits.

    (a) Insolvency deposit. (1) At the time of application, an 
organization must deposit $100,000 in cash or securities (or any 
combination thereof) into an account in a manner that is acceptable to 
HCFA.
    (2) The deposit must be restricted to use in the event of insolvency 
to help assure continuation of services or pay costs associated with 
receivership or liquidation.
    (3) At the time of the PSO's application for an M+C contract and, 
thereafter, upon HCFA's request, a PSO must provide HCFA with proof of 
the insolvency deposit, such proof to be in a form that HCFA considers 
appropriate.
    (b) Uncovered expenditures deposit. (1) If at any time uncovered 
expenditures exceed 10 percent of a PSO's total health care 
expenditures, then the PSO must place an uncovered expenditures deposit 
into an account with any organization or trustee that is acceptable to 
HCFA.
    (2) The deposit must at all times have a fair market value of an 
amount that is 120 percent of the PSO's outstanding liability for 
uncovered expenditures for enrollees, including incurred, but not 
reported claims.
    (3) The deposit must be calculated as of the first day of each month 
required and maintained for the remainder of each month required.
    (4) If a PSO is not otherwise required to file a quarterly report, 
it must file a report within 45 days of the end of the calendar quarter 
with information sufficient to demonstrate compliance with this section.
    (5) The deposit required under this section is restricted and in 
trust for HCFA's use to protect the interests of the PSO's Medicare 
enrollees and to pay the costs associated with administering the 
insolvency. It may be used only as provided under this section.
    (c) A PSO may use the deposits required under paragraphs (a) and (b) 
of this section to satisfy the PSO's minimum net worth amount required 
under Sec. 422.382(a) and (b).
    (d) All income from the deposits or trust accounts required under 
paragraphs (a) and (b) of this section, are considered assets of the 
PSO. Upon HCFA's approval, the income from the deposits may be 
withdrawn.
    (e) On prior written approval from HCFA, a PSO that has made a 
deposit under paragraphs (a) or (b) of this section, may withdraw that 
deposit or any part thereof if--
    (1) A substitute deposit of cash or securities of equal amount and 
value is made;

[[Page 726]]

    (2) The fair market value exceeds the amount of the required 
deposit; or
    (3) The required deposit under paragraphs (a) or (b) of this section 
is reduced or eliminated.

[63 FR 25379, May 7, 1998]



Sec. 422.390  Guarantees.

    (a) General policy. A PSO, or the legal entity of which the PSO is a 
component, may apply to HCFA to use the financial resources of a 
guarantor for the purpose of meeting the requirements in Sec. 422.384. 
HCFA has the discretion to approve or deny approval of the use of a 
guarantor.
    (b) Request to use a guarantor. To apply to use the financial 
resources of a guarantor, a PSO must submit to HCFA--
    (1) Documentation that the guarantor meets the requirements for a 
guarantor under paragraph (c) of this section; and
    (2) The guarantor's independently audited financial statements for 
the current year-to-date and for the two most recent fiscal years. The 
financial statements must include the guarantor's balance sheets, profit 
and loss statements, and cash flow statements.
    (c) Requirements for guarantor. To serve as a guarantor, an 
organization must meet the following requirements:
    (1) Be a legal entity authorized to conduct business within a State 
of the United States.
    (2) Not be under Federal or State bankruptcy or rehabilitation 
proceedings.
    (3) Have a net worth (not including other guarantees, intangibles 
and restricted reserves) equal to three times the amount of the PSO 
guarantee.
    (4) If the guarantor is regulated by a State insurance commissioner, 
or other State official with authority for risk-bearing entities, it 
must meet the net worth requirement in Sec. 422.390(c)(3) with all 
guarantees and all investments in and loans to organizations covered by 
guarantees excluded from its assets.
    (5) If the guarantor is not regulated by a State insurance 
commissioner, or other similar State official it must meet the net worth 
requirement in Sec. 422.390(c)(3) with all guarantees and all 
investments in and loans to organizations covered by a guarantee and to 
related parties (subsidiaries and affiliates) excluded from its assets.
    (d) Guarantee document. If the guarantee request is approved, a PSO 
must submit to HCFA a written guarantee document signed by an 
appropriate authority of the guarantor. The guarantee document must--
    (1) State the financial obligation covered by the guarantee;
    (2) Agree to--
    (i) Unconditionally fulfill the financial obligation covered by the 
guarantee; and
    (ii) Not subordinate the guarantee to any other claim on the 
resources of the guarantor;
    (3) Declare that the guarantor must act on a timely basis, in any 
case not more than 5 business days, to satisfy the financial obligation 
covered by the guarantee; and
    (4) Meet other conditions as HCFA may establish from time to time.
    (e) Reporting requirement. A PSO must submit to HCFA the current 
internal financial statements and annual audited financial statements of 
the guarantor according to the schedule, manner, and form that HCFA 
requests.
    (f) Modification, substitution, and termination of a guarantee. A 
PSO cannot modify, substitute or terminate a guarantee unless the PSO--
    (1) Requests HCFA's approval at least 90 days before the proposed 
effective date of the modification, substitution, or termination;
    (2) Demonstrates to HCFA's satisfaction that the modification, 
substitution, or termination will not result in insolvency of the PSO; 
and
    (3) Demonstrates how the PSO will meet the requirements of this 
section.
    (g) Nullification. If at any time the guarantor or the guarantee 
ceases to meet the requirements of this section, HCFA will notify the 
PSO that it ceases to recognize the guarantee document. In the event of 
this nullification, a PSO must--
    (1) Meet the applicable requirements of this section within 15 
business days; and
    (2) If required by HCFA, meet a portion of the applicable 
requirements in

[[Page 727]]

less than the time period granted in paragraph (g)(1) of this section.

[63 FR 25379, May 7, 1998]



  Subpart I--Organization Compliance With State Law and Preemption by 
                               Federal Law

    Source: 63 FR 35099, June 26, 1998, unless otherwise noted.



Sec. 422.400  State licensure requirement.

    Except in the case of a PSO granted a waiver under subpart H of this 
part, each M+C organization must--
    (a) Be licensed under State law, or otherwise authorized to operate 
under State law, as a risk-bearing entity (as defined in Sec. 422.2) 
eligible to offer health insurance or health benefits coverage in each 
State in which it offers one or more M+C plans;
    (b) If not commercially licensed, obtain certification from the 
State that the organization meets a level of financial solvency and such 
other standards as the State may require for it to operate as an M+C 
organization; and
    (c) Demonstrate to HCFA that--
    (1) The scope of its license or authority allows the organization to 
offer the type of M+C plan or plans that it intends to offer in the 
State; and
    (2) If applicable, it has obtained the State certification required 
under paragraph (b) of this section.



Sec. 422.402  Federal preemption of State law.

    (a) General preemption. Except as provided in paragraph (b) of this 
section, the rules, contract requirements, and standards established 
under this part supersede any State laws, regulations, contract 
requirements, or other standards that would otherwise apply to M+C 
organizations and their M+C plans only to the extent that such State 
laws are inconsistent with the standards established under this part. 
This preemption of State laws and other standards applies only to 
coverage pursuant to an M+C contract, and does not extend to benefits 
outside of such contract or to individuals who are not M+C enrollees of 
an organization with an M+C contract.
    (b) Specific preemption. As they might otherwise apply to the M+C 
plans of an M+C organization in a State, State laws and regulations 
pertaining to the following areas are specifically preempted by this 
part:
    (1) Benefit requirements, such as mandating the inclusion in an M+C 
plan of a particular service, or specifying the scope or duration of a 
service (for example, length of hospital stay, number of home health 
visits). State cost-sharing standards with respect to any benefits are 
preempted only if they are inconsistent with this part, as provided for 
in paragraph (a) of this section.
    (2) Requirements relating to inclusion or treatment of providers and 
suppliers.
    (3) Coverage determinations (including related appeal and grievance 
processes for all benefits included under an M+C contract). 
Determinations on issues other than whether a service is covered under 
an M+C contract, and the extent of enrollee liability under the M+C plan 
for such a service, are not considered coverage determinations for 
purposes of this paragraph.
    (c) Except as provided in paragraphs (a) and (b) of this section, 
nothing in this section may be construed to affect or modify the 
provisions of any other law or regulation that imposes or preempts a 
specific State authority.



Sec. 422.404  State premium taxes prohibited.

    (a) Basic rule. No premium tax, fee, or other similar assessment may 
be imposed by any State, the District of Columbia, the Commonwealth of 
Puerto Rico, the Virgin Islands, Guam, and American Samoa, or any of 
their political subdivision or other governmental authorities with 
respect to any payment HCFA makes on behalf of M+C enrollees under 
subpart F of this part.
    (b) Construction. Nothing in this section shall be construed to 
exempt any M+C organization from taxes, fees, or other monetary 
assessments related to the net income or profit that accrues to, or is 
realized by, the organization from business conducted under this part, 
if that tax, fee, or payment is applicable to a broad range of business 
activity.

[[Page 728]]



                          Subpart J [Reserved]



         Subpart K--Contracts With Medicare+Choice Organizations

    Source: 63 FR 35099, June 26, 1998, unless otherwise noted.



Sec. 422.500  Definitions.

    For purposes of this subpart, the following definitions apply:
    Business transaction means any of the following kinds of 
transactions:
    (1) Sale, exchange, or lease of property.
    (2) Loan of money or extension of credit.
    (3) Goods, services, or facilities furnished for a monetary 
consideration, including management services, but not including--
    (i) Salaries paid to employees for services performed in the normal 
course of their employment; or
    (ii) Health services furnished to the M+C organization's enrollees 
by hospitals and other providers, and by M+C organization staff, medical 
groups, or independent practice associations, or by any combination of 
those entities.
    Clean Claim means a claim that has no defect, impropriety, lack of 
any required substantiating documentation, or particular circumstance 
requiring special treatment that prevents timely payment.
    Party in interest includes the following:
    (1) Any director, officer, partner, or employee responsible for 
management or administration of an M+C organization.
    (2) Any person who is directly or indirectly the beneficial owner of 
more than 5 percent of the organization's equity; or the beneficial 
owner of a mortgage, deed of trust, note, or other interest secured by 
and valuing more than 5 percent of the organization.
    (3) In the case of an M+C organization organized as a nonprofit 
corporation, an incorporator or member of such corporation under 
applicable State corporation law.
    (4) Any entity in which a person described in paragraph (1), (2), or 
(3) of this definition:
    (i) Is an officer, director, or partner; or
    (ii) Has the kind of interest described in paragraphs (1), (2), or 
(3) of this definition.
    (5) Any person that directly or indirectly controls, is controlled 
by, or is under common control with, the M+C organization.
    (6) Any spouse, child, or parent of an individual described in 
paragraph (1), (2), or (3) of this definition.
    Related entity means any entity that is related to the M+C 
organization by common ownership or control and--
    (1) Performs some of the M+C organization's management functions 
under contract or delegation;
    (2) Furnishes services to Medicare enrollees under an oral or 
written agreement; or
    (3) Leases real property or sells materials to the M+C organization 
at a cost of more than $2,500 during a contract period.
    Significant business transaction means any business transaction or 
series of transactions of the kind specified in the above definition of 
``business transaction'' that, during any fiscal year of the M+C 
organization, have a total value that exceeds $25,000 or 5 percent of 
the M+C organization's total operating expenses, whichever is less.



Sec. 422.501  General provisions.

    (a) Basic rule. In order to qualify as an M+C organization, enroll 
beneficiaries in any M+C plans it offers, and be paid on behalf of 
Medicare beneficiaries enrolled in those plans, an M+C organization must 
enter into a contract with HCFA.
    (b) Conditions necessary to contract as an M+C organization. Any 
entity seeking to contract as an M+C organization must:
    (1) Be licensed by the State as a risk bearing entity in each State 
in which it seeks to offer an M+C plan as defined in Sec. 422.2.
    (2) Meet the minimum enrollment requirements of Sec. 422.514, unless 
waived under Sec. 422.514(b).
    (3) Have administrative and management arrangements satisfactory to 
HCFA, as demonstrated by at least the following:
    (i) A policy making body that exercises oversight and control over 
the

[[Page 729]]

M+C organization's policies and personnel to ensure that management 
actions are in the best interest of the organization and its enrollees.
    (ii) Personnel and systems sufficient for the M+C organization to 
organize, plan, control, and evaluate financial and marketing 
activities, the furnishing of services, the quality assurance program, 
and the administrative and management aspects of the organization.
    (iii) At a minimum, an executive manager whose appointment and 
removal are under the control of the policy making body.
    (iv) A fidelity bond or bonds, procured and maintained by the M+C 
organization, in an amount fixed by its policymaking body but not less 
than $100,000 per individual, covering each officer and employee 
entrusted with the handling of its funds. The bond may have reasonable 
deductibles, based upon the financial strength of the M+C organization.
    (v) Insurance policies or other arrangements, secured and maintained 
by the M+C organization and approved by HCFA to insure the M+C 
organization against losses arising from professional liability claims, 
fire, theft, fraud, embezzlement, and other casualty risks.
    (vi) A compliance plan that consists of the following:
    (A) Written policies, procedures, and standards of conduct that 
articulate the organization's commitment to comply with all applicable 
Federal and State standards.
    (B) The designation of a compliance officer and compliance committee 
that are accountable to senior management.
    (C) Effective training and education between the compliance officer 
and organization employees.
    (D) Effective lines of communication between the compliance officer 
and the organization's employees.
    (E) Enforcement of standards through well-publicized disciplinary 
guidelines.
    (F) Provision for internal monitoring and auditing.
    (G) Ensures prompt response to detected offenses and development of 
corrective action initiatives.
    (H) An adhered-to process for reporting to HCFA and/or the OIG 
credible information of violations of law by the M+C organization, plan, 
subcontractors or enrollees for a determination as to whether criminal, 
civil, or administrative action may be appropriate. With respect to 
enrollees, this reporting requirement shall be restricted to credible 
information on violations of law with respect to enrollment in the plan, 
or the provision of, or payment for, health services.
    (4) Not accept new enrollees under a section 1876 reasonable cost 
contract in any area in which it seeks to offer an M+C plan.
    (5) The M+C organization's contract must not have been terminated by 
HCFA under Sec. 422.510 within the past 5 years.
    (c) Contracting authority. Under the authority of section 1857(c)(5) 
of the Act, HCFA may enter into contracts under this part without regard 
to Federal and Departmental acquisition regulations set forth in title 
48 of the CFR and provisions of law or other regulations relating to the 
making, performance, amendment, or modification of contracts of the 
United States if HCFA determines that those provisions are inconsistent 
with the efficient and effective administration of the Medicare program.
    (d) Protection against fraud and beneficiary protections. (1) HCFA 
annually audits the financial records (including data relating to 
Medicare utilization, costs, and computation of the ACR) of at least 
one-third of the M+C organizations offering M+C plans. These auditing 
activities are subject to monitoring by the Comptroller General.
    (2) Each contract under this section must provide that HCFA, or any 
person or organization designated by HCFA has the right to:
    (i) Inspect or otherwise evaluate the quality, appropriateness, and 
timeliness of services performed under the M+C contract;
    (ii) Inspect or otherwise evaluate the facilities of the 
organization when there is reasonable evidence of some need for such 
inspection; and
    (iii) Audit and inspect any books, contracts, and records of the M+C 
organization that pertain to--

[[Page 730]]

    (A) The ability of the organization to bear the risk of potential 
financial losses, or
    (B) Services performed or determinations of amounts payable under 
the contract.
    (e) Severability of contracts. The contract must provide that, upon 
HCFA's request--
    (1) The contract will be amended to exclude any M+C plan or State-
licensed entity specified by HCFA; and
    (2) A separate contract for any such excluded plan or entity will be 
deemed to be in place when such a request is made.



Sec. 422.502  Contract provisions.

    The contract between the M+C organization and HCFA must contain the 
following provisions:
    (a) Agreement to comply with regulations and instructions. The M+C 
organization agrees to comply with all the applicable requirements and 
conditions set forth in this part and in general instructions. An M+C 
organization's compliance with paragraphs (a)(1) through (a)(13) of this 
section is material to performance of the contract. The M+C organization 
agrees--
    (1) To accept new enrollments, make enrollments effective, process 
voluntary disenrollments, and limit involuntary disenrollments, as 
provided in subpart B of this part.
    (2) That it will comply with the prohibition in Sec. 422.110 on 
discrimination in beneficiary enrollment.
    (3) To provide--
    (i) The basic benefits as required under Sec. 422.101 and, to the 
extent applicable, supplemental benefits under Sec. 422.102; and
    (ii) Access to benefits as required under subpart C of this part;
    (iii) In a manner consistent with professionally recognized 
standards of health care, all benefits covered by Medicare.
    (4) To disclose information to beneficiaries in the manner and the 
form prescribed by HCFA as required under Sec. 422.111;
    (5) To operate a quality assurance and performance improvement 
program and have an agreement for external quality review as required 
under subpart D of this part;
    (6) To comply with all applicable provider requirements in subpart E 
of this part, including provider certification requirements, anti-
discrimination requirements, provider participation and consultation 
requirements, the prohibition on interference with provider advice, 
limits on provider indemnification, rules governing payments to 
providers, and limits on physician incentive plans;
    (7) To comply with all requirements in subpart M of this part 
governing coverage determinations, grievances, and appeals;
    (8) To comply with the reporting requirements in Sec. 422.516 and 
the requirements in Sec. 422.257 for submitting encounter data to HCFA;
    (9) That it will be paid under the contract in accordance with the 
payment rules in subpart F of this part;
    (10) To develop its annual ACR, and submit all required information 
on premiums, benefits, and cost-sharing by May 1, as provided in subpart 
G of this part;
    (11) That its contract may not be renewed or may be terminated in 
accordance with this subpart and subpart N of this part.
    (12) To comply will all requirements that are specific to a 
particular type of M+C plan, such as the special rules for private fee-
for-service plans in Secs. 422.114 and 422.216 and the MSA requirements 
in Secs. 422.56, 422.103, and 422.262; and
    (13) To comply with the confidentiality and enrollee record accuracy 
requirements in Sec. 422.118.
    (14) An M+C organization's compliance with paragraphs (a)(1) through 
(a)(13) and (c) of this section is material to performance of the 
contract.
    (b) Communication with HCFA. The M+C organization must have the 
capacity to communicate with HCFA electronically.
    (c) Prompt payment. The M+C organization must comply with the prompt 
payment provisions of Sec. 422.520 and with instructions issued by HCFA, 
as they apply to each type of plan included in the contract.
    (d) Maintenance of records. The M+C organization agrees to maintain 
for 6 years books, records, documents, and other evidence of accounting 
procedures and practices that--

[[Page 731]]

    (1) Are sufficient to do the following:
    (i) Accommodate periodic auditing of the financial records 
(including data related to Medicare utilization, costs, and computation 
of the ACR) of M+C organizations.
    (ii) Enable HCFA to inspect or otherwise evaluate the quality, 
appropriateness and timeliness of services performed under the contract, 
and the facilities of the organization.
    (iii) Enable HCFA to audit and inspect any books and records of the 
M+C organization that pertain to the ability of the organization to bear 
the risk of potential financial losses, or to services performed or 
determinations of amounts payable under the contract.
    (iv) Properly reflect all direct and indirect costs claimed to have 
been incurred and used in the preparation of the ACR proposal.
    (v) Establish component rates of the ACR for determining additional 
and supplementary benefits.
    (vi) Determine the rates utilized in setting premiums for State 
insurance agency purposes and for other government and private 
purchasers; and
    (2) Include at least records of the following:
    (i) Ownership and operation of the M+C organization's financial, 
medical, and other record keeping systems.
    (ii) Financial statements for the current contract period and six 
prior periods.
    (iii) Federal income tax or informational returns for the current 
contract period and six prior periods.
    (iv) Asset acquisition, lease, sale, or other action.
    (v) Agreements, contracts, and subcontracts.
    (vi) Franchise, marketing, and management agreements.
    (vii) Schedules of charges for the M+C organization's fee-for-
service patients.
    (viii) Matters pertaining to costs of operations.
    (ix) Amounts of income received by source and payment.
    (x) Cash flow statements.
    (xi) Any financial reports filed with other Federal programs or 
State authorities.
    (e) Access to facilities and records. The M+C organization agrees to 
the following:
    (1) HHS, the Comptroller General, or their designee may evaluate, 
through inspection or other means--
    (i) The quality, appropriateness, and timeliness of services 
furnished to Medicare enrollees under the contract;
    (ii) The facilities of the M+C organization; and
    (iii) The enrollment and disenrollment records for the current 
contract period and six prior periods.
    (2) HHS, the Comptroller General, or their designees may audit, 
evaluate, or inspect any books, contracts, medical records, patient care 
documentation, and other records of the M+C organization, related 
entity, contractor, subcontractor, or its transferee that pertain to any 
aspect of services performed, reconciliation of benefit liabilities, and 
determination of amounts payable under the contract, or as the Secretary 
may deem necessary to enforce the contract.
    (3) The M+C organization agrees to make available, for the purposes 
specified in paragraph (d) of this section, its premises, physical 
facilities and equipment, records relating to its Medicare enrollees, 
and any additional relevant information that HCFA may require.
    (4) HHS, the Comptroller General, or their designee's right to 
inspect, evaluate, and audit extends through 6 years from the final date 
of the contract period or completion of audit, whichever is later 
unless--
    (i) HCFA determines there is a special need to retain a particular 
record or group of records for a longer period and notifies the M+C 
organization at least 30 days before the normal disposition date;
    (ii) There has been a termination, dispute, or fraud or similar 
fault by the M+C organization, in which case the retention may be 
extended to 6 years from the date of any resulting final resolution of 
the termination, dispute, or fraud or similar fault; or
    (iii) HCFA determines that there is a reasonable possibility of 
fraud, in which case it may inspect, evaluate, and audit the M+C 
organization at any time.

[[Page 732]]

    (f) Disclosure of information. The M+C organization agrees to 
submit--
    (1) To HCFA, certified financial information that must include the 
following:
    (i) Such information as HCFA may require demonstrating that the 
organization has a fiscally sound operation.
    (ii) Such information as HCFA may require pertaining to the 
disclosure of ownership and control of the M+C organization.
    (2) To HCFA, all information that is necessary for HCFA to 
administer and evaluate the program and to simultaneously establish and 
facilitate a process for current and prospective beneficiaries to 
exercise choice in obtaining Medicare services. This information 
includes, but is not limited to:
    (i) The benefits covered under an M+C plan;
    (ii) The M+C monthly basic beneficiary premium and M+C monthly 
supplemental beneficiary premium, if any, for the plan or in the case of 
an MSA plan, the M+C monthly MSA premium.
    (iii) The service area and continuation area, if any, of each plan 
and the enrollment capacity of each plan;
    (iv) Plan quality and performance indicators for the benefits under 
the plan including --
    (A) Disenrollment rates for Medicare enrollees electing to receive 
benefits through the plan for the previous 2 years;
    (B) Information on Medicare enrollee satisfaction;
    (C) Information on health outcomes;
    (D) The recent record regarding compliance of the plan with 
requirements of this part, as determined by HCFA; and
    (E) Other information determined by HCFA to be necessary to assist 
beneficiaries in making an informed choice among M+C plans and 
traditional Medicare;
    (v) Information about beneficiary appeals and their disposition;
    (vi) Information regarding all formal actions, reviews, findings, or 
other similar actions by States, other regulatory bodies, or any other 
certifying or accrediting organization;
    (vii) For M+C organizations offering an MSA plan, information 
specified by HCFA for HCFA's use in preparing its report to the Congress 
on the MSA demonstration, including data specified by HCFA in the areas 
of selection, use of preventative care, and access to services.
    (viii) To HCFA, any other information deemed necessary by HCFA for 
the administration or evaluation of the Medicare program.
    (3) To its enrollees all informational requirements under 
Sec. 422.64 and, upon an enrollee's, request the financial disclosure 
information required under Sec. 422.516.
    (g) Beneficiary financial protection. The M+C organization agrees to 
comply with the following requirements:
    (1) Each M+C organization must adopt and maintain arrangements 
satisfactory to HCFA to protect its enrollees from incurring liability 
for payment of any fee that are the legal obligation of the M+C 
organization. To meet this requirement the M+C organization must--
    (i) Ensure that all contractual or other written arrangements with 
providers prohibit the organization's providers from holding any 
beneficiary enrollee liable for payment of any such fees; and
    (ii) Indemnify the beneficiary enrollee for payment of any fees that 
are the legal obligation of the M+C organization for services furnished 
by providers that do not contract, or that have not otherwise entered 
into an agreement with the M+C organization, to provide services to the 
organization's beneficiary enrollees.
    (2) The M+C organization must provide for continuation of enrollee 
health care benefits--
    (i) For all enrollees, for the duration of the contract period for 
which HCFA payments have been made; and
    (ii) For enrollees who are hospitalized on the date its contract 
with HCFA terminates, or, in the event of an insolvency, through 
discharge.
    (3) In meeting the requirements of this paragraph (g), other than 
the provider contract requirements specified in paragraph (g)(1) of this 
section, the M+C organization may use--
    (i) Contractual arrangements;
    (ii) Insurance acceptable to HCFA;
    (iii) Financial reserves acceptable to HCFA; or

[[Page 733]]

    (iv) Any other arrangement acceptable to HCFA.
    (h) Requirements of other laws and regulations. (1) The M+C 
organization agrees to comply with--
    (i) Title VI of the Civil Rights Act of 1964 as implemented by 
regulations at 45 CFR part 84;
    (ii) The Age Discrimination Act of 1975 as implemented by 
regulations at 45 CFR part 91;
    (iii) The Americans With Disabilities Act; and
    (iv) Other laws applicable to recipients of Federal funds; and
    (v) All other applicable laws and rules.
    (2) M+C organizations receiving Federal payments under M+C 
contracts, and related entities, contractors, and subcontractors paid by 
an M+C organization to fulfill its obligations under its M+C contract 
are subject to certain laws that are applicable to individuals and 
entities receiving Federal funds. M+C organizations must inform all 
related entities, contractors and subcontractors that payments that they 
receive are, in whole or in part, from Federal funds.
    (i) M+C organization relationship with related entities, 
contractors, and subcontractors. (1) Notwithstanding any relationship(s) 
that the M+C organization may have with related entities, contractors, 
or subcontractors, the M+C organization maintains ultimate 
responsibility for adhering to and otherwise fully complying with all 
terms and conditions of its contract with HCFA.
    (2) The M+C organization agrees to require all related entities, 
contractors, or subcontractors to agree that--
    (i) HHS, the Comptroller General, or their designees have the right 
to inspect, evaluate, and audit any pertinent contracts, books, 
documents, papers, and records of the related entity(s), contractor(s), 
or subcontractor(s) involving transactions related to the M+C contract; 
and
    (ii) HHS', the Comptroller General's, or their designee's right to 
inspect, evaluate, and audit any pertinent information for any 
particular contract period will exist through 6 years from the final 
date of the contract period or from the date of completion of any audit, 
whichever is later.
    (3) All contracts or written arrangements between M+C organizations 
and providers, related entities, contractors, or subcontractors must 
contain the following:
    (i) Enrollee protection provisions that provide--
    (A) Consistent with paragraph (g)(1) of this section, arrangements 
that prohibit providers from holding an enrollee liable for payment of 
any fees that are the obligation of the M+C Organization; and
    (B) Consistent with paragraph (g)(2) of this section, provision for 
the continuation of benefits.
    (ii) Accountability provisions that indicate that--
    (A) The M+C organization oversees and is accountable to HCFA for any 
functions or responsibilities that are described in these standards; and
    (B) The M+C organization may only delegate activities or functions 
to a provider, related entity, contractor, or subcontractor in a manner 
consistent with requirements set forth at paragraph (i)(4) of this 
section.
    (iii) A provision requiring that any services or other activity 
performed by a related entity, contractor or subcontractor in accordance 
with a contract or written agreement will be consistent and comply with 
the M+C organization's contractual obligations.
    (4) If any of the M+C organizations' activities or responsibilities 
under its contract with HCFA are delegated to other parties, the 
following requirements apply to any related entity, contractor, 
subcontractor, or provider:
    (i) Written arrangements must specify delegated activities and 
reporting responsibilities.
    (ii) Written arrangements must either provide for revocation of the 
delegation activities and reporting requirements or specify other 
remedies in instances where HCFA or the M+C organization determine that 
such parties have not performed satisfactorily.
    (iii) Written arrangements must specify that the performance of the 
parties is monitored by the M+C organization on an ongoing basis.
    (iv) Written arrangements must specify that either--

[[Page 734]]

    (A) The credentials of medical professionals affiliated with the 
party or parties will be either reviewed by the M+C organization; or
    (B) The credentialing process will be reviewed and approved by the 
M+C organization and the M+C organization must audit the credentialing 
process on an ongoing basis.
    (v) All contracts or written arrangements must specify that the 
related entity, contractor, or subcontractor must comply with all 
applicable Medicare laws, regulations, and HCFA instructions.
    (5) If the M+C organization delegates selection of the providers, 
contractors, or subcontractor to another organization, the M+C 
organization's written arrangements with that organization must state 
that the HCFA-contracting M+C organization retains the right to approve, 
suspend, or terminate any such arrangement.
    (j) Additional contract terms. The M+C organization agrees to 
include in the contract such other terms and conditions as HCFA may find 
necessary and appropriate in order to implement requirements in this 
part.
    (k) Severability of contracts. The contract must provide that, upon 
HCFA's request--
    (1) The contract will be amended to exclude any M+C plan or State-
licensed entity specified by HCFA; and
    (2) A separate contract for any such excluded plan or entity will be 
deemed to be in place when such a request is made.
    (l) Certification of data that determine payment. As a condition for 
receiving a monthly payment under subpart F of this part, the M+C 
organization agrees that its chief executive officer (CEO) or chief 
financial officer (CFO) must request payment under the contract on a 
document that certifies the accuracy, completeness, and truthfulness of 
relevant data that HCFA requests. Such data include specified enrollment 
information, encounter data, and other information that HCFA may 
specify.
    (1) The CEO or CFO must certify that each enrollee for whom the 
organization is requesting payment is validly enrolled in an M+C plan 
offered by the organization and the information relied upon by HCFA in 
determining payment is accurate.
    (2) The CEO or CFO must certify that the encounter data it submits 
under Sec. 422.257 are accurate, complete, and truthful.
    (3) If such encounter data are generated by a related entity, 
contractor, or subcontractor of an M+C organization, such entity, 
contractor, or subcontractor must similarly certify the accuracy, 
completeness, and truthfulness of the data.
    (4) The CEO or CFO must certify that the information in its ACR 
submission is accurate and fully conforms to the requirements in 
Sec. 422.310.

[63 FR 35099, June 26, 1998; 63 FR 52614, Oct. 1, 1998]



Sec. 422.504  Effective date and term of contract.

    (a) Effective date. The contract is effective on the date specified 
in the contract between the M+C organization and HCFA and, for a 
contract that provides for coverage under an MSA plan, not earlier than 
January 1999.
    (b) Term of contract. Except as provided in paragraph (d) of this 
section, each contract is for a period of 12 months beginning on January 
1 and ending on December 31.
    (c) Renewal of contract. In accordance with Sec. 422.506, contracts 
are renewed annually only if--
    (1) HCFA informs the M+C organization that it authorizes a renewal; 
and
    (2) The M+C organization has not provided HCFA with a notice of 
intention not to renew.
    (d) Exception. Prior to January 1, 2002, at HCFA's discretion, a 
contract may be for a term longer than 12 months and may begin on a date 
specified by HCFA other than January 1.



Sec. 422.506  Nonrenewal of contract.

    (a) Nonrenewal by an M+C organization. (1) An M+C organization may 
elect not to renew its contract with HCFA as of the end of the term of 
the contract for any reason provided it meets the timeframes for doing 
so set forth in paragraphs (a)(2) and (a)(3) of this section.
    (2) If an M+C organization does not intend to renew its contract, it 
must notify--

[[Page 735]]

    (i) HCFA in writing, by May 1 of the year in which the contract 
would end;
    (ii) Each Medicare enrollee, at least 90 days before the date on 
which the nonrenewal is effective. This notice must include a written 
description of alternatives available for obtaining Medicare services 
within the service area, including alternative M+C plans, Medigap 
options, and original Medicare and must receive HCFA approval.
    (iii) The general public, at least 90 days before the end of the 
current calendar year, by publishing a notice in one or more newspapers 
of general circulation in each community located in the M+C 
organization's service area.
    (3) HCFA may accept a nonrenewal notice submitted after May 1 if--
    (i) The M+C organization notifies its Medicare enrollees and the 
public in accordance with paragraph (a)(2)(ii) and (a)(2)(iii) of this 
section; and
    (ii) Acceptance is not inconsistent with the effective and efficient 
administration of the Medicare program.
    (4) If an M+C organization does not renew a contract under this 
paragraph (a), HCFA will not enter into a contract with the organization 
for 5 years unless there are special circumstances that warrant special 
consideration, as determined by HCFA.
    (b) HCFA decision not to renew. (1) HCFA may elect not to authorize 
renewal of a contract for any of the following reasons:
    (i) The M+C organization has not fully implemented or shown 
discernable progress in implementing quality improvement projects as 
defined in Sec. 422.152(d).
    (ii) The M+C organization's level of enrollment or growth in 
enrollment is determined by HCFA to threaten the viability of the 
organization under the M+C program and or be an indicator of beneficiary 
dissatisfaction with the M+C plan(s) offered by the organization.
    (iii) For any of the reasons listed in Sec. 422.510(a), which would 
also permit HCFA to terminate the contract.
    (iv) The M+C organization has committed any of the acts in 
Sec. 422.752(a) that would support the imposition of intermediate 
sanctions or civil money penalties under subpart O of this part.
    (2) Notice. HCFA provides notice of its decision whether to 
authorize renewal of the contract as follows:
    (i) To the M+C organization by May 1 of the contract year.
    (ii) If HCFA decides not to authorize a renewal of the contract, to 
the M+C organization's Medicare enrollees by mail at least 90 days 
before the end of the current calendar year.
    (iii) If HCFA decides not to authorize a renewal of the contract, to 
the general public at least 90 days before the end of the current 
calendar year, by publishing a notice in one or more newspapers of 
general circulation in each community or county located in the M+C 
organization's service area.
    (3) Notice of appeal rights. HCFA gives the M+C organization written 
notice of its right to appeal the decision not to renew in accordance 
with Sec. 422.644.



Sec. 422.508  Modification or termination of contract by mutual consent.

    (a) A contract may be modified or terminated at any time by written 
mutual consent.
    (1) If the contract is terminated by mutual consent, except as 
provided in paragraph (b) of this section, the M+C organization must 
provide notice to its Medicare enrollees and the general public as 
provided in Sec. 422.512(b)(2) and (b)(3).
    (2) If the contract is modified by mutual consent, the M+C 
organization must notify its Medicare enrollees of any changes that HCFA 
determines are appropriate for notification within timeframes specified 
by HCFA.
    (b) If the contract terminated by mutual consent is replaced the day 
following such termination by a new M+C contract, the M+C organization 
is not required to provide the notice specified in paragraph (a)(1) of 
this section.



Sec. 422.510  Termination of contract by HCFA.

    (a) Termination by HCFA. HCFA may terminate a contract for any of 
the following reasons:
    (1) The M+C organization has failed substantially to carry out the 
terms of its contract with HCFA.

[[Page 736]]

    (2) The M+C organization is carrying out its contract with HCFA in a 
manner that is inconsistent with the effective and efficient 
implementation of this part.
    (3) HCFA determines that the M+C organization no longer meets the 
requirements of this part for being a contracting organization.
    (4) The M+C organization commits or participates in fraudulent or 
abusive activities affecting the Medicare program, including submission 
of fraudulent data.
    (5) The M+C organization experiences financial difficulties so 
severe that its ability to make necessary health services available is 
impaired to the point of posing an imminent and serious risk to the 
health of its enrollees, or otherwise fails to make services available 
to the extent that such a risk to health exists.
    (6) The M+C organization substantially fails to comply with the 
requirements in subpart M of this part relating to grievances and 
appeals.
    (7) The M+C organization fails to provide HCFA with valid encounter 
data as required under Sec. 422.257.
    (8) The M+C organization fails to implement an acceptable quality 
assessment and performance improvement program as required under subpart 
D of this part.
    (9) The M+C organization substantially fails to comply with the 
prompt payment requirements in Sec. 422.520.
    (10) The M+C organization substantially fails to comply with the 
service access requirements in Sec. 422.112 or Sec. 422.114.
    (11) The M+C organization fails to comply with the requirements of 
Sec. 422.208 regarding physician incentive plans.
    (b) Notice. If HCFA decides to terminate a contract for reasons 
other than the grounds specified in Sec. 422.510(a)(5), it gives notice 
of the termination as follows:
    (1) Termination of contract by HCFA. (i) HCFA notifies the M+C 
organization in writing 90 days before the intended date of the 
termination.
    (ii) The M+C organization notifies its Medicare enrollees of the 
termination by mail at least 30 days before the effective date of the 
termination.
    (iii) The M+C organization notifies the general public of the 
termination at least 30 days before the effective date of the 
termination by publishing a notice in one or more newspapers of general 
circulation in each community or county located in the M+C 
organization's service area.
    (2) Immediate termination of contract by HCFA. (i) For terminations 
based on violations prescribed in Sec. 422.510(a)(5), HCFA notifies the 
M+C organization in writing that its contract has been terminated 
effective the date of the termination decision by HCFA. If termination 
is effective in the middle of a month, HCFA has the right to recover the 
prorated share of the capitation payments made to the M+C organization 
covering the period of the month following the contract termination.
    (ii) HCFA notifies the M+C organization's Medicare enrollees in 
writing of HCFA's decision to terminate the M+C organization's contract. 
This notice occurs no later than 30 days after HCFA notifies the plan of 
its decision to terminate the M+C contract. HCFA simultaneously informs 
the Medicare enrollees of alternative options for obtaining Medicare 
services, including alternative M+C organizations in a similar 
geographic area and original Medicare.
    (iii) HCFA notifies the general public of the termination no later 
than 30 days after notifying the plan of HCFA's decision to terminate 
the M+C contract. This notice is published in one or more newspapers of 
general circulation in each community or county located in the M+C 
organization's service area.
    (c) Corrective action plan--(1) General. Before terminating a 
contract for reasons other than the grounds specified in paragraph 
(a)(5) of this section, HCFA provides the M+C organization with 
reasonable opportunity, not to exceed timeframes specified at subpart N 
of this part, to develop and receive HCFA approval of a corrective 
action plan to correct the deficiencies that are the basis of the 
proposed termination.
    (2) Exception. If a contract is terminated under Sec. 422.510(a)(5), 
the M+C organization will not have the opportunity to submit a 
corrective action plan.

[[Page 737]]

    (d) Appeal rights. If HCFA decides to terminate a contract, it sends 
written notice to the M+C organization informing it of its termination 
appeal rights in accordance with subpart N of this part.



Sec. 422.512  Termination of contract by the M+C organization.

    (a) Cause for termination. The M+C organization may terminate the 
M+C contract if HCFA fails to substantially carry out the terms of the 
contract.
    (b) Notice. The M+C organization must give advance notice as 
follows:
    (1) To HCFA, at least 90 days before the intended date of 
termination. This notice must specify the reasons why the M+C 
organization is requesting contract termination.
    (2) To its Medicare enrollees, at least 60 days before the 
termination effective date. This notice must include a written 
description of alternatives available for obtaining Medicare services 
within the services area, including alternative M+C plans, Medigap 
options, original Medicare and must receive HCFA approval.
    (3) To the general public at least 60 days before the termination 
effective date by publishing an HCFA-approved notice in one or more 
newspapers of general circulation in each community or county located in 
the M+C organization's geographic area.
    (c) Effective date of termination. The effective date of the 
termination is determined by HCFA and is at least 90 days after the date 
HCFA receives the M+C organization's notice of intent to terminate.
    (d) HCFA's liability. HCFA's liability for payment to the M+C 
organization ends as of the first day of the month after the last month 
for which the contract is in effect.
    (e) Effect of termination by the organization. HCFA does not enter 
into an agreement with an organization that has terminated its contract 
within the preceding 5 years unless there are circumstances that warrant 
special consideration, as determined by HCFA.



Sec. 422.514  Minimum enrollment requirements.

    (a) Basic rule. Except as provided in paragraph (b) of this section, 
HCFA does not enter into a contract under this subpart unless the 
organization meets the following minimum enrollment requirement--
    (1) At least 5,000 individuals (or 1,500 individuals if the 
organization is a PSO) are enrolled for the purpose of receiving health 
benefits from the organization; or
    (2) At least 1,500 individuals (or 500 individuals if the 
organization is a PSO) are enrolled for purposes of receiving health 
benefits from the organization and the organization primarily serves 
individuals residing outside of urbanized areas as defined in 
Sec. 412.62(f) (or, in the case of a PSO, the PSO meets the requirements 
in Sec. 422.352(c)).
    (3) Except as provided for in paragraph (b) of this section, an M+C 
organization must maintain a minimum enrollment as defined in paragraphs 
(a)(1) and (a)(2) of this section for the duration of its contract.
    (b) Minimum enrollment waiver. (1) For an organization that does not 
meet the applicable requirement of paragraph (a) of this section at 
application for an M+C contract or during the first 3 years of such 
contract, HCFA may waive the minimum enrollment requirement as provided 
for below. To receive a waiver, an organization must demonstrate to 
HCFA's satisfaction that it is capable to administering and managing an 
M+C contract and is able to manage the level of risk required under the 
contract. Factors that HCFA will take into consideration in making this 
evaluation include the extent to which--
    (i) The organization management and providers have previous 
experience in managing and providing health care services under a risk-
based payment arrangement to at least as many individuals as the 
applicable minimum enrollment for the entity as described in paragraph 
(a) of this section, or
    (ii) The organization has the financial ability to bear financial 
risk under an M+C contract. In determining whether an organization is 
capable of bearing risk, HCFA considers factors such as the 
organization's management experience as described in paragraph

[[Page 738]]

(b)(1)(i) of this section and stop-loss insurance that is adequate and 
acceptable to HCFA; and,
    (iii) The organization is able to establish a marketing and 
enrollment process that will allow it to meet the applicable enrollment 
requirement specified in paragraph (a) of this section prior to 
completion of the third contract year.
    (2) If an M+C organization fails to meet the enrollment requirement 
in the first year, HCFA may waive the minimum requirements for another 
year provided that the organization--
    (i) Requests an additional minimum enrollment waiver no later than 
120 days before the end of the first year;
    (ii) Continues to demonstrate it is capable of administering and 
managing an M+C contract and is able to manage the level of risk; and,
    (iii) Demonstrates an acceptable marketing and enrollment process. 
Enrollment projections for the second year of the waiver will become the 
organization's transitional enrollment standard.
    (3) If an M+C organization fails to meet the enrollment requirement 
in the second year, HCFA may waive the minimum requirements for the 
third year only if the organization has attained the transitional 
enrollment standard as described in paragraph (b)(2)(iii) of this 
section.
    (c) Failure to meet enrollment requirements. HCFA may elect not to 
renew its contract with an M+C organization that fails to meet the 
applicable enrollment requirement in paragraph (a) of this section



Sec. 422.516  Reporting requirements.

    (a) Required information. Each M+C organization must have an 
effective procedure to develop, compile, evaluate, and report to HCFA, 
to its enrollees, and to the general public, at the times and in the 
manner that HCFA requires, and while safeguarding the confidentiality of 
the doctor-patient relationship, statistics and other information with 
respect to the following:
    (1) The cost of its operations.
    (2) The patterns of utilization of its services.
    (3) The availability, accessibility, and acceptability of its 
services.
    (4) To the extent practical, developments in the health status of 
its enrollees.
    (5) Information demonstrating that the M+C organization has a 
fiscally sound operation.
    (6) Other matters that HCFA may require.
    (b) Significant business transactions. Each M+C organization must 
report to HCFA annually, within 120 days of the end of its fiscal year 
(unless for good cause shown, HCFA authorizes an extension of time), the 
following:
    (1) A description of significant business transactions (as defined 
in Sec. 422.500) between the M+C organization and a party in interest.
    (2) With respect to those transactions--
    (i) A showing that the costs of the transactions listed in paragraph 
(c) of this section do not exceed the costs that would be incurred if 
these transactions were with someone who is not a party in interest; or
    (ii) If they do exceed, a justification that the higher costs are 
consistent with prudent management and fiscal soundness requirements.
    (3) A combined financial statement for the M+C organization and a 
party in interest if either of the following conditions is met:
    (i) Thirty-five percent or more of the costs of operation of the M+C 
organization go to a party in interest.
    (ii) Thirty-five percent or more of the revenue of a party in 
interest is from the M+C organization.
    (c) Requirements for combined financial statements. (1) The combined 
financial statements required by paragraph (b)(3) of this section must 
display in separate columns the financial information for the M+C 
organization and each of the parties in interest.
    (2) Inter-entity transactions must be eliminated in the consolidated 
column.
    (3) The statements must have been examined by an independent auditor 
in accordance with generally accepted accounting principles and must 
include appropriate opinions and notes.
    (4) Upon written request from an M+C organization showing good 
cause, HCFA may waive the requirement that the organization's combined 
financial

[[Page 739]]

statement include the financial information required in this paragraph 
(c) with respect to a particular entity.
    (d) Reporting and disclosure under ERISA. (1) For any employees' 
health benefits plan that includes an M+C organization in its offerings, 
the M+C organization must furnish, upon request, the information the 
plan needs to fulfill its reporting and disclosure obligations (with 
respect to the particular M+C organization) under the Employee 
Retirement Income Security Act of 1974 (ERISA).
    (2) The M+C organization must furnish the information to the 
employer or the employer's designee, or to the plan administrator, as 
the term ``administrator'' is defined in ERISA.
    (e) Loan information. Each organization must notify HCFA of any 
loans or other special financial arrangements it makes with contractors, 
subcontractors and related entities.
    (f) Enrollee access to Information. Each M+C organization must make 
the information reported to HCFA under Sec. 422.502(f)(1) available to 
its enrollees upon reasonable request.



Sec. 422.520  Prompt payment by M+C organization.

    (a) Contract between HCFA and the M+C organization.
    (1) The contract between HCFA and the M+C organization must provide 
that the M+C organization will pay 95 percent of the ``clean claims'' 
within 30 days of receipt if they are submitted by, or on behalf of, an 
enrollee of an M+C private fee-for-service plan or are claims for 
services that are not furnished under a written agreement between the 
organization and the provider.
    (2) The M+C organization must pay interest on clean claims that are 
not paid within 30 days in accordance with sections 1816(c)(2)(B) and 
1842(c)(2)(B).
    (3) All other claims must be approved or denied within 60 calendar 
days from the date of the request.
    (b) Contracts between M+C organizations and providers and suppliers. 
Contracts or other written agreements between M+C organizations and 
providers must contain a prompt payment provision, the terms of which 
are developed and agreed to by both the M+C organization and the 
relevant provider.
    (c) Failure to comply. If HCFA determines, after giving notice and 
opportunity for hearing, that an M+C organization has failed to make 
payments in accordance with paragraph (a) of this section, HCFA may 
provide--
    (1) For direct payment of the sums owed to providers, or M+C private 
fee-for-service plan enrollees; and
    (2) For appropriate reduction in the amounts that would otherwise be 
paid to the organization, to reflect the amounts of the direct payments 
and the cost of making those payments.



Sec. 422.524  Special rules for RFB societies.

    In order to participate as an M+C organization, an RFB society--
    (a) May not impose any limitation on membership based on any factor 
related to health status; and
    (b) Must offer, in addition to the M+C RFB plan, health coverage to 
individuals who are members of the church or convention or group of 
churches with which the society is affiliated, but who are not entitled 
to receive benefits from the Medicare program.



Subpart L--Effect of Change of Ownership or Leasing of Facilities During 
                            Term of Contract

    Source: 63 FR 35067, June 26, 1998, unless otherwise noted.

    Editorial Note: Nomenclature changes to subpart L appear at 63 FR 
35106, June 26, 1998.



Sec. 422.550  General provisions.

    (a) What constitutes change of ownership--(1) Partnership. The 
removal, addition, or substitution of a partner, unless the partners 
expressly agree otherwise as permitted by applicable State law, 
constitutes a change of ownership.
    (2) Unincorporated sole proprietor. Transfer of title and property 
to another party constitutes change of ownership.
    (3) Corporation. (i) The merger of the M+C organization's 
corporation into another corporation or the consolidation of the M+C 
organization with one or more other corporations, resulting in a new 
corporate body, constitutes a change of ownership.

[[Page 740]]

    (ii) Transfer of corporate stock or the merger of another 
corporation into the M+C organization's corporation, with the M+C 
organization surviving, does not ordinarily constitute change of 
ownership.
    (b) Advance notice requirement. (1) An M+C organization that has a 
Medicare contract in effect and is considering or negotiating a change 
in ownership must notify HCFA at least 60 days before the anticipated 
effective date of the change. The M+C organization must also provide 
updated financial information and a discussion of the financial and 
solvency impact of the change of ownership on the surviving 
organization.
    (2) If the M+C organization fails to give HCFA the required notice 
timely, it continues to be liable for capitation payments that HCFA 
makes to it on behalf of Medicare enrollees after the date of change of 
ownership.
    (c) Novation agreement defined. A novation agreement is an agreement 
among the current owner of the M+C organization, the prospective new 
owner, and HCFA--
    (1) That is embodied in a document executed and signed by all three 
parties;
    (2) That meets the requirements of Sec. 422.552; and
    (3) Under which HCFA recognizes the new owner as the successor in 
interest to the current owner's Medicare contract.
    (d) Effect of change of ownership without novation agreement. Except 
to the extent provided in paragraph (b)(2) of this section, the effect 
of a change of ownership without a novation agreement is that--
    (1) The existing contract becomes invalid; and
    (2) If the new owner wishes to participate in the Medicare program, 
it must apply for, and enter into, a contract in accordance with subpart 
K of this part.
    (e) Effect of change of ownership with novation agreement. If the 
M+C organization submits a novation agreement that meets the 
requirements of Sec. 422.552, and HCFA signs it, the new owner becomes 
the successor in interest to the current owner's Medicare contract.

[60 FR 45681, Sept. 1, 1995. Redesignated and amended at 63 FR 35067, 
35106, June 26, 1998; 63 FR 52614, Oct. 1, 1998]



Sec. 422.552  Novation agreement requirements.

    (a) Conditions for HCFA approval of a novation agreement. HFCA 
approves a novation agreement if the following conditions are met:
    (1) Advance notification. The M+C organization notifies HCFA at 
least 60 days before the date of the proposed change of ownership. The 
M+C organization also provides HCFA with updated financial information 
and a discussion of the financial and solvency impact of the change of 
ownership on the surviving organization.
    (2) Advance submittal of agreement. The M+C organization submits to 
HCFA, at least 30 days before the proposed change of ownership date, 
three signed copies of the novation agreement containing the provisions 
specified in paragraph (b) of this section, and one copy of other 
relevant documents required by HCFA.
    (3) HCFA's determination. HCFA determines that--
    (i) The proposed new owner is in fact a successor in interest to the 
contract;
    (ii) Recognition of the new owner as a successor in interest to the 
contract is in the best interest of the Medicare program; and
    (iii) The successor organization meets the requirements to qualify 
as an M+C organization under subpart J of this part.
    (b) Provisions of a novation agreement. (1) Assumption of contract 
obligations. The new owner must assume all obligations under the 
contract.
    (2) Waiver of right to reimbursement. The previous owner must waive 
its rights to reimbursement for covered services furnished during the 
rest of the current contract period.
    (3) Guarantee of performance. (i) The previous owner must guarantee 
performance of the contract by the new owner during the contract period; 
or
    (ii) The new owner must post a performance bond that is satisfactory 
to HCFA.

[[Page 741]]

    (4) Records access. The previous owner must agree to make its books 
and records and other necessary information available to the new owner 
and to HCFA to permit an accurate determination of costs for the final 
settlement of the contract period.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 8853, Mar. 1, 1991; 58 
FR 38079, July 15, 1993; 60 FR 45681, Sept. 1, 1995. Redesignated and 
amended at 63 FR 35067, 35106, June 26, 1998]



Sec. 422.553  Effect of leasing of an M+C organization's facilities.

    (a) General effect of leasing. If an M+C organization leases all or 
part of its facilities to another entity, the other entity does not 
acquire M+C organization status under section 1876 of the Act.
    (b) Effect of lease of all facilities. (1) If an M+C organization 
leases all of its facilities to another entity, the contract terminates.
    (2) If the other entity wishes to participate in Medicare as an M+C 
organization, it must apply for and enter into a contract in accordance 
with subpart L of this part.
    (c) Effect of partial lease of facilities. If the M+C organization 
leases part of its facilities to another entity, its contract with HCFA 
remains in effect while HCFA surveys the M+C organization to determine 
whether it continues to be in compliance with the applicable 
requirements and qualifying conditions specified in subpart K of this 
part.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 58 
FR 38079, July 15, 1993; 60 FR 45681, Sept. 1, 1995. Redesignated and 
amended at 63 FR 35067, 35106, June 26, 1998]



     Subpart M--Grievances, Organization Determinations and Appeals

    Source: 63 FR 35107, June 26, 1998, unless otherwise noted.



Sec. 422.560  Basis and scope.

    (a) Statutory basis. (1) Section 1852(f) of the Act provides that an 
M+C organization must establish meaningful grievance procedures.
    (2) Section 1852(g) of the Act establishes requirements that an M+C 
organization must meet concerning organization determinations and 
appeals.
    (b) Scope. This subpart sets forth--
    (1) Requirements for M+C organizations with respect to grievance 
procedures, organization determinations, and appeal procedures.
    (2) The rights of M+C enrollees with respect to organization 
determinations, and grievance and appeal procedures.
    (3) The rules concerning notice of noncoverage of inpatient hospital 
care.
    (4) The rules that apply when an M+C enrollee requests immediate PRO 
review of a determination that he or she no longer needs inpatient 
hospital care.



Sec. 422.561  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Appeal means any of the procedures that deal with the review of 
adverse organization determinations on the health care services an 
enrollee is entitled to receive or any amounts the enrollee must pay for 
a service, as defined under Sec. 422.566(b). These procedures include 
reconsiderations by the M+C organization, and if necessary, an 
independent review entity, hearings before ALJs, review by the 
Departmental Appeals Board (DAB), and judicial review.
    Authorized representative means an individual authorized by an 
enrollee to act on his or her behalf in obtaining an organization 
determination or in dealing with any of the levels of the appeal 
process, subject to the rules described in 20 CFR part 404, subpart R, 
unless otherwise stated in this subpart.
    Enrollee means an M+C eligible individual who has elected an M+C 
plan offered by an M+C organization, or his or her authorized 
representative.
    Grievance means any complaint or dispute other than one involving an 
organization determination, as defined in Sec. 422.566(b).
    Physician has the meaning given the term in section 1861(r) of the 
Act.



Sec. 422.562  General provisions.

    (a) Responsibilities of the M+C organization. (1) An M+C 
organization, with respect to each M+C plan that it offers, must 
establish and maintain--
    (i) A grievance procedure as described in Sec. 422.564 for 
addressing issues

[[Page 742]]

that do not involve organization determinations;
    (ii) A procedure for making timely organization determinations; and
    (iii) Appeal procedures that meet the requirements of this subpart 
for issues that involve organization determinations; and
    (2) An M+C organization must ensure that all enrollees receive 
written information about the--
    (i) Grievance and appeal procedures that are available to them 
through the M+C organization; and
    (ii) Complaint process available to the enrollee under the PRO 
process as set forth under section 1154(a)(14) of the Act.
    (3) In accordance with subpart K of this part, if the M+C 
organization delegates any of its responsibilities under this subpart to 
another entity or individual through which the organization provides 
health care services, the M+C organization is ultimately responsible for 
ensuring that the entity or individual satisfies the relevant 
requirements of this subpart.
    (b) Rights of M+C enrollees. In accordance with the provisions of 
this subpart, enrollees have the following rights:
    (1) The right to have grievances between the enrollee and the M+C 
organization heard and resolved, as described in Sec. 422.564.
    (2) The right to a timely organization determination, as provided 
under Sec. 422.566.
    (3) The right to request an expedited organization determination, as 
provided under Sec. 422.570.
    (4) If dissatisfied with any part of an organization determination, 
the following appeal rights:
    (i) The right to a reconsideration of the adverse organization 
determination by the M+C organization, as provided under Sec. 422.578.
    (ii) The right to request an expedited reconsideration, as provided 
under Sec. 422.584.
    (iii) If, as a result of a reconsideration, an M+C organization 
affirms, in whole or in part, its adverse organization determination, 
the right to an automatic reconsidered determination made by an 
independent, outside entity contracted by HCFA, as provided in 
Sec. 422.592.
    (iv) The right to an ALJ hearing if the amount in controversy is 
$100 or more, as provided in Sec. 422.600.
    (v) The right to request DAB review of the ALJ hearing decision, as 
provided in Sec. 422.608.
    (vi) The right to judicial review of the hearing decision if the 
amount in controversy is $1000 or more, as provided in Sec. 422.612.
    (c) Limits on when this subpart applies. (1) If an enrollee receives 
immediate PRO review (as provided in Sec. 422.622) of a determination of 
noncoverage of inpatient hospital care--
    (i) The enrollee is not entitled to review of that issue by the M+C 
organization; and
    (ii) The PRO review decision is subject only to the appeal 
procedures set forth in part 473 of this chapter.
    (2) If an enrollee has no further liability to pay for services that 
were furnished by an M+C organization, a determination regarding these 
services is not subject to appeal.
    (d) When other regulations apply. Unless this subpart provides 
otherwise, the regulations in 20 CFR, part 404, subparts J and R 
(covering, respectively, the administrative review and hearing process 
and representation of parties under title II of the Act), apply under 
this subpart to the extent they are appropriate.



Sec. 422.564  Grievance procedures.

    (a) General rules. (1) Each M+C organization must provide meaningful 
procedures for timely hearing and resolution of grievances between 
enrollees and the organization or any other entity or individual through 
which the organization provides health care services under any M+C plan 
it offers.
    (2) Grievance procedures must meet any guidelines established by 
HCFA.
    (b) Distinguished from organization determinations and appeals. 
Grievance procedures are separate and distinct from organization 
determinations and appeal procedures, which address organization 
determinations.
    (c) Distinguished from the PRO complaint process. Under section 
1154(a)(14) of the Act, the PRO must review beneficiaries' written 
complaints about the

[[Page 743]]

quality of services they have received under the Medicare program; this 
process is separate and distinct from the grievance procedures of the 
M+C organization.



Sec. 422.566  Organization determinations.

    (a) Responsibilities of the M+C organization. Each M+C organization 
must have a procedure for making timely organization determinations (in 
accordance with the requirements of this subpart) regarding the benefits 
an enrollee is entitled to receive under an M+C plan, including basic 
benefits as described under Sec. 422.100(c)(1) and mandatory and 
optional supplemental benefits as described under Sec. 422.102, and the 
amount, if any, that the enrollee is required to pay for a health 
service. The M+C organization must have a standard procedure for making 
determinations, in accordance with Sec. 422.568, and an expedited 
procedure for situations in which applying the standard procedure could 
seriously jeopardize the enrollee's life, health, or ability to regain 
maximum function, in accordance with Secs. 422.570 and 422.572.
    (b) Actions that are organization determinations. An organization 
determination is any determination made by an M+C organization with 
respect to any of the following:
    (1) Payment for emergency services, post-stabilization care, or 
urgently needed services.
    (2) Payment for any other health services furnished by a provider 
other than the M+C organization that the enrollee believes--
    (i) Are covered under Medicare; or
    (ii) If not covered under Medicare, should have been furnished, 
arranged for, or reimbursed by the M+C organization.
    (3) The M+C organization's refusal to provide services that the 
enrollee believes should be furnished or arranged for by the M+C 
organization when the enrollee has not received the services outside the 
M+C organization.
    (4) Discontinuation of a service, if the enrollee disagrees with the 
determination that the service is no longer medically necessary.
    (c) Who can request an organization determination. Any of the 
parties listed in Sec. 422.574 can request an organization 
determination, with the exception that only the parties listed in 
Sec. 422.570(a) can request an expedited determination.



Sec. 422.568  Standard timeframes and notice requirements for organization determinations.

    (a) Timeframe for requests for service. When a party has made a 
request for a service, the M+C organization must notify the enrollee of 
its determination as expeditiously as the enrollee's health condition 
requires, but no later than 14 calendar days after the date the 
organization receives the request for a standard organization 
determination. The M+C organization may extend the timeframe by up to 14 
calendar days if the enrollee requests the extension or if the 
organization justifies a need for additional information and how the 
delay is in the interest of the enrollee (for example, the receipt of 
additional medical evidence from noncontract providers may change an M+C 
organization's decision to deny). The M+C organization must notify the 
enrollee of its determination as expeditiously as the enrollee's health 
condition requires, but no later than upon expiration of the extension.
    (b) Timeframe for requests for payment. The M+C organization must 
process requests for payment according to the ``prompt payment'' 
provisions set forth in Sec. 422.520.
    (c) Written notification for denials. If an M+C organization decides 
to deny service or payment in whole or in part, it must give the 
enrollee written notice of the determination.
    (d) Content of the notice. The notice of any denial under paragraph 
(c) of this section must--
    (1) State the specific reasons for the denial in understandable 
language;
    (2) Inform the enrollee of his or her right to a reconsideration;
    (3) Describe both the standard and expedited reconsideration 
processes, including the enrollee's right to and conditions for 
obtaining an expedited reconsideration for service requests, and the 
rest of the appeal process; and
    (4) Comply with any other requirements specified by HCFA.
    (e) Effect of failure to provide timely notice. If the M+C 
organization fails to provide the enrollee with timely notice

[[Page 744]]

of an organization determination as specified in this section, this 
failure itself constitutes an adverse organization determination and may 
be appealed.



Sec. 422.570  Expediting certain organization determinations.

    (a) Request for expedited determination. An enrollee or a physician 
(regardless of whether the physician is affiliated with the M+C 
organization) may request that an M+C organization expedite an 
organization determination involving the issues described in 
Sec. 422.566(b)(3) and (b)(4). (This does not include requests for 
payment.)
    (b) How to make a request. (1) To ask for an expedited 
determination, an enrollee or a physician must submit an oral or written 
request directly to the M+C organization or, if applicable, to the 
entity responsible for making the determination, as directed by the M+C 
organization.
    (2) A physician may provide oral or written support for a request 
for an expedited determination.
    (c) How the M+C organization must process requests. The M+C 
organization must establish and maintain the following procedures for 
processing requests for expedited determinations:
    (1) Establish an efficient and convenient means for individuals to 
submit oral or written requests. The M+C organization must document all 
oral requests in writing and maintain the documentation in the case 
file.
    (2) Promptly decide whether to expedite a determination, based on 
the following requirements:
    (i) For a request made by an enrollee the M+C organization must 
provide an expedited determination if it determines that applying the 
standard timeframe for making a determination could seriously jeopardize 
the life or health of the enrollee or the enrollee's ability to regain 
maximum function.
    (ii) For a request made or supported by a physician, the M+C 
organization must provide an expedited determination if the physician 
indicates that applying the standard timeframe for making a 
determination could seriously jeopardize the life or health of the 
enrollee or the enrollee's ability to regain maximum function.
    (d) Actions following denial. If an M+C organization denies a 
request for expedited determination, it must take the following actions:
    (1) Automatically transfer a request to the standard timeframe and 
make the determination within the 14-day timeframe established in 
Sec. 422.568 for a standard determination. The 14-day period begins with 
the day the M+C organization receives the request for expedited 
determination.
    (2) Give the enrollee prompt oral notice of the denial and follow 
up, within 2 working days, with a written letter that--
    (i) Explains that the M+C organization will process the request 
using the 14-day timeframe for standard determinations;
    (ii) Informs the enrollee of the right to file a grievance if he or 
she disagrees with the M+C organization's decision not to expedite; and
    (iii) Provides instructions about the grievance process and its 
timeframes.
    (e) Action on accepted request for expedited determination. If an 
M+C organization grants a request for expedited determination, it must 
make the determination and give notice in accordance with Sec. 422.572.
    (f) Prohibition of punitive action. An M+C organization may not take 
or threaten to take any punitive action against a physician acting on 
behalf or in support of an enrollee in requesting an expedited 
determination.



Sec. 422.572  Timeframes and notice requirements for expedited organization determinations.

    (a) Timeframe. Except as provided in paragraph (b) of this section, 
an M+C organization that approves a request for expedited determination 
must make its determination and notify the enrollee (and the physician 
involved, as appropriate) of its decision, whether adverse or favorable, 
as expeditiously as the enrollee's health condition requires, but no 
later than 72 hours after receiving the request.
    (b) Extensions. The M+C organization may extend the 72-hour deadline 
by up to 14 calendar days if the enrollee requests the extension or if 
the organization justifies a need for additional information and how the 
delay is in the

[[Page 745]]

interest of the enrollee (for example, the receipt of additional medical 
evidence from noncontract providers may change an M+C organization's 
decision to deny). The M+C organization must notify the enrollee of its 
determination as expeditiously as the enrollee's health condition 
requires, but no later than upon expiration of the extension.
    (c) Confirmation of oral notice. If the M+C organization first 
notifies an enrollee of its expedited determination orally, it must mail 
written confirmation to the enrollee within 2 working days of the oral 
notification.
    (d) How information from noncontract providers affects timeframes 
for expedited determinations. If an M+C organization must receive 
medical information from noncontract providers, the 72-hour period 
begins when the organization receives that information. Noncontract 
providers must make reasonable and diligent efforts to expeditiously 
gather and forward all necessary information in order to receive timely 
payment.
    (e) Content of the notice of expedited determination. (1) The notice 
of any expedited determination must state the specific reasons for the 
determination in understandable language.
    (2) If the determination is not completely favorable to the 
enrollee, the notice must--
    (i) Inform the enrollee of his or her right to a reconsideration;
    (ii) Describe both the standard and expedited reconsideration 
processes, including the enrollee's right to request, and conditions for 
obtaining, an expedited reconsideration, and the rest of the appeal 
process; and
    (iii) Comply with any other requirements specified by HCFA.
    (f) Effect of failure to provide a timely notice. If the M+C 
organization fails to provide the enrollee with timely notice of an 
expedited organization determination as specified in this section, this 
failure itself constitutes an adverse organization determination and may 
be appealed.



Sec. 422.574  Parties to the organization determination.

    The parties to the organization determination are--
    (a) The enrollee (including his or her authorized representative);
    (b) An assignee of the enrollee (that is, a physician or other 
provider who has furnished a service to the enrollee and formally agrees 
to waive any right to payment from the enrollee for that service);
    (c) The legal representative of a deceased enrollee's estate; or
    (d) Any other provider or entity (other than the M+C organization) 
determined to have an appealable interest in the proceeding.



Sec. 422.576  Effect of an organization determination.

    The organization determination is binding on all parties unless it 
is reconsidered under Secs. 422.578 through 422.596 or is reopened and 
revised under Sec. 422.616.



Sec. 422.578  Right to a reconsideration.

    Any party to an organization determination (including one that has 
been reopened and revised as described in Sec. 422.616) may request that 
the determination be reconsidered under the procedures described in 
Sec. 422.582, which address requests for a standard reconsideration. An 
enrollee or physician (acting on behalf of an enrollee) may request an 
expedited reconsideration as described in Sec. 422.584.



Sec. 422.580  Reconsideration defined.

    A reconsideration consists of a review of an adverse organization 
determination, the evidence and findings upon which it was based, and 
any other evidence the parties submit or the M+C organization or HCFA 
obtains.



Sec. 422.582  Request for a standard reconsideration.

    (a) Method and place for filing a request. A party to an 
organization determination must ask for a reconsideration of the 
determination by filing a written request with--
    (1) The M+C organization that made the organization determination;
    (2) An SSA office; or
    (3) In the case of a qualified railroad retirement beneficiary, an 
RRB office.
    (b) Timeframe for filing a request. Except as provided in paragraph 
(c) of this section, a party must file a request for a reconsideration 
within 60 calendar days from the date of the notice

[[Page 746]]

of the organization determination. If the SSA or RRB receives a request, 
it forwards the request to the M+C organization for its reconsideration. 
The timeframe within which the organization must conduct its review 
begins when it receives the request.
    (c) Extending the time for filing a request--(1) General rule. If a 
party shows good cause, the M+C organization may extend the timeframe 
for filing a request for reconsideration.
    (2) How to request an extension of timeframe. If the 60-day period 
in which to file a request for a reconsideration has expired, a party to 
the organization determination may file a request for reconsideration 
with the M+C organization, SSA, or an RRB office. If SSA or RRB receives 
a request, it forwards the request to the M+C organization for its 
reconsideration. The request for reconsideration and to extend the 
timeframe must--
    (i) Be in writing; and
    (ii) State why the request for reconsideration was not filed on 
time.
    (d) Parties to the reconsideration. The parties to the 
reconsideration are the parties to the organization determination, as 
described in Sec. 422.574, and any other provider or entity (other than 
the M+C organization) whose rights with respect to the organization 
determination may be affected by the reconsideration, as determined by 
the entity that conducts the reconsideration.
    (e) Withdrawing a request. The party who files a request for 
reconsideration may withdraw it by filing a written request for 
withdrawal at one of the places listed in paragraph (a) of this section.



Sec. 422.584  Expediting certain reconsiderations.

    (a) Who may request an expedited reconsideration. An enrollee or a 
physician (regardless of whether he or she is affiliated with the M+C 
organization) may request that an M+C organization expedite a 
reconsideration of a determination that involves the issues described in 
Sec. 422.566(b)(3) and (b)(4). (This does not include requests for 
payment.) A physician that requests an expedited reconsideration must be 
acting on behalf of the enrollee as an authorized representative.
    (b) How to make a request. (1) To ask for an expedited 
reconsideration, an enrollee or a physician acting on behalf of an 
enrollee must submit an oral or written request directly to the M+C 
organization or, if applicable, to the entity responsible for making the 
reconsideration, as directed by the M+C organization.
    (2) A physician may provide oral or written support for a request 
for an expedited reconsideration.
    (c) How the M+C organization must process requests. The M+C 
organization must establish and maintain the following procedures for 
processing requests for expedited reconsiderations:
    (1) Handling of requests. The M+C organization must establish an 
efficient and convenient means for individuals to submit oral or written 
requests, document all oral requests in writing, and maintain the 
documentation in the case file.
    (2) Prompt decision. Promptly decide on whether to expedite the 
reconsideration or follow the timeframe for standard reconsideration 
based on the following requirements:
    (i) For a request made by an enrollee, the M+C organization must 
provide an expedited reconsideration if it determines that applying the 
standard timeframe for reconsidering a determination could seriously 
jeopardize the life or health of the enrollee or the enrollee's ability 
to regain maximum function.
    (ii) For a request made or supported by a physician, the M+C 
organization must provide an expedited reconsideration if the physician 
indicates that applying the standard timeframe for conducting a 
reconsideration could seriously jeopardize the life or health of the 
enrollee or the enrollee's ability to regain maximum function.
    (d) Actions following denial. If an M+C organization denies a 
request for expedited reconsideration, it must take the following 
actions:
    (1) Automatically transfer a request to the standard timeframe and 
make the determination within the 30-day timeframe established in 
Sec. 422.590(a). The 30-day period begins the day the M+C organization 
receives the request for expedited reconsideration.

[[Page 747]]

    (2) Give the enrollee prompt oral notice, and follow up, within 2 
working days, with a written letter that--
    (i) Explains that the M+C organization will process the enrollee's 
request using the 30-day timeframe for standard reconsiderations;
    (ii) Informs the enrollee of the right to file a grievance if he or 
she disagrees with the organization's decision not to expedite; and
    (iii) Provides instructions about the grievance process and its 
timeframes.
    (e) Action following acceptance of a request. If an M+C organization 
grants a request for expedited reconsideration, it must conduct the 
reconsideration and give notice in accordance with Sec. 422.590(d).
    (f) Prohibition of punitive action. An M+C organization may not take 
or threaten to take any punitive action against a physician acting on 
behalf or in support of an enrollee in requesting an expedited 
reconsideration.



Sec. 422.586  Opportunity to submit evidence.

    The M+C organization must provide the parties to the reconsideration 
with a reasonable opportunity to present evidence and allegations of 
fact or law, related to the issue in dispute, in person as well as in 
writing. In the case of an expedited reconsideration, the opportunity to 
present evidence is limited by the short timeframe for making a 
decision. Therefore, the M+C organization must inform the parties of the 
conditions for submitting the evidence.



Sec. 422.590  Timeframes and responsibility for reconsiderations.

    (a) Standard reconsideration: Request for services. (1) If the M+C 
organization makes a reconsidered determination that is completely 
favorable to the enrollee, the M+C organization must issue the 
determination (and effectuate it in accordance with Sec. 422.618(a)) as 
expeditiously as the enrollee's health condition requires, but no later 
than 30 calendar days from the date it receives the request for a 
standard reconsideration. The M+C organization may extend the timeframe 
by up to 14 calendar days if the enrollee requests the extension or if 
the organization justifies a need for additional information and how the 
delay is in the interest of the enrollee (for example, the receipt of 
additional medical evidence from noncontract providers may change an M+C 
organization's decision to deny). For extensions, the M+C organization 
must issue and effectuate its determination as expeditiously as the 
enrollee's health condition requires, but no later than upon expiration 
of the extension.
    (2) If the M+C organization makes a reconsidered determination that 
affirms, in whole or in part, its adverse organization determination, it 
must prepare a written explanation and send the case file to the 
independent entity contracted by HCFA as expeditiously as the enrollee's 
health condition requires, but no later than 30 calendar days from the 
date it receives the request for a standard reconsideration (or no later 
than the expiration of an extension described in paragraph (a)(1) of 
this section). The organization must make reasonable and diligent 
efforts to assist in gathering and forwarding information to the 
independent entity.
    (b) Standard reconsideration: Request for payment. (1) If the M+C 
organization makes a reconsidered determination that is completely 
favorable to the enrollee, the M+C organization must issue its 
reconsidered determination to the enrollee (and effectuate it in 
accordance with Sec. 422.618(a)) no later than 60 calendar days from the 
date it receives the request for a standard reconsideration.
    (2) If the M+C organization affirms, in whole or in part, its 
adverse organization determination, it must prepare a written 
explanation and send the case file to the independent entity contracted 
by HCFA no later than 60 calendar days from the date it receives the 
request for a standard reconsideration. The organization must make 
reasonable and diligent efforts to assist in gathering and forwarding 
information to the independent entity.
    (c) Effect of failure to meet timeframe for standard 
reconsideration. If the M+C organization fails to provide the enrollee 
with a reconsidered determination within the timeframes specified in 
paragraph (a) or paragraph (b) of this section, this failure constitutes 
an affirmation of its adverse organization

[[Page 748]]

determination, and the M+C organization must submit the file to the 
independent entity in the same manner as described under paragraphs 
(a)(2) and (b)(2) of this section.
    (d) Expedited reconsideration--(1) Timeframe. Except as provided in 
paragraph (d)(2) of this section, an M+C organization that approves a 
request for expedited reconsideration must complete its reconsideration 
and give the enrollee (and the physician involved, as appropriate) 
notice of its decision as expeditiously as the enrollee's health 
condition requires but no later than 72 hours after receiving the 
request.
    (2) Extensions. The M+C organization may extend the 72-hour deadline 
by up to 14 calendar days if the enrollee requests the extension or if 
the organization justifies a need for additional information and how the 
delay is in the interest of the enrollee (for example, the receipt of 
additional medical evidence from noncontract providers may change an M+C 
organization's decision to deny). The M+C organization must notify the 
enrollee of its determination as expeditiously as the enrollee's health 
condition requires but no later than upon expiration of the extension.
    (3) Confirmation of oral notice. If the M+C organization first 
notifies an enrollee orally of a completely favorable expedited 
reconsideration, it must mail written confirmation to the enrollee 
within 2 working days.
    (4) How information from noncontract providers affects timeframes 
for expedited reconsiderations. If the M+C organization must receive 
medical information from noncontract providers, the 72-hour period 
begins when the organization receives the information. Noncontract 
providers must make reasonable and diligent efforts to expeditiously 
gather and forward all necessary information in order to receive timely 
payment.
    (5) Affirmation of an adverse expedited organization determination. 
If, as a result of its reconsideration, the M+C organization affirms, in 
whole or in part, its adverse expedited organization determination, the 
M+C organization must submit a written explanation and the case file to 
the independent entity contracted by HCFA as expeditiously as the 
enrollee's health condition requires, but not later than within 24 hours 
of its affirmation. The organization must make reasonable and diligent 
efforts to assist in gathering and forwarding information to the 
independent entity.
    (e) Notification of enrollee. If the M+C organization refers the 
matter to the independent entity as described under this section, it 
must concurrently notify the enrollee of that action.
    (f) Failure to meet timeframe for expedited reconsideration. If the 
M+C organization fails to provide the enrollee with the results of its 
reconsideration within the timeframe described in paragraph (d) of this 
section, this failure constitutes an adverse reconsidered determination, 
and the M+C organization must submit the file to the independent entity 
within 24 hours of expiration of the timeframe set forth in paragraph 
(d) of this section.
    (g) Who must reconsider an adverse organization determination. (1) A 
person or persons who were not involved in making the organization 
determination must conduct the reconsideration.
    (2) When the issue is the M+C organization's denial of coverage 
based on a lack of medical necessity, the reconsidered determination 
must be made by a physician with expertise in the field of medicine that 
is appropriate for the services at issue.



Sec. 422.592  Reconsideration by an independent entity.

    (a) When the M+C organization affirms, in whole or in part, its 
adverse organization determination, the issues that remain in dispute 
must be reviewed and resolved by an independent, outside entity that 
contracts with HCFA.
    (b) The independent outside entity must conduct the review as 
expeditiously as the enrollee's health condition requires but must not 
exceed the deadlines specified in the contract.
    (c) When the independent entity conducts a reconsideration, the 
parties to the reconsideration are the same parties listed in 
Sec. 422.582(d) who qualified during the M+C organization's 
reconsideration, with the addition of the M+C organization.

[[Page 749]]



Sec. 422.594  Notice of reconsidered determination by the independent entity.

    (a) Responsibility for the notice. When the independent entity makes 
the reconsidered determination, it is responsible for mailing a notice 
of its reconsidered determination to the parties and for sending a copy 
to HCFA.
    (b) Content of the notice. The notice must--
    (1) State the specific reasons for the entity's decisions;
    (2) If the reconsidered determination is adverse (that is, does not 
completely reverse the M+C organization's adverse organization 
determination), inform the parties of their right to an ALJ hearing if 
the amount in controversy is $100 or more;
    (3) Describe the procedures that a party must follow to obtain an 
ALJ hearing; and
    (4) Comply with any other requirements specified by HCFA.



Sec. 422.596  Effect of a reconsidered determination.

    A reconsidered determination is final and binding on all parties 
unless a party files a request for a hearing under the provisions of 
Sec. 422.602, or unless the reconsidered determination is revised under 
Sec. 422.616.



Sec. 422.600  Right to a hearing.

    (a) If the amount remaining in controversy is $100 or more, any 
party to the reconsideration (except the M+C organization) who is 
dissatisfied with the reconsidered determination has a right to a 
hearing before an ALJ. The M+C organization does not have the right to 
request a hearing before an ALJ.
    (b) The amount remaining in controversy, which can include any 
combination of Part A and Part B services, is computed in accordance 
with Sec. 405.740 of this chapter for Part A services and Sec. 405.817 
of this chapter for Part B services.
    (c) If the basis for the appeal is the M+C organization's refusal to 
provide services, HCFA uses the projected value of those services to 
compute the amount remaining in controversy.



Sec. 422.602  Request for an ALJ hearing.

    (a) How and where to file a request. A party must file a written 
request for a hearing at one of the places listed in Sec. 422.582(a) or 
with the independent, outside entity. The organizations listed in 
Sec. 422.582(a) forward the request to the independent, outside entity, 
which is responsible for transferring the case to the appropriate ALJ 
hearing office.
    (b) When to file a request. Except when an ALJ extends the timeframe 
as provided in 20 CFR 404.933(c), a party must file a request for a 
hearing within 60 days of the date of the notice of a reconsidered 
determination.
    (c) Parties to a hearing. The parties to a hearing are the parties 
to the reconsideration, the M+C organization, and any other person or 
entity whose rights with respect to the reconsideration may be affected 
by the hearing, as determined by the ALJ.
    (d) When the amount in controversy is less than $100. (1) If a 
request for a hearing clearly shows that the amount in controversy is 
less than $100, the ALJ dismisses the request.
    (2) If, after a hearing is initiated, the ALJ finds that the amount 
in controversy is less than $100, he or she discontinues the hearing and 
does not rule on the substantive issues raised in the appeal.



Sec. 422.608  Departmental Appeals Board (the Board) review.

    Any party to the hearing, including the M+C organization, who is 
dissatisfied with the ALJ hearing decision, may request that the Board 
review the ALJ's decision or dismissal. Regulations located at 20 CFR 
404.967 through 404.984 regarding SSA Appeals Council Review apply to 
Board review for matters addressed by this subpart.

[63 FR 35107, June 26, 1998; 63 FR 52614, Oct. 1, 1998]



Sec. 422.612  Judicial review.

    (a) Review of ALJ's decision. Any party, including the M+C 
organization, may request judicial review (upon notifying the other 
parties) of an ALJ's decision if--
    (1) The Board denied the party's request for review; and

[[Page 750]]

    (2) The amount in controversy is $1,000 or more.
    (b) Review of Board decision. Any party, including the M+C 
organization, may request judicial review (upon notifying the other 
parties) of the Board decision if--
    (1) It is the final decision of HCFA; and
    (2) The amount in controversy is $1,000 or more.
    (c) How to request judicial review. A party must file a civil action 
in a district court of the United States in accordance with section 
205(g) of the Act (see 20 CFR 422.210 for a description of the 
procedures to follow in requesting judicial review).

[63 FR 35107, June 26, 1998; 63 FR 52614, Oct. 1, 1998]



Sec. 422.616  Reopening and revising determinations and decisions.

    (a) An organization or reconsidered determination made by an M+C 
organization, a reconsidered determination made by the independent 
entity described in Sec. 422.592, or the decision of an ALJ or the Board 
that is otherwise final and binding may be reopened and revised by the 
entity that made the determination or decision, under the rules in 
Sec. 405.750 of this chapter.
    (b) Reopening may be at the instigation of any party.
    (c) The filing of a request for reopening does not relieve the M+C 
organization of its obligation to make payment or provide services as 
specified in Sec. 422.618.
    (d) Once an entity issues a revised determination or decision, any 
party may file an appeal.

[63 FR 35107, June 26, 1998; 63 FR 52614, Oct. 1, 1998]



Sec. 422.618  How an M+C organization must effectuate reconsidered determinations or decisions.

    (a) Reversals by the M+C organization--(1) Requests for service. If, 
on reconsideration of a request for service, the M+C organization 
completely reverses its organization determination, the organization 
must authorize or provide the service under dispute as expeditiously as 
the enrollee's health condition requires, but no later than 30 calendar 
days after the date the M+C organization receives the request for 
reconsideration (or no later than upon expiration of an extension 
described in Sec. 422.590(a)(1)).
    (2) Requests for payment. If, on reconsideration of a request for 
payment, the M+C organization completely reverses its organization 
determination, the organization must pay for the service no later than 
60 calendar days after the date the M+C organization receives the 
request for reconsideration.
    (b) Reversals other than by the M+C organization. If the M+C 
organization's organization determination is reversed in whole or in 
part by the independent outside entity or at a higher level of appeal, 
the M+C organization must pay for, authorize, or provide the service 
under dispute as expeditiously as the enrollee's health condition 
requires, but no later than 60 calendar days from the date it receives 
notice reversing the organization determination. The M+C organization 
must also inform the independent, outside entity that the organization 
has effectuated the decision.



Sec. 422.620  How M+C organizations must notify enrollees of noncoverage of inpatient hospital care.

    (a) Enrollee's entitlement. Where an M+C organization has authorized 
coverage of the inpatient admission of an enrollee, either directly or 
by delegation (or the admission constitutes emergency or urgently needed 
care, as described in Secs. 422.2 and 422.112(c)), the enrollee remains 
entitled to inpatient hospital care until he or she receives notice of 
noncoverage of that care.
    (b) Physician concurrence required. Before the M+C organization 
gives notice of noncoverage as described in paragraph (c) of this 
section, the physician who is responsible for the enrollee's hospital 
care must concur.
    (c) Notice to the enrollee. The M+C organization must give the 
enrollee written notice that includes the following:
    (1) The reason why inpatient hospital care is no longer needed.
    (2) The effective date of the enrollee's liability for continued 
inpatient care.
    (3) The enrollee's appeal rights.
    (4) Comply with any other requirements specified by HCFA.

[[Page 751]]

    (d) Physician concurrence when a hospital determines if care is 
necessary. If the M+C organization allows the hospital to determine 
whether inpatient care is necessary, the hospital obtains the 
concurrence of the contracting physician responsible for the enrollee's 
hospital care or of another physician as authorized by the M+C 
organization, and notifies the enrollee, following the procedures set 
forth in Sec. 412.42(c)(3) of this chapter.

[63 FR 35107, June 26, 1998; 63 FR 52614, Oct. 1, 1998]



Sec. 422.622  Requesting immediate PRO review of noncoverage of inpatient hospital care.

    (a) Enrollee's right to review or reconsideration. (1) An enrollee 
who wishes to appeal a determination by an M+C organization or hospital 
that inpatient care is no longer necessary must request immediate PRO 
review of the determination in accordance with paragraph (b) of this 
section. An enrollee who requests immediate PRO review may remain in the 
hospital with no additional financial liability as specified in 
paragraph (c) of this section.
    (2) An enrollee who fails to request immediate PRO review in 
accordance with the procedures in paragraph (b) of this section may 
request expedited reconsideration by the M+C organization as described 
in Sec. 422.584, but the financial liability rules of paragraph (c) of 
this section do not apply.
    (b) Procedures enrollee must follow. For the immediate PRO review 
process, the following rules apply:
    (1) The enrollee must submit the request for immediate review--
    (i) To the PRO that has an agreement with the hospital under 
Sec. 466.78 of this chapter;
    (ii) In writing or by telephone; and
    (iii) By noon of the first working day after he or she receives 
written notice that the M+C organization or hospital has determined that 
the hospital stay is no longer necessary.
    (2) On the date it receives the enrollee's request, the PRO must 
notify the M+C organization that the enrollee has filed a request for 
immediate review.
    (3) The M+C organization must supply any information that the PRO 
requires to conduct its review and must make it available, by phone or 
in writing, by the close of business of the first full working day 
immediately following the day the enrollee submits the request for 
review.
    (4) In response to a request from the M+C organization, the hospital 
must submit medical records and other pertinent information to the PRO 
by close of business of the first full working day immediately following 
the day the organization makes its request.
    (5) The PRO must solicit the views of the enrollee who requested the 
immediate PRO review.
    (6) The PRO must make a determination and notify the enrollee, the 
hospital, and the M+C organization by close of business of the first 
working day after it receives all necessary information from the 
hospital, or the organization, or both.
    (c) Liability for hospital costs--(1) When the M+C organization 
determines that hospital services are not, or are no longer, covered. 
(i) Except as provided in paragraph (c)(1)(ii) of this section, if the 
M+C organization authorized coverage of the inpatient admission directly 
or by delegation (or the admission constitutes emergency or urgently 
needed care, as described in Secs. 422.2 and 422.112(c)), the 
organization continues to be financially responsible for the costs of 
the hospital stay when a timely appeal is filed under paragraph (a)(1) 
of this section until noon of the calendar day following the day the PRO 
notifies the enrollee of its review determination. If coverage of the 
hospital admission was never approved by the M+C organization (or the 
admission does not constitute emergency or urgently needed care, as 
described in Secs. 422.2 and 422.112(c)), the M+C organization is liable 
for the hospital costs only if it is determined on appeal that the 
hospital stay should have been covered under the M+C plan.
    (ii) The hospital may not charge the M+C organization (or the 
enrollee) if--
    (A) It was the hospital (acting on behalf of the enrollee) that 
filed the request for immediate PRO review; and
    (B) The PRO upholds the noncoverage determination made by the M+C 
organization.
    (2) When the hospital determines that hospital services are no 
longer required. If

[[Page 752]]

the hospital determines that inpatient hospital services are no longer 
necessary, and the enrollee could not reasonably be expected to know 
that the services would not be covered, the hospital may not charge the 
enrollee for inpatient services received before noon of the calendar day 
following the day the PRO notifies the enrollee of its review 
determination.

[63 FR 35107, June 26, 1998; 63 FR 52614, Oct. 1, 1998]



         Subpart N--Medicare Contract Determinations and Appeals

    Source: 63 FR 35113, June 26, 1998, unless otherwise noted.



Sec. 422.641  Contract determinations.

    This subpart establishes the procedures for making and reviewing the 
following contract determinations:
    (a) A determination that an entity is not qualified to enter into a 
contract with HCFA under Part C of title XVIII of the Act.
    (b) A determination to terminate a contract with an M+C organization 
in accordance with Sec. 422.510(a).
    (c) A determination not to authorize a renewal of a contract with an 
M+C organization in accordance with Sec. 422.506(b).



Sec. 422.644  Notice of contract determination.

    (a) When HCFA makes a contract determination, it gives the M+C 
organization written notice.
    (b) The notice specifies--
    (1) The reasons for the determination; and
    (2) The M+C organization's right to request reconsideration.
    (c) For HCFA-initiated terminations, HCFA mails notice 90 days 
before the anticipated effective date of the termination. For 
terminations based on initial determinations described at 
Sec. 422.510(a)(5), HCFA immediately notifies the M+C organization of 
its decision to terminate the organization's M+C contract.
    (d) When HCFA determines that it will not authorize a contract 
renewal, HCFA mails the notice to the M+C organization by May 1 of the 
current contract year.



Sec. 422.646  Effect of contract determination.

    The contract determination is final and binding unless--
    (a) The determination is reconsidered in accordance with 
Secs. 422.648 through 422.658;
    (b) A timely request for a hearing is filed under Sec. 422.662; or
    (c) The reconsideration decision is revised as a result of a 
reopening under Sec. 422.696.



Sec. 422.648  Reconsideration: Applicability.

    (a) Reconsideration is the first step for appealing a contract 
determination specified in Sec. 422.641.
    (b) HCFA reconsiders the specified determinations if the M+C 
organization files a written request in accordance with Sec. 422.650.



Sec. 422.650  Request for reconsideration.

    (a) Method and place for filing a request. A request for 
reconsideration must be made in writing and filed with any HCFA office.
    (b) Time for filing a request. The request for reconsideration must 
be filed within 15 days from the date of the notice of the initial 
determination.
    (c) Proper party to file a request. Only an authorized official of 
the entity or M+C organization that was the subject of a contract 
determination may file the request for reconsideration.
    (d) Withdrawal of a request. The M+C organization or M+C contract 
applicant who filed the request for a reconsideration may withdraw it at 
any time before the notice of the reconsidered determination is mailed. 
The request for withdrawal must be in writing and filed with HCFA.



Sec. 422.652  Opportunity to submit evidence.

    HCFA provides the M+C organization or M+C contract applicant and the 
HCFA official or officials who made the contract determination 
reasonable opportunity to present as evidence any documents or written 
statements that are relevant and material to the matters at issue.

[[Page 753]]



Sec. 422.654  Reconsidered determination.

    A reconsidered determination is a new determination that--
    (a) Is based on a review of the contract determination, the evidence 
and findings upon which that was based, and any other written evidence 
submitted before notice of the reconsidered determination is mailed, 
including facts relating to the status of the M+C organization 
subsequent to the contract determination; and
    (b) Affirms, reverses, or modifies the initial determination.



Sec. 422.656  Notice of reconsidered determination.

    (a) HCFA gives the M+C organization or M+C contract applicant 
written notice of the reconsidered determination.
    (b) The notice--
    (1) Contains findings with respect to the M+C organization's 
qualifications to enter into or remain under a contract with HCFA 
pursuant to Part C of title XVIII of the Act;
    (2) States the specific reasons for the reconsidered determination; 
and
    (3) Informs the M+C organization or M+C contract applicant of its 
right to a hearing if it is dissatisfied with the determination.



Sec. 422.658  Effect of reconsidered determination.

    A reconsidered determination is final and binding unless a request 
for a hearing is filed in accordance with Sec. 422.662 or it is revised 
in accordance with Sec. 422.696.



Sec. 422.660  Right to a hearing.

    The following parties are entitled to a hearing:
    (a) An applicant entity that has been determined in a reconsidered 
determination to be unqualified to enter into a contract with HCFA under 
Part C of the Act.
    (b) An M+C organization whose contract with HCFA has been terminated 
or has not been renewed as a result of a contract determination as 
provided in Sec. 422.641.



Sec. 422.662  Request for hearing.

    (a) Method and place for filing a request. A request for a hearing 
must be made in writing and filed by an authorized official of the 
applicant entity or M+C organization that was the party to the 
determination under appeal. The request for a hearing must be filed with 
any HCFA office.
    (b) Time for filing a request. A request for a hearing must be filed 
within 15 days after the date of the notice of contract or reconsidered 
determination.
    (c) Parties to a hearing. The parties to a hearing must be--
    (1) The parties described in Sec. 422.660;
    (2) At the discretion of the hearing officer, any interested parties 
who make a showing that their rights may be prejudiced by the decision 
to be rendered at the hearing; and
    (3) HCFA.



Sec. 422.664  Postponement of effective date of a contract determination when a request for a hearing with respect to a contract determination is filed timely.

    (a) HCFA postpones the proposed effective date of the contract 
determination to terminate a contract with an M+C organization until a 
hearing decision is reached and affirmed by the Administrator following 
review under Sec. 422.692 in instances where an M+C organization 
requests review by the Administrator; and
    (b) HCFA extends the current contract at the end of the contract 
period (in the case of a determination not to renew) only--
    (1) If HCFA finds that an extension of the contract will be 
consistent with the purpose of this part; and
    (2) For such period as HCFA and the M+C organization agree.
    (c) Exception: A contract terminated in accordance with 
Sec. 422.510(a)(5) will be immediately terminated and will not be 
postponed if a hearing is requested.



Sec. 422.666  Designation of hearing officer.

    HCFA designates a hearing officer to conduct the hearing. The 
hearing officer need not be an ALJ.



Sec. 422.668  Disqualification of hearing officer.

    (a) A hearing officer may not conduct a hearing in a case in which 
he or she is prejudiced or partial to any party or has any interest in 
the matter pending for decision.

[[Page 754]]

    (b) A party to the hearing who objects to the designated hearing 
officer must notify that officer in writing at the earliest opportunity.
    (c) The hearing officer must consider the objections, and may, at 
his or her discretion, either proceed with the hearing or withdraw.
    (1) If the hearing officer withdraws, HCFA designates another 
hearing officer to conduct the hearing.
    (2) If the hearing officer does not withdraw, the objecting party 
may, after the hearing, present objections and request that the 
officer's decision be revised or a new hearing be held before another 
hearing officer. The objections must be submitted in writing to HCFA.



Sec. 422.670  Time and place of hearing.

    (a) The hearing officer fixes a time and place for the hearing, 
which is not to exceed 30 days from the receipt of the request for the 
hearing, and sends written notice to the parties. The notice also 
informs the parties of the general and specific issues to be resolved 
and information about the hearing procedure.
    (b) The hearing officer may, on his or her own motion, or at the 
request of a party, change the time and place for the hearing. The 
hearing officer may adjourn or postpone the hearing.
    (c) The hearing officer will give the parties reasonable notice of 
any change in time or place of hearing, or of adjournment or 
postponement.



Sec. 422.672  Appointment of representatives.

    A party may appoint as its representative at the hearing anyone not 
disqualified or suspended from acting as a representative before the 
Secretary or otherwise prohibited by law.



Sec. 422.674  Authority of representatives.

    (a) A representative appointed and qualified in accordance with 
Sec. 422.672 may, on behalf of the represented party--
    (1) Gives or accepts any notice or request pertinent to the 
proceedings set forth in this subpart;
    (2) Presents evidence and allegations as to facts and law in any 
proceedings affecting that party; and
    (3) Obtains information to the same extent as the party.
    (b) A notice or request sent to the representative has the same 
force and effect as if it had been sent to the party.



Sec. 422.676  Conduct of hearing.

    (a) The hearing is open to the parties and to the public.
    (b) The hearing officer inquires fully into all the matters at issue 
and receives in evidence the testimony of witnesses and any documents 
that are relevant and material.
    (c) The hearing officer provides the parties an opportunity to enter 
any objection to the inclusion of any document.
    (d) The hearing officer decides the order in which the evidence and 
the arguments of the parties are presented and the conduct of the 
hearing.



Sec. 422.678  Evidence.

    The hearing officer rules on the admissibility of evidence and may 
admit evidence that would be inadmissible under rules applicable to 
court procedures.



Sec. 422.680  Witnesses.

    (a) The hearing officer may examine the witnesses.
    (b) The parties or their representatives are permitted to examine 
their witnesses and cross-examine witnesses of other parties.



Sec. 422.682  Discovery.

    (a) Prehearing discovery is permitted upon timely request of a 
party.
    (b) A request is timely if it is made before the beginning of the 
hearing.
    (c) A reasonable time for inspection and reproduction of documents 
is provided by order of the hearing officer.
    (d) The hearing officer's order on all discovery matters is final.



Sec. 422.684  Prehearing.

    The hearing officer may schedule a prehearing conference if he or 
she believes that a conference would more clearly define the issues.

[[Page 755]]



Sec. 422.686  Record of hearing.

    (a) A complete record of the proceedings at the hearing is made and 
transcribed and made available to all parties upon request.
    (b) The record may not be closed until a hearing decision has been 
issued.



Sec. 422.688  Authority of hearing officer.

    In exercising his or her authority, the hearing officer must comply 
with the provisions of title XVIII and related provisions of the Act, 
the regulations issued by the Secretary, and general instructions issued 
by HCFA in implementing the Act.



Sec. 422.690  Notice and effect of hearing decision.

    (a) As soon as practical after the close of the hearing, the hearing 
officer issues a written decision that--
    (1) Is based upon the evidence of record; and
    (2) Contains separately numbered findings of fact and conclusions of 
law.
    (b) The hearing officer provides a copy of the hearing decision to 
each party.
    (c) The hearing decision is final and binding unless it is reversed 
or modified by the Administrator following review under Sec. 422.692, or 
reopened and revised in accordance with Sec. 422.696.



Sec. 422.692  Review by the Administrator.

    (a) Request for review by Administrator. An M+C organization that 
has received a hearing decision upholding a contract termination 
determination may request review by the Administrator within 15 days of 
receiving the hearing decision as provided under Sec. 422.690(b).
    (b) Review by the Administrator. The Administrator shall review the 
hearing officer's decision, and determine, based upon this decision, the 
hearing record, and any written arguments submitted by the M+C 
organization, whether the termination decision should be upheld, 
reversed, or modified.
    (c) Decision by the Administrator. The Administrator issues a 
written decision, and furnishes the decision to the M+C organization 
requesting review.



Sec. 422.694  Effect of Administrator's decision.

    A decision by the Administrator under section 422.692 is final and 
binding unless it is reopened and revised in accordance with 
Sec. 422.696.



Sec. 422.696  Reopening of contract or reconsidered determination or decision of a hearing officer or the Administrator.

    (a) Initial or reconsidered determination. HCFA may reopen and 
revise an initial or reconsidered determination upon its own motion 
within one year of the date of the notice of determination.
    (b) Decision of hearing officer. A decision of a hearing officer 
that is unfavorable to any party and is otherwise final may be reopened 
and revised by the hearing officer upon the officer's own motion within 
one year of the notice of the hearing decision. Another hearing officer 
designated by HCFA may reopen and revise the decision if the hearing 
officer who issued the decision is unavailable.
    (c) Decision of Administrator. A decision by the Administrator that 
is otherwise final may be reopened and revised by the Administrator upon 
the Administrator's own motion within one year of the notice of the 
Administrator's decision.
    (d) Notices. (1) The notice of reopening and of any revisions 
following the reopening is mailed to the parties.
    (2) The notice of revision specifies the reasons for revisions.



Sec. 422.698  Effect of revised determination.

    The revision of a contract or reconsidered determination is binding 
unless a party files a written request for hearing of the revised 
determination in accordance with Sec. 422.662.



                    Subpart O--Intermediate Sanctions

    Source: 63 FR 35115, June 26, 1998, unless otherwise noted.



Sec. 422.750  Kinds of sanctions.

    (a) The following intermediate sanctions and civil money penalties 
may be imposed:

[[Page 756]]

    (1) Civil money penalties ranging from $10,000 to $100,000 depending 
upon the violation.
    (2) Suspension of enrollment of Medicare beneficiaries.
    (3) Suspension of payment to the M+C organization for Medicare 
beneficiaries who enroll.
    (4) Require the M+C organization to suspend all marketing activities 
to Medicare beneficiaries for the M+C plan subject to the intermediate 
sanctions.
    (b) The enrollment, payment, and marketing sanctions continue in 
effect until HCFA is satisfied that the deficiency on which the 
determination was based has been corrected and is not likely to recur.



Sec. 422.752  Basis for imposing sanctions.

    (a) All intermediate sanctions. For the violations listed below, 
HCFA may impose any of the sanctions specified in Sec. 422.750 on any 
M+C organization that has a contract in effect. The M+C organization may 
also be subject to other applicable remedies available under law.
    (1) Fails substantially to provide, to an M+C enrollee, medically 
necessary services that the organization is required to provide (under 
law or under the contract) to an M+C enrollee, and that failure 
adversely affects (or is substantially likely to adversely affect) the 
enrollee.
    (2) Imposes on M+C enrollees premiums in excess of the monthly basic 
and supplemental beneficiary premiums permitted under section 1854 of 
the Act and subpart G of this part.
    (3) Expels or refuses to reenroll a beneficiary in violation of the 
provisions of this part.
    (4) Engages in any practice that could reasonably be expected to 
have the effect of denying or discouraging enrollment of individuals 
whose medical condition or history indicates a need for substantial 
future medical services.
    (5) Misrepresents or falsifies information that it furnishes--
    (i) To HCFA; or
    (ii) To an individual or to any other entity.
    (6) Fails to comply with the requirements of Sec. 422.206, which 
prohibits interference with practitioners' advice to enrollees.
    (7) Fails to comply with Sec. 422.216, which requires the 
organization to enforce the limit on balance billing under a private 
fee-for service plan.
    (8) Employs or contracts with an individual who is excluded from 
participation in Medicare under section 1128 or 1128A of the Act (or 
with an entity that employs or contracts with such an individual) for 
the provision of any of the following:
    (i) Health care.
    (ii) Utilization review.
    (iii) Medical social work.
    (iv) Administrative services.
    (b) Suspension of enrollment and marketing. If HCFA makes a 
determination under Sec. 422.510(a), HCFA may impose the intermediate 
sanctions in Sec. 422.756(c)(1) and (c)(3).

[63 FR 35115, June 26, 1998; 63 FR 52614, Oct. 1, 1998]



Sec. 422.756  Procedures for imposing sanctions.

    (a) Notice of Sanction and opportunity to respond--(1) Notice of 
sanction. Before imposing the intermediate sanctions specified in 
paragraph (c) of this section HCFA--
    (i) Sends a written notice to the M+C organization stating the 
nature and basis of the proposed sanction; and
    (ii) Sends the OIG a copy of the notice.
    (2) Opportunity to respond. HCFA allows the M+C organization 15 days 
from receipt of the notice to provide evidence that it has not committed 
an act or failed to comply with the requirements described in 
Sec. 422.752, as applicable. HCFA may allow a 15-day addition to the 
original 15 days upon receipt of a written request from the M+C 
organization. To be approved, the request must provide a credible 
explanation of why additional time is necessary and be received by HCFA 
before the end of the 15-day period following the date of receipt of the 
sanction notice. HCFA does not grant an extension if it determines that 
the M+C organization's conduct poses a threat to an enrollee's health 
and safety.
    (b) Informal reconsideration. If, consistent with paragraph (a)(2) 
of this section the M+C organization submits

[[Page 757]]

a timely response to HCFA's notice of sanction, HCFA conducts an 
informal reconsideration that:
    (1) Consists of a review of the evidence by an HCFA official who did 
not participate in the initial decision to impose a sanction; and
    (2) Gives the M+C organization a concise written decision setting 
forth the factual and legal basis for the decision that affirms or 
rescinds the original determination.
    (c) Specific sanctions. If HCFA determines that an M+C organization 
has acted or failed to act as specified in Sec. 422.752 and affirms this 
determination in accordance with paragraph (b) of this section, HCFA 
may--
    (1) Require the M+C organization to suspend acceptance of 
applications made by Medicare beneficiaries for enrollment in the 
sanctioned M+C plan during the sanction period;
    (2) In the case of a violation under Sec. 422.752(a), suspend 
payments to the M+C organization for Medicare beneficiaries enrolled in 
the sanctioned M+C plan during the sanction period; and
    (3) Require the M+C organization to suspend all marketing activities 
for the sanctioned M+C plan to Medicare enrollees.
    (d) Effective date and duration of sanctions--(1) Effective date. 
Except as provided in paragraph (d)(2) of this section, a sanction is 
effective 15 days after the date that the organization is notified of 
the decision to impose the sanction or, if the M+C organization timely 
seeks reconsideration under paragraph (b) of this section, on the date 
specified in the notice of HCFA's reconsidered determination.
    (2) Exception. If HCFA determines that the M+C organization's 
conduct poses a serious threat to an enrollee's health and safety, HCFA 
may make the sanction effective on a date before issuance of HCFA's 
reconsidered determination.
    (3) Duration of sanction. The sanction remains in effect until HCFA 
notifies the M+C organization that HCFA is satisfied that the basis for 
imposing the sanction has been corrected and is not likely to recur.
    (e) Termination by HCFA. In addition to or as an alternative to the 
sanctions described in paragraph (c) of this section, HCFA may decline 
to authorize the renewal of an organization's contract in accordance 
with Sec. 422.506(b)(2) and (b)(3), or terminate the contract in 
accordance with Sec. 422.510.
    (f) Civil money penalties. (1) If HCFA determines that an M+C 
organization has committed an act or failed to comply with a requirement 
described in Sec. 422.752, HCFA notifies the OIG of this determination, 
and also notifies OIG when HCFA reverses or terminates a sanction 
imposed under this part.
    (2) In the case of a violation described in paragraph (a) of 
Sec. 422.752, or a determination under paragraph (b) of Sec. 422.752 
based upon a violation under Sec. 422.510(a)(4) (involving fraudulent or 
abusive activities), in accordance with the provisions of 42 CFR parts 
1003 and 1005, the OIG may impose civil money penalties on the M+C 
organization in accordance with parts 1003 and 1005 of this title in 
addition to, or in place of, the sanctions that HCFA may impose under 
paragraph (c) of this section.
    (3) In the case of a determination under paragraph (b) of 
Sec. 422.752 other than a determination based upon a violation under 
Sec. 422.510(a)(4), in accordance with the provisions of 42 CFR parts 
1003 and 1005, HCFA may impose civil money penalties on the M+C 
organization in the amounts specified in Sec. 422.758 in addition to, or 
in place of, the sanctions that HCFA may impose under paragraph (c) of 
this section.



Sec. 422.758  Maximum amount of civil money penalties imposed by HCFA.

    If HCFA makes a determination under Sec. 422.752(b), based on any 
determination under Sec. 422.510(a) except a determination under 
Sec. 422.510(a)(4), HCFA may impose civil money penalties in the 
following amounts:
    (a) If the deficiency on which the determination is based has 
directly adversely affected (or has the substantial likelihood of 
adversely affecting) one or more M+C enrollees--$25,000 for each 
determination.
    (b) For each week that a deficiency remains uncorrected after the 
week in which the M+C organization receives HCFA's notice of the 
determination--$10,000.

[[Page 758]]



Sec. 422.760  Other applicable provisions.

    The provisions of section 1128A of the Act (except subsections (a) 
and (b)) apply to civil money penalties under this subpart to the same 
extent that they apply to a civil money penalty or procedure under 
section 1128A of the Act.



PART 424--CONDITIONS FOR MEDICARE PAYMENT--Table of Contents




                      Subpart A--General Provisions

Sec.
424.1  Basis and scope.
424.3  Definitions.
424.5  Basic conditions.
424.7  General limitations.

       Subpart B--Certification and Plan of Treatment Requirements

424.10  Purpose and scope.
424.11  General procedures.
424.13  Requirements for inpatient services of hospitals other than 
          psychiatric hospitals.
424.14  Requirements for inpatient services of psychiatric hospitals.
424.15  Requirements for inpatient CAH services.
424.16  Timing of certification for individual admitted to a hospital 
          before entitlement to Medicare benefits.
424.20  Requirements for posthospital SNF care.
424.22  Requirements for home health services.
424.24  Requirements for medical and other health services furnished by 
          providers under Medicare Part B.
424.27  Requirements for comprehensive outpatient rehabilitation 
          facility (CORF) services.

                      Subpart C--Claims for Payment

424.30  Scope.
424.32  Basic requirements for all claims.
424.33  Additional requirements: Claims for services of providers and 
          claims by suppliers and nonparticipating hospitals.
424.34  Additional requirements: Beneficiary's claim for direct payment.
424.36  Signature requirements.
424.37  Evidence of authority to sign on behalf of the beneficiary.
424.40  Request for payment effective for more than one claim.
424.44  Time limits for filing claims.
424.45  What constitutes a claim for purposes of meeting the time 
          limits.

              Subpart D--To Whom Payment is Ordinarily Made

424.50  Scope.
424.51  Payment to the provider.
424.52  Payment to a nonparticipating hospital.
424.53  Payment to the beneficiary.
424.54  Payment to the beneficiary's legal representative or 
          representative payee.
424.55  Payment to the supplier.
424.56  Payment to a beneficiary and to a supplier.
424.57  Special payment rules for items furnished by DMEPOS suppliers 
          and issuance of DMEPOS supplier billing numbers.

        Subpart E--To Whom Payment is Made in Special Situations

424.60  Scope.
424.62  Payment after beneficiary's death: Bill has been paid.
424.64  Payment after beneficiary's death: Bill has not been paid.
424.66  Payment to entities that provide coverage complementary to 
          Medicare Part B.

     Subpart F--Limitations on Assignment and Reassignment of Claims

424.70  Basis and scope.
424.71  Definitions.
424.73  Prohibition of assignment of claims by providers.
424.74  Termination of provider agreement.
424.80  Prohibition of reassignment of claims by suppliers.
424.82  Revocation of right to receive assigned benefits.
424.83  Hearings on revocation of right to receive assigned benefits.
424.84  Final determination on revocation of right to receive assigned 
          benefits.
424.86  Prohibition of assignment of claims by beneficiaries.
424.90  Court-ordered assignments: Conditions and limitations.

    Subpart G--Special Conditions: Emergency Services Furnished by a 
                        Nonparticipating Hospital

424.100  Scope.
424.101  Definitions.
424.102  Situations that do not constitute an emergency.
424.103  Conditions for payment for emergency services.
424.104  Election to claim payment for emergency services furnished 
          during a calendar year.
424.106  Criteria for determining whether the hospital was the most 
          accessible.
424.108  Payment to a hospital.

[[Page 759]]

424.109  Payment to the beneficiary.

 Subpart H--Special Conditions: Services Furnished in a Foreign Country

424.120  Scope.
424.121  Scope of payments.
424.122  Conditions for payment for emergency inpatient hospital 
          services.
424.123  Conditions for payment for nonemergency inpatient services 
          furnished by a hospital closer to the individual's residence.
424.124  Conditions for payment for physician services and ambulance 
          services.
424.126  Payment to the hospital.
424.127  Payment to the beneficiary.

                        Subparts I-L--[Reserved]

       Subpart M--Replacement and Reclamation of Medicare Payments

424.350  Replacement of checks that are lost, stolen, defaced, 
          mutilated, destroyed, or paid on forged endorsements.
424.352  Intermediary and carrier checks that are lost, stolen, defaced, 
          mutilated, destroyed, or paid on forged endorsements.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 53 FR 6634, Mar. 2, 1988, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 424.1  Basis and scope.

    (a) Statutory basis. (1) This part is based on the indicated 
provisions of the following sections of the Act:

    1814--Basic conditions for, and limitations on, Medicare payments 
for Part A services.
    1815--Payment to providers for Part A services.
    1820--Conditions for designating certain hospitals as critical 
assess hospitals.
    1835--Procedures for payment to providers for Part B services.
    1842(b)(3)(B)(ii)--Assignment of Part B Medicare claims.
    1842(b)(6)--Payment to entities other than the supplier.
    1848--Payment for physician services.
    1870(e) and (f)--Settlement of claims after death of the 
beneficiary.

    (2) Section 424.444(c) is also based on section 216(j) of the Act.
    (b) Scope. This part sets forth certain specific conditions and 
limitations applicable to Medicare payments and cites other conditions 
and limitations set forth elsewhere in this chapter. This subpart A 
provides a general overview. Other subparts deal specifically with--
    (1) The requirement that the need for services be certified and that 
a physician establish a plan of treatment (subpart B);
    (2) The procedures and time limits for filing claims (subpart C);
    (3) The individuals or entities to whom payment may be made 
(subparts D and E);
    (4) The limitations on assignment and reassignment of claims 
(subpart F);
    (5) Special requirements that apply to services furnished by 
nonparticipating U.S. hospitals and foreign hospitals (subparts G and 
H); and
    (6) The replacement and reclamation of Medicare payment checks 
(subpart M).
    (c) Other applicable rules. Except for Sec. 424.40(c)(3), this part 
does not deal with the conditions for payment of rural health clinic 
(RHC) services, Federally qualified health center (FQHC) services, or 
ambulatory surgical center (ASC) services. Those conditions are set 
forth in part 405, subpart X, and part 481 subpart A of this chapter for 
RHC and FQHC services; and in part 416 of this chapter, for ASC 
services. The rules for physician certification of terminal illness, 
required in connection with hospice care, are set forth in Sec. 418.22 
of this chapter.

[53 FR 6634, Mar. 2, 1988, as amended at 60 FR 38271, July 26, 1995; 60 
FR 50442, Sept. 29, 1995; 62 FR 46035, Aug. 29, 1997]



Sec. 424.3  Definitions.

    As used in this part, unless the context indicates otherwise--
    HCPCS means HCFA Common Procedure Coding System.
    ICD-9-CM means International Classification of Diseases, Ninth 
Revision, Clinical Modification.
    Nonparticipating hospital means a hospital that does not have in 
effect a provider agreement to participate in Medicare.
    Participating hospital means a hospital that has in effect a 
provider agreement to participate in Medicare.

[53 FR 6634, Mar. 2, 1988, as amended at 59 FR 10299, Mar. 4, 1994; 63 
FR 26311, May 12, 1998]

[[Page 760]]



Sec. 424.5  Basic conditions.

    (a) As a basis for Medicare payment, the following conditions must 
be met:
    (1) Types of services. The services must be--
    (i) Covered services, as specified in part 409 or part 410 of this 
chapter; or
    (ii) Services excluded from coverage as custodial care or services 
not reasonable and necessary, but reimbursable in accordance with 
Secs. 405.332 through 405.334 of this chapter, pertaining to limitation 
of liability.
    (2) Sources of services. The services must have been furnished by a 
provider, nonparticipating hospital, or supplier that was, at the time 
it furnished the services, qualified to have payment made for them.
    (3) Recipient of services. Except as provided in Sec. 409.68 of this 
chapter, the services must have been furnished while the individual was 
eligible to have payment made for them. (Section 409.68 provides for 
payment of inpatient hospital services furnished before the hospital is 
notified that the beneficiary has exhausted the Medicare benefits 
available for the current benefit period.)
    (4) Certification of need for services. When required, the provider 
must obtain certification and recertification of the need for the 
services in accordance with subpart B of this part.
    (5) Claim for payment. The provider, supplier, or beneficiary, as 
appropriate, must file a claim that includes or makes reference to a 
request for payment, in accordance with subpart C of this part.
    (6) Sufficient information. The provider, supplier, or beneficiary, 
as appropriate, must furnish to the intermediary or carrier sufficient 
information to determine whether payment is due and the amount of 
payment.
    (b) Additional conditions applicable in certain circumstances or to 
certain services are set forth in other sections of this part.

[53 FR 6635, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988; 60 FR 38271, July 
26, 1995]



Sec. 424.7  General limitations.

    (a) Utilization review finding on medical necessity. When a PRO or a 
UR committee notifies a hospital or SNF of its finding that further 
services are not medically necessary, the following rules apply:
    (1) Hospitals subject to PPS. Payment may not be made for inpatient 
hospital services furnished by a PPS hospital after the second day after 
the day on which the hospital received the notice.
    (2) Hospitals not subject to PPS and SNFs--(i) Basic rule. Except as 
provided in paragraph (a)(2)(ii) of this section, payment may not be 
made for inpatient hospital services or posthospital SNF care furnished 
after the day on which the hospital or SNF received the notice.
    (ii) Exception. Payment may be made for 1 or 2 additional days if 
the PRO or UR committee approves them as necessary for planning for 
post-discharge care.
    (b) Failure to make timely utilization review. Payment may not be 
made for inpatient hospital services or posthospital SNF care furnished, 
after the 20th consecutive day of a stay, to an individual who is 
admitted to the hospital or SNF after HCFA has determined that the 
hospital or SNF has failed to make timely utilization review in long 
stay cases. (This provision does not apply to a hospital or SNF for 
which a PRO has assumed binding review.)

[53 FR 6635, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



       Subpart B--Certification and Plan of Treatment Requirements



Sec. 424.10  Purpose and scope.

    (a) Purpose. The physician has a major role in determining 
utilization of health services furnished by providers. The physician 
decides upon admissions, orders tests, drugs, and treatments, and 
determines the length of stay. Accordingly, sections 1814(a)(2) and 
1835(a)(2) of the Act establish as a condition for Medicare payment that 
a physician certify the necessity of the services and, in some 
instances, recertify the continued need for those services.

Section 1814(a)(2) of the Act also permits nurse practitioners or 
clinical

[[Page 761]]

nurse specialists to certify and recertify the need for post-hospital 
extended care services.
    (b) Scope. This subpart sets forth the timing, content, and 
signature requirements for certification and recertification with 
respect to certain Medicare services furnished by providers.

[60 FR 38271, July 26, 1995]



Sec. 424.11  General procedures.

    (a) Responsibility of the provider. The provider must--
    (1) Obtain the required certification and recertification 
statements;
    (2) Keep them on file for verification by the intermediary, if 
necessary; and
    (3) Certify, on the appropriate billing form, that the statements 
have been obtained and are on file.
    (b) Obtaining the certification and recertification statements. No 
specific procedures or forms are required for certification and 
recertification statements. The provider may adopt any method that 
permits verification. The certification and recertification statements 
may be entered on forms, notes, or records that the appropriate 
individual signs, or on a special separate form. Except as provided in 
paragraph (d) of this section for delayed certifications, there must be 
a separate signed statement for each certification or recertification.
    (c) Required information. The succeeding sections of this subpart 
set forth specific information required for different types of services. 
If that information is contained in other provider records, such as 
physicians' progress notes, it need not be repeated. It will suffice for 
the statement to indicate where the information is to be found.
    (d) Timeliness. (1) The succeeding sections of this subpart also 
specify the time frames for certifications and for initial and 
subsequent recertifications.
    (2) A hospital or SNF may provide for obtaining a certification or 
recertification earlier than required by these regulations, or vary the 
time frame (within the prescribed outer limits) for different diagnostic 
or clinical categories.
    (3) Delayed certification and recertification statements are 
acceptable when there is a legitimate reason for delay. (For instance, 
the patient was unaware of his or her entitlement when he or she was 
treated.) Delayed certification and recertification statements must 
include an explanation of the reason for the delay.
    (4) A delayed certification may be included with one or more 
recertifications on a single signed statement.
    (e) Limitation on authorization to sign statements. A certification 
or recertification statement may be signed only by one of the following:
    (1) A physician who is a doctor of medicine or osteopathy.
    (2) A dentist in the circumstances specified in Sec. 424.13(c).
    (3) A doctor of podiatric medicine if his or her certification is 
consistent with the functions he or she is authorized to perform under 
State law.
    (4) A nurse practitioner or clinical nurse specialist, as defined in 
paragraph (e)(5) or (e)(6) of this section, in the circumstances 
specified in Sec. 424.20(e).
    (5) For purposes of this section, to qualify as a nurse 
practitioner, an individual must--
    (i) Be a registered professional nurse who is currently licensed to 
practice nursing in the State where he or she practices; be authorized 
to perform the services of a nurse practitioner in accordance with State 
law; and have a master's degree in nursing;
    (ii) Be certified as a nurse practitioner by a professional 
association recognized by HCFA that has, at a minimum, eligibility 
requirements that meet the standards in paragraph (e)(5)(i) of this 
section; or
    (iii) Meet the requirements for a nurse practitioner set forth in 
paragraph (e)(5)(i) of this section, except for the master's degree 
requirement, and have received before August 25, 1998 a certificate of 
completion from a formal advanced practice program that prepares 
registered nurses to perform an expanded role in the delivery of primary 
care.
    (6) For purposes of this section, to qualify as a clinical nurse 
specialist, an individual must--
    (i) Be a registered professional nurse who is currently licensed to 
practice nursing in the State where he or she practices; be authorized 
to perform the services of a clinical nurse specialist in

[[Page 762]]

accordance with State law; and have a master's degree in a defined 
clinical area of nursing;
    (ii) Be certified as a clinical nurse specialist by a professional 
association recognized by HCFA that has at a minimum, eligibility 
requirements that meet the standards in paragraph (e)(6)(i) of this 
section; or
    (iii) Meet the requirements for a clinical nurse specialist set 
forth in paragraph (e)(6)(i) of this section, except for the master's 
degree requirement, and have received before August 25, 1998 a 
certificate of completion from a formal advanced practice program that 
prepares registered nurses to perform an expanded role in the delivery 
of primary care.

[53 FR 6634, Mar. 2, 1988, as amended at 56 FR 8845, Mar. 1, 1991; 60 FR 
38272, July 26, 1995]



Sec. 424.13  Requirements for inpatient services of hospitals other than psychiatric hospitals.

    (a) Content of certification and recertification. Medicare Part A 
pays for inpatient hospital services of hospitals other than psychiatric 
hospitals only if a physician certifies and recertifies the following:
    (1) The reasons for either--
    (i) Continued hospitalization of the patient for medical treatment 
or medically required inpatient diagnostic study; or
    (ii) Special or unusual services for cost outlier cases (under the 
prospective payment system set forth in subpart F of part 412 of this 
chapter).
    (2) The estimated time the patient will need to remain in the 
hospital.
    (3) The plans for posthospital care, if appropriate.
    (b) Certification of need for hospitalization when a SNF bed is not 
available. (1) A physician may certify or recertify need for continued 
hospitalization if the physician finds that the patient could receive 
proper treatment in a SNF but no bed is available in a participating 
SNF.
    (2) If this is the basis for the physician's certification or 
recertification, the required statement must so indicate; and the 
physician is expected to continue efforts to place the patient in a 
participating SNF as soon as a bed becomes available.
    (c) Signatures. (1) Basic rule. Except as specified in paragraph 
(c)(2) of this section, certifications and recertifications must be 
signed by the physician responsible for the case, or by another 
physician who has knowledge of the case and who is authorized to do so 
by the responsible physician or by the hospital's medical staff.
    (2) Exception. If the intermediary requests certification of the 
need to admit a patient in connection with dental procedures, because 
his or her underlying medical condition and clinical status or the 
severity of the dental procedures require hospitalization, that 
certification may be signed by the dentist caring for the patient.
    (d) Timing of certifications and recertifications: Cases not subject 
to the prospective payment system (PPS). (1) For cases that are not 
subject to PPS, certification is required no later than as of the 12th 
day of hospitalization. A hospital may, at its option, provide for the 
certification to be made earlier, or it may vary the timing of the 
certification within the 12-day period by diagnostic or clinical 
categories.
    (2) The first recertification is required no later than as of the 
18th day of hospitalization.
    (3) Subsequent recertifications are required at intervals 
established by the UR committee (on a case-by-case basis if it so 
chooses), but no less frequently than every 30 days.
    (e) Timing of certification and recertification: Cases subject to 
PPS. For cases subject to PPS, certification is required as follows:
    (1) For day-outlier cases, certification is required no later than 
one day after the hospital reasonably assumes that the case meets the 
outlier criteria, established in accordance with Sec. 412.80(a)(1)(i) of 
this chapter, or no later than 20 days into the hospital stay, whichever 
is earlier. The first and subsequent recertifications are required at 
intervals established by the UR committee (on a case-by-case basis if it 
so chooses) but not less frequently than every 30 days.
    (2) For cost-outlier cases, certification is required no later than 
the date on which the hospital requests cost outlier payment or 20 days 
into the hospital stay, whichever is earlier.

[[Page 763]]

If possible, certification must be made before the hospital incurs costs 
for which it will seek cost outlier payment. In cost outlier cases, the 
first and subsequent recertifications are required at intervals 
established by the UR committee (on a case-by-case basis if it so 
chooses).
    (f) Recertification requirement fulfilled by utilization review. (1) 
At the hospital's option, extended stay review by its UR committee may 
take the place of the second and subsequent physician recertifications 
required for cases not subject to PPS and for PPS day-outlier cases.
    (2) A utilization review that is used to fulfill the recertification 
requirement is considered timely if performed no later than the seventh 
day after the day the physician recertification would have been 
required. The next physician recertification would need to be made no 
later than the 30th day following such review; if review by the UR 
committee took the place of this physician recertification, the review 
could be performed as late as the seventh day following the 30th day.
    (g) Description of procedures. The hospital must have available on 
file a written description that specifies the time schedule for 
certifications and recertifications, and indicates whether utilization 
review of long-stay cases fulfills the requirement for second and 
subsequent recertifications of all cases not subject to PPS and of PPS 
day outlier cases.



Sec. 424.14  Requirements for inpatient services of psychiatric hospitals.

    (a) Content of certification and recertification: General 
considerations. The content requirements differ from those for other 
hospitals because the care furnished in psychiatric hospitals is often 
purely custodial and thus not covered under Medicare. The purpose of the 
statements, therefore, is to help ensure that Medicare pays only for 
services of the type appropriate for Medicare coverage. Accordingly, 
Medicare Part A pays for inpatient care in a psychiatric hospital only 
if a physician certifies and recertifies the need for services 
consistent with the content of paragraphs (b) or (c) of this section, as 
appropriate.
    (b) Content of certification. Inpatient psychiatric services were 
required--
    (1) For treatment that could reasonably be expected to improve the 
patient's condition; or
    (2) For diagnostic study.
    (c) Content of recertification. (1) Inpatient services furnished 
since the previous certification or recertification were, and continue 
to be, required--
    (i) For treatment that could reasonably be expected to improve the 
patient's condition; or
    (ii) For diagnostic study; and
    (2) The hospital records show that the services furnished were--
    (i) Intensive treatment services;
    (ii) Admission and related services necessary for diagnostic study; 
or
    (iii) Equivalent services.
    (d) Timing of certification and recertification. (1) Certification 
is required at the time of admission or as soon thereafter as is 
reasonable and practicable.
    (2) The first recertification is required as of the 18th day of 
hospitalization. Subsequent recertifications are required at intervals 
established by the UR committee (on a case-by-case basis if it so 
chooses), but no less frequently than every 30 days.
    (e) Other requirements. Psychiatric hospitals must also meet the 
requirements set forth in Sec. 424.13 (b), (c), (f), and (g).



Sec. 424.15  Requirements for inpatient CAH services.

    (a) Content of certification. Medicare Part A pays for inpatient CAH 
services only if a physician certifies that the individual may 
reasonably be expected to be discharged or transferred to a hospital 
within 96 hours after admission to the CAH.
    (b) Timing of certification. Certification is required no later than 
1 day before the date on which the claim for payment for the inpatient 
CAH services is submitted.

[58 FR 30671, May 26, 1993, as amended at 60 FR 45850, Sept. 1, 1995; 62 
FR 46035, 46037, Aug. 29, 1997]

[[Page 764]]



Sec. 424.16  Timing of certification for individual admitted to a hospital before entitlement to Medicare benefits.

    (a) Basic rule. If an indivdual is admitted to a hospital before 
becoming entitled to Medicare benefits (for instance, before attaining 
age 65), the day of entitlement (instead of the day of admission) is the 
starting point for the time limits specified in Sec. 424.13(e) for 
certification and recertification.
    (b) Example. (Hospital that is not a psychiatric hospital and is not 
subject to PPS). For a patient who is admitted on August 15 and becomes 
entitled on September 1--
    (1) The certification is required no later than September 12;
    (2) The first recertification is required no later than September 
18; and
    (3) Subsequent recertifications are required at least every 30 days 
after September 18.

[53 FR 6635, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



Sec. 424.20  Requirements for posthospital SNF care.

    Medicare Part A pays for posthospital SNF care furnished by an SNF, 
or a hospital or CAH with a swing-bed approval, only if the 
certification and recertification for services are consistent with the 
content of paragraph (a) or (c) of this section, as appropriate.
    (a) Content of certification--(1) General requirements. Posthospital 
SNF care is or was required because--
    (i) The individual needs or needed on a daily basis skilled nursing 
care (furnished directly by or requiring the supervision of skilled 
nursing personnel) or other skilled rehabilitation services that, as a 
practical matter, can only be provided in an SNF or a swing-bed hospital 
on an inpatient basis, and the SNF care is or was needed for a condition 
for which the individual received inpatient care in a participating 
hospital or a qualified hospital, as defined in Sec. 409.3 of this 
chapter; or
    (ii) The individual has been correctly assigned to one of the 
Resource Utilization Groups designated as representing the required 
level of care, as provided in Sec. 409.30 of this chapter.
    (2) Special requirement: A swing-bed hospital with more than 49 beds 
(but fewer than 100) that does not transfer a swing-bed patient to a SNF 
within 5 days of the availability date. Transfer of the extended care 
patient to the SNF is not medically appropriate.
    (b) Timing of certification. (1) General rule. The certification 
must be obtained at the time of admission or as soon thereafter as is 
reasonable and practicable.
    (2) Special rules for certain swing-bed hospitals. For swing-bed 
hospitals with more than 49 beds that are approved after March 31, 1988, 
the extended care patient's physician has 5 days (excluding weekends and 
holidays) beginning on the availability date as defined in 
Sec. 413.114(b), to certify that the transfer of the extended care 
patient is not medically appropriate.
    (c) Content of recertifications. (1) The reasons for the continued 
need for posthopsital SNF care:
    (2) The estimated time the individual will need to remain in the 
SNF;
    (3) Plans for home care, if any; and
    (4) If appropriate, the fact that continued services are needed for 
a condition that arose after admission to the SNF and while the 
individual was still under treatment for the condition for which he or 
she had received inpatient hospital services.
    (d) Timing of recertifications. (1) The first recertification is 
required no later than the 14th day of posthospital SNF care.
    (2) Subsequent recertifications are required at least every 30 days 
after the first recertification.
    (e) Signature. Certification and recertification statements may be 
signed by--
    (1) The physician responsible for the case or, with his or her 
authorization, by a physician on the SNF staff or a physician who is 
available in case of an emergency and has knowledge of the case; or
    (2) A nurse practitioner or clinical nurse specialist, neither of 
whom has a direct or indirect employment relationship with the facility 
but who is working in collaboration with a physician. For purposes of 
this section, collaboration means a process whereby a nurse practitioner 
or clinical nurse

[[Page 765]]

specialist works with a doctor of medicine or osteopathy to deliver 
health care services. The services are delivered within the scope of the 
nurse's professional expertise, with medical direction and appropriate 
supervision as provided for in guidelines jointly developed by the nurse 
and the physician or other mechanisms defined by Federal regulations and 
the law of the State in which the services are performed.
    (f) Recertification requirement fulfilled by utilization review. A 
SNF may substitute utilization review of extended stay cases for the 
second and subsequent recertifications, if it includes this procedure in 
its utilization review plan.
    (g) Description of procedures. The SNF must have available on file a 
written description that specifies the certification and recertification 
time schedule and indicates whether utilization review is used as an 
alternative to the second and subsequent recertifications.

[53 FR 6634, Mar. 2, 1988, as amended at 54 FR 37275, Sept. 7, 1989; 58 
FR 30671, May 26, 1993; 60 FR 38272, July 26, 1995; 62 FR 46037, Aug. 
29, 1997; 63 FR 26311, May 12, 1998; 63 FR 53307, Oct. 5, 1998]



Sec. 424.22  Requirements for home health services.

    Medicare Part A or Part B pays for home health services only if a 
physician certifies and recertifies the content specified in paragraphs 
(a)(1) and (b)(2) of this section, as appropriate.
    (a) Certification--(1) Content of certification. As a condition for 
payment of home health services under Medicare Part A or Medicare Part 
B, a physician must certify as follows:
    (i) The individual needs or needed intermittent skilled nursing 
care, or physical or speech therapy, or (for the period from July 
through November 30, 1981) occupational therapy.
    (ii) Home health services were required because the individual was 
confined to the home except when receiving outpatient services.
    (iii) A plan for furnishing the services has been established and is 
periodically reviewed by a physician who is a doctor of medicine, 
osteopathy, or podiatric medicine, and who is not precluded from 
performing this function under paragraph (d) of this section. (A doctor 
of podiatric medicine may perform only plan of treatment functions that 
are consistent with the functions he or she is authorized to perform 
under State law.)
    (iv) The services were furnished while the individual was under the 
care of a physician who is a doctor of medicine, osteopathy, or 
podiatric medicine.1
---------------------------------------------------------------------------

    \1\ As a condition of Medicare Part A payment for home health 
services furnished before July 1981, the physician was also required to 
certify that the services were needed for a condition for which the 
individual had received inpatient hosptial or SNF services.
---------------------------------------------------------------------------

    (2) Timing and signature. The certification of need for home health 
services must be obtained at the time the plan of treatment is 
established or as soon thereafter as possible and must be signed by the 
physician who establishes the plan.
    (b) Recertification. (1) Timing and signature of recertification. 
Recertification is required at least every 2 months, preferably at the 
time the plan is reviewed, and must be signed by the physician who 
reviews the plan.
    (2) Content and basis of recertification. The recertification 
statement must indicate the continuing need for services and estimate 
how much longer the services will be required. Need for occupational 
therapy may be the basis for continuing services that were initiated 
because the individual needed skilled nursing care or physical or speech 
therapy.
    (c)  [Reserved]
    (d) Limitations on the performance of certification and plan of 
treatment functions. (1) Basic rule. Beginning November 26, 1982, and 
except as provided in paragraph (e) of this section, need for home 
health services to be provided by an HHA may not be certified or 
recertified, and a plan of treatment may not be established and 
reviewed, by any physician who has a significant ownership interest in, 
or a significant financial or contractual relationship with, that HHA.
    (2) Significant ownership interest. A physician is considered to 
have a significant ownership interest in an HHA if he or she--
    (i) Has a direct or indirect ownership interest of 5 percent or more 
in the

[[Page 766]]

capital, the stock, or the profits of the home health agency; or
    (ii) Has an ownership interest of 5 percent or more in any mortgage, 
deed of trust, note, or other obligation that is secured by the agency, 
if that interest equals 5 percent or more of the agency's assets.
    (3) Significant financial or contractual relationship. Beginning 
November 26, 1982, a physician is considered to have a significant 
financial or contractual relationship with an HHA if he or she--
    (i) Receives any compensation as an officer or director of the HHA; 
or
    (ii) Has direct or indirect business transactions with the HHA that, 
in any fiscal year, amount to more than $25,000 or 5 percent of the 
agency's total operating expenses, whichever is less. Business 
transactions means contracts, agreements, purchase orders, or leases to 
obtain services, supplies, equipment, and space and, after August 29, 
1986, salaried employment.
    (4) Exemption of uncompensated officer or director. A physician who 
serves as an uncompensated officer or director of an HHA is not 
precluded from performing physician certification and plan of treatment 
functions for that HHA.
    (e) Exceptions to limitations. (1) Exceptions for governmental 
entities. The limitations of paragraph (d) of this section do not apply 
to an HHA that is operated by a Federal, State, or local governmental 
authority.
    (2) Exception for sole community HHAs. The limitations of paragraph 
(d) of this section do not apply on or after the date on which the HHA 
is classified as a sole community HHA in accordance with paragraphs (f) 
and (g) of this section.
    (f) Procedures for classification as a sole community HHA. (1) The 
HHA must submit to its intermediary a request for classification, 
showing that it meets the conditions of paragraph (g) of this section.
    (2) The intermediary reviews the request and sends the request, with 
its recommendations, to HCFA.
    (3) HCFA reviews the request and the intermediary's recommendation 
and forwards its approval or disapproval to the intermediary
    (4) An approved classification as sole community HHA remains in 
effect without need for reapproval unless there is a change in the 
circumstances under which the classification was approved.
    (g) Basis for classification as a sole community HHA. HCFA approves 
a classification as a sole community HHA only if the HHA designates a 
particular area and shows that no other HHA provides services within 
that area.

[53 FR 6638, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988; 56 FR 8845, Mar. 
1, 1991]



Sec. 424.24  Requirements for medical and other health services furnished by providers under Medicare Part B.

    (a) Exempted services. Certification is not required for the 
following: (1) Hospital services and supplies incident to physicians' 
services furnished to outpatients. The exemption applies to drugs and 
biologicals that cannot be self-administered, but not to partial 
hospitalization services, as set forth in paragraph (e) of this section.
    (2) Outpatient hospital diagnostic services, including necessary 
drugs and biologicals, ordinarily furnished or arranged for by a 
hospital for the purpose of diagnostic study.
    (b) General rule. Medicare Part B pays for medical and other health 
services furnished by providers (and not exempted under paragraph (a) of 
this section) only if a physician certifies the content specified in 
paragraph (c)(1), (c)(4) or (e)(1) of this section, as appropriate.
    (c) Outpatient physical therapy and speech pathology services--(1) 
Content of certification. (i) The individual needs, or needed, physical 
therapy or speech pathology services.
    (ii) The services were furnished while the individual was under the 
care of a physician. (For physical therapy services furnished after July 
17, 1984, the physician may be a doctor of podiatric medicine, provided 
the services are consistent with the functions he or she is authorized 
to perform under State law.)
    (iii) The services were furnished under a plan of treatment that 
meets the requirements of Sec. 424.25.
    (2) Timing. The certification statement must be obtained at the time 
the plan of treatment is established, or as soon thereafter as possible.

[[Page 767]]

    (3) Signature. (i) If the plan of treatment is established by a 
physician, the certification must be signed by that physician.
    (ii) If the plan of treatment is established by a physical therapist 
or speech pathologist, the certification must be signed by a physician 
who has knowledge of the case.
    (4) Recertification--(i) Timing. Recertification statements are 
required at least every 30 days and must be signed by the physician who 
reviews the plan of treatment.
    (ii) Content. The continuing need for physical therapy or speech 
pathology services and an estimate of how much longer the services will 
be needed.
    (d)  [Reserved]
    (e) Partial hospitalization services: Content of certification and 
plan of treatment requirements--(1) Content of certification. (i) The 
individual would require inpatient psychiatric care if the partial 
hospitalization services were not provided.
    (ii) The services are or were furnished while the individual was 
under the care of a physician.
    (iii) The services were furnished under a written plan of treatment 
that meets the requirements of paragraph (e)(2) of this section.
    (2) Plan of treatment requirements. (i) The plan is an 
individualized plan that is established and is periodically reviewed by 
a physician in consultation with appropriate staff participating in the 
program, and that sets forth--
    (A) The physician's diagnosis;
    (B) The type, amount, duration, and frequency of the services; and
    (C) The treatment goals under the plan.
    (ii) The physician determines the frequency and duration of the 
services taking into account accepted norms of medical practice and a 
reasonable expectation of improvement in the patient's condition.
    (f) All other covered medical and other health services furnished by 
providers--(1) Content of certification. The services were medically 
necessary,
    (2) Signature. The certificate must be signed by a physician who has 
knowledge of the case.
    (3) Timing. The physician may provide certification at the time the 
services are furnished or, if services are provided on a continuing 
basis, either at the beginning or at the end of a series of visits.
    (4) Recertification. Recertification of continued need for services 
is not required.

[53 FR 6638, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988; 56 FR 8845, 8853, 
Mar. 1, 1991]



Sec. 424.27  Requirements for comprehensive outpatient rehabilitation facility (CORF) services.

    Medicare Part B pays for CORF services only if a physician 
certifies, and the facility physician recertifies, the content specified 
in paragraphs (a) and (b)(2) of this section, as appropriate.
    (a) Certification: Content. (1) The services were required because 
the individual needed skilled rehabilitation services;
    (2) The services were furnished while the individual was under the 
care of a physician; and
    (3) A written plan of treatment has been established and is reviewed 
periodically by a physician.
    (b) Recertification--(1) Timing. Recertification is required at 
least every 60 days, based on review by a facility physician who, when 
appropriate, consults with the professional personnel who furnish the 
services.
    (2) Content. (i) The plan is being followed;
    (ii) The patient is making progress in attaining the rehabilitation 
goals; and,
    (iii) The treatment is not having any harmful effect on the patient.



                      Subpart C--Claims for Payment



Sec. 424.30  Scope.

    This subpart sets forth the requirements, procedures, and time 
limits for claiming Medicare payments. Claims must be filed in all cases 
except when services are furnished on a prepaid capitation basis by a 
health maintenance organization (HMO), a competitive medical plan (CMP), 
or a health care prepayment plan (HCPP). Special procedures for claiming 
payment after the beneficiary has died and for certain

[[Page 768]]

bills paid by organizations are set forth in subpart E of this part.

[53 FR 6639, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



Sec. 424.32  Basic requirements for all claims.

    (a) A claim must meet the following requirements:
    (1) A claim must be filed with the appropriate intermediary or 
carrier on a form prescribed by HCFA in accordance with HCFA 
instructions.
    (2) A claim for physician services, clinical psychologist services, 
or clinical social worker services must include appropriate diagnostic 
coding for those services using ICD-9-CM, and a claim for physician 
services furnished to an SNF resident under Sec. 411.15(p)(2) of this 
chapter must also include the SNF's Medicare provider number.
    (3) A claim must be signed by the beneficiary or the beneficiary's 
representative (in accordance with Sec. 424.36(b)).
    (4) A claim must be filed within the time limits specified in 
Sec. 424.44.
    (5) A Part B claim filed by an SNF must include appropriate HCPCS 
coding.
    (b) The prescribed forms for claims are the following:

    HCFA-1450--Uniform Institutional Provider Bill. (This form is for 
institutional provider billing for Medicare inpatient, outpatient and 
home health services.)
    HCFA-1490S--Request for Medicare payment. (For use by a patient to 
request payment for medical expenses.)
    HCFA-1490U--Request for Medicare Payment by Organization. (For use 
by an organization requesting payment for medical services.)
    HCFA-1491--Request for Medicare Payment-Ambulance. (For use by an 
organization requesting payment for ambulance services.)
    HCFA-1500--Health Insurance Claim Form. (For use by physicians and 
other suppliers to request payment for medical services.)
    HCFA-1660--Request for Information-Medicare Payment for Services to 
a Patient now Deceased. (For use in requesting amounts payable under 
title XVIII to a deceased beneficiary.)

    (c) Where claims forms are available. Excluding forms HCFA-1450 and 
HCFA-1500, all claims forms prescribed for use in the Medicare program 
are distributed free-of-charge to the public, institutions, or 
organizations. The HCFA-1450 and HCFA-1500 may be obtained only by 
commercial purchase. All other claims forms can be obtained upon request 
from HCFA or any Social Security branch or district office, or from 
Medicare intermediaries or carriers. The HCFA-1490S is also available at 
local Social Security Offices.

[53 FR 6639, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988, as amended at 59 
FR 10299, Mar. 4, 1994; 63 FR 20130, Apr. 23, 1998; 63 FR 26311, May 12, 
1998; 63 FR 53307, Oct. 5, 1998]



Sec. 424.33  Additional requirements: Claims for services of providers and claims by suppliers and nonparticipating hospitals.

    All claims for services of providers and all claims by suppliers and 
nonparticipating hospitals must be--
    (a) Filed by the provider, supplier, or hospital; and
    (b) Signed by the provider, supplier, or hospital unless HCFA 
instructions waive this requirement.



Sec. 424.34  Additional requirements: Beneficiary's claim for direct payment.

    (a) Basic rule. A beneficiary's claim for direct payment for 
services furnished by a supplier, or by a nonparticipating hospital that 
has not elected to claim payment for emergency services, must include an 
itemized bill or a ``report of services'', as specified in paragraphs 
(b) and (c) of this section.
    (b) Itemized bill from the hospital or supplier. The itemized bill 
for the services, which may be receipted or unpaid, must include all of 
the following information:
    (1) The name and address of--
    (i) The beneficiary;
    (ii) The supplier or nonparticipating hospital that furnished the 
services; and
    (iii) The physician who prescribed the services if they were 
furnished by a supplier other than the physician.
    (2) The place where each service was furnished, e.g., home, office, 
independent laboratory, hospital.
    (3) The date each service was furnished.
    (4) A listing of the services in sufficient detail to permit 
determination of payment under the fee schedule for

[[Page 769]]

physicians' services; for itemized bills from physicians, appropriate 
diagnostic coding using ICD-9-CM must be used.
    (5) The charges for each service.
    (c) Report of services furnished by a supplier. For Medicare Part B 
services furnished by a supplier, the beneficiary claims may include the 
``Report of Services'' portion of the appropriate claims form, completed 
by the supplier in accordance with HCFA instructions, in lieu of an 
itemized bill.

[53 FR 6634, Mar. 2, 1988, as amended at 59 FR 10299, Mar. 4, 1994; 59 
FR 26740, May 24, 1994]



Sec. 424.36  Signature requirements.

    (a) General rule. The beneficiary's own signature is required on the 
claim unless the beneficiary has died or the provisions of paragraph 
(b), (c), or (d) of this section apply.
    (b) Who may sign when the beneficiary is incapable. If the 
beneficiary is physically or mentally incapable of signing the claim, 
the claim may be signed on his or her behalf by one of the following:
    (1) The beneficiary's legal guardian.
    (2) A relative or other person who receives social security or other 
governmental benefits on the beneficiary's behalf.
    (3) A relative or other person who arranges for the beneficiary's 
treatment or exercises other responsibility for his or her affairs.
    (4) A representative of an agency or institution that did not 
furnish the services for which payment is claimed but furnished other 
care, services, or assistance to the beneficiary.
    (5) A representative of the provider or of the nonparticipating 
hospital claiming payment for services it has furnished if the provider 
or nonparticipating hospital is unable to have the claim signed in 
accordance with paragraph (b) (1), (2), (3), or (4) of this section.
    (c) Who may sign if the beneficiary was not present for the service. 
If a provider, nonparticipating hospital, or supplier files a claim for 
services that involved no personal contact between the provider, 
hospital, or supplier and the beneficiary (for example, a physician sent 
a blood sample to the provider for diagnostic tests), a representative 
of the provider, hospital, or supplier may sign the claim on the 
beneficiary's behalf.
    (d) Claims by entities that provide coverage complementary to 
Medicare. A claim by an entity that provides coverage complementary to 
Medicare Part B may be signed by the entity on the beneficiary's behalf.
    (e) Acceptance of other signatures for good cause. If good cause is 
shown, HCFA may honor a claim signed by a party other than those 
specified in paragraphs (a) through (c) of this section.

[53 FR 6640, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988, as amended at 53 
FR 28388, July 28, 1988]



Sec. 424.37  Evidence of authority to sign on behalf of the beneficiary.

    (a) Beneficiary incapable. When a party specified in Sec. 424.36(b) 
signs a claim or request for payment statement, he or she must also 
submit a brief statement that--
    (1) Describes his or her relationship to the beneficiary; and
    (2) Explains the circumstances that make it impractical for the 
beneficiary to sign the claim or statement.
    (b) Beneficiary not present for services. When a representative of 
the provider, nonparticipating hospital, or supplier signs a claim or 
request for payment statement under Sec. 424.36(c), he or she must 
explain why it was not possible to obtain the beneficiary's signature. 
(For example: ``Patient not physically present for test.'')

[53 FR 6640, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



Sec. 424.40  Request for payment effective for more than one claim.

    (a) Basic procedure. A separate request for payment statement 
prescribed by HCFA and signed by the beneficiary (or by his or her 
representative) may be included in claims by reference, in the 
circumstances specified in paragraphs (b) through (d) of this section.
    (b) Claims filed by a provider or nonparticipating hospital--(1) 
Inpatient services. A signed request for payment statement, included in 
the first claim for Part A services furnished by a facility (a 
participating hospital or SNF, or a nonparticipating hospital that has 
elected to claim payment) during a

[[Page 770]]

beneficiary's period of confinement, may be effective for all claims for 
Part A services the facility furnishes that beneficiary during that 
confinement.
    (2) Home health services and outpatient physical therapy or speech 
pathology services. A signed request for payment statement, included in 
the first claim for home health services or outpatient physical therapy 
or speech pathology services furnished by a provider under a plan of 
treatment, may be effective for all claims for home health services or 
outpatient physical therapy or speech pathology services furnished by 
the provider under that plan of treatment.
    (c) Signed statement in the provider record--(1) Services to 
inpatients. A signed request for payment statement in the files of a 
participating hospital or SNF may be effective for all claims for 
services furnished to the beneficiary during a single inpatient stay in 
that facility--
    (i) By the hospital or SNF;
    (ii) By physicians, if their services are billed by the hospital or 
SNF in its name; or
    (iii) By physicians who bill separately, if the services were 
furnished in the hospital or SNF.
    (2) Services to outpatients: Providers and renal dialysis 
facilities. A signed request for payment statement retained in the 
provider's or facility's files may be effective indefinitely, for all 
claims for services furnished to that beneficiary on an outpatient 
basis--
    (i) By the provider or facility;
    (ii) By physicians whose services are billed by the provider or 
facility in its name; or
    (iii) By physicians who bill separately, if the services were 
furnished in the provider or facility.
    (3) Services to outpatients: Independent rural health clinics and 
Federally qualified health centers. A signed request for payment 
statement retained in the clinic's or center's files may be effective 
indefinitely for all claims for services furnished to that beneficiary 
by the clinic.
    (d) Signed statement in the supplier's record. A signed request for 
payment statement retained in the supplier's file may be effective 
indefinitely subject to the following restrictions:
    (1) This policy does not apply to unassigned claims for rental of 
durable medical equipment (DME).
    (2) With respect to assigned claims for rental or purchase of DME, a 
new statement is required if another item of equipment is rented or 
purchased.

[53 FR 6634, Mar. 2, 1988, as amended at 57 FR 24982, June 12, 1992]



Sec. 424.44  Time limits for filing claims.

    (a) Basic limits. Except as provided in paragraph (b) of this 
section, the claim must be mailed or delivered to the intermediary or 
carrier, as appropriate--
    (1) On or before December 31 of the following year for services that 
were furnished during the first 9 months of a calendar year; and
    (2) On or before December 31 of the second following year for 
services that were furnished during the last 3 months of the calendar 
year.
    (b) Extension of filing time because of error or misrepresentation. 
(1) The time for filing a claim will be extended if failure to meet the 
deadline in paragraph (a) of this section was caused by error or 
misrepresentation of an employee, intermediary, carrier, or agent of the 
Department that was performing Medicare functions and acting within the 
scope of its authority.
    (2) The time will be extended through the last day of the 6th 
calendar month following the month in which the error or 
misrepresentation is corrected.
    (c) Extension of period ending on a nonworkday. If the last day of 
the period allowed under paragraph (a) or (b) of this section falls on a 
Federal nonworkday (a Saturday, Sunday, legal holiday, or a day which by 
statute or Executive Order is declared to be a nonworkday for Federal 
employees), the time is extended to the next succeeding workday.



Sec. 424.45  What constitutes a claim for purposes of meeting the time limits.

    A written statement of intent to claim Medicare benefits constitutes 
a claim if--
    (a) The statement is filed with HCFA or any carrier or intermediary 
within the time limits specified in Sec. 424.44;
    (b) The statement indicates the intent to claim Medicare payment for

[[Page 771]]

specified services furnished to an identified beneficiary; and
    (c) A claim that meets the requirements of Sec. 424.32(a) is filed 
within 6 months after the month in which the intermediary or carrier, as 
appropriate, advises the claimant to file that claim.



              Subpart D--To Whom Payment Is Ordinarily Made



Sec. 424.50  Scope.

    (a) This subpart specifies to whom Medicare payment is ordinarily 
made for different kinds of services.
    (b) Subpart E of this part sets forth provisions applicable in 
special situations.
    (c) Subpart F of this part specifies the exceptional circumstances 
under which payment may be made to an assignee or reassignee.



Sec. 424.51  Payment to the provider.

    (a) Basic rule. Except as specified in paragraph (b) of this 
section, Medicare pays the provider for services furnished by a 
provider.
    (b) Exception. Medicare pays the beneficiary for outpatient hospital 
services if the hospital has collected an amount in excess of the unmet 
deductible and coinsurance, as specified in Sec. 489.30(b)(4) of this 
chapter.



Sec. 424.52  Payment to a nonparticipating hospital.

    Medicare pays a nonparticipating hospital for the following 
services, if covered, in the specified circumstances:
    (a) Emergency inpatient and outpatient services furnished by a U.S. 
hospital, if the hospital has in effect an election to claim payment in 
accordance with subpart G of this part.
    (b) Certain medical and other health services covered under Medicare 
Part B and furnished by a U.S. hospital, if the hospital meets the 
requirements of Sec. 424.55 for payment as a supplier.
    (c) Emergency or nonemergency inpatient services furnished by a 
foreign hospital if the hospital has in effect an election to claim 
payment in accordance with subpart G of this part.



Sec. 424.53  Payment to the beneficiary.

    Medicare pays the beneficiary for the following services, if 
covered, in the specified circumstances:
    (a) Emergency inpatient and outpatient services furnished by a 
nonparticipating U.S. hospital that has not elected to claim payment in 
accordance with subpart G of this part.
    (b) Certain medical and other health services covered under Medicare 
Part B and furnished by a nonparticipating U.S. hospital, if the 
hospital does not receive assigned payment as a supplier under 
Sec. 424.55.
    (c) Emergency or nonemergency services furnished by a foreign 
hospital if the hospital does not have in effect an election to claim 
payment in accordance with subpart H of this part.
    (d) Physician and ambulance services furnished outside the United 
States.
    (e) Services furnished by a supplier if the claim has not been 
assigned to the supplier.



Sec. 424.54  Payment to the beneficiary's legal guardian or representative payee.

    Medicare may pay amounts due a beneficiary to the beneficiary's 
legal guardian or representative payee.



Sec. 424.55  Payment to the supplier.

    (a) Medicare pays the supplier for covered services if the 
beneficiary (or the person authorized to request payment on the 
beneficiary's behalf) assigns the claim to the supplier and the supplier 
accepts assignment.
    (b) In accepting assignment, the supplier agrees to the following:
    (1) To accept, as full charge for the service, the amount approved 
by the carrier as the basis for determining the Medicare Part B payment 
(the reasonable charge or the lesser of the fee schedule amount and the 
actual charge).
    (2) To limit charges to the beneficiary or any other source as 
follows:
    (i) To collect nothing for those services for which Medicare pays 
100 percent of the Medicare approved amount.
    (ii) To collect only the difference between the Medicare approved 
amount and the Medicare Part B payment (for example, the amount of any 
reduction in incurred expenses under Sec. 410.155(c),

[[Page 772]]

any applicable deductible amount, and any applicable coinsurance amount) 
for services for which Medicare pays less than 100 percent of the 
approved amount.
    (3) Not to charge the beneficiary when Medicare paid for services 
determined to be ``not reasonable or necessary'' if--
    (i) The beneficiary was without fault in the overpayment; and
    (ii) The determination that the payment was incorrect was made by 
the carrier after the third year following the year in which the carrier 
sent notice to the beneficiary that it approved the payment.

[53 FR 6634, Mar. 2, 1988, as amended at 63 FR 20130, Apr. 23, 1998]



Sec. 424.56  Payment to a beneficiary and to a supplier.

    (a) Conditions for split payment. If the beneficiary assigns the 
claim after paying part of the bill, payment may be made partly to the 
beneficiary and partly to the supplier.
    (b) Payment to the supplier. Payment to the supplier who submits the 
assigned claim is for whichever of the following amounts is less:
    (1) The reasonable charge minus the amount the beneficiary had 
already paid to the supplier; or
    (2) The full Part B benefit due for the services furnished.
    (c) Payment to the beneficiary. Any part of the Part B benefit 
which, on the basis of paragraph (b) of this section, is not payable to 
the supplier, is paid to the beneficiary.
    (d) Examples.

    Example 1. An assigned bill of $300 on which partial payment of $100 
has been made is submitted to the carrier. The carrier determines that 
$300 is the reasonable charge for the service furnished. Total payment 
due is 80 percent of $300 or $240. Of this amount, $200 (the difference 
between the $100 partial payment and the $300 reasonable charge) is paid 
to the supplier. The remaining $40 is paid to the beneficiary.
    Example 2. An assigned bill of $325 on which partial payment of $275 
has been made is submitted to the carrier. The carrier determines that 
$275 is the reasonable charge for the services. Total payment due is 80 
percent of $275 or $220. The $220 is paid to the beneficiary, since any 
payment to the supplier, when added to the $275 partial payment would 
exceed the reasonable charge for the services furnished.

[53 FR 6641, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



Sec. 424.57  Special payment rules for items furnished by DMEPOS suppliers and issuance of DMEPOS supplier billing numbers.

    (a) Definitions. As used in this section ``DMEPOS'' is the acronym 
for durable medical equipment, prosthetics, orthotics and supplies. A 
``supplier'' is an entity or individual, including a physician or part A 
provider, which sells or rents part B covered items to Medicare 
beneficiaries and which meets the standards in paragraph (c) of this 
section.
    (b) Medicare pays for items furnished by a supplier with a billing 
number to the--
    (1) Supplier if the beneficiary (or the person authorized to request 
payment on the beneficiary's behalf) assigns the claim to the supplier 
and the supplier accepts assignment;
    (2) Beneficiary, if the supplier does not accept assignment; or
    (3) Partly to the beneficiary and partly to the supplier, if the 
supplier accepts assignment of the bill, as described in Sec. 424.56.
    (c) Medicare does not issue a billing number to a supplier that 
submits claims for items listed in Sec. 421.210(b) of this subchapter 
until that supplier meets, and certifies that it meets, the following 
standards. The supplier--
    (1) In response to orders which it receives, fills those orders from 
its own inventory or inventory in other companies with which it has 
contracted to fill such orders or fabricates or fits items for sale from 
supplies it buys under a contract;
    (2) Is responsible for delivery of Medicare covered items to 
Medicare beneficiaries;
    (3) Honors all warranties express and implied under applicable State 
law;
    (4) Answers any questions or complaints a beneficiary has about the 
item or use of the item that was sold or rented to him or her, and 
refers beneficiaries with Medicare questions to the appropriate carrier;

[[Page 773]]

    (5) Maintains and repairs directly or through a service contract 
with another company, items it has rented to beneficiaries;
    (6) Accepts returns of substandard (less than full quality for the 
particular item) or unsuitable items (inappropriate for the beneficiary 
at the time it was fitted and/or sold) from beneficiaries;
    (7) Discloses consumer information to each beneficiary with whom it 
does business which consists of the supplier standards to which it must 
conform;
    (8) Complies with the disclosure provisions in Sec. 420.206;
    (9) Complies with all applicable State and Federal licensure and 
regulatory requirements;
    (10) Maintains a physical facility on an appropriate site; and
    (11) Has proof of appropriate liability insurance.
    (d) If a supplier is found not to meet the standards in paragraph 
(c) of this section, its billing number is revoked, effective 15 days 
after the entity is sent notice of the revocation. A billing number may 
be issued, with the concurrence of HCFA, when a supplier has 
successfully completed a corrective action plan rectifying past 
violations of the supplier standards and provided sufficient assurance 
that it will comply with the supplier standards in the future. 
Corrective action includes repayment of monies due to beneficiaries and 
Medicare, and honoring applicable warranties.
    (e) Suppliers must renew their applications for a billing number 3 
years after the billing numbers are first reissued, except for the first 
reissuance process, as follows: suppliers must renew applications for 
supplier numbers 2 years after initial issuance of billing numbers for 
one third of all suppliers. Another one third of suppliers must reapply 
3 years after initial issuance. The last third of suppliers must reapply 
4 years after initial issuance. Thereafter, each supplier must reapply 3 
years after its last number is issued, unless no claim for an item 
furnished by a supplier has been submitted for four consecutive 
quarters, in which case the supplier must submit a new request for 
another billing number.
    (f) Suppliers are required to have complaint resolution protocols to 
address beneficiary complaints which relate to the supplier standards in 
paragraph (c) of this section and to keep written complaints and related 
correspondence, and any notes of actions taken in response to written or 
oral complaints. Failure to maintain such information may be considered 
evidence that supplier standards have not been met. If a carrier 
determines that a supplier is not satisfactorily responding to one or 
more beneficiary complaints, the carrier may require that a supplier 
maintain the following information on all written and oral beneficiary 
complaints, including telephone complaints, it receives: The name, 
address, telephone number and health insurance claim number of the 
complaint, a summary of the complaint and the date it was made; the name 
of the person taking the complaint, a summary of any actions taken to 
resolve the complaint; and, if an investigation was not conducted, the 
name of the person making the decision and the reason for the decision.

[57 FR 27308, June 18, 1992, as amended at 60 FR 63444, Dec. 11, 1995]



        Subpart E--To Whom Payment is Made in Special Situations



Sec. 424.60  Scope.

    (a) This subpart sets forth provisions applicable to payment after 
the beneficiary's death and payment to entities that provide coverage 
complementary to Medicare Part B.
    (b) The provisions applicable to payment for services excluded as 
custodial care or services not reasonable and necessary are set forth in 
Secs. 405.332 through 405.336 of this chapter.

[53 FR 6634, Mar. 2, 1988, as amended at 53 FR 28388, July 28, 1988]



Sec. 424.62  Payment after beneficiary's death: Bill has been paid.

    (a) Scope. This section specifies the persons whom Medicare pays, 
and the conditions for payments, when the beneficiary has died and the 
bill has been paid.
    (b) Situation. (1) The beneficiary has received covered services for 
which he

[[Page 774]]

could receive direct payment under Sec. 424.53.
    (2) The beneficiary died without receiving Medicare payment.
    (3) The bill has been paid.
    (c) Persons whom Medicare pays. In the situation described in 
paragraph (b) of this section, Medicare pays the following persons in 
the specified circumstances:
    (1) The person or persons who, without a legal obligation to do so, 
paid for the services with their own funds, before or after the 
beneficiary's death.
    (2) The legal representative of the beneficiary's estate if the 
services were paid for by the beneficiary before he or she died, or with 
funds from the estate.
    (3) If the deceased beneficiary or his or her estate paid for the 
services and no legal representative of the estate has been appointed, 
the survivors, in the following order of priority:
    (i) The person found by SSA to be the surviving spouse, if he or she 
was either living in the same household with the deceased at the time of 
death, or was, for the month of death, entitled to monthly social 
security or railroad retirement benefits on the basis of the same 
earnings record as the deceased beneficiary;
    (ii) The child or children, who were, for the month of death, 
entitled to monthly social security or railroad retirement benefits on 
the basis of the same earnings record as the deceased (and, if there is 
more than one child, in equal parts to each child);
    (iii) The parent or parents, who were, for the month of death, 
entitled to monthly social security or railroad retirement benefits on 
the basis of the same earnings record as the deceased (and, if there is 
more than one parent, in equal parts to each parent);
    (iv) The person found by SSA to be the surviving spouse who was not 
living in the same household with the deceased at the time of death and 
was not, for the month of death, entitled to monthly social security or 
railroad retirement benefits on the basis of the same earnings record as 
the deceased beneficiary;
    (v) The child or children who were not entitled to monthly social 
security or railroad retirement benefits on the basis of the same 
earnings record as the deceased (and, if there is more than one child, 
in equal parts to each child);
    (vi) The parent or parents who were not entitled to monthly social 
security or railroad retirement benefits on the basis of the same 
earnings record as the deceased (and, if there is more than one parent, 
in equal parts to each parent).
    (4) If none of the listed relatives survive, no payment is made.
    (5) If the services were paid for by a person other than the 
deceased beneficiary, and that person died before payment was completed, 
Medicare does not pay that person's estate. Medicare pays a surviving 
relative of the deceased beneficiary in accordance with the priorities 
in paragraph (c)(3) of this section. If none of those relatives survive. 
Medicare pays the legal representative of the deceased beneficiary's 
estate. If there is no legal representative of the estate, no payment is 
made.
    (d) Amount of payment. The amount of payment is the amount due, 
including unnegotiated checks issued for the purpose of making direct 
payment to the beneficiary.
    (e) Conditions for payment. For payment to be made under this 
section--
    (1) The person who claims payment must meet the following 
requirements:
    (i) Submit a claim on a HCFA-prescribed form and an itemized bill in 
accordance with the requirements of this subpart. (See paragraph (g) of 
this section for an exception.)
    (ii) Provide evidence that the services were furnished if the 
intermediary or carrier requests it.
    (iii) Provide evidence of payment of the bill and of the identity of 
the person who paid it.
    (2) If a person claims payment as the legal representative of the 
deceased beneficiary's estate, he or she must also submit a copy of the 
papers showing appointment as legal representative.
    (3) If a person claims payment as a survivor of the beneficiary, he 
or she must also submit evidence, if the intermediary or carrier 
requests it, that he or she is highest on the priority list of paragraph 
(c)(3) of this section.
    (f) Evidence of payment. Evidence of payment may be--

[[Page 775]]

    (1) A receipted bill, or a properly completed ``Report of Services'' 
section of a claim form, showing who paid the bill;
    (2) A cancelled check;
    (3) A written statement from the provider or supplier or an 
authorized staff member; or
    (4) Other probative evidence.
    (g) Exception: Claim submitted before beneficiary died. If a claim 
and itemized bill has been submitted by or on behalf of the beneficiary 
before he or she died, submission of another claim form and itemized 
bill is not required; any written request by the person seeking payment 
is sufficient.



Sec. 424.64  Payment after beneficiary's death: Bill has not been paid.

    (a) Scope. This section specifies whom Medicare pays, and the 
conditions for payment when the beneficiary has died and the bill has 
not been paid.
    (b) Situation. (1) The beneficiary has received covered Part B 
services furnished by a physician or other supplier.
    (2) The beneficiary died without making an assignment to the 
physician or other supplier or receiving Medicare payment.
    (3) The bill has not been paid.
    (c) To whom payment is made. In the situation described in paragraph 
(b) of this section, Medicare pays as follows:
    (1) Payment to the supplier. Medicare pays the physician or other 
supplier if he or she--
    (i) Files a claim on a HCFA-prescribed form in accordance with the 
applicable requirements of this subpart;
    (ii) Upon request from the carrier, provides evidence that the 
services for which it claims payment were, in fact, furnished; and
    (iii) Agrees in writing to accept the reasonable charge as the full 
charge for the services.
    (2) Payment to a person who assumes legal obligation to pay for the 
services. If the physician or other supplier does not agree to accept 
the reasonable charge as full charge for the service, Medicare pays any 
person who submits to the carrier all of the following:
    (i) A statement indicating that he or she has assumed legal 
obligation to pay for the services.
    (ii) A claim on a HCFA-prescribed form in accordance with the 
requirements of this subpart. (If a claim had been submitted by or on 
behalf of the beneficiary before he or she died, submission of another 
claim form is not required; a written request by the person seeking 
payment meets the requirement for a claim.)
    (iii) An itemized bill that identifies the claimant as the person to 
whom the physician or other supplier holds responsible for payment. (If 
such an itemized bill had been submitted by or on behalf of the 
beneficiary before he or she died, submission of another itemized bill 
is not required.)
    (iv) If the intermediary or carrier requests it, evidence that the 
services were actually furnished.

[53 FR 6634, Mar. 2, 1988, as amended at 53 FR 28388, July 28, 1988]



Sec. 424.66  Payment to entities that provide coverage complementary to Medicare Part B.

    (a) Conditions for payment. Medicare may pay an entity for Part B 
services furnished by a physician or other supplier if the entity meets 
all of the following requirements:
    (1) Provides coverage of the service under a complementary health 
benefit plan (this is, the coverage that the plan provides is 
complementary to Medicare benefits and covers only the amount by which 
the Part B payment falls short of the approved charge for the service 
under the plan).
    (2) Has paid the person who provided the service an amount 
(including the amount payable under the Medicare program) that the 
person accepts as full payment.
    (3) Has the written authorization of the beneficiary (or of a person 
authorized to sign claims on his behalf under Sec. 424.36) to receive 
the Part B payment for the services for which the entity pays.
    (4) Relieves the beneficiary of liability for payment for the 
service and will not seek any reimbursement from the beneficiary, his or 
her survivors or estate.
    (5) Submits any information HCFA or the carrier may request, 
including an itemized physician or supplier bill, in

[[Page 776]]

order to apply the requirements under the Medicare program.
    (6) Identifies and excludes from its requests for payment all 
services for which Medicare is the secondary payer.
    (b) Services paid for by the entity. An entity is not required to 
pay and claim reimbursement for all Part B services furnished to members 
of its plans. However, if it does not pay and claim reimbursement for 
all those services, it must establish in advance precise criteria for 
identifying the services for which it will pay and claim reimbursement.

[53 FR 28388, July 28, 1988; 53 FR 40231, Oct. 14, 1988]



     Subpart F--Limitations on Assignment and Reassignment of Claims



Sec. 424.70  Basis and scope.

    (a) Statutory basis. This subpart implements sections 1815(c) and 
1842(b)(6) of the Act, which establish limitations on who may receive 
payments due a provider or supplier of services or a beneficiary.
    (b) Scope. This subpart--
    (1) Prohibits the assignment, reassignment, or other transfer of the 
right to Medicare payments except under specified conditions;
    (2) Sets forth the sanctions that HCFA may impose on a provider or 
supplier that violates this prohibition, or on a supplier that violates 
the conditions to which it agreed in accepting assignment from the 
individual; and
    (3) Specifies the conditions for payment under court-ordered 
assignments or reassignments.



Sec. 424.71  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Court of competent jurisdiction means a court that has jurisdiction 
over the subject matter and the parties before it.
    Facility means a hospital or other institution that furnishes health 
care services to inpatients.
    Health care delivery system or system means a public or private 
organization for delivering health services. The term includes, but is 
not limited to, clinics and health care prepayment plans.
    Power of attorney means any written documents by which a principal 
authorizes an agent to--
    (1) Receive, in the agent's name, any payments due the principal;
    (2) Negotiate checks payable to the principal; or
    (3) Receive, in any other manner, direct payment of amounts due the 
principal.



Sec. 424.73  Prohibition of assignment of claims by providers.

    (a) Basic prohibition. Except as specified in paragraph (b) of this 
section, Medicare does not pay amounts that are due a provider to any 
other person under assignment, or power of attorney, or any other direct 
payment arrangement.
    (b) Exceptions to the prohibition--(1) Payment to a government 
agency or entity. Subject to the requirements of the Assignment of 
Claims Act (31 U.S.C. 3727), Medicare may pay a government agency or 
entity under an assignment by the provider.
    (2) Payment under assignment established by court order. Medicare 
may pay under an assignment established by, or in accordance with, the 
order of a court of competent jurisdiction if the assignment meets the 
conditions set forth in Sec. 424.90.
    (3) Payment to an agent. Medicare may pay an agent who furnishes 
billing and collection services to the provider if the following 
conditions are met:
    (i) The agent receives the payment under an agency agreement with 
the provider;
    (ii) The agent's compensation is not related in any way to the 
dollar amounts billed or collected;
    (iii) The agent's compensation is not dependent upon the actual 
collection of payment;
    (iv) The agent acts under payment disposition instructions that the 
provider may modify or revoke at any time; and
    (v) The agent, in receiving the payment, acts only on behalf of the 
provider.

Payment to an agent will always be made in the name of the provider.

[[Page 777]]



Sec. 424.74  Termination of provider agreement.

    HCFA may terminate a provider agreement, in accordance with 
Sec. 489.53(a)(1) of this chapter, if the provider--
    (a) Executes or continues a power of attorney, or enters into or 
continues any other arrangement, that authorizes or permits payment 
contrary to the provisions of this subpart; or
    (b) Fails to furnish, upon request by HCFA or the intermediary, 
evidence necessary to establish compliance with the requirements of this 
subpart.



Sec. 424.80  Prohibition of reassignment of claims by suppliers.

    (a) Basic prohibition. Except as specified in paragraph (b) of this 
section, Medicare does not pay amounts that are due a supplier under an 
assignment to any other person under reassignment, power of attorney, or 
any other direct arrangement.
    (b) Exceptions to the basic rule--(1) Payment to employer. Medicare 
may pay the supplier's employer if the supplier is required, as a 
condition of employment, to turn over to the employer the fees for his 
or her services.
    (2) Payment to a facility. Medicare may pay the facility in which 
the services were furnished if there is a contractual arrangement 
between the facility and the supplier under which the facility bills for 
the supplier's services.
    (3) Payment to health care delivery system. Medicare may pay a 
health care delivery system if there is a contractual arrangement 
between the system and the supplier under which the system bills for the 
supplier's services.
    (4) Payment to a government agency or entity. Subject to the 
requirements of the Assignment of Claims Act (31 U.S.C. 3727), Medicare 
may pay a government agency or entity under a reassignment by the 
supplier.
    (5) Payment under a reassignment established by court order. 
Medicare may pay under a reassignment established by, or in accordance 
with, the order of a court competent jurisdiction, if the reassignment 
meets the conditions set forth in Sec. 424.90.
    (6) Payment to an agent. Medicare may pay an agent who furnishes 
billing and collection services to the supplier, or to the employer, 
facility, or system specified in paragraphs (b) (1), (2) and (3) of this 
section, if the conditions of Sec. 424.73(b)(3) for payment to a 
provider's agent are met by the agent of the supplier or of the 
employer, facility, or system. Payment to an agent will always be made 
in the name of the supplier or the employer, facility, or system.
    (c) Rules applicable to an employer, facility, or system. An 
employer, facility, or system that may receive payment under paragraph 
(b)(1), (b)(2), or (b)(3) of this section will itself be considered the 
supplier of those services for purposes of the rules of subparts C, D, 
and E of this part.

[53 FR 6634, Mar. 2, 1988, as amended at 54 FR 4027, Jan. 27, 1989]



Sec. 424.82  Revocation of right to receive assigned benefits.

    (a) Scope. This section sets forth the conditions and procedures for 
revocation of the right of a supplier or other party to receive Medicare 
payments.
    (b) Definition. As used in this section, other party means an 
employer, facility, or health care delivery system to which Medicare may 
make payment under Sec. 424.80(b) (1), (2), or (3).
    (c) Basis for revocation. HCFA may revoke the right of a supplier or 
other party to receive Medicare payments if the supplier or other party, 
after warning by HCFA or the carrier--
    (1) Violates the terms of assignment in Sec. 424.55(b).
    (2) Continues collection efforts or fails to refund moneys 
incorrectly collected, in violation of the terms of assignment in 
Sec. 424.55(b).
    (3) Executes or continues in effect a reassignment or power of 
attorney or any other arrangement that seeks to obtain payment contrary 
to the provisions of Sec. 424.80; or
    (4) Fails to furnish evidence necessary to establish its compliance 
with the requirements of Sec. 424.80.
    (d) Proposed revocation: Notice and opportunity for review. If HCFA 
proposes to revoke the right to payment in accordance with paragraph (c) 
of this section, it will send the supplier or other party a written 
notice that--
    (1) States the reasons for the proposed revocation; and

[[Page 778]]

    (2) Provides an opportunity for the supplier or other party to 
submit written argument and evidence against the proposed revocation. 
HCFA usually allows 15 days from the date on the notice, but may extend 
or reduce the time as circumstances require.
    (e) Actual revocation: Timing, notice, and opportunity for hearing--
(1) Timing. HCFA determines whether to revoke after considering any 
written argument or evidence submitted by the supplier or other party 
or, if none is submitted, at the expiration of the period specified in 
the notice of proposed revocation.
    (2) Notice and opportunity for hearing. The notice of revocation 
specifies--
    (i) The reasons for the revocation;
    (ii) That the revocation is effective as of the date on the notice;
    (iii) That the supplier or other party may, within 60 days from the 
date on the notice (or a longer period if the notice so specifies), 
request an administrative hearing and may be represented by counsel or 
other qualified representative.
    (iv) That the carrier will withhold payment on any claims submitted 
by the supplier or other party until the period for requesting a hearing 
expires or, if a hearing is requested, until the hearing officer issues 
a decision;
    (v) That if the hearing decision reverses the revocation, the 
carrier will pay the supplier's or other party's claims; and
    (vi) That if a hearing is not requested or the hearing decision 
upholds the revocation, payment will be made to the beneficiary or to 
another person or agency authorized to receive payment on his or her 
behalf.

[53 FR 6644, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



Sec. 424.83  Hearings on revocation of right to receive assigned benefits.

    If the supplier or other party requests a hearing under 
Sec. 424.82(e)(2)--
    (a) The hearing is conducted--
    (1) By a HCFA hearing official who was not involved in the decision 
to revoke; and
    (2) In accordance with the procedures set forth in Secs. 405.824 
through 405.833 (but excepting Sec. 405.832(d)) and 405.860 through 
405.872 of this chapter. In applying those procedures, ``HCFA'' is 
substituted for ``carrier''; and ``hearing official'', for ``hearing 
officer''.
    (b) As soon as practicable after the close of the hearing, the 
official who conducted it issues a hearing decision that--
    (1) Is based on all the evidence presented at the hearing and 
included in the hearing record; and
    (2) Contains findings of fact and a statement of reasons.



Sec. 424.84  Final determination on revocation of right to receive assigned benefits.

    (a) Basis of final determination--(1) Final determination without a 
hearing. If the supplier or other party does not request a hearing, 
HCFA's revocation determination becomes final at the end of the period 
specified in the notice of revocation.
    (2) Final determination following a hearing. If there is a hearing, 
the hearing decision constitutes HCFA's final determination.
    (b) Notice of final determination. HCFA sends the supplier or other 
party a written notice of the final determination and, if there was a 
hearing, includes a copy of the hearing decision.
    (c) Application of the final determination--(1) A final 
determination not to revoke is the final administrative decision by HCFA 
on the matter.
    (2) A final determination to revoke remains in effect until HCFA 
finds that the reason for the revocation has been removed and that there 
is reasonable assurance that it will not recur.
    (d) Effect of revocation when supplier or other party has a 
financial interest in another entity. Revocation of the party's right to 
accept assignment also applies to any corporation, partnership, or other 
entity in which the party, directly or indirectly, has or acquires all 
or all but a nominal part of the financial interest.

[53 FR 6644, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



Sec. 424.86  Prohibition of assignment of claims by beneficiaries.

    (a) Basic prohibition. Except as specified in paragraph (b) of this 
section, Medicare does not pay amounts that are due a beneficiary under 
Sec. 424.53 to

[[Page 779]]

any other person under assignment, power of attorney, or any other 
direct payment arrangement.
    (b) Exceptions--(1) Payment to a government agency or entity. 
Subject to the requirements of the Assignment of Claims Act (31 U.S.C. 
3727), Medicare may pay a government agency or entity under an 
assignment by a beneficiary (or by the beneficiary's legal guardian or 
representative payee).
    (2) Payment under an assignment established by court order. Medicare 
may pay under an assignment established by, or in accordance with, a 
court order if the assignment meets the conditions set forth in 
Sec. 424.90.



Sec. 424.90  Court ordered assignments: Conditions and limitations.

    (a) Conditions for acceptance. An assignment or reassignment 
established by or in accordance with a court order is effective for 
Medicare payments only if--
    (1) Someone files a certified copy of the court order and of the 
executed assignment or reassignment (if it was necessary to execute one) 
with the intermediary or carrier responsible for processing the claim; 
and
    (2) The assignment or reassignment--
    (i) Applies to all Medicare benefits payable to a particular person 
or entity during a specified or indefinite time period; or
    (ii) Specifies a particular amount of money, payable to a particular 
person or entity by a particular intermediary or carrier.
    (b) Retention of authority to reduce interim payments to providers. 
A court-ordered assignment does not preclude the intermediary or carrier 
from reducing interim payments, as set forth in Sec. 413.64(i) of this 
chapter, if the provider or assignee is in imminent danger of insolvency 
or bankruptcy.
    (c) Liability of the parties. The party that receives payments under 
a court-ordered assignment or reassignment that meets the conditions of 
paragraph (a) of this section and the party that would have received 
payment if the court order had not been issued are jointly and severally 
responsible for any Medicare overpayment to the former.



    Subpart G--Special Conditions: Emergency Services Furnished by a 
                        Nonparticipating Hospital



Sec. 424.100  Scope.

    This subpart sets forth procedures and criteria that are followed in 
determining whether Medicare will pay for emergency services furnished 
by a hospital that is located in the United States and does not have in 
effect a provider agreement, that is, an agreement to participate in 
Medicare.



Sec. 424.101  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Emergency services means inpatient or outpatient hospital services 
that are necessary to prevent death or serious impairment of health and, 
because of the danger to life or health, require use of the most 
accessible hospital available and equipped to furnish those services.
    Hospital means a facility that--
    (1) Is primarily engaged in providing, by or under the supervision 
of doctors of medicine or osteopathy, inpatient services for the 
diagnosis, treatment, and care or rehabilitation of persons who are 
sick, injured, or disabled;
    (2) Is not primarily engaged in providing skilled nursing care and 
related services for patients who require medical or nursing care, as 
described in section 1861(j)(1)(A) of the Act;
    (3) Provides 24-hour nursing service in accordance with section 
1861(e)(5) of the Act; and
    (4) Is licensed, or is approved as meeting the standards for 
licensing, by the State or local licensing agency.
    Reasonable charges means customary charges insofar as they are 
reasonable.



Sec. 424.102  Situations that do not constitute an emergency.

    Without additional evidence of a threat to life or health, the 
following situations do not in themselves indicate a need for emergency 
services:
    (a) Lack of care at home.
    (b) Lack of transportation to a participating hospital.
    (c) Death of the patient in the hospital.

[[Page 780]]



Sec. 424.103  Conditions for payment for emergency services.

    Medicare pays for emergency services furnished to a beneficiary by a 
nonparticipating hospital or under arrangements made by such a hospital 
if the conditions of this section are met.
    (a) General requirements. (1) The services are of the type that 
Medicare would pay for if they were furnished by a participating 
hospital.
    (2) The hospital has in effect an election to claim payment for all 
emergency services furnished in a calendar year in accordance with 
Sec. 424.104.
    (3) The need for emergency services arose while the beneficiary was 
not an inpatient in a hospital.
    (4) In the case of inpatient hospital services, the services are 
furnished during a period in which the beneficiary could not be safely 
discharged or transferred to a participating hospital or other 
institution.
    (5) The determination that the hospital was the most accessible 
hospital available and equipped to furnish the services is made in 
accordance with Sec. 424.106.
    (b) Medical information requirements. A physician (or, if 
appropriate, the hospital) submits medical information that--
    (1) Describes the nature of the emergency and specifies why it 
required that the beneficiary be treated in the most accessible 
hospital;
    (2) Establishes that all the conditions in paragraph (a) of this 
section are met; and
    (3) Indicates when the emergency ended, which, for inpatient 
hospital services, is the earliest date on which the beneficiary could 
be safely discharged or transferred to a participating hospital or other 
institution.



Sec. 424.104  Election to claim payment for emergency services furnished during a calendar year.

    (a) Terms of the election. The hospital agrees to the following:
    (1) To comply with the provisions of subpart C of part 489 of this 
chapter relating to charges for items and services the hospital may make 
to the beneficiary, or any other person on his or her behalf.
    (2) To comply with the provisions of subpart D of part 489 of this 
chapter relating to proper disposition of monies incorrectly collected 
from, or on behalf of a beneficiary.
    (3) To request payment under the Medicare program based on amounts 
specified in Sec. 413.74 of this chapter.
    (b) Filing of election statement. An election statement must be 
filed on a form designated by HCFA, signed by an authorized official of 
the hospital, and either received by HCFA, or postmarked, before the 
close of the calendar year of election.
    (c) Acceptance and effective date of election. If HCFA accepts the 
election statement, the election is effective as of the earliest day of 
the calendar year of election from which HCFA determines the hospital 
has been in continuous compliance with the requirements of section 
1814(d) of the Act.
    (d) Appeal by hospital. Any hospital dissatisfied with a 
determination that it does not qualify to claim reimbursement shall be 
entitled to appeal the determination as provided in part 498 of this 
chapter.
    (e) Conditions for reinstatement after notice of failure to continue 
to qualify. If HCFA has notified a hospital that it no longer qualifies 
to receive reimbursement for a calendar year, HCFA will not accept 
another election statement from that hospital until HCFA finds that--
    (1) The reason for its failure to qualify has been removed; and
    (2) There is reasonable assurance that it will not recur.



Sec. 424.106  Criteria for determining whether the hospital was the most accessible.

    (a) Basic requirement. (1) The hospital must be the most accessible 
one available and equipped to furnish the services.
    (2) HCFA determines accessibility based on the factors specified in 
paragraphs (b) and (c) of this section and the conditions set forth in 
paragraph (d) of this section.
    (b) Factors that are considered. HCFA considers the following 
factors in determining whether a nonparticipating hospital in a rural 
area meets the accessibility requirements:

[[Page 781]]

    (1) The relative distances of participating and nonparticipating 
hospitals in the area.
    (2) The transportation facilities available to these hospitals.
    (3) The quality of the roads to each hospital.
    (4) The availability of beds at each hospital.
    (5) Any other factors that bear on whether or not the services could 
be provided sooner in the nonparticipating hospitals than in a 
participating hospital in the general area.

In urban and suburban areas where both participating and 
nonparticipating hospitals are similarly available, HCFA presumes that 
the services could have been provided in a participating hospital unless 
clear and convincing evidence shows that there was a medical or 
practical need to use the nonparticipating hospital.
    (c) Factors that are not considered. HCFA gives no consideration to 
the following factors in determining whether the nonparticipating 
hospital was the most accessible hospital:
    (1) The personal preference of the beneficiary, the physician, or 
members of the family.
    (2) The fact that the attending physician did not have staff 
privileges in a participating hospital which was available and the most 
accessible to the beneficiary.
    (3) The location of previous medical records.
    (d) Conditions under which the accessibility requirement is met. If 
a beneficiary must be taken to a hospital immediately for required 
diagnosis and treatment, the nonparticipating hospital meets the 
accessibility requirement if--
    (1) It was the nearest hospital to the point where the emergency 
occurred, it was medically equipped to handle the type of emergency, and 
it was the most accessible, on the basis of the factors specified in 
paragraph (b) of this section; or
    (2) There was a closer participating hospital equipped to handle the 
emergency, but the participating hospital did not have a bed available 
or would not accept the individual.



Sec. 424.108  Payment to a hospital.

    (a) Conditions for payment. Medicare pays the hospital for emergency 
services if the hospital--
    (1) Has in effect a statement of election to claim payment for all 
covered emergency services furnished during a calendar year, in 
accordance with Sec. 424.104;
    (2) Claims payment in accordance with Sec. 424.32; and
    (3) Submits evidence requested by HCFA to establish that the 
services meet the requirements of this subpart.
    (b) Subsequent claims. If the hospital files subsequent claims 
because the initial claim did not include all the services furnished, 
those claims must include physicians' statements that--
    (1) Contain sufficient information to clearly establish that, when 
the additional services were furnished, the emergency still existed; and
    (2) Indicate when the emergency ended, which, for inpatient hospital 
services, is the earliest date on which the beneficiary could be safely 
discharged or transferred to a participating hospital or other 
institution.



Sec. 424.109  Payment to the beneficiary.

    Medicare pays the beneficiary for emergency services if the 
following conditions are met:
    (a) The hospital does not have in effect an election to claim 
payment.
    (b) The beneficiary, or someone on his or her behalf, submits--
    (1) A claim that meets the requirements of Sec. 424.32;
    (2) An itemized hospital bill; and
    (3) Evidence requested by HCFA to establish that the services meet 
the requirements of this subpart.



 Subpart H--Special Conditions: Services Furnished in a Foreign Country



Sec. 424.120  Scope.

    This subpart sets forth the conditions for payment for services 
furnished in a foreign country.



Sec. 424.121  Scope of payments.

    Subject to the conditions set forth in this subpart--

[[Page 782]]

    (a) Medicare Part A pays, in the amounts specified in Sec. 413.74 of 
this chapter, for emergency and nonemergency inpatient hospital services 
furnished by a foreign hospital.
    (b) Medicare Part B pays for certain physicians' services and 
ambulance services furnished in connection with covered inpatient care 
in a foreign hospital, as specified in Sec. 424.124.
    (c) All other services furnished outside the United States are 
excluded from Medicare coverage, as specified in Sec. 405.313 of this 
chapter.



Sec. 424.122  Conditions for payment for emergency inpatient hospital services.

    Medicare Part A pays for emergency inpatient hospital services 
furnished by a foreign hospital if the following conditions are met:
    (a) At the time of the emergency that required the inpatient 
hospital services, the beneficiary was--
    (1) In the United States; or
    (2) In Canada traveling between Alaska and another State without 
unreasonable delay and by the most direct route.
    (b) The foreign hospital was closer to, or more accessible from, the 
site of the emergency than the nearest United States hospital equipped 
to deal with, and available to treat, the individual's illness or 
injury.
    (c) The conditions for payment for emergency services set forth in 
Sec. 424.103 are met.
    (d) The hospital is a hospital as defined in Sec. 424.101, and is 
licensed, or approved as meeting the conditions for licensing, by the 
appropriate agency of the country in which it is located.
    (e) The determination of whether the hospital was more accessible is 
made in accordance with Sec. 424.106.



Sec. 424.123  Conditions for payment for nonemergency inpatient services furnished by a hospital closer to the individual's residence.

    Medicare Part A pays for inpatient hospital services furnished by a 
foreign hospital if the following conditions are met:
    (a) The beneficiary is a resident of the United States.
    (b) The foreign hospital is closer or more accessible to the 
beneficiary's residence than the nearest United States hospital equipped 
to deal with, and available to treat, the individual's illness or 
injury.
    (c) The foreign hospital is--
    (1) A hospital as defined in Sec. 424.101 and, it is licensed, or 
approved as meeting the conditions for licensing, by the appropriate 
agency of the country in which it is located; and
    (2) Accredited by the Joint Commission on Accreditation of Hospitals 
(JCAH) or accredited or approved by a program of the country where it is 
located under standards that HCFA finds to be essentially equivalent to 
those of the JCAH.
    (d) The services are covered services that Medicare would pay for if 
they were furnished by a participating hospital.



Sec. 424.124  Conditions for payment for physician services and ambulance services.

    (a) Basic rules. Medicare Part B pays for physician and ambulance 
services if--
    (1) They are furnished--
    (i) To an individual who is entitled to Part B benefits; and
    (ii) In connection with covered inpatient hospital services; and
    (2) They meet the conditions set forth in paragraphs (b) and (c) of 
this section.
    (b) Physician services. (1) The physician services are services 
covered under Medicare Part B and are furnished--
    (i) In the hospital, during a period of covered inpatient services; 
or
    (ii) Outside the hospital, on the day of admission and for the same 
condition that required inpatient admission; and
    (2) The physician is legally authorized to practice in the country 
where he or she furnishes the services.
    (c) Ambulance services. The ambulance services are--
    (1) Necessary because the use of other means of transportation is 
contraindicated by the beneficiary's condition; and

[[Page 783]]

    (2) Furnished by an ambulance that meets the definition in 
Sec. 410.140 of this chapter.

[53 FR 6646, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



Sec. 424.126  Payment to the hospital.

    (a) Conditions for payment. Medicare pays the hospital if it--
    (1) Has in effect an election that--
    (i) Meets the requirements set forth in Sec. 424.104; and
    (ii) Reflects the hospital's intent to claim for all covered 
services furnished during a calendar year.
    (2) Claims payment in accordance with Secs. 424.32 and 413.74 of 
this chapter; and
    (3) Submits evidence requested by HCFA to establish that the 
services meet the requirements of this subpart.
    (b) Amount of payment. Payment is made (in accordance with 
Sec. 413.74 of this chapter) on the basis of 100 percent of the 
hospital's customary charges, subject to the applicable deductible and 
coinsurance provisions set forth elsewhere in this chapter.



Sec. 424.127  Payment to the beneficiary.

    (a) Conditions for payment of inpatient hospital services. Medicare 
pays the beneficiary if--
    (1) The hospital does not have in effect an election to claim 
payment; and
    (2) The beneficiary, or someone on his or her behalf, submits--
    (i) A claim in accordance with Sec. 424.32;
    (ii) An itemized hospital bill; and
    (iii) Evidence requested by HCFA to establish that the services meet 
the requirements of this subpart.
    (b) Amount payable for inpatient hospital services. The amount 
payable to the beneficiary is determined in accordance with 
Sec. 424.109(b).
    (c) Conditions for payment for Part B services. Medicare pays the 
beneficiary for physicians' services and ambulance services as specified 
in Sec. 424.121, if an itemized bill for the services is submitted by 
the beneficiary or someone on his or her behalf and the conditions of 
Sec. 424.126(a) (2) and (3) are met.
    (d) The amount payable to the beneficiary is determined in 
accordance with Sec. 410.152 of this chapter.



                        Subparts I-L--[Reserved]



       Subpart M--Replacement and Reclamation of Medicare Payments



Sec. 424.350  Replacement of checks that are lost, stolen, defaced, mutilated, destroyed, or paid on forged endorsements.

    (a) U.S. Government checks--(1) Responsibility. The Treasury 
Department is responsible for the investigation and settlement of claims 
in connection with Treasury checks issued on behalf of HCFA.
    (2) Action by HCFA. HCFA forwards reports of lost, stolen, defaced, 
mutilated, destroyed, or forged Treasury checks to the Treasury 
Department disbursing center responsible for issuing checks.
    (3) Action by the Treasury Department. The Treasury Department will 
replace and begin reclamation of Treasury checks in accordance with 
Treasury Department regulations (31 CFR parts 235, 240, and 245).
    (b) Intermediary and carrier benefit checks. Checks issued by 
intermediaries and carriers are drawn on commercial banks and are not 
subject to the Federal laws and Treasury Department regulations that 
govern Treasury checks. Replacement procedures are carried out in 
accordance with Sec. 424.352 under applicable State law (including any 
Federal banking laws or regulations that may affect the relevant State 
proceedings).

[58 FR 65129, Dec. 13, 1993]



Sec. 424.352  Intermediary and carrier checks that are lost, stolen, defaced, mutilated, destroyed or paid on forged endorsements.

    (a) When an intermediary or carrier is notified by a payee that a 
check has been lost, stolen, defaced, mutilated, destroyed, or paid on 
forged endorsement, the intermediary or carrier contacts the commercial 
bank on whose paper the check was drawn and determines whether the check 
has been negotiated.
    (b) If the check has been negotiated--
    (1) The intermediary or carrier provides the payee with a copy of 
the check and other pertinent information

[[Page 784]]

(such as a claim form, affidavit or questionnaire to be completed by the 
payee) required to pursue his or her claim in accordance with State law 
and commercial banking regulations.
    (2) To pursue the claim, the payee must examine the check and 
certify (by completing the claim form, questionnaire or affidavit) that 
the endorsement is not the payee's.
    (3) The claim form and other pertinent information is sent to the 
intermediary or carrier for review and processing of the claim.
    (4) The intermediary or carrier reviews the payee's claim. If the 
intermediary or carrier determines that the claim appears to be valid, 
it forwards the claim and a copy of the check to the issuing bank. The 
intermediary or carrier takes further action to recover the proceeds of 
the check in accordance with the State law and regulations.
    (5) Once the intermediary or carrier recovers the proceeds of the 
initial check, the intermediary or carrier issues a replacement check to 
the payee.
    (6) If the bank of first deposit refuses to settle on the check for 
good cause, the payee must pursue the claim on his or her own and the 
intermediary or carrier will not reissue the check to the payee.
    (c) If the check has not been negotiated--
    (1) The intermediary or carrier arranges with the bank to stop 
payment on the check; and
    (2) Except as provided in paragraph (d), the intermediary or carrier 
reissues the check to the payee.
    (d) No check may be reissued under (c)(2) unless the claim for a 
replacement check is received by the intermediary or carrier no later 
than 1 year from the date of issuance of the original check, unless 
State law (including any applicable Federal banking laws or regulations 
that may affect the relevant State proceeding) provides a longer period 
which will control.

[58 FR 65130, Dec. 13, 1993]


[[Page 785]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Material Approved for Incorporation by Reference
  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  Redesignation Tables
  List of CFR Sections Affected

[[Page 787]]

            Material Approved for Incorporation by Reference

                     (Revised as of October 1, 1998)

  The Director of the Federal Register has approved under 5 U.S.C. 
552(a) and 1 CFR Part 51 the incorporation by reference of the following 
publications. This list contains only those incorporations by reference 
effective as of the revision date of this volume. Incorporations by 
reference found within a regulation are effective upon the effective 
date of that regulation. For more information on incorporation by 
reference, see the preliminary pages of this volume.


42 CFR (PARTS 400-429)

HEALTH CARE FINANCING ADMINISTRATION, DEPARTMENT OF HEALTH AND HUMAN 
SERVICES
                                                                  42 CFR


American Hospital Association

  Available from: Health Care Financing 
  Administration, Office of Management and Budget, 
  Division of Communication Services, Printing and 
  Publishing Branch, Gwynn Oak Bldg., Baltimore, 
  MD 21235
Chart of Accounts for Hospitals (1973 Ed.)........      405.415(b)(7)(i)


American Lung Association

  (Formerly National Tuberculosis Association)
  1740 Broadway, New York, NY 10019
Diagnostic Standards and Classification of                405.1039(b)(2)
  Tuberculosis (1974 Ed.).


American National Standards Institute

  11 West 42nd St., New York, NY 10036 Telephone: 
  (212) 642-4900
ANSI A117.1-1971 Specifications for Making                   405.1134(c)
  Buildings and Facilities Accessible to and 
  Usable by Physically Handicapped People.


American Psychiatric Association

  Division of Publications and Marketing, 1400 K 
  Street, NW, Washington, DC 20005
Diagnostic and Statistical Manual of Mental                 405.243(b); 
  Disorders, 1980 (3rd Ed.).                             405.1037(a)(12)


Association for the Advancement of Medical Instrumentation

  3330 Washington Blvd., Arlington, VA 22201-4598
ASNI/AAMI RD5-1992, Hemodialysis Systems, second           405.2150(a); 
  edition.                                                   405.2140(a)
Recommended Practice for Reuse of Hemodialyzers...              405.2150


National Academy of Sciences

  Academy Press, 2101 Constitution Ave., NW., 
  Washington, DC 20418
Recommended Dietary Allowances Current Edition,           405.1025(c)(2)
  1980 (9th Ed.).



[[Page 789]]



                    Table of CFR Titles and Chapters




                   (Revised as of September 29, 1998)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                          Title 2--[Reserved]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)
        II  Federal Claims Collection Standards (General 
                Accounting Office--Department of Justice) (Parts 
                100--299)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Advisory Committee on Federal Pay (Parts 1400--1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
       VII  Advisory Commission on Intergovernmental Relations 
                (Parts 1700--1799)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)

[[Page 790]]

      XXII  Federal Deposit Insurance Corporation (Part 3201)
     XXIII  Department of Energy (Part 3301)
      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      XXVI  Department of Defense (Part 3601)
    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
       LXI  National Labor Relations Board (Part 7101)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                          Title 6--[Reserved]

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture

[[Page 791]]

         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
      XIII  Northeast Dairy Compact Commission (Parts 1300--1399)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy, Department of Agriculture (Parts 
                2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  [Reserved]

[[Page 792]]

    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Immigration and Naturalization Service, Department of 
                Justice (Parts 1--499)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Meat and Poultry 
                Inspection, Department of Agriculture (Parts 300--
                599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)

[[Page 793]]

        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Thrift Depositor Protection Oversight Board (Parts 
                1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700-1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Export Administration, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)

[[Page 794]]

        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  United States Customs Service, Department of the 
                Treasury (Parts 1--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)

[[Page 795]]

        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development, International 
                Development Cooperation Agency (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  United States Information Agency (Parts 500--599)
        VI  United States Arms Control and Disarmament Agency 
                (Parts 600--699)
       VII  Overseas Private Investment Corporation, International 
                Development Cooperation Agency (Parts 700--799)
        IX  Foreign Service Grievance Board Regulations (Parts 
                900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Board for International Broadcasting (Parts 1300--
                1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

[[Page 796]]

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Multifamily Housing Assistance 
                Restructuring, Department of Housing and Urban 
                Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs and Section 202 Direct Loan Program) 
                (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--999)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

[[Page 797]]

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Part 1001)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--799)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Bureau of Alcohol, Tobacco and Firearms, Department of 
                the Treasury (Parts 1--299)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--199)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)

[[Page 798]]

       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Pension and Welfare Benefits Administration, 
                Department of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
        VI  Bureau of Mines, Department of the Interior (Parts 
                600--699)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)

[[Page 799]]

       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)
      XXIX  Presidential Commission on the Assignment of Women in 
                the Armed Forces (Part 2900)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799)
        XI  National Institute for Literacy (Parts 1100-1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                        Title 35--Panama Canal

         I  Panama Canal Regulations (Parts 1--299)

[[Page 800]]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
       XIV  Assassination Records Review Board (Parts 1400-1499)

             Title 37--Patents, Trademarks, and Copyrights

         I  Patent and Trademark Office, Department of Commerce 
                (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--799)
         V  Council on Environmental Quality (Parts 1500--1599)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)

[[Page 801]]

        61  Office of the Assistant Secretary for Veterans 
                Employment and Training, Department of Labor 
                (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300.99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Parts 303-1--303-2)
       304  Payment from a Non-Federal Source for Travel Expenses 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Health Care Financing Administration, Department of 
                Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10005)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency (Parts 0--399)

[[Page 802]]

        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
      XXII  Christopher Columbus Quincentenary Jubilee Commission 
                (Parts 2200--2299)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)

[[Page 803]]

       III  Coast Guard (Great Lakes Pilotage), Department of 
                Transportation (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Department of Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  United States Agency for International Development 
                (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  United States Information Agency (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  Panama Canal Commission (Parts 3500--3599)

[[Page 804]]

        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)
        54  Defense Logistics Agency, Department of Defense (Part 
                5452)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Research and Special Programs Administration, 
                Department of Transportation (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Highway Administration, Department of 
                Transportation (Parts 300--399)
        IV  Coast Guard, Department of Transportation (Parts 400--
                499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)

[[Page 805]]

        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR



[[Page 807]]





           Alphabetical List of Agencies Appearing in the CFR




                   (Revised as of September 29, 1998)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Commission on Intergovernmental          5, VII
     Relations
Advisory Committee on Federal Pay                 5, IV
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Alcohol, Tobacco and Firearms, Bureau of          27, I
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
   Compliance Board
[[Page 808]]

Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Arms Control and Disarmament Agency, United       22, VI
     States
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Assassination Records Review Board                36, XIV
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Board for International Broadcasting              22, XIII
Census Bureau                                     15, I
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Christopher Columbus Quincentenary Jubilee        45, XXII
     Commission
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I`
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Export Administration, Bureau of                15, VII
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office                     37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Corporation for National and Community Service    45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Customs Service, United States                    19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII

[[Page 809]]

  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   5, LIV; 40, I
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                25, III, LXXVII; 48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export Administration, Bureau of                  15, VII
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1

[[Page 810]]

Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               4, II
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II; 49, III
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Pay, Advisory Committee on                5, IV
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Property Management Regulations System    41, Subtitle C
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Accounting Office                         4, I, II
General Services Administration                   5, LVII
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Property Management Regulations System  41, 101, 105
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302

[[Page 811]]

  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Great Lakes Pilotage                              46, III
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Health Care Financing Administration            42, IV
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Health Care Financing Administration              42, IV
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Inspector General, Office of                    24, XII
  Multifamily Housing Assistance Restructuring    24, IV
       Office
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Human Development Services, Office of             45, XIII
Immigration and Naturalization Service            8, I
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Information Agency, United States                 22, V
  Federal Acquisition Regulation                  48, 19
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Intergovernmental Relations, Advisory Commission  5, VII
     on
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II

[[Page 812]]

  Mines, Bureau of                                30, VI
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
  International Development, United States        22, II; 48, 7
       Agency for
  Overseas Private Investment Corporation         5, XXXIII; 22, VII
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             4, II
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration and Naturalization Service          8, I
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Pension and Welfare Benefits Administration     29, XXV
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training, Office of    41, 61; 20, IX
       the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Management and Budget, Office of                  5, III, LXXVII; 48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II
Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II

[[Page 813]]

Mines, Bureau of                                  30, VI
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Multifamily Housing Assistance Restructuring      24, IV
     Office
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National and Community Service, Corporation for   45, XII, XXV
National Council on Disability                    34, XII
National Credit Union Administration              12, VII
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Dairy Compact Commission                7, XIII
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Panama Canal Commission                           48, 35
Panama Canal Regulations                          35, I
Patent and Trademark Office                       37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension and Welfare Benefits Administration       29, XXV
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17

[[Page 814]]

  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Commission on the Assignment of      32, XXIX
     Women in the Armed Forces
Presidential Documents                            3
Prisons, Bureau of                                28, V
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Special Programs Administration      49, I
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Depositor Protection Oversight Board       12, XV
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II; 49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Research and Special Programs Administration    49, I

[[Page 815]]

  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
Transportation, Office of                         7, XXXIII
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 17, IV
  Alcohol, Tobacco and Firearms, Bureau of        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs Service, United States                  19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training, Office of the  41, 61; 20, IX
     Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 817]]

                                     

                                     



                          Redesignation Table I




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
405.1011..................................  482.2
405.1020..................................  482.11
405.1021(a)-(d)...........................  482.12
405.1021(e)...............................  482.12(a)
405.1021(f) & (g).........................  482.12(b)
405.1021(h)...............................  482.12(c)
405.1021(i)...............................  482.41
405.1021(j)...............................  482.12(d)
405.1022..................................  482.41 and 482.42
405.1023..................................  482.22
405.1024 except (d).......................  482.23
405.1024(d)...............................  482.51
405.1025..................................  482.28
405.1026..................................  482.24
405.1027..................................  482.25
405.1028..................................  482.27
405.1029..................................  482.26
405.1030..................................  Deleted
405.1031(a)...............................  482.51
405.1031(b)...............................  482.52
405.1031(c)...............................  Deleted as duplicative of
                                             482.22
405.1031(d)...............................  482.56
405.1032..................................  482.54
405.1033..................................  482.12(f)
405.1034..................................  Deleted. Provision included
                                             as part of 482.21(b)
405.1035..................................  482.30
405.1036..................................  482.60
405.1037..................................  482.61
405.1038..................................  482.62
405.1039..................................  Deleted. Provisions removed
                                             by law.
405.1040..................................  Deleted. Provisions removed
                                             by law.
405.1041..................................  482.66
405.1042..................................  482.30


[[Page 819]]

                                     

                                     



                         Redesignation Table II




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
405.401...................................  413.1
405.402...................................  413.5
405.403...................................  413.50
405.405...................................  413.60
405.406...................................  413.20
405.414...................................  413.130
405.415...................................  413.134
405.416...................................  413.139
405.417...................................  413.144
405.418...................................  413.149
405.419...................................  413.153
405.420...................................  413.80
405.421...................................  413.85
405.422...................................  413.90
405.424...................................  413.94
405.425...................................  413.98
405.426...................................  413.102
405.427...................................  413.17
405.429...................................  413.157
405.432...................................  413.106
405.433...................................  413.110
405.434...................................  413.114
405.435...................................  413.161
405.436...................................  413.178
405.438...................................  Deleted
405.439...................................  413.170
405.440...................................  Deleted
405.441...................................  413.174
405.451...................................  413.9
405.452...................................  413.53
405.453...................................  413.24
405.454...................................  413.64
405.455...................................  413.13
405.456...................................  413.74
405.457...................................  413.56
405.460...................................  413.30
405.461...................................  413.35
405.463...................................  413.40


[[Page 821]]

                                     

                                     



                         Redesignation Table III




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
42 CFR Chapter IV
420.1.....................................  1001.1
420.2.....................................  1001.2
420.3.....................................  1001.3
420.100...................................  1001.100
420.101...................................  1001.101
420.102...................................  1001.102
420.103...................................  1001.103
420.105...................................  1001.105
420.107...................................  1001.107
420.109...................................  1001.109
420.114...................................  1001.114
420.115...................................  1001.115
420.122...................................  1001.122
420.123...................................  1001.123
420.124...................................  1001.124
420.125...................................  1001.125
420.126...................................  1001.126
420.128...................................  1001.128
420.130...................................  1001.130
420.132...................................  1001.132
420.134...................................  1001.134
420.136...................................  1001.136
489.54....................................  1001.201
489.55....................................  1001.211
489.57....................................  1001.221
412.48(c), (d), and (e)...................  1001.301
455.1.....................................  1002.1
455.2.....................................  1002.2
455.106...................................  1002.3
455.200...................................  1002.200
455.203...................................  1002.203
455.204...................................  1002.204
455.205...................................  1002.205
455.206...................................  1002.206
455.207...................................  1002.207
455.208...................................  1002.208
455.210...................................  1002.210
455.211...................................  1002.211
455.212...................................  1002.212
455.213...................................  1002.213
455.214...................................  1002.214
455.230...................................  1002.230
455.234...................................  1002.232
455.234...................................  1002.234-1002.321
455.300...................................  1002.301
45 CFR Subtitle A
101.100...................................  1003.100
101.101...................................  1003.101
101.102...................................  1003.102
101.103...................................  1003.103
101.104...................................  1003.104
101.105...................................  1003.105
101.106...................................  1003.106
101.107...................................  1003.107
101.108...................................  1003.108
101.109...................................  1003.109
101.110...................................  1003.110
101.111...................................  1003.111
101.112...................................  1003.112
101.113...................................  1003.113
101.114...................................  1003.114
101.115...................................  1003.115
101.116...................................  1003.116
101.117...................................  1003.117
101.118...................................  1003.118
101.119...................................  1003.119
101.120...................................  1003.120
101.122...................................  1003.122
101.123...................................  1003.123
101.124...................................  1003.124
101.125...................................  1003.125
101.126...................................  1003.126
101.127...................................  1003.127
101.128...................................  1003.128
101.129...................................  1003.129
101.130...................................  1003.130
101.131...................................  1003.131
101.132...................................  1003.132
101.133...................................  1003.133
42 CFR Chapter IV
474.0.....................................  1004.1
474.30....................................  1004.10
474.32....................................  1004.20
474.34....................................  1004.30
474.36....................................  1004.40
474.38....................................  1004.50
474.39....................................  1004.60
474.40....................................  1004.70
474.41....................................  1004.80
474.42....................................  1004.90
474.52....................................  1004.100
474.54....................................  1004.110
474.56....................................  1004.120
474.58....................................  1004.130


[[Page 823]]

                                     

                                     



                         Redesignation Table IV




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
405.230...................................  410.150
405.231(a)................................  410.10(a), 410.20
405.231(b)................................  410.10(b), 410.26
405.231(c)................................  410.10(c), 410.27
405.231(d)................................  410.10(f), 410.32
405.231(e)................................  410.10(g), 410.34
405.231(f)................................  410.10(h), 410.36(a)
405.231(g)................................  410.10(i), 410.38
405.231(h)................................  410.10(h), 410.36(b)
405.231(i)................................  410.10(h), 410.36(c)
405.231(j)................................  410.10(j), 410.40
405.231(k)................................  410.10(d), 410.28
405.231(l)................................  410.10(m), 410.60
405.231(m)................................  410.10(m), 410.62
405.231(n)................................  410.10(k), 410.45
405.231(o)................................  410.10(l), 410.50
405.231(p)................................  410.10(l), 410.52
405.231(a)................................  410.10(o), 410.55
405.232(b)................................  Removed as outdated.
405.232(b)................................  410.32
405.232(c)................................  410.29
405.232(d)................................  410.28
405.232(e)................................  410.60
405.232(f), (g), and (h)..................  410.32 and 410.34
405.232(i)................................  410.40
405.232(j)................................  410.62
405.232a(a)(1)............................  410.20
405.232a(a)(2)............................  410.20(b) and 410.24
405.232a(a)(3)............................  410.20(b) and 410.25
405.232a(a)(4)............................  410.20(b) and 410.23
405.232a(a)(5)............................  410.20(b) and 410.22
405.232a(b)...............................  410.14
405.232b..................................  410.22
405.232c..................................  410.23
405.233...................................  Removed as inconsistent with
                                             current law which no longer
                                             limits the home health
                                             visits.
405.234...................................  Removed as duplicative of
                                             Sec.  409.42(b) and (d)
405.235...................................  Removed as duplicative of
                                             Sec.  409.42(e)
405.236...................................  Removed as duplicative of
                                             409.40
405.237...................................  Removed as duplicative of
                                             409.41
405.238...................................  Removed as duplicative of
                                             409.43
405.239...................................  Removed as inconsistent with
                                             current law which no longer
                                             limits the number of home
                                             health visits.
405.240...................................  410.152
405.241...................................  410.152(a)(2)(iii)
405.243...................................  410.155
405.244a..................................  410.152(a)(1)(i)
405.244(b)................................  410.152(a)(1)(ii)
405.244(c)................................  Removed as inconsistent with
                                             current law which no longer
                                             provides for 100 percent
                                             payment for radiology and
                                             pathology services.
405.244-1(a)..............................  410.163
405.244-1(b)..............................  410.152(i)(1)
405.244-1(c)..............................  410.152(i)(2)
405.245...................................  410.160
405.246...................................  410.161
405.249...................................  410.168
405.250...................................  410.170
405.250-2.................................  410.165
405.251...................................  Removed as duplicative of
                                             Subpart P of Part 405.
405.252...................................  410.175
405.260...................................  410.100
405.261...................................  410.102
405.262...................................  410.105


[[Page 825]]

                                     

                                     



                          Redesignation Table V




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
405.640...................................  498.20(a)(2)
405.685...................................  405.1902(b)
405.1501(a)...............................  Removed as duplicative of
                                             Sec.  405.1502.
405.1501(b), (c), and (e).................  498.5
405.1501(d)...............................  498.3(e)
405.1502..................................  498.3(b)
405.1503..................................  498.20(a)
405.1504..................................  498.20(b)
405.1505..................................  498.3(c)
405.1510..................................  498.22(a)
405.1511(a)...............................  498.22(c)
405.1511(b)...............................  498.22(b)
405.1512..................................  498.22(b)(2)
405.1513..................................  498.23
405.1514..................................  498.24
405.1515..................................  498.24
405.1516..................................  498.25(a)
405.1517..................................  498.25(b)
405.1518..................................  498.22(d)
405.1519..................................  498.30
405.1520..................................  498.32(a)
405.1521..................................  498.32(b)
405.1530..................................  Removed as duplicative of
                                             Sec.  405.1531.
405.1531..................................  498.40
405.1532..................................  498.42
405.1533..................................  498.44
405.1534..................................  498.45
405.1535..................................  498.47
405.1536..................................  498.48
405.1537..................................  498.49
405.1538..................................  498.50
405.1539..................................  498.50
405.1540..................................  498.52
405.1541..................................  498.53
405.1542..................................  498.56
405.1543..................................  498.54
405.1544..................................  498.58
405.1545..................................  498.60
405.1546..................................  498.61
405.1547..................................  498.62
405.1548..................................  498.63
405.1549..................................  498.64
405.1550..................................  498.66
405.1551..................................  498.68
405.1552..................................  498.69
405.1553..................................  498.70
405.1554..................................  498.71
405.1555..................................  498.71
405.1556..................................  498.72
405.1557..................................  498.74
405.1558..................................  498.74
405.1559..................................  498.76
405.1560..................................  498.78
405.1561..................................  498.80
405.1562..................................  498.82
405.1563..................................  498.83
405.1564..................................  498.85
405.1565..................................  498.86
405.1566..................................  498.88
405.1567..................................  498.90
405.1568..................................  498.83
405.1569..................................  498.95
405.1570..................................  498.100
405.1571..................................  498.102
405.1572 and 405.1571(c)..................  498.103
405.1590..................................  498.10
405.1591..................................  498.11
405.1592..................................  498.13
405.1593..................................  498.15
405.1594..................................  498.11(b)
405.1595..................................  498.17.


[[Page 827]]

                                     

                                     



                         Redesignation Table VI




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
110.101...................................  417.100
110.102...................................  417.101
110.103...................................  417.102
110.104...................................  417.103
110.105...................................  417.104
110.106...................................  417.105
110.107...................................  417.106
110.108...................................  417.107
110.109...................................  417.108
110.110...................................  417.109
110.201...................................  417.110
110.202...................................  417.111
110.203...................................  417.112
110.204...................................  417.113
110.205...................................  417.114
110.206...................................  417.115
110.207...................................  417.116
110.208...................................  417.117
110.209...................................  417.118
110.210...................................  417.119
110.401...................................  417.120
110.402...................................  417.121
110.403...................................  417.122
110.404...................................  417.123
110.405...................................  417.124
110.406...................................  417.125
110.407...................................  417.126
110.501...................................  417.130
110.502...................................  417.131
110.503...................................  417.132
110.504...................................  417.133
110.505...................................  417.134
110.506...................................  417.135
110.507...................................  417.136
110.508...................................  417.137
110.601...................................  417.140
110.602...................................  417.141
110.603...................................  417.142
110.604...................................  417.143
110.605...................................  417.144
110.801...................................  417.150
110.802...................................  417.151
110.803...................................  417.152
110.804...................................  417.153
110.805...................................  417.154
110.806...................................  417.155
110.807...................................  417.156
110.808...................................  417.157
110.809...................................  417.158
110.810...................................  417.159
110.901...................................  417.160
110.902...................................  417.161
110.903...................................  417.162
110.904...................................  417.163
110.905...................................  417.164
110.906...................................  417.165
110.907...................................  417.166
110.1001..................................  417.170
110.1002..................................  417.171
110.1003..................................  417.172
110.1004..................................  417.173
110.1005..................................  417.174
110.1006..................................  417.175
110.1007..................................  417.176
110.1008..................................  417.177
110.1009..................................  417.178
110.1010..................................  417.179
110.1011..................................  417.180


[[Page 829]]

                                     

                                     



                         Redesignation Table VII




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
405.100...................................  424.10
405.150...................................  409.100 and 424.51
405.152(a) (1) and (2)....................  424.101
405.152(a)(3).............................  424.103 Introductory text
405.152(a)(4).............................  Removed as duplicative of
                                             405.152(c)
405.152(a)(5).............................  424.103(a)(2)
405.152(a)(6).............................  Removed as duplicative of
                                             405.1660
405.152(a)(7).............................  424.103(a)(1)
405.152(a)(8).............................  424.103(b)
405.152(b)................................  424.101
405.152 (c), (d), and (e).................  424.104
405.153(a)................................  424.121(a)
405.153(a)(1).............................  424.122(a)
405.153(a)(2).............................  424.122(b)
405.153(a)(3).............................  424.122(d) and 424.123 (c)
                                             and (d)
405.153(b)................................  424.121(a)
405.153(b)(1).............................  424.123(a)
405.153(b)(2).............................  424.123(b)
405.153(b)(3).............................  424.123(c)
405.153(c)(1).............................  424.123(d) and 424.126
405.153(c)(2).............................  424.127
405.157...................................  424.103(a) and 424.109(a)
405.158...................................  424.109(b)
405.160(a) (1) and (2)....................  424.5
405.160(a)(3).............................  424.7
405.160(b)(1).............................  424.5(a)(5)
405.160(b)(2).............................  424.5(a)(4), 424.11, 424.14
405.160(b)(3).............................  424.14
405.160(b)(4).............................  424.7
405.160(c)................................  Removed as no longer
                                             pertinent. Inpatient
                                             services in TB hospitals
                                             are no longer included in
                                             the statute
405.162...................................  424.7(a)
405.163...................................  424.7(b)
405.165(a)................................  424.5(a)(5)
405.165(b)................................  424.5(a)(4), 424.11, 424.20
405.165(c)................................  424.7
405.166...................................  424.7(a)
405.167...................................  424.7(b)
405.170(a)................................  424.5(a)(5)
405.170(b)................................  424.5(a)(4), 424.11, 424.22
405.170(c)................................  424.5(a)(1)
405.191(a)................................  424.103(a)(4)
405.191(b)................................  Removed as unnecessary
405.191(b)(1).............................  424.103(b)
405.191(b)(2).............................  424.103(b)
405.191(b)(3).............................  424.103(a)(3)
405.191(b)(4) 1st sentence................  Removed as poor example
405.191(b)(4) 2nd sentence................  424.102(a)
405.191(b)(5).............................  424.102(b)
405.192(a)................................  424.106(a)
405.192(b)................................  Removed as unnecessary
405.192(b) (1)-(3)........................  424.106(b)
405.192(b)(4).............................  424.106(c)
405.192(c)................................  424.106(d)
405.192(d)(1).............................  Removed as inconsistent with
                                             definition of emergency
405.192(d)(2).............................  Removed as redundant with
                                             405.192(c)
405.1625(a)...............................  424.10(a)
405.1625(b)...............................  424.11(a)
405.1625(c)...............................  424.11(b)
405.1625(d)...............................  424.11(c)
405.1625(e)...............................  424.11(d)
405.1627 (a)(1)-(a)(3)....................  424.13(a)
405.1627(b)...............................  424.13(b)
405.1627(c)...............................  424.13(c)
405.1627(d)...............................  424.13(d)
405.1627(e)(1)............................  424.13(d)
405.1627(e)(2)............................  424.13(e)
405.1627(e)(3)............................  424.13(f)
405.1627(e)(4)............................  424.13(g)
405.1629 Undesignated portion.............  424.14 (a) and (d)
405.1629 (a) and (b)......................  424.14 (b) and (c)
405.1629(c)...............................  Removed as no longer
                                             pertinent. (See comment on
                                             Sec.  405.160(c))
405.1630..................................  424.16
405.1632(a)...............................  424.20, Introductory
                                             statement
405.1632(b)...............................  424.20(a)
405.1632(c)...............................  424.20(b)
405.1632(d)...............................  424.20(c)
405.1632(e) (1) and (2)...................  424.20(d)
405.1632(e)(3)............................  424.20(f)
405.1632(e)(4)............................  424.20(g)
405.1632(f)...............................  424.20(e)
405.1633..................................  424.22
405.1634(a)(1)............................  424.24(a)
405.1634(a)(2)............................  424.24(c)(4)
405.1634(a)(3)............................  Removed as duplicative of
                                             405.1625(c)
405.1634(a)(4)............................  424.24(c)(3)
405.1634(a)(5)............................  424.24(c)(2)
405.1634(b)...............................  424.24(c)(1) and 424.25
405.1634(c)...............................  424.24(d)
405.1635..................................  424.27
405.1660 (a) and (b)......................  Removed as duplicative of
                                             other content
405.1660(c)...............................  424.5(a)(5)
405.1662(a) 1st sentence..................  405.207 and 406.7
405.1662(a) 2nd and 3rd sentences.........  424.32(a)
405.1662(a) last sentence.................  Removed as unnecessary
405.1662(b) list of forms.................  405.207 and 406.7
405.1662(b) narrative.....................  Removed as duplicative of
                                             405.205 and 406.6

[[Page 830]]

 
405.1662(c)...............................  424.32(b)
405.1662(d)...............................  405.207, 406.7, and
                                             424.32(c)
405.1663 Undesignated portion.............  424.5(a)(5)
405.1663 (a) and (c)......................  424.40(b)(1)
405.1663 (b) and (d)......................  424.40(b)(2)
405.1664..................................  424.36 and 424.37(b)
405.1665..................................  424.37(a)
405.1666..................................  424.36
405.1667(a)...............................  424.32
405.1667(b) (1) and (2)...................  424.44
405.1667(b)(3)............................  424.45
405.1667(c)...............................  Removed as outdated
405.1668(a)...............................  424.70
405.1668 (b) and (c)......................  424.73
405.1668(d)...............................  424.74
405.1672 (a) and (b)......................  424.53
405.1672(c)...............................  424.34(a)
405.1672(d)...............................  424.54
405.1672 (e) and (f)......................  424.73(b), 424.80(b),
                                             424.86(b)
405.1674..................................  424.34
405.1675(a)(1)............................  424.55
405.1675(a)(2)............................  424.56
405.1675(b)...............................  424.80(c)
405.1678..................................  Removed as duplicative of
                                             405.1675
405.1679..................................  424.36
405.1680(a)...............................  424.70(b)
405.1680(b)...............................  424.71
405.1680(c)...............................  424.80(a)
405.1680(d)...............................  424.80(b)
405.1681 (a)-(h)..........................  424.82
405.1681 (i) and (j)......................  424.83
405.1681 (k) and (l)......................  424.84
405.1682(a)...............................  424.71
405.1682(b)...............................  424.90(a)
405.1682(c)...............................  424.90(b)
405.1682(d)...............................  424.90(c)
405.1683..................................  424.62
405.1684..................................  424.64
405.1685..................................  424.66 (c) and (d)
405.1686..................................  424.66(a)
405.1692..................................  424.44
405.1693..................................  424.45
405.1694..................................  424.44(c)
405.1695..................................  424.350
405.1696..................................  424.352
405.1697..................................  424.354


[[Page 831]]

                                     

                                     



                        Redesignation Table VIII




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
  405.1901(a).............................  488.01
  405.1901 (b) and (c)....................  488.03
  405.1901(d).............................  488.05
  405.1901(e).............................  488.06
  405.1901(q).............................  488.08
  405.1902(a).............................  488.10
  405.1902(b).............................  488.11
  405.1902(c).............................  488.12
  405.1902(d).............................  488.14
  405.1903................................  488.18
  405.1904................................  488.20
  405.1905................................  488.24
  405.1906................................  488.26
  405.1907................................  488.28
  405.1908................................  488.50
  405.1909................................  488.52
  405.1910................................  488.54
  405.1911................................  488.56
  405.1912................................  488.60
                                            488.100
                                            488.105
                                            488.110
                                            488.115


[[Page 833]]

                                     

                                     



                         Redesignation Table IX




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
405.201...................................  407.1
405.202...................................  407.2
405.205...................................  407.10(a)
405.206...................................  407.10(b)
405.207...................................  407.11
405.210(a)................................  407.12 and 407.22(b)
405.210(b)................................  407.17(a) and 407.18
405.210(c)................................  407.17(b)
405.211...................................  407.12(a)
405.212 (a) & (c).........................  407.14(a)(1)
405.212(b) [Reserved].....................  407. Deleted
405.212(d)................................  407.14(a)(2)
405.212(e)................................  407.14(b)
405.213...................................  407.12(a) and 407.15
405.214(a) [Reserved].....................  407. Removed
405.214 (b) & (c).........................  407. Removed as inconsistent
                                             with changes in the law
405.214(d)................................  407.30
405.215...................................  407.12(b)
405.216...................................  407.20
405.217(a)................................  407.40(a)
405.217 (b)-(i)...........................  407.40 (c) and (d),
                                            407.42, and 407.43
405.220...................................  407.4(b)
405.221...................................  407.25
405.222...................................  407.47
405.223...................................  407.27, 407, 148, and 407.50
405.226...................................  407.32


[[Page 835]]

                                     

                                     



                          Redesignation Table X




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
405.901...................................  408.2
405.902(a)................................  Deleted as unnecessary
405.902 (a)(1) and (a)(2).................  408.20(b)
405.902(b)................................  408.22
405.902(b)(1).............................  408.24
Examples..................................  408.26
405.902(c)................................  408.27
405.903 (a)...............................  408.4(a)
405.903(b), first sentence................  408.100
405.903(b), rest of the paragraph.........  408.4(b)
405.904, uncoded introduction.............  408.6(a)(1) and 408.8(c)
405.904(a)................................  408.42 and 408.43
405.904(b)................................  408.44
405.904(c)................................  408.42
405.904(d)................................  408.6(c)
405.904(e)................................  408.6(b)(3) and 408.60(a)
405.906...................................  408.4(c)
405.908 uncoded introduction..............  408.60(a)
405.908 (a)-(c)...........................  408.60(d)
405.911(a), first & third sentences.......  408.40(a)
405.911(a), second sentence...............  408.40(c)
405.911(b)................................  408.40(b)
405.911(c)................................  Deleted as duplicative and
                                             unnecessary
405.912(a), except second parenthetical     408.46(a)
 statement.
405.912(a), parenthetical statement.......  408.3
405.912(b)................................  408.46(b)
405.913(a), first sentence................  408.46(a)(2)
405.913(a), second sentence...............  408.47(a)(1)
405.913(a), third sentence................  408.47(b)(2)
405.913 (b) & (c).........................  408.3 and 408.47(a)
Example...................................  408.47(c)
405.913(d)................................  408.47 (a)(2) & (b)(2)
405.914(a)................................  408.50(b)(1)
Examples..................................  Deleted as duplicative of
                                             examples in 405.956(a)
405.914(b)................................  408.50(b)(2)
405.914(c)................................  408.50(b)(3)
405.9 (a), first sentence.................  408.10(a)
405.915(a), second sentence...............  Deleted as duplicative of
                                             405.912
405.915 (b)(1) & (2)......................  408.10 (b) and (b)(1)
405.915(b)(3).............................  408.10(b)(2)
405.916...................................  408.45
405.920, uncoded introduction.............  408.6(b)(3)
405.920(a), first and second sentences....  408.62
405.920(a), third and fourth sentences....  408.6(a)(1)
405.920 (b) & (c).........................  408.62
405.920(d)................................  408.65
405.920(e)................................  408.71
405.921(a)................................  408.60(b)
405.921(b)................................  Deleted as inconsistent with
                                             current practice
405.927...................................  408.8(a)
405.928...................................  408.8(b)
405.929...................................  408.8(d)
405.936, text.............................  408.70
405.936, Example..........................  Deleted as unnecessary
405.940(a)................................  408.80 (a) & (b)
405.940 (b) & (c).........................  408.80(c)
405.941(a)................................  408.82(a)
405.941(b)................................  408.82(b)
405.941(c), first sentence................  408.82(e)
405.941(c), rest of paragraph.............  408.80(b)
405.941(d), first & second sentences......  408.82(c)
405.941(d), rest of paragraph except last   408.82(d.)
 sentence.
405.941(d), sentence......................  Deleted as inappropriate in
                                             the context of group
                                             billing
405.941(e)................................  408.84(c)
405.941(f), first sentence................  408.84(d)
405.941(f), rest of paragraph.............  408.88(a)
Example...................................  408.88(b)
405.942 (revised per change practice).....  408.84(b)
405.946(a)................................  408.84(a)
405.946(a), last sentence, and (b)........  Deleted as duplicative of
                                             405.841(d)
405.947(a)................................  408.92
405.947(b)................................  408.92(b)(2)
405.948(a)................................  408.86(a)
405.948(b)................................  408.86(b)
405.948(c)................................  408.86(c)
405.949...................................  408.90
405.956(a)................................  408.50(a)
405.956(a), Examples......................  408.50(c)
405.956(b) (revised to reflect simplified   408.68(b)
 practice).
405.957(a)................................  408.68(b)
405.957(b)................................  408.100(b)
405.958(a)................................  Deleted as inconsistent with
                                             405.958(b)
405.958(b)................................  408.68(a)
405.959(a)................................  408.102(a)
405.959(b)(1).............................  408.102(b)
405.959(b)(2).............................  408.102(c)
405.959(c)................................  408.104
405.960(a)................................  408.71
405.960(b)................................  408.52
405.962...................................  408.110
405.964...................................  408.112


[[Page 837]]

                                     

                                     



                         Redesignation Table XI




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
405.1201..................................  484.1
405.1202..................................  484.2
405.1220..................................  484.10
405.1221..................................  484.12
405.1222..................................  484.14
405.1223..................................  484.16
405.1224..................................  484.30
405.1225..................................  484.32
405.1226..................................  484.34
405.1227..................................  484.36
405.1228..................................  484.48
405.1229..................................  484.52
405.1230..................................  484.38


[[Page 839]]

                                     

                                     



                         Redesignation Table XII




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
405.308(a)................................  Removed as duplicative of
                                             Sec.  412.42
405.308(b)................................  489.34
405.310...................................  411.15
405.310-1.................................  411.2
405.311...................................  411.4
405.311a..................................  411.6
405.311b..................................  411.7
405.312...................................  411.8
405.313...................................  411.9
405.314...................................  411.10
405.315...................................  411.12
405.316...................................  411.40
405.317(a)-(c)............................  411.30
405.317(d)-(f)............................  Removed as inconsistent with
                                             current policy
405.318...................................  411.43
405.319(a)................................  Removed for inclusion in
                                             instructions
405.319(b)................................  411.45
405.320 and 321(a)........................  411.46
405.321(b)................................  411.47
405.322(a)-(d)............................  411.50
405.322(e)................................  411.28
405.323(a)................................  Removed as outdated
405.323(b)................................  411.50
405.323(c)(1).............................  411.53
405.323(c)(2).............................  411.23
405.323(c)(3) and (4).....................  411.24
405.323(c)(5).............................  Removed as meaningless
405.324(a)................................  411.52
405.324(b)................................  411.37
405.325...................................  411.30
405.326...................................  411.60
405.327...................................  411.62
405.328(a)-(d)............................  411.33
405.328(e) and (f)........................  411.30
405.329...................................  411.65
405.330...................................  411.400
405.332...................................  411.402
405.334...................................  411.404
405.336...................................  411.406
405.340...................................  411.70
405.341...................................  411.72
405.342(a) and (b)........................  411.33
405.342(c) and (d)........................  411.30
405.343...................................  411.35
405.344(a)................................  411.75
405.344(b)................................  411.24


[[Page 841]]

                                     

                                     



                        Redesignation Table XIII




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
417.110...................................  417.910
417.111...................................  417.911
417.112...................................  417.912
417.113...................................  417.913
417.114...................................  417.914
417.115...................................  417.915
417.116...................................  417.916
417.117...................................  417.917
417.118...................................  417.918
417.119...................................  417.919
417.120...................................  417.920
417.121...................................  417.921
417.122...................................  417.922
417.123...................................  417.923
417.124...................................  417.924
417.125...................................  417.925
417.126...................................  417.926
417.130...................................  417.930
417.131...................................  417.931
417.132...................................  417.932
417.133...................................  417.933
417.134...................................  417.934
417.135...................................  417.935
417.136...................................  417.936
417.137...................................  417.937


[[Page 843]]

                                     

                                     



                         Redesignation Table XIV




------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
405.1411..................................  486.100
405.1412..................................  486.102
405.1413..................................  486.104
405.1414..................................  486.106
405.1415..................................  486.108
405.1416..................................  486.110
405.1701..................................  485.701
405.1702, introductory text...............  Removed
405.1702(a)...............................  485.705(a)
405.1702(b)...............................  485.703(a)
405.1702(c)...............................  485.703(b)
405.1702(d)...............................  485.705(b)
405.1702(e)...............................  485.705(c)
405.1702(f)...............................  485.705(d)
405.1702(g)...............................  485.705(e)
405.1702(h)...............................  485.703(c)
405.1702(i)...............................  485.703(d)
405.1702(j)...............................  485.705(f)
405.1702(k)...............................  485.705(g)
405.1702(l)...............................  485.703(e)
405.1702(m)...............................  485.705(h)
405.1715..................................  485.707
405.1716..................................  485.709
405.1717..................................  485.711
405.1718..................................  485.713
405.1719..................................  485.715
405.1720..................................  485.717
405.1721..................................  485.719
405.1722..................................  485.721
405.1723..................................  485.723
405.1724..................................  485.725
405.1725..................................  485.727
405.1726..................................  485.729
405.1730..................................  486.150
405.1731..................................  486.151
405.1732..................................  486.153
405.1733..................................  486.155
405.1734..................................  486.157
405.1735..................................  486.159
405.1736..................................  486.161
405.1737..................................  486.163
411.60....................................  411.160
411.62....................................  411.162
411.65....................................  411.165
411.70....................................  411.170
411.72....................................  411.172
411.75....................................  411.175


[[Page 845]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations which were 
made by documents published in the Federal Register since January 1, 
1986, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 1986, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, and 1973-1985'' published in seven 
separate volumes.

                                  1986

42 CFR
                                                                   51 FR
                                                                    Page
Chapter IV
Chapter IV  Regulations in part transferred to Chapter V...........34765
    Nomenclature change............................................41338
400.200  Amended...................................................43197
    400.310  Table amended (OMB numbers)............9792, 11582, 44986--
                                                                   44988
    Table amended (OMB numbers); interim...........................16785
    Table corrected (OMB numbers)..................................18790
    Amended........................................................34791
403.300--403.322 (Subpart C)  Added................................15492
403.304  OMB number pending........................................15492
403.306  OMB number pending........................................15492
403.312  OMB number pending........................................15492
403.316  OMB number pending........................................15492
403.318  OMB number pending........................................15492
403.320  OMB number pending........................................15492
403.322  OMB number pending........................................15492
405.100  Amended...................................................41351
405.152  Heading and (a)(5) revised; (c) through (e) added.........41336
405.153  (c)(1) amended............................................34791
    (c)(1)(ii) amended.............................................41351
405.160  (d) removed...............................................43197
405.162  (a) amended...............................................22040
    (b) and (c) amended............................................43197
405.170  Interim revision (47 FR 47390) confirmed..................23545
405.195  Removed....................................................6235
405.196  Removed....................................................6235
405.201--405.262(Subpart B)  Authority citation revised......34791,41336
405.201  Revised...................................................41336
405.210  (b)(1) (iii) and (iv) amended.............................41351
405.230--405.232c  Removed (regulations transferred to Part 410) 
                                                                   41336
405.231  (l) (1) and (3) and (m) (1) and (2) amended...............22040
405.232  (f) amended...............................................22040
405.233  Removed...................................................41336
405.234--405.238  Removed (regulations transferred to Part 410)....41336
405.239  Removed...................................................41336
405.240--405.241  Removed (regulations transferred to Part 410)....41336
405.240  (i)(1) amended............................................34791
405.243--405.246  Removed (regulations transferred to Part 410)....41336
405.249--405.250  Removed (regulations transferred to Part 410)....41336
405.250  Interim revision (47 FR 47390) confirmed..................23545
405.250-2  Removed (regulations transferred to Part 410)...........41336
405.251--405.252  Removed (regulations transferred to Part 410)....41336
405.260--405.262  Removed (regulations transferred to Part 410)....41336
405.260  (a) amended...............................................34791
405.301--405.376 (Subpart C)  Authority citation revised............6235
405.301  Amended....................................................6235

[[Page 846]]

405.310  Introductory text, (l)(1) introductory text republished; 
        (l)(2) revised.............................................41336
405.310-1  Heading and text amended................................43197
405.311a  (a) amended..............................................41351
405.330  (b) (1) and (2) amended....................................6235
    (b) (1) and (2) corrected.......................................9792
    (b) amended....................................................41337
405.331  Redesignated as 405.332....................................6235
405.332  Redesignated as 405.334 and revised; new 405.332 
        redesignated from 405.331...................................6235
405.334  Redesignated from 405.332 and revised......................6235
405.336  Added......................................................6236
405.341  (a) (1) and (2) amended...................................41351
405.343  Amended...................................................34792
405.370  (a) amended...............................................41351
405.376  (c)(1)(ii)(B), (e)(3), (h)(1), and (i) amended............34792
405.401--405.463  Removed; regulations transferred to Part 413.....34792
405.401--405.482 (Subpart D)  Authority citation revised...........31495
405.401  (d)(2) revised............................................31495
405.434  (b) amended...............................................22040
405.452  (a)(1)(i) amended; (a)(1)(ii) removed; (a)(1)(iii) 
        redesignated as (a)(1)(ii); (e)(2) correctly designated; 
        interim....................................................11195
405.453  (d)(5)(i)(A) amended......................................22040
405.454  (j) introductory text and (1) through (5) redesignated as 
        (j) (1) through (6); new (j) (1) and (2) introductory text 
        and (i) through (iii), and (m) revised.....................29393
405.457  Added; interim............................................11195
405.463  (c)(3)(i) revised; interim................................16786
    (b)(1) revised.................................................31495
405.465--405.482 (Subpart D)  Heading and authority citation 
        revised....................................................34792
405.465  Nomenclature change; (e)(1) amended.......................34792
405.480  (a) introductory text and (4) amended.....................34792
405.481  (a) and (d)(2) amended....................................34792
405.501  (b) amended...............................................34792
    (c) revised....................................................34978
    (c) corrected..................................................37911
    (a) amended....................................................41351
405.502  (a) introductory text republished; (a)(7) revised; (g) 
        added......................................................28716
    (e) (2) and (3) amended........................................34792
405.504  (a)(2) introductory text, (2)(ii) and (3)(i) republished; 
        (a)(1) added; (a)(2)(ii)(A), (B) Example and (a)(3)(ii)(A) 
        and (B) revised............................................34978
405.509  Correctly added...........................................11582
    Revised........................................................34979
    (a) corrected..................................................37911
405.511  (c) republished; (c)(1) heading and (2) revised...........34979
405.514  (k)(1) amended............................................41351
405.515  Introductory text amended.................................41351
405.521  (d)(1) amended............................................34792
405.522  (b) amended...............................................34792
    (c) amended....................................................41351
405.551  (e) revised...............................................34979
    (e) heading corrected..........................................37911
405.525  Table footnote 3 amended..................................34792
405.541  (a)(1), (e), (f) (2) and (3) amended......................34792
405.544  Nomenclature change.......................................34792
405.550  (e) (2) and (3) amended...................................34792
405.551  (e) revised...............................................34979
405.556  (c) amended...............................................34792
405.640--405.691 (Subpart F)  Heading and authority citation 
        revised....................................................41337
405.658--405.659  Removed..........................................41337
405.658  (b)(3) amended............................................34792
405.690--405.691  Removed..........................................41337
405.691  (a) amended...............................................34792
405.704  (b)(11) amended...........................................43197
405.803  (b) amended...............................................41351
405.903  (b) amended...............................................41351
405.1011--405.1042 (Subpart J)  Removed (regulations transferred 
        to Part 482)...............................................22040
405.1022  (b) interim revision (47 FR 47391) confirmed.............23545
405.1101  (a)(3) amended...........................................22040
405.1128  (a) and (b) amended......................................22040
405.1134  (a) interim revision (47 FR 47391) confirmed.............23545
405.1220  Interim revision (47 FR 47391) confirmed.................23545

[[Page 847]]

405.1221  (a) interim revision (47 FR 47391) confirmed.............23545
405.1501--405.1595 (Subpart O)  Heading revised....................24490
405.1501  (a)(1) amended...........................................22040
    Heading, (a) introductory text and (3) revised; (d) amended....24490
    (a)(1) corrected...............................................27847
405.1502  (a) amended..............................................22040
    (a) corrected..................................................27847
405.1505  (b) amended..............................................22040
    Heading revised; (o) added.....................................24490
    (b) corrected..................................................27847
405.1625--405.1697 (Subpart P)  Authority citation revised........23545, 
                                                                   41337
405.1625-1  Removed................................................43196
405.1627  Heading amended..........................................22040
405.1629  Heading and introductory text amended; (c) and (d) 
        removed....................................................22040
405.1630  (b)(1) amended...........................................22040
405.1633  (b) interim revision and (c) interim addition (47 FR 
        47392) confirmed; (a) and (d) revised; (e), (f), and (g) 
        added......................................................23545
405.1634  Interim revision (47 FR 47392) confirmed.................23545
405.1660  (a) and (b) amended......................................41351
405.1663  (a), (b) and (c) amended.................................41351
405.1672  (b) amended..............................................41351
405.1675  (a)(1)(i) amended........................................41351
405.1682  (c) amended..............................................34792
405.1683  Revised..................................................41337
405.1684  Revised..................................................41338
405.1695  Revised..................................................41338
405.1717  (b) interim amendment (47 FR 47392) confirmed............23545
    (b) revised....................................................23546
405.1801  Nomenclature change; (b)(1) amended......................34793
405.1803  (c) amended..............................................34793
405.1805  Amended..................................................34793
405.1841  (a)(2) amended...........................................34793
405.1877  (e) and (f) amended......................................34793
405.1901--405.1913 (Subpart S)  Authority citation revised.........21557
405.1901  (b)(2) and (d)(1) amended; (d)(2) revised................22040
    (b)(2) corrected...............................................27847
405.1902  (c) amended..............................................43197
405.1913  (f)(9) amended...........................................43197
405.1906  Revised..................................................21557
405.1910  (a) and (d) amended......................................22041
405.1913  (b), (c), (d), and (g) amended...........................22041
    (b) corrected..................................................27847
405.2100--405.2171 (Subpart U)  Authority citation revised.........30361
405.2100  Revised..................................................30361
405.2102  Amended..................................................30361
405.2110  Revised..................................................30361
405.2111  Removed..................................................30361
405.2112  Revised..................................................30361
405.2113  Revised..................................................30361
405.2114  Removed..................................................30362
405.2120  Amended..................................................30362
405.2121  (a) removed; (b), (c), and (d) redesignated as (a), (b), 
        and (c)....................................................30362
405.2122  (b)(2)(ii) amended.......................................30362
405.2132  Removed..................................................30362
405.2134  Revised..................................................30362
405.2136  Introductory text, (c) introductory text, (3) (v) and 
        (vi), and (h) revised; (b)(5) removed; (c)(3) introductory 
        text republished...........................................30362
405.2138  (e) amended..............................................30362
405.2161  (a) amended..............................................30362
405.2162  (a) and (c) amended......................................30362
405.2163  (c) and (d) amended......................................30362
405.2164  (a) amended..............................................30362
405.2170  Amended..................................................30362
405.2171  (b) and (c) amended......................................30362
405.2100--405.2171 (Subpart U)  Appendix removed...................30362
405.2401  (b)(7) (i) and (ii) amended..............................41351
405.2403  (a)(2) amended...........................................41351
405.2418  Amended..................................................41351
405.2425  (b)(3) amended...........................................41351
406  Redesignated from Part 408 and heading revised................41338
406.2  Amended.....................................................41338
408  Redesignated as Part 406 and heading revised..................41338
409  Authority citation revised....................................23546
    Heading and authority citation revised.........................41338
409.3  Amended.....................................................41338
409.30  (a) introductory text republished; (a)(2) revised..........41338
409.40  (e) amended................................................41338
409.42  (b) revised................................................23546
    Revised........................................................41339
409.43  Revised....................................................41339
409.44  Revised....................................................41339
409.45  Removed....................................................41339

[[Page 848]]

409.46  Added......................................................41339
409.61  (d) revised................................................41339
410  Added.........................................................41339
412  Authority citation revised....................................31496
412.1  (b) amended; interim........................................16786
412.2  (c) (1), (3), (d) (1) and (2) amended.......................34793
412.6  (a)(3) and (b) amended......................................34793
412.10  (a) revised................................................31496
412.22  (b) amended................................................34793
412.23  (a)(2) amended.............................................22041
    (c) introductory text revised..................................31496
412.32  Introductory text revised..................................31496
412.48  (d) and (e) removed; (c) revised...........................34787
412.52  Amended....................................................34793
412.62  (c)(2) amended.............................................34793
412.63  (c)(3) and (d) notice of legislation........................4166
    (c)(2) introductory text and (3) introductory text 
republished; (d), (e), (f), and (g) redesignated as (e), (f), (g), 
and (h); new (d) added; (c)(2)(iv) and (3)(i), new (e), and (h) 
revised; interim...................................................16786
    (b)(3) and (c) (4) and (5) added...............................31496
    (c)(2)(i) amended..............................................34793
    (c)(2) introductory text and (3) introductory text 
republished; (c)(1), (2)(iv), and (3) (i) and (iii) revised; (e), 
(f), (g), and (h) redesignated as (g), (h), (i), and (j); new (e) 
and (f) heading added; new (g)(1) and (j) revised; new (g)(4) 
removed............................................................42233
412.70  (c)(3) and (4) and (d)(2) and (3) notice of legislation.....4166
    Revised; interim...............................................16786
412.71  (b) introductory text, (b) (2) and (3) amended.............34793
412.73  (c)(3) notice of legislation................................4166
    (c)(3) revised; (c)(4) and (5) added; interim..................16787
    (b)(2), (c) (1) and (3) amended................................34793
    (c)(4) revised; (c)(5) redesignated as (c)(6) and heading 
revised; new (c)(5) heading added; new (c)(6) text removed.........42234
412.80  (a)(1)(ii)(B) notice of legislation.........................4166
    (a)(1)(ii)(B) table revised; interim...........................16787
    (c) revised....................................................31496
412.82  (c) notice of legislation...................................4166
    (c) table revised; interim.....................................16787
412.84  (g) revised................................................31496
412.90  (h) added; interim.........................................16788
412.92  (a) introductory text and (2) introductory text 
        republished; (a)(2)(ii) revised............................31496
    (b)(4) and (e)(3)(ii) amended..................................34793
    (a)(2)(ii) amended.............................................43198
412.94  (b)(1) amended.............................................34793
412.96  (c) introductory text republished; (c) (1) and (2), (f), 
        and (g) revised; (h) added.................................31496
    (h)(2) corrected...............................................34980
    (h) corrected..................................................34980
    (c) heading, (1), and (2)(i) revised...........................42234
412.98  (b) amended................................................34793
412.106  Added; interim............................................16788
    (a)(2) revised.................................................31497
412.113  (b) amended; interim......................................16788
    (d) added......................................................31497
    (a) and (b) amended............................................34793
    (d) corrected..................................................34980
412.115  (a) amended...............................................34793
412.118  (f)(2) and (3) eff. date deferred..........................4166
    Introductory text, (a), and (c) revised; (d), (e), (f), and 
(g) redesignated as (e), (f), (g), and (h); new (d) added; new (e) 
and (g) revised; interim...........................................16788
    (g)(1) revised.................................................31497
    (f)(1) amended.................................................34793
413  Added.........................................................34794
413.5  (c)(4) corrected............................................37398
413.13  (c) corrected..............................................37398
413.40  (c)(1)(ii) corrected.......................................37398
    (c)(3)(i) introductory text republished; (c)(3)(i) (B) and (C) 
heading revised; (c)(3)(i)(C) text removed; (c)(3)(i)(D) added.....42235
413.56  (b)(6) corrected...........................................37398
413.64  (k)(1)(iii) revised; (k)(6) added..........................42235
413.74  (c) amended................................................41351
413.170  (g)(2) corrected..........................................37398
416.3  (a) amended.................................................41351
416.30  (b) amended................................................41351

[[Page 849]]

416.41  Amended....................................................22041
416.110  (c) amended...............................................41351
416.120  (a) and (b) amended.......................................34831
417.207  (a) amended...............................................22041
417.221  (b) amended...............................................41351
417.222  (b) amended...............................................41351
417.240  (a) amended...............................................34832
417.241  (b) and (d) amended.......................................34832
417.242  (b) introductory text amended and (b) (1)-(6), (8)-(13), 
        (14)(i) (a)-(d), (b)(14)(ii) and (h) amended...............34832
417.243  (b) (1), (3) and (g) amended..............................34832
417.244  (c) amended...............................................34832
417.247  Nomenclature change......................................348232
417.254  (c) amended...............................................34832
417.401  Amended...................................................28573
417.416  (d) introductory text republished; (d)(1), (2) 
        introductory text and (i) revised..........................28573
417.448  Revised...................................................28573
417.460  (a) introductory text republished; (a)(2)(iv) revised.....28574
417.530  Amended...................................................34832
417.532  (g) amended...............................................34832
417.536  (a)-(f), (h)-(l) and (m) (1)-(5) amended..................34832
    (b) correctly designated.......................................37398
417.548  Nomenclature change; introductory paragraph (b) amended 
                                                                   34832
417.554  Revised...................................................28574
    Amended........................................................34832
417.558  Nomenclature change.......................................34832
417.568  (c) amended...............................................34832
417.576  Nomenclature change.......................................34833
417.586  (b)(2) amended............................................34833
417.597  (b) revised...............................................28574
417.800  (d)(1) amended............................................34833
418.202  (c), (f), (g) and (h) amended.............................41351
420  Authority citation revised....................................18791
    Heading revised................................................24490
    Heading and authority citation revised.........................34787
420.1  Revised.....................................................34787
420.2  Removed.....................................................34787
420.3  Revised.....................................................34787
420.100--420.136 (Subpart B)  Authority citation revised...........18791
    Removed........................................................34787
420.100  Revised...................................................18791
    Amended........................................................24490
420.102  Added.....................................................18791
420.103  Added.....................................................18791
420.105  (a) amended...............................................24490
420.107  (a) amended...............................................24490
420.114  (c) amended...............................................24490
420.134  (e) added.................................................18791
420.200--420.206 (Subpart C)  Authority citation removed...........34787
420.300--420.304 (Subpart D)  Authority citation removed...........34787
420.301  Amended...................................................34833
421.100  (a)(3) amended............................................43198
421.200  (b) amended...............................................34833
    (c) revised....................................................41350
    (c)(2)(ii) amended.............................................41351
    (a)(1)(iii) amended............................................43198

                                  1987

42 CFR
                                                                   52 FR
                                                                    Page
Chapter IV
400.200  Amended...................................................27764
400.310  Revised (OMB numbers).....................................11649
    Table amended (OMB numbers); eff. 10-26-87.....................28147
    Table amended (OMB numbers)....................................30367
401.601  (d)(2)(iv) amended........................................48123
405.583  Technical correction......................................37769
405.705  (d) amended...............................................48123
405.901--405.964 (Subpart I)  Redesignated as Part 408 and revised
                                                                   48115
405.2100--405.2171 (Subpart U)  Authority citation corrected.......41532
405.152  (d) corrected..............................................4499
405.212  (e) amended...............................................48123
405.216  Added.....................................................48114
405.223  (b) amended...............................................48123
405.226  Amended...................................................48123
405.501--405.580 (Subpart E)  Authority citation revised............6152
405.502  (f) revised...............................................44127
405.514  (a) and (k)(2) revised.....................................6152
405.551  (e) revised................................................6152
405.553  (b)(4) amended............................................33057
405.640--405.685 (Subpart F)  Removed; 405.640 regulations 
        transferred to 498.20 (a)(2) and 405.685 regulations 
        transferred to 405.1902 (b)................................22446
405.701--405.750 (Subpart G)  Authority citation revised...........22644
405.702  Amended...................................................22644
    Technical correction...........................................23628

[[Page 850]]

405.704  (b) introductory text republished; (b)(10) revised........22645
    Technical correction...........................................23628
405.705  (b) amended...............................................22454
405.903  (b) amended................................................4499
405.1101--405.1137 (Subpart K)  Authority citation revised.........22645
405.1501--405.1595 (Subpart O)  Removed; regulations transferred 
        to new Part 498............................................22446
405.1901  (e)(6) amended...........................................22454
405.1902  (b) and (c) redesignated as (c) and (d); new (c) heading 
        revised; new (b) and (d) heading added; (b) regulations 
        transferred from 405.685...................................22446
405.1905  (b) amended..............................................22454
405.2136  (b) introductory text revised (effective date pending) 
                                                                   36934
405.2138  (a) introductory text republished; (a)(3) revised; (a) 
        (4) and (5) added (effective date pending).................36934
405.2139  (a) revised (effective date pending).....................36934
405.2140  (b) introductory text and (1) and (c) revised (effective 
        date pending)..............................................36934
405.2150  Added....................................................36935
405.2402  (f) amended..............................................22454
405.2404  (b)(3) amended...........................................22454
408  Redesignated from 405.901--405.964 (Subpart I) and revised....48115
409  Authority citation revised.............................22645, 27764
    Heading correctly revised......................................28824
409.19  Added......................................................27764
409.42  (b) (2) and (3) corrected...................................4499
409.60  Revised....................................................22645
    Technical correction...........................................23628
    (c)(1)(i) correctly designated; (c) (4) and (5) and (d) (1) 
and (2) corrected..................................................28824
410  Authority citation corrected..................................29353
410.10  (n) redesignated as (o); new (n) added.....................27765
410.32  (a)(1) and (b)(3) corrected.................................4499
410.40  (e)(1) corrected............................................4499
410.64  Added......................................................27765
410.100  (k)(2) corrected...........................................4499
410.152  (a)(2)(i) and (e)(1) corrected.............................4499
412  Technical correction..........................................37769
412.1  (a) and (b) amended.........................................33057
    (a) revised....................................................33186
    Regulations at 52 FR 33186 invalidated.........................39638
412.2  (d)(5) amended..............................................33057
    (c) introductory text and (d) introductory text republished; 
(c)(5) added; (d)(1) revised.......................................33186
    Regulations at 52 FR 33186 invalidated.........................39638
412.23  (f) revised................................................33057
412.60  (d) redesignated as (e) and revised; new (d) added.........33057
412.63  (c)(4) revised.............................................23834
    (f) text added.................................................33057
    (a)(1) revised.................................................33186
    Regulations at 52 FR 33186 invalidated.........................39638
    (c)(3) and (f) legislative changes.............................39638
412.65  Added......................................................33187
    (b) heading corrected..........................................36575
    Regulations at 52 FR 33187 and 36575 invalidated...............39638
412.66  Added......................................................33187
      Regulations at 52 FR 33187 invalidated.......................39638
412.67  Added......................................................33187
    Regulations at 52 FR 33187 invalidated.........................39638
412.68  Added......................................................33188
    Regulations at 52 FR 33188 invalidated.........................39638
412.70  (b), (c) (4) and (5), and (d) (3) and (4) legislative 
        changes....................................................39638
412.71  (b)(8) amended.............................................33057
412.73  (c)(5) text added; (c)(6) heading removed..................33057
    (c)(5) legislative changes.....................................39638
412.80  (a)(1)(ii)(B) legislative changes..........................39638
412.82  (c) revised................................................33189
    Regulations at 52 FR 33189 invalidated.........................39638
    (c) legislative changes........................................39638
412.84  (g) and (i) revised........................................33189
    Regulations at 52 FR 33189 invalidated.........................39638
412.92  (d) and (e)(1) revised; (f) added..........................30367

[[Page 851]]

    (e)(2) introductory text republished; (e)(2)(ii), (3) 
introductory text and (i) revised..................................33057
    (d) revised....................................................33189
    (d) correctly revised..........................................36575
      (d)(1)(iii) as published at 52 FR 36575 invalidated..........39638
412.96  (c)(1) introductory text revised...........................33058
    (d) and (e) revised............................................33189
    Regulations at 52 FR 33189 invalidated.........................39638
412.106  (b) and (c)(1) revised; (c) introductory text republished
                                                                   23834
412.113  (c) amended...............................................33058
    (a) revised....................................................33189
    (c) corrected..................................................35350
    Regulations at 52 FR 33189 invalidated.........................39638
412.118  (c) and (d) introductory text revised.....................23834
412.125  Introductory text republished; (b) revised................33189
    Regulations at 52 FR 33189 invalidated.........................39638
412.200--412.220 (Subpart K)  Added................................33058
412.208  (h)(2)(i) corrected.......................................35350
412.214  Added.....................................................33190
    Regulations at 52 FR 33190 invalidated.........................39638
413  Correctly designated..........................................26152
413.5  (c) introductory text and (e) revised.......................21225
    (c) introductory text corrected................................23398
413.13  (c) redesignated as (c)(1); (c)(2) added...................36772
413.30  (f)(7) removed.............................................21225
413.40  (c)(1)(ii) and (iii) corrected; CFR correction..............6099
    (c)(3)(i) introductory text republished; (c)(3)(i)(C) text 
added..............................................................33059
413.53  (a)(1)(i) amendment, (a)(1)(ii) removal, and (a)(1)(iii) 
        redesignation as (a)(1)(ii) at (51 FR 11195) confirmed 
        (paragraphs formerly in 405.452)............................9863
413.56  Addition at (51 FR 11195) confirmed (formerly in 405.457) 
                                                                    9863
413.110  Removed; eff. 10-29-87....................................28657
413.118  Added.....................................................36773
413.13  (c) redesignated as (c)(1); (c)(2) added...................36772
413.64  (g)(6)(i) legislative changes..............................39638
413.40  Technical correction.......................................37769
    (c)(3)(i)(C) legislative changes...............................39638
413.64  (g)(6)(i)) legislative changes.............................39638
413.118  Added.....................................................36773
    (a) and (c)(2) corrected.......................................37715
413.130  (a) introductory text republished; (a)(8) revised.........21225
413.157  Regulations at 52 FR 32921 invalidated....................39639
    (b) introductory text and (4) heading and (c)(1)(ii) corrected
                                                                   23398
    (b)(2) added; (b)(3) revised; (b)(4) redesignated as (b)(5); 
new (b)(4) added...................................................32921
    (b) redesignated as (c); new (b) added; (a) and new (c)(1) 
revised............................................................21225
413.161  (a) amended...............................................21226
416.25  (f) amended................................................22454
416.35  (b)(3) amended.............................................22454
417  Authority citation revised....................................22322
    Authority citation correctly revised; other authority 
citations correctly removed; redesignation table heading corrected
                                                                   47003
417.100--417.180 (Subpart A)  Redesignated from Part 110; 
        nomenclature changes; subpart designations removed; 
        authority citation added...................................36746
417.222  (b) corrected..............................................4499
417.406  Revised...................................................22322
417.407  (b) revised...............................................22322
417.428  (a) introductory text and (b) introductory text 
        republished; (a)(3) and (b)(5) added........................8901
417.440  (b)(1) revised; (d) and (e) added..........................8901
417.450  (a) introductory text revised..............................8901
417.460  (b) revised................................................8901
417.494  (b)(1)(iii) amended.......................................22322
417.584  Introductory text revised..................................8901
418.3  Amended......................................................4499
418.80  Revised.....................................................7416

[[Page 852]]

418.83  Added.......................................................7416
420.3  (a) amended.................................................22454
421.200  (c) introductory text corrected............................4499

                                  1988

42 CFR
                                                                   53 FR
                                                                    Page
Chapter IV
Chapter IV  Nomenclature change..............................6634, 47201
400.310  Table amended (OMB numbers)................................6647
    Revised........................................................16268
    Table corrected (OMB numbers)..................................21762
    Table amended (OMB numbers); eff. 10-21-88.....................36571
405  Addendum corrected............................................38835
405.100--405.192 (Subpart A)  Removed...............................6633
405.201--405.226 (Subpart B)  Heading and authority citation 
        revised.....................................................6633
    Removed (Regulations transferred to Part 407)..................47201
405.207  Added......................................................6633
405.310  (m)(2) revised............................................38526
405.311a  (a) amended...............................................6647
405.313  (a) amended................................................6647
405.370  Heading and (a) introductory text revised..................6647
405.502  (a) introductory text republished; (a)(7) and (g) 
        revised; (h) added.........................................26071
405.504  (a)(1) amended.............................................6648
405.702  Amended....................................................6648
405.740  (b) amended................................................6648
405.803  (b) amended................................................6648
405.901--405.964 (Subpart I)  Redesignation table corrected.........4158
405.1134  Introductory text republished; (a) and footnote 1 
        revised....................................................11508
405.1310--450.1317 (Subpart M)  Authority citation revised.........48647
405.1316  (f) introductory text republished; (f) (2) and (3) 
        revised....................................................48647
405.1411--405.1416 (Subpart N)  Authority citation revised.........12015
405.1413  Heading and (c) revised..................................12015
405.1625--405.1697 (Subpart P)  Removed.............................6633
405.1702  Introductory text and (d) introductory text and (4)(ii) 
        revised; (f) through (k) redesignated as (g) through (l); 
        new (f) added..............................................12015
405.1716  (c) and (d) revised......................................12015
405.1717  (b) and (e) revised......................................12015
405.1725  (a) revised..............................................12015
405.1731  Introductory text and (a) introductory text and (4)(ii) 
        revised; (d) added.........................................12015
405.1733  (a)(7) amended; (b) revised..............................12015
405.1901--405.1913 (Subpart S)  Removed............................23100
405.1903  Redesignated as 488.18 and (a) and (b) amended...........23100
405.1904  Redesignated as 488.20 and (a) amended...................23100
405.1905  Redesignated as 488.24...................................23100
405.1906  Redesignated as 488.26 and revised.......................23100
405.1907  Redesignated as 488.28 and (a) amended...................23100
405.1908  Redesignated as 488.50 and (a) introductory text and 
        (1), (b), and (c) amended..................................23100
405.1909  Redesignated as 488.52 and (a), (b), (c) and (d) amended
                                                                   23100
405.1910  Redesignated as 488.54...................................23100
405.1911  Redesignated as 488.56 and heading revised and (a) and 
        (b) amended................................................23100
405.1912  Redesignated as 488.60 and heading revised, (a) and (b) 
        amended, and nomenclature change...........................23100
405.1913  Redesignated as 488.64 and nomenclature change...........23100
405.2100--405.2171 (Subpart U)  Authority citation revised..........1620
405.2102  Amended...................................................6547
405.2112  Revised (effective date pending in part)..................1620
405.2113  (a) revised...............................................1620
405.2133  Revised...................................................6548
405.2163  (f) revised...............................................6548
405.2171  (a) and (e) revised.......................................6548
405.2180--405.2182  Added; eff. 10-19-88...........................36277
405.2184  Added; eff. 10-19-88.....................................36277
406  Authority citation revised.....................................6633

[[Page 853]]

406.1--406.7 (Subpart A)  Heading revised..........................47202
406.6  (c) introductory text republished; (c) (3) and (4) amended; 
        (c)(5) added...............................................47202
406.7  Added........................................................6633
406.11  Heading revised; (b) introductory text, (b) (1)(ii), and 
        (e)(2) amended.............................................47202
406.12  (c) introductory text revised; (c)(4) redesignated as 
        (c)(5) and republished; new (c)(4) added...................47202
406.15  Added......................................................47202
406.21  (a) and (c)(2) revised; (e) added..........................47203
406.22  (a)(2) and (c) revised; (a)(3) added.......................47203
406.23  (a) revised; (c) (3), (4) and (5) added....................47203
406.25  (b) (1) and (2) amended....................................47204
407  Added (Regulations transferred from 405.201--405.226 (Subpart 
        B).........................................................47204
408  Redesignation table corrected..................................4158
408.1  (a) and (b) corrected........................................4158
408.2  (b) corrected................................................4159
408.4  (b)(1) corrected.............................................4159
408.24  (a)(6)(ii) and (7)(ii) amended..............................6648
408.26  Example 1 corrected.........................................4159
408.27  Corrected...................................................4159
408.50  (c)(2)(i) corrected.........................................4159
409.5  Amended......................................................6648
    Corrected......................................................12945
409.69  Removed.....................................................6633
    Amended; parenthetical statement revised........................6648
    Amendment at 53 FR 6648 removed................................12945
409.100--409.102 (Subpart H)  Added.................................6633
410.1  (b) heading and text amended; parenthetical statement added
                                                                    6648
410.12  (a)(3) amended..............................................6648
410.14  Amended.....................................................6648
410.40  (d) amended.................................................6648
410.60  (a)(2) amended..............................................6648
410.62  (a)(2)(iii) amended.........................................6648
410.66  Added.......................................................6634
    Correctly designated...........................................12945
410.150  (a)(1) and (b) (3) and (4) amended.........................6648
410.152  (a)(2)(i), (b)(3), and (i)(1)(ii) amended..................6648
410.161  (b)(3) amended.............................................6648
410.168  Removed....................................................6634
    (b) (6) and (7) and (c)(1) amended..............................6648
    Amendment at 53 FR 6648 removed................................12945
410.170  (b) (1), (2), and (3) amended..............................6648
410.175  Revised....................................................6634
    (b) amended.....................................................6648
    (b) corrected..................................................12945
412  Authority citation revised.....................................1626
412  Addendum corrected............................................38835
412.2  (c) (1) and (3) amended; (e) introductory text republished; 
        (e)(6) added...............................................38526
412.20  (b)(2) amended..............................................6648
412.46  (a) revised; (b), (c) and (d) redesignated as (c), (d) and 
        (e); new (b) added; new (c) revised........................38527
412.50  (b) revised................................................38527
412.62  (f)(1) introductory text and (ii) introductory text 
        republished; (f)(1)(ii)(B) and (k) revised.................38527
412.63  (b)(3), (c)(4), (f) and (g) revised; (h), (i) and (j) 
        redesignated as (i), (j) and (k); (b) (4) and (5), (c)(6), 
        and new (h) added; new (j) introductory text and (1) 
        introductory text and (i), and (k) revised.................38527
412.70  (c)(5) and (d)(4) revised; (c)(6) and (d)(5) added.........38528
412.73  (c)(5) revised; (c)(6) added...............................38528
412.80  (a)(1) introductory text and (ii) introductory text and 
        (2) revised................................................38529
412.82  (c) revised; (d) redesignated as (e); new (d) added........38529
412.84  (a) and (g) revised; (h) and (i) redesignated as (i) and 
        (j); new (h) and (k) added; new (j) revised................38529
412.86  Added......................................................38529
412.90  (h) amended................................................38529

[[Page 854]]

412.92  (a) introductory text and (2) introductory text and (c) 
        introductory text republished; (b)(1) (ii) and (iii), (2), 
        (3) and (4), (e)(3) (i), (ii) and (iii), and (f) 
        redesignated as (b)(1) (iv) and (v), (3), (4) and (5), 
        (e)(3)(i) (A), (B) and (C), and (g)........................38529
    (a)(2)(i), (c)(1), (d)(2), (e) heading, (1), (2) introductory 
text, and new (g)(1) revised, new (b)(4)(ii) redesignated as 
(b)(4)(iii); (b)(1) (ii) and (iii), (2), and new (4)(ii), (c)(3), 
new (e)(3)(i) introductory text, (ii) and (iii), and new (f) added
                                                                   38530
412.96  (b) introductory text added; (b)(1) and (d) revised; (e) 
        removed....................................................38531
412.106  (a)(1) introductory text republished; (a)(1)(i) and (2) 
        introductory text, (b)(1) introductory text and (ii), (2), 
        and (c) revised............................................38531
412.113  (a) revised................................................1627
    (a)(1) and (b) revised.........................................38532
412.116  Added......................................................1627
    (a) revised; (d) removed; (e) and (f) redesignated as (d) and 
(e); new (d) revised...............................................38532
412.118  Heading and (c) revised; (d)(1) removed; (d)(2) 
        redesignated as (d)(1); new (d)(1) introductory text, (i) 
        and (iii) revised; new (d)(2) added........................38532
412.208  (f)(1) introductory text republished; (f)(1)(ii) 
        redesignated as (f)(1)(iii); new (f)(1)(ii) added; (i) 
        revised....................................................38532
412.210  (a)(2), (b), (c) introductory text and (1), (d) 
        introductory text, (1) introductory text and (i), and (e) 
        revised....................................................38533
412.212  (b) (1) and (2) amended...................................38533
413  Addendum corrected............................................38835
413.13  Revised....................................................10085
    (c)(1)(iii) corrected..........................................12641
413.30  (c) revised................................................38533
413.35  (d) amended.................................................6648
413.40  (c)(1)(ii) amended..........................................6648
    (a)(2), (b) (1) and (2), (c)(3)(i) (C) and (D), (e), (f)(1), 
(g)(1), and (h)(1)(iii) revised; (c)(3)(i) introductory text 
republished; (i) added.............................................38533
413.64  (a)(1) heading and (2) and (k) (1) through (6) removed; 
        (a)(1) redesignated as (a); (g) and (h)(1) revised..........1628
413.74  (a) and (c) amended.........................................6648
    (a) corrected..................................................12945
413.157  (b)(4) redesignated as (b)(5); new (b)(4) added...........12017
413.178  Revised....................................................6548
    (e)(2) and (g) corrected........................................9172
    (d) (1) and (2) and (e)(2) corrected...........................18987
416.3  (a) amended..................................................6648
416.30  (e) amended.................................................6648
    (e) corrected..................................................12945
416.44  (b) and footnote 1 revised.................................11508
416.110  (c) amended................................................6648
417.237  (a)(2)(iii) amended........................................6648
417.532  (a)(2) and (e)(3) amended..................................6648
417.800  (e) amended................................................6648
418  Authority citation revised.....................................1628
418.100  (d) revised; (e) removed; (f) through (l) redesignated as 
        (e) through (k); new (f)(2) amended........................11508
418.307  Added......................................................1628
421.3  Revised.....................................................17944
421.100  Introductory text republished; (i) added..................17944
421.117  Revised...................................................17944
421.128  (f) revised...............................................17945
421.200  (c)(2) (ii) and (iii) amended..............................6648
424  Added..........................................................6634
424.5  (a)(3) corrected............................................12945
424.7  (a)(2)(i) corrected.........................................12945
424.10  (b) corrected..............................................12945
424.16  (b) heading corrected......................................12945
424.22  (d)(4) heading corrected...................................12945
424.24  (c)(3)(ii) corrected.......................................12945
424.25  Heading corrected..........................................12945
424.30  Corrected..................................................12945
424.32  (b) corrected..............................................12945
424.36  (b)(5) corrected...........................................12945
    (d) redesignated as (e); new (d) added.........................28388
424.37  (b) corrected..............................................12945

[[Page 855]]

424.56  (d) Examples 1 and 2 correctly revised.....................12945
424.60  (a) revised................................................28388
424.66  Revised....................................................28388
424.66  (d) correctly redesignated as (b); (b) heading correctly 
        revised; (a)(3) corrected..................................40231
424.82  (c)(3) corrected...........................................12945
424.84  (d) correctly designated and revised.......................12945
424.124  (a) introductory text and (b) heading corrected...........12945
424.352  (b) introductory text corrected...........................12945

                                  1989

42 CFR
                                                                   54 FR
                                                                    Page
Chapter IV
400.310  Table amended (OMB numbers)...............................21066
403.400--403.410 (Subpart D)  Added; interim.......................35333
405--421 (Subchapter B)  Heading revised............................5358
    Eff. 1-1-90....................................................29717
    Regulation at 54 FR 5358 and 54 FR 29717 effective date 
delayed to 10-1-90.................................................53611
405.301--405.376 (Subpart C)  Subpart heading and authority 
        citation revised...........................................41733
405.301  Revised...................................................41733
405.308--405.344  Removed..........................................41733
405.501--405.580 (Subpart E)  Authority citation revised............9003
405.501  (a) revised; (c) redesignated as (d); new (c) added........9003
405.521  (a) and (d)(1) amended; (d) (2) and (3) revised; (e) 
        amended; eff. 10-30-89.....................................40315
405.522  (a) amended; eff. 10-30-89................................40315
405.530  Added......................................................9003
405.531  Added......................................................9003
405.532  Added......................................................9003
    (a) and (b)(2) corrected.......................................13294
405.533  Added......................................................9003
    (b) introductory text corrected................................13294
405.550  (b) introductory text and (e)(1) revised; (e) 
        introductory text republished...............................9004
405.551  Heading, (a), and (f) revised..............................9004
405.554  Revised....................................................9004
405.555  Heading, (b), and (c)(1) revised; (c) introductory text 
        republished.................................................9005
    (c)(1) corrected...............................................13294
405.701--405.750 (Subpart G)  Subpart heading revised..............41733
405.701  Heading revised; (a), (b), and (c) headings, and (d) 
        added......................................................41733
405.702  Revised...................................................41733
405.704  Revised...................................................41734
405.708  Revised...................................................41734
405.710  Revised...................................................41734
405.715  (b) amended...............................................41734
405.740  (e), (f), and (h) revised.................................41734
405.1101--405.1137 (Subpart K)  Removed.............................5358
    Eff. 1-1-90....................................................29717
    Regulation at 54 FR 5358 and 54 FR 29717 effective date 
delayed to 10-1-90.................................................53611
405.1201--405.1230 (Subpart L)  Redesignated as Part 484 and 
        revised; interim...........................................33367
405.1702  (l) redesignated as (m); interim.........................38679
405.1717  Revised; interim.........................................38679
405.1733  Revised; interim.........................................38679
409.61  (b) amended.................................................4027
409.82  (b) and (c) revised.........................................4026
409.83  (b) and (c) revised.........................................4026
409.85  (b) and (c) revised.........................................4026
410.68  Added.......................................................4026
411  Added.........................................................41734
    Court orders...................................................47678
412.8  (b)(4) removed; eff. 10-1-89................................36494
412.42  (c) introductory text amended..............................41747
412.84  (k) amended; eff. 10-1-89..................................36494
412.92  (a) introductory text republished; (a) (1), (2) 
        introductory text, (a)(2)(i), (b)(1)(ii)(B), (e)(3) 
        introductory text, (i), (iii), and (g)(6) amended; (a)(3), 
        (b)(4)(iii) and (e)(3)(iii) revised; eff. 10-1-89..........36494
412.94  (b)(1) revised; (b)(4) added; eff. 10-1-89.................36494
412.96  (f) revised; eff. 10-1-89..................................36494
412.106  Revised; eff. 10-1-89.....................................36494
412.113  (b) revised; eff. 10-30-89................................40315

[[Page 856]]

412.116  (d) and (e) redesignated as (e) and (f); new (d) added....36495
412.118  (c) (1), (2), (d) (1) and (2) amended; eff. 10-1-89.......36495
413  Authority citation revised....................................37274
413.13  (d) introductory text republished; (d) (3) and (4) 
        revised; (d)(5) added; (f)(2) introductory text 
        republished; (f)(2)(iii)(C) added; eff. 10-30-89...........40315
413.85  (a) and (e) revised; eff. 10-30-89.........................40315
413.86  Added; eff. 10-30-89.......................................40316
413.114  Heading, (a) and (b) revised; (d) added; (eff. 10-10-89) 
                                                                   37274
413.170  (g)(3)removed and reserved; eff. 10-30-89.................40319
413.179  Added......................................................5623
416.44  (c) revised.................................................4026
421.5  (f) added....................................................4026
421.100  Introductory text, (a), and (f) revised....................4026
421.200  Introductory text and (a) revised..........................4027
421.204  Removed....................................................4027
424  Authority citation revised.............................37275, 38679
424.20  (a) and (b) revised; interim (eff. 10-10-89)...............37275
424.25  (e) revised................................................38680
    (e)(1) correctly designated....................................46614
424.80  (b)(6) amended..............................................4027

                                  1990

42 CFR
                                                                   55 FR
                                                                    Page
Chapter IV
400.202  Amended...................................................24567
405  Technical correction....................................1820, 33907
405.501--405.580 (Subpart E)  Authority citation revised...........32084
405.534  Added; interim............................................53521
405.535  Added; interim............................................53521
405.541  Removed...................................................23440
405.542  Removed...................................................23440
405.543  Removed...................................................23440
405.544  Removed...................................................23440
405.553  (a), (b)(1)(i), (2) and (c) revised; (d) and (e) added....32084
405.556  (c) amended................................................9574
405.701  Revised...................................................11020
405.702  Revised...................................................11020
405.704  Revised...................................................11020
405.708  Revised...................................................11021
405.710  Revised...................................................11021
405.715  Republished...............................................11021
405.740  (e), (f), and (h) revised.................................11021
405.1128  Revised; eff. to 10-1-90..................................9574
    (b) corrected..................................................33907
405.1310--405.1317 (Subpart M)  Removed.............................9574
405.1702  Regulation at 54 FR 38679 confirmed......................11373
405.1717  Regulation at 54 FR 38679 confirmed......................11373
405.1733  Regulation at 54 FR 38679 confirmed......................11373
405.1890  Removed...................................................2652
405.2102  Amended...................................................9575
405.2120  Revised..................................................23440
405.2121  Heading and introductory text amended....................23440
405.2122  Introductory text, (a)(1), (2), (b)(1) introductory 
        text, and (ii) amended.....................................23440
405.2123  Revised..................................................23441
405.2130  Revised..................................................23441
405.2150  Introductory text and (a)(2) table revised; (d) added....18335
405.2163  (b) revised...............................................9575
    (b) correctly revised..........................................33907
405.2171  (d) revised...............................................9575
    (d)(1) corrected...............................................14378
410  Authority citation revised....................................53521
410.1  (a) revised; interim........................................53521
410.10  Heading revised; introductory text republished; (r) added; 
        interim....................................................53522
    Introductory text republished; (p) and (q) added...............22790
410.29  Introductory text republished; (a) revised.................22970
410.32  (a) revised................................................22790
410.34  Redesignated as 410.35; new 410.34 added; interim..........53522
410.35  Redesignated from 410.34; interim..........................53522
410.63  Added......................................................22790
    Heading corrected..............................................31186
411  Technical correction...........................................1820
    Authority citation revised..............................24568, 53522
411.15  (l)(2)(i) corrected.........................................1820

[[Page 857]]

    Introductory text republished; (a)(1) and (e) revised; (k)(5) 
added..............................................................22789
    Correctly designated; (k)(5) correctly designated..............31185
    Introductory text and (a) introductory text republished; 
(a)(1) revised; interim............................................53522
411.24  (i)(1) amended..............................................1820
411.25  (a) and (b) amended; (c) revised............................1820
411.33  (f)(3)(iv) amended..........................................1820
411.50  (c)(2) amended..............................................1820
411.72  (a)(4)(ii) amended; footnote 3 added........................1820
411.408  Added.....................................................24568
    (a) and (e) corrected...................................35142, 35143
412  Technical correction...................................1820, 46064,
    Authority citation revised.....................................36068
    Authority citation corrected............................39775, 46887
412.1  (a) revised.................................................36068
    (b) revised; interim...........................................36766
412.2  (e) introductory text revised and (7) added.................15173
    (d) introductory text republished; (d)(4) revised..............36068
412.23  Introductory text republished; (f) and (g) redesignated as 
        (g) and (h); new (f) added.................................36068
    (f) corrected..................................................46887
412.42  (c) added..................................................41747
412.63  (h) revised; (i), (j), and (k) redesignated as (j), (k), 
        and (l); new (i) added.....................................15173
    (l) revised....................................................36069
412.73  Heading and (c)(6) revised; (c)(7) and (8) added...........15173
412.75  Added......................................................15173
    (a), (b), and (f) revised; (g) and (h) added...................36069
    (h)(2)(iii) and (3) corrected...........................39775, 46887
412.84  (h) amended................................................15174
412.90  (i) added..................................................15174
    (b) removed; (c) through (i) redesignated as (b) through (h) 
                                                                   36070
412.92  (a)(2)(iii) revised........................................14283
    (a) introductory text and (b)(2)(i) and (d)(1) revised; (e) 
and (f) amended; (e)(3)(i) introductory text and (A) redesignated 
as (e)(3)(i)(A) and (i) introductory text..........................15174
    (a) introductory text republished; (a)(4) added; (f) and (g) 
removed............................................................36070
412.94  Removed....................................................36070
412.96  (b)(1)(ii) amended.........................................15174
    (f)(3) removed; (g) and (h) redesignated as (h) and (i); new 
(g) added..........................................................36070
412.106  (b)(2)(i) introductory text amended.......................14283
    (c) introductory text and (1) introductory text republished; 
(d)(2) removed; (c)(1)(ii), (iii) and (d)(3) redesignated as 
(c)(1)(iii), (iv), and (d)(2); new (c)(1)(ii) added; new 
(c)(1)(iv) and (d)(1) revised......................................15174
    (d)(2)(i)(B) amended...........................................32088
412.108  Added.....................................................15175
    (d)(3)(ii) and (iii) correctly designated......................32088
    (a)(1) introductory text republished; (a)(1)(iii) and (2) 
revised; (a)(1)(iv) added..........................................36070
412.113  (b)(2) corrected............................................290
    (d) revised....................................................36070
412.115  (c) added.................................................15175
412.118  Nomenclature change; (f) and (g) revised; (h) removed.....36070
    (f)(3) corrected........................................39775, 46887
412.120  (c) revised...............................................36071
412.230--412.280 (Subpart L)  Added; interim.......................36766
413  Authority citation revised.........2652, 15175, 33699, 36071, 53522
413  Technical correction..........................................46064
413.40  (i) revised; (j) added.....................................15176
    (i)(3)(viii) and (ix) revised..................................36071
    (i)(3)(viii) correctly designated..............................39775
413.86  (b), (e)(1)(iv), and (v) and (h)(2) corrected................290
413.118  (a) and (d)(2) revised; (c)(2) and (d)(1)(i) corrected; 
        (d)(3) added...............................................33699
    (a) correctly designated.......................................34797
413.123  Added; interim............................................53522
413.161  Removed....................................................2652
413.170  (a)(1) amended; (c)(5) added..............................23441
414  Added.........................................................23441
416.49  Revised.....................................................9575
    Corrected......................................................33907
418.3  Amended.....................................................50834
418.21  Added......................................................50834

[[Page 858]]

418.22  Revised (OMB number pending)...............................50834
418.24  Revised....................................................50834
418.26  Removed....................................................50834
418.32  Removed....................................................50834
418.50-418.100 (Subpart C)  Heading revised........................50834
418.50  (a) revised................................................50834
418.52-418.75  Undesignated center heading removed.................50835
418.80--418.88  Designated as Subpart D; undesignated center 
        heading revised............................................50835
418.80  Amended; heading revised...................................50835
418.90--418.98  Designated as Subpart E; undesignated center 
        heading revised............................................50835
418.90  Amended; heading revised...................................50835
418.94  Introductory text and (b) amended..........................50835
418.98  (a)(2) and (b)(2) amended; (c) revised.....................50835
418.100  Undesignated center heading removed; heading revised; 
        introductory text amended..................................50835
418.200--418.204 (Subpart D)  Redesignated as Subpart F............50833
418.202  (e) amended...............................................50835
418.204  (b)(2) revised; (b)(3) removed............................50835
418.301--418.311 (Subpart E)  Redesignated as Subpart G............50833
    Heading revised................................................50835
418.400--418.405 (Subpart F)  Redesignated as Subpart H............50833
424.25  Regulation at 54 FR 38679 and 46614 confirmed..............11373

                                  1991

42 CFR
                                                                   56 FR
                                                                    Page
Chapter IV
Chapter IV  Nomenclature change.....................................8852
400.200  Amended....................................................8852
    Amended........................................................38077
400.202  Amended....................................................8852
400.203  Amended....................................................8852
405.376  Heading, (a), (c), (d), (h)(1) and (i) revised............31336
    (a) corrected..................................................41726
405.501--405.580 (Subpart E)  Authority citation revised...........59621
405.502  (f)(1) revised............................................59621
405.509  (c) added.................................................59621
405.517  Added.....................................................59621
405.521  Revised...................................................59621
405.522  Revised...................................................59622
405.523  Revised...................................................59622
405.524  Revised...................................................59622
405.530  Removed...................................................59622
405.531  Removed...................................................59622
405.532  Removed...................................................59622
405.533  Removed...................................................59622
405.550--405.580  Undesignated center heading removed..............59622
405.550--405.580 (Subpart F)  Revised..............................59622
405.553  Removed...................................................59622
405.555  Removed...................................................59622
405.557  Removed...................................................59622
405.1720  (b) introductory text revised; eff. 10-15-91.............46562
405.1721  Revised; eff. 10-15-91...................................46562
405.2137  (b)(7) added; interim....................................43709
405.2163  (g) added; interim.......................................43709
406.1  Amended.....................................................38078
406.5  (b) revised.................................................38078
406.10--406.15 (Subpart B)  Heading revised.........................8839
    Technical correction...........................................23022
406.12  (e) revised................................................38078
    Corrected......................................................50058
406.20  Revised....................................................38078
    (c) corrected..................................................50058
406.21  Heading, (a), (b), (d) and (e) revised.....................38079
406.22  (a) and (b) revised.........................................8839
    Redesignated as 406.32; new 406.22 added.......................38079
406.25  Redesignated as 406.28.....................................38080
406.26  Redesignated as 406.38; new 406.26 added...................38080
406.28  Redesignated from 406.25; heading, introductory text and 
        (c) revised; (f) added.....................................38080
406.32  Redesignated from 406.22...................................38079
    (e) and (f) added..............................................38080
406.38  Redesignated from 406.26...................................38080
407.40  Revised....................................................38080
    (b) corrected..................................................50058
407.42  Revised....................................................38081
407.43  Revised....................................................38082
407.47  Revised....................................................38082
407.48  (c) introductory text and (d) revised......................38082
407.50  (a) introductory text revised..............................38082

[[Page 859]]

408.1  (b) amended; eff. 10-24-91..................................48112
408.8  (c)(1) revised; (a)(2) and (3) removed; (a)(4) redesignated 
        as (a)(2) and revised; eff. 10-24-91.......................48112
408.10  (b)(2)(ii) amended; eff. 10-24-91..........................48112
408.20  Revised.....................................................8839
408.24  (a)(6)(ii) and (7)(ii) amended..............................8852
408.47  Removed; eff. 10-24-91.....................................48112
408.50  (b)(2) and (3) revised; (c) removed; eff. 10-24-91.........48112
409.19  Revised.....................................................8840
    (b) corrected..................................................23022
409.42  (d) revised.................................................8840
409.87  (a)(3) and (6) revised......................................8840
410.2  Amended......................................................8840
    Corrected......................................................23022
410.10  Heading, introductory text and (c) revised..................8841
    (k) amended; interim...........................................43709
410.24  Footnote 6 redesignated as footnote 1.......................8852
410.27  Revised.....................................................8841
410.29  (a) amended; interim.......................................43709
410.34  (b)(4)(ii) correction.......................................4675
410.50  Introductory text republished; (a) revised; (d) added; 
        interim....................................................43709
410.52  (a) introductory text republished; (a)(4) added; interim 
                                                                   43709
410.60  (a)(2) amended; (c)(2) footnote 7 redesignated as footnote 
        2...........................................................8852
    (a)(2) corrected...............................................23022
410.61  Redesignated from 424.25....................................8854
    Correctly redesignated from 424.25.............................23022
410.62  (a)(2)(iii) amended.........................................8852
    (a)(2)(iii) corrected..........................................23022
410.64  Revised.....................................................8841
410.105  Introductory text and (b) revised..........................8841
410.152  (a)(1)(iii) and (2) introductory text revised; (j) added 
                                                                    2138
    (a)(1) introductory text republished; (a)(1)(iv), (2)(iii) and 
(i) revised.........................................................8841
410.155  (b) republished; (c) revised...............................8842
410.160  (a) republished; (b) revised...............................8842
    (b)(1) footnote 8 redesignated as footnote 3....................8852
410.161  (a)(3) amended; (a)(6) removed.............................8852
411  Authority citation revised....................................61381
411.1  (a) revised; interim........................................61381
411.8  (b)(6) revised...............................................2139
411.350--411.361 (Subpart J)  Added; interim.......................61381
412  Authority citation revised....................................25487
    Heading revised................................................43240
412.20--412.32 (Subpart B)  Heading revised........................43240
412.23  Nomenclature change; (b) introductory text republished; 
        (b)(9) added...............................................43240
412.30  (c) added..................................................43240
412.63  (i) revised; (j), (k) and (l) redesignated as (n), (o) and 
        (p); new (j) through (m) added...............................572
    (i), (j)(1) and (k)(1) corrected................................9633
412.73  (c)(7)(i) and (8) revised; (c)(7)(ii) redesignated as 
        (c)(7)(iii); new (c)(7)(ii) and (9) added....................573
    (c)(9) corrected................................................9633
412.75  (d) revised..................................................573
412.80  (a)(1) introductory text republished; (a)(1)(ii) revised 
                                                                   43448
412.84  (g), (h) and (j) revised...................................43448
412.92  (a) introductory text revised; (a)(1) removed; (a)(2) 
        through (4) redesignated as (a)(1) through (3); new 
        (a)(1)(ii) and (b)(1)(ii) amended..........................25487
412.105  Redesignated from 412.118; heading, (c) and (e) revised; 
        introductory text and (a) introductory text republished; 
        (a)(2) amended; (d)(2) removed; (d)(1) introductory text, 
        (i) and (ii) redesignated as (d) introductory text, (1) 
        and (2)....................................................43241
412.106  (d)(2)(i) introductory text republished; (d)(2)(i)(A), 
        (B) and (v) revised..........................................573
    (d)(2)(v)(A) and (B) corrected..................................9633
412.112  Revised...................................................43448

[[Page 860]]

412.113  Heading, (a)(1) and (2)(i) introductory text revised; 
        (a)(2)(i)(D), (E) and (3) added............................43448
412.115  (b) removed; (c) redesignated as (b)......................43448
412.116  (a) and (c) amended; (b)(3)(ii) revised...................43449
412.118  Redesignated as 412.105...................................43241
412.120  (c) removed.................................................573
412.125  Heading, (a) introductory text and (b) revised; 
        introductory text republished..............................43449
412.130  Added.....................................................43241
412.230--412.280 (Subpart L)  Heading revised......................25488
412.230  (a)(4)(iv) added; (e)(1) introductory text and (2) 
        introductory text republished; (d)(1), (e)(1)(ii) and 
        (2)(ii) revised............................................25488
412.234  Redesignated as 412.236; new 412.234 added................25488
412.236  Redesignated from 412.234; (a)(2) revised.................25488
412.250  (a) amended...............................................25488
412.256  (b)(3) amended; (c) revised...............................25488
412.273  Added.....................................................25489
    (a) revised; (b) amended.......................................43241
412.278  (a) heading and (b)(1) revised; (c) introductory text and 
        (3) through (5) redesignated as (f)(1) through (4); new 
        (c) through (e) added; new (f)(2) revised..................25489
412.300--412.374 (Subpart M)  Added................................43449
413  Authority citation revised................8842, 43709, 54545, 59219
413.13  (c)(3) and (4) added........................................8842
413.40  (h) removed; (i) and (j) redesignated as (h) and (i); 
        (c)(1)(ii), (3)(ii), (e), (g), new (i)(1)(i) introductory 
        text, (B), (C) and (ii) revised; (d)(3)(iii) added.........43241
    (g)(1) corrected...............................................59219
413.86  (b) amended................................................43243
413.114  Regulation at 54 FR 37274 confirmed; (a), (c) and (d) 
        nomenclature change; (b) revised; (d)(1)(i) amended........54545
413.122  Added......................................................8842
413.130  (f), (g) and (h) redesignated as (g), (h) and (i); (a) 
        introductory text and new (i) introductory text 
        republished; (a)(3) revised; (a)(10), (11), (b)(6), new 
        (f) and (i)(7) added.......................................43456
413.134  (e) revised; (f)(2)(iii)(D) added.........................43456
413.153  (b)(2) introductory text republished; (b)(2)(iii) revised
                                                                   43457
413.170  (c)(6) added; interim.....................................43710
    Heading revised; (c)(7) added..................................59624
414  Authority citation revised....................................50823
    Heading revised................................................65998
414.224  Added.....................................................65998
414.230 (Subpart D)  Added.........................................50823
414.300  (d) added; interim........................................43710
414.335  Added; interim............................................43710
415  Added.........................................................59624
416.1  Revised......................................................8843
    (a)(2) corrected...............................................23022
416.2  Revised......................................................8843
    Corrected......................................................23022
416.3  Removed......................................................8843
416.20--416.75 (Subpart B)  Heading revised; undesignated heading 
        removed.....................................................8843
416.20  Removed.....................................................8843
416.25  Revised.....................................................8843
416.26  Added.......................................................8843
416.30  Introductory text, (a), (b), (e) and (f) revised............8844
416.35  (b)(2) and (c) amended......................................8844
416.39  Removed.....................................................8843
416.40--416.49  Existing text designated as Subpart C...............8844
416.60--416.75  Undesignated center heading designated as Subpart 
        D...........................................................8844
416.60  Revised.....................................................8844
416.61  Revised.....................................................8844
416.100--416.150 (Subpart C)  Redesignated as Subpart E; heading 
        revised.....................................................8844
416.100  Removed....................................................8844
416.110  Removed....................................................8844
416.120  Revised....................................................8844
    (a) corrected..................................................23022
416.125  Revised....................................................8845
416.130  Nomenclature change........................................8844
416.140  Heading and (a) revised; (b) amended.......................8845

[[Page 861]]

417  Authority citation revised....................................46569
417.1--417.2 (Subpart A)  Heading added............................51985
417.1  Redesignated from 417.100; introductory text revised........51985
417.2  Added.......................................................51985
417.100--417.180 (Subpart A)  Heading removed......................51985
417.100--417.109  Undesignated center heading removed..............51985
417.100  Redesignated as 417.1; introductory text revised..........51985
417.101--417.109  Designated as subpart B..........................51985
417.104  (e) footnote 1 revised.....................................8853
417.107  (i) amended; (j)(2)(i) revised.............................8853
417.110--417.119  Undesignated center heading removed; 
        redesignated as 417.910 through 417.919....................51985
417.112  (d) footnote 1 removed.....................................8853
417.120--417.126  Undesignated center heading removed; 
        redesignated as 417.920 through 417.926....................51985
417.130--417.137  Undesignated center heading removed; 
        redesignated as 417.930 through 417.937....................51985
417.140--417.144  Undesignated center heading removed; designated 
        as subpart D...............................................51985
417.144  (e) revised................................................8853
417.150--417.159  Undesignated center heading removed..............51985
      Designated as subpart E......................................51986
417.160--417.166  Undesignated center heading removed..............51985
      Designated as subpart F......................................51986
417.170--417.180  Undesignated center heading and sections removed
                                                                   51985
417.201--417.292 (Subpart B)  Heading and sections removed.........51985
417.228--417.239  Undesignated center heading removed..............51985
417.240--417.247  Undesignated center heading removed..............51985
417.242  (b)(7) removed.............................................8853
417.243  (b) amended................................................8853
417.249--417.292  Undesignated center heading removed..............51985
417.400--417.694 (Subpart C)  Heading removed......................51985
417.400--417.418  Designated as subpart J..........................51986
417.401  Amended; eff. 9-14-92.....................................46569
    Introductory text amended......................................51986
417.404--417.418  Undesignated center heading removed..............51985
417.404  (b)(1) amended.............................................8853
417.406  (a)(2), (i), (ii) and (3) amended..........................8853
417.407  (b), (c)(4) and (5) amended................................8853
417.408  (a)(1) and (2) redesignated as (a).........................8853
417.413  (e) removed; (f) redesignated as (e); (d) and new (e) 
        revised; eff. 10-15-91.....................................46570
417.418  (b) amended................................................8853
417.420--417.460  Undesignated center heading removed..............51985
    Designated as subpart K........................................51986
417.428  (a) introductory text republished; (a)(4) added; eff. 10-
        15-91......................................................46570
417.432  (f) removed; eff. 10-15-91................................46570
417.436  Revised; eff. 10-15-91....................................46570
417.444  (a) introductory text republished; (a)(2) and (b) 
        revised; (c) removed; eff. 10-15-91........................46571
417.446  Removed; eff. 10-15-91....................................46571
417.448  (c) and (d) revised; eff. 10-15-91........................46571
417.460  (a)(2)(iv) revised; eff. 10-15-91.........................46571
417.470--417.494  Undesignated center heading removed..............51985
    Designated as subpart L........................................51986
417.478  (d) amended................................................8853
417.494  (b)(1) introductory text republished; (b)(1)(iii) 
        revised; (b)(1)(iv) added; eff. 10-15-91...................46571
417.520--417.523  Undesignated center heading removed..............51985
    Designated as subpart M........................................51986
417.522  (a)(3)(iii) revised........................................8853
417.524--417.528  Undesignated center heading removed..............51985
    Designated as subpart N........................................51986
417.530--417.576  Undesignated center heading removed..............51985
    Designated as subpart O........................................51986

[[Page 862]]

417.580--417.598  Undesignated center heading removed..............51985
    Designated as subpart P........................................51986
417.594  (b)(1)(i) amended..........................................8853
417.596  (a) revised; eff. 10-15-91................................46571
417.597  (e) removed; eff. 10-15-91................................46572
417.600--417.638  Undesignated center heading removed..............51985
    Designated as subpart Q........................................51986
417.640--417.694  Undesignated center heading removed..............51985
    Designated as subpart R........................................51986
417.640  (c) revised; eff. 10-15-91................................46572
417.800--417.810 (Subpart D)  Heading removed......................51985
    Redesignated as subpart U......................................51986
417.910--417.919  Redesignated from 417.110 through 417.119........51985
417.910--417.937  Designated as subpart V..........................51986
417.920--417.926  Redesignated from 417.120 through 417.126........51985
417.930--417.937  Redesignated from 417.130 through 417.137........51985
418.301  Heading revised...........................................26919
418.302  (a) and (c) introductory text revised.....................26919
418.306  Revised...................................................26919
418.405  Revised...................................................26919
424.1  (b) concluding text redesignated as (c) and amended..........8853
424.10--424.27 (Subpart B)  Heading revised.........................8853
424.10  (a) amended; (b) revised....................................8853
424.11  (e) introductory text republished; (e)(3) revised...........8845
424.22  (a)(1)(iii) and (iv) revised; (c) removed...................8845
424.24  (a), (b) and (c)(1) revised; (e) redesignated as (f); new 
        (e) added...................................................8845
    Heading and (b) revised; (a)(3) and (d) removed.................8853
424.25  Redesignated as 410.61......................................8854
    Correctly redesignated as 410.61...............................23022

                                  1992

42 CFR
                                                                   57 FR
                                                                    Page
Chapter IV
400.200  Amended............................................24975, 55912
400.203  Amended; interim..........................................29155
400.310  Revised (OMB numbers).....................................56997
401.601  (b) and (c) revised.......................................56998
403.500--403.508 (Subpart E)  Added; interim.......................38618
405.301--405.380 (Subpart C)  Heading and authority citation 
        revised....................................................19092
405.374  (c) revised...............................................56998
405.380  Undesignated center heading and section added.............19092
405.480  (a) introductory text republished; (a)(2) revised.........33896
405.501--405.580 (Subpart E)  Authority citation revised....24975, 57688
    Heading and authority citation revised.........................33896
405.501  (b) revised...............................................24975
    (a) revised; (d) redesignated as (e); new (d) added............33896
    (f) added......................................................57688
405.502  (f)(4) revised............................................24975
    (a) corrected..................................................45112
    (a) introductory text republished; (a)(9) revised..............36013
    (a) introductory text republished; (a)(3) revised..............55912
405.504  (a)(3)(i) introductory text and (iii) revised; (d) added 
                                                                   55912
405.505  Revised...................................................27305
405.514  Removed...................................................57688
405.556  (d) added.................................................36014
405.701--405.750 (Subpart G)  Authority citation revised...........56504
405.705  Introductory text republished, (c) and (d) revised; (e) 
        and (f) added..............................................56504
405.801--405.874 (Subpart H)  Authority citation revised...........27305
405.874  Added.....................................................27305
405.2100--405.2184 (Subpart U)  Authority citation revised..........7134
405.2163  (b) revised...............................................7134
405.2171  (d) revised...............................................7134
405.2401--405.2472 (Subpart X)  Heading and authority citation 
        revised....................................................24975
405.2401  (a) revised; (b) amended.................................24975
405.2410  Revised..................................................24976
405.2418  Redesignated as 405.2460.................................24976

[[Page 863]]

405.2425  Redesignated as 405.2462.................................24976
405.2426  Redesignated as 405.2464.................................24976
405.2427  Redesignated as 405.2466.................................24976
405.2428  Redesignated as 405.2468.................................24977
405.2429  Redesignated as 405.2470.................................24977
405.2430--405.2452  Undesignated center heading and sections added
                                                                   24978
405.2430  Redesignated as 405.2472.................................24978
405.2460--405.2472  Undesignated center heading added..............24980
405.2460  Redesignated from 405.2418 and revised...................24976
405.2462  Redesignated from 405.2425 and revised...................24976
405.2464  Redesignated from 405.2426 and revised...................24976
405.2466  Redesignated from 405.2427 and revised...................24976
405.2468  Redesignated from 405.2428; (a), (b) and (d) revised.....24977
405.2470  Redesignated from 405.2429 and revised...................24977
405.2472  Redesignated from 405.2430; Introductory text 
        republished; (a) revised...................................24978
406.21  (a) revised; (f) added.....................................36014
406.23  Redesignated as 406.33.....................................36014
406.24  Redesignated as 406.34.....................................58717
406.30  Redesignated as 406.50.....................................58717
406.31  Redesignated as 406.52.....................................58717
406.32  (b) revised................................................36014
    Transferred to subpart C; (c) amended..........................58717
406.33  Redesignated from 406.23; (a) introductory text revised; 
        (a)(4) added...............................................36014
406.34  Redesignated from 406.24; (a)(1) and (b)(1) amended........58717
406.38  Transferred to subpart C...................................58717
406.50  Redesignated from 406.30...................................58717
406.52  Redesignated from 406.31...................................58717
407.2  Revised.....................................................24980
409.40  Introductory text republished; (e) revised.................36014
409.87  (a)(3) amended.............................................36014
410  Authority citation revised.......................7134, 24981, 57688
    Technical correction...........................................33896
410.3  (a)(1) revised..............................................24981
410.5  Introductory text revised; (d) added.........................7134
    (b) revised....................................................24981
410.10  (s) added..................................................24981
    Introductory text republished; (t) added.......................33896
410.12  (a) introductory text and (2) revised......................33896
410.32  (b) introductory text republished; (b)(2) and (5) revised 
                                                                    7135
    (b) introductory text republished; (b)(6) added................24981
410.36  Introductory text republished; (b) revised.................36014
    (a), (b), and (c) redesignated as (a)(1), (2) and (3) and 
republished; undesignated introductory text redesignated as new 
(a); (b) added.....................................................57688
410.38  (b) amended; (c) revised; (d), (e), (f), and (g) added.....57688
410.69  Added......................................................33896
410.150  (b)(8) revised............................................24981
410.152  (f), (h) and (j) heading revised..........................24981
410.160  (b) revised...............................................24981
410.165  (a) revised...............................................24981
411.15  Introductory text and (m)(1) republished; (m)(2) revised 
                                                                   33897
    Introductory text republished; (b) revised; (n) added..........36015
411.60  (b) amended................................................36015
411.62  Revised....................................................36015
    (b)(1) and (c)(3)(ii) corrected................................45113
412.1  (a) revised.................................................33897
    Revised........................................................39818
    (a) corrected..................................................46510
412.2  (d) introductory text republished; (d)(5) revised...........33897
    (d) and (e) redesignated as (e) and (f); new (f)(7) 
redesignated as (f)(8); new (d) and (f)(7) added; (a), (b)(1), (2) 
introductory text, new (e) introductory text, (1), (2), (f) 
introductory text, (2), (3) and (6) revised........................39819
    (e) corrected..................................................46510
412.4  Nomenclature change; (d)(1) amended.........................39819

[[Page 864]]

412.6  Revised.....................................................39819
412.8  Revised.....................................................39820
412.10  (a) amended................................................39820
412.20--412.32 (Subpart B)  Heading revised........................39820
412.20  Nomenclature change; (b)(1) amended........................39820
412.22  (a) and (b) amended; (d) added.............................39820
412.23  Nomenclature change; (b)(8) revised; (c) removed...........39820
412.25  Nomenclature change; (a) introductory text revised; 
        (a)(13) and (c) added; (b) amended.........................39820
412.27  Introductory text amended..................................39820
412.29  Introductory text amended..................................39821
412.30  (a) revised; (c) amended...................................39821
412.32  Removed....................................................39821
412.40--412.52 (Subpart C)  Heading revised........................39821
412.40  (a) amended................................................39821
412.42  (a) and (b) introductory text amended......................39821
412.46  (d)(1), (e)(1) and (2) amended.............................39821
412.48  (c) amended................................................39821
412.50  (a) amended................................................39821
412.52  Amended....................................................39821
412.60--412.63 (Subpart D)  Heading revised........................39821
412.60  (a), (b), (c) introductory text, (1), (2) and (3) amended 
                                                                   39821
412.62  Heading, (a), and (j) introductory text revised; (b), (c) 
        introductory text, (d) introductory text and (e) 
        introductory text amended..................................39821
412.63  Heading, (a)(1), (o) introductory text and (p)(1) revised; 
        (a)(2), (b)(2)(ii) and (n)(1) amended......................39822
412.70--412.76 (Subpart E)  Heading revised........................39822
412.70  Revised....................................................39822
412.71  (b) introductory text republished; (b)(8) revised..........33897
    Heading and (c)(1) introductory text revised; (c)(2) and (d) 
amended............................................................39822
412.73  (d)(1), (2) and (e) amended................................39822
412.74  Removed....................................................39822
412.75  Heading revised; (b) and (e) amended.......................39822
412.76  Amended....................................................39822
412.80  (a)(1)(ii)(B) amended.......................................3016
    (a)(1)(ii) introductory text republished; (a)(1)(ii)(A) and 
(c) revised; (a)(2) amended........................................39822
412.82  (c) revised; (d) removed; (e) redesignated as (d)..........39822
412.84  (d) amended................................................39823
412.90--412.108 (Subpart G)  Heading revised.......................39823
412.90  Revised....................................................39823
412.92  (b)(1)(iv), (v), (3) and (5) amended; (d) heading, (e)(3) 
        introductory text and (i)(B) revised.......................39823
412.96  (b)(1) introductory text and (c)(1)(ii) amended; (d) 
        revised....................................................39823
412.98  (a) and (b) revised........................................39823
412.100  (a) revised...............................................39824
412.102  Introductory text amended.................................39824
412.104  (a), (b) introductory text, (4) and (5) amended...........39824
412.105  Heading, introductory text, (a)(2) and (e) revised; (a) 
        introductory text republished..............................39824
412.106  (a)(2) and (d)(1) revised; (a)(1)(i), (2)(ii), 
        (d)(2)(i)(B)(1) and (2) amended............................39824
412.108  (c) introductory text and (d)(3) introductory text 
        revised; (a)(1)(i) and (d)(3)(i)(B) amended................39824
412.110--412.130 (Subpart H)  Heading revised......................39824
412.110  Amended...................................................39824
412.112  Introductory text and (a) revised.........................39824
412.113  (a)(3) amended.............................................3016
    (c) revised....................................................33897
    (a)(2)(i) republished; (a)(2)(i)(B), (C) and (D) revised.......36016
    (a)(2)(i) introductory text republished; (a)(2)(i)(E) revised 
                                                                   39824
412.115  (a) amended...............................................39825
    (c) added......................................................47787
412.116  (b)(3)(ii)(B) and (C) amended..............................3016
412.120  (a) and (b) introductory text amended.....................39825

[[Page 865]]

412.130  (b)(1) and (2) amended....................................39825
412.200--412.220 (Subpart K)  Heading revised......................39825
412.200  Revised...................................................39825
412.204  Revised...................................................39825
412.208  (a), (b) and (h) heading revised..........................39825
412.210  (a)(1), (b)(3) and (d) introductory text amended..........39825
412.212  (a) amended...............................................39825
412.220  Introductory text amended.................................39825
412.230  Heading, (a)(1), (3), (4) introductory text, (iii), 
        (e)(1), (2)(i), (ii) introductory text and (A) revised; 
        (a)(4)(v) and (5) added; (d) heading, (1), (3) 
        introductory text and (ii) amended; (e)(2) introductory 
        text republished...........................................39825
412.232  (c), (d)(2)(i) and (ii)(A) revised; (d)(2) introductory 
        text and (ii) introductory text republished................39826
412.234  (b) revised; (c) heading amended..........................39826
412.273  (a) introductory text, (1) and (b) revised; (c) added.....39826
412.278  (f)(1) corrected; (f)(3) correctly designated as (f)(4); 
        (f)(3) added; CFR correction...............................13046
    (f) heading and (g) added; (f)(1) and (3) revised..............39826
412.300  (b) revised...............................................39827
412.302  (a), (c)(1)(i)(D), (v), (d)(2) and (3) amended.............3016
    (b) introductory text, (c)(1)(ii), (iv), (v), (vii)(B) and 
(2)(i)(B) revised; (b)(3)(iii) and (7) added; (c)(2)(i) 
introductory text republished......................................39827
412.302  (c)(1)(v) correctly revised...............................46510
412.308  (c)(4)(ii) amended.........................................3016
412.320  (a) redesignated in part as (a)(1) and (2); (a) 
        introductory text, (1), (2) and (b)(1) amended..............3016
412.324  (b)(2) and (3) amended.....................................3016
412.328  (c)(1) and (f)(1)(iii) amended.............................3016
    (f)(3)(iii) amended.............................................3017
    (b)(2), (3), (c)(1), (f)(1)(i) and (iii) revised; (f)(3) 
introductory text republished; (f)(4) redesignated as (f)(5); 
(a)(3) and new (f)(4) added........................................39828
412.331  Added.....................................................39828
412.336  (c)(1) amended.............................................3017
412.344  (d)(1) and (2) amended.....................................3017
412.348  (b)(1)(ii) amended.........................................3017
    (e)(2) revised.................................................39829
413.1  (b) amended; (f) added......................................33898
    (d)(2) introductory text and (i) revised.......................39829
413.5  (c) introductory text revised...............................39829
413.24  (f)(3)(iii) amended........................................39829
413.40  (a)(2)(i) introductory text republished; (a)(2)(i)(B), 
        (c)(2), (f)(1)(i) and (g)(3)(iii) revised; (b)(1) amended 
                                                                   39829
413.64  (h)(1)(i) and (ii) amended.................................39830
413.80  (a) revised; (h) added.....................................33898
413.86  (h)(6) added...............................................39830
413.118  (d)(3) redesignated as (d)(4); (d)(2) and new (d)(4) 
        introductory text revised; new (d)(3) added................36017
    (d)(4) corrected...............................................45113
413.122  (b)(4) added..............................................36017
413.124  Added.....................................................36017
413.130  (a)(3), (10) and (f) amended...............................3017
    (j) added......................................................36017
    (b)(4), (5) and (6) redesignated as (b)(5), (6) and (7), 
(b)(1), (2), and new (b)(5) revised; new (b)(4), (8) and (9) 
added; new (b)(6)(i) amended; eff. 10-23-92........................43917
413.134  (f)(2)(iii)(D) amended..............................3017, 39830
    (a) introductory text republished; (g)(3) and (h) through (k) 
redesignated as (g)(4) and (i) through (l); (a)(2), (b) heading, 
(1), (f)(1), (4), (g)(2), new (g)(4) and new (j) revised; (b)(8), 
(9), new (g)(3) and (h) added; eff. 10-23-92.......................43919
413.157  (c)(5) removed............................................39830
414  Authority citation revised.............................42493, 57688
414.1--414.60 (Subpart A)  correctly redesignated from 415.1--
        415.60 Subpart A...........................................42492

[[Page 866]]

414.2  Corrected...................................................42492
414.22  (a)(2) corrected...........................................42493
414.24  (c)(2) corrected...........................................42492
414.26  (a)(1), (2) and (3) corrected..............................42492
414.28  (a) and (b) corrected......................................42492
414.38  (c) and (d) corrected......................................42492
    (b) corrected..................................................42493
414.42  Correctly revised..........................................42493
414.46  (b)(1) and (f)(1) corrected................................42492
414.56  (b) corrected..............................................42493
414.58  (a) corrected..............................................42492
414.60  Corrected..................................................42492
414.200  Added.....................................................57689
414.202  Added.....................................................57689
414.210  Added.....................................................57689
414.220  Added.....................................................57689
414.222  Added.....................................................57690
414.226--414.229 (Subpart D)  Added................................57688
414.226  Added.....................................................57690
414.228  Added.....................................................57691
414.229  Added.....................................................57691
414.230  (f) revised...............................................57111
414.232  Added..............................................57688, 57692
414.330  Added.....................................................54187
414.450--414.453 (Subpart H)  Added................................33898
416  Authority citation revised.....................................7135
415.1--415.60 (Subpart A)   correctly designated as 414.1--414.60 
        subpart A..................................................42492
416.42  (b) revised................................................33899
416.49  Revised.....................................................7135
416.61  (a)(8) added; (b) amended..................................33899
417  Authority citation revised........................7135, 8201, 24981
417.107  (i) revised................................................7135
417.416  (d)(1) revised............................................24981
417.436  (a) introductory text republished; (a)(6) redesignated as 
        (a)(7); (a)(5) and new (a)(7) revised; new (a)(6) and (d) 
        added; interim..............................................8201
417.472  (f) redesigned as (g); new (f) added; interim..............8202
417.800  (b) revised................................................7135
417.801  (b) introductory text republished; (b)(5) redesignated as 
        (b)(6); (b)(4) and new (b)(6) revised; (b)(5) added; 
        interim.....................................................8202
418  Authority citation revised.....................................7135
418.1  (c) revised.................................................36017
418.21  (a) revised................................................36017
418.22  (a)(1) revised.............................................36017
418.92  Revised.....................................................7135
420  Authority citation revised.............................24982, 27306
420.200--420.206 (Subpart C)  Heading revised......................27306
420.200  Revised...................................................27306
420.201  Amended............................................24982, 27306
    Corrected......................................................35760
420.204  Revised...................................................27306
420.205  Revised...................................................27306
    420.206  (a) introductory text republished; (a)(1), (3), 
(b)(2), (3) and (c) revised........................................27306
421  Authority citation revised....................................27307
421.1  (a) revised.................................................27307
421.200  Introductory text revised.................................27307
421.202  Introductory text and (c) revised.........................27307
421.210  Added.....................................................27307
424.1  (c) revised.................................................24982
424.40  (c)(3) revised.............................................24982
424.57  Added......................................................27308

                                  1993

42 CFR
                                                                   58 FR
                                                                    Page
Chapter IV
400.202  Amended...................................................30666
401  Authority citation revised....................................61837
401.126  (b)(2) revised............................................61837
401.133  Heading revised; (d) and (e) added........................61838
403.400--403.410 (Subpart D)  Removed..............................54049
405.480  (a) introductory text, (1), (2) and (3) revised...........63686
405.502  Regulation at 57 FR 36013 confirmed.......................58505
405.550--405.580 (Subpart F)  Authority citation revised...........63686
405.550  (a) and (e)(1) amended; (c) revised.......................63686
405.551  (a) amended...............................................63686
405.556  Regulation at 57 FR 36014 confirmed.......................58505
406.21  Regulation at 57 FR 36014 confirmed........................58505

[[Page 867]]

406.23  Regulation at 57 FR 36014 confirmed........................58505
406.32  Regulation at 57 FR 36014 confirmed........................58505
406.33  Regulation at 57 FR 36014 confirmed........................58505
409.5  Amended.....................................................30666
409.10--409.19 (Subpart B)  Heading revised........................30666
409.10  (a)(3) amended; (a) introductory text and (b) revised......30666
409.11  (b)(1)(ii) and (3) introductory text amended; (b) heading, 
        (1)(iii) and (3)(ii) revised...............................30666
409.12  (b) amended................................................30666
    Heading and (a) revised........................................30667
409.13  (a) introductory text, (1), (2), (3) and (b) amended.......30666
409.14  (a) introductory text, (1), (2), (b) introductory text, 
        (1) and (2) amended........................................30666
409.15  Introductory text amended..................................30666
409.16  Introductory text, (a), (b) and (c) amended................30666
409.20  (a) introductory text revised; (c)(3) added................30667
409.27  Revised....................................................30667
409.30  Introductory text, (a)(2), (b)(1) and (2) amended..........30666
    (a)(1) revised.................................................30667
409.31  (b)(2)(i) and (ii) amended.................................30666
409.40  Regulation at 57 FR 36014 confirmed........................58505
409.60  (a) and (b)(1) revised.....................................30667
409.61  (a)(2) and (c) amended.....................................30666
    (a) heading, (3) heading and (b) heading revised; (a)(1)(i) 
and (b) amended....................................................30667
409.64  (a)(2)(ii) amended.........................................30667
409.65  (a)(1), (3), (4), (d)(1), (2), (e)(1), (2) introductory 
        text, (i) and (ii) amended.................................30666
    (d)(3) revised.................................................30667
409.66  (b) and (c)(2) amended.....................................30666
409.68  Heading, (a) introductory text, (1) through (4), (b)(2) 
        and (c) amended............................................30666
409.80  (a)(1) and (2) amended.....................................30666
409.82  (c) amended................................................30666
    (a)(1) revised.................................................30667
409.83  (c)(1) amended.............................................30666
    (a)(1) revised.................................................30667
409.87  (a)(3) amended.............................................30666
    (b)(1) amended.................................................30667
409.97  Regulation at 57 FR 36014 confirmed........................58505
410  Authority citation revised....................................30667
410.2  Amended.....................................................30668
410.3  (a)(1) revised..............................................30668
410.10  (c) and (d) amended........................................30668
410.28  Heading, (a) introductory text, (1), (2) and (4) amended 
                                                                   30668
410.32  (b)(1) amended.............................................30668
410.36  Regulation at 57 FR 36015 confirmed........................58505
410.38  (b) revised................................................30668
410.40  (a), (b)(3)(i), (c)(1), (2), (3), (e)(1), (2), (3) 
        amended; (b)(3) introductory text revised..................30668
410.60  (b) and (d) revised........................................30668
410.62  (b) and (c) revised........................................30668
410.150  (a)(2) revised; (b)(12) added.............................30668
410.152  (a) heading and (2) introductory text revised; (k) added 
                                                                   30668
410.155  (b) amended...............................................30668
410.161  (b)(2) amended............................................30668
411.15  (m) revised................................................30669
    Regulation at 57 FR 36015 confirmed............................58505
411.60  Regulation at 57 FR 36015 confirmed........................58505
411.62  Regulation at 57 FR 36015 confirmed........................58505
412  Authority citation revised....................................30669
412.1  (a) amended.................................................46337
412.2  (b)(2)(i) revised; (f)(8) amended...........................46337
412.25  (a)(1) revised; (d) added..................................46337
412.62  (c)(2) amended.............................................46337
412.63  (c)(2)(i), (g) introductory text, (j) introductory text 
        and (k) introductory text amended; (n), (o) and (p) 
        redesignated as (q), (r) and (s); new (n), (o) and (p) 
        added; (l), (m) and new (s)(2) revised.....................46337
412.70  Amended....................................................46338
412.73  (c)(1) amended; (c)(9) revised; (c)(10), (11) and (12) 
        added......................................................46338
412.75  (d) amended................................................46338
412.90  (j) added..................................................30669
412.96  (g)(2) amended.............................................46338

[[Page 868]]

412.98  (b) amended................................................46338
412.102  Revised...................................................46338
412.105  (g)(1)(ii), (iii) and (2)(v) revised......................46338
412.108  (a)(1) and (2) amended; (c) revised.......................46339
    (c)(2)(i) and (ii) corrected...................................67350
412.109  Added.....................................................30669
412.113  Regulation at 57 FR 36016 confirmed.......................58505
412.115  (b) amended...............................................46339
412.230  (e)(2)(ii)(B) revised.....................................46339
412.232  (b) and (d)(2)(ii)(B) revised.............................46339
412.234  (b) revised...............................................46339
412.308  (b) revised...............................................46339
412.320  (b)(2) revised............................................46339
412.336  (d) added.................................................46340
413  Authority citation revised.............................30670, 46340
    Technical correction...........................................67350
413.1  (a)(1)(i) amended...........................................30670
413.13  (c)(2)(iv) added...........................................30670
413.40  Revised....................................................46340
413.70  Added......................................................30670
413.86  (e)(3) revised; (b), (g)(1) and (h)(2) amended.............46343
413.114  Heading revised; (b) amended..............................30671
413.118  Regulation at 57 FR 36017 confirmed.......................58505
413.122  Regulation at 57 FR 36017 confirmed.......................58505
413.124  Regulation at 57 FR 36017 confirmed.......................58505
413.130  (b)(4) introductory text amended..........................17528
    Regulation at 57 FR 36017 confirmed............................58505
413.134  (b)(8), (f)(4), (h)(3) introductory text and (3)(i) 
        amended....................................................17528
414.1--414.60 (Subpart A)  Authority citation revised..............63686
414.2  Amended.....................................................63686
414.4  (b) revised.................................................63686
414.22  (b)(3) added...............................................63687
414.32  Revised....................................................63687
414.42  (a) amended................................................63687
414.46  (d) revised................................................63687
414.48  Revised....................................................63687
414.60  Revised....................................................63687
414.224  (a) revised...............................................34919
417  Authority citation revised....................................38067
    Nomenclature change............................................38083
417.1  Amended.....................................................38067
417.101--417.109 (Subpart B)  Heading revised......................38068
417.101  Amended...................................................38077
417.102  (a) and (b) amended.......................................38082
    (a) and (b) amended............................................38083
417.103  (a)(3)(ii)(C), (c)(2), (e)(1), (2) and (3) amended........38082
    (a)(1), (3), (b) introductory text, (d) and (e) introductory 
text amended.......................................................38083
417.104  (a)(4), (b)(1), (2)(i), (4)(ii) and (c)(2) amended........38082
    (a) introductory text, (b)(1), (2), (4), (c)(1), (d) and (e) 
introductory text amended..........................................38083
417.105  (a) and (b) amended.......................................38082
    (b) amended....................................................38083
417.106  Revised...................................................38068
417.107  Removed...................................................38068
417.108  Redesignated as 417.168...................................38068
417.109  Redesignated as 417.169...................................38068
417.120--417.126 (Subpart C)  Added................................38068
417.140  Revised...................................................38070
417.141  Revised...................................................38070
417.142  Revised...................................................38070
417.143  (b)(2) and (g) amended....................................38077
417.144  (a) through (e) amended...................................38077
417.150  Amended...................................................38077
417.151  Amended...................................................38077
417.152  Amended...................................................38077
417.153  Amended...................................................38077
417.154  Amended...................................................38077
417.155  (a) through (e) and (g) amended...........................38077
417.156  Introductory text, (a), (b) and (c) amended...............38083
417.157  Amended...................................................38077
417.158  Amended...................................................38082
    Amended........................................................38083
417.159  Amended...................................................38078
417.160--417.166 (Subpart F)  Heading revised......................38071
417.160  Revised...................................................38071
417.161  Revised...................................................38071
417.162  Revised...................................................38071
417.163  Amended...................................................38078
417.164  Heading, (a), (b) and (c) amended.........................38078
417.165  Amended...................................................38078

[[Page 869]]

417.168  Redesignated from 417.108.................................38068
    Revised........................................................38071
417.169  Redesignated from 417.109.................................38068
    Revised........................................................38072
417.400  (b) amended...............................................38078
417.401  Amended...................................................38072
417.402  Revised...................................................38072
417.404  Amended...................................................38078
417.406  Heading, (a)(2), (3) and (b)(2) amended...................38078
417.407  Heading, (a), (b) and (c) amended.........................38078
417.408  Amended...................................................38078
417.410  Amended...................................................38078
417.412  (b) amended...............................................38082
417.413  (a), (b) heading, (1) through (4), (c), (d)(1) through 
        (7), (e)(1) and (2) amended................................38082
417.414  Amended...................................................38078
417.416  (a), (c), (d)(1), (2), (e)(1) and (2) amended.............38082
417.418  Revised...................................................38072
    (b) amended....................................................38078
417.420  Amended...................................................38078
417.422  Heading, (a), (b) and (c) amended.........................38078
417.424  Amended...................................................38078
417.426  (a), (b) and (c) amended..................................38079
417.428  (a) introductory text, (1), (4), (b) introductory text, 
        (1), (2), (3), (5) and (c) amended.........................38082
417.430  (a)(1), (2), (b) introductory text, (3), (4)(i), (ii), 
        (6) introductory text, (i), (ii), (7) and (8) amended......38082
417.432  (a), (b), (c) and (e) amended.............................38082
417.434  Amended...................................................38082
417.436  Revised...................................................38072
417.440  Amended...................................................38079
417.442  Heading, (a), (b) introductory text and (2) amended.......38082
417.444  Revised...................................................38073
417.448  Amended...................................................38079
417.450  (a), (b) and (c) amended..................................38079
417.452  Amended...................................................38079
417.454  (a) and (b) amended.......................................38082
417.456  Amended...................................................38079
417.458  Introductory text, (a), (b) and (c) amended...............38082
417.460  Revised...................................................38073
417.470  (a) and (b) introductory text amended.....................38079
417.472  Amended...................................................38079
417.474  (b) amended...............................................38082
417.478  Introductory text, (c) and (d) amended....................38079
    (c) amended....................................................38082
417.480  Heading, introductory text, (b)(1) and (7) amended........38082
417.481  Heading and introductory text amended.....................38082
417.482  Introductory text, (b), (c), (e), (f)(1) and (2) amended 
                                                                   38082
417.484  (a) introductory text, (1), (3) and (b) amended...........38082
417.486  Introductory text amended.................................38082
417.488  Introductory text amended.................................38082
417.490  Amended...................................................38082
417.492  Amended...................................................38079
417.494  Amended...................................................38079
    (a)(1), (2), (3), (b)(1)(i) through (iv), (2), (3), (4), (c) 
introductory text, (1), (2) and (3) amended........................38082
417.520  Amended...................................................38079
417.521  (c)(1) and (2) amended....................................38082
417.522  Amended...................................................38079
417.523  Amended...................................................38079
417.524  Heading, (a) and (b) amended..............................38082
417.526  Amended...................................................38080
417.528  Amended...................................................38080
417.530  Amended...................................................38080
417.531  (a), (b) introductory text and (1) amended................38082
417.532  (a)(1), (2), (3), (4), (b) heading, (3), (c) introductory 
        text, (2), (e) heading, introductory text, (1), (f), (g) 
        and (h) amended............................................38082
417.533  Introductory text and (a) amended.........................38082
417.534  (a) and (b) amended.......................................38082
417.536  Amended...................................................38080
417.538  (a) through (d) amended...................................38082
417.540  Heading, (a) and (b) amended..............................38082
417.544  Heading and (a) amended...................................38082
417.546  (a), (b)(1) and (2) amended...............................38082

[[Page 870]]

417.548  Amended...................................................38080
417.550  Amended...................................................38080
417.552  (a) amended...............................................38082
417.554  Amended...................................................38082
417.556  Heading and (a) through (d) amended.......................38082
417.558  Heading, (a), (b) heading, (1) and (2) amended............38082
417.560  (a) introductory text, (b), (c), (d) introductory text, 
        (1) and (2) amended........................................38082
417.562  (a), (b)(3), (c) introductory text and (d) amended........38082
417.564  (a), (b) introductory text, (1) and (2) amended...........38082
417.566  (b)(1) and (2) amended....................................38082
417.568  (a)(1), (b)(1), (c), (d) and (e) amended..................38082
417.570  (a)(1), (b), (c) introductory text, (3) and (d) amended 
                                                                   38082
417.572  (a), (b) introductory text, (2), (c)(1) and (2) amended 
                                                                   38082
417.574  (a) and (b) amended.......................................38082
417.576  (a), (b)(1), (2)(i), (ii), (3), (c)(1), (2), (d)(1) 
        through (4), (e)(1), (2) and (3) amended...................38082
417.580  (a) and (b) amended.......................................38080
417.582  Amended...................................................38080
417.584  Heading, introductory text, (a), (b)(2) and (d) amended 
                                                                   38082
417.585  (a), (b) introductory text, (1) and (c) amended...........38082
417.586  Heading, (a) heading, (1), (2), (3), (b)(1), (c) heading, 
        (1), (d), (e) introductory text, (1) and (2) amended.......38083
417.588  (b), (c)(1), (2) and (3) amended..........................38083
417.590  Revised...................................................38075
417.592  Amended...................................................38080
417.594  Amended...................................................38080
417.596  (a), (b), (c)(1), (2), (3) and (d)(2) amended.............38083
417.597  Revised...................................................38075
417.598  Amended...................................................38080
417.600  Amended...................................................38080
417.602  Amended...................................................38080
417.604  Amended...................................................38080
417.606  Revised...................................................38076
417.608  (a) amended...............................................38083
417.610  (b) amended...............................................38083
417.616  (a)(1), (c)(1) and (2) amended............................38083
417.618  Amended...................................................38083
417.620  (b) introductory text, (1) and (2) amended................38083
417.622  (a) amended...............................................38083
417.632  (c) amended...............................................38083
417.634  Amended...................................................38083
417.636  (a) and (b) amended.......................................38083
417.638  Amended...................................................38083
417.640  Amended...................................................38080
417.642  Amended...................................................38080
417.644  (a), (b)(2) and (c) amended...............................38083
417.656  (a) amended...............................................38083
417.660  (b) and (c) amended.......................................38083
417.662  (a) amended...............................................38083
417.664  (a) and (b)(2) amended....................................38083
417.670  (c) revised...............................................38081
417.800  (b)(1)(iii) and (c)(1) amended............................38081
417.801  (a)(2), (b)(2) and (d)(1)(iii) amended....................38081
417.802  (a) amended...............................................38081
417.806  (a) amended...............................................38081
417.810  (c)(2) amended............................................38081
417.910  Revised...................................................38076
417.911  Revised...................................................38076
417.912  Amended...................................................38081
417.913  Amended...................................................38081
417.915  (a) amended...............................................38083
    (c) amended....................................................38083
417.917  Introductory text amended.................................38081
417.918  (a) amended...............................................38081
417.919  (a) and (b) amended.......................................38083
417.920  Revised...................................................38076
417.921  Amended...................................................38081
417.922  Amended...................................................38081
417.923  (a), (b), (d) introductory text, (e), (f)(1) and (4) 
        amended....................................................38081
417.924  (a)(1), (2), (3), (b)(1), (3) and (4) amended.............38081
417.925  Heading revised; (a) introductory text, (1) and (b) 
        amended....................................................38081
417.926  (a) and (c) amended.......................................38082
417.930  Revised...................................................38077
417.931  Removed...................................................38077
    (a) introductory text and (b) amended..........................38082
417.932  Heading revised; (a) and (b) amended......................38082
417.933  Heading revised...........................................38082
417.934  Amended...................................................38083
417.935  Heading revised; introductory text amended................38082

[[Page 871]]

417.936  Amended...................................................38082
417.937  (a), (b) and (c) amended..................................38082
418.1  Regulation at 57 FR 36017 confirmed.........................58505
418.21  Regulation at 57 FR 36017 confirmed........................58505
418.22  Regulation at 57 FR 36017 confirmed........................58505
421.210  (e)(2) revised; (e)(3) and (4) added......................60796
421.212  Added.....................................................60797
424.15  Added......................................................30671
424.20  Introductory text amended..................................30671
424.350  Revised...................................................65129
424.352  Revised...................................................65130
424.354  Removed...................................................65130

                                  1994

42 CFR
                                                                   59 FR
                                                                    Page
Chapter IV
400.202  Amended; interim...........................................6576
    Regulation at 59 FR 6576 eff. date corrected to 3-13-94........13459
400.310  Revised (OMB numbers).....................................39297
    Table amended (OMB numbers)....................................51128
401.101--401.625 (Subpart B)  Authority citation revised...........56232
401.126  Regulation at 58 FR 61837 eff. date corrected to 2-22-94 
                                                                     108
401.130  (b)(17) revised...........................................56232
401.133  Regulation at 58 FR 61838 eff. date corrected to 2-22-94 
                                                                     108
    Introductory text revised......................................56232
403.500--403.512 (Subpart E)  Authority citation revised...........51128
403.500  Revised...................................................51128
403.501  Added.....................................................51129
403.502  Revised...................................................51129
403.504  Revised...................................................51129
403.506  Removed...................................................51129
403.508  Revised...................................................51129
403.510  Added.....................................................51129
403.512  Added.....................................................51129
405  Technical correction...................................36069, 39828
405.501--405.535 (Subpart E)  Authority citation revised...........49832
405.512  (c)(8) revised............................................10298
405.534  (b) introductory text, (2), (3), (c) introductory text, 
        (2), (3), (d) introductory text, (2) and (3) revised.......49833
405.535  Revised...................................................49833
405.701--405.750 (Subpart G)  Authority citation revised...........12181
405.701  Heading revised; (d) added................................12181
405.740  Revised...................................................12181
405.741  Removed...................................................12182
405.801--405.874 (Subpart H)  Heading revised......................12182
    Authority citation revised.....................................12182
405.802  Revised...................................................12182
405.811  Revised...................................................12182
405.812  Revised...................................................12182
405.815  Redesignated from 405.820 and revised.....................12182
405.817  Added.....................................................12182
405.820  Redesignated as 405.815...................................12182
405.821  Revised...................................................12183
405.822  Heading amended...........................................12183
405.823  Heading amended...........................................12183
405.824  Heading amended...........................................12183
405.825  Heading amended...........................................12183
405.826  Heading amended...........................................12183
405.830  Heading amended...........................................12183
405.832  Heading amended...........................................12183
405.833  Heading amended...........................................12183
405.834  Heading amended...........................................12183
405.835  Heading amended...........................................12183
405.841  Heading amended...........................................12183
405.860  Heading amended...........................................12183
405.1413  (a)(1) amended...........................................64152
405.1720  Introductory text correctly revised; CFR correction......18318
405.2100--405.2184 (Subpart U)  Authority citation revised.........46513
405.2137  Regulation at 56 FR 43709 confirmed; (b)(7) revised.......1284
    (b)(7) introductory text revised...............................26958
405.2163  Regulation at 56 FR 43709 confirmed; (g) revised; (h) 
        added.......................................................1284
    (g)(2)(i) revised..............................................26958
    (f) revised; interim; eff. 10-11-94............................46513
405.2170  Introductory text amended; interim; eff. 10-11-94........46514

[[Page 872]]

405.2171  Heading, introductory text and (e) revised; (a) and 
        (d)(1) amended; interim; eff. 10-11-94.....................46514
405.2401--405.2472 (Subpart X)  Authority citation revised.........26958
405.2401  (b) amended..............................................26958
406  Authority citation revised....................................26959
406.32  (b)(3) and (c) through (f) redesignated as (b)(4) and (d) 
        through (g); new (b)(3) and new (c) added; new (b)(4) 
        revised....................................................26959
408.20  (b) heading, (1) introductory text, (2), (c) heading and 
        introductory text revised; (b)(3) added....................26959
409  Authority citation revised....................................65493
409.32  (a) revised................................................65493
409.40  Revised....................................................65493
409.41  Revised....................................................65494
409.42  Revised....................................................65494
409.43  Revised....................................................65494
409.44  Revised....................................................65494
409.45  Added......................................................65495
409.46  Redesignated as 409.50; new 409.46 added...................65496
409.47  Added......................................................65496
409.48  Added......................................................65497
409.49  Added......................................................65497
409.50  Redesignated from 409.46...................................65496
410  Authority citation revised................6576, 26959, 49833, 63462
410.1  (a) amended.................................................63462
410.2  Revised; interim.............................................6577
    Regulation at 59 FR 6577 eff. date corrected to 3-13-94........13459
410.3  (a)(2) amended; interim......................................6577
    Regulation at 59 FR 6577 eff. date corrected to 3-13-94........13459
410.10  Regulation at 56 FR 43709 confirmed.........................1284
    (k) amended.....................................................1285
    (k) revised....................................................26959
    (e) revised....................................................49833
410.29  Regulation at 56 FR 43709 confirmed.........................1284
410.34  Introductory text removed; (b)(1) through (6) redesignated 
        as (d)(1) through (6); heading, (a) and new (d)(1) 
        revised; new (d) heading, new (b) and new (c) added........49833
410.43  Added; interim..............................................6577
    Regulation at 59 FR 6577 eff. date corrected to 3-13-94........13459
410.50  Regulation at 56 FR 43709 confirmed.........................1284
    (d) amended.....................................................1285
410.52  Regulation at 56 FR 43709 confirmed.........................1284
    (a)(4) amended..................................................1285
    (a)(4) revised.................................................26959
410.60  (c)(2) revised; Footnote 2 removed.........................26959
410.110 (Subpart E)  Added; interim.................................6577
    Regulation at 59 FR 6577 eff. date corrected to 3-13-94........13459
410.150--410.175 (Subpart E)  Redesignated as Subpart I; interim 
                                                                    6577
    Regulation at 59 FR 6577 eff. date corrected to 3-13-94........13459
410.150  (a)(2) revised; (b)(13) added; interim.....................6577
    Regulation at 59 FR 6577 eff. date corrected to 3-13-94........13459
410.152  (b)(4) revised............................................63462
410.155  Heading and (b) revised; interim...........................6578
    Regulation at 59 FR 6578 eff. date corrected to 3-13-94........13459
410.172  Added; interim.............................................6578
    Regulation at 59 FR 6578 eff. date corrected to 3-13-94........13459
411.15  (a)(1) revised.............................................49834
412  Technical correction..........................................64153
412.2  (c)(3) and (4) revised; (c)(5) added; interim................1658
    (e)(4) amended.................................................45396
412.20  (b)(1) amended.............................................45400
412.22  (b) amended................................................45400
412.23  (e) revised................................................45396
412.25  Heading and (a) introductory text amended..................45400
412.27  Heading revised............................................45397
    Introductory text amended......................................45400
412.29  Heading revised............................................45397
    Introductory text amended......................................45400
412.30  Heading amended............................................45400
412.46  (c) revised................................................11003
    Regulation at 59 FR 11003 eff. date corrected to 4-8-94........30389
412.60  (d)(2) amended.............................................45397
412.63  (m)(1), (r) heading, (1) introductory text, (i), (2) 
        introductory text, (i), and (s)(2) revised.................45397

[[Page 873]]

412.71  (b) introductory text revised; (b)(1) removed; (b)(2) 
        through (8) redesignated as (b)(1) through (7).............45398
412.73  (c)(1) amended; interim.....................................1658
    (c)(9) and (10) revised........................................32383
412.80  (a)(1) introductory text and (ii) introductory text 
        revised; (a)(1)(iii) added.................................45398
412.82  (c) revised................................................45398
412.84  (j) amended................................................45398
412.96  (d) revised................................................45398
    (c)(1) introductory text and (2)(i) introductory text amended 
                                                                   45400
412.98  (b) amended; interim........................................1658
412.105  (b) revised; (d)(1) amended...............................45398
    (b), (f)(5) and (g)(1)(iii) amended............................45400
412.108  (a)(2) amended............................................45400
412.109  (e) added.................................................45398
412.113  (b)(3) and (d) amended....................................45398
412.116  (b)(4)(iii) revised.......................................36712
    (a) and (b)(1) introductory text amended.......................45400
412.130  Heading, (a)(2) and (3) amended...........................45400
412.230  (a)(2) removed; (a)(3), (4) and (5) redesignated as 
        (a)(2), (3) and (4); new (a)(3)(i) removed; new (a)(3)(ii) 
        through (v) redesignated as (a)(3)(i) through (iv); new 
        (a)(2), (3)(iii) and (b) through (e) amended; new 
        (a)(3)(iv), (e)(2)(ii)(A) and (B) revised..................45399
412.232  (c) revised...............................................45399
412.302  (c)(2)(i)(D) revised......................................45399
412.308  (c)(3) amended............................................45399
412.348  Revised...................................................45399
413  Authority citation revised.......................1285, 26964, 49834
    Technical correction...........................................64153
413.1  (a)(1)(viii) added; (a)(2) revised; interim..................6578
    Regulation at 59 FR 6578 eff. date corrected to 3-13-94........13459
413.13  (b)(1) amended; interim.....................................6578
    Regulation at 59 FR 6578 eff. date corrected to 3-13-94........13459
413.24  (f)(4) added...............................................26964
413.40  (c)(2), (3) and (4) redesignated as (c)(3), (4) and (5); 
        (a)(3), new (c)(4)(ii) and (i)(3) amended; new (c)(2) 
        added; interim..............................................1659
    (a)(2)(ii), (b)(1)(i), (ii), (iii) and (f)(2) amended..........45401
413.53  (a)(1)(i) revised..........................................45401
413.56  Removed....................................................45401
413.64  (h)(2) through (6) and (h)(1)(i) through (iv) redesignated 
        as (h)(3) through (7) and (h)(2)(i) through (iv); new 
        (h)(1) revised; new (h)(2), (v) and (vi) added.............36713
413.86  (f)(1)(ii) and (g)(1) introductory text amended............45401
413.123  (b) revised...............................................49834
413.124  (a) revised...............................................26960
413.125  Added.....................................................65497
413.130  (j)(1)(ii) revised........................................26960
413.134  (d)(1) amended; (e)(1) and (2)(ii) revised; (e)(2)(iii), 
        (iv) and (4) added.........................................45401
413.153  (d)(2) revised; (d)(3) added..............................45402
413.157  (b)(3) revised............................................26960
413.170  Regulation at 56 FR 43709 confirmed........................1284
    (c)(6) amended..................................................1285
413.174  (b)(4)(iv) revised........................................45402
414  Technical correction...................................36069, 39828
414.1--414.60 (Subpart A)  Authority citation revised..............63463
414.2  Amended.....................................................63463
414.4  Revised.....................................................63463
414.39  Added......................................................63463
414.300  Regulation at 56 FR 43710 confirmed........................1284
    (d) amended.....................................................1285
414.314  (c) revised; (d) removed..................................63463
414.335  Regulation at 56 FR 43710 confirmed........................1284
417  Authority citation revised......................36083, 49836, 59941
417.124  (e)(4) added; eff. 10-31-94...............................49843
417.140  Heading and text revised; eff. 10-31-94...................49836
417.141  Removed; eff. 10-31-94....................................49836
417.142  Revised; eff. 10-31-94....................................49836
417.144  Heading and text revised; eff. 10-31-94...................49837
417.150  Amended; eff. 10-31-94.............................49837, 49843

[[Page 874]]

417.151  Revised; eff. 10-31-94....................................49838
417.152  Heading and text revised; eff. 10-31-94...................49838
417.153  Revised; eff. 10-31-94....................................49839
417.154  Revised; eff. 10-31-94....................................49839
417.155  Heading and text revised; eff. 10-31-94...................49840
417.156  Revised; eff. 10-31-94....................................49841
417.158  Revised; eff. 10-31-94....................................49841
417.159  Revised; eff. 10-31-94....................................49841
417.160--417.169 (Subpart F)  Heading revised; eff. 10-31-94.......49841
417.160  Heading and text revised; eff. 10-31-94...................49841
417.163  Revised; eff. 10-31-94....................................49841
417.164  Heading and text revised; eff. 10-31-94...................49842
417.166  Revised; eff. 10-31-94....................................49842
417.168  Removed; eff. 10-31-94....................................49842
417.169  Removed; eff. 10-31-94....................................49842
417.400  (a) amended; eff. 10-31-94................................49843
417.436  (a)(11) amended; eff. 10-31-94............................49843
417.440  (f) added.................................................59941
417.454  (b) redesignated as (c); (a) heading, new (b) and (c) 
        heading added..............................................59941
417.460  (a)(11) heading revised; eff. 10-31-94....................49843
417.500  Added.....................................................36083
417.600  Amended...................................................59941
417.604  (a) and (b) revised.......................................59941
417.605  Added.....................................................59941
417.606  Revised...................................................59942
417.608  Heading, (a) and (c) revised..............................59942
417.610  Heading, introductory text and (b) revised................59942
417.612  Heading and text amended..................................59941
417.614  Revised...................................................59942
417.616  (a)(1), (b), (c)(1) and (2) introductory text revised.....59942
417.618  Amended...................................................59942
417.620  Revised...................................................59942
417.622  (b) amended...............................................59941
    (a) revised....................................................59942
417.630  Revised............................................12183, 59942
417.638  Revised...................................................59942
417.801  (b)(2) amended; eff. 10-31-94.............................49843
    (b)(6) redesignated as (b)(7); new (b)(6) added................59943
417.830  Added.....................................................59943
417.832  Added.....................................................59943
417.834  Added.....................................................59943
417.836  Added.....................................................59943
417.838  Added.....................................................59943
417.840  Added.....................................................59943
417.910  Heading and text revised; eff. 10-31-94...................49842
417.911  Amended; eff. 10-31-94....................................49842
417.912  Removed; eff. 10-31-94....................................49842
417.913  Removed; eff. 10-31-94....................................49842
417.914  Removed; eff. 10-31-94....................................49842
417.915  Removed; eff. 10-31-94....................................49842
417.916  Removed; eff. 10-31-94....................................49842
417.917  Removed; eff. 10-31-94....................................49842
417.918  Removed; eff. 10-31-94....................................49842
417.919  Removed; eff. 10-31-94....................................49842
417.921  Removed; eff. 10-31-94....................................49842
417.922  Removed; eff. 10-31-94....................................49842
417.923  Removed; eff. 10-31-94....................................49842
417.924  Removed; eff. 10-31-94....................................49842
417.925  Removed; eff. 10-31-94....................................49842
417.926  Removed; eff. 10-31-94....................................49842
417.932  Removed; eff. 10-31-94....................................49842
417.933  Removed; eff. 10-31-94....................................49842
417.934  Revised; eff. 10-31-94....................................49842
417.935  Removed; eff. 10-31-94....................................49842
417.936  Removed; eff. 10-31-94....................................49842
417.937  Revised; eff. 10-31-94....................................49842
417.940  Added; eff. 10-31-94......................................49843
418  Authority citation revised.............................26960, 65497
418.202  (g) revised...............................................65498
418.306  (b)(2) revised; (b)(3) added..............................26960
418.307  Revised...................................................36713
421.3  Revised.......................................................681
421.112  (b) amended.................................................682
421.118  (b) amended.................................................682
421.122  Revised.....................................................682
421.124  Revised.....................................................682
421.201  Added.......................................................682
421.203  Added.......................................................682
424  Authority citation revised....................................10298
424.3  Amended.....................................................10299
424.32  (a) revised................................................10299
424.34  (b)(4) revised.............................................10299
    (b)(4) corrected...............................................26740

                                  1995

42 CFR
                                                                   60 FR
                                                                    Page
Chapter IV
400.202  Amended...................................................63175
400.310  Table amended (OMB numbers)................................2326
    Table amended..................................................45361

[[Page 875]]

    Regulation at 60 FR 45361 eff. date corrected to 9-29-95.......48749
    Revised........................................................50445
    Table amended (OMB numbers)....................................63188
401  Authority citation revised....................................50441
401.101--401.152 (Subpart B)  Authority citation removed...........50441
401.601--401.625 (Subpart F)  Authority citation removed...........50441
403  Authority citation added......................................50441
403.200--403.258 (Subpart B)  Authority citation removed...........50441
403.300--403.322 (Subpart C)  Authority citation removed...........50441
405.201--405.215 (Subpart B)  Added; eff. 11-1-95..................48423
405.465--405.482 (Subpart D)  Removed..............................63175
403.500--403.512 (Subpart E)  Authority citation removed...........50441
405.500--405.535 (Subpart E)  Authority citation revised...........63175
    Heading revised................................................63175
405.500  Added.....................................................63175
405.501  (c) and (d) removed; (e) and (f) redesignated as (c) and 
        (d); new (c) and new (d) amended...........................63176
405.502  (a)(10) amended...........................................63188
405.520  Removed...................................................63176
405.521  Removed...................................................63176
405.522  Removed...................................................63176
405.523  Removed...................................................63176
405.524  Removed...................................................63176
405.525  Removed...................................................63176
405.550--405.580 (Subpart F)  Removed..............................63176
405.753  Added; eff. 11-1-95.......................................48424
405.877  Added; eff. 11-1-95.......................................48424
405.1411--405.1416 (Subpart N)  Redesignated as 486.100--486.110 
        (Subpart C).................................................2326
405.1701--405.1726  Undesignated center heading removed.............2326
405.1701  Redesignated as 485.701...................................2326
405.1702  Introductory text removed; (a) through (m) redesignated 
        as 485.705(a), 485.703(a), (b), 485.705(b) through (e), 
        485.703(c), (d), 485.705(f), (g), 485.703(e) and 
        485.705(h)..................................................2326
405.1715  Redesignated as 485.707...................................2326
405.1716  Redesignated as 485.709...................................2326
405.1717  Redesignated as 485.711...................................2326
405.1718  Redesignated as 485.713...................................2326
405.1719  Redesignated as 485.715...................................2326
405.1720  Redesignated as 485.717...................................2326
405.1721  Redesignated as 485.719...................................2326
405.1722  Redesignated as 485.721...................................2326
405.1723  Redesignated as 485.723...................................2326
405.1724  Redesignated as 485.725...................................2326
405.1725  Redesignated as 485.727...................................2326
405.1726  Redesignated as 485.729...................................2326
405.1730--405.1737  Undesignated center heading removed.............2326
405.1730  Redesignated as 486.150...................................2326
405.1731  Redesignated as 486.151...................................2326
405.1732  Redesignated as 486.153...................................2326
405.1733  Redesignated as 486.155...................................2326
405.1734  Redesignated as 486.157...................................2326
405.1735  Redesignated as 486.159...................................2326
405.1736  Redesignated as 486.161...................................2326
405.1737  Redesignated as 486.163...................................2326
405.2140  (a)(5) revised; eff. 10-18-95............................48043
405.2150  (b) removed; (c) and (d) redesignated as (b) and (c); 
        introductory text, (a) and new (c)(1) revised; eff. 10-18-
        95.........................................................48044
405.2400--405.2472 (Subpart X)  Authority citation revised.........63176
405.2400  Added....................................................63176
405.2401  (b) amended..............................................63176
405.2468  (b)(1) revised...........................................63176
406  Authority citation revised....................................50441
406.13  (f) and (g) revised........................................22535
407  Authority citation revised....................................50441

[[Page 876]]

408  Authority citation revised....................................50441
409  Authority citation revised....................................50441
409.1  Revised.....................................................50441
409.42  (b), (c)(2), (3) and (4) corrected.........................39122
409.45  (a) corrected..............................................39122
    (g)(4) corrected...............................................39123
409.49  (f) corrected..............................................39123
410  Technical correction......................................46, 36733
    Authority citation revised......................................2329
410.10  (u) added...................................................8955
410.31  Added.......................................................8955
410.34  (a)(1) revised.............................................14224
    (a)(1), (2) and (d) revised....................................63176
410.60  (a)(3)(ii) amended..........................................2329
411  Authority citation revised......................41978, 45361, 50441
411.1--411.15 (Subpart A)  Regulation at 60 FR 45361 eff. date 
        corrected to 9-29-95.......................................48749
411.1  (a) revised.................................................41978
    (a) amended....................................................45361
411.15  (o) added; eff. 11-1-95....................................48424
    (m)(2)(i) amended..............................................63188
411.20  Revised....................................................45361
    Regulation at 60 FR 45361 eff. date corrected to 9-29-95.......48749
411.21  Amended....................................................45361
    Regulation at 60 FR 45361 eff. date corrected to 9-29-95.......48749
411.24  (c) revised................................................45361
    (m) added......................................................45362
    Regulations at 60 FR 45361, 45362 eff. date corrected to 9-29-
95.................................................................48749
411.33  (a) heading and introductory text revised; (a)(1), (3), 
        (b) introductory text, (3) and (e) heading amended; (c) 
        and (d) removed............................................45362
    Regulation at 60 FR 45362 eff. date corrected to 9-29-95.......48749
411.60--411.65 (Subpart E)  Redesignated as 411.160--411.165 
        (Subpart F)................................................45362
    Regulation at 60 FR 45362 eff. date corrected to 9-29-95.......48749
411.70--411.75 (Subpart F)  Redesignated as 411.170--411.175 
        (Subpart G)................................................45362
    Regulation at 60 FR 45362 eff. date corrected to 9-29-95.......48749
411.100--411.130 (Subpart E)  Added................................45362
    Regulation at 60 FR 45362 eff. date corrected to 9-29-95.......48749
411.108  (a)(8) revised............................................53876
411.160--411.165 (Subpart F)  Redesignated from 411.60--411.65 
        (Subpart E)................................................45362
    Heading revised................................................45367
    Regulation at 60 FR 45362 eff. date corrected to 9-29-95.......48749
411.160  Revised...................................................45367
    Regulation at 60 FR 45367 eff. date corrected to 9-29-95.......48749
411.161  Added.....................................................45368
    Regulation at 60 FR 45368 eff. date corrected to 9-29-95.......48749
411.162  Heading and (a) revised; (b)(2)(i), (ii), (c)(2)(iii), 
        (iv), (3)(i), (ii), (4) introductory text, (i), (ii), 
        (d)(9), (10) and (f) amended; (e) removed..................45368
    Regulation at 60 FR 45368 eff. date corrected to 9-29-95.......48749
411.163  Added.....................................................45369
    Regulation at 60 FR 45369 eff. date corrected to 9-29-95.......48749
    (b)(2) and (3) corrected.......................................53876
    (b)(2) and (3) revised.........................................53876
411.165  (a) heading, (1), (b)(1)(i), (ii) and (2) amended.........45370
    Regulation at 60 FR 45370 eff. date corrected to 9-29-95.......48749
411.170--411.175 (Subpart G)  Redesignated from 411.70--411.75 
        (Subpart F)................................................45362
    Heading revised................................................45370
    Regulation at 60 FR 45362 eff. date corrected to 9-29-95.......48749
411.170  (a) revised; (b), (d), (e) and (f) removed................45370
    Regulation at 60 FR 45370 eff. date corrected to 9-29-95.......48749
411.172  Heading, (c), (d) introductory text and (e) amended; (a), 
        (b) and (d) revised; (g) added.............................45370
    Regulation at 60 FR 45370 eff. date corrected to 9-29-95.......48749
    (b) corrected..................................................53877
    (b) revised....................................................53877
411.175  (b)(1), (c)(1)(i), (iii) and (2) amended..................45370
    (a), (b) heading, (c) heading and (1)(iii) revised.............45371
    Regulation at 60 FR 45370 eff. date corrected to 9-29-95.......48749

[[Page 877]]

411.200--411.206 (Subpart H)  Added................................45371
    Regulation at 60 FR 45371 eff. date corrected to 9-29-95.......48749
411.350  Revised...................................................41978
411.351  Added.....................................................41978
411.353  Added.....................................................41979
411.355  Added.....................................................41980
411.356  Added.....................................................41980
411.357  Added.....................................................41980
411.360  Added.....................................................41982
    (e) revised....................................................63440
411.361  Revised...................................................41982
411.406  (e) revised; eff. 11-1-95.................................48425
412  Authority citation revised....................................50441
412.4  (d)(1) amended..............................................45846
412.23  (e)(2) and (3) revised; (e)(4) amended.....................45846
412.29  (a) revised................................................45847
412.30  (b) and (c) redesignated as (c) and (d); (a) and new (c) 
        revised; new (b) added; new (d) amended....................45847
412.46  Revised....................................................45847
412.50  (a) and (b) amended........................................63188
412.63  (s)(5) added...............................................45847
412.71  (c)(1)(i) amended..........................................63188
412.92  (b)(5) amended.............................................45848
412.96  (c)(2)(ii) amended.........................................45848
412.105  (b) revised...............................................45848
    (g)(1)(i)(A) amended...........................................63188
412.106  (b)(3) revised............................................45848
412.109  (b) through (e) redesignated as (c) through (f); (a), new 
        (c)(1), (2)(ii), (d) introductory text, (1), new (e) 
        heading and (1) revised; new (b) added.....................45848
412.130  (a)(3) amended............................................45848
412.230  (a)(1) revised; (a)(5) added..............................45848
412.232  (a)(4) added..............................................45849
412.234  (a)(4) added..............................................45849
412.266  Revised...................................................45849
412.308  (b)(3) added; (c)(1)(ii) revised..........................45849
412.328  (e)(4) added..............................................45849
413  Authority citation revised.............................33135, 45849
    Heading revised................................................37594
413.1  (a)(1) and (2) redesignated as (a)(2) and (3); (a) heading 
        and new (2) heading revised; new (a)(1) added..............33136
    (g) added......................................................37594
    (a)(1) and (3) revised.........................................50441
413.5  (c)(9) amended..............................................63189
413.13  (g)(1)(i) amended..........................................63189
413.24  (f)(4)(ii) revised; (f)(4)(iii) amended....................33125
    (b)(2) revised.................................................33136
    (f)(2) revised; (f)(5) added...................................33143
    (d) introductory text and (h) revised..........................37594
413.30  (e) revised; (f) introductory text amended; (f)(5), (6), 
        (7) and (9) removed; (f)(8) redesignated as (f)(5).........45849
413.35  (b)(2) amended.............................................45849
413.40  (c)(2) and (g)(1) amended; (e)(1) revised..................45849
413.70  (b)(2)(i) amended..........................................45850
413.80  (h) amended................................................63189
413.86  (b)(1) and (g)(1)(ii) amended..............................63189
413.100  Added.....................................................33136
413.174  (b)(4)(iv) amended........................................63189
413.300--413.321 (Subpart I)  Added................................37594
414  Authority citation revised.............................35497, 50442
414.1--414.60 (Subpart A)  Authority citation removed..............50442
414.1  Revised.....................................................50442
414.2  Introductory text and (2) amended...........................50442
    Amended........................................................63177
414.22  Amended....................................................50442
414.24  Heading and (c)(2) amended.................................50442
414.28  Amended....................................................53877
    Amended........................................................53877
    (b) revised....................................................63177
414.30  Amended....................................................50442
    (b)(2) revised; (c) added......................................63177
414.32  Heading and (b) amended....................................50442
    (d)(2) revised.................................................63177
414.39  (b)(2) corrected.......................................49, 36733
414.40  (b) introductory text amended..............................50442
414.44  (a)(1), (b) introductory text, (d), (e) and (f) amended....50442
414.46  (a)(1), (e) and (g) amended; (b), (c) and (d) revised......63177
414.58  Heading and (a) amended....................................50442
    (a) and (b) amended............................................63189
414.60  (a) amended................................................53877

[[Page 878]]

414.220  (a), (b), (f)(3) introductory text, (i) and (ii) revised; 
        (f)(4) and (g) added.......................................35497
414.222  (a) revised; (e) added....................................35497
414.228  (b)(2)(ii) revised; (b)(2)(iii) and (iv) added............35498
414.229  Heading and (c)(3) revised................................35498
414.232  (a) revised...............................................35498
414.450--414.453 (Subpart H)  Removed..............................63178
415  Added.........................................................63178
416  Authority citation revised....................................50441
417.1  Amended..............................................34887, 45674
417.2  (a) amended.................................................45675
417.400  Revised...................................................45675
417.401  Amended...................................................45675
417.404  Revised...................................................45675
417.406  Revised...................................................45675
417.407  Revised...................................................45675
417.408  (a) redesignated in part as (a)(1) and (2); (a)(2), 
        (b)(1) and (c) introductory text amended...................45676
417.410  Heading revised; (a) heading, (b) heading, (c) heading, 
        (d) heading, (e) heading and (f) heading added.............45676
417.412  (a) and (b) designation removed; (b)(1) and (2) 
        redesignated as (a) and (b)................................45676
417.413  (b) introductory text, (1), (2), (c), (d)(2)(i), (3), (5) 
        and (6) revised............................................45676
417.414  (b)(1) amended; (b)(4) removed............................45677
417.416  (b) and (d) revised.......................................45677
417.420  (b) and (c)(1) amended....................................45677
417.422  (a) designation, (b) and (c) removed; (a)(1) through (7) 
        redesignated as (a) through (g)............................45677
417.423  Added.....................................................45677
417.424  (b) redesignated in part as (b)(1) and (2); new (b)(2) 
        amended....................................................45677
417.426  (b)(2) and (c) revised....................................45677
417.428  (c) amended...............................................45677
417.430  (b)(3) revised; (b)(6)(i) amended.........................45677
417.432  (e) heading revised.......................................45677
417.436  (d)(1)(i), (ii), (vii) and (2)(ii) revised; (d)(3) added 
                                                                   33292
417.440  (b)(1), (c) and (d) introductory text revised.............45678
417.442  Heading and (a) revised...................................45678
417.450  (c) revised...............................................45678
417.452  (a)(1), (2) and (b) introductory text amended.............45678
417.454  (a) heading revised.......................................45678
417.456  (f) amended...............................................45678
417.458  Introductory text amended.................................45678
417.460  Revised...................................................45678
417.461  Added.....................................................45679
417.464  Added.....................................................45680
417.472  (a) and (b) revised.......................................45680
417.474  Revised...................................................45680
417.476  Revised...................................................45680
417.480  Heading and introductory text revised.....................45680
417.481  Heading and introductory text revised.....................45680
417.486  Introductory text, (a)(1), (b) and (c) amended; (d) 
        revised....................................................45680
417.488  Revised...................................................45680
417.492  (a)(1)(iii) and (b) revised...............................45681
417.494  (a)(3), (b)(1)(iv), (2), (4), (c)(4) and (5) revised......45681
417.500  (a) introductory text, (3) and (4) amended; (b) heading 
        revised; (b)(1) heading and (2) heading added..............45681
417.520  Revised...................................................45681
417.521  Removed...................................................45681
417.522  (a) introductory text and (3)(iii) amended................45681
417.523  (a) heading revised; (a) and (b)(2) amended...............45681
417.524  Revised...................................................46229
417.526  Amended...................................................46229
417.528  Heading, (a), (b) and (c) revised; (d) heading added......46229
417.530  Revised...................................................46230
417.531  (a) and (b) introductory text amended.....................46230
417.532  Amended; (a)(4) removed; (g) revised......................46230
417.533  Introductory text, (a), (b) and (c) amended...............46230
417.536  Heading and (m) heading revised; (a), (f)(3) and (m) 
        amended....................................................46230
417.538  (a), (b) heading and (d) heading revised; (d) amended.....46230

[[Page 879]]

417.544  (a) designated in part as (a)(1), (2) and (3); (b) 
        designated in part as (b)(1) and (2).......................46230
417.546  (a) designation, (b) and note removed; (a)(1) and (2) 
        redesignated as (a) and (b); (b) note removed..............34887
    (a) corrected..................................................45372
417.548  (a) and (b) amended.......................................46230
417.550  Revised...................................................46230
417.552  (a) introductory text and (1) amended.....................46230
417.554  Amended............................................46231, 63189
417.558  Revised...................................................46231
417.560  (d)(1) amended; (d)(2) removed............................34888
    (a) introductory text and (d)(1) amended; (d)(2) removed.......46231
417.562  Removed...................................................34888
417.564  Revised...................................................46231
417.568  (a)(1), (2), (b)(2), (3) and (d) amended; (c) revised.....46231
417.576  (b)(2)(i) revised.........................................34888
    (b)(2)(ii), (c)(1), (2)(ii), (d) heading, introductory text, 
(1), (2) and (e)(1) amended; (b)(3) and (e)(3) revised.............46231
417.580  (a) amended...............................................46231
417.582  Amended; heading revised..................................46232
417.584  Introductory text and (c) revised; (d) amended............46232
417.585  Heading revised; (a), (b) introductory text, (2) and (c) 
        amended....................................................46232
417.586  Removed...................................................46232
417.588  (a) and (c)(2) amended....................................46232
417.592  Revised...................................................46232
417.594  (a), (b)(1), (2), (c), (d) and (e) revised................46232
417.596  (a), (b), (c)(1), (2) and (d) amended.....................46233
417.597  (a) introductory text amended.............................46233
417.598  Amended...................................................46233
417.600  Revised...................................................46233
417.602  Amended; heading revised..................................46233
417.604  Revised...................................................46233
417.628  Removed...................................................46234
417.632  (c) and (d) revised.......................................46234
417.644  (a) and (c) amended.......................................46234
417.648  Revised...................................................46234
417.652  Amended...................................................46234
417.656  Revised...................................................46234
417.666  Amended...................................................46234
417.668  Amended...................................................46234
417.670  (a) and (c) amended.......................................46234
417.676  (a) through (d) amended...................................46234
417.678  Amended...................................................46234
417.680  (b) amended...............................................46234
417.682  (a) and (c) amended.......................................46234
417.686  (a) amended...............................................46234
417.690  (a) and (b) amended.......................................46234
417.692  (c)(1) and (2) amended....................................46234
417.694  Amended...................................................46234
417.800  Heading and (c)(2) revised................................34888
418  Authority citation revised....................................50441
420  Authority citation revised....................................50442
420.200  Amended...................................................50442
421  Authority citation revised....................................50442
421.1  (a) revised; (b) redesignated as (c); new (b) added.........50442
421.120  Correctly added; CFR correction...........................21048
424  Authority citation revised.............................38271, 50442
424.1  (b)(1) revised..............................................38271
    (a) revised....................................................50442
424.5  (a)(4) revised..............................................38271
424.10--424.27 (Subpart B)  Heading revised........................38271
424.10  Revised....................................................38271
424.11  (b) and (e) introductory text revised; (e)(4), (5) and (6) 
        added......................................................38272
424.15  (a) revised................................................45850
424.20  Introductory text and (e) revised..........................38272
424.57  (c) revised................................................63444

                                  1996

42 CFR
                                                                   61 FR
                                                                    Page
Chapter IV
401  Authority citation revised....................................63748
    Technical correction...........................................69034
401.601  (d)(2)(ii) revised; eff. 10-21-96.........................49271
    (d)(1) and (2)(iii) amended....................................63748
401.607  (d)(2) revised; eff. 10-21-96.............................49271
    (d)(1) amended.................................................63748
403.310  (a) amended...............................................63748
405  Technical correction..........................................69034

[[Page 880]]

405.350  Introductory text revised; eff. 10-21-96..................49271
405.356  Revised; eff. 10-21-96....................................49271
405.357  Added; eff. 10-21-96......................................49271
405.358  Added; eff. 10-21-96......................................49271
405.370--405.376  Undesignated center heading revised..............63745
405.370  Redesignated as 405.371; new 405.370 added................63745
405.371  Redesignated as 405.372; new 405.371 redesignated from 
        405.370....................................................63745
    Revised........................................................63746
405.372  Redesignated as 405.373; new 405.372 redesignated from 
        405.371....................................................63745
    Revised........................................................63746
405.373  Redesignated as 405.374; new 405.373 redesignated from 
        405.372....................................................63745
    Revised........................................................63747
405.374  Redesignated as 405.376; new 405.374 redesignated from 
        405.373....................................................63745
    Revised........................................................63747
405.375  Redesignated as 405.377...................................63745
    Added..........................................................63747
405.376  Redesignated as 405.378; new 405.376 redesignated from 
        405.374....................................................63745
    Heading, (a), (e) heading and (f) heading revised..............63747
405.377  Redesignated from 405.375.................................63745
    Revised........................................................63747
405.378  Redesignated from 405.376.................................63745
405.701--405.750 (Subpart G)  Authority citation revised...........32348
405.705  (d) amended...............................................63749
405.718  Introductory text amended.................................32348
405.718a  (b)(4) amended...........................................32348
405.718c  (a)(2)(ii) amended.......................................32348
405.718e  Amended..................................................32348
405.724  Amended...................................................32348
405.730  Amended...................................................32348
405.750  Heading and (b) introductory text amended.................32348
405.815  Amended...................................................32348
405.1801  (a)(4) amended...........................................63749
405.1803  (c) revised..............................................63748
405.2163  (f) amended..............................................19743
405.2401  (b) amended..............................................14657
405.2430  (a)(1)(iii) revised......................................14657
405.2446  (b) revised..............................................14657
405.2448  (b)(1) through (5) and (7) through (18) amended; (b)(6) 
        and (19) revised; (b)(20) redesignated as (b)(21); new 
        (b)(20) added..............................................14657
405.2450  (a) introductory text and (a)(1) revised.................14657
405.2463  Added....................................................14657
405.2466  (b)(1)(iv) added.........................................14657
405.2468  (b)(1), (3) and (d)(2) revised...........................14658
406.6  (b) revised.................................................40345
406.12  (b) introductory text revised; (b)(1) amended; (b)(3) 
        added; Footnote 1 removed..................................40345
406.21  (e) removed................................................40345
406.24  Added......................................................40346
407.20  Revised....................................................40346
407.25  (c) revised................................................40347
408.24  (a)(6), (7), (8) and (b)(2)(i) revised; (a)(9) added.......40347
410.32  (a) and (b) redesignated as (d) and (e); new (a), new (b) 
        and (c) added..............................................59554
412  Technical correction..........................................66919
411.28  (b) amended................................................63749
412.63  (s)(1) amended; eff. 10-29-96..............................46224
    Regulation at 61 FR 46224 eff. 10-1-96.........................51217
412.105  (d) correctly added........................................2725
    (g)(1)(i)(D) added; eff. 10-29-96..............................46224
    Regulation at 61 FR 46224 eff. 10-1-96.........................51217
412.109  (c) revised; (f) redesignated as (g); new (f) added.......21972
412.246  (b) revised; eff. 10-29-96................................46224
    Regulation at 61 FR 46224 eff. 10-1-96.........................51217
412.302  (d)(1) revised; (d)(4) added; eff. 10-29-96...............46224
    Regulation at 61 FR 46224 eff. 10-1-96.........................51217
413  Authority citation revised....................................37014
    Technical correction...........................................66919
413.5  (c)(3) removed..............................................63748
413.20  (e) amended................................................63749
    Corrected......................................................58631
413.40  (g)(1) corrected............................................2725
    (d)(3) revised; eff. 10-29-96..................................46225

[[Page 881]]

    Regulation at 61 FR 46225 eff. 10-1-96.........................51217
413.53  (a)(1)(ii) introductory text, (C) and (2) revised; (b) 
        amended....................................................51616
    Corrected......................................................58631
413.86  (b) and (g)(1) introductory text amended, (b)(4), added; 
        eff. 10-29-96..............................................46225
    Regulation at 61 FR 46225 eff. 10-1-96.........................51217
413.90  (b)(2) revised.............................................63748
413.114  (c)(1) revised; (c)(2) removed; (c)(3) redesignated as 
        (c)(2).....................................................51616
413.153  (b)(4) and (f) added......................................37014
    (a)(1)(ii) and (b)(2) revised..................................63748
    (a)(1)(iii) amended............................................63749
414.30  (b)(3) correctly revised; (c) correctly removed............42385
415.152  Amended...................................................59554
415.174  (a)(4)(iii) amended.......................................59554
415.178  (b) correctly added.......................................42385
416.35  (b)(1)(i) and (d) introductory text amended................40347
417  Authority citation revised....................................13446
    Authority citation correctly revised...........................42386
417.151  (a) and (e) revised.......................................27287
417.152  Removed...................................................27287
417.153  Heading and (a) revised...................................27287
417.154  Removed...................................................27287
417.155  (d)(2) introductory text amended..........................27288
417.157  Revised...................................................27287
417.159  Amended...................................................27288
417.164  Heading amended...........................................27288
417.166  (a)(1) amended............................................27288
417.479  Added.....................................................13446
    (a) introductory text, (b), (c), (d), (g) introductory text, 
(1)(i), (2)(ii) introductory text, (iii), (h)(1) introductory 
text, (v)(B), (2)(i) introductory text, (ii) introductory text, 
(3) introductory text, (i)(1) introductory text, (2) introductory 
text and (j) corrected.............................................46385
    417.479  (b), (f) introductory text, (5), (g)(1)(iv), (2)(ii), 
(h)(1)(iv), (v) and (2) revised; (g)(2)(iii) removed...............69049
417.500  (a)(9) added..............................................13448
417.634  Amended...................................................32348
417.636  (a)(1), (b) heading and introductory text amended.........32348
417.638  Amended...................................................32348
417.830  Amended...................................................32348
417.840  Amended...................................................32348
417.912  Removed; CFR correction...................................38395
417.913  Removed; CFR correction...................................38395
417.914  Removed; CFR correction...................................38395
417.915  Removed; CFR correction...................................38395
417.916  Removed; CFR correction...................................38395
417.917  Removed; CFR correction...................................38395
417.918  Removed; CFR correction...................................38395
417.919  Removed; CFR correction...................................38395
417.921  Removed; CFR correction...................................38395
417.922  Removed; CFR correction...................................38395
417.923  Removed; CFR correction...................................38395
417.924  Removed; CFR correction...................................38395
417.925  Removed; CFR correction...................................38395
417.926  Removed; CFR correction...................................38395
417.932  Removed; CFR correction...................................38395
417.933  Removed; CFR correction...................................38395
417.935  Removed; CFR correction...................................38395
417.936  Removed; CFR correction...................................38395
421.214  Added; eff. 10-21-96.......................................4927

                                  1997

42 CFR
                                                                   62 FR
                                                                    Page
Chapter IV
400  Technical correction..........................................49049
400.202  Amended...........................................46025 , 59098
405.535  (b) amended...............................................59098
405.708  (a) and (b) amended.......................................25855
405.711  Amended...................................................25855
405.712  Amended...................................................25855
405.714  Amended...................................................25855
405.715  Amended...................................................25855
405.716  Amended...................................................25855

[[Page 882]]

405.717  Revised...................................................25852
405.718  Revised...................................................25852
405.718a  Removed..................................................25852
405.718b  Removed..................................................25852
405.718c  Removed..................................................25852
405.718d  Removed..................................................25852
405.718e  Removed..................................................25852
405.720  Amended...................................................25855
405.722  Amended...................................................25855
405.724  Revised...................................................25852
405.730  Revised...................................................25852
405.732  Added.....................................................25852
405.747  Amended...................................................25855
405.750  Heading and (b) introductory text revised.................25853
    (a) amended....................................................25855
405.801  Revised...................................................25853
405.802  Amended...................................................25853
405.803  Revised...................................................25853
405.806  Revised...................................................25853
405.807  (b) amended...............................................25855
405.812  Amended...................................................25855
405.821  (c) amended...............................................25855
405.831  Heading amended...........................................25855
405.832  (a) and (c)(1) amended....................................25855
405.833  Revised...................................................25853
405.834  Revised...................................................25854
405.835  Revised...................................................25854
405.836  Redesignated from 405.860 and revised.....................25854
405.841  (b) amended...............................................25855
405.842  (b) amended...............................................25855
405.853  Added.....................................................25854
405.855  Added.....................................................25854
405.856  Added.....................................................25854
405.857  Added.....................................................25854
405.860  Redesignated as 405.836; new 405.860 added................25854
405.871  Amended...................................................25855
409  Technical correction..........................................49049
409.1  (c) amended.................................................46037
409.5  Amended.....................................................46037
409.10--409.19 (Subpart B)  Heading revised........................46037
409.10  (a) introductory text, (3) and (b) amended.................46037
409.11  (b)(1)(ii), (iii), (3) introductory text and (ii) amended 
                                                                   46037
409.12  Heading, (a) and (b) amended...............................46037
409.13  (a) introductory text, (1), (2), (3) and (b) amended.......46037
409.14  (a) introductory text, (1), (2), (b) introductory text, 
        (1) and (2) amended........................................46037
409.15  Introductory text amended..................................46037
409.16  Introductory text, (a), (b) and (c) amended................46037
409.20  (a) introductory text and (c)(3) amended...................46037
409.27  Amended....................................................46037
409.30  (a)(1) revised.............................................46025
    Introductory text, (a)(2), (b)(1), (2) and footnote 1 amended 
                                                                   46037
409.31  (b)(2)(i) and (ii) amended.................................46037
409.60  (a) and (b)(1)(ii) amended.................................46037
409.61  (a) heading, (1)(i), (2), (3), (b) and (c) amended.........46037
409.64  (a)(2)(ii) amended.........................................46037
409.65  (a)(1), (3), (4), (d)(1), (2), (3), (e)(1), (2) 
        introductory text, (i) and (ii) amended....................46037
409.66  (b) and (c)(2) amended.....................................46037
409.68  Heading, (a) introductory text, (1) through (4), (b)(2) 
        and (c) amended............................................46037
409.80  (a)(1) and (2) amended.....................................46037
409.82  (a)(1) and (c) amended.....................................46037
409.83  (a)(1) and (c)(1) amended..................................46037
409.87  (a)(3) and (b)(1) amended..................................46037
410  Technical correction....................................7946, 49049
410.2  Amended.....................................................46025
410.3  (a)(1) amended..............................................46037
410.10  (c) and (d) amended........................................46037
410.28  Heading, (a) introductory text, (1), (2) and (4) amended 
                                                                   46037
410.32  (e)(1) amended.............................................46037
    (e)(1) corrected...............................................52034
    Revised........................................................59098
410.33  Added......................................................59099
410.34  (d) introductory text and (4) revised......................59100
410.37  Added......................................................59100
410.38  (b) amended................................................46037
410.40  (a), (b)(3) introductory text, (i), (c)(1), (2), (3), 
        (e)(1), (2) and (3) amended................................46037
410.56  Added......................................................59101
410.60  (b) and (d) amended........................................46037
410.62  (b) and (c) amended........................................46037
410.150  (b)(12) amended...........................................46037
410.152  (k) revised...............................................46025
410.155  (a) and (b) introductory text amended.....................46025

[[Page 883]]

410.160  (b)(5) and (6) added......................................59101
410.161  (b)(2) amended............................................46037
411  Technical correction..........................................49049
411.15  (m)(1) amended.............................................46037
    (a)(1) revised; (k)(6), (7) and (8) added......................59101
412  Technical correction..........................................49049
412.2  (f)(8) revised..............................................46025
412.8  (b) revised.................................................46025
412.22  (a) revised; (e), (f) and (g) added........................46026
412.23  (e) and (f) revised........................................46026
412.30  (a) through (d) redesignated as (b) through (e); new 
        (b)(4) redesignated as (b)(5); new (a) and new (b)(4) 
        added; new (d)(1)(ii) revised..............................46027
412.63  (p) revised; (q), (r) and (s) redesignated as (u), (v) and 
        (w); new (q) through (t) added.............................46027
412.80  Revised....................................................46028
412.82  (a) amended................................................46028
412.84  (a) amended; (g) removed...................................46028
412.86  Amended....................................................46028
412.90  (i) and (j) redesignated as (j) and (k); new (i) added; 
        new (j) and new (k) revised................................46028
412.96  (c)(1) introductory text and (g) revised; (f) removed......46028
412.105  (f) removed; (g) redesignated as (f); (a), (d), new 
        (f)(1)(i)(B), new (ii)(C) and new (iv) revised; (f)(1)(v) 
        and new (g) added..........................................46029
412.106  (a)(2) and (d)(1) revised; (e) added......................46029
412.107  Added.....................................................46030
412.108  (a)(1) introductory text and (c)(2)(ii) revised...........46030
    Corrected......................................................52034
412.109  (c) and (d) removed; (e), (f) and (g) redesignated as 
        (c), (d) and (e); (a), new (c)(3)(ii), new (d) and new (e) 
        revised....................................................46030
412.113  (d) revised...............................................43667
412.115  (b) revised...............................................46030
412.204  Revised...................................................46030
412.210  (e) amended...............................................46030
412.230  (a)(5)(ii), (e)(1) introductory text and (iv)(B) revised; 
        (e)(3) and (4) added.......................................46031
412.232  (c)(2) revised............................................46031
412.234  (b)(2) revised............................................46031
412.256  (a)(2) and (c)(1) revised.................................46031
412.274  (b) revised...............................................46031
412.308  (b)(4) and (5) added......................................46031
412.328  (e)(4) revised; (e)(5) and (6) added......................46031
412.348  (c)(2) revised............................................46032
412.374  Revised...................................................46032
413  Technical correction............................27210, 47237, 49049
413.1  (a)(1)(ii)(C) through (J) redesignated as (a)(1)(ii)(D) 
        through (K); new (a)(1)(ii)(C) added..........................31
    (a)(1)(ii)(G) revised..........................................46032
    (a)(2)(i) amended..............................................46037
413.13  (c)(2)(iv) removed.........................................46032
413.24  (f)(4)(i) through (iv) redesignated as (f)(4)(ii) through 
        (v); new (f)(4)(i) added; new (f)(4)(ii) through (v) 
        revised.......................................................31
413.40  (b)(1)(iv), (v), (c)(3)(vii), (viii), (d)(4), (5) and (j) 
        added; (c)(3)(vi), (4), (d)(2), (3), (f)(1), (2), (g)(1) 
        and (5) revised............................................46032
413.70  Revised....................................................46034
413.86  (b) and (g)(1) amended; (d)(3) redesignated as (d)(5); new 
        (d)(3), (4) and (g)(4) through (7) added; new (d)(5) and 
        (e)(4)(i)(B) revised.......................................46034
413.114  (b) amended...............................................46037
413.124  (a) amended...............................................46037
413.130  (j)(1) amended............................................46037
413.170--413.203 (Subpart H)  Added................................43667
414.20  Revised....................................................59101
414.21  Added......................................................59101
414.22  (b)(4) added...............................................59102
414.32  (b) revised................................................59102
414.48  (b) revised................................................59102
414.60  (b) amended................................................46037
414.62  Added......................................................59102
414.313  (a) amended...............................................43674
414.314  (a)(5) amended............................................43674
415  Technical correction...........................................7946
417.470  (a) revised; interim......................................63673
417.472  (h) added; interim........................................63673
417.600  (b)(3)(ii) revised........................................23374
417.604  (b)(4) revised............................................23374
417.606  (a)(4) added..............................................23374
417.608  (a), (b)(2) and (c) revised...............................23375
417.609  Added.....................................................23375
417.612  (a) amended...............................................25855
417.614  Revised...................................................23375

[[Page 884]]

417.616  (a)(4) added..............................................23375
417.617  Added.....................................................23375
417.618  Revised...................................................23375
417.620  (c), (d) and (e) revised..................................23376
417.626  Amended...................................................25855
417.632  (b) amended...............................................25855
417.634  Revised...................................................25855
418  Technical correction..........................................52034
418.306  (c) revised...............................................42882
424  Technical correction..........................................49049
    Decision.......................................................59818
424.1  (a)(1) amended..............................................46035
424.15  Heading and (a) revised....................................46035
    (a) and (b) amended............................................46037
424.20  Introductory text amended..................................46037

                                  1998

  (Regulations published from January 1, 1998 through October 1, 1998)

42 CFR
                                                                   63 FR
                                                                    Page
Chapter IV
400  Technical correction....................................4595, 11147
400.200  Amended; interim..........................................35065
    Corrected......................................................52611
400.202  Amended; interim..........................................35065
403  Technical correction..........................................52610
403.205  (d) introductory text revised; interim....................35066
405  Technical correction....................................4595, 52614
    Authority citation revised.....................................41002
405.502  (g) and (h) revised; interim................................689
405.2468  (f) added................................................41002
409  Technical correction..........................................11147
    Comment period extension.......................................37498
409.20  (a) introductory text, (6), (7) and (b)(2) revised; (a)(8) 
        removed; interim...........................................26306
409.21  Added; interim.............................................26306
409.24  Revised; interim...........................................26306
409.25  Revised; interim...........................................26307
409.26  Revised; interim...........................................26307
409.27  Revised; interim...........................................26307
409.30  Introductory text revised; interim.........................26307
409.33  (a) removed; (b), (c) and (d) redesignated as (a), (b) and 
        (c); new (a)(1) and (2) revised; interim...................26307
409.60  (c)(2)(i), (ii) and (iii) redesignated as (c)(2)(ii), 
        (iii) and (iv); new (c)(2)(i) added; interim...............26307
410  Technical correction...................................11147, 52610
    Authority citation revised.....................................20128
    Comment period extension.......................................37498
410.10  (v) and (w) added..........................................20128
410.27  (a)(1)(i) revised; interim.................................26307
410.28  (a)(1) revised; interim....................................26307
410.30  Redesignated from 410.31...................................34327
410.31  Redesignated as 410.30; new 410.31 added; interim..........34327
410.32  (d)(7) added; interim......................................26308
410.34  (d)(5) and (6) correctly removed............................4596
410.40  (b)(2) and (3)(ii) revised; (b)(4) added; interim..........26308
410.56  (b)(1) and (4) corrected....................................4596
410.57  Revised; interim...........................................35066
410.71  Added......................................................20128
410.73  Added......................................................20128
410.150  (b)(17) and (18) added....................................20129
    (a)(2) revised; (b)(14) added; interim.........................26308
410.152  (a)(1)(iv) revised........................................20129
    (k) amended....................................................26357
    (l) added; interim.............................................35066
410.155  Revised...................................................20129
411  Technical correction.............................4595, 11147, 52610
    Comment period extension.......................................37498
411.15  (m) heading amended; (p) added; interim....................26308
    (e)(2) and (3) amended; (e)(4) added; interim..................35066
411.355  (c)(5) added; interim.....................................35066
411.370  Added......................................................1655
411.372  Added......................................................1655
411.373  Added......................................................1656
411.375  Added......................................................1656
411.377  Added......................................................1657
411.378  Added......................................................1657
411.379  Added......................................................1657
411.380  Added......................................................1657
411.382  Added......................................................1657
411.384  Added......................................................1657
411.386  Added......................................................1658
411.387  Added......................................................1658
411.388  Added......................................................1658
411.389  Added......................................................1658
412  Technical correction...................................11147, 52614
412.2  (c)(5) revised...............................................6868
412.4  Revised.....................................................41003

[[Page 885]]

412.22  (f) revised................................................26357
412.80  (b) revised................................................41003
412.105  (a)(1) and (f)(1)(v) amended; (f)(1)(vi) and (vii) added 
                                                                   26357
    (f)(1)(ii)(C) amended..........................................41004
412.106  (b)(4) revised............................................41004
412.230  (e)(3) amended............................................26357
412.256  (a)(2) amended............................................26357
412.322  (a)(1) amended............................................26357
    (a)(3) revised.................................................41004
412.331  (a) and (b) redesignated as (b) and (c); new (a) added; 
        new (b) introductory text amended..........................41004
413  Authority citation revised........................310, 15737, 41004
    Technical correction....................................11147, 52614
    Comment period extension.......................................37498
413.1  (g) revised; interim........................................26309
413.13  (c)(2)(iv) added...........................................26357
413.30  (a)(1), (2) and (c) amended................................15737
413.40  (c)(2) revised..............................................6868
    (c)(4)(iii) and (j) revised....................................26358
    (c)(4)(iv) redesignated as (c)(4)(v); new (c)(4)(iv) added; 
(g)(1) revised.....................................................41004
413.70  Revised....................................................26358
413.80  (h) redesignated as (i); new (h) added.....................41005
413.85  (h) added..................................................41005
413.86  (b) and (g)(5) amended; (g)(6)(i), (ii) and (7) revised....26358
    (b) amended; (i) and (j) redesignated as (j) and (k); (f)(2) 
introductory text and (i) through (vii) redesignated as (i) 
introductory text and (1) through (7); (f)(1) introductory text, 
(i), (ii), (iii) introductory text, (A) and (B) redesignated as 
(f) introductory text, (1), (2), (3) introductory text, (i) and 
(ii); new (f)(2) and new (3) introductory text revised; (f)(4) 
added..............................................................41005
413.92  Added........................................................310
413.106  (f)(1) removed; (c)(5), (f)(2), (3) and (4) redesignated 
        as (c)(6), (f)(1), (2) and (3); new (c)(5) added............5139
    Regulation at 63 FR 5139 eff. date corrected to 4-10-98........15315
413.134  (b)(1)(i), (ii)(A) introductory text, (f)(1) and (2) 
        heading revised; (g)(4) redesignated as (g)(5); (f)(2) 
        introductory text and new (g)(4) added......................1382
413.300--413.321 (Subpart I)  Heading revised; interim.............26309
413.330--413.348 (Subpart J)  Added; interim.......................26309
414  Technical correction...........................................4595
414.2  Amended; interim............................................34328
414.50  (a) introductory text amended; interim.....................34328
415.152  Amended...................................................26359
417  Authority citation revised....................................20130
417.402  Revised; interim..........................................35066
417.413  (d)(1) and (2) introductory text revised; (d)(2)(iii) and 
        (8) added; interim.........................................35066
417.416  (d)(2) revised; (d)(3) added..............................20130
417.426  (a)(4) added; interim.....................................35066
417.428  Revised; interim..........................................35067
    Correctly revised..............................................52611
417.472  (h) revised; interim......................................35067
417.520  Redesignated as 422.550; new 417.520 added; interim.......35067
417.522  Redesignated as 422.552; interim..........................35067
417.523  Redesignated as 422.553; interim..........................35067
417.584  (e) added; interim........................................35067
417.600  Removed; new 41600 added; interim.........................35067
    Original reinstated............................................52611
417.602  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.604  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.605  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.606  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.608  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.609  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.610  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.612  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.614  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.616  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.617  Removed; interim..........................................35067

[[Page 886]]

    Reinstated.....................................................52611
417.618  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.620  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.622  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.624  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.626  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.630  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.632  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.634  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.636  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.638  Removed; interim..........................................35067
    Reinstated.....................................................52611
417.800  (a) amended; interim......................................35067
    Corrected......................................................52611
420.400--420.405 (Subpart E)  Added................................31128
422  Added.........................................................18134
422.1--422.10 (Subpart A)  Added; interim..........................35068
422.50--422.80 (Subpart B)  Added; interim.........................35071
    Heading corrected..............................................52611
422.50  (a) introductory text and (1) corrected....................52611
422.54  (d)(2)(i) corrected........................................52611
422.56  (d) corrected..............................................52612
422.60  (a)(1), (b)(1), (c)(1) and (e)(4)(i) corrected; (f) 
        correctly added............................................52612
422.62  (b) introductory text, (c), (d) heading, (1) and (2) 
        introductory text corrected................................52612
422.66  (f) correctly added........................................52612
422.74  (b)(3) corrected...........................................52612
422.80  (c)(3), (d), (e)(1)(iv), (2)(i) and (f) corrected..........52612
422.100--422.132 (Subpart C)  Added; interim.......................35077
422.110  (c) corrected.............................................52612
422.112  Correctly revised.........................................52612
422.152--422.158 (Subpart D)  Added; interim.......................35082
422.200--422.220 (Subpart E)  Added; interim.......................35085
422.249--422.268 (Subpart F)  Added; interim.......................35090
422.250  (b) correctly revised.....................................52613
422.268  (b) corrected.............................................52613
422.300--422.312 (Subpart G)  Added; interim.......................35093
422.308  (b) correctly designated as (b)(1); (b)(2) correctly 
        added......................................................52613
422.310  (c)(4) corrected..........................................52614
422.350--422.390 (Subpart H)  Nomenclature change; interim........35098, 
                                                                   35099
422.350  (b) amended; interim......................................25376
    (a)(1) and (b) amended; interim................................35098
422.352  (a)(1) and (b)(2) amended; (c) revised; interim...........35098
422.354  Introductory text, (a)(1), (2) and (c) amended; (b) 
        revised; interim...........................................35098
422.356  (a)(3)(ii) amended; interim...............................35098
422.370  Added; interim............................................25376
    Introductory text amended; (1) and (2) redesignated as (a) and 
(b); interim.......................................................35098
422.372  Added; interim............................................25376
    Revised; interim...............................................35098
422.374  Added; interim............................................25377
    (b) revised; interim...........................................35098
422.376  Added; interim............................................25377
422.378  Added; interim............................................25377
422.380  Added; interim............................................25377
422.382  Added; interim............................................25377
422.384  Added; interim............................................25378
    (b)(3) revised; interim........................................35098
422.386  Added; interim............................................25378
422.388  Added; interim............................................25379
422.390  Added; interim............................................25379
422.400--422.404 (Subpart I)  Added; interim.......................35099
422.500--422.524 (Subpart K)  Added; interim.......................35099
422.502  (a)(2), (3)(i) and (4) corrected; (m) correctly 
        designated as (l)(4) and revised...........................52614
422.550--422.553 (Subpart L)  Heading added; interim...............35067
    Nomenclature change............................................35106
    Heading correctly added.................................36488, 52611
422.550  Redesignated from 417.520; interim........................35067
    (b)(1), (c)(2), (d)(2) and (e) amended; interim................35106
    (b)(1) corrected...............................................52614
422.552  Redesignated from 417.522; interim........................35067

[[Page 887]]

    (a)(1) amended; interim........................................35106
422.553  Redesignated from 417.523; interim........................35067
    (c) amended; interim...........................................35106
422.560--422.622 (Subpart M)  Added; interim.......................35107
422.608  Corrected.................................................52614
422.612  (a)(1), (b) heading and introductory text corrected.......52614
422.616  (a) corrected.............................................52614
422.620  (a) corrected.............................................52614
422.622  (c)(1)(i) corrected.......................................52614
422.641--422.698 (Subpart N)  Added; interim.......................35113
422.750--422.760 (Subpart O)  Added; interim.......................35115
422.752  (a)(6) corrected..........................................52614
424  Technical correction..........................................11147
    Comment period extension.......................................37498
424.3  Amended; interim............................................26311
424.20  Introductory text and (a)(1) revised; interim..............26311
424.32  (a)(2) revised.............................................20130
    (a)(2) revised; (a)(5) added; interim..........................26311
424.55  (b)(1) and (2) revised.....................................20130

                                  1998

       (Regulations published October 5, 1998 and October 9, 1998)

42 CFR
                                                                   63 FR
                                                                    Page
Chapter IV
409  Technical correction..........................................53301
410.32  (d)(7) correctly designated................................53307
411  Technical correction..........................................53301
413.333  Corrected.................................................53307
422.60  (e)(4)(i) corrected........................................54526
424.20  Corrected..................................................53307
424.32  (a)(2) correctly revised...................................53307


                                  
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