[Congressional Record Volume 144, Number 74 (Wednesday, June 10, 1998)]
[Senate]
[Pages S6046-S6050]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
RESOLUTION DISAPPROVING OF HCFA'S SURETY BOND RULE
Mr. BOND. Mr. President, today I introduce a measure on behalf of
myself, Mr. Baucus, Mr. Grassley, and others which sends a strong
message to the Health Care Financing Administration (HCFA) that the
United States Senate disapproves of the agency's recent rule regarding
surety bond requirements for home health agencies.
The surety bond regulation, coupled with HCFA's implementation of the
Interim Payment System (IPS) for home health, are crippling the ability
of our Nation's home health agencies to provide high quality care to
our Nation's seniors and disabled.
Over this past month alone, in St. Louis, Missouri, the two largest
home health providers decided to get out of the home health business--
leaving hundreds of elderly and disabled patients searching for a new
provider. The invaluable, dedicated services provided by the largest
independent provider in St. Louis , the Visiting Nurses Association
(VNA), will no longer be realized by the approximately 600 home care
patients the agency has served.
It is regrettable that a government bureaucracy is forcing a home
health agency, that has served the St. Louis area for 87 years, out of
the home health care business.
The Balanced Budget Act of 1997 requires that all Medicare-
participating home care agencies hold surety bonds in an amount that is
not less than $50,000. This provision was modeled after a successful
Florida Medicaid statute which imposes surety bonds on home care
providers as a way of ensuring that only reputable businesses entered
Florida's Medicaid program.
This needed and modest idea, however, has been severely distorted by
HCFA. HCFA's surety bond rule deviates from Florida's program in two
major ways:
First, the Florida program requires a $50,000 bond. HCFA's rule
requires the bond amount to be the greater of $50,000 or 15 percent of
the home care agency's previous year's Medicare revenues.
Since HCFA issued its initial rule back in January of 1998,
constituents in my home State have reported numerous problems in
securing these bonds. These reputable individuals inform me that most
bond companies are refusing to sell home care bonds under the
regulation's requirements. Those few companies that are selling bonds
are requiring backup collateral equal to the full face value of the
bond, or personal guarantees of two or even three times the value of
the bond.
Second, the Florida program requires only new home care agencies to
secure these bonds. Agencies with at least one year in the program and
with no history of payment problems were exempted from the bond
requirement. HCFA's rule, however, requires all Medicare-participating
home care agencies to hold bonds, regardless of how long an agency has
been in Medicare and regardless of the agency's good Medicare history.
Further, HCFA's rule requires every home care agency to purchase new
surety bonds every year.
HCFA's rule is outrageous. These requirements and costs are
unaffordable, especially for the smaller, freestanding home health
agencies. HCFA's surety bond regulations threaten the existence of many
small business home health providers and the essential services they
provide to the most vulnerable and most frail of our society.
The surety bond requirement reflects HCFA's attitude that all
Medicare providers are suspect. Rather than keeping unscrupulous
providers out of the home health business, HCFA's rule will penalize
and put many decent home health agencies out of business.
In promulgating this rule, HCFA did not consider the long-standing
reputation of most home health agencies, their years of compliance with
Medicare's regulations, or their history of managing and avoiding
overpayments from the government. These providers have worked long and
hard within the convoluted Medicare program, have abided by the rules
and regulations, and have been subjected to numerous audits by fiscal
intermediaries.
HCFA's careless disregard, which has already put many conscientious
law-abiding companies out of business, must be dealt with immediately.
It is especially incomprehensible when the small businesses at risk
provide a service so valued by the disabled and older Americans who
receive it.
On Tuesday, June 8, the Regulatory Fairness Board for Region VII held
a public meeting in Frontenac, Missouri, a suburb of St. Louis. My Red
Tape Reduction Act of 1996 created ten Regional Fairness Boards to be
the eyes and ears of small business, collecting comments from small
businesses on their experience with Federal regulatory agencies. The
Ombudsman, created under the same law, is to use these comments to
evaluate the small business responsiveness of agency enforcement
actions.
According to Scott George, a small business owner from Mt. Vernon,
Missouri who serves on the Region VII Fairness Board, this particular
meeting of the Fairness Board was dominated by testimony from smaller,
freestanding home health care agencies that will be driven out of
business by the HCFA regulations. They testified that more than 1,100
home health care providers nationwide have already closed their doors
this year. Mr. George noted that every company that testified before
the Region VII Fairness Board said they would be driven out of business
by year-end. One couple traveled from Michigan to Missouri to testify
that they will be out of business by the time of the Regional Fairness
Board for their area holds a hearing absent relief from the HCFA
regulations.
[[Page S6047]]
Mr. President, concerns similar to those expressed in Missouri this
Tuesday were raised with HCFA during its rulemaking. Regrettably, HCFA
reacted like a quarter horse down the home stretch with blinders on,
ignoring the comments submitted by small business as well as the
agency's statutory obligations under the Administrative Procedures Act
(APA) and the Regulatory Flexibility Act of 1980 as amended by my Red
Tape Reduction Act in 1996.
In April, at the urging of myself and other Senators, the Small
Business Administration's Office of Advocacy sent a letter to HCFA to
advise the agency of the significant NEGATIVE impact this rule would
have on small home health care providers. SBA's letter documents the
deficiencies in the HCFA efforts to implement the bonding requirement.
As set forth by the Chief Counsel of Advocacy, HFCA appears to have:
exceeded the Congressional mandate in the Balanced Budget Act of 1997,
inappropriately waived the APA's requirement for a general notice of
proposed rulemaking with the opportunity for comment, and bypassed the
procedural and analytical safeguards provided by the Regulatory
Flexibility Act as amended by my Red Tape Reduction Act in 1996.
The SBA Office of Advocacy petitioned HCFA to exclude the provisions
requiring the 15 percent bond requirement and the capitalization
requirement pending a ``proper and adequate analysis'' of the impacts
on small businesses. HCFA did not exclude these requirements. Not only
does this exceed the scope of the 1997 Congressional directive, but it
also imposes an undue financial burden on reputable home health
agencies. Furthermore, in its June final rule, HCFA did not conduct a
Regulatory Flexibility analysis of the rules impact on small home
health care agencies. Instead, HCFA certified that the rule would not
have a significant economic impact on a substantial number of small
entities. HCFA's certification is in direct conflict with the comments
submitted by the Office of Advocacy and the home health care industry
regarding the small business impacts of the rule.
In 1996, Congress voted to enhance its ability to put a stop to
excessive regulations and sloppy agency rulemakings. Enacted as
Subtitle E of my Red Tape Reduction Act, the Congressional Review Act
enhances the ability of Congress to serve as such a backstop. Senators
Nickles and Reid sponsored the bipartisan, Congressional Review portion
of the Red Tape Reduction Act to provide a new process for Congress to
review and disapprove new regulations and to make sure regulators are
not exceeding or ignoring the Congressional intent of statutory law.
The simple fact is that HCFA has ignored everyone--Congress, the SBA,
the home health industry, and most importantly the beneficiaries of
home health services. Congress must therefore move expeditiously and
exercise its authority under the Congressional Review Act to pass a
resolution of disapproval to strike the June 1 HCFA rule because HFCA
exceeded the Congressional mandate and issued this rule in total
disregard of its statutory obligations under the APA, Regulatory
Flexibility Act and the Red Tape Reduction Act. Although Congress did
direct the agency to develop surety bonding requirements and provide a
deadline for such a rule to be issued, this does not relieve the agency
of its responsibility to conduct such a rulemaking in accordance with
existing laws intended to ensure procedural fairness in the rulemaking
process.
The practical implication of Congress expressing its disapproval of
the June rule is to require HCFA to go back and to conduct rulemaking
in accordance with the intent of Congress as expressed in the Balanced
Budget Act of 1997 and in keeping with the APA and the Regulatory
Flexibility Act. As part of the rulemaking, HCFA should conduct an
appropriate initial and final Regulatory Flexibility analysis in
accordance with Sections 603 and 604 of the Regulatory Flexibility Act.
Congress enacted these procedural safeguards to require agencies to
assess the impact of rules such as HCFA's on small entities and to
ensure that agencies choose regulatory approaches that are consistent
with the underlying statute while minimizing the impacts on small
entities to the extent possible. We should pass the resolution we are
introducing today to ensure HCFA implements its statutory
responsibilities in accordance with the law.
While I strongly support the vigorous routing of fraud and abuse
whenever and wherever it is found, Congress and HCFA must ensure the
highest access to appropriate, high quality home care--because in-home
care is the key to fulfilling the desire of virtually all seniors to
remain independent and in their own homes. Home health provides a
safety net for our Nation's elderly and disabled, and Congress must
ensure that these protections continue long into the future.
Many of the elderly and disabled being cared for at home would not be
able to remain there if it were not for the services provided by this
vital industry. We should clean up the fraud and abuse, not shut the
industry or cut off these critical services.
It is clear that HCFA must be held accountable, and I look forward to
working with my colleagues in beginning this process today. Mr.
President, I ask unanimous consent that a SBA Office of Advocacy letter
be included in the Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:
U.S. Small Business Administration,
Washington, DC, April 15, 1998.
Health Care Financing Administration,
Department of Health and Human Services,
Attn: HCFA-1152-FC, Baltimore, MD.
Dear Dockets Management Clerk: On January 5, 1998, the
Heath Care Financing Administration (HCFA) published a final
rule with comment period concerning surety bond and
capitalization requirements for home health care agencies
(HHAs). This regulation implements the surety bond
requirement for such agencies established in the Balanced
Budget Act of 1997 (BBA). The regulation also imposes
additional minimum capitalization requirements on the
agencies and includes an additional 15 percent surety bond
requirements not contained in the BBA. The goal of the BBA
and this final rule is to reduce Medicare/Medicaid fraud by
regulating HHAs that do not or cannot reimburse Medicare/
Medicaid for overpayments.
To address complaints by the surety bond industry and the
HHA industry regarding the compliance deadline for obtaining
surety bonds, HCFA published a final rule on March 4, 1998
deleting the February 27, 1998 effective date for all HHAs to
furnish a surety bond. The new compliance date is on or about
April 28, 1998, or 60 days after publication of the final
rule.
In addition, to address complaints by the surety bond
industry and members of the Senate Finance Committee
regarding the potentially unlimited liability of sureties
under the final rule, HCFA published a Notice of Intent to
Amend Regulations on March 4, 1998 (concurrently with the
final rule to extend the compliance date). The notice
announces HCFA's intent to amend the final rule so as to
limit the surety's liability under certain circumstances. It
also establishes that a surety will only remain liable on a
bond for an additional two years after the date an HHA leaves
the Medicare/Medicaid program; and gives a surety the right
to appeal an overpayment, civil money penalty or an
assessment if the HHA fails to pursue its rights of appeal.
HCFA claims that the changes will help smaller, reputable
HHAs, like non-profit visiting nurse associations, to obtain
surety bonds.
The Office of the Chief Counsel for Advocacy of the U.S.
Small Business Administration was created in 1976 to
represent the views and interests of small business in
federal policy making activities.\1\ The Chief Counsel
participates in rulemakings when he deems it necessary to
ensure proper representation of small business interests. In
addition to these responsibilities, the Chief Counsel
monitors compliance with the Regulatory Flexibility Act
(RFA), and works with federal agencies to ensure that their
rulemakings demonstrate an analysis of the impact that their
decisions will have on small businesses.
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Footnotes at end of letter.
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The Chief Counsel has reviewed the final rules in the
instant case and has determined that HCFA has not adequately
analyzed the impact on small entities. This determination
does not mean that regulating the problem of fraud and abuse
is not an important public policy objective. Nor does it mean
that small business interests supersede legitimate public
policy objectives. Rather, the determination is based on the
principle that public policy objectives must be achieved by
utilizing recognized administrative procedures. The purpose
of the procedures is not to place an unnecessary burden on
federal regulatory agencies, but to ensure the promulgation
of common sense regulations that do not unduly discourage or
destroy competition in the marketplace.
[[Page S6048]]
The final rule is troubling for a number of reasons: 1) The
proposal, although probably within HCFA's regulatory and
statutory authority, goes far beyond the requirements
contemplated by Congress when they enacted the BBA; 2) HCFA's
good cause exception and waiver of the proposed rulemaking
may be arbitrary and capricious under the Administrative
Procedure Act (APA); and 3) Nearly all of the significant
procedural and analytical requirements of the RFA were
overlooked.
Action requested: Inasmuch as the rule is now final and in
effect, the Chief Counsel of the Office of Advocacy herewith
petitions the agency, pursuant to 5 U.S.C. Sec. 553(e), to
amend the final rule to exclude the provisions concerning the
15 percent bond requirement and the capitalization
requirement until such time as a proper and adequate analysis
can be prepared to determine the impact on small entities.
i. legislative history and intent
Prior to August 5, 1997, there were no provisions in the
law pertaining to a surety bond requirement for home health
agencies. Under the House bill (The Balanced Budget Act of
1997, H.R. 2015), there remained no provisions for the surety
bond requirement. Under the Senate bill (as amended) (S.
947), a requirement was introduced to provide state Medicaid
agencies with surety bonds in amounts not less than $50,000.
Finally, in the conference agreement, the final bill was
modified to require a surety bond of not less than $50,000,
or such comparable surety bond as the Secretary may permit
(applicable to home health care services furnished on or
after January 1, 1998).\2\ Congress, therefore, intended
there to be a $50,000 or ``comparable'' bond, but did not
intend the bond to be higher.
The surety bond issue had not been the subject of public
hearings, and some members of Congress expressed concern
about the potential impact of the fraud and abuse provisions.
According to a floor statement by Senator Hatch, the fraud
and abuse provisions found in the amended Senate version were
actually based on provisions contained in the Administrations
fraud and abuse legislation introduced earlier in 1997, and
on which no hearings were held in the Senate. Senator Hatch
was concerned that the fraud and abuse provisions might have
``unintended consequences or implications that would penalize
innocent parties who are following the letter of the law.''
\3\ He further stated that, ``As a general rule, we in the
Congress should not act without the full and open benefit of
hearings so that all parties have an opportunity to comment,
and so that legislation can be modified as appropriate.'' \4\
With regard to the surety bond requirement, it seems that the
affected business community had no real opportunity to
provide meaningful input or comment.
After the legislation was enacted, HCFA had little choice
but to implement the surety bond requirement. However, the
agency created additional bonding and capitalization
requirements and incorporated them into the instant final
rule.\5\ Not only were law abiding home health agencies
denied an opportunity to comment during the legislative
process, they are now faced with additional burdensome
requirements effective almost immediately--with no true
recourse (since the agency waived the notice of proposed
rulemaking and the 30-day interim effective date).
Congress clearly intended to eliminate or reduce waste and
fraud in the Medicare/Medicaid system and to preserve quality
patient care. The presumably unintended effects of the
legislation and HCFA's final rule are that legitimate, law
abiding home health agencies will be forced to file
bankruptcy, go out of business or curtail their business
operations significantly. Patient care will likely suffer
when there are not enough home health agencies to meet
increasing public demand in an aging population. Moreover,
the resulting lack of market competition and bloating of the
large, hospital-based and government-based home health
agencies may lead to increased prices.
II. Waiver of Administrative Procedure
An agency is subject to the notice and comment requirements
contained in 5 U.S.C. 553 unless the agency rule is exempt
from coverage of the APA, or the agency establishes ``good
cause'' for not complying with the APA and waives notice and
comment. When an agency waives the notice and comment
procedures required by the APA, however, there should be
compelling reasons therefor. In fact, courts have held that
exceptions to APA procedures are to be ``narrowly construed
and only reluctantly countenanced.'' New Jersey v. EPA, 26
F.2d 1038, 1045 (D.C.Cir. 1980).
In the instant case, the agency waived both the notice and
comment requirement and the requirement to allow a 30-day
interim period prior to a rules effective date. The agency
based its ``good cause'' waiver on three factors: 1) Issuing
a proposed rule would be impracticable because Congress
mandated that the effective date for the surety bond
requirement be January 1, 1998 five months after Congress
passed the BBA of 1997; 2) Issuing a proposed rule is
unnecessary with respect to Medicare regulations because
there is a statutory exception when the implementation
deadline is less than 150 days after enactment of the statute
in which the deadline is contained; and 3) A delay in issuing
the regulations would be contrary to the public interest.
First, with regard to the impracticability of issuing a
proposed rule, as a general matter, ``strict congressionally
imposed deadlines, without more, by no means warrant
invocation of the good cause exception.'' Petry v. Block, 737
F.2d 1193, 1203 (D.C.Cir. 1984). In addition, there is no
good cause exception where an agency unwilling to provide
notice or an opportunity to comment could simply wait until
the eve of a statutory . . . deadline, then raise up the
``good cause'' banner and promulgate rules without following
APA procedures. Council of Southern Mountains, Inc. v.
Donovan, 653 F.2d 573, 581 (D.C.Cir. 1981).
By way of example, in Petry v. Block, the court concluded
that the passage of a complex and extraordinary statute
concerning changes in administrative reimbursements under the
Child Care Food Program that imposed a 60-day deadline for
the promulgation of interim rules justified the agency's
invocation of the good cause exception. Also, in Methodist
Hospital of Sacramento v. Shalala, 38 F.3d 1225 1236, (D.C.
Cir. 1994), the court stated that the agency had good cause
to waive notice and comment because Congress imposed a
statutory deadline of about 4\1/2\ months ``to implement a
complete and radical overhaul of the Medicare reimbursement
system.'' (Emphasis added). Moreover, ``[o]nce published, the
interim rules took up 133 pages in the Federal Register: 55
pages of explanatory text; 37 pages of revised regulations,
and 41 pages of new data tables.'' Id.
In the instant case, HCFA had five months to implement a
relatively simple provision to require a $50,000 or
comparable surety bond from home health agencies. After HCFA
added additional bond requirements and capitalization
requirements (never requested or contemplated by Congress),
the regulation took up 63 pages in the Federal Register:
18 pages of explanatory text, 6 pages of revised
regulations, and 39 pages of application documents. The
final rule appeared in the Federal Register on January 5,
1998--four days after the mandatory effective date.
The Office of Advocacy opines that if HCFA had not included
the additional requirements, which were not intended by
Congress, and therefore not intended to be implemented within
the five month window, there would have been ample time to
follow proper notice and comment procedures. Based on the
circumstances of this rulemaking and pointed case law, HCFA
cannot rely on the impracticability argument to demonstrate
that it had good cause to waive notice and comment.
Second, HCFA also based its good cause exception to notice
and comment on the fact that they have the statutory
authority to do so with regard to this particular type of
rule. The agency states: ``Issuing a proposed rule prior to
issuing a final rule is also unnecessary with respect to the
Medicare surety bond regulation because the Congress has
provided that a Medicare rule need not be issued as a
proposed rule before issuing a final rule if, as here, a
statute establishes a specific deadline for the
implementation of a provision and the deadline is less than
150 days after the enactment of the statute in which the
deadline is contained.'' \6\
HCFA cannot rely on this statutory provision because the
agency has gone way beyond their statutory mandate in issuing
this final rule. Again, Congress only intended there to be a
$50,000 or comparable surety bond. Therefore, only those
provisions contemplated by Congress should be subject to the
statute that permits HCFA to waive notice and comment when
the deadline is less than 150 days.
Third, HCFA claims that a delay in implementing the final
rule would be contrary to public policy. Quite the contrary--
implementing the final rule as written would be contrary to
public policy. The final rule imposes serious economic
burdens on an industry already under increased scrutiny and
financial hardship including a recent moratorium on entrants
to the Medicare program and repeated audits.\7\ HCFA has also
announced its intention to include home health agencies in
the enormously complicated prospective payment system now
used by hospitals and physicians. As such, availability of
home healthcare for those communities not served by giant
hospital-based providers will surely decrease. This result
seems contrary to the stated public policy objective of
Congress and HCFA.
Finally, it should be noted that HCFA did insert a post-
effective date comment period in the final rule. However, the
fact that HCFA attached a comment period to the final rule is
not a valid substitute for the normal provisions of the APA.
The third circuit stated that: ``[i]f a period for comments,
after issuance of a rule, could cure a violation of the APA's
requirements, an agency could negate at will the
Congressional decision that notice and an opportunity for
comment must precede promulgation. Provisions of prior notice
and comment allows effective participation in the rulemaking
process while the decision maker is still receptive to
information and argument. After the final rule is issued, the
petitioner must come hat-in-hand and run the risk that the
decision maker is likely to resist change.'' Sharon Steel
Corp. v. EPA, 597 F.2d 377, 381 (3rd Cir. 1979).
HCFA's waiver of administrative procedure would be less
troubling if the rule were not so burdensome. By waiving
notice and comment procedures, the agency conveniently
removes itself from the obligation to carefully analyze and
solicit input on the impact
[[Page S6049]]
of the rule. Such an analysis could have yielded other, less
burdensome alternatives that would have accomplished the
agency's public policy objectives.
Since HCFA improperly waived notice and comment, the agency
must comply with the Regulatory Flexibility Act.
III. Regulatory Flexibility Act Requirements
Even when a regulation is statutorily mandated, agencies
are obligated by law to adhere to certain requirements prior
to issuing the implementing regulations. Specifically, the
RFA requires agencies to analyze the impact of proposed
regulations on small entities and consider flexible
regulatory alternatives that reduce the burden on small
entities--without abandoning the agency's regulatory
objectives. Agencies may forgo the analysis if they certify
(either in the proposed or final rule) that the rule will not
have a significant economic impact on a substantial number of
small entities. Agency compliance with certain provisions of
the RFA is judicially reviewable under section 611 of the
RFA.
It is not clear from the instant rule whether HCFA has
actually certified the rule pursuant to section 605(b) of the
RFA or attempted a final regulatory flexibility analysis
(FRFA) pursuant to section 604 of the RFA. In either case,
the agency failed to comply with the requirements of the RFA.
HCFA expresses confusing ``certification-like'' statements
throughout the text of the final rule.\8\ However, the actual
certification and statement of factual basis are not to be
found in the final rule. If the agency was attempting to
certify, then it did so erroneously for reasons discussed
more fully below. On the other hand, perhaps HCFA did not
intend to certify, but instead intended to prepare a FRFA.
The agency did do some type of analysis: ``we have prepared
the following analysis, which in conjunction with other
material provided in this preamble, constitutes an analysis
under the [RFA].'' 63 Fed. Reg. at 303. The problem with that
declaration is that there is more than one type of analysis
under the RFA. There is the preliminary assessment analysis
which helps agencies determine whether to certify, and in the
case of a final rule, there is a FRFA when an agency
determines that certification is not appropriate. If HCFA was
attempting a FRFA, then the FRFA was not adequate because it
contained no analysis of alternatives to reduce the burden on
small home health care providers. This, too, is more fully
discussed below.
A. Certification
When an agency determines and certifies that a rule will
not have a significant economic impact on a substantial
number of small entities, then it is logical to assume that
the agency has already performed some basic level of analysis
to make that determination. Will a substantial number of
small entities be impacted? In the instant case, the agency
admits that all home health agencies will be affected.
According to SBA's regulations, a small home health care
agency is one whose annual receipts do not exceed $5 million,
or one which is a not-for-profit organization.\9\ Although
the Office of Advocacy does not have data based on annual
receipts, data is available based on number of employees.
1993 data obtained from the U.S. Bureau of the Census by the
Office of Advocacy indicates that about 7% of home health
care services (489 out of 6,928) have 500 or more employees
and earn 51.2% of all annual receipts for the industry, 93%
of home health care services (6,439 out of 6,928) have fewer
than 500 employees and earn about 49% of all annual receipts
for the industry, and 52.5% of home health care services
(3,637 out of 6,928) have fewer than 20 employees and earn
6.3% of all annual receipts for the industry. Although it may
be difficult to reconcile employment-based and receipt-based
size standards, it is still fairly clear from the available
data that a substantial number of small entities will be
impacted by this final rule.
Will there be a significant economic impact? To determine
whether the final rule is likely to have a significant
economic impact, further analysis is required. It is not
enough to claim that elimination of fraud and abuse in the
Medicare/Medicaid system outweighs the need for further
analysis. It is not enough to assume that only those agencies
with ``past aberrant billing activities'' will be impacted.
It is not enough to say that reducing a surety's liability
means that there will not be a significant economic impact on
home health agencies. The Office of Advocacy opines that the
agency's ``analysis'' was doomed from the outset because of
the agency's flawed assumptions about the number and type of
small entities likely to be impacted, and about the cost of
compliance.
Which small entities will be impacted? The agency did not
take the basic and necessary step of adequately explaining
why other small entities (presumably those whose billing
practices are not ``aberrant'') will not be affected or
whether small home health providers are even the primary
offenders. At the least, the agency must consider the impact
the bonding requirement will have on all small home health
providers and not just the ones with ``aberrant'' billing
practices. After all, the majority of home health agencies
apparently do not have aberrant billing practices. HCFA
presents evidence that, in 1996, Medicare overpayments were 7
percent of all claims paid to HHAs, and of that 7 percent, 14
percent remained uncollected by Medicare. Fourteen percent of
7 percent is .0098.\10\ In other words, Medicare fails to
collect overpayments less than one percent of the time.
Despite this extremely low occurrence of failure to collect
overpayments, HCFA deemed it necessary to place extremely
costly and burdensome requirements on the entire industry.
However, HCFA did not identify what percentage of the
industry is contributing to the fraud problem, whether
certain offenders were recidivist, or whether those offenders
are primarily large or small.
With regard to the capitalization requirement, HCFA states
that, ``An organization that is earnest in its attempt to be
a financially sound provider of home health services under
the Medicare program will already be properly capitalized
without the need for Medicare to require such
capitalization.'' This statement is basically true. However,
the issue of adequate capitalization is relative and fungible
because it is based on a number of factors like varying
overhead costs, location, profit margins, competition in the
area, etc. Surely some home health agencies cannot meet the
capitalization requirements set by HCFA, but desire to be
``earnest'' in their efforts to be ``sound providers.'' The
capitalization requirement is a barrier to market entry for
all new home health agencies and not just the ones who enter
the market for purposes of defrauding Medicare. A careful
look at the questions like the ones raised in this and the
preceding paragraph would have yielded a conclusion that the
rule would have a significant economic impact on a
substantial number of small businesses.
Congress weighed in on the issue of impact after the final
rule is published. Even members of Congress recognized that
HCFA went beyond its mandate and imposed a significant
economic burden on home health agencies. Specifically, a bi-
partisan group of three senators from the Senate from the
Senate Finance Committee, on January 26, 1998, asked HCFA to
delay and modify the requirement that all home health
agencies secure a surety bond. The Senators believed that
home health agencies would not be able to obtain bonds by the
original February 27 deadline. According to a recent news
article, the senators reportedly wrote that:
``HCFA has imposed conditions that go beyond the standard
in the surety bond industry. Some of the biggest problems
include cumulative liability, a short period of time in which
to pay claims, and bond values of 15 percent of the previous
year's Medicare revenues with no maximum, the letter said.
`The cumulative effect is that many surety companies are
opting not to offer bonds to Medicare [home health agencies]
at all', the letter said. `Those companies which are offering
the bonds are doing so at a cost which is prohibitive, or
with demands for collateral or personal guarantees that HHAs
cannot provide.'
The letter said Congress enacted the surety bond
requirement to keep risky agencies out of the Medicare
program. However, HCFA's rule seems to use the bonds as
security for overpayments to providers, the letter said.
`We simply doubt that it is realistic to expect bonding
companies to embrace a role as guarantors for overpayments
from HCFA,' the senators wrote.''\11\
It should be fairly obvious to HCFA, as it was to these
members of Congress, that obtaining a $50,000/15 percent bond
in addition to the 3-month reserve capitalization requirement
(where there were no such requirements before) is likely to
be prohibitively costly for small home health care
providers--particularly new providers or providers operation
only a few years that typically have few hard assets and
relatively little credit.\12\ Moreover, most home health
patients are Medicare patients. If a home health agency is
not Medicare certified, then it is very difficult to attract
patients, and without patients, there is no opportunity to
increase capital. There is already a requirement in many
states (pursuant to ``Operation Restore Trust'') that home
health agencies have a minimum number of patients prior to
obtaining a Medicare license. How can these small home health
agencies absorb losses on these ten patients (--possibly long
term patients requiring multiple services several times per
week--), never be reimbursed for services to these patients,
and continue to raise capital? It's a vicious circle and
there is a tremendous cumulative effect of all the various
state and federal regulations. In any event, it seems that
with only a cursory analysis and a little industry outreach,
HCFA should have been able to determine that the final rule
would have a significant economic impact on a substantial
number of small entities. Therefore, under the RFA, HCFA
should have prepared a final regulatory flexibility analysis
with all the required elements for that analysis.
B. FINAL REGULATORY FLEXIBILITY ANALYSIS
The preparation of a FRFA may be delayed but not waived.
Section 608(b) of the RFA reads: ``Except as provided in
section 605(b) [where an agency certifies that there will be
no significant economic impact on a substantial number of
small entities], an agency head may delay the completion of
the requirements of section 604 of this title [regarding the
preparation of FRFAs] for a period of not more than one
hundred and eighty days after the date of publication in the
Federal Register of a final rule by publishing in the Federal
Register, not later than such date of publication, a written
finding, with reasons therefor, that the final rule is being
promulgated in response to an emergency that makes timely
compliance with
[[Page S6050]]
the provisions of section 604 of this title impracticable. If
the agency has not prepared a final regulatory analysis
pursuant to section 604 of this title within one hundred and
eighty days from the date of publication of the final rule,
such rule shall lapse and have no effect. Such rule shall not
be repromulgated until a final regulatory flexibility
analysis has been completed by the agency.''
FRFAs may not be waived because they serve a vital function
in the regulatory process. The preparation of a FRFA allows
an agency to carefully tailor its regulations and avoid
unnecessary and costly requirements while maintaining
important public policy objectives. Without a careful
analysis--which should include things like data, public
comments and a full description of costs--agencies would be
operating in a vacuum without sufficient information to
develop suitable alternatives.
Since the agency did not issue a proposed rule, the agency
had an obligation to consider carefully all of the
significant comments regarding the impact of the final rule.
After all, the agency was apparently unsure of the
impact.\13\ The congressional letter should have been some
indication that there would be a significant economic impact
and that further analysis was required. HCFA did extend the
deadline for obtaining a surety bond for 60 days, and in some
ways limited the liability of sureties. However, the agency
did not change the bond or capitalization requirements, or
explain why such changes were not feasible. Inasmuch as the
agency failed to heed any of the comments regarding impact--
even those from Congress--the comment period served no real
function here.
The dearth of information regarding less costly
alternatives is possibly the most serious defect in the
analysis presented. To begin with, HCFA never demonstrated
why the $50,000 bond was insufficient or would not accomplish
the objective of discouraging bad actors from entering the
Medicare program. The agency did not demonstrate why the 15
percent rule would not cause a significant economic impact--
particularly when the $50,000 bond amount changed from a
maximum level to a maximum level. There is no evidence that
HCFA attempted to find less costly alternatives. Before
heaping on additional regulations, would it not be prudent to
first determine whether the programs and policies recently
put in place by the Administration, and the prospective
payment rules yet to come will work?
IV. Conclusion
Not everyone in the home health industry is a bad actor.
More importantly, home health providers that cannot afford to
comply with HCFA's regulations are not necessarily bad actors
either. HCFA has twisted Congress' intent and changed the
rule into a vehicle for punishing legitimate home health
agencies and for securing overpayments by Medicare rather
than a vehicle to discourage bad actors from entering the
Medicare program. There must be a middle ground--a place
where legitimate home health providers can survive and
compete in the marketplace, and where fraud and abuse can be
controlled. This final rule is not that place.
Therefore, the Office of Advocacy petitions HCFA to amend
its final rule to remove the 15% bonding requirement and the
capitalization requirement until such time as proper notice
and comment procedures can be completed. Thank you for your
prompt attention to this urgent matter. Please contact our
office if we may assist you in your efforts to comply with
the RFA on this or any other rule effecting small entities,
202-205-6533.
Sincerely,
Jere W. Glover,
Chief Council for Advocacy.
Shawne Carter McGibbon,
Asst. Chief Counsel for Advocacy.
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