[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.
---------------------------------------------------------------------------
     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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