[Federal Register Volume 59, Number 217 (Thursday, November 10, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27703]


[[Page Unknown]]

[Federal Register: November 10, 1994]


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Part II





Department of Health and Human Services





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Health Care Financing Administration



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42 CFR Part 401, et al.




Medicare and Medicaid Programs; Survey, Certification and Enforcement 
of Skilled Nursing Facilities and Nursing Facilities; Final Rule
DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 401, 431, 435, 440, 441, 442, 447, 483, 488, 489, and 
498

[HSQ-156-F]
RIN 0938-AD94

 
Medicare and Medicaid Programs; Survey, Certification and 
Enforcement of Skilled Nursing Facilities and Nursing Facilities

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final rule.

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

SUMMARY: This final rule implements certain provisions of the Omnibus 
Budget Reconciliation Act of 1987, as further amended by subsequent 
1988, 1989, and 1990 legislation. These provisions make significant 
changes in the process of surveying skilled nursing facilities under 
Medicare and nursing facilities under Medicaid and in the process for 
certifying that these facilities meet the Federal requirements for 
participation in the Medicare and Medicaid programs. They also set 
forth a number of alternative remedies which may be imposed on 
facilities that do not comply with the Federal participation 
requirements (instead of or in addition to termination), and specify 
remedies for State survey agencies that do not meet surveying 
requirements.

DATES: These regulations are effective July 1, 1995.

ADDRESSES: Copies: To order copies of the Federal Register containing 
this document, send your request to: New Orders, Superintendent of 
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Register.

FOR FURTHER INFORMATION CONTACT: Deborah Kaplan Schoenemann, (410) 966-
6771.

SUPPLEMENTARY INFORMATION:

I. Background

    To participate in the Medicare or Medicaid programs, long-term care 
facilities must be certified as meeting Federal participation 
requirements. Long-term care facilities include skilled nursing 
facilities (SNFs) for Medicare and nursing facilities (NFs) for 
Medicaid. The Federal participation requirements for these facilities 
are specified in HCFA regulations at 42 CFR part 483, subparts A 
through C.
    Section 1864(a) of the Social Security Act (the Act) authorizes the 
Secretary to enter into agreements with State survey agencies to 
determine whether SNFs meet the Federal participation requirements for 
Medicare. Section 1902(a)(33)(B) of the Act provides for State survey 
agencies to perform the same survey tasks for facilities participating 
or seeking to participate in the Medicaid program. The results of 
Medicare and Medicaid related surveys are used by HCFA and the Medicaid 
State agency, respectively, as the basis for a decision to enter into, 
deny, or terminate a provider agreement with the facility.
    To assess compliance with Federal participation requirements, 
surveyors conduct onsite inspections (surveys) of facilities. In the 
survey process surveyors directly observe the actual provision of care 
and services to residents and the effect or possible effects of that 
care to assess whether the care provided meets the assessed needs of 
individual residents.
    SNFs that are approved for participation in the Medicare program 
also meet the participation requirements for the Medicaid program. 
However, the Medicaid State agency is not obligated to enter into a 
Medicaid provider agreement with a facility just because the Secretary 
has entered into a Medicare provider agreement with the facility. 
Additionally, if a State imposes Medicaid requirements that exceed 
those of Medicare, section 1863 of the Act provides that the higher 
requirements must be met by the Medicare SNFs in that State.
    Before the 1987 legislation, the only adverse actions available to 
HCFA and the States against facilities that were determined to be out 
of compliance with Federal participation requirements included 
termination, nonrenewal, or automatic cancellation of provider 
agreements; denial of participation for prospective facilities; and 
denial of payment for new admissions in lieu of termination when the 
facilities had deficiencies that did not pose an immediate and serious 
threat to the health and safety of residents. (The denial of payment 
action has been considered an ``alternative'' sanction because it is an 
alternative to termination.)
    The Omnibus Budget Reconciliation Act of 1987 (OBRA '87), Public 
Law 100-203, enacted on December 22, 1987, amended the Act to 
incorporate specific provisions for nursing home reform. These 
provisions included specific revised requirements for the survey and 
certification process (section 4202 for Medicare and section 4212 for 
Medicaid) and for the enforcement process (sections 4203 and 4213). 
Sections 4202 and 4212 of OBRA '87 added new sections 1819(g) and 
1919(g) to the Act to revise and expand Medicare and Medicaid 
provisions, respectively, on State and Federal responsibilities for 
survey and certification, types of and requirements for surveys, survey 
team composition and responsibilities, requirements for validation 
surveys, procedures for investigating complaints and monitoring 
compliance, disclosure of results of inspections and activities, and 
provisions for penalties imposed on the States for failure to comply 
with survey process requirements. Sections 4203 and 4213 of OBRA '87 
added sections 1819(h) and 1919(h) to the Act to specify the Medicare 
and Medicaid enforcement process, respectively, and specified remedies 
for noncompliance to be used in lieu of or in addition to termination 
of facilities' participation in the programs. Section 411 of the 
Medicare Catastrophic Coverage Act of 1988 (MCCA), Public Law 100-360, 
enacted on July 1, 1988, also included a number of technical and 
correcting amendments affecting these OBRA '87 provisions. These 
changes will be discussed in detail later in this preamble.
    On August 28, 1992, we published a proposed rule in the Federal 
Register (57 FR 39278) setting forth our proposal for altering the 
requirements for surveying facilities and expanding the choice of 
alternative remedies for HCFA and the Medicaid State agency to apply in 
lieu of or in addition to termination of facilities that do not comply 
with participation requirements. In the proposed rule we said that our 
goal is to promote facility compliance by ensuring that all deficient 
providers are appropriately sanctioned. Termination is still possible 
any time a facility is identified as having deficiencies, and if a 
facility continues to have deficiencies after a specified period of 
time, the law requires that Federal payments for services in that 
facility cease at that time.
    In the proposed rule we indicated that we are implementing the 
Congress' mandate, as indicated in OBRA '87, to abandon our traditional 
hierarchical requirement system and develop a system capable of 
detecting and responding to noncompliance with any requirement. The 
system we proposed was built on the assumption that all requirements 
must be met and enforced and that requirements take on greater or 
lesser significance as a function of the circumstances and resident 
outcomes in a particular facility at the time of survey. The surveyors 
will determine the existence or nonexistence of immediate and serious 
threat to residents as well as the severity and scope of a deficiency 
to arrive at a conclusion as to the seriousness of that deficiency in 
that facility. The proposed regulations incorporated scope and severity 
surveyor guides for determining the remedy or remedies to apply. We 
also proposed that the selection of a particular remedy be based on the 
nature of the deficiencies and the remedy (or remedies) that either 
HCFA or the Medicaid State agency believes is most likely to achieve 
correction of the deficiencies. As we stated in the proposed rule, we 
believe that remedies applied in the manner described within the 
proposed regulations will deter violations as well as encourage 
immediate response and sustained compliance.
    The new system also proposed changes in the enforcement authority 
for dually participating (Medicare and Medicaid) facilities. OBRA '89 
provided the basis for decisions as to whether the State's or the 
Secretary's determination of compliance or noncompliance or choice of 
remedies is binding in the case of a dually participating facility. 
Moreover, the statute at section 1919(h)(8), provides that whether 
certification decisions and enforcement actions, as applied to 
Medicaid, are those of the Secretary or the State, the same 
certification decision and enforcement actions will also apply to 
Medicare in a dually participating facility. In addition, the statute 
specifies whether the Secretary's or State's certification decision and 
enforcement remedies will prevail in the case of Federal validation 
surveys. Our August 28, 1992 proposed rule reflected these changes.

II. Provisions of the Proposed Rule

    In the proposed rule published on August 28, 1992 in the Federal 
Register, we proposed to implement the provisions of OBRA '87, as 
further amended by subsequent 1988, 1989, and 1990 legislation. The 
specific proposals were as follows:

A. Routine Process of Certification and Enforcement

1. State-Operated Facilities
    We proposed at Sec. 488.155 and Sec. 488.180 that in all State-
operated facilities, the State survey agency conduct the survey, 
recommend to HCFA a certification of compliance or noncompliance and 
recommend appropriate enforcement action(s). After the survey agency 
forwards its survey findings and recommended certification and 
enforcement action(s) to HCFA, HCFA in turn would certify facility 
compliance or noncompliance and impose any enforcement action(s).
2. Non-State Operated Facilities
    At Secs. 488.155 and 488.180, we proposed the following:
     For non-State operated SNFs, to continue to use the 
process in effect before October 1, 1990, whereby the State survey 
agency conducts the survey and certifies compliance or noncompliance 
with Federal requirements subject to HCFA approval. We also proposed 
that the survey agency recommend appropriate remedies, and that, after 
the survey agency forwards its survey findings and recommended 
enforcement action(s) to HCFA for review, HCFA determines the 
compliance or noncompliance of the facility and imposes any enforcement 
action(s).
     For non-State operated NFs, to continue to use the process 
in effect before October 1, 1990, whereby the survey agency conducts 
the survey, certifies compliance or noncompliance with Federal 
requirements, and recommends appropriate enforcement actions to HCFA 
and the Medicaid State agency. The certification of compliance or 
noncompliance by the State is final except in the case of a complaint 
or validation survey, or review of the State's findings by HCFA in 
which the Secretary substitutes her judgment for that of the State. 
Except where the Secretary intervenes, the State makes all enforcement 
decisions and imposes remedies after consideration of the survey 
findings and recommended enforcement remedies. Regardless of which 
agency of the State exercises certification and enforcement authority, 
however, we look to the Medicaid State agency to assure compliance with 
Federal requirements.
     For dually participating facilities, the survey agency 
would conduct the survey, certify compliance or noncompliance with 
Federal requirements, and recommend appropriate enforcement actions. 
The certification of compliance or noncompliance and recommended 
enforcement action(s) by the State would be sent to both HCFA and the 
Medicaid State agency for review. In a new subpart F (Remedies for 
Long-Term Care Facilities with Deficiencies), we proposed to add a new 
Sec. 488.234, to set forth procedures for occasions when there are 
State and Federal disagreements involving findings when there is no 
immediate and serious threat to the residents. We view section 
1919(h)(8) of the Act as calling for the application of the decision 
for Medicaid NFs to Medicare SNFs when a facility is dually 
participating.

B. Validation Surveys and HCFA Oversight

    Sections 1819(g)(3)(A) and 1919(g)(3)(A) of the Act direct the 
Secretary to conduct onsite surveys of a representative sample of 
nursing homes within 2 months of the last day of survey when the 
Secretary is validating the State survey agency's performance. If the 
State determines that the facility is in compliance, but the Secretary 
finds that the facility is out of compliance, the Secretary's 
determination as to the facility's noncompliance is binding and 
supersedes that resulting from the State survey as specified at 
Sec. 488.234(a)(2) of our NPRM and section 1919(h)(6)(B) of the Act. 
However, section 1919(h)(6)(A) specifies that when the State finds 
noncompliance and the Secretary makes no such finding, the State's 
noncompliance decision and enforcement actions control. We incorporated 
this in Sec. 488.234(a)(1) of our proposed rule. At paragraph (a)(3) of 
Sec. 488.234, we proposed that, when HCFA's survey findings take 
precedence, HCFA could--
     Impose any of the alternative remedies we specify in our 
proposed Sec. 488.206 (Available remedies); or
     Permit payments to continue to the NF and dually 
participating facility if the applicable conditions at our proposed 
Sec. 488.232 (Continuation of payments to a facility with deficiencies) 
are satisfied.

These provisions proposed to specify the means to determine compliance 
or noncompliance for the Medicaid NF which would then become the 
compliance/noncompliance decision for the Medicare SNF.
    In our proposed Sec. 488.234(b), we stated that, if both the 
Secretary and the State disagree over the decision to terminate a non-
State operated NF or dually participating facility--
     HCFA's decision to terminate the participation of a 
facility takes precedence when--
    + Both HCFA and the State find that the facility has not met all 
requirements; and
    + HCFA, but not the State, finds that the facility's participation 
should be terminated. We proposed that HCFA would permit continuation 
of payment during the period prior to the effective date of termination 
not to exceed 6 months from the last day of the survey.
     The State's decision to terminate a facility's 
participation and the timing of termination would take precedence 
when--
    + The State, but not HCFA, finds that a facility's participation 
should be terminated; and
    + The State's timing for the termination is for no later than 6 
months after the last day of survey.
    In paragraph (c) of the proposed Sec. 488.234, we stated that when 
the State and HCFA disagree over timing of termination of a facility, 
the State's timing takes precedence if it does not occur later than 6 
months after the date of the finding to terminate. Paragraph (d) stated 
that when there is overlap of State and HCFA remedies, the HCFA 
remedies apply, and paragraph (e) stated that, regardless of whose 
decision controlled in paragraphs (b), (c), or (d), the compliance and 
enforcement decision for the Medicaid agreement is binding on the 
Medicare agreement in the case of a dually participating facility.

C. Hearings and Appeals

    At Sec. 488.180(e)(1), we proposed that the State must impose 
remedies on any Medicaid provider--
     When the State identifies violations of Federal 
requirements after notifying the provider of the deficiencies and 
impending remedy; and
     Except for civil money penalties, during the pendency of 
any hearing that the provider may request.
    At Sec. 488.180(e)(2), we proposed that appeal procedures under 42 
CFR part 498 (Appeals Procedures for Determinations that Affect 
Participation in the Medicare Program) apply when the provider requests 
a hearing on HCFA's denial of participation, termination of provider 
agreement, or the Secretary's certification of noncompliance leading to 
an enforcement remedy, except State monitoring, against all State-
operated facilities, as a result of a HCFA validation survey or HCFA's 
review of the State's survey findings and for non-State operated SNFs 
and dually participating facilities. The State must impose the same 
remedy, which is also subject to these appeal procedures. At 
Sec. 488.180(e)(3) of our proposed rule, we proposed that the appeal 
procedures under 42 CFR part 431 (State Organization and General 
Administration) apply in cases when the provider requests a hearing on 
the State's denial of participation, termination of provider agreement, 
or certification of noncompliance leading to an alternative remedy 
against a non-State operated Medicaid NF.

D. Prospective Providers

    At Sec. 488.180(f), we proposed that prospective providers applying 
to participate in the Medicare or Medicaid (or both) programs meet all 
participation requirements as a precondition of their participation. As 
we explained in the preamble of the proposed rule, we based this on 
various provisions of the Act and the legislative history and on the 
overall structure of the Act which differs significantly from the one 
previously in effect.

E. Substandard Care

    In Sec. 488.151 (Definitions), we proposed defining substandard 
care as care furnished in a facility that has one or more deficiencies 
in any area with a severity level of 3 or 4, regardless of scope; or a 
level 2 in severity with a level 3 or 4 in scope in quality of care 
requirements, as defined in Sec. 483.25 (Quality of care). We described 
the levels for severity and scope in detail under the section of the 
preamble entitled, ``Enforcement Options.'' That discussion is 
summarized in section J.11 of this background statement.

F. Surveys

    Sections 1819(g) (2) and (3) and 1919(g) (2) and (3) of the Act, as 
added by sections 4202 and 4212 of OBRA '87, specify the requirements 
for types and periodicity of surveys that are to be conducted for each 
facility; including standard, special, partial extended, extended, and 
validation surveys. These provisions include specific contents and 
procedures, frequency, consistency, and team composition, and are 
intended to protect residents' rights, health and safety and not unduly 
burden the facilities or the survey agencies. We proposed to set forth 
implementing regulations as follows:
Standard Surveys
    At Sec. 488.155, we proposed that, for each SNF and NF, the State 
survey agency must conduct standard surveys and stated what they must 
include.
    At Sec. 488.158, we proposed to require each SNF and NF to be 
subject to a standard survey not later than 15 months after the last 
day of the previous standard survey and that the statewide average 
intervals between standard surveys must not exceed 12 months. We also 
specified when and how the average intervals would be computed.
Special Surveys
    Sections 1819(g)(2)(A)(iii) and 1919(g)(2)(A)(iii) of the Act, as 
added by OBRA '87, specify that a standard survey or an abbreviated 
standard survey may be conducted within 2 months of any change of 
ownership, administration, management of a facility, or director of 
nursing to determine whether the change has resulted in any decline in 
the quality of care furnished by the facility. A survey conducted for 
the purpose of investigating a complaint against a facility is also 
considered a special survey. An abbreviated standard survey is a 
partial survey that focuses on a specific participation requirement or 
requirements. At paragraph (e) of Sec. 488.158, we proposed that the 
decision of whether to conduct a standard or an abbreviated standard 
survey under these circumstances be at a State survey agency's or the 
Secretary's discretion, based on the individuals and facilities 
involved and the State's concern that the quality of care may have 
declined.
Extended and Partial Extended Surveys
    In accordance with Sections 1819(g)(2)(B) and 1919 (g)(2)(B) of the 
Act, we proposed to require that, during an extended survey, the survey 
team must review and identify the policies and procedures for those 
provisions of the regulations that produced the substandard quality of 
care and must determine whether a facility complies with all 
requirements of participation. The extended survey must also include an 
expansion of the size of the sample of residents' assessments reviewed, 
a review of the staffing levels and staff inservice training, and, if 
appropriate, an examination of contracts with consultants.
    These provisions were incorporated in the proposed rule at 
Sec. 488.160 (Extended survey).
Validation Surveys
    We proposed that the validation surveys must be conducted within 2 
months of the date of the State's surveys and must be of sufficient 
number to allow inferences about the adequacy of the State's surveys. 
In addition, the Act requires us to conduct validation surveys in at 
least 5 percent of the SNFs and NFs surveyed by each State during the 
year but in no case less than 5 facilities in each State. The same 
protocol used for the standard or extended survey must be used for the 
validation survey. We proposed to incorporate these requirements in 
paragraph (a) of Sec. 488.166 (Validation surveys).
    In the proposed rule, we dealt with four other survey-related 
issues:
Composition of Survey Teams
    At Sec. 488.164, we proposed that--
    --Surveys must be conducted by a multidisciplinary team of 
professionals, which must include a registered nurse.
    --A surveyor is disqualified for surveying a particular facility if 
he or she currently serves or, within the previous 2 years has served 
as a member of the staff of, or as a consultant to that facility, or if 
a member of his or her immediate family has any financial interest or 
any direct or indirect ownership interest in that facility.
    Surveyors must receive comprehensive training, including the 
application and interpretation of regulations for SNFs and NFs, 
techniques and survey procedures for conducting standard and extended 
surveys; and techniques and survey procedures for auditing resident 
assessments and plans of care.
Consistency of Surveys
    The proposed regulations at Sec. 488.162 specify that the State 
must conduct ongoing studies and analyses, and/or implement new 
programs to measure and improve consistency in survey results, such as 
validation of surveyor findings, and the application of enforcement 
remedies. The proposed regulations also specified that HCFA will 
perform the same tasks.
Unannounced Surveys
    While sections 1819(g)(2)(A)(i) and 1919(g)(2)(A)(i) of the Act 
specifically require unannounced standard surveys, we proposed that all 
surveys, whether abbreviated, extended, follow-up, validation or 
otherwise, be unannounced and incorporated this provision in the 
proposed regulations at Sec. 488.157. When a survey agency is found to 
have notified a SNF or NF through its scheduling or procedural 
policies, we are authorized to apply appropriate sanctions for 
inadequate survey performance specified at the proposed Sec. 488.170 
and described immediately below under the section entitled, 
``Inadequate Survey Performance.''
Inadequate Survey Performance
    If we find, as a result of the validation surveys, that the State 
has failed to perform the standard and extended surveys properly or 
that the State's performance is otherwise inadequate, we are authorized 
to apply an appropriate sanction for inadequate survey performance. 
Section 1819(g)(3)(C) of the Act requires the Secretary to provide an 
appropriate remedy (which may include training) when the State has 
failed to perform surveys required under the Act or when the Secretary 
has decided survey performance is not otherwise adequate. At 
Sec. 488.170, we proposed the following remedies to be applied as 
appropriate:
     For Medicaid facilities HCFA will--
    + Reduce FFP and if appropriate,
    + Provide for training of survey teams.
     For Medicare facilities HCFA will--
    + Specify the inadequacy to the survey agency;
    + Require a plan of correction;
    + Provide for training of survey teams;
    + Provide technical assistance on scheduling and procedural 
policies;
    + Provide HCFA-directed scheduling; or
    + Initiate action to terminate the agreement between the Secretary 
and the State under section 1864 of the Act, either in whole or in 
part.

G. Investigations of Allegations of Resident Neglect and Abuse and 
Misappropriation of Resident Property

    In Sec. 488.151, we proposed to define ``abuse'' as physical, 
psychological, or verbal interaction with a facility resident, 
including, but not limited to, ill treatment, physical violation, and/
or other disregard of an individual which could cause or result in mild 
to severe, temporary or permanent mental or physical injury, harm, or, 
ultimately, death. ``Neglect'' would mean a failure, through 
inattentiveness, carelessness, or omission, of an individual, to 
provide timely, consistent and safe services, treatment, and care to a 
facility resident. ``Misappropriation of resident property'' would mean 
the deliberate misplacement, exploitation, or wrongful, temporary, or 
permanent taking or use of a facility resident's belongings or money, 
or both, without the resident's consent.
    Sections 1819(g)(1)(C) and 1919(g)(1)(C) of the Act, as added by 
OBRA '87 and amended by section 411(a)(5)(C) of Public Law 100-360 
(MCCA), require the State, through the agency responsible for surveys 
and certification of nursing facilities, to develop a process for the 
receipt and timely review and investigation of allegations of neglect 
and abuse and misappropriation of resident property by a nurse aide of 
a facility or by another individual used by the facility in providing 
services to residents. These sections also provide, after notification 
of the allegations, for the State to provide the opportunity for a 
hearing to the individual against whom an allegation has been made; and 
if the allegations are confirmed, for the State to notify the 
individual, the nurse aide registry, and the appropriate licensure 
authorities if applicable. In Sec. 488.185 (Action on complaints of 
neglect, abuse, and misappropriation of property), we proposed 
regulations that would implement these provisions.
H. Investigation of Complaints of Violations of Federal Participation 
Requirements and Monitoring Compliance
    In Sec. 488.182 (Investigation of complaints of violations: 
Investigations and monitoring), we proposed that the survey agency be 
required to conduct surveys as frequently as necessary to ascertain 
compliance with the Federal requirements of participation or to confirm 
the correction of deficiencies under the cited circumstances. The 
proposed regulations would also incorporate the provisions of sections 
1819(g)(4) and 1919(g)(4) of the Act that a State may maintain and use 
a specialized team to identify, survey, gather, and preserve evidence 
and to administer appropriate enforcement remedies against substandard 
facilities.

I. Disclosure of Survey Information

    At Sec. 488.175 (Disclosure of survey information), we proposed 
regulations to implement sections 1819(g)(5) and 1919(g)(5) of the Act, 
as added by OBRA '87. We proposed at Sec. 488.175 to accept oral as 
well as written requests for information and to charge the public for 
the cost of retrieval, reproduction, and mailing information in 
accordance with regulations under the Freedom of Information/Privacy 
Act. The disclosing entity (HCFA, the survey agency, or the Medicaid 
State agency) would respond within 10 days with the requested 
information, if releasable and already available, or with an interim 
response explaining whether the information is releasable and when it 
will be available for release.
    OBRA '90 specified which information is releasable and when it is 
available for release. Sections 1819(g)(5)(A) and 1919(g)(5)(A) of the 
Act provide that each State, and the Secretary, shall make available to 
the public information concerning all surveys and certifications of NFs 
and SNFs, including statements of deficiencies, within 14 calendar days 
after such information is made available to those facilities, and 
approved plans of correction. We proposed to implement this provision 
at Sec. 488.175(d)(3).
    Sections 1819(g)(5)(B) and 1919(g)(5)(B) of the Act require State 
survey agencies to notify the State's long-term care ombudsman of any 
adverse actions imposed against a facility. We proposed at 488.175(e) 
that the State survey agency be required to provide the State's long-
term care ombudsman with the report of noncompliance of a facility, 
report of any adverse actions imposed, any written response by the SNF 
or NF, and the results of any appeals.
    As a result of sections 4008(h)(2)(E) and 4801(e)(5)(D) of OBRA 
'90, sections 1819(b)(4)(C)(ii)(IV) and 1919(b)(4)(C)(ii)(IV) of the 
Act require the Secretary and the State, respectively, to provide 
notice to the State long-term care ombudsman and the State protection 
and advocacy system for the mentally ill and mentally retarded of SNF 
and NF waivers. Sections 1819(b)(4)(C)(ii)(V) and 1919(b)(4)(C)(ii)(V), 
as added by OBRA '90, require the facility receiving such nursing 
waivers to notify the residents of the facility (or, when appropriate, 
the guardians or legal representatives of such residents) and a 
resident's immediate family of the waiver. We proposed, at section 
488.175 (f) and (g), that facilities give this notice within 10 days 
from the date the SNF or NF is granted the waiver.
    Under sections 1819(g)(5)(C) and 1919(g)(5)(C) of the Act, the 
State is required to notify each attending physician and the State 
board responsible for licensing nursing home administrators when a 
facility has provided substandard quality of care. We proposed 
requiring each SNF or NF to provide either HCFA or the State, no later 
than 10 days after receiving a notice of substandard care, with a list 
of each Medicare and Medicaid resident in the facility and the name and 
address of his or her attending physician. We also proposed at 
Sec. 488.175 requiring the State to notify the attending physicians and 
the State licensing board within 30 days of the date the SNF or NF is 
notified of a finding of substandard care. We recognized that this and 
the notification requirement related to nurse waivers were the only 
provisions in our proposed regulation which set forth requirements for 
nursing homes. All other provisions in the proposed rule set forth 
requirements for the Secretary and the State in the enforcement of 
nursing homes requirements. We included these facility requirements in 
the proposed rule because they directly or indirectly pertain to the 
enforcement process. The same sections of the Act also required the 
State survey agency to provide access to any information incidental to 
a facility's participation in Medicare or Medicaid upon request by the 
State Medicaid fraud control unit established under 42 CFR part 1002, 
subpart C. We proposed incorporating this provision under paragraph (j) 
of Sec. 488.175.

J. Enforcement Options

1. Overview
    As stated earlier, before the passage of OBRA '87, the only adverse 
actions available to HCFA and the States for imposition against long 
term care facilities that were out of compliance with Federal 
requirements were termination of participation, nonrenewal and 
automatic cancellation, and denial of participation for prospective 
providers. In addition, HCFA and the States had authority, in cases of 
long-term care facilities, to deny payment for new admissions to 
facilities rather than to terminate the provider agreements when 
deficiencies did not present an immediate and serious threat to the 
health and safety of residents of the facilities. The denial of payment 
provision was considered both an alternative to the more severe 
measures, as well as an intermediate step that HCFA or the State could 
take prior to and possibly in lieu of termination from the Medicare and 
Medicaid programs. The sanction afforded HCFA and the States the 
opportunity to defer the decision to terminate. Thus, the terms 
``alternative sanction'' and ``intermediate sanction'' came into use to 
designate denial of payment for new admissions to facilities for a 
period of up to 11 months after the month in which the sanction was 
imposed. Former sections 1866(f) and 1902(i) of the Act were the 
authority for the alternative sanction under Medicare and Medicaid 
respectively. The Family Support Act of 1988, Public Law 100-345, 
repealed the Medicare provision and MCCA made the Medicaid provision 
applicable only to ICFs/MR.
    OBRA '87 included revised and expanded authority for enforcement of 
the Federal participation requirements for long-term care facilities. 
We proposed adding a new subpart, subpart F (Remedies for Long Term 
Care Facilities with Deficiencies) to part 488 to implement these new 
provisions.
2. Determination of Deficiencies
    Effective October 1, 1990, providers of nursing services 
participating in the Medicare or Medicaid programs were subject to the 
requirements of participation that were published on February 2, 1989 
(54 FR 5316). These requirements focus more sharply on the resident 
care practices and outcomes, and facility practices with respect to 
resident rights.
    In the proposed rule we explained that the collective exercise of 
surveyor judgments, which has always been the vehicle for the 
identification of deficiencies would remain unchanged. For this reason, 
we concluded that there was no more reason to have specific regulations 
governing this process than there had been in the past. Thus, we 
proposed that, surveyors would gather information based upon direct 
observations, record review, and interviews with residents, staff, and 
family members. Based on their collection of information, they would 
collectively compile and analyze it, and match the data to the legal 
standards facilities are obliged to meet to determine if deficiencies 
exist. As is true now, these conclusions would be based upon single 
observations or groups of observations, either one of which may sustain 
a finding that a requirement has not been met. We proposed that once 
the survey team made its judgments about whether the facts supported a 
conclusion that deficiencies exist, it would be the team's 
responsibility to assess the scope and severity of those deficiencies 
(in the manner described later in this preamble) in order to recommend 
one or more remedies to either HCFA or the Medicaid State agency for 
the enforcement of the requirements.
3. Remedies To Be Imposed as Alternative or Intermediate Sanctions
    Consistent with sections 1819(h) and 1919(h) of the Act as added by 
OBRA '87, we proposed to add a new Sec. 488.206, listing the available 
remedies. It stated that, in addition to termination of the provider 
agreement, the following remedies would be available:
     Temporary management;
     Denial of payment including--
    + Denial of payment for all new admissions;
    + Denial of payment for all new admissions in certain diagnostic 
categories or requiring specialized care; and
    + Denial of all payment (to be imposed only by HCFA) to facilities, 
for Medicare and to States, for Medicaid.
     Directed plan of corrections;
     State monitoring; and
     Civil money penalties.
    Section 488.206 also proposed other remedies for non-State-operated 
Medicaid-only and dually participating facilities. They were:
     Closure of the facility and transfer of residents; and
     Additional or alternative State remedies.
    Finally, we proposed at Sec. 488.153 that, if a State wishes to use 
additional or alternative remedies, it must specify those remedies in 
the State plan, and demonstrate to HCFA's satisfaction that those 
remedies are as effective as those set forth in the Act.
    At Sec. 488.208, we set forth proposed rules governing the choice 
of remedies. We said that the survey agency or HCFA would assess 
individual deficiencies or clusters of deficiencies first according to 
the presence or absence of immediate and serious threat to resident 
health and safety, the severity of the deficiency, and the scope of the 
deficiency. We proposed that, following the initial assessment, HCFA 
and the survey agency may consider the following secondary factors:
     The relationship of one deficiency or group (cluster) of 
deficiencies to other deficiencies; and
     The facility's prior compliance history in general and 
specifically with reference to the cited deficiencies.
    We said that the selection of a remedy would be based on the nature 
of the deficiencies or cluster of deficiencies. Proposed Secs. 488.210 
and 488.212 set forth the rules for imposition of particular remedies 
in specified circumstances. We said that, regardless of which remedy or 
remedies are imposed, each facility that is out of compliance with a 
program requirement would be required to submit a plan of correction 
for approval by HCFA or the survey agency, except in the case of 
deficiencies that HCFA or the State determines to be at a scope and 
severity level of 1.
    The choice of remedy, by either HCFA or the State, including the 
manner in which HCFA or the State uses the scope and severity scales 
specified in Sec. 488.204 would not be subject to review as part of the 
appeals process set forth in part 431 or part 498.
4. Temporary Management as a Remedy
    When alternative remedies are imposed instead of termination to 
bring a facility into compliance with program requirements in an 
immediate and serious threat situation, temporary management would 
always be imposed immediately to remove the threat to residents in 
accordance with sections 1819(h)(2)(A)(i), 1919(h)(1)(A), and 
1919(h)(3)(B)(i) of the Act. We proposed that temporary management also 
be available in addition to termination in an immediate and serious 
threat situation while there is an orderly termination or closure of 
the facility. In situations where deficiencies do not constitute an 
immediate and serious threat, HCFA or the State also may appoint a 
temporary manager to substitute as a manager or administrator. (Other 
remedies in addition to temporary management may also be imposed in the 
case of immediate and serious threat situations.)
    The temporary manager would have the authority to hire, terminate 
and reassign staff, obligate facility funds, alter facility procedures 
as appropriate, or otherwise manage the facility as necessary to 
correct deficiencies identified in the facility's operation. The 
temporary manager would be required to be a licensed nursing home 
administrator within the State or have a reciprocal agreement with the 
State in which he or she is to serve, demonstrate prior competence as a 
nursing home administrator, and have had no disciplinary action taken 
against him or her by any licensing board of any State or by any 
professional society in the past 5 years. We proposed as well that 
neither the temporary manager nor his or her immediate family could 
have a financial or ownership interest in the facility. The temporary 
manager's salary would be paid by the facility. We proposed that the 
salary for the temporary manager may not exceed an amount equivalent to 
the prevailing salary paid by providers in the geographic area for 
positions of this type, additional costs that would have reasonably 
been incurred by the provider if such person had been in an employment 
relationship, and any other costs incurred by such a person in 
furnishing services under such an arrangement (for example, travel 
allowance) or as otherwise set by the State.
    We proposed that termination would be imposed if the facility does 
not agree to this remedy or refuses to relinquish authority to the 
temporary manager. In addition, if, despite the appointment of a 
temporary manager, the immediate and serious threat is not removed 
within 23 days of the appointment of the temporary manager or if non-
immediate and serious threat deficiencies are not corrected within 6 
months from the last day of survey, the facility's participation would 
be terminated.
    We proposed incorporating the above provisions regarding temporary 
management in Secs. 488.206, 488.210, and 488.215.
5. Denial of Payment for New Admissions As a Remedy
    We proposed that a new Sec. 488.217 be added to part 488 to set 
forth denial for payment for all new admissions as a sanction as 
follows:
     For all new admissions
    --HCFA or the State may deny payment for new admissions. However, 
HCFA will and the State must deny payment for new admissions if--
    + Any deficiency remains uncorrected within 90 calendar days after 
the last day of survey identifying the deficiencies; or
    + The survey agency has cited a facility with substandard quality 
of care on the last 3 consecutive standard surveys.
    --If the facility achieves compliance with the requirements, HCFA 
does or the State must resume payments to the facility prospectively 
from the date that it determined that compliance has been achieved.
     Denial of payment for new admissions in certain diagnostic 
categories or requiring specialized care.
    --HCFA or the State may deny payment for new admissions who have 
certain specified diagnoses or special care needs when HCFA or the 
State finds that--
    + The facility is not currently able to provide care for these 
individuals; or
    + Caring for these individuals will adversely affect care provided 
to other residents.
    --If the facility achieves compliance with the requirements, HCFA 
does or the State must resume payment to the facility prospectively 
from the date that it determines that compliance has been achieved.
6. Directed Plan of Correction
    Sections 1819(h)(2)(B) and 1919(h)(2)(A) permit the Secretary and 
the State, respectively, to provide for other specified remedies. At 
Sec. 488.224, we proposed adding a directed plan of correction as a 
remedy in which a facility could be required to take action within 
specified timeframes according to the plan of correction developed by 
HCFA, the survey agency, or the temporary manager (with HCFA or survey 
agency approval).
    The directed plans of correction would set forth the expected 
correction actions which the facility must take to achieve compliance 
and the dates by which the actions must be taken.
7. Use of State Monitoring As a Remedy
    In Secs. 488.206 and 488.222, we proposed that, if State monitoring 
is used as a remedy, State monitors would be required to be onsite as 
frequently as necessary to oversee the correction of specific 
deficiencies cited. This remedy differs from traditional revisits by 
the survey agency in that State monitors are onsite, as necessary, 
while corrections are being made, as opposed to a revisit which occurs 
after corrections are completed, and serve to confirm that the 
deficiency has been removed. We said that State monitoring must be used 
as a remedy when a survey agency has cited a facility with substandard 
quality of care on the last three consecutive standard surveys.
    We proposed that individuals serving as State monitors would be 
required to be employees or contractors of the State survey agency, and 
maintain professional qualifications needed to address the specific 
nature of the deficiencies. The State would be responsible for ensuring 
that the monitors are appropriate health care professionals. A State 
monitor could not function as a consultant to the facility nor could 
the State monitor be an employee of the facility. We concluded that a 
monitor serving as a consultant to a facility would potentially put the 
State in a situation of defending the monitor's recommendations rather 
than making the facility responsible for correcting its deficiencies. 
Additionally, a monitor employed by a facility and working for the 
State would constitute a conflict of interest.
8. Civil Money Penalties
    At Sec. 488.230, we proposed allowing civil money penalties to be 
imposed for noncompliance regardless of whether or not the deficiencies 
constitute immediate and serious threat to resident health and safety. 
However, we proposed at Sec. 488.230(b) that civil money penalties 
would not be imposed during the pendency of a hearing on the imposition 
of that remedy.
    We proposed that, if HCFA wants to impose a civil money penalty, it 
must notify the provider in writing of the intent to impose a penalty. 
The notice would include reference to the statutory basis for the 
penalty, the amount of the penalty per day of noncompliance, any 
circumstances that were considered when determining the amount per day 
of the proposed penalty, and instructions for responding to the notice, 
including a specific statement of the facility's right to a hearing and 
implications of waiving a hearing.
    If the State proposes to impose a civil money penalty, the State 
would notify the facility in accordance with State procedures.
    We proposed that a penalty amount would be permitted to be imposed 
within the following ranges:
     For deficiencies constituting an immediate and serious 
threat (that is, a severity level of 4, regardless of scope)--$3,050 to 
$10,000 per day;
     For deficiencies constituting nonimmediate and nonserious 
threat above a scope or severity level of 1--$50 to $3,000 per day.
     For both levels, the amount of the civil money penalty 
would be set at $50 increments within these ranges.
    Removal of the immediate and serious threat, but not the 
deficiencies, would justify the shift to the range of penalties that 
are imposed for nonimmediate and nonserious threat above a scope or 
severity level of 1. A penalty would be imposed at the immediate and 
serious level for the number of days the immediate and serious threat 
is present. We proposed that a provider may, in lieu of contesting the 
deficiency which led to the imposition of the civil money penalty, 
waive the right to a hearing within the specified timeframes and 
procedures in the regulations under Sec. 498.40 (Request for hearing) 
for Medicare and Sec. 431.221 (Request for hearing) for Medicaid. If 
the facility were to waive the right to a hearing within 60 days from 
the date of notice, HCFA or the State would be required to reduce the 
civil money penalty by 35 percent. If the facility were to waive the 
right to a hearing after the 60th day, HCFA's or the State's settlement 
would be discretionary. The reduction in the civil money penalty would 
reflect the savings to both the government and the provider of costs 
that would otherwise be incurred to formally adjudicate the dispute. 
The provider would be free to reject the option to waive the right to a 
hearing. We proposed that the daily fine amount of a facility could be 
increased if the facility alleges compliance, but on a revisit by HCFA 
or the State survey agency, the facility is still found to be 
noncompliant with the same requirements. The purpose of giving HCFA or 
the State discretion to increase the daily fine, we believe, would be 
to deter unfounded allegations of compliance. The amount of increase, 
if any, would be effective the day following the resurvey.
    In determining the amount of the penalty, section 1128A(d) of the 
Act requires the Secretary to consider specific matters and also 
provides authority to take into account any other items relevant to the 
penalty determination. We proposed that the Secretary's 
nondiscretionary and discretionary requirements be applicable to the 
State as well to make the Medicare and Medicaid requirements equivalent 
for SNFs and NFs. We do not believe that the Congress intended to have 
two separate assessment methodologies in place between both enforcement 
authorities when a civil money penalty from each could potentially be 
imposed on a single facility. Our proposal included two additional 
factors so that the noncompliance itself is considered when determining 
the penalty amount.
    In determining the amount of the penalty, we proposed at 
Sec. 488.230(g) that HCFA or the State must take into account the 
following factors:
     The facility's degree of culpability;
     The facility's history of prior offenses, including repeat 
deficiencies;
     The facility's financial condition;
     The nature, scope, severity and duration of the 
noncompliance; and
     The category of requirement with which the facility is out 
of compliance.
    The effective date for a civil money penalty would be the 10th day 
after the last day of the survey in the case of immediate and serious 
threat deficiencies; or the 20th day after the last day of survey in 
the case of non-immediate and non-serious threat deficiencies. These 
timeframes permit time to notify the facility of the intent to impose a 
civil money penalty 5 days after the last day of survey.
    When HCFA's or the State's imposition of a civil money penalty is 
upheld on appeal or the facility waives its right to a hearing, we 
proposed that the civil money penalty would be for the number of days 
between the effective date of the penalty and the date of correction of 
deficiencies, or, if applicable, the effective date of termination. 
Penalties would be computed after compliance is verified or the 
facility has been sent notice of termination and the effective date. In 
the case of the facility achieving compliance, HCFA or the State would 
send a separate notice to the facility containing the amount of penalty 
per day, the number of days involved, the due date of the penalty, and 
the total amount due. In the case of a facility to be terminated, HCFA 
or the State would send this penalty information in the termination 
notice.
    The daily accrual of civil money penalties would be imposed for no 
longer than 6 months for non-immediate and non-serious threat 
deficiencies after which HCFA would terminate a SNF provider agreement, 
or stop Federal funding to the State for a NF, and the State may 
terminate the provider agreement of the NF if deficiencies remain. In 
the case of immediate and serious threat deficiencies, the daily 
accrual of civil money penalties would continue until HCFA or the State 
terminates the provider agreement or the deficiencies are corrected. If 
the facility can supply documentation acceptable to HCFA or the State 
survey agency that compliance with participation requirements was 
attained on a date preceding that of the revisit, fines would only 
accrue until that date.
    Payments for civil money penalties would be due 15 days after--
     Compliance is verified, if a hearing decision upholding 
the imposition of the penalty had been rendered before compliance had 
been verified, or the 60-day period for requesting a hearing has 
expired and the facility has not requested a hearing or has waived its 
right to a hearing;
     A hearing decision upholding the imposition of the penalty 
if compliance was achieved before the hearing decision; or
     The effective date of termination if compliance has not 
been achieved by that time.
    Currently, Sec. 431.153 (Evidentiary hearing) does not specify the 
number of days a facility has to request a hearing. We proposed 
amending Sec. 431.153 to add a new paragraph (b) which specifies that a 
NF or ICF/MR must file a request for hearing within 60 days of receipt 
of the notice of denial, termination, nonrenewal, or imposition of a 
civil money penalty or other remedies.
    Consistent with the way other civil money penalties are recovered, 
as provided in section 1128A(f) of the Act, we proposed that the amount 
of any penalty, when determined, may be deducted from any sum then or 
later owing by HCFA or the State to the facility against whom the 
penalty has been assessed. Interest would be assessed on the unpaid 
balance of the penalty beginning on the due date. We proposed that the 
rate of interest to be assessed on the unpaid balance would be 
negotiable and for that reason might vary on a case by case basis. 
Funds collected by HCFA or the State as a result of a civil money 
penalty would be returned to the Medicare Trust Fund or to the State, 
respectively. Civil money penalties collected from dually participating 
facilities would be returned to the Medicare Trust Fund and the State 
in proportion commensurate with the relative proportions of the number 
of Medicare and Medicaid beds actually in use at the facility at the 
time the facility receives notice of the imposition of the civil money 
penalty. Under section 1919(h)(2)(A)(ii) of the Act, funds collected by 
a Medicaid State agency must be put into a common fund to be applied to 
the protection of the health or property of residents of any NF that 
the State or HCFA finds deficient, including payment for the cost of 
relocating residents to other facilities, maintenance of operation of a 
facility pending correction of deficiencies or closure, and 
reimbursement of residents for personal funds lost. Oversight of the 
collection and use of funds will be addressed through HCFA's State 
agency evaluation program now in place.
    With respect to SNFs, State-operated facilities, or HCFA validation 
actions when HCFA's enforcement choice prevails, HCFA would have the 
exclusive authority to settle any case at any time prior to a final 
administrative law judge hearing decision. With respect to non-State-
operated NFs or dually participating facilities or HCFA validation 
surveys when only the State's enforcement decision prevails, the State 
would have the authority to settle any case at any time prior to the 
hearing decision.
9. Closure of a Medicaid Facility and Transfer of Residents as a Remedy
    Section 1919(h)(2)(A)(iv) of the Act allows the State to close a 
Medicaid facility and transfer its residents as an available remedy in 
emergency situations. This provision appeared in our proposed 
Sec. 488.226 (Closure of a Medicaid facility and transfer of 
residents). Notice and appeal rights would be in accordance with State 
procedures.
10. Other Alternative or Additional State Remedies Other Than 
Termination--Medicaid only
    Section 1919(h)(2)(A) allows the State to develop alternative or 
additional State remedies (other than denial of payment for new 
admissions and State monitoring). At Sec. 488.228 (Alternative or 
additional State remedies), we proposed that for Medicaid facilities, 
the State may establish and impose alternative remedies if the State 
demonstrates to HCFA's satisfaction that the alternative remedies are 
as effective in deterring noncompliance and correcting deficiencies as 
the remedies of temporary management, civil money penalties, and 
emergency closure of the facility and transfer of residents. Regardless 
of which alternative remedies the State establishes, we proposed that 
they must include denial of payment for new admissions and State 
monitoring as remedies. We reached this conclusion because section 
1919(h)(2)(D) of the Act requires that denial of payment for new 
admissions and State monitoring be imposed when a NF was found to have 
provided substandard quality of care on three consecutive standard 
surveys. We also required the State to include denial of payment for 
new admissions because section 1919(h)(2)(C) of the Act requires this 
remedy be imposed on a NF that has not complied with the participation 
requirements within 3 months after the last day of the survey which 
found the facility out of compliance with the requirements. We proposed 
requiring that these alternative or additional remedies be approved by 
HCFA and specified in the State plan.
11. Selecting an Enforcement Remedy
    Once a State or HCFA determines that violations of nursing home 
requirements have occurred, there is an obligation to assess what the 
most effective remedy ought to be to assure the protection of the well 
being of the resident population. At Sec. 488.208 (Choice of remedies), 
we proposed that the survey agency or HCFA assess individual 
deficiencies or clusters of deficiencies first according to the 
following initial factors:
     The presence or absence of immediate and serious threat to 
resident health and safety;
     The severity of the deficiency; and
     The scope of the deficiency.
    We also proposed that, following the initial assessment, HCFA and 
survey agency could consider the following secondary factors:
     The relationship of one deficiency or group (cluster) of 
deficiencies to other deficiencies; and
     The facility's prior compliance history in general and 
specifically with reference to the cited deficiencies.
    We said that the selection of a remedy would be based on the nature 
of the deficiencies or cluster of deficiencies. In the proposed 
Secs. 488.210 (Action when there is immediate and serious threat) and 
488.212 (Action when there is no immediate and serious threat), we set 
forth rules for the imposition of particular remedies in specified 
circumstances. Regardless of which remedy or remedies are imposed, each 
facility that is out of compliance with a program requirement must 
submit a plan of correction for approval by HCFA or the survey agency, 
except in the case of deficiencies that HCFA or the State determines to 
be at a scope and severity level of 1.
    We said that the choice of remedy, by either HCFA or the State, 
including the manner in which HCFA or the State uses the scope and 
severity scales specified in Sec. 488.204 (Determination of remedies) 
would not be subject to review as part of the appeals process.
    We set forth the proposed severity and scope scale in Sec. 488.204 
(Determination of remedies). We said that, in order to determine the 
seriousness of deficiencies, the survey team would apply the following 
severity and scope scale guides:
     Severity scale.
    The four levels of the severity scale are as follows:
    --Level 1. Any deficiency with respect to requirements for long 
term care facilities that does not meet the criteria for severity 
levels 2, 3, or 4.
    --Level 2. Either a negative outcome or resident rights violation 
has occurred, or, in the survey team's judgment, the ability of the 
individual to achieve the highest practicable physical, mental, or 
psychosocial well-being has been compromised, or both.
    --Level 3. Potential physical harm, which could cause serious harm, 
impairment or death. In the survey team's judgment, there is a 
recognizable health or safety hazard, which if left unabated, is likely 
to cause serious harm, impairment or death.
    --Level 4. Actual physical harm, which has caused serious 
impairment or death. Life threatening harm, severe impairment, or death 
has occurred.
     Scope scale.
    The four levels of the scope scale are as follows:
    --Level 1--Isolated. The survey team might conclude that a 
deficiency is isolated if its perception is such that, it believed the 
deficiency to exist only in a very limited number of cases.
    --Level 2--Occasional. The survey team might conclude that a 
deficiency is occasional if, in its combined judgment, the deficiency 
is identified in a number of cases, but does not appear to reflect a 
pattern of facility behavior.
    --Level 3--Pattern. The survey team might conclude that a pattern 
exists where, in its judgment, there are a sufficient number of 
repeated observations that it is likely that the deficiency might exist 
in cases not reviewed by the team.
    --Level 4--Widespread. The survey team might conclude that a 
deficiency exists in sufficient number that, in its judgment, the 
deficiency represents a systemic or pervasive practice of the facility.
12. Application of Remedies
    At Sec. 488.210, we proposed that, if a determination has been made 
that a deficiency would present an immediate and serious threat to 
resident health or safety, HCFA or the State would take immediate 
action to appoint a temporary manager to remove the threat, impose 
other remedies as it determines necessary to bring the facility into 
full compliance, and/or terminate the facility's participation in the 
program within 23 calendar days of the last day of survey. If the 
facility does not accept temporary management, HCFA or the State would 
immediately terminate the provider agreement within 23 calendar days of 
the last day of survey. If the facility accepts temporary management 
but does not remove the immediate and serious threat within 23 calendar 
days of the appointment of the temporary manager, HCFA or the State 
would terminate the provider agreement on the 23rd day from that 
appointment. The 5-calendar day period for providing notice to 
facilities of termination of a provider agreement as specified in 
Sec. 489.53 (Termination by HCFA) of the regulations would be included 
within this 23-day period.
    At Sec. 488.212, we proposed that, if the facility is found, at the 
time of the survey, to have deficiencies that do not pose an immediate 
and serious threat to resident health and safety, HCFA or the State may 
allow the facility to continue to participate for up to 6 months from 
the date of the survey if--
     The State finds that it is more appropriate to impose 
alternative remedies than to terminate the facility;
     The State survey agency has submitted a plan of correction 
approved by HCFA; and
     The facility (in the case of a Medicare SNF or the State 
in the case of a Medicaid NF) agrees to repay to the Federal government 
payments received if corrective action is not taken in accordance with 
the approved plan of correction.
    We said that, if a facility does not meet these eligibility 
criteria for continuation of payment, HCFA would and the State must 
terminate the facility's provider agreement. If any deficiency at any 
severity or scope level remained uncorrected within 90 calendar days 
after the last day of survey, HCFA would and the State must deny 
payment for new admissions.
    We proposed that HCFA terminate provider agreements for SNFs and 
NFs, and stop FFP for NFs for which participation was continued, if 
cited deficiencies were not corrected within 6 months of the last day 
of the survey.
    In the proposed rule, we also set forth specific rules on how to 
apply both low severity and scope levels and all other severity and 
scope levels as follows:
     Low severity and scope levels
    --If both the severity level and the scope level are 1, a 
deficiency still exists, but no alternative remedies are imposed or 
plan of correction required as long as correction is achieved within 90 
calendar days from the last day of survey.
    --The survey agency would be required to give the facility a 
summary of the deficiencies.
    --If the survey agency identifies a recurrence of these 
deficiencies at the next standard survey, HCFA or the State would be 
required to impose one or more remedies specified at Sec. 488.206 
(Available remedies) due to the persistence of the deficiencies over 
time.
     All other severity and scope levels
    --If the severity level is 1 and the scope is 2, 3, or 4, the State 
must (and HCFA does) require a plan of correction and may impose one or 
more remedies specified at Sec. 488.206.
    --If the severity level is 2 and the scope level is 1 or 2, the 
State must (and HCFA does) impose one or more of the remedies specified 
at Sec. 488.206 paired with a plan of correction.
    --If the severity level is 2 and the scope level is 3 or 4 in 
quality of care, the State must (and HCFA does) impose one or more of 
the remedies specified at Sec. 488.206 paired with a plan of 
correction. The State would be required to notify the attending 
physician of each resident to which such finding is made, as well as 
any State board responsible for the licensing of the facility 
administrator.
13. Procedures for the Imposition of Remedies Notice
    HCFA or the State would give the facility notice of intent to 
impose a remedy. At Sec. 488.202(f), we proposed that HCFA or the State 
give the facility notice of the remedy at least 2 days but not more 
than 4 days before the effective date of the remedy in immediate 
jeopardy situations, and at least 15 days before the effective date of 
the remedy when there is no immediate jeopardy. Therefore, in practice, 
in immediate jeopardy situations, the remedy could be imposed anytime 
after the minimum 2 day notification period, but not later than the 
10th day after the last day of survey. This would allow up to 5 days 
for HCFA or the State to send the notice and an additional 2 to 4 days 
before the remedy is imposed.
14. Hearings: Medicare and Medicaid Consistency
    We proposed revising Sec. 431.153 (Evidentiary hearing) to provide 
that States must impose remedies, with the exception of civil money 
penalties, against providers of services at the time that they identify 
the existence of violations of Federal requirements, notwithstanding 
any other provision of State law. We intended that, under this 
provision, sanctions available under the program would become effective 
immediately after the identification of program violations and 
notification to the provider of the deficiencies and the impending 
sanction(s).
    We also proposed to delete Sec. 442.40 (Availability of FFP during 
appeals). This section has enabled States to continue to receive FFP, 
under certain circumstances, for facilities whose provider agreement 
has been terminated, for up to 120 days after the effective date of the 
termination if a required administrative hearing decision has not been 
reached. In light of our objective to be more aggressive in the 
enforcement of nursing home requirements by requiring that States 
provide only post-action hearings, just as is done under Medicare, we 
see Sec. 442.40 as plainly inconsistent with this objective.
15. Continuation of Payment Pending Remedies
    At Sec. 488.232, we proposed that HCFA may continue payments to a 
facility with deficiencies if the following criteria are met:
     The State finds that it is more appropriate to impose 
alternative remedies than to terminate the facility;
     The State has submitted a plan of correction approved by 
HCFA; and
     The facility in the case of a Medicare SNF or the State in 
the case of a Medicaid NF agrees to repay the Federal government 
payments received if corrective action is not taken in accordance with 
the approved plan of correction.
    We also proposed that HCFA or the State may terminate the SNF or NF 
agreement before the end of the 6-month correction period if these 
criteria are not met. We said that, if any of these criteria are not 
met or agreed to by either the State or the facility, the facility 
would receive no Medicare or Federal Medicaid payments, as applicable, 
from the date of the determination of noncompliance by either HCFA or 
the State.
    If the criteria are met, HCFA or the State may continue payments to 
a facility with deficiencies that do not constitute an immediate and 
serious threat for up to 6 months from the last day of the survey. If 
the facility does not correct deficiencies by the end of the period 
specified, HCFA would--
     Terminate the provider agreement for Medicare SNFs; and
     Discontinue FFP to the State for Medicaid NFs. The State 
may terminate the provider agreement for NFs.
    We proposed that the required termination notice would be sent 15 
days before the end of the 6-month period, and that the notice period 
would run concurrently with the last 15 days of the 6-month period.
    Medicare SNFs and dually participating facilities adversely 
affected by the requirement to repay to the government all payments 
received if corrective action is not taken could appeal the decision.
16. Resolution of Differences in Findings and Recommended Remedies 
Between State and HCFA for non-State operated Medicaid Facilities and 
Dually Participating Facilities.
    Sections 1919(h) (6) and (7) of the Act set forth special rules for 
when the State and Secretary do not agree on findings of noncompliance, 
timing of termination or where remedies overlap. To implement these 
provisions, we provided in Sec. 488.234 that, if HCFA finds that a non 
State-operated NF or a dually participating facility has met all 
requirements, but the State survey agency finds that the facility has 
not met all requirements and the failure does not immediately 
jeopardize the health and safety of its residents, the State survey 
agency's finding will control (proposed Sec. 488.234(a)(1)). In this 
instance the State's certification of noncompliance would control. The 
dually participating facility would have its hearing rights met through 
the procedures set forth at 42 CFR part 498. The non-State operated NF 
would have its hearing rights met through the procedures set forth at 
42 CFR part 431. If HCFA finds that a NF or a dually participating 
facility has not met all requirements and the failure does not 
immediately jeopardize the health or safety of its residents, but the 
State survey agency has not made such a finding, HFCA's finding could 
control. In this case, HCFA would impose the remedies and would permit 
the State to continue payments to the facility during the correction 
period (proposed Sec. 488.234(a) (2) and (3)). These provisions specify 
the means to determine compliance or noncompliance for the Medicaid NF 
which will then, by virtue of section 1919(h)(8) of the Act, become the 
compliance/noncompliance decision for the Medicare SNF.
    If both HCFA and the State find that a facility has not met all 
requirements and neither find that the failure immediately jeopardizes 
the health or safety of its residents, the following procedures would 
apply:
     If both HCFA and the State find that a facility's 
participation should be terminated, the State's timing of any 
termination (as specified in proposed Sec. 431.153(c)) would control so 
long as the termination date does not occur later than 6 months after 
the date of the finding to terminate (Sec. 488.234(b)).
     If HCFA, but not the State finds that a facility's 
participation should be terminated, HCFA's decision to terminate would 
prevail and HCFA would permit continuation of payment during the period 
prior to the effective date of termination, not to exceed 6 months from 
the last day of survey (Sec. 488.234(b)(l)).
     If the State, but not HCFA finds that a facility's 
participation should be terminated, the State's decision to terminate 
and the timing of the termination (as specified in proposed section 
431.153(c)) would control (Sec. 488.234(b)(2)).
     If HCFA or the State, but not both, would impose one or 
more remedies that are additional or alternative to termination, the 
additional or alternative remedies would also be applied 
(Sec. 488.234(d)(l)).
     If both HFCA and the State would impose one or more 
remedies that are additional or alternative to termination, only the 
additional or alternative remedies of HCFA would apply 
(Sec. 488.234(d)(2)).
17. Termination of Provider Agreements and Discontinuation of FFP
    At Sec. 488.238, we said that termination of the provider agreement 
would end payment to the facility and any alternative remedy. We 
proposed that HCFA and the State may terminate a facility's provider 
agreement if a facility--
     Fails to correct deficiencies within the specified time;
     Fails to submit a plan of correction within the time 
specified by HCFA; or
     Does not meet the eligibility criteria for continuation of 
payment.
    We said that HCFA and the State would terminate a facility's 
provider agreement if a facility with immediate and serious threat 
deficiencies refuses temporary management, if that remedy is offered by 
HCFA or the Medicaid agency. In addition, we proposed that, before 
terminating a provider agreement, HCFA does and the State must notify 
the facility and the public--
     At least 2 and not more than 4 calendar days before 
termination for a facility with immediate and serious threat 
deficiencies; and
     At least 15 calendar days before termination for a 
facility with non-immediate and serious threat deficiencies.
    The current termination notification requirement at 
Sec. 489.53(c)(1) requires HCFA to give notice to any provider at least 
15 days before the actual effective date of a termination of a provider 
agreement, irrespective of whether the situation poses an immediate and 
serious threat, except in the case of Medicare SNFs. Section 
489.53(c)(2) provides that SNFs with deficiencies that pose an 
immediate and serious threat are entitled to notice of the termination 
at least 2 days before the effective date of the termination of the 
provider agreement. Since the existing regulations do not discriminate 
between immediate and serious and nonimmediate and serious threat 
situations except in the case of Medicare SNFs, we proposed to amend 
Sec. 489.53(c)(2) to require at least 2 and not more than 4 calendar 
days notice to all providers of a termination action involving an 
immediate and serious threat.
    If HCFA or the State terminates the provider agreement, we would 
require the survey agency to arrange for the orderly transfer of all 
Medicare and Medicaid residents to another SNF or NF. If there is a 
closure of a Medicaid NF or dually participating facility by the State, 
we proposed at Sec. 488.240 that the State would be required to arrange 
for an orderly transfer of all residents.
18. Conflict Resolution
    In the proposed rule, we sought public comment about the 
desirability and feasibility of establishing a conflict resolution 
system whereby facilities dissatisfied with a certification of 
noncompliance would be afforded a formal mechanism for disputing 
deficiencies prior to the administrative and judicial review processes. 
We also requested comments on the best way for such a system to be 
implemented.

K. Incentives for High Quality Care

    Section 1919(h)(2)(F) of the Act, as added by section 4213 of OBRA 
'87, provides that, in addition to the remedies discussed, a State may 
establish a program to reward, through public recognition, incentive 
payments, or both, nursing facilities that provide the highest quality 
care to residents who are entitled to Medicaid. A State would 
incorporate such an incentive program in its State plan. We proposed 
incorporating this provision in our proposed Sec. 488.153(b).

L. Educational Program

    Sections 1819(g)(l)(B) and 1919(g)(1)(B) of the Act provide that 
each State must conduct periodic educational programs for the staff and 
residents (and their representatives) of nursing homes in order to 
present current regulations, procedures, and policies on the survey and 
certification and enforcement processes. We proposed incorporating this 
provision in Secs. 488.153(c) and 488.184.

M. Conforming Changes

    In addition to changes already discussed in this preamble, we 
proposed making other conforming changes to regulations under part 431, 
442, and 489.

III. Summary of Major Provisions in Final Rule

    In response to public comments, we made numerous technical changes 
and some major policy changes, which are explained in detail in the 
following section. In summary, the major changes include the following:
     We reconfigured the criteria used to determine enforcement 
remedies when facilities are out of compliance with Federal 
requirements, so that there is a clearer correlation between levels of 
noncompliance and types of remedies imposed. We have also grouped the 
remedies into three remedy categories ranging from least to most 
severe. In this final rule, we present an enforcement scheme in which 
States may use their own methods for interpreting terms that describe 
the relative frequency or seriousness of deficiencies, other than 
immediate jeopardy, as long as they are consistent with the guidance 
presented in the regulation.
     We provide that remedies may cease when substantial 
compliance is achieved, and define substantial compliance as ``a 
measure of compliance with the participation requirements such that no 
deficiencies exist which pose actual harm or have the potential for 
more than minimal harm.'' The only exceptions to this rule are those 
involving temporary management and State monitoring and denial of 
payment imposed for repeated noncompliance. In these cases, in addition 
to achieving substantial compliance, the facility must prove to HCFA's 
or the State's satisfaction that it will remain in substantial 
compliance.
     We also revise or add definitions for abuse, neglect, 
immediate jeopardy, substandard quality of care, standard survey, 
validation survey, extended survey, partial extended survey, 
abbreviated standard survey, deficiency, nursing facility, skilled 
nursing facility, substantial compliance, noncompliance and revisit.
     We clarify the term ``professionals'' as it relates to the 
members of a survey team by setting forth examples and by stating that 
the State, subject to HCFA approval, determines what constitutes a 
``professional.''
     We modify the qualifications for temporary managers and 
set a salary floor.
     We expand the financial, employment, and familial 
circumstances that disqualify a surveyor from surveying a particular 
facility.
     We limit the instances in which a reduction in FFP is 
taken for inadequate survey performance to situations when a State 
demonstrates a pattern of failure to identify deficiencies in Medicaid 
facilities.
     We redefine what constitutes inadequate survey 
performance.
     We amend the regulations text at Sec. 488.312 
(Sec. 488.162 of the proposed rule), consistency of survey results, to 
require that State survey agencies study surveyor accuracy as well as 
consistency.
     We clarify that the survey agency will review complaint 
allegations and conduct a standard or abbreviated standard survey if 
the survey agency concludes that a deficiency in one or more 
requirements may have occurred and only a survey can confirm the 
existence of the deficiency or deficiencies.
     We limit HCFA's and the State agency's discretion to 
conduct an extended or partial extended survey to situations in which 
substandard quality of care has been identified. HCFA or the State 
will, however, continue to have complete discretion to examine any and 
all aspects of a facility's performance in order to determine 
compliance with the requirements.
     We add directed in-service training as a new remedy.
     We expressly state that denial of all payment for all 
Medicare residents in a facility may be imposed by HCFA and that HCFA 
may deny payment to the State for all Medicaid residents in a facility.
     We clarify that one or more remedies may be imposed for 
one or more deficiencies.
     We eliminate as a remedy denial of payment for certain 
diagnostic categories.
     We add the following to clarify the civil money penalty 
provisions:
    + The amount of the civil money penalty can be adjusted to reflect 
changes from non-immediate jeopardy to immediate jeopardy and from 
immediate jeopardy to non-immediate jeopardy.
    + A civil money penalty is increased for repeated deficiencies 
within the same regulatory grouping of requirements in those cases 
where a civil money penalty was imposed as a remedy for the first 
occurrence of the deficiency;
    + The interest rate for civil money penalties is in accordance with 
the rate fixed by the Secretary of the Treasury and used by the 
Department for Medicare and determined by the State for Medicaid;
    + The HCFA notice of the imposition of the civil money penalty does 
not have to be sent by mail;
    + The HCFA notice of intent to impose the civil money penalty 
includes more information regarding the nature of the noncompliance, 
dates of accrual and dates of collection;
    + The State's notice to non-State operated NFs when the State takes 
action must include at a minimum the information specified in the HCFA 
notice;
    + If the facility waives its right to a hearing in writing within 
60 days from the date of the notice of intent to impose the civil money 
penalty, HCFA or the State reduces the civil money penalty by 35 
percent.
    + The civil money penalty may start to accrue as early as the date 
the facility was first found out of compliance, as determined by HCFA 
or the State. This may be the last day of the survey or, in certain 
situations, before that date.
     When the basis for imposing a civil money penalty exists, 
the administrative law judge or State hearing officer may not set a 
penalty of zero, reduce the penalty to zero, or review the exercise of 
discretion to impose the civil money penalty.
     In the case of civil money penalties, facilities may 
challenge the level of noncompliance found by HCFA or the State if a 
successful challenge on the issue would affect the range of civil money 
penalty amounts from which HCFA or the State could collect a civil 
money penalty.
     We add a provision to direct the State during a complaint 
investigation to follow the specific procedures found at Sec. 488.335 
(Sec. 488.185 of the proposed rule), action on complaints of resident 
neglect and abuse, and misappropriation of resident property, when 
there is reason to believe that an identifiable individual neglected or 
abused a resident or misappropriated a resident's property.
     We add a requirement that the State must have written 
procedures for the timely review and investigation of allegations of 
resident neglect and abuse and misappropriation of resident property. 
In addition, we have required that the State should take appropriate 
precautions to protect a complainant's anonymity and privacy, if 
possible.
     If arrangements have been made with other State components 
for investigation of complaints, we require that the State have a means 
of communicating information among appropriate entities, and that the 
survey agency retain the responsibility for the investigation process.
     We require that findings of investigations be included in 
the nurse aide registry within 10 working days of the findings.
     We require that the survey agency determine if complaints 
violate any requirements of part 483, subpart B and take appropriate 
enforcement action as necessary if the allegation of neglect, abuse or 
misappropriation of property against an individual is a complaint 
against the facility.
     We require the notification of physicians of those 
residents identified as receiving substandard quality of care.
     We clarify that survey findings are reported with 
recommendations for corrective action to officials in the enforcing 
agency who determine what remedies to impose.
     With respect to the disclosure of survey information, we 
revise the provisions on fees, charges, and timeframes for release of 
information to provide that, with certain exceptions, HCFA or the State 
will disclose survey-related information and may charge the public in 
accordance with pre-existing Federal regulations and State procedures.
     We eliminate 120 days of FFP for a Medicaid NF and retain, 
for now, 120 days of FFP for an ICF/MR while the facility waits for a 
post-termination hearing.
     We formalize the opportunity for informal dispute 
resolution currently in the State Operations Manual for providers to 
raise unresolved issues to the State agency or the respective HCFA 
regional office after the provider's receipt of the official deficiency 
statement, and have prohibited challenges by providers from postponing 
or otherwise delaying the effective date of any enforcement action.
     We specify that a provider in substantial compliance at 
the end of 6 months may continue to participate without repayment of 
Federal funds.
     We delete the section on validation surveys from the 
regulation text because the statutory provisions are self- implementing 
and regulatory interpretation is not needed to clarify them. The few 
elaborations on the requirements in sections 1819(g)(3) and 1919(g)(3) 
of the Act are duplicated elsewhere in the regulation and there is 
little reason to repeat them.
     We renumber proposed Secs. 488.150-488.185 and proposed 
Secs. 488.200-488.240 as Secs. 488.300-488.335 and Secs. 488.400-
488.456, respectively, to take into account existing section numbers 
already included in part 488, subpart D.
     We incorporate the provision of proposed Sec. 488.240, 
Transfer of residents, into Sec. 488.426 in the final rule. We revise 
the title of Sec. 488.426 to Closure and/or transfer of residents.
     We incorporate the provisions of proposed Sec. 488.228 
into Sec. 488.406 of the final rule.

IV. Discussion of Public Comments

    We received more than 27,900 timely letters in response to our 
August 28, 1992 proposed rule. Most were from the owners and operators, 
administrators, staff, and attorneys of long term care facilities. 
Others were from professional organizations, chains of long term care 
facilities, employee unions, and vendors that supply facilities. We 
also heard from consumer advocates and ombudsmen, Federal, State, and 
local governments, consumer organizations, and residents of long term 
care facilities. Families of residents and their guardians and other 
legal representatives commented as well. A discussion of the comments 
follows. We do not discuss sections of the rule on which the public had 
no comment.
    Normally, a final rule is not effective until 30 or 60 days after 
it is published in the Federal Register. Because implementation of the 
complex and far-reaching provisions of this final rule will require a 
major, nationwide training effort to train surveyors, their supervisors 
and related personnel, this rule is effective June 1, 1995.

Effective Date

    Comment: One commenter stated that HCFA must provide nursing homes 
with a reasonable education and retraining grace period of no less than 
one year before implementing the new survey standards so that 
facilities can adjust to the enormous changes. The States and HCFA 
should provide reasonable funding to ensure that training is completed 
before the new requirements take effect. There is a precedent for this 
in HCFA's recent recognition that State certification requirements for 
home health care aides should be accompanied by State funding to help 
facilitate retraining.
    Response: HCFA routinely provides a long lag time for the effective 
date of particularly complicated regulations and has done so for this 
regulation as well. The new long term care requirements were published 
in the Federal Register on September 26, 1991 (56 FR 48826), and were 
effective April 1, 1992. This final enforcement rule should have no 
effect on the requirements for long-term care as stated in the 
September 1991 regulation and the facilities should have had ample time 
to become familiar with its requirements. Our primary concern is to 
provide oversight for the protection of residents in nursing homes who 
are dependent upon others for the care they receive. It would serve no 
purpose to allow facilities to have additional time to become familiar 
with requirements of which they are already aware. Our responsibility 
is to continue to move forward in enacting the enforcement provisions 
for long term care facilities.

Part 431  State Organization and General Administration

    Comment: In response to our proposed revisions to part 431, most 
opposing comments concerned the effect on ICFs/MR of withdrawing FFP 
during appeals. Some commenters noted that OBRA '87 specifically 
exempted ICFs/MR from its scope, and stated that it is not appropriate 
to change the ICF/MR rules in implementing a law that applies to other 
facilities. Some commenters stated that the discussion on ICFs/MR was 
lost within the SNF/NF regulations, and there was no discussion in the 
preamble concerning applicability to ICFs/MR. Some stated that HCFA 
provided no rationale for this change in the ICF/MR rules, and 
therefore a proposed rule should be published which allows for full 
notice and comment rulemaking. Some commented that if the proposal had 
been written in a more direct manner, more groups would have written to 
object.
    Response: We agree that it would be preferable to include the 
provisions applicable to ICFs/MR at a later date in rulemaking focused 
on ICFs/MR. Therefore, we are adopting the commenters' proposals that 
the 120 days of FFP continue for ICFs/MR until this issue may be more 
fairly resolved in such a rulemaking. Therefore, at this time, we are 
leaving the existing appeals system in place for ICFs/MR. There were 
other comments concerning ICFs/MR that are outside the purview of this 
regulation, and are therefore not addressed in this discussion.
    For the reasons stated directly above, we are revising 
Secs. 431.151, 431.153, and 431.154 to delete reference to SNFs and 
ICFs as follows:
     Sec. 431.151 (``Scope and applicability.'') is revised so 
that subpart B of part 431 specifies the appeal procedures the State 
must make available to an ICF/MR for which the State denies, 
terminates, or fails to renew certification or a provider agreement for 
the Medicaid program.
     Sec. 431.153 (``Evidentiary hearing.'') is revised to 
state that

--An ICF/MR whose certification or provider agreement is denied, 
terminated, or not renewed must be given an opportunity for a full 
evidentiary hearing on the denial, termination or nonrenewal;
--If the facility requests a hearing, it must be completed either 
before the effective date of the denial, termination or nonrenewal or 
within 120 days after that date; and
--The hearing must, at a minimum, include the provisions of 
Sec. 431.153(e).

    Comment: Several commenters responded to our specific request for 
comments on whether States, adversely affected by the repayment 
statutory provisions of section 1919(h)(3)(D), should have the right to 
appeal resulting disallowances to the Departmental Appeals Board (DAB) 
in addition to appealing a provider's certification of noncompliance 
under part 498. The commenters said that States should have this right 
to appeal but believed that few States would find it necessary to 
exercise this right.
    Response: We agree that States probably would not often find it 
worthwhile to challenge a decision that had withstood the test of an 
appeal in accordance with part 498. However, because section 1116(d) of 
the Act provides States with a statutory right to reconsideration 
whenever HCFA takes a disallowance, and regulations at 45 CFR part 16 
provide States with a hearing before the DAB when disallowances are 
made, we agree that appeal to the DAB should be an option for the 
States. At any such DAB hearing, the decision of the ALJ upholding 
HCFA's adverse action against the provider would, of course, be part of 
the evidence.
    Comment: A few commenters noted that State hearings will 
significantly increase, and stated that the regulatory impact statement 
fails to consider the amount of time surveyors and other staff, 
including attorneys, will need to prepare for and participate in 
hearings. They commented that overall costs for which HCFA must 
reimburse the states will be increased.
    Response: We recognize that the revised regulations expand the 
initial determinations for which States are required to grant an 
appeal. However, we have no program experience upon which to base a 
prediction of appeal volume or costs. There is not even a precedent to 
follow from the Medicare program, inasmuch as the expanded initial 
determinations are also new in the Medicare regulations. We anticipate 
that, in many cases, providers will be able to meet the necessary 
requirements before remedies are to be imposed, thus obviating the need 
for a hearing. Moreover, we are finding that the percentage of 
facilities with no deficiencies continues to increase, thereby causing 
us to predict fewer facilities facing some form of appealable 
enforcement action than has been the case previously. Because of these 
factors which may affect the increased number of initial determinations 
that are appealable, we can offer no valid prediction as to effect on 
volume or costs of appeals. However, we expect that the informal 
dispute resolution process will reduce the number (or scope) of adverse 
actions that lead to a hearing. Any increased net costs to States that 
are found to occur will be reflected in the budget process.
    Because we are now providing for an informal dispute resolution, we 
are revising Sec. 431.154 (``Informal reconsideration'') to delete 
references to SNFs and NFs and state that--
     If the State decides to provide an ICF/MR with an 
opportunity for an evidentiary hearing required by Sec. 431.153(a) only 
after the effective date of a denial of participation or termination, 
the State must offer the ICF/MR an informal reconsideration, to be 
completed before the effective date of the adverse action; and
     The informal reconsideration must, at a minimum, include

--Written notice to the facility of the denial of participation or 
termination, and the findings upon which it was based;
--A reasonable opportunity for the facility to refute those findings in 
writing; and
--A written affirmation or reversal of the denial, termination, or non-
renewal.

Section 442.40  Availability of FFP During Appeals

    We proposed deleting Sec. 442.40, which presently provides for 
continuing FFP for up to 120 days after the effective date of 
termination of a Medicaid provider agreement if an appeal is pending. 
(See the discussion of comments on part 431 above.)
    Comment: Several commenters wanted to retain the current provisions 
which allow for up to 120 days of FFP during a State's appeal process. 
A few wanted Federal funding to continue until a final decision is 
issued after a hearing. A few stated that elimination of the current 
rule would provide no benefit to the overall process.
    Response: As we stated in the proposed rule, it is our belief that 
the needs of individual residents are best served by the availability 
of prompt and effective remedial action that will motivate the fastest 
efforts by providers to comply with Federal program requirements. The 
Congress has already set the maximum time for a termination at 6 
months. Because a State could be paid for perhaps as long as 4 months 
after the effective date of provider termination, the State would have 
no incentive to challenge NFs to promptly comply with all program 
requirements. This is because, in all likelihood, the State would 
continue funding the Medicaid facility while receiving Federal 
payments. If we eliminate Federal funding to the State on a more 
accelerated schedule, States are likely to stop funding the NF once we 
stop Federal payments to the State. Thus, a greater incentive will 
exist for NFs to promptly comply with program requirements. Moreover, 
because the 120-day provision would significantly delay the imposition 
of certain remedies, it would not be consistent with section 1919(h)(2) 
of the Act, which calls for States to minimize the period of time 
between the identification of deficiencies and the imposition of 
remedies. In our opinion, the residents will benefit because the 
facilities in which they reside will come into substantial compliance 
faster. However, for the reasons previously explained, we have decided 
to continue FFP to ICFs/MR whose agreements have been terminated for up 
to 120 days after termination while we work on the publication of a 
separate rulemaking on ICF/MR policy.
    Comment: A few commenters stated that if pre-hearings were 
provided, the 120 day regulation would not be necessary for SNFs and 
NFs, but that if pre-hearings were not provided, the 120 regulation 
should be retained in order to give a facility time to present its side 
of the story before suffering irreparable harm.
    Response: As discussed elsewhere in this preamble, we are providing 
for dispute resolution beginning with the provider's receipt of the 
official Statement of Deficiencies, in order to give facilities an 
opportunity to rebut survey findings early in the process. By adding 
this feature to the enforcement process, we are balancing the needs of 
facilities to avoid unnecessary disputes and protracted litigation, on 
one hand, with the interests of facility residents, which we believe to 
be paramount, in assuring the most rapid correction of deficiencies. In 
so doing, we believe that the continued application of the 120- day 
rule would upset this balance of interests that we believe the Congress 
intended us to have.
    Comment: A few commenters predicted that the courts would be 
clogged with pretermination or presanction hearings if FFP were denied 
during the State appeal procedures.
    Response: Post-termination hearings have been upheld by all the 
circuit courts that have analyzed the issue of whether post-termination 
hearings satisfy the due process clause of the Constitution (see 
discussion titled, ``Hearings: Medicare and Medicaid Consistency''). 
Moreover, we do not believe that the courts will be eager to entertain 
legal challenges from providers that have failed to exhaust their 
administrative remedies.
    We note that the Federal courts are not clogged with pre-
termination challenges when Medicare agreements are terminated and 
Federal funding ceases on the effective date of termination. Under both 
Medicare and Medicaid, 30 days of funding will be available, as it is 
now, to provide a period of time for orderly transfer of residents.
    Comment: A few commenters believed that HCFA would be punishing 
those States that aggressively implement the Act, and some noted that 
States would have a financial incentive to ``settle'' during the survey 
process.
    Response: Because the Medicaid program is a joint Federal-State 
program, we do not believe that States have an incentive to spend their 
own State money on nursing care provided in a facility that does not 
meet the statutory requirements.
    Comment: Some wondered why HCFA's finding of noncompliance takes 
precedence over a State survey agency's finding of compliance, yet HCFA 
has no obligation to provide FFP during the appeal.
    Response: HCFA's finding of noncompliance takes precedence over a 
State's finding of compliance because the Act mandates this result in 
sections 1919(h)(6) and 1919(g)(3)(A). The Congress provided detailed 
procedures for resolving differences between a State and HCFA, but did 
not provide that FFP should continue merely because HCFA and a State 
disagree about a facility's compliance status. If HCFA's termination 
determination is overturned as a result of the appeal process, the 
State would receive FFP based on the reinstated provider agreement 
should the State have continued to make Medicaid payments to the 
facility.
    Comment: Some commenters apparently equated the availability of 120 
days FFP during the hearing process with providing a pre-termination 
hearing. These commenters noted that Medicare's post-termination 
hearing does not cause concern to most providers because Medicare pays 
for only a small portion of days, whereas, to require post-termination 
hearings for Medicaid will cause greater concern because more money is 
at stake.
    Response: As we explain more fully elsewhere in this preamble, we 
believe it is important that, in light of the great similarity between 
facility requirements in Medicare and Medicaid and the fact that such a 
large percentage of facilities participate in both programs, appeal 
procedures ought to be the same for both programs. Additionally, 
because of the informal opportunities to resolve differences in the 
form of an informal dispute resolution mechanism, we believe that a 
facility's concerns for due process are more than adequately protected 
when balanced with the interests of nursing home residents in the swift 
correction of deficiencies.

Redesignation of Sections

    A new Subpart D of part 488, consisting of Secs. 488.201-488.211, 
became effective on August 31, 1992, shortly after the proposed rule 
was published on August 28. This requires that we designate Subpart E, 
which was to consist of Secs. 488.150-488.185, with subsequent numbers. 
To assist the reader, we are publishing the new table of contents for 
Subpart E, with designations of the proposed rule shown in parenthesis. 
In the following discussions, we refer to the sections as renumbered, 
with the proposal's identification included only if distinction is 
necessary.

Sec.
488.300  Statutory basis. (Sec. 488.150)
488.301  Definitions. (Sec. 488.151)
488.303  State plan requirement. (Sec. 488.153)
488.305  Standard surveys. (Sec. 488.155)
488.307  Unannounced surveys. (Sec. 488.157)
488.308  Survey frequency. (Sec. 488.158)
488.310  Extended survey. (Sec. 488.160)
488.312  Consistency of survey results. (Sec. 488.162)
488.314  Survey teams. (Sec. 488.164)
488.318  Inadequate survey performance. (Sec. 488.168)
488.320  Sanctions for inadequate survey performance. (Sec. 488.170)
488.325  Disclosure of results of surveys and activities. 
(Sec. 488.175)
488.330  Certification of compliance and noncompliance. 
(Sec. 488.180)
488.331  Informal dispute resolution. (Not in proposal)
488.332  Investigation of complaints of violations and monitoring of 
compliance. (Sec. 488.182)
488.334  Educational programs. (Sec. 488.184)
488.335  Action on complaints of resident neglect and abuse, and 
misappropriation of resident property. (Sec. 488.185)

Section 488.301  Definitions

    Comment: Many commenters were concerned that the proposed 
definition of ``abuse'' is too broad and ambiguous. Unless the 
definition is amended, they believe it will generate inconsistency in 
the survey process and overburden the system with complaints of abuse. 
Other suggestions and recommendations are as follows:
     Willfulness and/or deliberate intent should be 
incorporated into the definition;
     Change ``and/or otherwise disregard of an individual which 
could cause or result in mild to severe harm'' and replace with ``has 
caused or creates a high probability of causing serious harm'';
     Physical harm should be defined; include a definition of 
assault suggested by a particular State's definition;
     The phrase ``otherwise disregard of an individual'' should 
be deleted as this statement more accurately describes neglect;
     Incorporate the definition of abuse as found in the Older 
Americans Act.
    Response: We have considered the above comments and are revising 
the definition of abuse in Sec. 488.301 to address some of the 
aforementioned concerns. However, we do not believe it appropriate to 
adopt any one State's definition as there is no evidence to suggest 
that one definition is superior to another. We are adopting the major 
concepts of the definition in the Older Americans Act. Therefore, the 
modified definition of abuse now reads: Abuse means the willful 
infliction of injury, unreasonable confinement, intimidation, or 
punishment with resulting physical harm, pain or mental anguish.
    Comment: Some commenters suggested that we require that the 
resident perceive the conduct as abusive.
    Response: We do not accept this comment. Our obligation is to 
protect the health and safety of every resident, including those that 
are incapable of perception or are unable to express themselves. This 
presumes that instances of abuse of any resident, whether cognizant or 
not, cause physical harm, pain, or mental anguish.
    Comment: Some commenters believed that the definitions of abuse and 
neglect should also apply to nurse aides in hospitals as well as in 
nursing facilities.
    Response: This comment falls outside the purview of this 
regulation. This rule specifically pertains to the survey, 
certification and enforcement of requirements of participation for SNFs 
and NFs.
    Comment: Some commenters thought that the proposed definition of 
abuse was inconsistent with that in Sec. 483.13.
    Response: Section 483.13(b) does not provide a definition of abuse. 
What it does provide is a list of the types of abuse from which 
residents have a right to be free. The definition, a statement as to 
the meaning of the term ``abuse,'' is offered at Sec. 488.301.
    Comment: Several commenters thought the proposed definition of 
``neglect'' was too broad and ambiguous. They contend it is necessary 
to narrow the definition in order not to inundate the system with 
complaints. Some commenters requested that the terms ``willful'' and 
``intent'' be inserted into the definition to limit the scope of 
actions that could be considered neglect.
    Response: In order to promote consistency in the survey process, 
there needs to be a common definition of neglect for a variety of 
applications. We have, therefore, adopted the concept of the definition 
used in the Older Americans Act, as we explain below. That definition 
does not incorporate the terms ``willful'' or ``intent.'' While an act 
of neglect can be intentional, neglect can also occur unintentionally. 
However, we are specifying at Sec. 488.335(e) that a State must not 
make a finding that an individual has neglected a resident if the 
individual demonstrates that such neglect was caused by factors beyond 
his or her control. If the inattentiveness is due to factors within 
that person's control, intentional or unintentional, he or she can be 
considered to have neglected the resident(s). Therefore, while 
willfulness and intent may be considered when a State finds that an 
individual has neglected a resident, we believe the terms ``willful'' 
or ``intent'' should not be included in the definition because neglect 
can occur unintentionally.
    Comment: Some commenters perceived that, in order for a finding of 
neglect to be made against an individual, the alleged neglect must be 
within the individual's control or job responsibility. It was suggested 
that a provision be added to the proposed definition that includes the 
individual's ``breach of duty to provide * * * needed * * * services.'' 
The commenters contend that the proposed definition places the blame 
upon the individual and excludes the extent of the culpability of the 
facility to provide the necessary services or goods.
    Response: We agree that an employee should not be found to have 
neglected a resident if the neglect was caused by factors beyond the 
control of the employee. As this provision is already addressed in 
Sec. 488.335(e), we do not believe it needs to be restated in 
Sec. 488.301.
    Comment: Other commenters suggested their own State definition of 
neglect should suffice in order not to confuse facilities with separate 
definitions.
    Response: As noted earlier, there has been no evidence to suggest 
that any State definition is preferable to ours. In fact, we believe 
allowing each State definition to stand, as is, would increase 
confusion among the providers and promote inconsistency from State to 
State.
    Comment: Many commenters wished to add the phrase: ``Each resident 
should be free from * * *,'' prior to the proposed definition of 
neglect.
    Response: We agree that each resident should be free from neglect 
as well as other forms of mistreatment. This prohibition of neglect is 
inherent in Sec. 483.13(c). We do not believe the phrase suggested by 
the commenters defines the term. Therefore, we did not include it in 
Sec. 488.301.
    Comment: Other commenters requested that we require (within the 
definition of neglect) that evidence be presented that physical, 
emotional or psychological harm or some other negative outcome had 
occurred.
    Response: We do not accept this comment because neglect may be 
determined even if no apparent negative outcome has occurred. The 
potential for negative outcome must also be considered. For example, 
instances of neglect may include, but are not limited to, being left to 
sit or lie in urine or feces, isolating dependent residents by leaving 
them in their rooms or other isolated locations, or failing to answer 
call bells to provide needed assistance.
    Comment: Many commenters believed that ``timely'' should be removed 
from the definition of neglect or else be defined, as it is overly 
broad. Other commenters wish to add the language incorporated within 
section 102(37) of the Older Americans Act.
    Response: Although the term ``timely'' does not appear in the final 
definition, we believe timeliness is an integral component in 
determining neglect. A delay in providing needed services for a 
resident has the potential to cause physical harm and/or mental 
anguish. Such a delay (or lack of timeliness) can be considered neglect 
under the definition we are incorporating in the final regulation. We 
are adopting the concept from the Older Americans Act which provides 
that neglect means failure to provide goods and services necessary to 
avoid physical harm, mental anguish, or mental illness.
    Comment: Many commenters asked that HCFA include the following 
occupations in the proposed list of licensed health professionals:
     Clinical Nurse Specialist;
     Medical Records Specialist;
     Dietitian;
     Social Work Assistant;
     Speech Pathologist or Audiologist;
     Recreational or Activities Specialist;
     Respiratory Therapist;
     Dentist or Dental Hygienist;
     Optometrist;
     Podiatrist;
     Pharmacist;
     Psychologist;
     Chiropractor;
     Nursing Home Administrator; and
     All other licensed health professionals.
    Other commenters believed that licensed practical nurses (LPNs) 
should not be included on the list because, although licensed, LPNs are 
not professional nurses by education or by legal accountability and 
must work under the supervision of a registered nurse or a medical 
doctor. It was also suggested that the term be changed to ``licensed 
health personnel.''
    Response: We are deleting the definition of ``licensed health 
professional'' as it is not used in this part.
    Comment: Several commenters recommended changing the proposed 
definition of ``misappropriation of resident property'' to apply to the 
resident's ``real or personal property,'' as opposed to ``belongings or 
money,'' because they believe the current language is not broad enough 
to encompass every type of resident property. Other commenters 
recommended that the definition include ``attempted'' misappropriation 
or the ``intent to deprive.''
    Response: We do not discern any substantial difference between the 
terms ``belongings or money'' and ``real or personal property.'' We 
believe the terms ``belongings or money'' are sufficient to implement 
the statutory requirement in sections 1819(g)(1) and 1919(g)(1) of the 
Act. Additionally, the concept of ``intent to deprive'' is inherent 
within the phrase ``deliberate misplacement'' in the definition. 
Therefore, we are not accepting these comments as we believe the 
suggested changes do not substantially enhance the proposed definition.
    Comment: Some commenters proposed to limit the definition of 
misappropriation to that incurred by a nurse aide.
    Response: We disagree. Limiting the definition of misappropriation 
to a specific individual would exempt all others from the provisions of 
the Act which explicitly states in sections 1819(g)(1)(C) and 
1919(g)(1)(C):

    * * * allegations of * * * misappropriation of resident property 
[is] by a nurse aide of a resident in a nursing facility or by 
another individual used by the facility in providing services to 
such a resident.'' (emphasis added)

    Comment: Some commenters wanted our definition to set a minimum of 
$50 on the amount of money or property which can be deliberately 
misplaced or wrongfully used without the resident's consent in order to 
be considered misappropriation of resident property.
    Response: We disagree because we believe that it is impossible to 
quantify the value of some personal items. Moreover, possessions, 
regardless of their apparent value to others, must be treated with 
respect, for what they are and for what they may represent to the 
resident. As no such limitations are dictated by the Act, we interpret 
misappropriation to apply to any belongings or money, regardless of 
their actual value.
    Comment: Some commenters questioned whether the proposed definition 
of ``nurse aide'' includes dietary aide or private duty paid 
individuals. They recommended that the definition of nurse aide be 
amended to read ``provides personal care and nursing related services 
under the supervision of licensed nurses.'' Additionally, commenters 
wanted a list of distinct duties required of nurse aides to be added to 
the final definition.
    Response: We do not adopt these comments because the definition of 
a nurse aide is specified by sections 1819(b)(5)(F) and 1919(b)(6)(F) 
of the Act and by implementing regulations at Sec. 483.75(e).
    Comment: Some commenters stated that the phrase ``substandard 
quality of care'' was specifically used in the Act and that HCFA should 
recognize and adopt the same language.
    Response: We agree with the above comment. To be consistent with 
the Act, we are using that terminology throughout this final rule, 
where appropriate.
    Comment: Some commenters wanted HCFA to include ``any violation of 
the requirements that leads to, or is likely to lead to a failure of 
the resident to achieve the highest practicable physical and mental 
well-being'' in the definition of substandard quality of care.
    Response: We are not accepting this suggestion. We believe that any 
infringement of any requirement could be construed to compromise some 
ability of a resident to achieve his or her highest practicable well-
being. The definition proposed by the commenter could encompass every 
deficiency under every regulatory requirement. Given the ramifications 
a determination of substandard quality of care has for a provider (loss 
of NATCEP, notification of licensing boards and physicians), we are 
limiting the definition of substandard quality of care to reflect the 
most egregious situations related to participation requirements under 
Secs. 483.13 (``Resident behavior and facility practices''), 483.15 
(``Quality of life''), and 483.25 (``Quality of care''). However, we 
are not minimizing deficiencies in other participation requirements. As 
discussed later under the response to public comments for Sec. 488.401, 
it is possible that a deficiency under any requirement can encompass 
any degree of seriousness. Deficiencies under the remaining 
requirements can be more appropriately addressed through specified 
remedies rather than through the loss of NATCEP which would be 
precipitated by a substandard quality of care determination.
    Comment: Several commenters thought that the scope and severity 
grid should not be a determining factor in defining substandard quality 
of care.
    Response: As we discuss later at Sec. 488.404, we are removing 
references to the scope and severity grid from the definition of 
substandard quality of care. We are retaining, however, concepts of 
seriousness and frequency which we believe are important to determining 
this type of deficient facility practices.
    Comment: Other commenters wished to include compliance history in 
the final definition of substandard quality of care.
    Response: We do not agree with this comment. Our first priority is 
to protect the health and safety of the residents. If violations are 
identified, the problem must be rectified, regardless of the facility's 
compliance history.
    Comment: Some commenters wanted us to explicitly state in the 
definition of substandard quality of care that deficiencies of 
immediate jeopardy are regarded as substandard quality of care.
    Response: We are not adopting this comment. Given the ramifications 
a finding of substandard quality of care has for a provider, we are 
limiting the definition of substandard quality of care to those 
requirements mentioned previously. The only immediate jeopardy 
deficiencies considered substandard quality of care are those 
determined under the participation requirements of Secs. 483.13 
(``Resident behavior and facility practices''), 483.15 (``Quality of 
life''), and 483.25 (``Quality of care''). Because we are removing 
references to the scope and severity scales from the definition of 
substandard quality of care we believe that it is necessary to amend 
the definition. We are now defining substandard quality of care as care 
furnished in a facility that has one or more deficiencies related to 
participation requirements under Secs. 483.13 (``Resident behavior and 
facility practices''), 483.15 (``Quality of life''), or 483.25 
(``Quality of care'') that constitutes immediate jeopardy, a pattern of 
widespread actual harm that is not immediate jeopardy, or widespread 
potential for more than minimal harm, but less than immediate jeopardy 
with no actual harm.
    Comment: Some commenters wanted compliance and correction to be 
defined as ``substantially meeting all applicable certification 
requirements.''
    Response: While we do not agree with the suggested definition, we 
do agree with the intent of the commenters that there should be some 
range of compliance within which prospective and current providers may 
participate. This concept is discussed further in Sec. 488.330 
``Certification of compliance''. Accordingly, in Sec. 488.301, we 
define ``substantial compliance'' to mean a level of compliance with 
requirements of participation such that any identified deficiencies 
pose no greater risk to patient health and safety than the potential 
for causing minimal harm.
    As we discuss later in this preamble, a facility may avoid a remedy 
even if it has failed to comply perfectly with all statutory 
requirements. However, the facility still has the duty to provide the 
care to each resident which enhances the chances for positive outcomes 
and avoids negative ones. If a single resident experiences any harm, no 
matter how minimal, the facility will not have satisfied its statutory 
obligations.
    We acknowledge that there might be many definitions that we could 
have chosen, but in our view, the definition we have settled on best 
implements the Act and accommodates both facility and resident 
concerns.
    Additionally, since we are incorporating the concept of substantial 
compliance, we believe it is necessary to provide a definition of 
noncompliance at Sec. 488.301. Noncompliance with the requirements of 
participation is any deficiency that causes a facility to not be in 
substantial compliance.

Section 488.303  State Plan Requirement

    Comment: There were several comments concerning the requirement for 
and content of incentive programs.
     Some commenters suggested that the incentives to reward 
quality care be required and implemented on a national scale by HCFA as 
well as the States.
     A few commenters suggested that the States develop 
incentive programs with consultation from residents, families and the 
ombudsman.
     One commenter presented an elaborate process including 
applications, group evaluations and resident participation for any 
award.
     One commenter said that the regulation should define the 
rewards for quality to support quality improvement.
    Response: Section 1919(h)(2)(F) of the Act does not permit HCFA to 
require the States to establish a public recognition or incentive 
payment system for nursing facilities that provide high quality care. 
If the commenters mean that the same public recognition or incentive 
payment system be permitted for Medicare SNFs, the Act does not 
authorize such recognition. In addition, a HCFA program for nursing 
facilities would be duplicative.
    Section 1919(h)(2)(F) of the Act gives States the flexibility to 
decide if an incentive program would be appropriate and how they will 
implement the program. If a State decides to implement an incentive 
program, the State should have the option to consult those individuals 
and organizations it thinks necessary. In the same vein, it would be 
inadvisable to restrict the States' programs to elaborate regulatory 
procedures because, in so doing, we may inadvertently discourage States 
from establishing such programs. Although we encourage States to 
develop effective incentive programs, we are not making any changes to 
Sec. 488.303 because we want to preserve the States' flexibility in 
establishing such incentive programs.
    Comment: A few commenters suggested that the Medicaid program 
should fund the incentive payments through civil money penalties.
    Response: The Act provides that State expenses for the 
implementation and maintenance of an incentive program is an authorized 
Medicaid administrative expense: the Act does not permit the use of 
funds collected from civil money penalties for this purpose. Indeed, 
section 1919(h)(2)(A)(ii) of the Act provides that when the State uses 
the specified civil money penalty remedy, the State must apply funds 
collected through civil money penalties to the protection of the health 
or property of nursing home residents. Therefore, we reject this 
comment.
    Comment: Several commenters suggested that the regulation should go 
beyond the Act and specify certain topics and methods of training.
     Some wanted mandated educational programs for assessment 
and care planning, resident rights and quality of care issues as well 
as those in subparts E and F of part 488.
     Other commenters believe that the scope of the educational 
program should include a section on complaint investigation and 
resolution.
     A few commenters asked that States work with the ombudsman 
program to develop and present training.
     Another commenter believes that literature and/or video 
presentations would be more effective than State presentations.
    Response: Sections 1819(g)(1)(B) and 1919(g)(1)(B) of the Act 
require that States conduct educational programs for staff and 
residents of facilities regarding current regulations, procedures and 
policies of the long term care survey and certification process. We 
agree with the commenters that the proposed regulation unnecessarily 
restricts the scope of the mandated educational programs. We are 
revising it to permit the education programs to cover all aspects of 
the long term care survey process so that the States have the 
flexibility to structure the educational programs to the needs of the 
facilities. The methods to develop the programs (for example, 
consultation with the ombudsman program) and the methods of 
presentation are being left to the States.
    Comment: A few commenters suggested that these requirements be met, 
in part, by giving facility staff and residents access to HCFA and 
State agency surveyor training sessions.
    Response: We believe that this suggestion, if done at the 
participant's expense, may have merit. Traditionally, we have not had 
the ability within available resources to accommodate all providers or 
other interested parties wanting to attend training; our available 
resources are devoted, for the most part, to providing timely training 
for surveyors. However, being able to offer surveyor training 
universally to providers and interested others at their own cost, and 
if space allows, may help improve understanding and cooperation between 
surveyors and the other parties. We are, therefore, seriously 
considering what changes in policy and legislation will be necessary to 
allow this.
    Comment: One commenter suggested that a review of the State 
educational activities be made a part of HCFA's State agency evaluation 
program which would assure its implementation.
    Response: The HCFA State Agency Evaluation Program (SAEP) currently 
is undergoing substantial review and revision. We are unable, at this 
time, to assert that a review of State educational activities will 
become a part of the revised SAEP. Nonetheless, the HCFA regional 
offices will continue to have the responsibility to monitor and assess 
the States' educational activities.
    Comment: Several commenters suggested that the States be directed 
to include bans on all new admissions as a required remedy because a 
ban on only Medicaid admissions is discriminatory. A majority of those 
commenting suggested that a directed plan of correction also be 
included as a required remedy.
    Response: We do not have statutory authority to allow the States 
the option of banning all new admissions. States are free, however, to 
enact their own laws regarding facility licensure that may extend 
enforcement options beyond the reach of the Act.
    Section 1919(h)(2)(A)(i) of the Act expressly gives States the 
authority to impose payment denials with respect to new Medicaid 
admissions. While the Act also provides States with the opportunity to 
design other remedies, subject to Federal approval, that are as 
effective as those enumerated in the Medicaid law, we believe that it 
would be inappropriate for us to evaluate a remedy that would be aimed 
at the admissions of persons over whom the Medicaid law provides no 
jurisdiction. We believe it would be more appropriate to leave to State 
law remedies that extend as far as the commenters suggest. In any 
event, while a denial of payment for new Medicaid admissions does not 
reach all potential admissions, it will provide an incentive to a 
facility to correct deficiencies rapidly, which would serve to benefit 
not only Medicaid residents but all those persons who are receiving 
care at the facility regardless of payment source. Also, States may 
provide public notice of the imposition of the denial of payment for 
new admissions remedy which would alert potential residents to the 
situation in the facility.
    We are not accepting the suggestion that directed plans of 
correction be a required remedy. As discussed under ``Factors to be 
considered in selecting remedies'' later in this preamble, we have 
provided a revised enforcement scheme in this final rule that 
correlates the seriousness of noncompliance with the selection of 
remedies from within specified enforcement remedy categories. While we 
do not intend to mandate the specific selection of the directed plan of 
correction remedy from among the available enforcement actions for any 
specific level of actionable noncompliance, in other words, when the 
facility is not in substantial compliance, we note that it is always an 
enforcement option and it may be the only remedy used for lower level 
deficiencies.
    Comment: Some commenters requested that we require States to submit 
any alternative or additional remedies to a full State rulemaking 
process with an opportunity for comment. Other commenters believed that 
States should be allowed to implement additional or alternative 
remedies unless HCFA can demonstrate that the State remedies are not as 
effective as the HCFA remedies.
    Response: The States must follow any internal State procedures 
which govern the development and submittal of a Medicaid State plan 
amendment. The Act does not require nor do we believe our regulations 
should require specific procedures that would limit State prerogatives 
for promulgating enforcement policies. Similarly, section 
1919(h)(2)(B)(ii) of the Act states that the State must demonstrate 
that any alternative remedies are as effective as the remedies 
specified in the Act.
    Comment: Commenters suggested that the effective remedies 
established by the States be made applicable to dually participating 
facilities.
    Response: We are accepting this comment with some clarification. 
Since States may establish their own sanctions through their respective 
State plan amendment, and since HCFA will be the entity imposing 
sanctions for dually participating facilities, it is highly likely that 
a State may choose to impose one of its own remedies on a Medicaid NF 
which HCFA would have no authority to impose against the Medicare 
provider agreement. It would not be rational for us to proceed with an 
enforcement scheme whereby a single facility, by virtue of 
participating in both Medicare and Medicaid, would be subject to a dual 
enforcement track. Also, and more importantly, since HCFA will be 
taking the lead on enforcement actions against dually participating 
facilities under part 498, we have concluded that HCFA needs to have 
the authority to impose these alternative or additional remedies 
against Medicare facilities in the States that have established these 
remedies. While we acknowledge that this would not permit consistency 
nationally relative to remedies available for dually participating 
facilities, we conclude that it is a realistic and necessary response 
to statutory intent that enforcement decisions made regarding the 
Medicaid agreement, which could include imposition of these ``other'' 
State remedies, will be applied by the Secretary to the Medicare 
agreement as well. Therefore, under the Secretary's general rulemaking 
authority, this final rule provides that, if the State's remedy is 
unique to the State plan and has been approved by HCFA, then that 
remedy, as imposed by the State under its Medicaid authority, can be 
imposed by HCFA against the Medicare provider agreement of a dually 
participating facility.
    Comment: One commenter suggested that the regulations create 
penalties for States that fail to implement the State enforcement 
rules.
    Response: The Act provides no specific penalty for State failure to 
implement the enforcement provisions of the Act, nor do we wish to add 
one. However, there are existing Medicaid rules regarding the 
submission of and adherence to State plan amendments. If a State does 
not comply with the Medicaid rules, the failure could lead to Medicaid 
administrative sanctions.

Section 488.305  Standard Surveys

    Comment: A large number of commenters opposed the provision at 
proposed 488.155(b) and suggested we delete it. This section states 
that the State survey agency's failure to follow HCFA survey procedures 
will not invalidate otherwise legitimate determinations that a 
facility's deficiencies exist. Because the provision does not appear in 
the Act, a few commenters questioned whether the Congress sanctioned 
this policy, and certain commenters asked that facilities be allowed to 
appeal surveyor noncompliance with the survey protocol. Many commenters 
felt that this provision would encourage disregard of established 
survey guidelines, and for this reason one commenter believed this 
provision would cause the standard survey to violate the Fourth 
Amendment.
    Response: We believe the provision accurately reflects the intent 
of the Act and are retaining it in Sec. 488.305(b). To invalidate 
legitimate determinations of noncompliance and leave them unaddressed 
would be in opposition to the mandate of OBRA '87 that all requirements 
be met and enforced, and would lead to inconsistent application of the 
law.
    Sections 1819(g)(2)(C) and 1919(g)(2)(C) of the Act reveal the 
intent of the Act very clearly. These sections state that standard 
surveys must be conducted based upon a protocol, but add that the 
failure of the Secretary to develop, test or validate such a protocol 
will not relieve any State or the Secretary of the responsibility to 
conduct surveys. Because the Congress intended for survey results to be 
binding even when surveys were conducted in the absence of a formal 
protocol, it is clear that the Congress views the substance of survey 
findings to be of greater importance than the process used to identify 
them. An appeal of a deficiency based on surveyor noncompliance with 
the established protocol would be inconsistent with this position, and 
as a result, we will not offer facilities an appeal on these grounds. 
In particular, we wish to avoid situations where otherwise well 
documented deficiencies are subject to challenge, and potentially 
invalidated, simply because a surveyor did not follow every last detail 
of the survey protocol. We believe this would be surrendering all 
substance to form and would clearly thwart Congressional will. 
Moreover, since the source of binding requirements on facilities is not 
in the survey protocol, but in the Act and regulations, the ultimate, 
and proper, test of facility noncompliance will not rest on whether the 
survey protocol was rigorously followed, but on whether a requirement 
of the Act or the regulations has been violated.
    The foregoing does not imply that HCFA encourages or condones 
disregard of its established survey policy; on the contrary, HCFA 
trains surveyors in survey policies and procedures and is responsible 
for assessing State survey agency performance and applying sanctions 
when there has been a failure to use Federal standards and protocols. 
The guidance we provide to surveyors, and the expectation we have that 
they adhere to our directives, contradict the claim that surveyors are 
given unbridled discretion which would render the standard survey an 
unreasonable administrative search in violation of the Fourth 
Amendment. Once a facility seeks participation in the Medicare or 
Medicaid programs, it must accept the responsibility of demonstrating 
its compliance with Federal certification requirements which the 
Congress has directed must be done through the survey process. A 
facility cannot seek such participation, and accept program funds, and 
then argue that Federal or State efforts to monitor compliance with 
essential health or safety requirements constitute a violation of the 
Fourth Amendment as an unreasonable search and seizure. In any event, 
surveys that nursing homes experience in the Medicare and Medicaid 
programs are reasonable. They advance the government's interest in 
protecting the health and safety of individual residents, and because 
of the various requirements for surveys in both the Act the Federal 
regulations, no facility can be said to be unaware of its obligations 
to permit onsite visits by State or Federal surveyors as a condition of 
its participation in these programs. Commercial enterprises, such as 
nursing homes, do not have the same expectation to be free of 
warrantless searches as individuals in their homes do. Indeed, the 
United States Supreme Court has ruled that warrantless searches of 
closely regulated businesses do not pose a violation of constitutional 
Fourth Amendment protections that commercial enterprises have.
    We recognize that protocols and guidelines are necessary to promote 
consistent survey practice. However, whether or not a surveyor follows 
protocols must be subordinate in importance to whether or not a 
facility meets Federal participation requirements. Violations must be 
recognized and remedied appropriately if resident interests are to be 
protected and integrity is to remain in the enforcement system.
    Comment: One commenter questioned whether proposed 
Sec. 488.155(a)(3) conflicts with subpart III of Appendix P of the 
State Operations Manual, Transmittal No. 250. Section 488.155(a)(3) 
would require the State survey agency to include in the standard survey 
an audit of written plans of care and residents' assessments. Subpart 
III states that a review of the accuracy of resident assessments is to 
be performed as part of the extended survey which is triggered by the 
identification of a deficiency in quality of care during the standard 
survey.
    Response: There is no conflict because a review of comprehensive 
assessments and care plans is not limited to the extended survey. It is 
also a major part of the Quality of Care Assessment performed during 
the standard survey (see Task 5 in Appendix P of State Operations 
Manual Transmittal No. 250). The review that occurs during the extended 
survey is slightly different, though, in that surveyors are directed to 
review more recent care plan and assessment information, and are given 
more flexibility in choosing sample size than in the standard survey.
    Comment: One commenter suggested that we require surveyors to 
determine whether a facility attempted to accommodate both the exercise 
of a resident's rights and the resident's health when there appears to 
be a conflict. The commenter believed that accommodation should include 
exploration of care alternatives through a thorough care planning 
process in which the resident may participate.
    Response: Surveyors are presently instructed to make such 
determinations. At tag number F295 in the Interpretive Guidance to 
Surveyors, the surveyor is directed to determine whether the care plan 
reflects the facility's efforts to find alternative means to address a 
problem if a resident has refused treatment. Additional guidance 
concerning this matter is found at tags F174 and F158. We believe such 
specific instructions are more appropriately located in the State 
Operations Manual than in the regulation itself, so we are not 
incorporating them into the regulation.
    Comment: A few commenters suggested that we explicitly mention a 
review of the quantity and quality of nursing services staff in 
Sec. 488.305(a)(2) where we outline a survey of the quality of care.
    Response: Inherent in an evaluation of the indicators of care and 
services listed at Sec. 488.305(a)(2) is an examination of the quality 
of the staff providing them. As part of the observational portion of 
the Quality of Care Assessment, surveyors are directed to make 
observations of staff/resident interactions which necessarily involve 
evaluating the quality of care and services provided by the staff, 
which is an indication of the quality of the staff itself. For this 
reason we do not explicitly mention this assessment in the regulation. 
We do specifically address a review of staffing in Appendix P of the 
State Operations Manual Transmittal No. 250.
    Comment: One commenter recommended that we include, as part of the 
standard survey, private meetings between surveyors and family groups 
during evening and or weekend hours and another conference at the 
conclusion of the survey process to explain survey findings in lay 
person language.
    Response: We recognize the value of family input in the survey 
process, and direct surveyors when interviewing to provide the 
opportunity for all interested parties to give what they believe is 
pertinent information. We expect this to include accommodating family 
members who wish to speak with the survey team but are unable to be at 
the facility at the time of the survey. It is possible for family 
members to call surveyors at the facility and be either interviewed 
over the telephone or scheduled for a personal meeting as the survey 
schedule allows. The survey team is in a better position than HCFA to 
know how to best accommodate these groups within the time and personnel 
constraints of the standard survey, and for this reason it would be 
unduly restrictive of us to require evening and week-end meetings.
    Neither will we require that there be an exit conference 
specifically for family groups. If survey teams conduct an exit 
conference for facility residents, family members are not prohibited 
from attending. If such a conference does not take place, family 
members still have many other opportunities to learn about the outcome 
of a survey. Survey results are available to family members whenever 
they visit a facility, because facilities are required to accessibly 
post the results of the most recent survey. These survey reports are 
thorough and detailed, and if a family member has any difficulty 
understanding the results, he or she may resolve it by contacting 
either the long-term care ombudsman or the State survey agency.
    Comment: One commenter proposed that we allow the survey team to 
expand the standard survey when it identifies substandard quality of 
care instead of requiring it to conduct an extended or partial extended 
survey to investigate the extent of the facility's problems.
    Response: We must reject this proposal. We are bound by sections 
1819(g)(2)(B) and 1919(g)(2)(B) of the Act which require a facility to 
be subject to an extended survey when it is found to have provided 
substandard quality of care during the standard survey.
    Comment: One commenter proposed that we specify that the audit of 
written plans of care outlined at proposed Sec. 488.155(a)(3) must 
include an investigation of whether the written plans were implemented 
and subsequently reevaluated and revised, as necessary.
    Response: In Appendix P of State Operations Manual Transmittal No. 
250, surveyors are directed, when conducting an audit of written plans 
of care, to determine whether care plans were consistently implemented, 
evaluated, and revised as necessary. We believe such detailed 
instruction is more appropriate in the manual than in the regulation 
itself, and so we are not including it in the regulation.

Section 488.307  Unannounced Surveys

    Comment: Many commenters agreed that all surveys should be 
unannounced. Some commenters stated that survey schedules should be 
more unpredictable and one suggested that there should be even more 
unannounced inspections. Several commenters emphasized that many 
nursing homes are aware that they are about to be surveyed. One 
commenter stated that randomness of surveys has not yet been achieved 
and that HCFA should require States to demonstrate through survey 
scheduling that chronically substandard facilities have been targeted. 
Another commenter stated that annual licensure cycles, such as billings 
and certificates, may compromise unannounced surveys. Several 
commenters suggested that we require that the States provide a 
randomization plan or scheduling methods which would ensure that the 
timing of inspections is not predictable.
    Response: We realize that commenters, in many cases, feel it is 
preferable to have unannounced surveys for the welfare of residents in 
nursing homes. However, after careful consideration, we have concluded 
that requiring all surveys to be unannounced is not mandated by the 
Act. Moreover, doing so would, in some cases, undermine the efficiency 
of the survey process in which, for example, the only thing necessary 
to verify compliance is a request for documentation or an interview 
with a particular part time employee who may, otherwise, not be at the 
facility if a survey is not announced. We are, therefore, revising 
Sec. 488.307(a) to require that only standard surveys be unannounced.
    We agree that survey schedules should be more unpredictable and 
have made this more possible at Sec. 488.308(a) by allowing the 
flexibility of conducting standard surveys no later than 15 months 
after the previous survey. We disagree with the recommendation that 
there should be more unannounced inspections than presently required by 
HCFA. The States are responsible for determining which facilities need 
to be surveyed and when the surveys should be scheduled, subject to the 
requirements of Sec. 488.307. The States already have the obligation to 
conduct extended surveys and complaint surveys as the need arises. 
Moreover, because of time and money constraints and the difficulty of 
scheduling the surveys already required, it would be unfair to place an 
additional burden on the States for conducting more surveys than 
required by law.
    We agree that complete randomness of surveys has not been achieved 
but we believe that complete randomness should not be our goal. 
Sections 1819(g)(2)(A)(iii) and 1919(g)(2)(A)(iii) of the Act provide 
for a flexible survey cycle. While the law does not specify the 
criteria to be used to determine intervals between consecutive surveys, 
States will undoubtedly use past performance as a primary criterion. If 
past performance is considered in determining how frequently to survey 
specific facilities, the survey cycle can not be completely random.
    Our intention is to strive to have surveys conducted on as random a 
basis as possible consistent with effective enforcement. We are aware 
that annual licensure cycles may compromise unannounced surveys. 
However, we believe that, over time, State licensure cycles will not be 
a factor in survey predictability since licensure and certification 
surveys are generally conducted concurrently. In the event that States 
do not move to a more flexible licensing schedule, this will not create 
a problem because licensing schedules will not substitute for 
certification requirements. We believe that it is unnecessary to 
require States to provide a randomization plan for the timing of 
surveys because we are already stating at Sec. 488.307(b) that we will 
review States' procedures on at least an annual basis. In addition, the 
law does not require States to demonstrate that substandard facilities 
have been targeted, but in examining the States' scheduling practices 
annually, we will look for logical scheduling criteria and past 
performance will undoubtedly be one of the reasonable criteria States 
can use.
    Comment: Several commenters stated that it is unfair for surveyors 
to come into a facility without any advance notice. Another commenter 
stated that unannounced surveys are not more beneficial than announced 
ones. This commenter stated that the Joint Commission on Accreditation 
of Healthcare Organizations (JCAHO) announces its surveys and that this 
practice is less stressful and avoids placing an unnecessary mystique 
on the process since it is known that a survey must occur 90 days 
before the license expires. (We assume the commenter is referring to 
the expiration of accreditation.) This commenter feels that the same 
objective is achieved. Another commenter stated that facilities should 
always be given a warning that a survey will occur and ample time to 
correct whatever is wrong.
    Response: We cannot accept the comments advocating announced 
standard surveys. To do so would be inconsistent with sections 
1819(g)(2)(A) and 1919(g)(2)(A) of the Act. Moreover, warning 
facilities in all cases of an upcoming survey can undermine the 
accuracy of survey findings which sometimes is predicated on the 
element of surprise.
    Comment: Two commenters proposed that paragraph (a) of Sec. 488.307 
be revised as follows:
    ``(a) Basic rule. All surveys must be unannounced and their timing 
should be unpredictable. State survey agencies must adopt survey 
schedules that maximize the element of surprise. Scheduling procedures 
and practices must not have the effect of giving facilities notice of 
inspections. For example, inspections should not occur around the same 
time each year nor be conducted in a predictable sequential cycle.''
    Response: We agree that the timing of surveys should be made as 
unpredictable to long term care facilities as possible. However, at 
this point, it does not seem practical or even possible to mandate, or 
enforce the total unpredictability of surveys by States or to require 
that all surveys be unannounced, as explained in the response to prior 
comments in this section. We will be looking into the possibility of 
incorporating some guidance on ways in which to maximize 
unpredictability into manual instructions.
    Comment: Two commenters suggested that Sec. 488.307(b) be changed 
to provide that HCFA shall identify successful scheduling methods, 
distribute them, then monitor State agency performance, taking 
corrective action when necessary. One commenter thought that the way 
the provision was written, an agency gets constructive suggestions 
about scheduling surveys only after the surveys have been done and at 
the time of a review of its procedures. Two other commenters suggested 
it would be helpful if HCFA could put in the Regional Office Manual the 
successful methods it has identified that assure that surveys are 
unannounced.
    Response: We disagree with these comments suggesting that HCFA 
specify in regulations that it will provide successful scheduling 
methods because we believe the States are better able than we are to 
identify successful scheduling methods which may differ from one 
locality or region to another. Each State uses the methods that work 
best for it to schedule surveys within the required timeframes. We 
believe that the controls in place at Sec. 488.307, which provide that 
all standard surveys must be unannounced, and that we will review each 
State's scheduling procedures on an annual basis, are sufficient.
    Comment: One commenter asked what the term ``any individual'' means 
in reference to penalizing someone who notifies a facility that a 
survey is scheduled. Another commenter suggested that individuals other 
than an employee of the Federal and State government should be held 
harmless from fine if he or she notifies a facility that it is 
scheduled to be surveyed. This commenter further suggests that any 
individual who is fined for notifying a facility, should have the right 
to contest the fine in a formal hearing.
    Response: The Act, in sections 1819(g)(2)(A)(i) and 
1919(g)(2)(A)(i), is clear that ``any individual'' who notifies a 
nursing home of the time and date of a standard survey is subject to a 
civil money penalty. We, therefore, disagree that only employees of the 
Federal and State governments should be held responsible for notifying 
a facility that it is scheduled to be surveyed; any individual who 
knowingly advises a facility that a standard survey is scheduled will 
be held accountable, according to the Act. Any individual who is fined 
for notifying a facility is entitled to the appeals mechanisms 
specified at section 1128A of the Act. The administrative appeals 
policy for civil money penalties imposed against an individual 
announcing a standard survey is not established by HCFA but rather by 
the Office of Inspector General (OIG) and is already in place.
    Comment: Two commenters suggested that ombudsmen should be informed 
in advance of a survey in order to be able to participate fully, 
provided ombudsmen are subject to the penalties mandated by law and to 
loss of employment if they cause the time of the survey to be known. 
One of these commenters suggested that advance notice of the survey 
should be given to the local ombudsman by means of a letter from the 
survey agency stamped ``CONFIDENTIAL.'' This commenter feels ombudsmen 
should be informed in advance because they are currently notified on 
the first or second day of three or four day surveys and may have 
already scheduled appointments which cannot be changed in order to 
accommodate the survey schedule. This commenter feels that advance 
notice would guarantee better surveys by strengthening ombudsman/
consumer input.
    Response: We disagree. Each additional individual or organization 
that has knowledge of a scheduled survey decreases the likelihood that 
the survey will remain unannounced. The ombudsman is contacted soon 
after the survey team has entered the facility and can participate 
meaningfully even if not present for the initial tour of the facility 
or other early phases of the survey.
    Comment: Two commenters stated that a $2,000 fine is not a severe 
enough penalty for willfully disclosing in advance the timing of a 
nursing home inspection or taking advantage of foreknowledge of an 
inspection. Another suggested that this type of violation should also 
be referred to the Department of Justice for prosecution for 
obstruction of justice.
    Response: The $2,000 fine is the maximum allowable under sections 
1819(g)(2)(A)(i) and 1919(g)(2)(A)(i) of the Act. The exact amount of 
the civil money penalty is determined by the OIG. In response to the 
suggestion that this violation be referred to the Department of 
Justice, OIG decides which cases are appropriate for such referral.
    Comment: This commenter stated that Sec. 488.307(c) is weakened by 
the use of the word ``standard'' and that civil money penalties should 
be applied as a penalty for the announcement of any type of survey 
including validation, complaint, or other surveys.
    Response: Sections 1819(g)(2)(A) and 1919(g)(2)(A) of the Act are 
applicable to standard surveys only, so that the civil money penalties 
specified at sections 1819(g)(2)(A)(i) and 1919(g)(2)(A)(i) are imposed 
for announcing standard surveys. We do not have the statutory authority 
to require that civil money penalties be imposed for announcing 
anything other than standard surveys.

Section 488.308  Survey Frequency

    The nursing home reform provisions of OBRA '87 reconfigured the way 
in which HCFA and the States would track nursing home compliance with 
Federal requirements and approach enforcement remedies. The survey and 
certification provisions, set forth at sections 1819(g) and 1919(g) of 
the Act, require implementation of a flexible survey cycle for Medicare 
skilled nursing facilities and Medicaid nursing facilities so that 
standard surveys are conducted at intervals not later than 15 months 
after the date of the previous standard survey with a statewide average 
interval that does not exceed 12 months.
    The legislative history of OBRA '87 and the National Academy of 
Science's Institute of Medicine (IoM) study (1986) are plain in their 
stated reasons for this change from the rigid, time limited system of 
having surveys for all facilities follow a 12 month cycle. First, a 
flexible survey cycle provides less predictability to the scheduling of 
surveys, thus reducing the opportunities for certain providers, by 
anticipating the survey, to achieve only temporary compliance for the 
short term period around the time of survey. Second, flexible survey 
cycles allow survey agencies to better allocate their limited resources 
by increasing the frequency of surveys for problem facilities while 
allowing other facilities with a better record of compliance to be less 
rigorously monitored. Additionally, because time limited agreements 
have automatic cancellation clauses, a significant paperwork and 
recordkeeping burden results from the frequent need to conduct 
resurveys as a means of avoiding provider agreement expirations. Third, 
the enforcement provisions of nursing home reform, set forth at 
sections 1819(h) and 1919(h) of the Act, are designed to work in the 
context of provider agreements that do not have a fixed ending date.
    Specifically, sections 1819(h)(2)(C) and 1919(h)(3)(D) of the Act 
speak to the ability of the Secretary to continue payments for up to 6 
months after the identification of deficiencies if certain criteria, 
described in those sections, are met. Sections 1819(h)(2)(D) and 
1919(h)(2)(C) of the Act require the Secretary and States to impose 
denials of payment for new admissions should deficient facilities fail 
to achieve compliance within 3 months after they have been determined 
not to comply with Federal requirements. In both cases, these remedies 
make sense only where a facility's provider agreement has no set 
expiration date.
    We reach this conclusion because under a time limited agreement 
survey system in which surveys are typically conducted shortly before 
the expiration of provider agreements, facilities would have only the 
shortest period of time to correct deficiencies if they are to be 
entitled to renewed agreements. The statutory remedies described above, 
however, contemplate periods of time that far exceed what would be 
available under a time limited agreement system for providers to 
achieve compliance.
    For HCFA and the States to attempt to fit this survey system into 
the procedures described in sections 1819(h) and 1919(h) of the Act 
would require the wholesale revamping of surveys so that they occur no 
later than mid-way through the term of the 12 month provider agreement. 
Such a radical departure from more than 20 years of practice would 
require the kind of massive reallocation of survey resources that is 
not possible under a time limited agreement survey system and would 
likely cause many facilities to go unsurveyed by the time their time 
limited agreements are scheduled to expire. Of equal significance, we 
do not believe that the Congress would approve of a survey system in 
which the decisions about renewal of a provider agreement are made as 
far as 6 months prior to the expiration of that agreement, since 
determinations of compliance made so far in advance may not be 
reflective of the degree of facility compliance at the time the 
agreement is set to expire.
    Continued implementation of time limited agreement requirements for 
skilled nursing facilities and nursing facilities frustrated many 
aspects of nursing home reform and, in a practical way, rendered them 
inoperable. For these reasons, a HCFA Ruling was signed on August 26, 
1992 eliminating time limited agreements for skilled nursing facilities 
and nursing facilities participating in the Medicare and Medicaid 
programs and these regulations further adopt this position.
    Section 488.308 implements sections 1819(g)(2)(A)(iii) and 
1919(g)(2)(A)(iii) of the Act, which require that each skilled nursing 
facility and nursing facility be subject to a standard survey not later 
than 15 months after the last day of the previous standard survey and 
that the statewide average interval between standard surveys not exceed 
12 months. The regulation specifies when and how the average interval 
is computed, specific conditions that may prompt a standard or an 
abbreviated standard survey and HCFA's corrective action to ensure that 
State survey agencies meet the 12 month average interval requirement. 
These final rules also codify the substance of the HCFA ruling 
described above by eliminating from the regulations the requirements 
for time limited agreements for SNFs and NFs.
    Comment: One commenter requested clarification of the 15 month 
interval by asking if determination would be ``to the day'' or ``during 
the 15th month.''
    Response: We intend to calculate the 15-month interval by counting 
days. The survey agency calculates the number of days between the last 
day of the current standard survey and the last day of the facility's 
previous standard survey.
    Comment: Several commenters recommended that survey frequency be 
related to the compliance/noncompliance history of the facility. A few 
commenters suggested that States be required to conduct more frequent 
inspections of nursing homes with poor care histories. One commenter 
recommended that States take facility compliance history into account 
when establishing survey cycles and conduct more frequent surveys of 
nursing homes with a history of substandard quality of care.
    Response: We are retaining this provision of the regulation as 
written because we believe that the Act, as previously cited, provides 
a framework within which the State survey agency can establish a 
flexible survey cycle that effectively ensures that quality health care 
is furnished in a safe environment. Without restricting this 
flexibility, we expect that State survey agencies will consider a 
facility's compliance history when scheduling standard surveys and 
revisits. The survey agency may conduct surveys as frequently as 
necessary to determine compliance with participation requirements, to 
confirm that previously cited deficiencies have been corrected, to 
investigate complaints and to ensure that certain changes do not cause 
a decline in the quality of care furnished to the resident.
    Comment: Several commenters recommended that an additional 
provision be incorporated which would allow State survey agencies to 
conduct tailored or abbreviated surveys in those facilities which were 
deficiency-free in the previous standard survey. Some additional 
commenters recommended that facilities with a record of deficiency-free 
surveys be inspected less frequently than every 12 months. One 
commenter specifically suggested that surveys not be conducted yearly 
if there is in place good surveillance and monitoring from the State, 
and that, perhaps, over time a survey would be conducted every third 
year as hospitals are surveyed by the Joint Commission on the 
Accreditation of Healthcare Organizations. One commenter recommended a 
demonstration project that would test the possibility of an extended 
survey cycle for excellent facilities.
    Response: We cannot accept the comment to conduct abbreviated or 
tailored surveys of facilities that were free of deficiencies in the 
previous standard survey, because the Act does not include abbreviated 
standard surveys in the computation of the 15 month interval between 
standard surveys of a facility or in the computation of the 12 month 
statewide average for all facilities in a particular State. Abbreviated 
standard surveys are premised on complaints received, or a change of 
ownership, management or director of nursing, or other indicators of 
specific concern and, therefore, could be focused on certain specific 
requirements, whereas, a standard survey is a periodic inspection to 
gather information about the quality of service furnished in a facility 
to determine compliance with the certification requirements for 
participation. To use an abbreviated standard survey instead of a 
standard survey in the computation of the 15 month survey interval or 
the 12 month statewide average would not meet the intent of the Act, 
nor would it be an accurate assessment of the State's ability to ensure 
that each facility furnishes quality health care in a safe environment.
    Sections 1819(g)(2) and 1919(g)(2) of the Act require that each 
facility must have a standard survey no less frequently than every 15 
months. With this constraint, we can accept the comment to conduct a 
standard survey of facilities with good compliance histories less 
frequently than every 12 months but not less frequently than every 15 
months. Once we have had the benefit of experience under the new survey 
process, we will consider whether it might be appropriate to approve a 
demonstration project that would explore whether other survey 
frequencies would be more effective.
    Comment: A commenter stated that a State could survey small 
facilities or facilities near the survey office most often to meet the 
12 month average interval requirement.
    Response: Existing procedures call for HCFA regional office review 
of State survey agency workload planning. This review will continue and 
can identify and respond to inadequate survey practices. We do not 
believe a regulatory requirement is necessary to ensure the use of 
meaningful criteria for determining survey intervals.
    Comment: One commenter was confused about how HCFA can determine 
which facility survey did not meet the 12 month average interval 
requirement.
    Response: The regulation specifies that it is the statewide average 
interval between standard surveys that must not exceed 12 months, 
rather than the interval between consecutive surveys of specific 
facilities.
    Comment: Several commenters suggested alternative language for 
proposed Sec. 488.158(b)(2). These writers recommended that the 
sentence which reads, ``If the provider is a Medicaid facility, HCFA 
reduces FFP in accordance with Sec. 488.170'' be replaced with ``HCFA 
will reduce FFP in accordance with Sec. 488.170 and may apply 
corrective action which includes the following: * * *'' or ``HCFA 
reduces FFP to the State in accordance with Sec. 488.170.'' Another 
commenter recommended that HCFA's corrective action be limited to 
technical assistance and inservice training during the first year and 
only include FFP reduction if there is a gross violation.
    Response: While we appreciate the merits of these suggestions, the 
FFP reduction formula now specified at Sec. 488.320 has certain 
limitations as it cannot logically be used to sanction a State for 
failure to achieve a 12 month statewide average interval requirement 
for standard surveys. This is because a survey agency's performance in 
calculating the 12 month statewide average interval is unrelated to the 
terms of the FFP reduction formula. The formula is comprised of two 
terms: the total number of residents in nursing facilities surveyed by 
HCFA during a quarter and the total number of residents in nursing 
facilities found, in accordance with HCFA surveys, to be noncompliant. 
Thus, the statutory formula does not lend itself to remedying problems 
States might be experiencing in conducting timely surveys. However, 
section 1919(g)(3) of the Act states that we may respond to inadequate 
State survey performance in Medicaid facilities by providing for the 
training of the State's survey teams. We are revising Secs. 488.308 and 
488.320 in this final rule accordingly.
    Comment: A commenter asked that we explain which date is used for 
computation of the 12 month statewide average interval when an extended 
survey follows a standard survey.
    Response: The last day of the standard survey, not the last day of 
the extended survey, is the date used in the computation of the 
statewide average interval. Sections 1819(g)(2)(A)(iii)(I) and 
1919(g)(2)(A)(iii)(I) of the Act specify the statewide average interval 
between standard surveys shall not exceed 12 months.
    Comment: In examining the criteria which trigger special surveys, 
one commenter agreed that survey agencies may need to conduct a survey 
when changes occur as specified in the regulation. A few other 
commenters disagreed and indicated that an abbreviated or standard 
survey within 60 days of a change in ownership, management, nursing 
home administrator and/or director of nursing was stressful, wasteful 
of taxpayer dollars or unnecessary. One commenter specifically stated 
that the change of a director of nursing as a survey trigger was 
inappropriate and should be removed.
    Response: We are retaining this provision as written. Sections 
1819(g)(2)(A)(iii)(II) and 1919(g)(2)(A)(iii)(II) of the Act use the 
word ``may,'' thus permitting the State survey agency discretion in 
deciding to conduct a standard survey or an abbreviated standard survey 
within 60 days of any of the above stated changes to determine whether 
these changes have caused a decline in the quality of care furnished by 
the facility.
    Comment: A few other commenters recommended that the regulation 
specify that other surveys (Sec. 488.308(c)) must be conducted as 
frequently as necessary to determine compliance with participation 
requirements and to confirm the correction of previously cited 
deficiencies.
    Response: We are retaining this provision in which the decision to 
conduct other surveys under the circumstances specified at 
Sec. 488.308(c) be at the State survey agency's discretion. We expect 
the survey agency to base its decision on the individuals and 
facilities involved and the State's concern that the quality of care 
may have declined, and to conduct a survey in those cases where one is 
necessary to confirm compliance with participation requirements. The 
correction of noncompliance will be monitored and verified by some type 
of follow up activity which may or may not be a survey. Section 488.332 
states that the State survey agency conducts on-site monitoring as 
needed when: a facility is not in substantial compliance with the 
requirements and is in the process of correcting deficiencies; 
verification of continued substantial compliance is needed after 
deficiencies have been corrected; or, the survey agency has reason to 
question the substantial compliance of the facility with the 
requirements of participation. (Please refer to the discussion at 
Sec. 488.332, Investigation of complaints of violations and monitoring 
of compliance.)
    Comment: The proposed regulation indicates that the survey agency 
may conduct a standard or an abbreviated standard survey to determine 
whether certain changes have caused a decline in the quality of care 
furnished by a facility. The commenter recommended that the phrase 
``decline in the quality of care furnished by'' be modified to allow 
special surveys for the purpose of determining whether the facility is 
out of compliance with any conditions of participation.
    Response: Since the language of concern to the commenter simply 
reiterates the Act, at sections 1819(g)(2)(A)(iii)(II) and 
1919(g)(2)(A)(iii)(II), we are not free to modify the language as 
suggested. However, we believe the Act gives States ample authority to 
conduct surveys any time they suspect that conditions at a facility may 
be declining.
    Comment: A commenter proposed amending the regulation to expressly 
permit the survey agency to screen complaints to decide if they merit 
an on-site investigation. Another commenter wrote that this rule goes 
beyond the Act and requires a standard or abbreviated survey in every 
instance, including those which may be an isolated complaint or abuse. 
One commenter proposed revising Sec. 488.308(e)(2) to read, ``The 
survey agency must conduct a standard or an abbreviated standard survey 
to investigate complaints of violations of the requirements by SNFs and 
NFs that the agency has reviewed and determined to provide a reasonable 
basis for investigation.''
    Response: We are clarifying the wording of this provision to say 
the survey agency must review all complaint allegations and conduct a 
standard or an abbreviated standard survey to investigate complaints of 
deficiencies in requirements by SNFs and NFs if after reviewing the 
allegation, the survey agency concludes that a violation of one or more 
of the requirements may have occurred and only a survey can confirm 
that a deficiency or deficiencies exist. A survey will not be conducted 
if the complaint raises issues that are outside the purview of Federal 
participation requirements.

Section 488.310  Extended Surveys

    Comment: Several commenters advocated that HCFA mandate extended 
surveys and/or more frequent surveys (every 6 months) whenever a 
facility has a nurse staffing waiver. Commenters reasoned that 
requiring extended surveys would protect residents through the process 
of reviewing a facility's staffing, as required in sections 
1819(g)(2)(B)(iii) and 1919(g)(2)(B)(iii) of the Act. One commenter 
raised the presumption that in the case of nurse staffing waivers, 
quality of care problems exist and need to be closely examined. 
Further, the commenters fundamentally questioned the legality of 
granting nurse staffing waivers because they believe it contradicts the 
statutory definition of a SNF and NF.
    Response: While we agree that facilities with nurse staffing 
waivers should be carefully examined to ensure sufficient staffing, we 
do not believe that conducting an extended survey is the only means 
available to do so. The standard survey, as described in the Appendix P 
of the State Operations Manual Transmittal No. 250, permits surveyors 
to expand the standard survey ``as needed'' for any reason without 
requiring an extended survey. Subpart I of the State Operations Manual, 
Appendix P, Section A states, ``If in conducting the information 
gathering tasks of the standard survey you identify a possible 
noncompliant situation related to any requirement, investigate the 
situation to determine whether the facility is in full compliance with 
the requirements.'' Therefore, surveyors could review facility staffing 
records during the standard survey to assure sufficient staffing. We 
wish to reserve the use of extended surveys to those circumstances in 
which we have found substandard quality of care.
    We are not accepting the commenters' suggestion that we require 
more frequent surveys for facilities with nurse staffing waivers. To do 
so would undermine the State survey agency's ability to choose survey 
intervals. We believe that the Congress intended State survey agencies 
to have the flexibility to choose the survey intervals. The law 
specifies that the interval between 2 successive standard surveys must 
not exceed 15 months and that the State survey agency must maintain no 
greater than a 12 month Statewide average for standard surveys.
    We do not address the comments regarding the legality of nurse 
staffing waivers. The requirements for nurse staffing waivers are 
outside of the purview of this rule and were included in a final rule 
published in the Federal Register on September 26, 1991 (56 FR 48826).
    Comment: Several commenters questioned the use of the survey agency 
and HCFA discretion to conduct an extended survey at any time for any 
reason. Some commenters disagreed that the Act gives HCFA or the survey 
agency the discretion to conduct an extended survey at any time. These 
commenters urged HCFA to clarify that the purpose of an extended survey 
is to identify policies and procedures that caused the facility to 
furnish substandard quality of care.
    Response: We disagree with commenters who believe that the Act does 
not give HCFA or the survey agency the discretion to conduct an 
extended survey at any time. Sections 1819(g)(2)(B)(i) and 
1919(g)(2)(B)(i) of the Act specifically state, ``Any other facility 
may, at the Secretary's or State's discretion, be subject to such an 
extended survey (or a partial extended survey).'' However, we recognize 
that when facilities are subject to an extended survey or partial 
extended survey, they are disadvantaged because they automatically lose 
approval of their nurse aide training and competency evaluation 
programs (NATCEP) for two years. There may be other instances when a 
facility would lose their NATCEP, for example, when a facility has a 
nurse staffing waiver or has had a denial of payment for new admissions 
remedy, or temporary manager remedy imposed. Therefore, as a matter of 
policy, we do not expect to exercise our discretionary authority to 
conduct an extended or partial extended survey unless we have found 
substandard quality of care on a standard survey or abbreviated 
standard survey and we will advise the State survey agencies in manual 
instructions to adopt the same policy.
    We have built into our survey process the ability of the survey 
team to expand a standard survey at any time. The expanded standard 
survey can be tailored to the unique situation in a particular facility 
and need not include all of the tasks listed at Sec. 488.310(b). It 
allows more thorough investigation of specific areas in order to 
confirm noncompliance when the initial scope of the standard survey is 
not adequate to substantiate a particular deficiency. But it does not 
penalize a facility with loss of approval of a NATCEP.
    We are not including proposed Sec. 488.160(c)(2) which would spell 
out the State survey agency's and Secretary's discretion to conduct 
extended surveys, as it is unnecessary given the explicit language of 
sections 1819(g)(2)(B)(i) and 1919(g)(2)(B)(i) of the Act.
    Comment: We received numerous comments urging us to amend the 
purpose of an extended survey as stated in Sec. 488.310(a). One 
commenter suggested the following revision:

    The purpose of an extended survey is to determine the extent of 
the problems and their effect on residents, when surveyors determine 
or suspect that jeopardy exists, in order to document the problems 
fully and determine the appropriate combination of remedies. 
Extended surveys must be conducted whenever a facility has been 
granted a waiver of nurse staffing requirements.

    Response: We are not accepting this proposed change because it is 
inconsistent with the Act. Sections 1819(g)(2)(B)(i) and 
1919(g)(2)(B)(i) of the Act specify that an extended survey must be 
conducted when the Secretary or State survey agency finds substandard 
quality of care. Substandard quality of care does not necessarily pose 
immediate jeopardy to residents. Therefore, the commenter's proposal is 
more restrictive than the Act. As we discussed previously, we are not 
requiring that the Secretary or the State survey agency conduct an 
extended survey when a facility has a nurse staffing waiver.
    We believe that adding ``to determine the extent of problems and 
their effect on residents'' to the stated purpose of an extended survey 
is not necessary because it is inherent in identifying policies and 
procedures that caused substandard quality of care. For example, if 
there are poor policies and procedures (rather than isolated practices 
that don't conform to appropriate policies and procedures), the extent 
of the problem in the facility could be potentially pervasive.
    Comment: Other commenters suggested that random discretionary 
extended surveys are a good idea. However, they do not believe that 
penalties should be applied to facilities as a result of such random 
surveys when the facility was not cited for substandard quality of 
care.
    Response: Sections 1819(f)(2)(B)(iii)(I)(b) and 
1919(f)(2)(B)(iii)(I)(b) of the Act require that the approval of NATCEP 
be withheld or withdrawn for 2 years when the State or HCFA conducts an 
extended survey. The law makes no exceptions for extended surveys 
conducted at the discretion of the Secretary or the State. However, we 
believe that we can achieve the indepth random survey favored by 
commenters through the standard survey. As we discussed above, the 
State survey agency or HCFA may expand a standard survey at any time 
without the threat of a loss of NATCEP.
    Comment: Several commenters disagreed with or suggested 
alternatives for the items included in an extended survey, as specified 
in proposed Sec. 488.160(b). Some commenters asked that we add ``and 
review sampled residents in more depth'' after paragraph (b)(1). The 
majority of commenters asked that we delete paragraph (b)(5) which 
requires that an extended survey include ``an investigation of any 
participation requirement at the discretion of the survey agency.'' 
These commenters believe that the proposed language exceeds the concept 
of the statutory language. In part the commenters stated:

    It returns to the old methodology of checking everything in 
contrast to the intent of the IoM study and resident-centered 
outcomes. It would also waste fiscal resources that could be better 
utilized elsewhere in the survey system.

    Response: We are not accepting the proposed amendment to 
Sec. 488.310(b)(1) which would add the requirement that the survey 
agency review sampled residents in more depth. The purpose of an 
extended survey is to look at the policies and procedures that produced 
substandard quality of care. The Act only requires an expansion of the 
size of the sample of resident assessments and not the depth of the 
reviews of the residents themselves. A more indepth look at residents 
will not facilitate an investigation of policies and procedures and 
should, therefore, be accomplished through a standard survey if the 
survey agency so desires. We also disagree with commenters that 
Sec. 488.310(b) should not include ``an investigation of any 
participation requirement at the discretion of the survey agency.'' 
Section 488.310(b) says ``all'' and paragraph (b)(5) says ``any 
participation requirement at the discretion of the survey agency.'' 
This does not mean, as the commenter suggests, that every requirement 
would be surveyed, rather, only those that the survey agency chooses.
    Comment: One commenter asked that we indicate whether the 2 weeks 
specified in Sec. 488.310(c) is 2 work or calendar weeks (that is, 10 
work days or 14 calendar days). Another commenter asked that we define 
``partial extended survey.'' One commenter wondered whether the survey 
agency would notify facilities that they were going to receive an 
extended survey.
    Response: We are revising Sec. 488.310(c) to state that the 2 weeks 
are computed in calendar days. We are defining the term ``partial 
extended survey'' in Sec. 488.301 (``Definitions''). The survey agency 
will not notify a facility when an extended survey will be conducted. 
The survey team will let the facility know at the exit conference when 
it finds substandard quality of care. Based on the finding of 
substandard quality of care, the facility will then know that an 
extended survey will be conducted any time within the next 14 calendar 
days. In most cases, we expect that the survey team will conduct the 
extended survey immediately following the standard survey especially 
when it would be more cost effective for the State to complete both the 
standard and extended survey while on site rather than scheduling 
another visit.

Section 488.312  Consistency of Survey Results

    We specifically asked in the preamble of the proposed regulation 
for comments or suggestions for enhancing surveyor consistency.
    Comment: Several commenters support efforts by HCFA to assure 
consistency of survey results and the application of remedies. However, 
it was stressed that consistency should not receive greater emphasis 
than accuracy and efficiency. Increased accuracy of the citation of 
deficiencies will lead to greater consistency within the survey 
process.
    Response: In the preamble of the proposed rule, we stressed that 
surveyors should be trained to ``exercise consistency and accuracy.'' 
We agree that accuracy is as important as consistency and we are 
including the term in the text of the final regulation. Additionally, 
we believe that the recommendations of the studies and analyses 
required by the regulation should be implemented to enhance consistency 
and be monitored by each HCFA regional office. These changes are 
reflected in the final text at Sec. 488.312.
    Comment: Some commenters suggested the use of consumers, ombudsmen, 
other resident advocates, and providers to evaluate the quality of the 
survey process.
    Response: This rule requires each State survey agency to implement 
programs to enhance consistency. Each State survey agency is encouraged 
to gather pertinent data and consider varied sources in its data 
collection. While we agree with this suggestion, we do not want to 
limit, in regulations, what data each State may consider.
    Comment: Commenters also suggested that deference be given to the 
data compiled on survey consistency by ``entities and their 
associations.'' These commenters believe that these data are valuable 
and often compiled in a manner which permits ``valid and reliable 
statistical conclusions about the degree of inconsistency among 
surveyor results.'' Additionally, these commenters wanted the final 
regulation to require survey agencies to consult with the regulated 
entities as part of the effort to reduce inconsistency among survey 
teams.
    Response: We assume that the commenters mean ``long-term care 
facilities'' when they refer to ``entities and their associations.'' 
Sections 1819(g)(2)(D) and 1919(g)(2)(D) of the Act require that the 
State (and the Secretary under section 1819) implement programs to 
improve consistency in the interpretation and application of survey 
results among surveyors. The intent of the Act is to assign the 
authority to administer these programs to the States, not to 
facilities. In fact, the compilation of data to allow statistical 
conclusions about surveyor consistency may be a part of the programs 
that the law requires the States and the Secretary to establish. As far 
as mandating that the State survey agency must consult with facilities 
in the effort to ensure consistency, we believe it is unnecessary to 
require this in regulation as it is already inherent within the survey 
process.
    Comment: Other commenters wanted the required studies and programs 
outlined within the final regulation or the State Operations Manual. A 
few commenters wanted a written quality assurance program approved by 
HCFA which would outline specific data to be included in the required 
studies and programs.
    Response: The only requirements that we are specifying in 
regulations are that the State survey agencies must consider surveyor 
accuracy as well as consistency. We believe that it is preferable for 
individual State survey agencies to develop their own programs.
    Comment: Some commenters believed increased surveyor training and 
testing would enhance surveyor consistency.
    Response: As previously stated in the preamble to the proposed 
rule, HCFA has implemented an exhaustive surveyor training and testing 
program that will ensure that surveyors are adequately trained and 
competent at performing surveys. This requirement is in Sec. 488.314.
    Comment: Some commenters advocate the review of every statement of 
deficiencies by survey agency supervisory personnel for compliance with 
the requirements before the statement is sent to the provider.
    Response: As stated in the preamble of the proposed rule, surveyors 
will, based upon their collective information, match the data to the 
legal standards the facilities are obligated to meet in order to 
determine if deficiencies exist. Most State survey agencies already 
employ some type of supervisory review for all statements of 
deficiencies prior to provider notification. However, we will not 
require a 100 percent supervisory review in all State survey agencies.
    Comment: A few commenters suggested that a procedure for 
maintaining and monitoring records of individual surveyor's proficiency 
should be initiated and these records should be considered in the 
preparation of deficiency reports for facilities.
    Response: We are not making changes suggested by this commenter 
because there is no statutory basis for using the records of individual 
surveyor's proficiency in the preparation of deficiency reports. 
Compliance is something achieved or not achieved by the facility; 
therefore, individual surveyor proficiency records do not obviate the 
obligation of each facility to abide by Federal regulations. All 
decisions regarding the preparation of deficiency reports are made as a 
team, rather than by individual members. In fact, we require team 
decision making and provide comprehensive training on the regulations 
and documentation techniques in order to enhance consistency.
    Comment: One commenter claimed the section of the proposed 
regulation regarding consistency violates the Congressional mandate to 
establish new programs to improve consistency by stating ``* * * the 
collective exercise of surveyor judgements, which has always been the 
vehicle for the identification of deficiencies, will remain 
unchanged.'' (57 FR 39290)
    Response: We do not agree with this comment. The above passage 
refers to the method by which the survey team collects the data for the 
identification of deficiencies. Following the above passage, as stated 
in the preamble of the proposed rule, this ``collective exercise'' is 
described as how ``* * * surveyors will gather information based upon 
direct observations, record review, and interviews with residents, 
staff, and family members'' (emphasis added). (57 FR 39290) Through 
training, surveyors are instructed on this method of information 
gathering which assists them in identifying situations that are 
indicative of a facility's compliance with the regulations. 
Additionally, the Congressional mandate refers to the ``establishment 
of new programs, studies and analyses'' (emphasis added), not to the 
method in which the information is gathered.
    Comment: A few commenters stressed the importance of consistency 
being sought in the application of enforcement remedies as well as the 
survey procedures.
    Response: We agree with the commenters. The final regulation 
requires that State survey agencies conduct programs designed to 
enhance consistency in the application of enforcement remedies as well 
as in survey results.
    Comment: A few commenters questioned the inclusion of the 
application of remedies as part of the evaluation of survey 
consistency. They assume it is not the surveyors who would be 
responsible for the selection and implementation of remedies.
    Response: We recognize that the surveyors are not ultimately 
responsible for the selection and implementation of remedies. As stated 
in the preamble of the proposed rule, it is the surveyor's 
responsibility to ``* * * recommend one or more remedies to either HCFA 
or the SMA [State Medicaid agency] for the enforcement of the 
requirements.'' (emphasis added) However, we disagree with the comment 
questioning the inclusion of the application of remedies as part of the 
evaluation of survey consistency. As it was the intention of the 
Congress to ``* * * measure and reduce inconsistencies in the 
application of survey results * * *,'' (emphasis added) we interpret 
sections 1819(g)(2)(D) and 1919(g)(2)(D) of the Act to include both 
inconsistencies in survey findings as well as inconsistencies in the 
application of enforcement remedies. In order for each State survey 
agency to measure accuracy and consistency in the application of survey 
results among surveyors, it must first ensure that these results are 
consistent across surveyors, and then determine that the enforcement 
actions precipitated by the survey results are consistently applied.
    Comment: One commenter suggested that facilities be requested to 
fill out a questionnaire after their survey to give feedback on the 
quality, competence and attitude of their survey teams.
    Response: We believe that it is unnecessary to require a 
questionnaire because feedback is inherent in the survey process. There 
are numerous times throughout the survey process for the provider to 
comment upon the performance of the survey team. Providers have the 
opportunity to question survey findings during the survey, at the exit 
conference, while awaiting receipt of the official deficiency 
statement, upon receipt of the same, and through dialogue with the 
State survey agency and HCFA regional officials.

Section 488.314  Survey Teams

    Comment: Virtually everyone who commented on this proposed section 
emphasized the importance of ensuring that surveyors have the 
appropriate professional credentials for the job and that they receive 
adequate training. For the most part, the only differences were over 
exactly what constitutes ``appropriate'' professional credentials and 
``adequate'' training. Opinion ran the gamut from maintenance/safety 
experts to physicians with experience in geriatric medicine or long 
term care. Some suggested that trainees work under the supervision of 
an experienced surveyor.
    Numerous commenters offered suggestions regarding team composition. 
Two examples included--
     A nurse, licensed administrator, pharmacist, nutritionist, 
and social services/activities therapist; and
     A nurse, a maintenance/safety expert, and a social worker.
    One commenter suggested that one team member must be ``a physician 
trained in geriatric and psycho-pharmacology,'' and said that, ``To the 
extent the new survey process incorporates new guidelines for chemical 
and physical restraints, a physician (MD/DO) team member must be 
included.'' Some said that nurse surveyors should have, as a minimum 
qualification, a B.S.N. One commenter said that the nurse on the team 
should have spent 2 or 3 years as a director of nursing at a long term 
care facility. Other disciplines that commenters said should be 
represented in the ranks of surveyors include speech-language 
pathologists, sanitarians, gerontologists, and dietitians. A number of 
commenters suggested a specific requirement that all surveyors must 
have at least 1 year of experience with geriatric populations in a 
health care or related setting or experience in long term care. Some 
said that this experience should be ``hands on'' experience, and a few 
commenters suggested that we set forth the size of the team in 
regulations, with the size being proportional to the number of beds in 
the facility or increasing in certain instances such as a historical 
pattern of serious deficiencies or complaints.
    Many commenters asked for clarification of the meaning of 
``multidisciplinary'' and ``professionals,'' and one suggested we use 
the word ``interdisciplinary'' instead of ``multidisciplinary.''
    Finally, one commenter said that surveyors should be sent to the 
same facilities year after year so that they become more familiar with 
the facility and its staff. This would, the commenter suggested, enable 
the team to do a better job. Another commenter said that surveyors 
should be rotated among facilities to maintain their objectivity.
    Response: We are deleting the modifier, ``health,'' and clarifying 
the term, ``professionals,'' in Sec. 488.314(a)(1) by setting forth 
examples. Examples of professionals include physicians, physician 
assistants, nurse practitioners, physical, speech, or occupational 
therapists, physical or occupational therapy assistants, registered 
professional nurses, dieticians, licensed practical nurses, 
sanitarians, engineers, and social workers, but are not completely 
inclusive; the State, subject to HCFA's approval, determines what 
constitutes a ``professional.'' We are deleting the word ``health'' 
because it may be appropriate in some cases to include other types of 
professionals on a survey team. For example, if the facility has or may 
have structural problems or other physical plant facilities, an 
engineer may be needed.
    We have chosen to continue to use the term ``multidisciplinary,'' 
rather than change it to ``interdisciplinary.'' Dictionary definitions 
of the prefixes ``multi-'' and ``inter-'' are very broad, with the 
former generally meaning ``more than one,'' and the latter generally 
meaning ``between or among.'' Therefore, we believe that 
``multidisciplinary'' is the more appropriate choice. Furthermore, 
``multidisciplinary'' is the term used in the Act.
    Different States have different licensure requirements and 
different staffing patterns. Also, it is difficult to recruit qualified 
professionals in certain areas of the country. Therefore, other than 
requiring that there at least be a registered nurse on the team, we do 
not believe dictating to the States in Federal regulations the precise 
composition of survey teams is necessary at this time. (The registered 
nurse member of the team is necessary because SNFs and NFs are 
primarily engaged in providing skilled nursing care and/or related 
services.) The most important considerations are that the surveys be 
conducted by professionals and that the survey guidelines be followed. 
All surveyors must pass HCFA's ``Surveyor Minimum Qualifications Test'' 
(SMQT), which is in itself, a test of several disciplines directly 
related to the survey of health care facilities.
    Cogent cases can be made both for and against surveyor rotation, as 
is evidenced by the comments themselves. For this reason, we are 
considering this an administrative matter and leaving it to the 
discretion of the States.
    Comment: One commenter thought that Sec. 488.314(a)(2)(i) should be 
expanded to include surveyors who serve, or within the previous 2 
years, have served as a member of the staff or as a consultant to the 
chain of which the facility is a part (if applicable). Another 
commenter said that we should also disqualify surveyors who work or who 
have worked in the previous 2 years as agency staff. The commenter said 
that, in many States, nurses who work for agencies and are sent to 
nursing homes for discrete periods of time are not always considered to 
be ``staff.''
    Other suggestions were to revise Sec. 488.314(a)(2)(ii) to 
disqualify surveyors who--
     Own a part of any nursing home in the State;
     Own a part of any nursing home in the United States;
     Have a financial interest or any direct or indirect 
ownership interest in the facility to be surveyed, or in any related 
facility, company, or chain; or
     Have an immediate family member who is a resident or an 
employee of the facility.
    Finally, one commenter wants to prohibit any surveyor from 
accepting a job with a facility for 1 year after the individual has 
last surveyed it.
    Response: In response to comments, to preclude conflicts of 
interest and to ensure survey objectivity, we are expanding 
Sec. 488.314(a)(2) to disqualify anyone from surveying a facility if he 
or she works, or, within the previous 2 years, has worked as an 
employee, as employment agency staff at the facility, or as an officer, 
consultant or agent for the facility to be surveyed. The surveyor is 
also disqualified if a member of his or her immediate family has, or, 
within the previous 2 years has had, such a relationship with the 
facility or if a member of his or her immediate family is, or within 
the previous 2 years has been, a resident of the facility.
    In Sec. 488.314(a)(2), we continue to disqualify surveyors who have 
a financial interest or any ownership interest in the facility but have 
deleted the modifying phrase ``direct or indirect'' to preclude 
misunderstandings. One commenter, for example, interpreted the 
restriction against ``indirect'' financial interest to mean that a 
surveyor would be disqualified if he or she held shares in a broad-
based mutual fund which included ownership in health care facilities. 
(This was not our intent.) The issue of what constitutes disqualifying 
financial interest must be discussed in considerable detail, and our 
manuals provide the most appropriate vehicle for this discussion. 
However, we have broken out the parallel restriction on surveyors whose 
family members have direct or indirect ownership interest and placed it 
in a new Sec. 488.314(a)(2)(iii). We are also extending the 
Sec. 488.314(a)(2)(i) disqualifying requirement to family members in 
paragraph (a)(2)(iii). Finally, in a new paragraph (a)(2)(iv), we 
disqualify any surveyor who has an immediate family member who is a 
resident of the facility.
    We believe that these safeguards are sufficient to ensure 
objectivity and that nothing beyond these is warranted. Finally, in our 
view, prohibiting any surveyor from accepting a job with a facility for 
1 year after he or she has last surveyed it is unnecessary and would be 
difficult to enforce. Whether or not the ex-surveyor has surveyed that 
particular facility before would be of less benefit to the facility 
than the in-depth knowledge of Federal requirements that the individual 
could share with the facility. We believe that such knowledge can help 
the facility achieve and maintain compliance which ultimately serves 
the residents. The protection of the residents' health, safety, 
dignity, and general interests is our primary goal.
    Comment: Commenters were generally critical of surveyor training 
and skills, and most offered specific suggestions on how training could 
be enhanced. Some examples follow:
     There should be provider and/or ombudsman input for 
surveyor training and/or testing;
     ``Activity professionals'' or ``individuals with 
significant clinical and investigative skills'' should teach at least 
part of the surveyor training course;
     Training should include----
--Interviewing and investigatory skills;
--Quality of care standards;
--Communication skills, particularly for communicating with residents 
who may have communication barriers;
--How to identify outcomes;
--How to identify iatrogenic declines;
--How to identify care conditions that could lead to decline or failure 
to improve if not properly addressed;
--Standards of care for the professional disciplines involved;
--More training on long term care issues;
--Rules of evidence;
--120 hours or more field work experience in a long term care facility;
--Pharmacology;
--Gerontology;
--Therapeutic recreation;
--Training to produce or to update clinical competency in each 
surveyor's area of expertise;
--Residents' rights;
--Resident assessment and care planning;
--Mental health care and services;
--Rehabilitation;
--Correct application of the applicable statutes and regulations; and
--Proper documentation;

     Some of the training should be done in the field;
     There should be annual in-service training for surveyors;
     Training should be held not only for surveyors, but for 
other State personnel with related duties;
     There should be a continuing education requirement for 
surveyors;
     Surveyor training must stress that only the established 
Federal survey methodology may be used in determining facility 
compliance;
     The techniques taught in surveyor training courses should 
be published for public comment;
     Providers, at their own expense, should be permitted to 
take surveyor training courses;
     The number of training slots must be increased so new 
survey agency employees do not have to wait so long to receive HCFA 
surveyor training;
     Training should be made available locally or through 
interactive video;
     A passing score on a pre-test should not exempt a surveyor 
from the final test; all should be required to take and pass the final 
test;
     All Federal and State surveyors should be trained by 
qualified, national HCFA staff;
     Survey agencies should have built in mechanisms for 
quality assurance and supervision;
     The survey agency's leadership should include health 
professionals and attorneys;
     There should be a formal complaint mechanism that 
providers may use without fear of reprisal to challenge the actions and 
activities of ``rogue'' surveyors;
     No one should be a member of a survey team unless he or 
she has successfully completed a training and testing program, not only 
on how to conduct a standard survey, but on how to conduct an extended 
survey as well. Proof of successful completion of this training must be 
made available to the facility prior to the initiation of a survey; and
     Before a citation is given, the surveyor must be able to 
demonstrate a negative outcome.
    One commenter said that the HCFA policy that surveyors are not to 
be consultants is a great disservice; surveyors should adopt a role 
like the JCAHO surveyors. Another said that HCFA should convene a 
national group of experts, including State and Federal surveyors with 
extensive experience, nursing facility providers, and consumers, to 
identify the knowledge and skills needed by survey teams.
    Some said that surveyors should pass not only the initial 
examination, but be tested annually. The passing scores for the tests 
should be 85 percent or more, commenters said, and the results of the 
testing and remediation must be made available to the public.
    One commenter said that, when surveyors are cross-trained, their 
expertise in the new area is not good enough to survey facilities' 
performances in that area. For this reason, the commenter suggested 
that Sec. 488.314 be revised ``* * * to preclude the use of surveyors 
without demonstrated professional training and experience in the 
substantive area being surveyed. By professional training and 
experience,'' the commenter said, ``we do not mean on-the-job or inter-
agency in-service training. Rather, we mean graduates of accredited or 
approved educational institutions.''
    One commenter said that there should be no ``grandfathering'' of 
surveyors. Another asked the following three questions:
     What validity and reliability studies were conducted to 
ensure the test measures the ability of surveyors to perform their 
functions in a consistent manner?
     Has the test been validated to allow States to meet their 
affirmative action plans?
     Are the results of the tests in line with the State's 
requirements for merit systems and collective bargain contracts?
    Response: The listing of suggested topics for surveyor training was 
extensive. Some of the items (for example, correct application of the 
applicable statutes and regulations, quality of care standards, and 
proper documentation) are already covered in surveyor training. We 
believe others are inappropriate to require as part of survey training; 
they should be provided as part of each team member's initial and 
continuing training within the context of training for his or her area 
of professional expertise.
    We would encourage, but do not require, States to allow surveyors 
in training to act as observers on actual surveys in the field, and are 
taking all possible measures to meet the demand for surveyor training. 
For example, we are planning to use satellite transmissions for 
training courses. We have already begun to move ahead with one of the 
other suggestions, interactive video training. As for provider and/or 
ombudsman input for surveyor training and testing, we have convened a 
national workgroup which includes provider organization and consumer 
advocacy group representatives to assess the surveyor training program 
and make recommendations for changes. Finally, we will listen to all 
reasonable suggestions from providers and ombudsmen, but do not agree 
that the regulations need to be revised to require this input.
    The qualifications for surveyors, other survey agency personnel, 
and HCFA trainers, we believe, are already high. In our operating 
experience, we have seen no reason to believe otherwise. Even if we 
required that each team include a physician, as some commenters 
recommended, we are not certain that some providers would be any more 
pleased with the survey results than they are now. We remain 
unconvinced that one must be a physician or an acknowledged expert in a 
clinical specialty in order to perform a valid survey. We believe that 
the heart of the survey process consists of clear guidelines and a 
detailed review of the results.
    The suggestions that survey training materials be published for 
public comment are addressed under the ``Determination of a 
Deficiency'' section of this preamble.
    The suggestion that providers be permitted to attend survey 
training courses at their own expense has merit. Traditionally, we have 
had no provisions for accommodating all providers interested in 
attending: our resources are taxed enough by simply trying to provide 
timely training for surveyors. However, being able to offer surveyor 
training universally to providers at their own cost may help improve 
understanding and cooperation between surveyors and providers. We are 
therefore seriously considering the changes in law necessary to allow 
this.
    We do not accept the suggestion that surveyors present providers 
with proof of the successful completion of surveyor training. The fact 
that a surveyor is sent by the State or HCFA is, in itself, evidence 
that the bearer meets the requirements to be a surveyor.
    A number of the commenters did not make any suggestions with 
respect to the proposed rule. Instead, their comments were in the 
context of denigrating surveyors with whom they had had unpleasant 
experiences, declaring that running a facility is costly, frustrating, 
and unappreciated, or protesting the whole survey process in general. 
Because no specific suggestions were made concerning the proposed rule, 
we are unable to respond to these kinds of broad complaints.
    Comment: Two commenters suggested revising the end of the sentence 
at proposed Sec. 488.164(c) as follows: * * * completed the required 
training and competency testing program.'' Another said that, at the 
onset of each survey, facilities should be told which surveyors are 
serving as observers, and regulations should stipulate that these 
individuals should be excluded from active participation in the survey 
process.
    Some other commenters said that surveyors-in-training should be 
allowed to participate in the survey process as long as they are 
appropriately supervised. They said that, historically, these 
individuals have been used to ``* * * collect information to be used by 
qualified surveyors during the deficiency decision making process.'' 
Further, two commenters said, not allowing surveyors-in-training to 
observe would mean that new surveyors would face significant periods of 
nonproductive time while waiting for courses to be offered.
    Response: We agree that surveyors must not only complete the 
required training, but the competency testing program as well. However, 
paragraph (c) already requires that a surveyor successfully complete 
``* * * a training and testing program.'' We do not agree that the 
survey team should, at the outset of a survey, identify which of its 
members (if any) have not yet completed the required training and 
competency testing program. We also disagree that surveyors who have 
not yet completed the training and testing program should ``be excluded 
from active participation.'' We do not want to prohibit the 
``historic'' role of observers mentioned by two of the commenters, that 
is, to ``* * * collect information to be used by qualified surveyors 
during the deficiency decision making process,'' or forbid individuals 
from making valuable contributions to the survey process if they are in 
a position to do so. We are, therefore, amending this section 
(Sec. 488.164(d) in the proposed rule) redesignated as 
Sec. 488.314(c)(3) in the final rule, to provide that the survey agency 
may permit an individual who has not completed a training program to 
participate in a survey as a trainee if accompanied onsite by a 
surveyor who has successfully completed the required training and 
testing program.

Proposed Sec. 488.166  Validation Surveys

    We have reconsidered the necessity of including this section in the 
text of the regulation, and have concluded that it would be pointless 
and redundant to retain it. We believe that the statutory provisions 
upon which this section is based are self-implementing, and that 
regulatory interpretation is not needed to clarify them. In addition, 
the few elaborations on the requirements in sections 1819(g)(3) and 
1919(g)(3) of the Act, which are found at Sec. 488.316 are duplicated 
elsewhere in the regulations, and we believe there is little reason to 
repeat them. Appeals applicable to certifications of noncompliance 
based on validation surveys will be conducted according to 
Sec. 488.330, Certification of compliance or noncompliance.
    In the absence of a regulatory section devoted to validation 
surveys, we are adding a definition of a validation survey to 
Sec. 488.301, Definitions, to serve as a reference because the term is 
used elsewhere in the regulations.
    Our decision to not finalize proposed Sec. 488.166 does not make 
the public comments we received on this section any less valuable for 
they are still pertinent commentary on validation survey policy and we 
are responding to them, accordingly.
    Comment: Several commenters insisted that HCFA validation surveys 
should be conducted concurrently with the State survey. Other 
commenters encouraged HCFA to use the Onsite Performance Assessment and 
Training Survey (OSPATS) as the validation survey method. Still other 
commenters said the HCFA validation survey should be as soon as 
possible after the State survey, but no more than 2 weeks, 3 weeks or 
30 days after the State survey. Most commenters noted that survey 
findings may vary slightly from day to day and that it was essential 
that both survey teams were viewing the same set of facts. In addition, 
concurrent surveys cause less disruption to facilities and residents 
and enable HCFA to provide immediate feedback to State surveyors. One 
commenter recommended that HCFA validation surveys not be concurrent; 
another said the unexpected nature of the validation survey was 
important in that the facility will return to its ``normal daily 
routine'' after the State survey; and one commenter said the HCFA 
validation surveys were a waste of time.
    Response: We agree with the commenters as to the advantages of a 
validation survey concurrent with the State standard recertification 
survey. To that end, HCFA has developed the OSPATS. The OSPATS long 
term care survey process has Federal surveyors assessing the facility 
while evaluating State survey agency performance. This process, which 
is fairly new for long term care surveys, is believed by some providers 
to be less disruptive to facilities and residents. It does ensure that 
both Federal and State surveyors observe the same conditions in the 
facility. It is our intent to expand the use of the OSPATS process for 
validation surveys. We also agree that when the validation survey is 
not concurrent with the State survey, it should occur as soon as 
possible after the State survey. Sections 1819(g)(3)(A) and 
1919(g)(3)(A) of the Act permit a 2 month period; in practice HCFA 
attempts to schedule the surveys closer to the State survey. However, 
often there are scheduling and/or travel difficulties, which make 
minimum intervals between the two surveys difficult to achieve. We want 
to retain the flexibility to use whatever survey process best achieves 
the goals of the Act. The commenters who said that the validation 
surveys should not be concurrent or were a waste of time presented no 
reasons or alternative proposals. We can say only that validation 
surveys, concurrent or not, are mandated by sections 1819(g)(3) and 
1919(g)(3) of the Act.
    Comment: Several commenters proposed that HCFA establish procedures 
that would enable resident advocates, families and the interested 
public to request validation (complaint) surveys for specific 
facilities. These procedures should include public notice including a 
regulatory requirement that a poster notice be displayed in facilities. 
HCFA would be required to respond to such requests and investigate 
complaints against facilities and allegations of poor performance of 
State agencies.
    Response: Disclosure of survey-related information is in accordance 
with Sec. 488.325, and it is also discussed in detail under the section 
of this preamble entitled, ``Disclosure of Survey Information.''
    We understand the concerns expressed by the commenters who would 
like HCFA to perform complaint investigations and validation surveys at 
the request of advocates and other individuals. The Act and current 
regulations ensure that the State survey agencies will respond to 
allegations of poor care or abuse and will investigate these 
allegations according to State law and HCFA requirements. Most 
complaints directed to HCFA are referred to the State agencies for 
investigation. HCFA is not staffed sufficiently to respond directly to 
complaints and/or requests for validation surveys. The small HCFA 
survey staff is occupied fully in the assessment of State agency 
performance of its survey and certification responsibilities under 
section 1864 of the Act. Because of these constraints, we are unable to 
accept the commenters' suggestions.
    Comment: Certain commenters asked that we give a facility that is 
dissatisfied with the State survey the ability to request a validation 
survey and receive it within a reasonable time period.
    Response: As mentioned above, we do not have the resources to 
conduct validation surveys upon every request. If a provider believes 
that the State survey was done in an inappropriate manner, it may file 
a complaint with the HCFA regional office at whose discretion a 
validation survey may be, but need not be, performed.
    Comment: One commenter was concerned that when selecting facilities 
for validation surveys, HCFA will not draw a random sample but will 
select inferior facilities in order to cut its Medicaid obligations to 
the States.
    Response: This fear is groundless. It is not the quality of the 
facility that determines whether the State will be sanctioned for 
inadequate State survey agency performance, but rather the quality of 
the State's assessment of the facility which is relevant. Facility 
noncompliance does not reflect poorly upon the State unless the State 
has failed to identify it.
    Comment: One commenter believed that the identities of facilities 
on which validation surveys are to be performed should not be disclosed 
to the State survey agency.
    Response: There is no justification for such a policy. Currently, 
HCFA notifies States of an impending validation survey either 3 days 
before a nonconcurrent Federal validation survey or 3 weeks before a 
Federal/State OSPATS survey. In the case of the nonconcurrent Federal 
validation survey, this allows the State to arrange to have a surveyor 
present to observe the Federal survey and take advantage of the 
instructional opportunities that it presents.
    Comment: Several commenters with recent experience with validation 
surveys noted that the State and Federal surveys were very different; 
the Federal surveys stressed concepts (for example, use of restraints) 
not emphasized by the State.
    Response: The primary emphasis of the Federal validation survey is 
on assessing State survey performance. Therefore, the Federal review 
may stress certain areas of compliance in which an evaluation of State 
performance is particularly important. In addition, the long term care 
survey protocol has only been in effect since October 1990, with 
appropriate instruction enhancements for the final long term care 
regulations which were effective April 1, 1992. It is not unusual that 
some variation in emphasis will occur in a new survey process. HCFA is 
committed to a survey process that produces accurate and consistent 
findings. To that end, we have organized numerous educational sessions 
for Federal and State surveyors, held regional training conferences in 
the HCFA regions and produced the ``Principles of Documentation'' which 
is an attempt to standardize the writing of deficiency citations. 
Despite all of these continuing efforts, some variation will remain as 
long as human beings perform surveys and statutory requirements involve 
the making of professional judgments. As far as the use of restraints 
is involved, the decrease of restraints has been a HCFA priority since 
the inception of the new survey protocol.
    Comment: One commenter suggested that HCFA perform validation 
surveys of all facilities that have a waiver of the RN director of 
nursing or other licensed nursing requirements for a year or more. 
Others suggested that HCFA list the criteria it uses to select 
facilities for validation surveys and that the validation sample should 
reflect the State's diversity in location, size and ownership of 
facilities.
    Response: The selection of facilities for validation surveys 
depends upon which facilities the State has surveyed recently or 
intends to survey imminently. Within those constraints, the typical 
sampling process for selecting facilities for a validation survey 
ensures that a wide variety of facilities are selected. Because of this 
and the heavy demands placed upon HCFA survey staff, we do not accept 
these suggestions that add survey responsibilities not mandated by the 
Act. Moreover, we do not see the necessity of targeting facilities with 
waivers for validation surveys because an annual review of the 
appropriateness of each waiver will be conducted whether the facility 
to which it was granted is subject to a validation survey or not.
    Comment: Several commenters suggested that HCFA validation surveys 
be required to use the ``methods, procedures, and forms prescribed for 
use by the survey agency.''
    Response: The language used in the proposed rule (that HCFA conduct 
validation surveys ``using the HCFA protocol prescribed for use by the 
survey agency'') was derived from sections 1819(g)(3)(A) and 
1919(g)(3)(A) of the Act, which require that the Secretary conduct 
validation surveys using ``the same survey protocols as the State is 
required to use * * *.'' We do not believe that there is any meaningful 
difference between the phraseology suggested by the commenter and that 
used in the proposed rule.
    Comment: A few commenters said that when HCFA conducts a focused 
review at its discretion, it should not exceed the authority contained 
in the Act.
    Response: HCFA's authority to conduct a survey at its discretion is 
pervasive in the Act.
    Comment: One commenter suggested that all validation surveys should 
be conducted by special teams dispatched from and responsible to the 
HCFA headquarters office.
    Response: The HCFA survey staff is located in the ten HCFA regional 
offices. Although there are staff persons in the HCFA headquarters 
qualified to conduct surveys, surveying is not their primary function.
    Comment: One commenter stressed that the HCFA surveyors should meet 
with the State surveyors if the Federal survey findings disagree with 
the State findings. Another commenter said that the Federal validation 
survey team should not review the State survey findings until after the 
Federal survey.
    Response: It is HCFA practice to meet with the State survey agency 
whenever possible if there is a significant difference of findings 
between a State survey and the Federal validation survey. Often this is 
not possible because of time and travel constraints. In these cases, we 
notify the State survey agency of the findings and begin discussions 
regarding the appropriate enforcement remedy to apply. We agree with 
the commenter that a face to face meeting is the best practice. Current 
instructions to Federal and State surveyors are to review all pertinent 
documents regarding the performance of the facility before starting the 
survey. In practice, this review seldom covers the most recent State 
survey, because it is not available, as these survey reports are not 
sent routinely to the HCFA regional offices. We appreciate the apparent 
concerns of the commenter; however, it will be difficult to prevent 
Federal surveyors from seeing the most recent State report at some time 
during the Federal survey because, in accordance with 
Sec. 483.10(g)(1), survey results must be made available in the 
facility. Despite the concerns of the commenter, we believe that the 
accuracy of the Federal survey is not compromised by the knowledge of 
what the State findings were. In any case, the increased use of the 
OSPATS process should reduce the concerns of both commenters.
    Comment: One commenter said that the statutory provision that 
requires no fewer than five validation surveys in each State is 
discriminatory to small States.
    Response: We understand the commenter's concerns. However, sections 
1819(g)(3)(B) and 1919(g)(3)(B) of the Act are explicit that HCFA must 
conduct surveys in no fewer than five facilities in each State.
    Comment: A few commenters said that validation surveys should be 
focused on State survey performance, not facility compliance. Unless 
the HCFA survey discovers a serious threat to residents, the findings 
should be directed toward the State. For egregious failures of State 
survey performance, HCFA should consider contracting with another 
professional survey entity.
    Response: The primary purpose of the validation survey is to assess 
State survey performance. In the process, we do determine facility 
compliance and must take action consistent with this information. 
Therefore, the validation survey can result in actions against non-
compliant facilities and against the State. Section 488.320 provides 
the sanctions authorized by the Act to be imposed against the States.
    Comment: One commenter said that validation surveys should focus on 
the validity of State deficiencies cited as well as the failure to cite 
deficiencies. If the focus is on only the State's failure to cite 
deficiencies, it may lead State surveyors to cite more deficiencies as 
a means of preventing Federal sanctions.
    Response: We agree with this comment. The HCFA focus is now and 
will continue to be on the accuracy of the State survey. Part of that 
focus is to alert the State survey agency to situations where State 
surveyors are failing to cite valid deficiencies. We are aware of the 
possibility that some State surveyors might cite more deficiencies in 
order to avoid sanctions against the State. We have no concrete 
evidence that any actually have done so. In any case, our education 
efforts, including training on the ``Principles of Documentation,'' are 
directed to the writing of accurate, well documented deficiencies. Well 
documented deficiencies are more likely to prompt corrective action and 
avoid unnecessary contentiousness between providers and survey agencies 
than poorly documented deficiencies.
    Comment: One commenter said that HCFA should provide for two 
separate hearings because the deficiency determinations and the 
remedies selected are based on two sets of facts. Other commenters said 
it would be better to have one hearing; either State or Federal. One 
commenter suggested that the closer the validation survey was to the 
State survey, the easier it would be to hold one hearing.
    Response: The Act is constructed so that a facility subject to a 
validation survey is entitled to only one hearing, either State or 
Federal. The provisions at section 1919(h)(7) of the Act furnish the 
means for resolving disagreements between HCFA and the State over whose 
enforcement action will control, which in turn, determines whether the 
facility is entitled to a hearing under part 431 or part 498. Moreover, 
HCFA excludes from the validation sample any facility against which 
adverse action has been initiated by the State survey agency. 
Therefore, if HCFA imposes remedies against a provider on the basis of 
noncompliance identified during a validation survey, HCFA's remedies 
are the only ones imposed, and the provider can contest the 
determination of noncompliance leading to the enforcement remedy in one 
Federal hearing.

Section 488.318  Inadequate Survey Performance

    Comment: Some commenters asked how HCFA would determine 
``inadequate survey performance'' by a State agency.
    Response: We monitor State agency survey performance primarily by 
reviewing State survey team findings and by conducting validation 
surveys. Sections 1819(g)(3) and 1919(g)(3) of the Act, as added by 
sections 4202 and 4212 of OBRA '87, require the Secretary to conduct 
validation surveys of at least 5 percent of the SNFs and NFs in each 
State that have been surveyed by the State survey agency (but in no 
case less than 5 facilities). Prior to the effective date of OBRA '87, 
HCFA, acting for the Secretary, monitored State performance by 
conducting Federal monitoring surveys. OBRA '87 formalizes this 
process. The validation surveys must be conducted within 2 months of 
the date of the State's surveys and must be of sufficient number to 
allow inferences about the adequacy of the State's surveys.
    Comment: Several commenters said HCFA should sanction individual 
surveyors when they make erroneous findings against facilities, whether 
the errors are intentional or unintentional.
    Response: Section 1864(a) of the Act authorizes the Secretary to 
enter into agreements with State survey agencies to determine whether 
SNFs meet the Federal participation requirements for Medicare. Section 
1902(a)(33)(B) of the Act provides for State survey agencies to perform 
the same survey tasks for facilities participating or seeking to 
participate in the Medicaid program. HCFA assesses the performance of 
each State's survey and certification program annually, and 
Sec. 488.320 sets forth the sanctions that HCFA may impose upon the 
States for inadequate survey performance. With respect to sanctions 
against individuals, we note that, with the exception of the relatively 
small number of HCFA staff who perform validation surveys, surveyors 
are State agency personnel, appointed and paid by the State agency, and 
supervised by State managers. For these reasons, HCFA considers that 
any corrective or disciplinary action is a State matter. Whenever HCFA 
validation surveys uncover errors on the part of any individual State 
agency surveyor, the State is informed so it can take whatever action 
is necessary.
    As a final measure, formal mechanisms are in place which provide an 
opportunity for facilities to appeal certifications of noncompliance 
that lead to enforcement remedies, except State monitoring.
    Comment: A few commenters said States may begin to cite more 
deficiencies than usual in order to avoid sanctions by HCFA based on 
failure to meet the requirement at Sec. 488.168(c) of the proposed 
rule, which provided that HCFA would consider it inadequate performance 
when a State agency fails to identify an immediate or nonimmediate 
jeopardy situation, substandard care, or other deficiencies.
    Response: HCFA monitors the accuracy of a State survey agency's 
findings by performing validation surveys and reviews. Accuracy means 
not only that the State team has appropriately cited all the 
deficiencies that existed, but also that it has not cited a deficiency 
when no violation of a requirement has occurred. HCFA conducts random 
surveys concurrently with the State surveys as well as independent 
surveys within 2 months of the States' surveys, and also conducts 
indepth reviews of selected State survey documentation. If HCFA 
discovers that a State is systematically citing unfounded deficiencies, 
HCFA will consider there to be inadequate survey performance and may 
apply any of the sanctions provided for at Sec. 488.320(b)(2) of the 
proposed rule, Sanctions for Inadequate Survey Performance, in the case 
of Medicare facilities. In the case of Medicaid facilities, HCFA cannot 
reduce FFP as specified at Sec. 488.170(b)(1)(i) of the proposed rule 
because we have concluded that section 1919(g)(3)(C) of the Act does 
not accommodate such action under this scenario. The two terms of the 
FFP reduction formula at section 1919(g)(3)(C) of the Act are: the 
total number of residents in nursing facilities surveyed by HCFA during 
a quarter; and, the total number of residents in nursing facilities 
found pursuant to HCFA surveys to be noncompliant. The number of 
residents in nursing facilities which HCFA found to be compliant but 
which the State determined were noncompliant does not figure into the 
calculation; therefore, no FFP reduction can be taken when the form of 
the State survey inadequacy is the citation of unfounded deficiencies, 
or indeed when the inadequacy is anything other than the State's 
failure to identify deficiencies. However, the Act does allow the 
Secretary to impose another sanction for the citation of unfounded 
deficiencies in Medicaid facilities. Section 1919(g)(3) of the Act 
states that the Secretary may also respond to inadequate State survey 
performance in Medicaid facilities by providing for the training of the 
State's survey teams. We are amending Sec. 488.320 of the regulation to 
indicate this and to clarify that the citation of unfounded 
deficiencies will be considered inadequate survey performance. An 
additional safeguard against the citation of unfounded deficiencies 
will be afforded to facilities by their opportunity to engage in 
informal dispute resolution, as described in Sec. 488.331.
    Comment: Some commenters said that Sec. 488.318 precluded 
facilities from informally challenging or expressing disagreement with 
survey findings.
    Response: All States currently offer some opportunity for providers 
to refute survey findings. In one State, the process is required by 
State law. It is State policy in the rest. Although these policies vary 
among States, they all apply to State surveys of Medicare and Medicaid 
providers. In addition, HCFA's State Operations Manual requires that 
States allow facilities to interact with the survey team during the 
survey, to discuss findings at an exit conference, to raise unresolved 
issues to the State survey agency or the HCFA regional office, or both, 
and to record their disagreement on the HCFA-2567. If none of these 
courses of action satisfy the provider, there are appeal mechanisms 
available.
    However, whenever possible, we want to provide every opportunity to 
settle disagreements at the earliest stage, before much time and money 
are spent by the provider, the State agency, and HCFA. Therefore, we 
are requiring, at Sec. 488.331, that States offer an opportunity for 
informal dispute resolution beginning with the provider's receipt of 
the official statement of deficiencies. Although inadequate survey 
performance will not invalidate adequately documented deficiencies, 
neither the State's inadequate performance nor a resulting HCFA 
sanction imposed on the State will prevent the facility from formally 
or informally challenging or expressing disagreement with survey 
findings.
    Comment: One State was concerned that any disagreement between the 
Federal and State agencies will equate to inadequate survey performance 
on the part of the State.
    Response: We will not automatically consider any disparity between 
validation and State survey findings as inadequate survey performance. 
For example, when Federal surveyors find a facility in compliance with 
a requirement that the State cited as a deficiency, Federal surveyors 
are directed to go through a decision making process to determine if 
the disparity is due to facility correction or a flaw of the State 
survey. When Federal surveyors find deficiencies that were not 
previously cited by the State, we will consider whether the 
discrepancies can be explained by changed facility conditions or by 
other case specific factors before concluding that State survey 
performance has been inadequate.
    Comment: One commenter suggested we reverse the order of the 
provisions of this section, making the reference to the failure to 
identify poor resident care of greater importance.
    Response: We do not imply that the way in which paragraphs (a), 
(b), and (c) are ordered is of any relevance. All are of equal 
importance.
    Comment: One suggestion was that determinations of inadequate 
survey performance be based on a State agency's overall performance 
rather than on isolated instances. Commenters believed that a pattern 
of noncompliance and noncorrection should be established before HCFA 
concludes that there is inadequate survey performance, and that HCFA 
should only consider State survey performance to be inadequate when the 
State ``substantially'' fails to perform as required. Others requested 
that we consider there to be inadequate survey performance only when 
the State fails to identify serious deficiencies.
    Response: Sections 1819(g)(3)(C) and 1919(g)(3)(C) of the Act 
specify actions the Secretary may and must take if the State has failed 
to perform surveys as required by the Act or if a State's survey and 
certification performance is otherwise inadequate. Although the Act 
requires us to apply sanctions for inadequate survey performance, it 
gives us leeway when it comes to determining what inadequate survey 
performance actually is. The Act does not specify the criteria by which 
the Secretary is to make determinations of inadequate State 
performance, and does not obligate us to sanction the State for every 
survey shortcoming. It would be inappropriate and unduly harsh to 
automatically consider any failure by a State to cite a deficiency or 
to follow proper procedure to be inadequate survey performance. Rather, 
we believe it would be preferable to reserve sanctions for States that 
demonstrate a pattern of failure to identify deficiencies, or to follow 
proper procedure, or whose isolated oversights are particularly 
egregious. Changing facility conditions may account for many of the 
discrepancies between Federal and State survey findings, and because 
not every discrepancy or omission indicates systemic inadequate survey 
performance, not every one should cause a State to automatically lose 
FFP or be subject to other sanctions.
    We reflect this policy in Sec. 488.320. Guidelines for making 
determinations of inadequate survey performance will be forthcoming in 
future manual instructions.
    Comment: Some commenters said that any findings or remedies 
resulting from inadequate survey performance should be rescinded.
    Response: As we stated in Sec. 488.168(c) of the proposed rule 
(which has been redesignated as Sec. 488.318(b) in this final rule), 
``Inadequate survey performance does not relieve a SNF or NF of its 
obligations to meet all requirements for program participation, nor 
does it invalidate adequately documented deficiencies.'' (emphasis 
added) In other words, a flawed survey can still validly document one 
or many deficiencies; the facility is still liable for sanctions where 
deficiencies, in fact, exist.

Section 488.320  Sanctions for Inadequate Survey Performance

    Comment: Some commenters asked if the State Agency Evaluation 
Program (SAEP) was going to be used to evaluate State survey agency 
performance under this section. Certain commenters believe that it 
should be.
    Response: The SAEP is currently undergoing comprehensive 
evaluation. We do not know if the program, in its future form, will be 
designed to identify performance problems of individual States for 
enforcement purposes, or whether the purpose of the program will be 
more geared toward global evaluation of the State agency survey and 
certification process as a whole. HCFA will, however, obtain 
information on the adequacy of State agency survey activity through 
validation surveys and otherwise through its general oversight 
authority.
    Comment: Certain commenters recommended that we limit 
determinations of inadequate survey performance to the OSPATS. It was 
their view that it is unfair to reduce FFP based on a comparison of 
survey findings, as conditions in nursing homes change daily.
    Response: As stated previously, we acknowledge that there are great 
advantages to conducting a validation survey concurrently with the 
State's standard recertification survey, and it is our intent to expand 
the use of the OSPATS process for validation surveys. However, we 
reiterate that it is necessary to continue to use nonconcurrent 
validation surveys, despite the preference of the States and HCFA for 
OSPATS, because Federal surveyors must have at least one year of 
experience surveying before they are eligible to conduct an OSPATS.
    Comment: Some comments suggested the rules should state whether or 
not appeals under this section should stay the reduction of FFP action.
    Response: Section 1919(g)(3)(C) of the Act requires that appeals of 
sanctions under this rule are to be made according to section 1116 of 
the Act. According to section 1903(d)(5) of the Act, if an appeal of a 
disallowance is made, the State has the option of retaining the funds 
disallowed pending a final administrative decision. If the final 
decision upholds the disallowance and the State elected to retain the 
funds during the appeal process, the proper amount of the disallowance, 
plus interest computed in accordance with Sec. 488.442 will be offset 
in a subsequent grant award.
    Comment: Some commenters complained that FFP reduction is an 
excessive measure, and suggested that FFP not be reduced as a sanction, 
or be reduced only after other methods of addressing inadequate State 
agency performance have been tried and failed. Other commenters asked 
that the same sanctions be imposed against the State for inadequate 
survey performance regardless of whether the inadequately surveyed 
facilities participate in Medicare or Medicaid. An additional commenter 
recommended that we levy financial penalties against the survey agency 
instead of reducing FFP to the State.
    Response: While we appreciate the merits of these suggestions, 
section 1919(g)(3)(C) of the Act does not give us such flexibility. 
Rather, it requires that, when HCFA finds, on the basis of validation 
surveys that the State has inadequately surveyed Medicaid nursing 
facilities, HCFA may provide for training of State survey teams, but 
shall provide for a reduction of FFP according to a prescribed formula.
    However, the FFP reduction formula specified at section 
1919(g)(3)(C) of the Act and at Sec. 488.170(c) of the proposed rule 
has certain limitations: it cannot be used to sanction a State when it 
has cited unfounded deficiencies or when its survey findings are 
appropriate but its survey scheduling, team composition or other 
practices are unacceptable. However, these survey defects are no less 
serious than a failure to identify deficiencies, and it is unlikely 
that the Congress intended for us to disregard them. HCFA does have the 
authority to provide for the training of survey teams in these 
instances. We are revising Sec. 488.320(b)(2) to provide that when the 
State's survey performance in Medicaid facilities is inadequate but the 
inadequacy is not accommodated by the FFP reduction formula, HCFA will 
provide for the training of State survey teams. In addition, HCFA has 
the authority to consider the Medicaid provider agreement to be invalid 
for failure to follow proper survey procedures, and may invoke the FFP 
disallowance provision at Sec. 442.30, Agreement as evidence of 
certification.
    We are unable to make the sanctions for inadequate survey 
performance parallel across facility type as commenters suggested. As 
discussed above, the Act does not permit us to eliminate FFP reduction 
as a sanction for inadequate survey performance in Medicaid facilities, 
and neither does it allow us to expand the application of this sanction 
to inadequate survey performance in Medicare facilities. The 
conspicuous absence of Federal payment reduction in section 
1819(g)(3)(C) of the Act, which lists sanctions for inadequate survey 
performance in Medicare facilities, as opposed to the inclusion of FFP 
reduction in section 1919(g)(3)(C), which specifies sanctions for 
inadequate performance in Medicaid facilities, is a clear indication 
that the Congress intended to restrict Federal payment reduction for 
inadequate survey performance in Medicaid facilities alone. Likewise, 
section 1819(g)(3)(C) gives us the flexibility to devise our own 
sanctions for inadequate survey performance in Medicare facilities, but 
no comparable authority exists in section 1919(g)(3)(C). Therefore, we 
must assume that the Congress did not intend for us to impose sanctions 
other than the two specified in the statute for inadequate survey 
performance in Medicaid facilities.
    Comment: One commenter asked that we convene a technical advisory 
group composed of State agency and HCFA regional office personnel to 
explore the possibility of a legislative amendment to the Act's FFP 
reduction requirement.
    Response: We do not see the necessity of requesting a legislative 
amendment, but will not discourage the States if they choose to pursue 
one.
    Comment: A question was asked regarding whether the reduction of 
FFP would be by audit exception or through a reduction in the amounts 
of future budget approvals.
    Response: Procedures for such actions will be written following 
existing procedures found in section 3165, ``Non-audit Medicaid 
Disallowances'', of the Regional Office Manual. As noted above, such 
procedures will be in accordance with section 1116 of the Act.

Section 488.325  Disclosure of Results of Surveys and Activities

    Comment: A few commenters suggested that Sec. 488.325(a)(1) be 
expanded to require that the scope and severity levels of all 
deficiencies, including those deficiencies with a scope and severity 
level of 1, be recorded on and, therefore disclosable as part of, the 
official deficiency statement, in an effort to promote facility 
competition and quality. Some of these commenters argue that we must 
disclose notice of all deficiencies, regardless of scope and severity 
level, if we are to provide the public with a complete and accurate 
report of a facility's current compliance status. Some propose that 
another requirement be added under Sec. 488.325(a) to read: ``(9) The 
summary of 1-1 deficiencies.''
    Response: As discussed later in this preamble, we are revising the 
scheme that appeared in the proposed rule by eliminating scope and 
severity scales, as such, and by substituting instead a scheme in which 
HCFA and the State will assess deficiencies by application of several 
factors that will gear enforcement remedies to the seriousness of 
noncompliance at facilities. However, we are accepting the second 
comment with some modification. With the exception of isolated 
deficiencies that HCFA or the State determines constitute no actual 
harm with a potential for only minimal harm, all deficiencies will be 
recorded on the HCFA-2567. Those isolated deficiencies will not be 
recorded on the official deficiency statement, but will be recorded on 
a separate document as discussed in the preamble of the proposed rule. 
However, all of a facility's deficiencies, including those deficiencies 
that HCFA or the State determines constitute no actual harm with 
potential for minimal harm, will be disclosable. We are revising 
Sec. 488.325(a)(2) to require the release of the summary of isolated 
deficiencies that HCFA or the State determines constitute no actual 
harm with potential for minimal harm deficiencies.
    Comment: One commenter asked how this information will be disclosed 
to the public and also wanted to know if facilities have any 
responsibility relative to disclosure. The same commenter wasn't sure 
what we meant by ``direct or indirect interest in a SNF or NF'' as used 
at Sec. 488.325(a) (7) and (8).
    Response: Existing procedural requirements at Secs. 401.133-136 and 
431.115 as well as sections 3300-3320 in the State Operations Manual 
remain in effect relative to public disclosure of Medicare and Medicaid 
survey documents, respectively. While Sec. 431.115 provides only 
minimum disclosure requirements for States, it directs that States have 
a procedure for disclosing the specified survey information.
    Sections 1819(g)(5) and 1919(g)(5) of the Act provide the statutory 
bases for Sec. 488.325 regarding disclosure of inspection and other 
information on SNFs and NFs by the States and HCFA. The only 
requirement we are imposing on nursing home providers in this regard is 
that, not later than 10 working days after receiving a notice of 
substandard quality of care, a SNF or a NF must provide the State with 
a list of each resident in the facility and the name and address of his 
or her attending physician. Failure of the facility to disclose the 
information timely will result in termination or alternative remedies 
being imposed.
    Due to an administrative oversight, the word ``ownership'' was 
omitted from the proposed regulation text at proposed Sec. 488.175(a) 
(7) and (8), clarifying ``direct or indirect interest.'' We are 
revising both cites, which have been redesignated as Sec. 488.325(a) 
(8) and (9), respectively, to specify ``ownership'' interest. We are 
also cross-referring these cites to Sec. 420.201, which defines 
``direct'' and ``indirect'' ownership interest.
    Comment: Several commenters suggested that results of complaint 
surveys be disclosable under this subpart.
    Response: The regulation implementing sections 1819(g)(5) and 
1919(g)(5) of the Act provides that information must be made available 
by the State or HCFA for all surveys and certifications. Therefore, 
information from any survey, including a complaint survey, is 
disclosable under this subpart.
    Comment: We received four distinct comments on Sec. 488.325(b), 
which concerns charges associated with making information available. 
First, some commenters believe that, while charges should be permitted, 
they should not be required, nor should they, when imposed, exceed the 
amount facilities charge residents for copies of records. They proposed 
that the requirement to follow 42 CFR 401.140 regarding fees and 
charges be reduced to a suggestion by changing the word ``will'' to 
``may.'' Second, other commenters contended that Sec. 401.140 is 
outdated, too restrictive, and in conflict with some States' Freedom of 
Information laws. Since many States have adopted their own fee 
schedule, they suggested that this provision be revised to permit 
States to use their own fee schedule. Third, one commenter questioned 
HCFA's authority to require States to impose any charges. Lastly, some 
commenters proposed that the regulation allow for waiver of fees or 
reduced fees so that survey information is truly accessible to all.
    Response: We are not accepting the suggestion that fees imposed by 
HCFA or the States relative to disclosure parallel those charged by 
facilities to residents because we have no basis to develop a provider-
specific disclosure policy relative to fees. However, since 
Sec. 431.115(d) requires only that the Medicaid agency ``have a 
procedure for disclosing pertinent findings obtained from surveys made 
by the State survey agency,'' and since we understand that most, if not 
all, States have their own fee schedules, we are amending this 
subsection to allow, but not require, States to use their respective 
fee schedules for documents which they maintain and which they have 
been asked to disclose. In response to the comments that fees be 
permissible but not required, as well as the request for a fee 
exception clause, we refer the commenters to Sec. 401.140(c), which 
provides for waiver or reduction of fees for Medicare. That section 
discusses when a waiver of fees and charges would be appropriate and 
permissible; States are free to use any such waiver provisions within 
their respective disclosure procedures in the same way that they are 
free to use or not use a fee schedule at all.
    Comment: Numerous commenters were strongly opposed to allowing oral 
requests for information. Some say that this is clearly inconsistent 
with past practice which has generally been that requests be in 
writing. This claim is further substantiated by the Freedom of 
Information Act which provides that all agencies generally stipulate 
that requests for information be in writing. Some commenters say that 
only written requests can substantiate specific charges and fees, while 
others, specifically States, use the written requests as a record of 
the distribution of information which is used for workload and 
expenditure reporting, as well as for other administrative purposes.
    Response: Since publishing the proposed rule, we have concluded 
that it is not necessary to create a facility-specific requirement 
relative to the method by which requests for survey information should 
be made, and we are revising Sec. 488.325(c) to provide that such 
requests are to be made in accordance with the Department of Health and 
Human Services' regulations relative to disclosure at 45 CFR Part 5, in 
other words, generally in writing.
    Comment: Many commenters suggested that paragraph (d)(3) be 
expanded to include providers' responses in order to be consistent with 
Sec. 488.325(a)(1) as well as to ensure full disclosure of all affected 
parties.
    Response: With the exception of those isolated deficiencies that 
HCFA or the State determines constitute no actual harm with potential 
for minimal harm, which are recorded on a separate form and which can 
be refuted by providers during the dispute resolution process, any 
provider response to the deficiency statement itself would be noted on 
the plan of correction (both of which are explicitly releasable under 
the Freedom of Information Act), we are making explicit in 
Sec. 488.325(d) that provider responses to the deficiency statements 
are disclosable.
    Comment: Some commenters believed that States and facilities should 
be required to provide information immediately, especially when State 
law or policy provides immediate access. Commenters also wanted to know 
whose disclosure provisions apply (HCFA's or the State's) when there is 
a difference about what is releasable and when. A few commenters asked 
us to specify whether the 10 days referred to in paragraphs (d) (1) and 
(2) are calendar or working days.
    Response: As we have stated above, we have no basis to require 
facilities to disclose any information other than that which is 
statutorily mandated. OBRA '90 provided that each State and the 
Secretary (HCFA), must make available to the public information 
concerning all surveys and certifications of NFs and SNFs, including 
statements of deficiencies, and approved plans of correction, within 14 
calendar days after such information is made available to those 
facilities. For procedures relative to release of information not 
included in the OBRA '90 provision, HCFA or the State should defer to 
Sec. 401.136 or State procedures, respectively. Also, we note that 
Sec. 488.325(d) implements sections 4008(h)(2)(M) and 4801(e)(14) of 
OBRA '90, which require release of information by HCFA and the States, 
respectively, not by providers.
    Since paragraphs (d) (1) and (2) of the proposed rule offered no 
additional guidance to HCFA or the States beyond what is currently at 
Sec. 401.136 or in State procedures, respectively, we are deleting 
them. However, we are clarifying the 10-day timeframe at Sec. 401.136 
as ``working'' days.
    The question of whose regulations prevail when disclosure 
requirements differ between HCFA and the State should not arise since 
the State and Federal disclosure systems operate separately from one 
another. It is possible that the same document could be releasable 
under a State's disclosure laws yet not be releasable under Federal 
law, or vice versa. It is also possible that a disclosable document may 
be released by HCFA and the State subject to different disclosure 
timeframes. In other words, documents maintained by Federal agencies 
are subject to Federal regulations; those maintained by the State are 
subject to the State's regulations.
    Comment: A few commenters requested clarification regarding the 14 
calendar days referenced in paragraphs (d)(3). They weren't sure 
whether there was a single release of information that would occur 14 
calendar days after some event, or whether more than one release of 
information, each after 14 calendar days, was contemplated. Another 
commenter wanted to know if the statement of deficiencies and plan of 
correction are a single document.
    Response: While the statement of deficiencies and the plan of 
correction are recorded on the same form (Statement of Deficiencies and 
Plan of Correction, Form HCFA-2567), the completion and disclosure of 
each is separate, not concurrent. The deficiency statement, as well as 
the separate sheet transmitting survey findings of isolated 
deficiencies which constitute no actual harm with potential for minimal 
harm, are notices that the certifying agency gives to a provider 
transmitting its official survey findings. We have concluded that, 
since the separate listing of a facility's isolated deficiencies which 
constitute no actual harm with a potential for minimal harm supplements 
the official deficiency statement, the listing must be disclosed along 
with the official statement of deficiencies if we are to provide the 
public with an accurate and complete report of that facility's 
compliance status. This information is disclosable within 14 calendar 
days after it is made available to the provider. Upon receipt of the 
statement of deficiencies, the provider responds, on the same form, 
with its plan and timetable for correction of cited deficiencies, as 
well as any disagreement with the survey findings. Sections 
1819(h)(2)(C) and 1919(h)(3)(D) of the Act require that a plan and 
timetable for corrective action be approved by HCFA if alternative 
remedies are the only remedies being sought, and if the facility is to 
continue to participate with deficiencies that do not constitute 
immediate jeopardy in either or both the Medicare and Medicaid 
programs. Information about the plan of correction must be released to 
the public, upon request, within 14 calendar days after the provider is 
notified of the approval status of its plan. Therefore, each part, that 
is, the deficiency statement and the plan of correction, is releasable 
within 14 calendar days after the provider's notification of that part.
    Comment: A few commenters believe that States should not charge the 
State ombudsman for the notifications specified in this subsection.
    Response: Since the information in this subsection is being 
disclosed by the State, any fees and charges, or waivers thereof, would 
be subject to the specific State's disclosure law.
    Comment: Several commenters requested that proposed 
Sec. 488.175(e)(4) (redesignated in this final rule as 
Sec. 488.325(f)(4)), be expanded to include requests for appeals as 
well as results of appeals. A few other commenters suggested that the 
paragraph be revised to include facility cost reports, confidential 
survey records, for example, surveyor notes, etc.
    Response: We are accepting the first suggestion and are revising 
redesignated paragraph (f)(4), to provide that the State must provide 
the State's long term care ombudsman with requests for appeals and 
results of appeals. We are not accepting the second suggestion. The 
fact that the Congress explicitly provided that a facility's Medicare 
and Medicaid cost reports are disclosable to the public in accordance 
with applicable disclosure laws, and not routinely disseminated to any 
specific party, demonstrates its intention that release of these 
reports should be based on the requestor's right to know the 
information. The State's long-term care ombudsman, as well as any other 
member of the public, may request these cost reports, surveyors' notes, 
and any other survey-related documents not included in this subsection 
through the appropriate disclosure mechanism, for example, the Freedom 
of Information Act, where they will be evaluated accordingly.
    Comment: Many commenters, mostly State agencies, were opposed to 
routinely providing ombudsmen with the information required by this 
subsection. They contend that this results in a costly and overwhelming 
task especially in the larger States; for example, California has 1300 
nursing homes and 42 ombudsman field offices. They propose that a more 
reasonable approach to notification would be that in cases where a 
specified degree of noncompliance exists, for example, substandard 
care, notification would be automatic; in all other cases, notification 
would be upon request. Another comment was that HCFA should develop a 
report using data from current reporting systems to provide the needed 
information.
    Response: We cannot accept these suggestions. Sections 
1819(g)(5)(B) and 1919(g)(5)(B) of the Act, as amended by sections 
4008(h)(2)(N) and 4801(e)(15) of OBRA '90, specifically provide, 
without exception, that ``States'' will notify ``the State long-term 
care ombudsman'' of a State finding of noncompliance with ``any'' 
participation requirement as well as of ``any'' adverse action imposed 
against a facility in that State. Regarding the number of ombudsmen 
offices within a State to which notifications must be made, we note 
that, since the statutory requirement to notify ``the State long-term 
care ombudsman'' is singular, the State's central long-term care 
ombudsman office within each State's organizational structure is the 
intended contact point for satisfying such notification requirements. 
While we see the function of disseminating the information further 
among the district and other ombudsmen offices to be the responsibility 
of the State's central long-term care ombudsman office, each State has 
the flexibility to design its own system.
    Comment: A few commenters wanted HCFA or the State to notify the 
ombudsman of a nurse staffing waiver within 7 days of its approval. 
Several commenters proposed that notice of nurse staffing waivers be 
provided to prospective residents, their physicians, families or legal 
representatives, the State licensure board for nursing and the State 
and local medical societies. They based their proposal on the public's 
need to know, not only from a consumer's perspective, but as taxpayers 
who directly subsidize the affected facilities.
    One commenter wanted to know who validates that nurse staffing 
waiver information is actually provided to those required to receive 
it.
    A couple of commenters asked that the notice to residents about 
nurse staffing waivers be in the form of a sign and be posted in a 
prominent place in the facility to ensure that notice is received.
    Response: Since publishing the proposed rule, we found that 
disclosure of nurse staffing waivers is addressed in regulations at 42 
CFR 483.30. Also, since sections 1819(g)(5)(C) and 1919(g)(5)(C) of the 
Act are clear as to the individuals and organizations that would have 
the greatest need for specified survey-related information, we believe 
that all interests have been adequately represented and that such 
information is easily accessible to any other interested parties either 
through their respective professional affiliations, or through the 
public disclosure mechanism. Therefore, we are eliminating 
notifications specific to nurse staffing waivers from this final rule.
    Comment: Some commenters urge that ombudsmen, protection and 
advocacy systems for the mentally ill and mentally retarded, residents 
or legal representatives and immediate family members, and the public 
should be given an opportunity to comment on a proposed nurse staffing 
waiver before it is granted.
    Response: This comment is outside of the purview of this 
regulation.
    Comment: One commenter suggested that we delete the last sentence 
of Sec. 488.175(h) (redesignated in this final rule as Sec. 488.325(g)) 
relating to enforcement consequences to a facility that fails to 
satisfy the disclosure requirement timely because it is not necessary.
    Response: We are not accepting this comment. We believe we must 
retain this provision since this final rule provides HCFA's and the 
State's enforcement strategy when facilities do not substantially meet 
the nursing home participation requirements which are codified at 42 
CFR Part 483, Subpart B. The requirement that facilities provide 
information to the State relative to specified residents so that the 
State can meet its statutory obligation to notify attending physicians 
and licensing boards is in addition to the other participation 
requirements at Part 483, Subpart B, and we believe that consequences 
for facility noncompliance with this requirement are noteworthy.
    Comment: Many commenters were opposed to our proposal implementing 
sections 1819(g)(5)(C)(i) and 1919(g)(5)(C)(i) of the Act regarding 
notice to physicians when the State finds that a nursing home has 
provided substandard quality of care. All of these commenters objected 
to the requirement that the attending physician of each Medicare and 
Medicaid resident receive notification of the substandard quality of 
care. Some believed that physicians of all residents in the facility 
should be notified when such care is found because they contend that 
all residents are vulnerable to such care and a program relationship 
should not need to exist before notifications occur. An equal number of 
commenters argued that this subsection exceeds the statutory 
requirement that provides for notification of ``* * * the attending 
physician of each resident with respect to which such finding is made * 
* *''. These commenters suggested that the purpose of the statutory 
requirement was to ensure that the physician of a resident who has 
allegedly received substandard quality of care is apprised of the 
situation in order to ensure appropriate medical interventions, if 
needed.
    Response: We are adopting a modified version of the above 
suggestions and are requiring that the physician of each resident in 
the facility who was found to have suffered substandard quality of 
care, regardless of payment source, be notified of findings of 
substandard quality of care. Findings of substandard quality of care 
are indicative of the facility's inability or unwillingness to meet 
specific participation requirements relative to the entire resident 
population. While we have the statutory responsibility to ensure the 
safety and well-being of program beneficiaries and recipients in 
nursing homes that participate in one or both programs, noncompliance 
frequently affects residents in a facility, other than just Medicare 
and Medicaid residents. Moreover, the Act plainly applies to all 
residents receiving substandard quality of care regardless of payment 
source. Therefore, findings of substandard quality of care must be 
communicated to the physician of each resident who was the subject of 
such care.
    Comment: A few commenters suggested that notification to the State 
board responsible for the licensing of the facility administrator be 
limited to those situations where the administrator is found culpable 
for the violations identified. They describe situations in which a 
reputable administrator is recruited to a problem facility in an effort 
to turn the facility around. Shortly thereafter, a survey is performed 
which identifies substandard quality of care, and as a result, the 
newly hired administrator is reported to the licensing board. They 
point out that this situation provides a disincentive for quality 
administrators to assume control of problem facilities due to the risk 
to their reputation. A few commenters wondered why licensing boards 
need to be notified, while others believed that notification should be 
expanded to include State licensure boards for nursing and medicine as 
well as the State and local medical societies.
    Response: We are not accepting these suggestions. First, the 
requirements to notify the licensing board, as well as physicians of 
Medicare and Medicaid residents, when substandard quality of care is 
identified, are statutory and do not provide for exceptions. Second, a 
facility administrator, regardless of recency of appointment, is 
ultimately accountable for the care and services provided in his or her 
facility at the time of the survey. We would expect that this 
consideration as well as others would be evaluated by a prospective 
facility administrator.
    Regarding the comment that notification should be expanded, 
sections 1819(g)(5)(C) and 1919(g)(5)(C) of the Act are clear as to the 
individuals and organizations that would have the greatest need for the 
specified survey-related information. We believe that all interests 
have been adequately represented and that such information is easily 
accessible to any other interested parties either through their 
respective professional affiliations, or through the public disclosure 
mechanism. Therefore, we see no need to expand the list of parties the 
State must notify about substandard quality of care.
    Comment: Several commenters asked whether the State notification 
requirements at sections 1819(g)(5)(C) and 1919(g)(5)(C) of the Act 
apply to surveys performed by HCFA.
    Response: States will provide the notification regardless of who 
performed the survey that identified the substandard quality of care. 
For all State-operated facilities, as well as non-State-operated 
facilities which are subject to a Federal survey, HCFA will notify the 
State of the finding of substandard quality of care so that the State 
can fulfill the notification requirements. This requirement is based on 
the rationale that the State ``finds'' noncompliance when it is 
notified of it by HCFA. This approach permits use of existing State 
systems and centralizes notification efforts.
    Comment: Some commenters complained that in cases where the 
facility fails to provide the list of residents and their physicians 
required in proposed Sec. 488.175(h) (redesignated in this rule as 
paragraph Sec. 488.325(g)), the State will be unable to comply with the 
State notification requirements in proposed paragraph (i) (redesignated 
in this rule as paragraph (h)). If the facility provides the list late, 
the State will miss its 30-day deadline. These commenters believe that 
this paragraph should be rewritten to require the State to issue notice 
within 30 calendar days of receipt of the resident/physician 
information from the facility.
    Response: We are accepting this suggestion with some modification 
and are revising redesignated paragraph (h) to read, ``Not later than 
20 calendar days after a SNF or NF complies with paragraph (g), the 
State must provide written notice of the noncompliance to--''. This 
revision imposes the notification requirement on the State once the 
State has received the necessary information from the facility. Also, 
Sec. 488.325(g) provides that facilities that fail to provide the 
information to the State timely will have termination or alternative 
remedies imposed.
    Comment: A few commenters questioned whether there would be a 
revisit prior to the notification to physicians and licensing boards, 
and, if so, and corrections had been made, whether notifications must 
still occur.
    Response: The Act does not require revisits, appeals or any other 
pre-notification activity prior to notification to physicians and 
licensing boards. If the facility does manage to correct the 
deficiencies designated as substandard quality of care and have the 
correction substantiated by State or Federal surveyors before the 
notification, that notification should indicate that corrections have 
been made. However, the Act is clear that physicians and licensing 
boards are to be notified when the facility has provided substandard 
quality of care. Therefore, substandard quality of care provided before 
corrective action was taken, still must be reported.
    Comment: A few commenters wanted to know how physicians will know 
when a facility, previously found to have provided substandard quality 
of care, has achieved compliance. Other commenters questioned whether 
physician and licensing board notifications are subject to an appeal by 
the facility, and if so, whether the results of the appeal will be 
communicated to the physicians and licensing board. These commenters 
also asked what becomes of this information.
    Response: There is no statutory basis for notifying physicians more 
than once about a facility's compliance status. However, there is 
nothing to preclude facilities, physicians, or licensing boards from 
following up on this matter absent a statutory or regulatory 
requirement. Physicians are free to initiate inquiries into this 
matter, just as facilities are free to contact physicians and licensing 
boards about corrective action having occurred after the initial 
notification by the State.
    While the notification in and of itself is not appealable, 
providers may appeal, in accordance with parts 431 or 498, as 
applicable, a finding of noncompliance that caused a remedy or remedies 
to be imposed. However, there is no statutory basis to require that 
results of provider appeals be communicated to the physicians and 
licensing board previously notified of the substandard quality of care. 
Again, the providers are free to notify physicians and licensing boards 
about the outcomes of these appeals and physicians and licensing boards 
are free to inquire about such matters.
    All information related to the survey and certification of Medicare 
and Medicaid providers is retained in accordance with Federal and State 
provider survey and certification records retention requirements.

Section 488.330  Certification of Compliance or Noncompliance

    Comment: A small number of commenters suggested that HCFA delegate 
to the State all enforcement responsibilities for the SNF portion of 
dually participating facilities. Commenters believe that States have 
better resources to perform the enforcement functions and this solution 
would eliminate duplicative efforts and be more cost effective. One 
commenter further suggested that the State handle all enforcement 
responsibilities for all SNFs.
    Response: We cannot accept this suggestion. Section 1819(h)(2) of 
the Act requires the Secretary to take certain enforcement actions when 
the Secretary finds either through his or her own survey, or through 
the State's survey, that a SNF no longer meets the requirements set 
forth in section 1819(b), (c) or (d) of the Act. Thus, we do not have 
the authority to delegate the enforcement authority for SNFs to the 
State.
    Comment: A few commenters believed that HCFA, not the State, should 
perform the on-site surveys of State-operated nursing homes.
    Response: To the extent possible, we have attempted to use the 
survey and certification process in effect before October 1, 1990, 
whereby the survey agency would conduct the survey and certify 
compliance or noncompliance with Federal requirements, subject to HCFA 
approval as necessary for SNFs. The OBRA '87 legislation made a 
distinction between State operated and non-State operated facilities. 
Specifically, OBRA '87 provided that the Secretary would be responsible 
for certifying State-operated facilities. To be as consistent as 
possible with our present survey process, we proposed that the State 
survey agency would conduct all surveys (with the exception of 
validation surveys). We believe that requiring survey agencies to 
survey all facilities will make surveys for all nursing homes in a 
State more consistent since the same entity will conduct all surveys. 
However, HCFA would maintain the certification responsibility, thus 
assuring oversight as envisioned by the Act.
    Comment: Some commenters were concerned that, although the 
Secretary's determination of a facility's noncompliance takes 
precedence over a State's finding of compliance, the regulation is 
unclear about which agency's remedies control when both HCFA and the 
State determine that the facility is not in compliance.
    Response: When both the Secretary and the State survey agency agree 
that a facility is not in compliance, the rules at proposed 
Sec. 488.232 (redesignated as Sec. 488.452(b),(c),(d) and (e)) are 
applied to determine whether the Secretary's or the State's timing and 
choice of remedies control.
    Comment: A few commenters were unclear about whether the validation 
survey and the certification survey would be counted as separate 
surveys for sanction purposes because the denial of payment sanction 
must be imposed when the State or Secretary finds substandard quality 
of care through three consecutive standard surveys.
    Response: The Secretary's finding of noncompliance during a 
validation survey would not be counted toward three consecutive 
findings of substandard quality of care. Sections 1819(h)(2)(E) and 
1919(h)(2)(D) of the Act refer to facilities being found to have 
provided substandard care under three consecutive standard surveys 
conducted under sections 1819(g)(2) and 1919(g)(2) of the Act, 
respectively. Sections 1819(g)(2) and 1919(g)(2) of the Act describe 
the State's standard survey of a facility.
Prospective Providers
    In the proposed rule, we asked for public comments regarding our 
requirement that prospective providers be in full compliance with the 
requirements of sections 1819 (b), (c) and (d) and 1919 (b), (c) and 
(d) of the Act in order to participate in the Medicare and Medicaid 
programs, respectively.
    Comment: Many commenters believe that HCFA's proposal ignores the 
concept of substantial compliance because the proposed regulations 
define any failure to comply with the regulations as a deficiency. The 
commenters suggest that the regulation be rewritten to state that 
facilities will be judged on substantial compliance. A few commenters 
asked if a deficiency with a scope of 1 and a severity of 1 would 
constitute noncompliance that is sufficient to exclude a prospective 
provider from program participation.
    Response: After carefully considering the matter, we are accepting 
the commenters' suggestion to incorporate the concept of substantial 
compliance in the regulation as the standard that prospective providers 
and existing providers must meet in order to begin or continue to 
participate in the Medicare and Medicaid programs. We arrived at this 
conclusion for several reasons.
    Based on public comments and further consideration on our part, we 
believe that the notion of perfect compliance, as discussed in the 
proposed rule, is an impractical and, perhaps, unrealistic standard for 
providers or prospective providers to meet. This is because in lieu of 
approximately 15 statutory requirements with which facilities had to 
comply before OBRA '87, the Act now sets forth more than 100 
requirements that facilities have to meet in order to participate in 
the Medicare or Medicaid programs. In fact, in 1992 only 7.3 percent of 
all nursing homes surveyed were deficiency-free. Under a regulatory 
system defined by condition and standard level requirements, such as 
the system in place for many years, we found that almost all facilities 
that were experiencing only minor problems did retain program 
eligibility since the system allowed for some noncompliance at the 
standard level. That is no longer the case. By vastly increasing the 
number of statutory requirements that facilities have to meet in order 
to meet the statutory definition of a SNF or NF, and by directing the 
Department to do away with its former hierarchy of requirements, the 
Congress made it far more difficult for facilities to meet 
prerequisites for program participation. As discussed above, however, 
we do not believe that the Congress intended to write into law a set of 
requirements that would eliminate almost all providers from the 
Medicare and Medicaid programs. Accordingly, we have drawn upon the 
principles enunciated by the Institute of Medicine in its study of 
nursing home regulation that helped spawn nursing home reform.
    A benchmark of the IoM study was its conclusion that the focus of 
nursing home regulation should be on resident outcomes and not 
procedural requirements that do not always accurately measure whether 
quality care is being rendered. Sections 1819 and 1919 of the Act, and 
the implementing regulations at 42 CFR Part 483, as well as our survey 
process, reflect this focus.
    We believe that the Act sets forth many examples of requirements 
which, if violated by a facility, would not necessarily expose a 
resident to the potential for anything more than minimal harm, much 
less actual harm. For example, Sec. 1919(b)(3)(C) requires that a 
facility conduct a resident assessment for each individual no later 
than 14 days after admission. If a facility were to conduct almost all 
of its assessments in compliance with this requirement, but failed in 
the case of only one resident who was assessed on the 15th day after 
admission, a very narrow reading of the statute would compel a 
conclusion that the facility was out of compliance and thereby failed 
to meet the statutory definition of a nursing facility under 
Sec. 1919(a) of the Act. This kind of approach to nursing home 
regulation, as we alluded to above, would be unduly harsh and 
impractical where the facility's failure did not expose the resident to 
any harm. Indeed, it may be the case that the facility prepared an 
exemplary assessment for the one resident for whom it acted untimely. 
The same type of analysis could be made for violations of the 
requirement at Sec. 1919(c)(2)(B) regarding the requirement to be given 
at least 30 days in advance notice of a resident's transfer. Where in a 
given case, a facility gives 29 days advance notice, the question might 
better be, was there a potential for minimal harm as a result of this 
infraction rather than conclude that the Act was violated and expose 
the facility to one or more remedies, even where the resident 
experienced no more than the potential for minimal harm.
    Accordingly, we are defining ``substantial compliance'' at 
Sec. 488.301 as a level of compliance with requirements of 
participation such that any identified deficiencies pose no greater 
risk to patient health and safety than the potential for causing 
minimal harm. Thus, while a facility may avoid a remedy even if it 
fails to comply perfectly with all statutory requirements, it still has 
a duty to each resident to provide care that enhances the chances of 
positive outcomes and avoids negative outcomes. If a single resident 
experiences any harm, a facility will not have satisfied its statutory 
obligations. Given the statute's focus on each resident's right to 
receive quality care, and the facility's mirrored obligation to provide 
it, we believe that we could not adopt a less rigorous standard of 
compliance.
    We acknowledge that there might be many definitions that we could 
have chosen from, but in our view the definition we have settled upon 
strikes the appropriate balance that best implements the statute, the 
IoM study, and accommodates both facility and resident concerns.
    Second, as commenters suggested, we considered the fact that 
section 1866(b)(2) of the Act allows the Secretary to enter into 
provider agreements with facilities that ``substantially'' meet 
applicable requirements. Although there is no analogous provision in 
the Medicaid law for nursing facilities, we are exercising our general 
rulemaking authority in section 1102 of the Act, to extend the 
``substantiality'' concept to Medicaid providers. We believe that since 
Congress stressed that it intended to adopt the IoM recommendation that 
the same requirements apply to both Medicare and Medicaid facilities, 
it is logical to recognize substantial compliance as an acceptable 
standard to meet for participation in both programs.
    As we discuss in more detail later in this preamble, the scope and 
severity gradations that appeared in the proposed rule will only serve 
as one example of how States can determine remedies. Furthermore, we 
are removing the numerical designations from the scope and severity 
measure. In response to the commenter who asked if a deficiency at a 
scope of 1 and a severity of 1 would constitute noncompliance 
sufficient enough to exclude a prospective provider from program 
participation, the answer is no. While we are not mandating the use of 
numerical ranges, if States use such ranges, and if a 1/1 designation 
denotes a deficiency which is of limited scope and which has caused no 
harm and is unlikely to cause more than minimal harm, a facility with 
such a deficiency would not be precluded from participating in the 
Medicare or Medicaid program.
    Comment: Several commenters raised concerns with the provision that 
facilities must meet all requirements because they wonder how many 
follow-up surveys will be necessary to ascertain that a facility is in 
full compliance.
    Response: As we discussed earlier, we reconsidered our position 
spelled out in the proposed rule that prospective providers had to 
comply perfectly with all requirements to participate in the Medicare 
and Medicaid programs. Instead, we are requiring that providers and 
prospective providers be in substantial compliance with all 
requirements in order to participate in both programs. If a State 
survey agency is requested to conduct more than one initial survey of a 
prospective provider because it was not in substantial compliance, the 
State survey agency will have the flexibility to conduct follow-up 
surveys up to three weeks after the facility alleges correction of the 
noncompliance that disqualified it from Medicare and/or Medicaid 
participation. This is consistent with section 2008 of the State 
Operations Manual which established 3 weeks as the timeframe in which 
the State should conduct an initial survey of a prospective provider 
after its notification of full operation. The 3-week interval is 
necessary to allow the State survey agency adequate time to schedule a 
revisit, and gives the prospective provider who has corrected 
noncompliance the opportunity to demonstrate that it is capable of 
continued substantial compliance.
    Comment: Some commenters suggested adding a phrase at the end of 
the sentence in Sec. 488.330(b)(2)(ii) to require that when a provider 
has achieved compliance, the State can only remove the remedy if the 
State has reason to believe that compliance will be maintained.
    Response: We accept this suggestion, but only with regard to the 
denial of payment and State monitor sanctions imposed for repeated 
substandard quality of care, as specified at sections 1819(h)(2)(E) and 
1919(h)(2)(D) of the Act, and for the imposition of temporary 
management as specified at sections 1819(h)(2)(B)(iii), 
1919(h)(2)(A)(iii), and 1919(h)(3)(C)(iii) of the Act. Sections 
1819(h)(2)(E) and 1919(h)(2)(D) of the Act provide that, if the State 
or Secretary finds substandard quality of care on three consecutive 
standard surveys, the State or the Secretary must impose a denial of 
payment remedy and monitor the facility until the facility has 
demonstrated to the satisfaction of the Secretary or State that it is 
in compliance with the requirements of sections 1819 (b), (c), and (d) 
and 1919 (b), (c), and (d), and that it will remain in compliance with 
such requirements. Likewise sections 1819(h)(2)(B)(iii), 
1919(h)(2)(B)(iii) and 1919(h)(3)(C)(iii) of the Act specify that 
temporary management must not be lifted until the Secretary or State 
has determined that the facility has the management capacity to ensure 
continued compliance with all the requirements of sections 1819 (b), 
(c), and (d) and 1919 (b), (c), and (d) of the Act. We are, as 
explained earlier in this preamble, imposing a substantial compliance 
standard for the purpose of imposing and lifting sanctions. Therefore, 
for the above mentioned remedies, we are requiring that the remedies be 
lifted when the facility achieves substantial compliance and the 
facility has demonstrated to the Secretary or the State that 
substantial compliance can be maintained. There is no statutory 
authority for the continuation of any other remedies past the date that 
a facility achieves substantial compliance. We are making changes to 
Sec. 488.330(b)(2)(ii) accordingly and corresponding changes to 
proposed Sec. 488.236 (redesignated as Sec. 488.454).
    Comment: A few commenters recommended amending the proposed text to 
provide that a facility that is certified meets all Federal 
requirements, except that a facility may be considered to meet the 
requirements if it has requested and been granted a waiver by either 
HCFA or the State survey agency. Commenters further requested that we 
clarify in the regulation that once a waiver is granted, the existing 
situation which required the waiver is not considered a deficiency for 
the purpose of remedies or repeat deficiencies.
    Response: We do not believe the regulation needs to be changed. 
Waiving requirements renders those requirements not applicable to a 
particular facility for the duration of the waiver. If requirements are 
not applicable to a particular facility, that facility cannot be out of 
compliance with those requirements. Therefore, when a facility has been 
granted a waiver of certain requirements, there would be no remedies 
imposed nor would those waived requirements be considered when looking 
at a pattern of repeated noncompliance.
    Comment: Some State commenters believed that the proposed rule was 
unclear about when the certification of compliance or noncompliance 
would be issued. For example, in the case of a plan of correction, 
would HCFA or the State certify compliance after an acceptable plan of 
correction was received or would noncompliance be certified, and after 
successful completion of the plan of correction, a subsequent 
certification of compliance be issued.
    Response: The certification of compliance or noncompliance is 
issued by the State survey agency approximately 20 to 25 days after the 
last day of the survey. A finding of substantial compliance is 
considered within the range of compliance and would receive a 
certification of compliance. A certification of compliance would be 
issued after a certification of noncompliance if, as in the example the 
commenter offers, a facility submits a plan of correction and achieves 
substantial compliance. The exact mechanism by which the facility will 
be notified of the subsequent certification of compliance will be 
specified in manual instructions.
    Comment: One commenter suggested that HCFA not terminate a Medicaid 
provider agreement based on a validation survey unless there is 
immediate jeopardy to resident health and safety.
    Response: We continue to believe that there is ample authority in 
the Act for the Secretary to terminate Medicaid provider agreements in 
situations that do not pose immediate jeopardy. First, section 
1919(h)(3)(B) of the Act provides that ``[n]othing in this subparagraph 
shall be construed as restricting the remedies available to the 
Secretary to remedy a facility's deficiencies.'' Second, section 
1919(h)(3)(C) of the Act provides that the Secretary may provide for 
other specified remedies. We view these provisions as statutory 
authority and Congressional intent that the Secretary design 
enforcement remedies that will assist in effectively assuring prompt 
and lasting compliance by nursing facilities that serve the Medicaid 
population. Third, the Act already expressly provides for terminations 
by the Secretary in non-immediate jeopardy cases. Specifically, 
sections 1919(h)(6) and 1919(h)(7) of the Act, by their own terms, 
apply to findings of noncompliance by the Secretary when there is no 
immediate jeopardy to resident health and safety. Each of these 
provisions speaks to actions of the Secretary to terminate the provider 
agreement of such facilities. Accordingly, we are not accepting the 
commenter's suggestion.
    Comment: A few commenters recommended that we revise 
Sec. 488.330(d)(1) to remove ``nature of noncompliance'' and replace it 
with ``basis for the determination.'' The commenters suggested that the 
word ``nature'' was not specific enough and does not furnish the 
provider with the necessary information to formulate an appropriate 
plan of correction or response to deny the allegation. Some commenters 
further suggested that the facility should be provided with full 
information that supports each citation and the survey agency's 
decisions including the underlying reason, basis or rationale for the 
findings of noncompliance with a regulatory requirement.
    Response: We are not accepting this suggestion because we believe 
that the Statement of Deficiencies and Plan of Correction Form (HCFA-
2567) provide facilities with the specific information necessary to 
formulate an acceptable plan of correction. To include such detailed 
information regarding deficiencies in the notice of noncompliance would 
be duplicative and administratively burdensome. We also are not 
accepting the suggestion to replace ``nature of noncompliance'' with 
``basis for the determination'' because we believe there is virtually 
no substantive difference.
    Comment: A few commenters suggested that the notice of a 
certification of noncompliance should include all of the specified 
items in Sec. 488.330(d) and not only some of them.
    Response: We agree with the commenters and are amending 
Sec. 488.330(d) to require that all of the information included in 
proposed paragraph (d) must be included in the notice.
    Comment: Many commenters supported our proposal to impose remedies 
prior to the hearing, and noted that from the perspective of the 
residents and their families this proposal is a strength of the 
proposed rules. These commenters approved of applying remedies once the 
violations are found. Consumer groups emphasized that imposing remedies 
prior to appeals is essential to carrying out the statutory requirement 
to ``minimize the time between identification of violations and the 
final imposition of remedies''. They also commented that the IoM report 
expressed a similar view, stating that HCFA ``should develop 
regulations that would allow states to implement sanctions prior to 
hearings and appeals.'' Many commenters stressed that delays in 
enforcement could harm the residents, and that remedies should not be 
delayed pending a hearing. One consumer group noted that immediately 
imposing a restriction on admissions while a hearing is pending is 
particularly effective.
    Many commenters also indicated that facilities should initiate a 
plan of correction immediately.
    Response: We agree with the above comments, and are adopting 
procedures that allow for the swift imposition of remedies prior to a 
hearing. We believe that the intent of the Act was that remedies be 
imposed as soon as possible in order to protect the residents.
    Comment: Several commenters were concerned that providing hearings 
only after imposition of remedies denied providers their rights to due 
process. Many commenters recognized that in cases of immediate jeopardy 
to resident health or safety, pre-hearings were not necessary, but in 
cases in which there is no immediate jeopardy, they favored a hearing 
prior to imposition of any sanctions. Some commenters wanted HCFA to 
require the States to give an informal hearing prior to imposition of 
alternative remedies if the deficiencies do not pose immediate jeopardy 
to resident health or safety.
    A few commenters recognized that the majority of courts that have 
addressed the issue have found that providers are not constitutionally 
entitled to pre-hearing relief, but that a minority of courts have 
found that hardships are imposed on providers and residents when no 
pre-termination process is afforded. These minority-view courts have 
found facilities entitled to a pre-termination hearing on due process 
grounds when no pre-termination procedures are available.
    A few commenters challenged HCFA's reliance on the court cases 
which have upheld post-termination hearings on the grounds that these 
cases involved deficiencies analogous to immediate jeopardy situations. 
These commenters concede that in immediate jeopardy situations, the 
residents' interests are compelling enough to permit post-termination 
relief to providers, but not otherwise.
    Several providers noted that residents could suffer transfer 
trauma, the facility's business could be destroyed, and facility 
employees could lose their jobs, none of which could be restored if the 
facility were ultimately successful on appeal. A few commenters noted 
that a prior hearing is often the only safeguard against a mistake or 
incorrect judgment of a less experienced surveyor.
    A few people commented that when penalties become incrementally 
more severe for repeated non-compliance, and imposition of penalties 
takes into account a facility's compliance history, the need for 
hearings becomes more critical.
    A few commenters urged that facilities be given an opportunity to 
correct deficiencies before any remedy is imposed.
    Response: We believe that post-sanction hearings are entirely 
compatible with due process. Courts that have addressed this issue have 
concluded that, because the facility has numerous opportunities to 
prevent mistakes from occurring and to present its side of the story 
both during the survey process, at the exit interview, and by 
submitting written statements and a plan of correction, due process is 
satisfied by the availability of post-sanction hearings. See, for 
example Case v. Weinberger, 523 F.2nd 602 (2nd Cir. 1975), Caton Ridge 
Nursing Home v. Califano, 596 F.2d 608 (4th Cir. 1979), Green v. 
Cashman, 605 F.2d 945 (6th Cir. 1979), Northlake Community Hospital v. 
United States, 654 F.2d 1234 (7th Cir. 1981), Geriatrics, Inc. v. 
Harris, 640 F.2d 262 (10th Cir. 1981), cert. denied 454 U.S. 832, 102 
S.Ct. 1295. Although the Supreme Court has not directly decided the 
issue of due process requirements when a provider is terminated, the 
Court has decided in O'Bannon v. Town Court, 447 U.S. 773, 100 S.Ct. 
2467 (1980), that residents are not entitled to a pre-termination 
hearing. The Court reached this result notwithstanding the fact that 
residents were the intended beneficiaries of the provider agreement 
through their entitlement to high quality care. Moreover, consistent 
with the balancing of interests formula first enunciated by the Supreme 
Court in Mathews v. Eldridge, 434 U.S. 319 (1976), we have concluded, 
first and foremost, that the private interest that facilities have in 
their continued participation in the Medicare and Medicaid programs 
must give way to the Government's interest in protecting the health and 
safety of the resident population. Additionally, in light of the 
opportunities available to providers to question the accuracy of survey 
findings at various points during the survey process including during 
the survey, exit conference, and through informal meetings with State 
or Federal officials, we believe that the chances for an erroneous 
deprivation are quite small when compared to the enormous delay in the 
correction of noncompliance that could occur were hearings to be 
routinely held prior to the institution of remedies. The use of an 
informal dispute resolution process, to be discussed later in this 
preamble, should serve to reduce even further the chances of an 
erroneous deprivation.
    Apart from the support of case law, the nursing home reform 
statutory provisions clearly reflect the desire expressed in the 
enactment's legislative history that remedies be applied swiftly once 
deficiencies are identified. Specifically, sections 1919(h)(2)(A) and 
(h)(3)(C) of the Act require that when States and the Secretary develop 
criteria detailing the manner in which remedies are to be imposed that 
they be designed so as to minimize the time between the identification 
of violations and final imposition of the remedies. Additionally, 
section 1919(h)(8) of the Act specifies that States may impose a denial 
of payments for new admissions, temporary management, and facility 
closures during the pendency of any hearing. We believe it would be 
incompatible with these pronouncements were we to devise an appeal 
scheme that would provide for hearings before the imposition of 
remedies. Moreover, we conclude that this is the case regardless of 
whether the facility's deficiencies pose immediate jeopardy to resident 
health or safety since the Act makes no distinction on this basis and 
because the delay in imposing remedies once noncompliance has been 
identified could be considerable.
    Comment: One commenter stated that residents should have the right 
to remain in their nursing homes until after the alleged deficiencies 
are substantiated.
    Response: The Supreme Court has addressed the issue of the right of 
residents to a pre-termination hearing when the nursing home in which 
they reside loses its Medicaid agreement (O'Bannon v. Town Court, 447 
U.S. 773, 100 S. Ct. 2467 (1980)). The Court noted that although 
termination may be harmful to some residents, residents are moved to a 
complying nursing facility for their own benefit, so that they can 
obtain the care to which they are entitled as Medicaid residents. The 
Court noted that Medicaid residents who are forced to move may have 
difficulty locating other homes they consider suitable or may suffer 
both emotional and physical harms as a result of the disruption 
associated with their move, and might have a claim for damages against 
the nursing home, yet they would not have any claim against the 
government for deprivation of an interest in life, liberty or property 
(Id. 447 U.S. at 788, 100 S.Ct. at 2476).
    As discussed more fully below, residents do have opportunities for 
giving information to the surveyors during the survey process.
    Comment: One commenter believed that providing pre-hearings for 
monetary penalties, without providing any hearing, formal or informal, 
prior to imposition of harsher sanctions is irrational.
    Response: Pre-sanction hearings are available when monetary 
penalties are assessed because the provisions of section 1128A of the 
Act apply. These procedures require pre-sanction hearings when civil 
monetary penalties are assessed. As discussed above, the statute 
clearly provides for the immediate imposition of remedies where civil 
money penalties are not involved.
    Comment: One commenter argued in favor of a written appeals process 
prior to revocation of the facility's license.
    Response: Termination of a provider agreement is not termination of 
a license to do business; therefore, we do not accept the implication 
that pre-termination hearings should be available on the grounds that a 
license is being revoked, especially when the statute, legislative 
history and case law so clearly point in the other direction.
    Comment: A few commenters stated their belief that HCFA is 
inappropriately extending its rulemaking authority to supersede State 
laws which provide pre-sanction hearings. Some commenters noted that 
current Medicaid regulations at Sec. 431.153(b) allow States the option 
of providing pre-hearings.
    A few commenters stated that there was no statutory basis for 
HCFA's proposal to eliminate pre-sanction hearings in the Medicaid 
program, and no indication that the Congress intended to eliminate this 
State practice. These commenters noted that there is a material 
difference between the Medicare and Medicaid programs in the impact of 
not having a pre-hearing available because nursing homes usually have 
many more Medicaid residents than Medicare residents. They stated that 
loss of Medicaid reimbursement has a greater financial impact than the 
loss of Medicare reimbursement.
    A few people commented that the statutory requirement to minimize 
the length of time between identification of deficiencies and 
imposition of remedies is not a mandate to eliminate the time between 
the two events.
    A few people commented that the proposed regulation was making 
terminations so easy to accomplish, by providing only for post-
termination hearings, that the Congressional intent to provide 
alternatives to termination was being undermined.
    One commenter noted that the legislative history of Public Law 96-
499, indicated that the Congress wanted providers to have an 
opportunity to present their cases at an informal hearing prior to 
imposition of a sanction, citing H.R. 1169 at 56, reprinted in 1980 
U.S. Code, Cong. & Admin News, 5526, 5569.
    Response: OBRA '87, as discussed more fully above, OBRA '87 
specifically provides that the Secretary must ``minimize the time 
between the identification of violations and final imposition of the 
remedies'' (see sections 1819(h)(2)(B) and 1919(h)(2)(A) of the Act). 
In addition, OBRA '87 provides that, ``It is the duty and 
responsibility of the Secretary to assure that requirements which 
govern the provision of care [* * * in both Medicare and Medicaid 
facilities * * *] and the enforcement of such requirements, are 
adequate to protect the health, safety, welfare, and rights of 
residents and to promote the effective and efficient use of public 
moneys.'' (Sections 1819(f) and 1919(f) of the Act, emphasis added).
    As we stated in the proposed rule, we believe that there are 
compelling reasons to provide for an appeals mechanism under Medicaid 
that is triggered only after an adverse action has gone into effect. As 
discussed above, we believe this scheme most accurately reflects 
legislative intent. Additionally, we believe the Act gives us general 
rulemaking authority to achieve this objective and that, in particular, 
we have authority to regulate the timing of State Medicaid hearings 
that may be provided in accordance with section 1919(h)(7) of the Act. 
We also see no reason why the rules governing the Medicaid program in 
this area should be any different than those governing the Medicare 
program when the substantive requirements affecting providers are 
exactly the same and the enforcement options are virtually identical.
    For Medicaid, the only hearing a provider will receive is that 
which is provided for in this final rule, as determined by 
Sec. 488.330(e)(4). When States hear certification and licensure 
appeals under the same process, that process can be used for Medicaid 
purposes as long as it does not go beyond the scope of the hearing 
procedures in part 431. Part 431 only provides for appeals of 
deficiencies that lead to an enforcement remedy; therefore, appeals of 
deficiencies that did not lead to an enforcement remedy will not be 
recognized for Medicaid purposes.
    As stated above, we believe that residents are the primary 
beneficiaries of the Medicare and Medicaid program, and their interests 
are paramount. The Second Circuit Court of Appeals stated as follows in 
Case v. Weinberger, 523 F.2d 602, 607 (2nd Cir. 1975):

    This anticipated damage to Mrs. Case, which is certainly 
serious, does not compare favorably with the government's interest 
in the safety of her patients. A nursing facility's ``need'' for 
patients has nothing to do with the statutory benefits structure. 
The facility's need is incidental. That a particular nursing 
facility cannot survive without Medicaid participation was certainly 
not Congress' foremost consideration in its creation of the Medicaid 
program. This is not to derogate Mrs. Case's property interest in 
her expectation of continued participation. We must, however, place 
that right in proper perspective with regard to the health and 
safety expectations of the patients, which expectations the 
Secretary has a valid interest in protecting. The benefits to a 
nursing home from its participation in Medicaid reimbursement result 
from nothing more than a statutory business relationship.

The above comments on the relationship of providers to the Medicare and 
Medicaid programs were cited with approval by the Tenth Circuit Court 
of Appeals in Geriatrics v. Harris, 640 F.2d 262, 265 cert denied, U.S. 
Supreme Court (1981).
    Comment: Several commenters offered alternatives to the proposed 
post-sanction hearings. Some accepted HCFA's goal of applying remedies 
immediately, but proposed that States should be allowed the flexibility 
to use pre-sanction hearings in limited circumstances.
    Some wanted the option to use pre-sanction hearings in cases where 
deficiencies are minor and States have a high caseload of appeals 
(presumably making it difficult to obtain a speedy post-remedy 
hearing); some wanted pre-sanction hearings in all cases unless the 
facility was substantially out of compliance or the deficiency was 
deemed life threatening.
    Some stated that although the residents' interests prevail when the 
deficiencies impair their safety, the facility's interests should 
prevail when the deficiencies are less serious, thereby justifying pre-
sanction hearings. For example, some commenters agreed that substandard 
care needed to be addressed expeditiously, prior to any hearing, but 
other deficiencies could be addressed after an expedited appeals 
process.
    Some proposed a balancing test under which the procedures would 
vary according to the interests at stake. The residents' interests 
would specifically be balanced against the nursing home's interests on 
a case by case basis. A post-sanction hearing would be held in cases of 
immediate jeopardy, and pre-sanction hearings would be held when the 
threat to residents was less extreme.
    Some wanted States to have the option of providing pre-sanction 
hearings in all cases. Some wanted to retain the present State option 
in the Medicaid program to provide either pre-termination hearings or 
post-termination hearings which must be completed within 120 days of 
the effective date of the termination. A few commented that requiring 
completion of the hearing within 120 days would alleviate HCFA's 
concern that pre-sanction hearings would delay imposition of remedies.
    One commenter proposed that an existing State procedure be adopted, 
whereby the State schedules an appeal within 30 days of receiving a 
request for a hearing; an impartial decision maker makes a 
recommendation within 30 days of the hearing, and the Secretary makes a 
final decision within 10 days. Another proposed a 10 day filing period 
for requesting an appeal; a hearing held within 30 days of request; and 
a decision within 30 days of the hearing.
    A few commenters proposed minimizing the time between 
identification of remedies and imposition of remedies by instituting 
deadlines in an expedited hearing process. These commenters proposed 
imposing time periods for filing of documents by all parties, and 
mandatory deadlines for decisions by hearing officers.
    Some commenters proposed allowing States to follow their own 
Administrative Procedure Act provisions.
    Some submitted State license laws for our consideration. For 
example, under one State's license law, deficiencies are classified 
based on whether there is a substantial probability of death or serious 
mental or physical harm (Class A), a direct threat to health, safety or 
welfare of a resident (Class B), or no direct threat to health, safety 
or welfare of a resident (Class C). Class A violations require 
immediate abatement, subject to a Court injunction for failure to 
abate; Class B or C violations require a plan of correction within 10 
days (extendable to 30). Timeframes are included, providing generally 
for requesting hearings within 10 days after notice, and providing 
hearings within 30 days of request.
    Response: We are not accepting suggestions that would require pre-
sanction hearings because we continue to believe that residents are 
best served if remedies are imposed promptly. The residents are the 
beneficiaries of the Medicare and Medicaid programs, and their best 
interests are the motivating force behind OBRA '87 and these 
regulations. We are not mandating post-remedy hearings. We are merely 
not requiring a hearing to be completed before imposing any sanction 
but civil money penalties. Depending on the size of the case load and 
processing times, a State could complete a hearing prior to the 
imposition of a remedy, but to be consistent with these regulations any 
hearing would need to be conducted and concluded very shortly after 
noncompliance was identified. However, we acknowledge that the ability 
to provide a pre-sanction hearing would be difficult for most States.
    We are not accepting the various proposals on timing events within 
the hearing process itself. With respect to Medicare, some of these 
time periods are established by the Act, as is true, for example, for 
the 60 day period in which to appeal. With respect to both Medicare and 
Medicaid, hearings are held by independent hearing officers who are in 
a far better position than HCFA to determine how quickly various 
hearings can be held.
    We do not believe that State license law is analogous to Medicare 
and Medicaid provider agreements. As we stated above, providers have 
entered into agreements with Medicare and Medicaid in which they have 
agreed to comply with Federal requirements, including the requirements 
applicable to remedies for noncompliance.
    Comment: Several commenters proposed an explicit review period 
during which the State survey agency's central office would give 
providers an opportunity to question, clarify and develop the issues.
    Response: We are adopting this proposal with some modification to 
require dispute resolution by an official in the survey agency and/or 
HCFA regional office. See discussion under the heading, Dispute 
resolution. We believe that making an informal dispute resolution 
process available alleviates many of the concerns expressed above, and 
gives a provider an opportunity to present its side of the story to the 
survey agency and/or regional office officials prior to imposition of 
remedies.
    Comment: Several commenters wanted a right to appeal all 
deficiencies, even if no remedy was imposed.
    Response: We are not accepting this suggestion because if no remedy 
is imposed, the provider has suffered no injury calling for an appeal. 
We agree that deficiencies that constitute noncompliance and that 
result in a remedy imposed are appealable (except for minor remedies 
such as State monitoring).
    Comment: Several commenters approved our plan to provide a single 
hearing for dually participating SNF/NFs. One commenter wanted two 
hearings, if the same deficiency was cited by two survey agencies, 
unless the provider requested a single hearing.
    Response: We are adopting a single hearing, as proposed, in 
accordance with procedures in 42 CFR part 498, because we believe that 
it would be extremely burdensome and costly for the government to 
participate in two hearings. Witnesses would need to testify twice, in 
different locations. Attorneys would be required to prepare for two 
separate proceedings, and respond to two different sets of procedural 
rules. Further, because the two hearings would be based on the same set 
of facts, a second hearing is not necessary. Before OBRA '87, the 
practice was to provide one hearing for dually participating 
facilities, in accordance with procedures at 42 CFR part 498, and this 
proved to be satisfactory.
    Comment: One commenter stated that the ombudsman should participate 
in the hearing because sections 712(a)(3)(E), and 712(a)(5)(B)(iv) of 
the Older Americans Act Amendments of 1992 authorize ombudsmen to 
represent the interests of the residents before governmental agencies.
    Response: We are not adopting this suggestion because residents are 
not a party to the Medicare or Medicaid agreements between providers 
and HCFA or the State agency. Moreover, the entire process of surveys, 
determining compliance or noncompliance, and citing deficiencies is a 
process designed to protect the interests of the residents. The 
ombudsman can, of course, advise the survey agency of any concerns 
relevant to a particular facility.
    Comment: A few commenters suggested that States should be necessary 
parties in any hearing, stating that when HCFA decertifies facilities 
the results of the survey could be used as evidence that the State 
survey agency was negligent in surveying the facility.
    Response: This comment apparently refers to decertification of a 
facility after a HCFA validation survey. We are not adopting this 
proposal, because in any hearing the parties to the hearing are the 
complainant (the provider, in this case) and the party who made the 
decision about which the complaint is made (HCFA in the case of a 
validation survey).
    Comment: A few commenters recommended that residents be permitted 
to be parties in any hearings, to ensure that terminations are used 
only as a last resort. A few also wanted residents to be able to 
initiate challenges through the appeal process when either HCFA or the 
State failed to apply remedies when appropriate. A few wanted residents 
to be notified of enforcement actions at the same time a nursing home 
is notified.
    Response: We are not adopting these suggestions, because we believe 
that the needs of the residents to be heard are addressed in other 
ways. As a threshold matter, the Supreme Court has already concluded in 
the previously cited O'Bannon decision that residents do not have a 
right to a pre-termination hearing when the facility in which they 
reside faces a provider agreement termination. Whether residents might 
testify to a facility's compliance or noncompliance, arguments on both 
sides of the issue are already being made by either the government or 
the provider. Certainly, a provider has every incentive to state its 
case that it was in compliance with certification requirements and that 
it ought not be the subject of an adverse action.
    On the other hand, if residents were interested in contributing to 
the case against a facility, whatever evidence they might have could be 
shared with surveyors before, during, or after the completion of a 
survey. Residents have always had, and will continue to have, 
opportunities to discuss facility conditions with surveyors either 
individually or in group meetings, and always have the right to comment 
on the care they are receiving. Except when there is immediate jeopardy 
to resident health or safety, the States and the Secretary have very 
broad discretion under the Act to select among enumerated remedies. 
Just as we believe it is not for facilities to choose what remedies 
they should be subject to, we do not believe that facility residents 
should make that choice either.
    Comment: Many commenters favored an informal procedure to challenge 
the survey agency's findings prior to making the Statement of 
Deficiencies (HCFA-2567) final.
    Response: As discussed in the section entitled, Dispute Resolution, 
we are accepting this proposal and are providing for such a process in 
Sec. 488.331. We believe that such a process will alleviate many of the 
concerns expressed on providing only post-sanction formal hearings.
    Comment: A few commenters noted that the existing appeals 
regulations at 42 CFR part 498 should be amended to reflect the 
additional issues which can now be appealed in addition to termination.
    Response: We agree and are amending Sec. 498.3 to make it clear 
that noncompliance leading to an enforcement remedy (other than State 
monitoring) is appealable. These changes are identified in section V. 
of this preamble, Additional Conforming Changes.
    Comment: Several commenters proposed that we clarify when sanctions 
are to be imposed. Some feared that sanctions would be imposed by the 
survey team onsite as soon as a deficiency is cited. Some wanted 
clarification that the State survey agency would be given a reasonable 
period of time in which to review surveyor findings in order to decide 
upon a sanction.
    Response: It is not our intent that the survey team impose 
remedies. Moreover, the appropriate agency for imposing remedies does 
not do so prior to the time the facility receives written notice of the 
noncompliance and written notice of the remedy(ies) to be imposed. The 
survey agency will have time to review the findings and make a decision 
as to compliance or noncompliance, and recommend a remedy or remedies 
to the appropriate State entity or to HCFA, depending on whose decision 
controls as specified at sections 1919(h)(6) and (7) of the Act.
    Comment: A few commenters wanted clarification of the timing and 
meaning of a certification of noncompliance specified in proposed 
Sec. 488.180(d), the notice of hearing given specified in proposed 
Sec. 431.153(e), and the notice of imposition of remedies specified in 
proposed Sec. 488.202(f).
    Response: Under section 1864 of the Act, the State survey agency 
certifies to HCFA, in a document called a ``Certification and 
Transmittal,'' the status of a facility's compliance with the statutory 
and regulatory requirements. In certain situations, HCFA itself makes 
the decision on whether a facility complies, as is the case for State 
facilities and in the case of validation surveys. This certification of 
compliance or noncompliance is a decision made by one of the 
governmental agencies (HCFA or the State) prior to notification of the 
provider.
    If a certification of noncompliance is made, the provider is 
notified in accordance with Sec. 488.330(c). It is usually notified in 
a separate notice of remedies to be imposed, in accordance with 
Sec. 488.402(f). (There may not be two separate notices in the case of 
immediate jeopardy.) Except for the imposition of civil money 
penalties, providers are given notice before the effective date of all 
remedies. In the case of civil money penalties, providers are given a 
pre-sanction hearing before civil money penalties can be collected. The 
notice given to the provider includes a notice of the remaining 
noncompliance, (even if there was a prior notice of deficiencies 
constituting noncompliance found on the survey) and notice of an 
opportunity to request a hearing, in accordance with Sec. 431.153(d) 
and Sec. 498.20(a).
    If a hearing is requested, the hearing must include the components 
specified in Sec. 431.153(e). Note that the requirement in 
Sec. 431.153(e) that the facility receive notice and a copy of the 
statement of deficiencies is accomplished prior to the hearing, in 
accordance with Sec. 431.153(d).
    We do not believe that the regulations need to be re-written to 
achieve the above intended result. Providers will be given notice of 
any deficiencies if HCFA or the State survey agency determines, that 
is, certifies noncompliance. They will also be given notice of any 
remedies that are imposed, and notice of their right to request a 
hearing.
    Comment: A few commenters requested that the notice given to the 
provider include not only the deficiencies found and the remedies 
selected but also the severity/scope rating for each deficiency. These 
commenters wanted an opportunity to appeal the severity/scope ratings.
    Response: We are not accepting this comment. As we discuss later in 
this preamble, with the exception of certain civil money penalties, 
providers will not have the opportunity to appeal the scope and 
severity of deficiencies.
    Comment: Many States commenting on this section believe that the 
HCFA finding of noncompliance should not supersede a State survey 
agency certification of compliance when both are available. States 
assert that State surveyors are more familiar with the operation of 
specific facilities in the State and that HCFA's surveyors may impose 
remedies because of their lack of familiarity with a particular 
facility.
    Response: Section 1919(g)(3)(A) of the Act mandates that the 
Secretary's determination as to the facility's noncompliance is binding 
and supersedes that of the State survey. Moreover, HCFA surveyors do 
not impose remedies. Rather, the managerial staff in the HCFA regional 
offices decide on the most appropriate remedy to be imposed. Therefore, 
we are not accepting this suggestion.

Section 488.332  Investigation of Complaints of Violations and 
Monitoring of Compliance

    Comment: A few commenters said that the certification and 
validation surveys constitute unreasonable administrative searches 
which violate the Fourth Amendment. They stated that routine 
inspections require a warrant unless the survey is initiated in 
accordance with neutral criteria and the surveyor's discretion is 
limited by an administrative plan defining the scope and procedure of 
the inspection, citing Barlow's Inc., 436 U.S. at 323 and Donovan v. 
Dewey, 452 U.S. 594 (1981).
    A few commented that warrantless complaint investigations also 
violate the Fourth Amendment because the proposed rule provides no 
assurance that investigations are justified and because the proposed 
rule contains no limits on time, place, scope and manner of any 
complaint investigation.
    Response: Providers have consented to certification and validation 
surveys and to complaint investigations by choosing to participate as 
providers in the Medicare or Medicaid programs, or both. As indicated 
previously, the Supreme Court has long upheld warrantless searches of 
closely regulated businesses, and the nursing home industry is no 
exception. Moreover, section 1128(b)(12) of the Act provides for the 
exclusion from the Medicare and Medicaid programs of an individual or 
an entity who denies access to the Secretary or the State agency for 
the purpose of a survey to determine a provider's compliance with 
Federal requirements.
    Comment: Some commenters suggested that we require coordination of 
complaint investigations with the State or local ombudsman program.
    Response: The Act does not require the State to coordinate 
complaint investigations with ombudsman programs. However, under the 
Act, each State is required to notify the State long-term care 
ombudsman of its findings of noncompliance as specified on the HCFA-
2567, with any of the requirements pertaining to provision of services, 
resident rights, or administration and other matters. The State also 
provides the long term care ombudsman with any report of adverse action 
(specified at Sec. 488.406 of this rule) imposed on a facility. We are 
including the requirement for disclosing such information to long term 
care ombudsman at Sec. 488.325.
    Comment: Some commenters believed that Sec. 488.332 should include 
procedures, including timing, evaluation of severity, and protocols, to 
be used in the investigation of complaints of violations of 
participation requirements. These commenters offered a variety of 
specific procedures to be included in this regulatory section. Also, 
commenters suggested that the State investigate all complaints 
received, while other commenters suggested giving States flexibility to 
determine whether there is a reasonable basis for an investigation.
    Response: As explained fully in the preamble to the proposed rule, 
sections 1819(g)(4)(A) and 1919(g)(4)(A) of the Act require each State 
to maintain procedures to investigate complaints of violations of 
Federal participation requirements. Additionally, the State Operations 
Manual has prescribed procedures State agencies must follow if 
complaints involve Medicare and/or Medicaid facilities. We believe 
these procedures, which are subject to ongoing revisions, provide basic 
minimum instructions, with sufficient flexibility, for State agencies 
to follow when investigating complaints.
    We do not believe that it would be reasonable or economically 
feasible to require States, especially those with remotely located 
facilities, to survey all facilities for which complaints are received. 
The experience of State survey agencies has shown that many complaints 
are either groundless or are not potential violations of requirements 
for certification. This position, however, does not relieve the States 
from their responsibilities to properly evaluate and investigate all 
complaints that may affect a facility's certification.
    To ensure these responsibilities are properly carried out, 
Secs. 488.318 and 488.320 of these rules and sections 1819(g)(3)(C) and 
1919(g)(3)(C) of the Act require that the Secretary provide appropriate 
remedies when a State fails to perform survey and certification 
responsibilities required under the Act. In addition, HCFA evaluates 
the Medicare/Medicaid survey and certification performance of State 
survey agencies with the State Agency Evaluation Program (SAEP). The 
SAEP identifies, among other factors, State actions with regard to the 
investigation of complaints. In Federal fiscal year 1992, the SAEP 
assessment of the State agency's timely processing of general 
certification related complaints indicated that on a national average 
between 90 and 99 percent of all general certification related 
complaints reviewed in the sample were processed in a timely manner. 
The evaluation included determining if allegations which may involve 
immediate jeopardy were investigated within two working days of receipt 
and also determining if non-immediate jeopardy complaints were 
processed in accordance with existing State agency procedures for 
prioritizing and investigating general certification related 
complaints. The SAEP data for fiscal year 1992 also confirmed that in 
the sample of complaints reviewed, which included general certification 
related complaints, complaints against accredited hospitals and 
violations of section 1867 of the Act (Examination and Treatment for 
Emergency Medical Conditions and Women in Labor), between 90 and 100 
percent of complaints were collected, logged, referred and acknowledged 
in accordance with the guidelines provided in the State Operations 
Manual and specific policy memoranda. Any inappropriate State actions 
are discussed with State survey agency management and reconciled 
accordingly.
    Comment: Some commenters suggested that the regulations state that 
complaints may be accepted from anonymous sources or provide for the 
anonymity of complainants if requested.
    Response: We recognize there are instances when it is necessary to 
protect the identity of a complainant to avoid possible reprisal. In 
keeping with this, States are instructed in the State Operations Manual 
to take appropriate precautions to protect a complainant's anonymity 
and privacy, if possible. While we do not believe we can guarantee 
anonymity should an adverse action result from the investigation, we 
would expect that ultimately the issue before a trier of fact would be 
the substantial compliance or noncompliance with certification 
requirements, not the identity of the individual who brought the 
allegation to the survey agency's attention. We are revising 
Sec. 488.332 to provide that, if possible, the State survey agency 
takes appropriate precautions to protect a complainant's anonymity and 
privacy.
    Comment: Many commenters asked for an explanation of the term 
``monitoring'' used in this section. There seemed to be a pervasive 
thought that the term as used in this section was analogous to the 
remedy of ``State monitoring'' found in Sec. 488.406.
    Response: We believe the term ``monitoring,'' as found in section 
1819(g)(4) and 1919(g)(4) of the Act, is intended to encompass the 
entire survey process, which is to ascertain whether a facility is in 
substantial compliance with the requirements for participation in the 
Medicare or Medicaid programs, or both. The use of this term in this 
section of the rules should not be construed as to alter the protocols 
for long term care surveys which are found in the State Operations 
Manual.
    Section 488.332(b) gives States flexibility to visit facilities at 
their discretion in order to determine whether or not they are in 
compliance with program requirements. It should not, as some commenters 
felt, be an option whether or not to follow up on deficiencies cited on 
previous visits. (Note the following comment and response regarding 
follow up visits.)
    Finally, we are changing the title of this section so that 
``monitoring'' is distinct and separate from complaint investigation.
    Comment: Commenters asked whether or not follow up visits for 
determining correction of all cited deficiencies must be conducted.
    Response: The proposed rules do not change our position regarding 
the scheduling and conduct of follow up visits. This position is 
described in the State Operations Manual. Correction of noncompliance 
must be verified by some type of follow up activity; albeit, not 
necessarily by an on-site visit. The timing of follow up visits must be 
determined by factors such as the effect of the noncompliance on the 
care of the facility's residents and the date of correction specified 
in the provider's plan of correction.
    Comment: Some commenters suggested that investigations of 
complaints regarding violations of participation requirements be solely 
the responsibility of the State survey agency. Other commenters 
maintained that necessary referrals are not being made to other State 
agencies.
    Response: The Act provides that a State may maintain and utilize a 
specialized team for the purpose of identifying, surveying, gathering 
and preserving evidence and does not specify that such team be part of 
the survey agency. However, if a State uses a specialized team that is 
not part of the survey agency, the State survey agency is not absolved 
of its responsibility to properly document complaints and their 
findings and take required certification action with respect to a 
facility's Medicaid or Medicare participation, or both.
    In keeping with this responsibility, we are strengthening 
Sec. 488.332 by requiring that, if arrangements have been made with 
other State components for investigation of complaints, the State must 
have a means of communicating information among appropriate entities, 
and the State survey agency retains responsibility for the 
investigation process.
    Also, we are adding a paragraph to Sec. 488.335 requiring that 
State survey agencies consider complaints of neglect, abuse or 
misappropriation of resident property by an individual used by a 
facility to provide services to residents as a potential reflection on 
a facility's compliance with Medicaid and/or Medicare participation 
requirements.
    Comment: Some commenters expressed concern about the use of an 
attorney on a specialized investigation team.
    Response: The Act, at sections 1819(g)(4) and 1919(g)(4), refers to 
an ``attorney'' as well as other professions (auditor, appropriate 
health care professionals) to describe examples of various disciplines 
that may be used to make up specialized teams to investigate violations 
of requirements by nursing facilities or skilled nursing facilities 
and, in a broader sense, to monitor all facilities for compliance with 
the requirements of sections 1819(b), (c), and (d) and 1919(b), (c), 
and (d) of the Act.
    We did not intend that attorneys be a routine part of such teams; 
however, the language of the Act and proposed rules gives States a 
broad choice of occupations from which to choose for the survey and 
certification process.
    Comment: Several commenters requested that a facility have prior 
notice of a complaint investigation to notify its attorney in those 
instances when an attorney is part of the specialized complaint 
investigation team.
    Response: Notifying a facility in advance of a complaint survey so 
that its attorney might be present is, in fact, announcing the survey. 
To do so is inconsistent with HCFA policy, which intends that as many 
surveys as possible be unannounced.
    Comment: A few commenters identified specific areas of concern in 
the complaint investigation process. These concerns stemmed from the 
general comment that the complaint investigation team may not have 
proper training.
    Response: We appreciate the concern of these commenters who 
recognize that the investigation and resolution of complaints is a 
critical certification activity requiring properly trained 
investigators, and we will consider these concerns as we strive to 
continually improve our training courses. However, we believe that the 
expertise of a special investigation team and the overall State survey 
agency responsibility for complaint investigations provides a 
coordinated effort that assures that the complaint investigation 
process is executed by properly trained individuals. Sections 
1819(g)(4) and 1919(g)(4) of the Act provide that the State may 
maintain and utilize a specialized team which may include an auditor, 
an attorney, and appropriate health care professionals to identify, 
survey, gather and preserve evidence, and carry out appropriate 
enforcement action against substandard facilities. The discipline, 
specific training, and education of such a specialized team provides 
the narrow focus that is often essential to conduct a comprehensive 
complaint investigation. The State survey agency has the overall survey 
and certification responsibility and expertise that assures that 
surveyors can ascertain when Medicare and Medicaid facilities meet 
participation requirements.
    Comment: A few commenters recommended that a process for appeal by 
the complainant be implemented.
    Response: While we cannot deny that there may be instances in which 
a complainant is dissatisfied with the findings of a complaint 
investigation, we cannot accept the recommendation to include an appeal 
process for the complainant in the regulation as the complainant is not 
a party to the provider agreement.
    Comment: A commenter asked what type of action could be invoked 
when a complaint was received after the violation occurred and was 
resolved by the time the surveyors arrived.
    Response: Although we may have discretion with the selection of 
remedies to address noncompliance with requirements that are corrected 
by the time of a survey, it is likely that we would give serious 
consideration to imposing a civil money penalty in such cases. Sections 
1819(h)(1) and 1919(h) (1) and (3) of the Act expressly authorize the 
impositions of these sanctions even if, at the time of the survey, the 
facility is in compliance.
    Comment: A few commenters recommended that the provision which 
includes administering remedies to noncompliant facilities found during 
a complaint investigation be revised to say that the State will carry 
out appropriate enforcement remedies against chronically substandard 
facilities.
    Response: We do not agree. While the facility's compliance history 
is a factor in general and specifically with reference to the cited 
deficiencies in determining the appropriate remedy or remedies, we will 
not limit the remedies to only those facilities which have chronically 
provided substandard care. To do so, would be to allow many 
deficiencies that constitute noncompliance to go unsanctioned. This 
undermines the purpose of remedies that are intended to motivate prompt 
compliance with participation requirements.

Section 488.334  Educational Programs

    Comment: The consensus of those who commented on Sec. 488.334, with 
the exception of the following two commenters, was that there is a 
definite need for educational programs for facilities, residents, and 
their representatives. The two commenters stated that it was 
unrealistic to expect the States to conduct periodic educational 
programs for the staff and residents of facilities either because of 
the cost, because they felt the requirement was already met when 
surveyors interviewed residents, or because the appearance of 
objectivity would be jeopardized.
    Response: The regulatory provision requiring the States to conduct 
periodic educational programs stems from a statutory requirement at 
sections 1819(g)(1) and 1919(g)(1) of the Act. The concept that the 
requirement is met when surveyors interview residents is not acceptable 
for two reasons: First, surveyors do not interview every resident. 
Secondly, the responsibility of a surveyor is to survey nursing homes 
and not to have attention deflected to educate staff and residents as 
to regulations, procedures, and policies. In fact, even if surveyors 
were to attempt an educational task, time and money constraints would 
prevent them from being able to provide complete information to staff 
and residents. As to the appearance of objectivity being jeopardized, 
this is not an issue since the Act requires that States assume this 
responsibility. However, irrespective of the Act, there is no reason 
why a State's educational program, explaining the Federal requirements, 
should jeopardize the State's objectivity in exercising its survey 
function. We believe that well-informed staff and residents contribute 
to nursing homes' being able to achieve and maintain compliance. If the 
implementation of training programs is followed by a pattern of 
increased facility compliance, one can just as easily conclude that 
providers and their clients are becoming more knowledgeable about the 
requirements to which they are subject, than that surveyors are losing 
their objectivity.
    Comment: Several commenters recommended that State educational 
programs for consumers be expanded. Several commenters suggested that 
we require State survey agencies to involve ombudsmen in the 
development of educational programs and in the planning and 
implementation of additional training of residents. Another commenter 
suggested that we require State agencies to give NFs access to training 
programs for State surveyors. Several commenters suggested that we 
conduct joint continuing education programs for providers and 
surveyors. A few commenters recommended that we make HCFA's inservice 
training programs available to facilities. Another commenter 
recommended adding to this regulation that the State make available to 
staff and residents documents related to current regulations, 
procedures, and policies.
    Response: Sections 1819(g)(1)(B) and 1919(g)(1)(B) of the Act 
require that States conduct educational programs for facility staff and 
residents (and their representatives) regarding current regulations, 
procedures and policies of the long-term care survey process. We 
include ombudsmen as representatives of residents. Such information 
will be provided during educational programs as they relate to the 
content of the program. Such regulations, policies, and procedures are 
also releasable under the Freedom of Information Act, and can be 
requested outside of the scope of the educational program. There is no 
statutory requirement to include ombudsmen in the development, 
planning, and implementation of educational programs and we feel that 
each State should develop its own program regarding these activities. A 
State may or may not choose to include ombudsmen in the development of 
its program. In any case, we are interpreting the Act to include 
ombudsmen in educational programs as representatives of residents. The 
suggestion has been made that providers be permitted to attend survey 
training courses. Traditionally, we have had no provisions for 
accommodating all providers interested in attending; our resources are 
taxed enough by simply trying to provide timely training for surveyors. 
However, being able to offer surveyor training universally to providers 
at their own cost may help improve understanding and cooperation 
between surveyors and providers. We are therefore seriously considering 
changing our policy to allow this.
    Comment: Two commenters representing consumer groups, suggested 
that Secs. 488.303 and 488.334 be expanded to require State agencies to 
provide education to residents and their representatives in a variety 
of additional areas such as
     How to participate in assessment and care planning.
     Residents' rights.
     Rights to rehabilitation and other services.
    One of these commenters also recommended that States work with 
residents and family councils to:
     Solicit recommendations prior to any changes in the 
requirements.
     Evaluate the effectiveness of the survey process.
     Receive consultation prior to and during imposition of 
remedies to determine their effectiveness.
     Receive consultation prior to determining whether to grant 
a waiver of nurse staffing.
    Another commenter suggested that residents' understanding is 
critical and their education should be expanded to include:
     How the survey process works and how to participate.
     How the investigation process works and how to 
participate.
     How the care planning process works and how to 
participate.
    Response: These suggestions have considerable merit and are within 
both the spirit and intent of the Act. We agree with the commenters 
that the proposed regulation unnecessarily restricted the scope of the 
mandated educational programs. The regulation is being revised to 
permit the education programs to cover all aspects of the long-term 
care survey process. We believe the States should have the flexibility 
to structure the educational programs to the needs of the facilities. 
The methods of developing the programs (for example, consultation with 
the ombudsmen program) and the methods of presentation are best left to 
the States. The comment that States should work with residents and 
family councils to solicit their recommendations prior to any changes 
in requirements goes beyond the educational process. In some respects, 
this comment incorporates residents and families as participants in the 
survey and enforcement processes. Whenever there is public rulemaking, 
any member of the public is a participant in the process and can 
comment and make recommendations on such matters. In addition, when 
surveyors speak with residents during the survey, residents are free to 
bring up comments about the survey process if they wish. Regarding the 
comment that residents' understanding of the survey, investigation, and 
the care planning processes should be expanded, we repeat that the 
regulation is being amended to permit the educational programs to cover 
all aspects of the long-term care process.
    Comment: One commenter recommended that HCFA share central office 
and regional office satellite training to provide training 
simultaneously with nursing facility staff and consumers.
    Response: It is beyond the scope of this regulation to institute 
such detailed procedures as providing satellite training to consumers 
or specifying any other training medium. It is beyond our technological 
capabilities to provide training via satellite to every SNF and NF in 
the country. The costs of installing the necessary equipment in each 
facility would far exceed our budgetary resources.
    Comment: One commenter stated that, although this section providing 
education to residents and staff of facilities is an excellent idea, it 
lacks specificity and oversight. Because of budgetary crises, this is 
but another educational program at State expense and will receive low 
priority. HCFA must ensure that the State will conduct educational 
programs at particular time intervals or face sanctioning by HCFA.
    Response: Although there is no statutory provision requiring HCFA 
to oversee States to determine if they have failed to conduct 
educational programs as required by the Act, we recognize that we have 
some responsibility to do so. It is within the purview of the States to 
decide how and when to conduct their educational programs. We believe 
it is wiser to leave these decisions to the individual States since 
they must design the educational programs the Act specifies. However, 
we are looking into the feasibility of monitoring the States in some 
way to assure that they are in compliance with this statutory 
requirement. We plan to find an acceptable approach to evaluating State 
efforts in providing educational programs to facilities and their 
staffs, and residents and their representatives.
    Comment: A commenter stated that further definition of the nature 
and frequency of educational programs is needed and, for consistency, 
HCFA should establish the nature and content of such programs. There 
could be extensive new resource requirements if the program is not 
considered adequate. Another commenter recommends that we define 
``periodic'' and detail the process for State compliance.
    Response: As previously mentioned, the nature and content could 
cover any of the requirements of sections 1819 and 1919 of the Act. 
When manual instructions are developed, they will provide guidelines on 
topics such as frequency of educational programs.
    Comment: One commenter questioned whether on-site presentations 
were preferable to written communication.
    Response: This is a detailed and specific matter. The methods of 
training will be determined by the States, but HCFA will publish 
guidelines in manuals to assist States in structuring their programs.
    Comment: This commenter also recommends replacing the word 
``conduct'' with ``provide'' to allow for the use of subcontractors, 
and for the distribution of written and/or auto-visual materials toward 
this end.
    Response: We believe to make such a change could be interpreted as 
changing the intent of the Act, which uses the word ``conduct.'' The 
Act gives the responsibility for developing educational programs 
specifically to the States.
    Comment: Two commenters stated that funds must be made available to 
the States for educational purposes.
    Response: HCFA does make funding available to the States for the 
required periodic education program through its budget process.

Section 488.335  Action on Complaints of Resident Neglect and Abuse, 
and Misappropriation of Resident Property

    Upon further analysis, we revised the title of this section to be 
more explicit.
    Comment: Some commenters suggested regulatory language requiring 
coordination of investigations of complaints of neglect, abuse, or 
misappropriation of property with the State or local ombudsman program.
    Response: The Act does not require the State to coordinate 
complaint investigations with the State long term care ombudsman. 
However, under the Act, each State is required to notify the State long 
term care ombudsman of its findings of noncompliance with any of the 
requirements pertaining to provision of services, resident rights, or 
administration and other matters. The State also provides the State 
long term care ombudsman with any report of adverse action (specified 
at Sec. 488.406 of this rule) imposed on a facility. We have included 
the requirement for disclosing such information to the long term care 
ombudsman at Sec. 488.325.
    Comment: Some commenters felt procedures for investigating 
complaints of neglect, abuse, or misappropriation of property should be 
included in the final rule.
    Response: As stated in the proposed rule, we believe such an 
approach is inconsistent with our view that States should have the 
flexibility to rely on State entities other than the State survey 
agency to investigate and adjudicate these matters. States will likely 
use an array of different licensing or investigative bodies to meet 
their obligations in this area.
    Comment: Several commenters suggested that investigations of 
allegations of neglect, abuse, or misappropriation of property be 
integrated into the comprehensive survey, certification and enforcement 
process. Further, there were suggestions that investigations of these 
complaints be conducted solely by the State survey agency.
    Response: The Act requires that States must provide, through the 
agency responsible for surveys and certification of nursing facilities, 
for a process for the receipt and timely review and investigation of 
allegations of resident neglect or abuse, or misappropriation of 
resident property.
    As pointed out in the preamble to the proposed rule, while the 
State is free to delegate to other State agencies the adjudicatory 
functions described in sections 1819(g)(1)(C) and 1919(g)(1)(C) of the 
Act, we fully expect State survey agencies to retain ultimate 
responsibility for compliance with these statutory requirements. If a 
State uses an agency which is not part of the State survey agency, the 
State survey agency cannot be absolved of its responsibility to 
properly document complaints and take required certification action 
with respect to a facility's participation in either the Medicaid or 
Medicare programs.
    In keeping with this responsibility, we are strengthening the rules 
under Sec. 488.335(a) by cross referencing Sec. 488.332, which 
specifies that the State survey agency retains responsibility for the 
investigation process and requiring the State survey agency to have a 
means of communicating information among appropriate entities if other 
State agencies are involved in the investigation of these complaints.
    In response to the above comments we are adding a new requirement 
that State survey agencies consider all complaints of resident neglect 
or abuse, or misappropriation of resident property as a potential 
reflection on a facility's compliance with Medicaid and/or Medicare 
participation requirements. This new requirement is at Sec. 488.335(h). 
(The provisions in Sec. 488.185 (g) and (h) of the proposed rule are 
revised and combined in Sec. 488.335(g) and are discussed later in this 
preamble.)
    Comment: Some commenters suggested that the words, ``by an 
individual used by the facility'' be added to paragraph (a) of this 
section as it requires the State to review all allegations of neglect, 
abuse, or misappropriation of resident property. Commenters pointed out 
that the suggested text is found in the Act and the preamble to the 
proposed rule.
    Response: We are revising and expanding Sec. 488.335(a), and in 
doing so, incorporating the comment. This paragraph now specifies that 
the State reviews all allegations of resident abuse and neglect and 
misappropriation of resident property. The State also follows the 
procedures of Sec. 488.332. We are adding that, if there is reason to 
believe, either through oral or written evidence, that an individual 
used by the facility to provide services to residents could have abused 
or neglected a resident or misappropriated a resident's property, the 
State must investigate the allegation. We also now specify in this 
section that the State must have written procedures for the timely 
review and investigation of these allegations.
    Comment: Several commenters mentioned that the proposed rules do 
not specify a timeframe for initiation of an investigation nor a time 
limit on the length of an investigation of neglect, abuse, or 
misappropriation of resident property.
    Response: Our intent in writing this rule was to not be too 
prescriptive of State investigation processes. However, manual 
instructions to State survey agencies specify a timeframe for 
situations of immediate jeopardy in which they should initiate 
complaint investigations.
    We chose not to regulate the time in which a State must complete 
its investigation of these types of complaints. We thought a specific 
time limit could, in some instances, compromise the outcome of the 
investigation.
    Comment: Some commenters suggested that the rules specify a 
timeframe in which the State must notify an individual when there is 
reason to believe that the abuse, neglect, or misappropriation of 
resident property did occur. Also, some suggested that we notify the 
administrator or owner of the facility employing such person, or both.
    Also, some commenters suggested that we include in the notice to 
the accused person the consequences of the hearing determination or 
waiving the right to a hearing.
    Response: We do not accept the comment to send a notice to the 
individual implicated in an allegation of resident neglect or abuse or 
misappropriation of resident property before the State has conducted an 
investigation. To do so could possibly jeopardize the outcome of the 
investigation and in some cases would be premature as the investigation 
might find the allegation unsupported. However, we are revising the 
final rule at Sec. 488.335(c) to require that a State must notify the 
individual implicated in the allegation and the current administrator 
of the facility in which the incident occurred, in writing within 10 
working days of its preliminary determination, which is based on oral 
or written evidence and its investigation, that resident neglect or 
abuse, or misappropriation of resident property occurred. This 
timeframe was selected to provide timely notice to the individual 
involved and yet, give States sufficient time to provide such notice. 
We are also revising the final rule to reflect that this notice to the 
individual includes the consequences of a hearing finding and of 
waiving the right to a hearing. We are adding that the notice includes 
a statement to inform the accused individual of the right to be 
represented by an attorney at the individual's own expense.
    Comment: We received several comments suggesting that we establish, 
by regulation, a more extensive ``due process'' appeal mechanism for 
facility employees accused of neglect, abuse, or misappropriation of a 
resident's property.
    Response: We recognize the importance of the need for a fair and 
impartial hearing whenever an individual used by the facility is 
accused of resident neglect or abuse, or misappropriation of a 
resident's property. However, we recognize that all States have 
administrative procedure acts which allow for resolution of disputed 
cases of this nature. Thus, we chose to allow the need for these 
appeals to be addressed by State law.
    Comment: Some commenters felt the provision to allow 120 days for 
States to conduct hearings of staff accused of neglect, abuse, or 
misappropriation of a resident's property was excessive and suggested 
other dates, while other commenters felt the 120 day period did not 
allow sufficient time for a State's administrative process to complete 
the hearing.
    Response: While we agree that a person accused of resident neglect, 
abuse, or misappropriation of a resident's property is entitled to 
swift determination of the accusation, we believe States must be given 
reasonable time in which to schedule and conduct the hearing process 
under their administrative procedure acts. Our experience with other 
related State hearings indicates that 120 days is a reasonable 
timeframe for scheduling and completing these appeals.
    Comment: Several commenters suggested we modify the rules so they 
specify who should be notified when a person accused of neglect, abuse, 
or misappropriation of a resident's property waives the right to a 
hearing or when a State hearing finds that such an individual did, in 
fact, act as accused. In addition, some commenters suggested we specify 
timeframes for such reporting.
    Response: In response to these comments, we are rewriting 
Sec. 488.335(f) and combining paragraphs (g) and (h) into (g) to 
clarify the reporting process and to include timeframes for reporting. 
We are specifying that the State survey agency, which may not delegate 
this responsibility, must report in writing the finding that an 
individual neglected or abused a resident or misappropriated a 
resident's property within 10 working days of the finding to: the 
individual; the current administrator of the facility in which the 
incident occurred; the administrator of the facility currently 
employing the individual, if different; the licensing authority for 
individuals other than nurse aides; and the nurse aide registry. For 
nurse aides, these findings must not only be reported to the nurse aide 
registry but must be included in the nurse aide registry within 10 
working days of the finding in accordance with Sec. 483.156(c)(iv)(D).
    Comment: We received comments suggesting that if an allegation was 
found to be untrue, that accusation be expunged from the nurse aide 
registry.
    Response: An allegation of resident abuse or neglect or 
misappropriation of resident property that is not substantiated would 
not be entered on the nurse aide registry. Only a finding of resident 
abuse or neglect or misappropriation of resident property would be 
entered on the nurse aide registry. Section 483.156(c)(1)(iv) specifies 
the particular information that the registry must contain with regard 
to any finding by the State survey agency of abuse, neglect or 
misappropriation of property. This information includes documentation 
of the State's investigation (including the nature of the allegation 
and the evidence that led the State to conclude that the allegation was 
valid), the date of the hearing and its outcome (if a hearing was 
requested), and a statement by the individual disputing the allegation 
(if the individual chooses to make one). The rule also provides that 
this information must be included in the registry within 10 working 
days of the finding and must remain in the registry permanently unless 
the finding was made in error, the individual was found not guilty in a 
court of law, or the State is notified of the individual's death.
    Comment: We received several comments regarding the nurse aide 
registry. Commenters offered suggestions for the contents of the 
registry, its availability to the public and action taken as a result 
of substantiation of abuse, neglect or misappropriation of property.
    One commenter suggested that the report of findings provision 
include notifying the appropriate law enforcement authorities in those 
cases where a crime has been committed.
    Another commenter suggested that HCFA offer guidance to facilities 
concerning the treatment of employees who are awaiting the resolution 
of a complaint.
    Response: These specific comments fall outside the purview of this 
regulation on the survey, certification and enforcement of skilled 
nursing facilities and nursing facilities. However, a discussion of 
these and other related issues can be found in a final rule titled 
Medicare and Medicaid; Requirements for Long Term Care Facilities and 
Nurse Aide Training and Competency Evaluation Programs, published 
September 26, 1991 in the Federal Register at 56 FR 48880.
    Comment: Several commenters suggested that every investigation seek 
to identify facility practices which led to the neglect, abuse or 
misappropriation of resident property.
    Response: We believe that every investigation does seek to identify 
facility practices which led to the resident neglect or abuse, or 
misappropriation of resident property and this is evidenced by the 
guidance currently provided to the States in manual instructions. These 
guidelines include the general procedures for conducting complaint 
investigations and stipulate that, if significant problems are 
identified during an initial assessment or other observations, the 
scope of the review is expanded as necessary. The procedures also 
specify that when the team is investigating allegations of substandard 
care, they are to evaluate not only the care of the individuals 
involved in the allegation, but also to evaluate the facility's 
patterns of related care. Also, noncompliance identified during the 
survey is recorded on the Statement of Deficiencies and Plan of 
Correction (HCFA-2567) and a plan of correction is requested. When the 
facility is not in substantial compliance as a result of the 
deficiencies identified, enforcement actions could include the 
imposition of alternative remedies or termination of a facility's 
provider agreement.
    Comment: A few commenters suggested that in those cases where 
neglect was found and determined to be caused by factors beyond the 
control of the individual, the State agency must impose sanctions upon 
the facility or document why such sanctions are inappropriate.
    Response: We do not accept this suggestion to add a regulatory 
requirement that obligates HCFA or the State to impose sanctions where 
resident neglect was found and determined to be caused by factors 
beyond the control of the individual. Regardless of the cause of the 
noncompliance, a facility is not relieved of its responsibility to 
correct its deficiencies. This responsibility assures that residents 
consistently receive quality health care in a safe environment and it 
exists whether or not a remedy is imposed. However, there are instances 
in which a remedy will be imposed due to the egregious nature of the 
deficiency and to encourage prompt compliance. Conversely, there are 
situations in which a remedy might not be necessary because the 
facility corrected the practice which led to the abuse. For example, 
firing an employee who neglects a resident or residents could 
immediately correct that deficiency.
    We do not accept the suggestion to incorporate into the regulation 
a provision that would require documentation for those cases in which a 
remedy is not imposed. We are not required by the Act to document why 
sanctions are not imposed and to require this through regulations would 
impose a significant workload burden because, as stated above, there 
are many cases in which deficiencies are corrected and remedies are not 
imposed.

Redesignation of Subpart F

    As noted earlier, a new Subpart D of part 488, consisting of 
Secs. 488.201-488.211, became effective on August 31, 1992, shortly 
after this proposed rule was published on August 28. Consequently, we 
must designate Subpart F, which was to consist of Secs. 488.200-
488.240, with subsequent numbers. To assist the reader, we are 
publishing the new table of contents for Subpart F, with designations 
of the proposed rule shown in parenthesis. In the following 
discussions, we refer to the sections as renumbered, with the 
proposal's identification included only if distinction is necessary.

Sec.
488.400 Statutory basis. (Sec. 488.200)
488.401 Definitions. (Sec. 488.201)
488.402 General provisions. (Sec. 488.202)
488.404 Factors to be considered in selecting remedies. 
(Sec. 488.204)
488.406 Available remedies. (Sec. 488.206)
488.408 Selection of remedies. (Sec. 488.208)
488.410 Action when there is immediate jeopardy. (Sec. 488.210)
488.412 Action when there is no immediate jeopardy. (Sec. 488.212)
488.414 Action when there is repeated substandard quality of care. 
(Sec. 488.214)
488.415 Temporary management. (Sec. 488.215)
488.417 Denial of payment for all new admissions. (Sec. 488.217)
488.418 Secretarial authority to deny all payments.
488.422 State monitoring. (Sec. 488.222)
488.424 Directed plan of correction. (Sec. 488.224)
488.425 Directed inservice training.
488.426 Closure of a facility or transfer of residents, or both. 
(Secs. 488.226 and 488.240)
488.430 Civil money penalties: Basis for imposing penalty. 
(Sec. 488.230)
488.432 Civil money penalties: When penalty is collected.
488.434 Civil money penalties: Notice of penalty.
488.436 Civil money penalties: Waiver of hearing, reduction of 
penalty amount.
488.438 Civil money penalties: Amount of penalty.
488.440 Civil money penalties: Effective date and duration of 
penalty.
488.442  Civil money penalties: Due date for payment of penalty.
488.444  Civil money penalties: Settlement of penalties.
488.450  Continuation of payments to a facility with deficiencies. 
(Sec. 488.232)
488.452  State and Federal disagreements involving findings not in 
agreement in situations where there is no immediate jeopardy. 
(Sec. 488.234)
488.454  Duration of remedies. (Sec. 488.236)
488.456  Termination of provider agreement. (Sec. 488.238)

Section 488.401  Definitions

    It was brought to our attention that the term ``immediate family'' 
also appears in subpart E as well as subpart F. Therefore, in the final 
regulation we are moving the definition of ``immediate family'' to 
subpart E, Sec. 488.301, but we are stating the comments and responses 
below.
    Comment: A few commenters believe that the definition of 
``immediate family'' should be expanded to include niece, nephew, and 
domestic partner.
    Response: We have not accepted this suggestion. Section 1004, part 
1, of the Provider Reimbursement Manual defines ``immediate family'' 
for Medicare purposes. The commenters offered no compelling argument as 
to why any individual should be added to the definition of immediate 
family. In fact, we are amending our definition to be consistent with 
the definition found in the Provider Reimbursement Manual by deleting 
``spouse of grandparent or grandchild.''
    Comment: Some commenters pointed out that the definition of 
``immediate jeopardy'' should be located in subpart E instead of 
subpart F because the term is first introduced in subpart E.
    Comment: We agree with the commenters. In the final rule, we have 
relocated the definition of ``immediate jeopardy'' from proposed 
Sec. 488.201 in subpart F to Sec. 488.301 in subpart E. However, since 
commenters concerned with responses regarding the definition of 
immediate jeopardy will first look in this section, we have retained 
the comments and responses below.
    Comment: We received numerous comments about HCFA's or the State 
survey agency's ability to assign resident rights and/or physical 
environment violations at higher severity levels. These commenters 
believe that any deficiency could be egregious enough to be considered 
``moderate harm'' or ``immediate jeopardy.''
    Response: We agree with these commenters and are allowing 
violations of any participation requirement, including resident rights 
and physical environment, to be assessed at any degree of seriousness.
    Comment: Many commenters wanted clarification regarding cases in 
which termination actions for immediate jeopardy would be applicable.
    Response: Sections 1819(h)(2)(A)(i), 1819(h)(4), 1919(h)(1)(A), 
1919(h)(3)(B)(i), and 1919(h)(5) of the Act specifically state that 
termination of participation for a facility is possible with any 
determination of noncompliance where the State or the Secretary finds 
this noncompliance immediately jeopardizes the health or safety of the 
residents. For example, immediate jeopardy to resident health or safety 
may exist, but is not limited to, the presence of one of more of the 
following:
     Insect or rodent infestation indicative of food 
contamination or the possible spread of contagion;
     Failure to control infections as evidenced by the presence 
of facility-acquired infections;
     Patient abuse or poor resident care, including;
    + Instances of malnutrition or dehydration that are unrelated to 
the resident's condition and are a result of patient care;
    + Neglect by the staff with the result that residents are often 
left lying in urine, feces and other waste;
     Drug or pharmaceutical hazards that directly affect 
resident health and safety, such as:
    + Excessive drug errors or mishandling of drugs;
    + Failure to provide medications as prescribed;
    + Failure to monitor drugs as evidenced by lack of ordered 
laboratory work, failure to take vital signs as indicated by drug 
regimen, and lack of other nursing monitoring practices;
    + Gross mishandling of drugs such as leaving drug trays unattended 
and available to residents and visitors.
    + Administration of drugs by unqualified staff; or
    + Administration of experimental drugs without the informed consent 
of the resident (or responsible party). This list is not to be 
interpreted as all-inclusive, but rather as examples of what may be 
construed as immediate jeopardy situations warranting termination.
    Comment: Other commenters were unclear about how the phrase ``at 
any time'' constitutes ``immediate threat.''
    Response: We agree that it is unclear and are removing the phrase 
in Sec. 488.401.
    Comment: Some commenters believe the definition in Sec. 442.2 
conflicts with the proposed definition of immediate jeopardy.
    Response: We agree that these definitions are in conflict. However, 
the definition in Sec. 442.2 will no longer apply to nursing facilities 
and is being revised to reflect this change. We are maintaining two 
separate definitions of immediate jeopardy because of the different 
regulations applicable to ICFs/MR and SNFs or NFs.
    Comment: Some commenters suggested striking references to the scope 
and severity scale and inserting the phrase ``creates imminent 
danger.'' Other commenters recommended that immediate jeopardy should 
represent the most severe or life threatening violation.
    Response: We agree with the commenters and we have removed 
references to the scope and severity scale from the definition of 
immediate jeopardy. We are redefining immediate jeopardy to encompass 
all situations that pose actual or potential life threatening harm, 
death, serious injury or impairment. Therefore, a life threatening 
situation or imminent danger will inevitably be considered immediate 
jeopardy.
    Comment: Many commenters were concerned that the definition of 
immediate jeopardy pertains to only physical harm and not emotional 
harm.
    Response: We agree with the commenters that significant emotional 
as well as physical harm may be considered immediate jeopardy. Every 
determination of the seriousness of a deficiency includes the 
consideration of whether a resident has failed to achieve his or her 
highest practicable physical, mental, or psychosocial function.
    Comment: Many commenters expressed the need for us to clarify the 
definition of ``new admission'' to indicate whether or not residents 
transferred to the hospital, with the intention of returning, are 
considered new admissions. They are concerned that if denial of payment 
for new admissions is imposed, those transferred residents will not be 
covered if they return to the facility.
    Response: New admission is described within Sec. 442.2 as well as 
Sec. 488.401. We believe these descriptions are sufficient and further 
clarification is not necessary.
    Comment: Some commenters suggested that the definition of ``plan of 
correction'' be amended to require the facility to identify the 
systemic underlying problem, make restitution to the affected resident 
or residents, contain measurable outcomes for all quality of care 
deficiencies, and require the facility to take further measures to 
ensure future compliance.
    Response: The purpose of a plan of correction is to identify and 
address the underlying problem or problems for the facility. Individual 
residents have other legal means at their disposal to seek restitution. 
It is impracticable to develop model thresholds for each and every plan 
of correction as each situation is different and is evaluated 
accordingly. Plans of correction are geared toward prospective 
compliance to ensure the underlying causes of cited deficiencies do not 
recur. As it is virtually impossible to afford retroactive restitution 
to residents who have been injured or have been deprived of their 
rights, we have not accepted these suggestions.
    Comment: Many commenters wanted to have a definition of ``highest 
practicable well-being.''
    Response: The phrase ``highest practicable well-being'' was 
established in sections 1819(b)(2) and 1919(b)(2) of the Act. We 
believe the conspicuous absence of a definition demonstrates that the 
Congress recognized the impossibility of establishing a single 
definition of this phrase, as every resident, and his or her particular 
needs and abilities, must be evaluated individually.
    Comment: Some commenters wanted a definition of ``repeat 
deficiency.''
    Response: The Act, in section 1819(h)(2)(B) and 1919(h)(3)(C), 
specifies that incrementally more severe fines must be imposed for 
repeated or uncorrected deficiencies. Repeated deficiencies are 
described in Sec. 488.438 as deficiencies in the same regulatory 
grouping of requirements found at the last survey, subsequently 
corrected, and found again at the next survey.
    Comment: A few commenters wanted a definition of ``distinct part.''
    Response: ``Distinct part'' is defined in sections 2110 and 2762 of 
the State Operations Manual. As it is beyond the scope of this 
regulation, we do not believe it is necessary to place this definition 
in these regulations.
    Comment: Some commenters wanted various other terms defined or 
clarified.
    Response: We define terms in regulations only if the use of those 
terms, within the regulation, has a different application than that 
which is accepted in common English usage.

Section 488.402  General Provisions.

    Comment: We received a number of comments from the health care 
industry, from consumer organizations, and from professional groups 
regarding the purpose of the regulations as set forth in proposed 
Sec. 488.202. The consensus of those who commented on paragraph (a) was 
that protecting residents from ``actual or potential harmful outcomes 
resulting from deficiencies'' is but one of many purposes of the 
regulations. Other purposes commenters suggested we include were to--
     Deter noncompliance;
     Punish noncompliance through the use of appropriate 
sanctions;
     Ensure correction of deficiencies for residents whose care 
is deficient;
     Encourage sustained compliance; and
     Protect patient rights.
    Two commenters suggested we change paragraph (a) of proposed 
Sec. 488.202 to read, ``The purpose of remedies is to encourage prompt, 
rapid compliance with program requirements at the minimum level that 
will achieve correction so as to protect residents from actual or 
potential outcomes resulting from deficiencies.'' They said that, ``The 
Congress made it clear that a purpose of enforcement remedies is to 
render the time period between identification of deficiencies and 
correction (emphasis in original) as short as possible. This intent 
precludes punitive measures and promotes the least disruption to 
facility operation. Based on Congressional intent, general consensus 
now exists that the enforcement process should be corrective, not 
punitive, and that enforcement remedies should be set at the minimum 
level required to achieve the desired correction. Successively stricter 
measures would be used as needed for failure to correct.''
    Finally, one commenter said that ``prompt, rapid,'' is redundant.
    Response: A number of these comments suggest to us that there is 
some confusion between the purpose of these remedies and the expected 
outcomes of the regulations. Therefore, in order to be absolutely 
unequivocal, we are revising Sec. 488.402(a) to read, ``The purpose of 
remedies is to ensure prompt compliance with program requirements.''
    Comment: Two commenters suggested that the last sentence of 
proposed Sec. 488.202(b)(1) be revised to read, ``Survey findings are 
reported to the State and HCFA which will make recommendations for 
corrective action.'' Their rationale was that the determination of 
remedies to fit a particular deficiency or deficiencies should be made 
by an objective party in the survey agency or HCFA who did not survey 
the facility.
    Another said that the same sentence should be revised to state, 
``Survey findings are reported to the State or HCFA, as appropriate, 
with recommendations for corrective action.'' Still another said that 
we should clarify the fact that the survey findings are reported with 
recommendations for remedies, and one commenter said that our proposed 
paragraph (b)(1) appears to exclude the possibility of imposing 
remedies based on HCFA's paper review of State survey agency findings.
    Two commenters suggested a new paragraph (b)(1) to read 
substantially as follows:
    (b) Requirement for State enforcement plan.
    (1) The State and HCFA shall develop a plan for imposing 
intermediate remedies. The plan shall--
    (i) Vary remedies with the scope and severity so that more 
substantial remedies are imposed for more serious deficiencies;
    (ii) Assure that the State and HCFA minimize the time between 
identification of violations and final imposition of remedies;
    (iii) Assure that remedies serve goals of requiring immediate 
correction of deficiencies, protecting residents, correcting 
deficiencies for specific residents who are harmed, punishing 
violations and deterring violations;
    (iv) Include rules and policies about when and how various 
sanctions are imposed and when remedies are imposed singly or in 
combination; and
    (v) Develop procedures to solicit the active participation of 
residents in the enforcement process, including permitting residents to 
participate in any formal proceedings the State offers to providers to 
contest imposition of an intermediate remedy.
    The two commenters who made this suggestion also said that 
enforcement under the reform law is not a collection of free-standing 
remedies that States and the Secretary apply on an ad hoc basis; 
enforcement under the law requires enforcement agencies to have a 
systematic way of making decisions to apply sanctions. They cite the 
Institute of Medicine (IoM) report, issued in March 1986, that says 
that guidelines on when to initiate sanctions are necessary for 
effective State enforcement. The commenters also cite the October 9, 
1992 final settlement of Valdivia v. California Department of Health 
Services which reads in part:
    The enforcement system shall:
    A. Define the purposes of the system and of the remedies;
    B. Set forth guidelines for appropriately assessing monetary 
penalties and other intermediate remedies (in lieu of or in addition to 
termination) allowed under Federal requirements;
    C. Identify guidelines for approving and monitoring plans of 
correction;
    D. Define the role of the complaint investigation process in the 
comprehensive enforcement system;
    E. Encourage and promote use of intermediate sanctions, as 
appropriate, rather than termination, to achieve the purposes of the 
comprehensive enforcement system;
    F. Identify mechanisms to better inform the public as to actions 
taken by the State against facilities that are not in compliance with 
Federal Requirements of Participation;
    G. Identify the factors to be considered in determining which 
remedies may or must be imposed, assuring that more substantial 
remedies are imposed for more serious deficiencies.
    Finally, two of these commenters suggested that HCFA specify that 
one of the bases for the imposition of remedies be interfering with the 
work of a survey team, monitor, and/or temporary manager.
    Response: We agree that it would be more accurate to say that 
survey findings are reported with recommendations for remedies, and we 
are making that change in this final rule. We do not, however, believe 
that either the IoM study or OBRA '87 calls for an inflexible cookbook 
approach to enforcement. As noted in the comment, the IoM study speaks 
of establishing ``guidelines,'' and we believe that this term connotes 
that there be a range of options available to the Secretary and the 
States (including the option not to impose any remedies). In sections 
4203 and 4213 of OBRA '87, the intent to provide a flexible range of 
options is clearer still. Those sections amended sections 1819(h) and 
1919(h) of the Act at several places to reflect this intent. For 
example, the Act now provides:
     ``*** the Secretary may impose any of the remedies 
described in subparagraph (B).'' (1819(h)(2)(A)(ii));
     ``Nothing in this subparagraph shall be construed as 
restricting the remedies available to the Secretary ***'' 
(1819(h)(2)(A));
     ``The Secretary may take the following actions***'' 
(1819(h)(2)(B)); and
     ``The Secretary may impose a civil money penalty in an 
amount not to exceed $10,000 ***.'' (1819(h)(2)(B)(ii)).
    Further evidence of the need to retain flexibility in the choice of 
remedies is found in the House of Representatives Committee on the 
Budget report (H.R. Rep. No. 391, 100th Cong., 1st Sess. 472 (1987)) 
that accompanied OBRA '87. It states that, ``the Committee amendment 
would specify a broad range of sanctions for use by both the Secretary 
and the States.'' The committee report goes on to say that, ``The 
Committee emphasizes that the remedies specified under the amendment 
are not exclusive, and should not be construed to limit the use of 
other remedies that may be available to either the States or the 
Secretary under State or Federal law.'' It is clear that flexibility 
was the statutory intent. Therefore, in order to ensure this intended 
flexibility, we have set forth minimum remedies for deficiencies 
according to their seriousness and offered several additional optional 
ones.
    We agree, for the most part, with the thrust of the final 
settlement in Valdivia, and are making revisions to the relationship 
between deficiencies and remedies which reflect aspects of the final 
settlement of that case. However, these revised policies are not 
appropriate for paragraph (b), which is intended only to succinctly set 
forth the basis for the imposition of remedies, and not the outline for 
the entire enforcement process. Rather, we have specified the linkage 
between deficiencies and remedies imposed at Sec. 488.408, Selection of 
remedies.
    We do not believe that proposed Sec. 488.202(b)(1) excludes the 
possibility of imposing remedies based on ``HCFA's paper review of 
survey agency findings.'' Since HCFA's ``paper review'' is itself based 
on survey findings, it is clear that remedies may be imposed as a 
result.
    Finally, in response to the commenters who suggested that HCFA 
specify that one of the bases for the imposition of remedies be 
interfering with the work of a survey team, monitor, and/or temporary 
manager, there is authority at section 1128(b)(12) of the Act to 
exclude a facility based on its failure to grant access to the 
Secretary or to the State survey agency, and we believe this includes 
not only a survey team, but a monitor. Our regulations at Sec. 488.415 
set forth what happens if a facility does not relinquish control to a 
temporary manager.
    Based on the above discussion, we are revising Sec. 488.402(b)(1) 
to state that in every instance of noncompliance, one or more remedies 
are imposed based on deficiencies found during surveys conducted by 
HCFA or by the survey agency. We are deleting paragraph (b)(2) because 
we believe that manual issuances are the most appropriate places for 
procedural information of this sort.
    Comment: Two commenters suggested that we set forth at 
Sec. 488.402(b)(2) the principle that termination of provider 
agreements is a measure taken only as a last resort when the imposition 
of intermediate remedies has failed to correct the deficiencies. One 
commenter recommends that paragraph (b)(2) be amended to state that the 
survey agencies should be allowed to impose one or more remedies for 
each deficiency or cluster of deficiencies.
    Finally, one commenter said that OBRA '87 stated that when 
deficiencies constitute an immediate and serious threat to residents' 
health and safety, neither HCFA nor the States have any discretion with 
regard to remedies. Rather, the commenter said that, in such cases, 
HCFA or the States must impose either temporary management or a 
provider agreement termination.
    Response: We agree that termination of provider agreements is a 
serious measure, but not that it is a ``last resort'' in the strictest 
sense. While we believe that the Congress wrote into the law the wide 
array of alternative remedies to encourage their use, the Act does not 
require that in every case the States or the Secretary may not choose 
provider agreement termination until alternative remedies have been 
used. We believe that the Act's alternative remedies offer States and 
the Secretary a valuable opportunity to redress a wide variety of 
facility shortcomings through means that will promote quick correction 
without having to exclude the facility from program participation, and 
it is our expectation not only that serious consideration will be given 
for such opportunities when there is facility non-compliance, but that 
they will be used far more frequently than they have in the past. It 
would be an entirely erroneous impression of the Act, however, to 
conclude that it deprives States and the Secretary from exercising 
discretion to choose any remedy, including termination, whenever they 
determine it appropriate to do so. The comment suggesting that the 
proposed paragraph (b)(2) be amended to state that the survey agencies 
should be allowed to impose one or more remedies for each deficiency or 
cluster of deficiencies is inappropriate; the number of remedies that 
may be imposed is covered in the proposed Sec. 488.202(c). We will 
discuss this comment in connection with others on that paragraph.
    It is true that, when no immediate jeopardy exists, the Congress 
stated that the State or the Secretary may impose termination or may 
impose one or more intermediate sanctions against the provider, or may 
impose both, and that this is in contrast to the specific measures that 
must be imposed when immediate jeopardy exists. However, it does not 
follow that the State, rather than the Federal government, should have 
the ability and the obligation to specify when and how each remedy is 
to be applied. The Committee report that accompanied OBRA '87 clearly 
states:

    * * * it is the responsibility of the Secretary to take the 
enforcement measures necessary to assure compliance by Medicaid 
facilities with the requirements of participation as well as to 
assure that State enforcement activities are adequate to protect the 
health and safety of residents. To enable the Secretary to discharge 
this responsibility, the committee amendment would greatly expand 
the remedies available to the Secretary under current law.
    * * * [I]f both the State and the Secretary decide that remedies 
other than termination are appropriate, the Secretary's selection of 
alternative remedies, and not those of the State apply. (H.R. Rep. 
No. 391, 100th Cong., 1st Sess. 475-7 (1987)).

    Moreover, section 1919(h)(2)(B) of the Act specifies that the 
Secretary shall provide, through regulations, guidance to States in 
establishing remedies.
    However, when there is disagreement between HCFA and the State 
regarding enforcement action, the disagreement is resolved in 
accordance with the policy set forth in Sec. 488.452(d). For example, 
paragraph (d) says that when HCFA or the State, but not both, 
establishes one or more remedies, in addition to or as an alternative 
to termination, the additional or alternative remedies will also apply 
when--
     Both HCFA and the State find that a NF has not met all the 
participation requirements; and
     Both HCFA and the State find that no immediate jeopardy 
exists.
    In this way, the sanction(s) proposed by the State can take effect.
    Based on the above discussion and the need to make conforming 
changes with other provisions of the regulation, we are revising 
Sec. 488.402(b)(2) to indicate that the State or HCFA may apply one or 
more of the remedies specified in Sec. 488.406 instead of terminating 
the provider agreement, or in addition to termination procedures, to 
continue until the effective date of the termination or until 
substantial compliance is achieved, and, in some cases, until the State 
or HCFA is assured that substantial compliance can be maintained.
    Comment: As stated above, one State said that Sec. 488.402(b)(2) 
should be amended to state that the survey agencies should be allowed 
to impose one or more remedies for each deficiency or cluster of 
deficiencies. The State's rationale is that the proposed paragraph (c) 
would restrict both HCFA and the States in their efforts to encourage 
prompt corrective action, and to protect residents' health and safety. 
Another commenter said the application of a separate remedy for each 
deficiency seems unduly harsh. A remedy or set of remedies should be 
imposed relating to the entire universe on deficiencies cited. Still 
another said that one incident should trigger the citing of no more 
than one remedy.
    Two commenters said that there is no statutory basis for paragraph 
(c). Other commenters asked for clarification, suggesting that we use 
examples, limits, and further guidelines to ensure consistency. Of 
particular concern to many was the fear that, absent these guidelines 
and limits, providers might incur multiple sanctions for single 
deficiencies or for multiple deficiencies arising from a single act or 
incident. Some suggested that HCFA and the State be directed to 
consider whether a facility's deficiencies are ``clustered'' or 
``bundled'' (we used the term ``interrelated'' in the proposed rule) or 
scattered throughout the facility in deciding which remedy(ies) to 
impose in particular situations.
    A number of commenters wanted us to specifically set forth in 
regulations exactly which sanctions should be imposed for each type of 
possible deficiency or group of deficiencies.
    One State expressed concern about the potentially large number of 
separate follow-up visits required to verify corrections of the 
deficiencies under each remedy. ``For example,'' it said--

    If separate civil monetary penalties are imposed for several 
deficiencies, or groups of deficiencies, it would be expected that 
deficiencies would be corrected on different dates and that the 
facility would insist on immediate followup on each deficiency or 
group of deficiencies in order to immediately end the daily monetary 
penalty. Additionally, a follow-up would be required at 90 days 
after the survey to determine if denial of payments would be 
required under [the proposed] 488.212(a)(3), and another followup 
would be required at six months to determine if termination is 
required under [the proposed] 488.212(a)(4).

    Finally, one commenter wanted us to insert the words, ``Subject to 
the provisions of this subpart,'' at the beginning of the paragraph, 
and another wanted us to define interrelated deficiencies as 
deficiencies caused by or resulting from the same action or occurrence.
    Response: Sections 4203 and 4213 of OBRA '87 and subsequent related 
legislation were enacted partially because of the Congress' recognition 
that the Secretary and the States needed more flexibility in enforcing 
regulations pertaining to Medicare SNFs and Medicaid NFs, and, 
therefore, more choices of enforcement actions. The selection of a 
particular remedy is based on the nature of noncompliance and the 
remedy (or remedies) that either HCFA or the Medicaid agency believes 
is most likely to achieve correction of the deficiencies. We believe 
that this approach best fulfills the Congressional mandate to ``promote 
compliance with the requirements of participation and assure high 
quality care for nursing facility residents'' (H.R. Rep. No. 391, 100th 
Cong., 1st Sess. 472 (1987)). In some instances, the most effective 
remedy may be two or more remedies. Furthermore, section 1919(h)(1) (A) 
and (B) of the Act clearly states that this is the case. The first 
reads in part, ``* * * the State * * * may provide * * * for one or 
more of the other remedies,'' and the second, ``* * * the State may 
provide for one or more of the remedies.'' Consequently, we are 
revising Sec. 488.402(c) to clearly state that more than one remedy may 
be considered appropriate for noncompliance for each deficiency. 
However, it may also be appropriate for one remedy to be imposed for 
multiple deficiencies that constitute noncompliance, and the revised 
regulation reflects this policy as well. In any case, the choice of one 
or multiple remedies for each deficiency constituting noncompliance is 
part of the decision making process. The actual imposition of a remedy 
or remedies is imposed on a facility for noncompliance as a whole, with 
participation requirements. We are deleting the limitation in the 
proposed paragraph (c) that, for a single remedy for all deficiencies 
to be imposed, the deficiencies must be interrelated and subject to 
correction by the same remedy. This change offers more flexibility to 
the State survey agencies and to HCFA, and is in keeping with the 
statute.
    Further, setting forth specific sanctions to be applied for each 
deficiency constituting noncompliance or a group of deficiencies 
constituting noncompliance would defeat the whole purpose of providing 
maximum flexibility to both the Secretary and to the States. We are 
adopting certain minimum sanctions that will be imposed according to 
how serious the noncompliance is, but beyond that, there is enough 
flexibility to tailor the remedy or remedies to the specific case at 
hand.
    The statutory authority for Sec. 488.402(c) is found at sections 
1819(h) and 1919(h) of the Act. We have discussed this statutory 
authority in both the proposed rule and elsewhere in the preamble of 
this final rule.
    The matter of a potentially large number of follow-up visits is a 
possibility. If it materializes, State survey agencies and possibly 
HCFA's regional offices may require additional resources. We will be 
closely monitoring implementation of these regulations to determine the 
resources needed for this task. However, not every deficiency will 
require or even merit a separate revisit for certification of 
substantial compliance. As stated above, sometimes several deficiencies 
will lead to the imposition of only one remedy. Moreover, even if 
different remedies can be traced to different deficiencies, the survey 
agency is under no obligation to make multiple revisits. The 
noncompliance which led to the imposition of remedies is due entirely 
to facility performance. The survey agency is not responsible for the 
noncompliance and is under no obligation to spend valuable resources on 
multiple revisits. Furthermore, remedies are imposed for noncompliance 
in a facility, rather than for deficiency ``a'' or ``b'' or ``c,'' etc. 
The survey agency is generally obligated to revisit only when the 
facility makes a credible allegation of compliance with all 
requirements and, in some cases, no revisit is required even then.
    Finally, we are not adding the phrase, ``Subject to the provisions 
of this subpart,'' at the beginning of paragraph (c) because we believe 
it to be unnecessary. Since we are revising this final rule to allow 
HCFA or the State to impose one or more remedies for all deficiencies 
constituting noncompliance whether they are interrelated or not, there 
is no need to define ``interrelated deficiencies.''
    For the reasons given directly above, we are revising 
Sec. 488.402(c) to provide that HCFA or the State may apply one or more 
remedies for each deficiency constituting noncompliance, or single or 
multiple remedies for all deficiencies constituting noncompliance.
    Comment: A number of commenters said that they opposed our proposed 
exemption of deficiencies with scope and severity levels of 1 from the 
requirement for a plan of correction. The consensus of these commenters 
was that all deficiencies should require a plan of correction. As one 
commenter remarked:

    While we understand that it is inappropriate to punish or 
sanction a facility for an isolated, minor deficiency, the 
government should ask facilities to correct such problems and there 
should be a public record of the facility's plan to do so. Since the 
regulations and the reform law require compliance with all 
requirements, there cannot be any exclusions from completing plans 
of correction. Plans of correction are a management tool for both 
the facility and the regulators, not a penalty or punishment.

    Two commenters said the exception should be retained, but only if 
HCFA applies a ``substantiality factor'' to the determination of what 
constitutes a deficiency. By ``substantiality'' they meant that nothing 
would be cited as a deficiency unless it is not an isolated or 
occasional occurrence or unless it has a significant impact on resident 
rights or quality of life. If this were the case, they said, then all 
deficiencies should require a plan of correction.
    One commenter asked, ``Why cite a deficiency at scope and severity 
level 1?''
    Regarding the issue of approval of the plans of correction, one 
commenter suggested that HCFA approve all plans of correction. Another 
suggested we add the following specific language:

    HCFA will or the survey agency must approve the plan of 
correction if it is reasonably calculated to result in substantial 
correction of the deficiency within a reasonable time. Neither HCFA 
nor the survey agency may disapprove a plan of correction because 
the facility denies the existence of the deficiency, if the plan 
otherwise meets the criteria specified by this paragraph. The 
facility may submit an amended plan of correction at any time, and 
HCFA will or the survey agency must approve the amended plan if it 
meets the criteria specified in this paragraph. A facility's 
submission of a plan of correction does not constitute an admission 
that the deficiency exists.

    Finally, one commenter said that there is a need for clearer plans 
of correction, and another said that the plans need to be more specific 
and focus on care issues.
    Response: We agree that all deficiencies should require either a 
plan of correction or an agreement to correct, and are revising this 
final regulation at Sec. 488.408 (``Selection of remedies.'') 
accordingly. One commenter expressed the rationale for this succinctly: 
``* * * the government should ask facilities to correct [deficiencies] 
and there should be a public record of the facilities' plan to do so.''
    We do not accept the suggestion that the regulations specify that 
HCFA will or the survey agency must approve the plan of correction if 
it is reasonably calculated to result in substantial correction of the 
deficiency within a reasonable time. We have discussed the meaning of 
substantial compliance elsewhere in this preamble. As for the terms 
``reasonably calculated'' and ``reasonable time,'' it has been our 
experience that putting general language such as this in regulations is 
not useful. Plans of correction are considered on a case-by-case basis 
by both the States and by HCFA because circumstances vary greatly from 
facility to facility. To state in the regulations that HCFA and the 
States have a moral and legal responsibility to be reasonable in their 
dealings with providers would be to belabor the obvious; there is no 
need for such a pronouncement.
    One of the commenters who proposed that plans of correction be 
required for all deficiencies made the observation that some plans of 
correction do nothing more than complain about the law, the surveyor, 
or the circumstances, without ever describing how the violation will be 
corrected. We agree and would only add that it is highly probable that 
facilities submitting these plans considered them to be ``reasonable,'' 
and extremely improbable that these plans would be acceptable to HCFA 
or the State.
    Finally, we agree that plans of correction must be clear and 
specific, but believe that there is no need to state this in 
regulations.
    Comment: Two commenters suggested that, in addition to cross-
referring to Sec. 488.234 of the proposed rule (redesignated as 
Sec. 488.452, ``State and Federal disagreements involving findings not 
in agreement in situations where there is no immediate and serious 
threat''), we should refer the reader to proposed Sec. 488.212(a) 
(``Action when there is no immediate and serious threat''), and to 
Sec. 488.232 of the proposed rule (redesignated as Sec. 488.450, 
``Continuation of payments to a facility with deficiencies'').
    Response: We believe this to be unnecessary. We try, to the 
greatest extent possible, to avoid redundancy in regulations. When 
trying to determine what to do when there is State and Federal 
disagreement, it is most likely that the reader will consult 
Sec. 488.452.
    Comment: Another commenter suggested that the text of our proposed 
Sec. 488.202(e) be revised to state, ``If the State and HCFA disagree 
on the decision to impose remedies when HCFA has performed a validation 
survey, the disagreement is resolved in accordance with [proposed] 
Sec. 488.234.''
    Response: Not allowing HCFA to impose remedies unless and until it 
has performed its own validation survey would, in most cases, 
significantly lengthen the amount of time between the facility's being 
cited for a deficiency and the time when a remedy would be imposed. 
This would not fulfill the intent of the Act, which states that 
criteria as to when and how each of the remedies is to be applied 
``shall be designed so as to minimize the time between the 
identification of violations and final imposition of the remedies * * 
*'' (sections 1819(h)(2)(B) and 1919(h)(2)(B) of the Act). In any 
event, the Act does not limit the Secretary's ability to make findings 
exclusively through the use of validation surveys. The Act says only 
that the Secretary may impose sanctions if he or she ``finds'' 
noncompliance. There may be occasions, for example, when the Secretary 
may choose to impose sanctions based on a State agency survey. We have 
therefore concluded that the Act did not intend that the Secretary 
exercise his or her oversight authority only through Federal onsite 
validation surveys. Nonetheless, in some cases it will only be possible 
to draw conclusions about facility compliance through onsite surveys. 
Moreover, sections 1819(g)(3)(B) and 1919(g)(3)(B) of the Act require 
the Secretary to conduct validation surveys for at least 5 percent of 
the State survey agency's standard surveys, as long as the 5 percent 
equals at least 5 facilities. Therefore, many times the Secretary's 
enforcement decisions will arise as a result of Federal validation 
surveys. However, this will not always be the case.
    For the reasons listed immediately above, we are making no 
revisions to proposed Sec. 488.202(e).
    Comment: Some members of the health care community said that the 
proposed 2-4 and 15-day periods are inadequate to allow facilities a 
fair opportunity for correcting deficiencies. In addition, commenters 
suggested that HCFA--
     Specify whether the days are calendar days or business 
days;
     Specify that the time frames for correction will not begin 
until the facility receives the notice, rather than when notice is 
sent;
     Specify that the notice must be sent by certified mail, 
return receipt requested or by personal delivery, and that the State 
must give the facility notice in the same manner; and
     Provide an expedited hearing process to safeguard the 
facility's ability to continue its business and protect its residents 
from wrongful government action. This measure must be taken, the 
commenter said, due to the short notice we proposed to give in the case 
of immediate and serious threat.
    Other commenters said that the time frames we proposed are too 
long. One of these commenters expressed serious concern, noting that 
the Act clearly requires that immediate action be taken to remove the 
jeopardy in immediate and serious threat situations. This commenter 
urged that no notice be given before the imposition of a sanction in 
these cases, and suggested that, in nonimmediate and serious threat 
situations, 5 days notice should be given. Another said that, in many 
cases, it is obvious that the remedy should be imposed immediately. 
This consumer organization asked why a State survey agency should ever 
have to delay initiating monitoring visits to a facility or why a 
facility with widespread quality of care problems should be allowed to 
admit new residents for 15 days after such problems are discovered. 
Other commenters cited the possible continuance of ``roller coaster 
compliance'' unless we shorten the time frames. ``Roller coaster 
compliance'' refers to the facility practice of coming into compliance 
only long enough to stave off an impending remedy, then reverting to 
noncompliant activities or practices until the next time the 
deficiencies are cited, when the cycle begins all over again.
    Other commenters said that our proposed time frames do not 
adequately protect residents, referring to monitors as an example. One 
said that in a case of jeopardy, the State might feel it necessary to 
have a monitor in the facility as the survey team is leaving. Waiting 
two days without outside scrutiny may be too long under some 
circumstances.
    Two commenters said that, in the case of civil money penalties, 
notice before an effective date is meaningless, since the fine may be 
imposed for a past violation that has already been corrected.
    One commenter said that the ``not more than four days'' notice in 
Sec. 488.402(f) conflicts with Sec. 488.410, and another that paragraph 
(f) conflicts with Sec. 488.330(e)(1)(i) and (ii). Another said that 
the clause, ``* * * the remedy could be imposed anytime after the 
minimum 2 day notification period, but not later than the 10th day 
after the last day of survey,'' is confusing.
    Finally, one commenter suggested that residents and their 
representatives be notified of enforcement actions and their 
implications at the same time the nursing home is notified. Two other 
commenters said that States should be required to compile, at least 
monthly, a list of facilities against which they have taken adverse 
action and imposed sanctions. They suggested that this listing be sent 
to newspapers, to the State long-term care ombudsman, to the State 
protection and advocacy agency, to acute care hospitals, and to public 
and private agencies that regularly make referrals of individuals to 
nursing facilities. They also suggested that States be required to 
develop poster notices for each intermediate remedy, and require 
facilities to post the notice in a prominent place.
    Response: We are revising Sec. 488.402(f) to specify that the time 
frames given are calendar days, and that they begin when the facility 
receives the notice, but in no event will the effective date of the 
enforcement action be later than 20 days after the notice is sent. We 
are not accepting the suggestion that the notices be sent via certified 
mail, with return receipt requested. This would preclude a valid notice 
sent via other means, such as telefax, telegram, commercial overnight 
delivery services, or other means that may be faster. This becomes an 
especially important consideration in the case of immediate jeopardy 
deficiencies.
    The commenter who asks for an expedited hearing process due to the 
short notice alleging immediate jeopardy seems to be suggesting that 
the hearing take place before the effective date of a sanction to 
safeguard the facility's ability to continue its business and protect 
its residents from wrongful government action. In the case of immediate 
jeopardy, this would mean a hearing would have to be held as early as 
the first 48 hours after the survey. It is entirely possible that, when 
a survey uncovers such jeopardy, the State or HCFA may immediately set 
an effective date at the minimum required time after notice, that is, 2 
days. It is virtually impossible to set up a hearing this quickly, and 
expanding the time between the notice and the effective date of a 
remedy to make it possible to hold a hearing before the effective date 
would not be in the best interests of the residents. The whole point of 
a short time frame is to safeguard the lives and the safety of 
residents by taking immediate action. As discussed at proposed 
Sec. 488.180 (now designated as Sec. 488.330), Certification of 
compliance or noncompliance, it is not necessary to hold a hearing 
before the effective date of termination to adequately protect a 
facility's right to due process.
    As noted above, we received comments saying our time frames were 
too short, and others saying that they were too long. While we are 
mindful of the Act's requirement that the Secretary take immediate 
action in the case of immediate jeopardy (sections 1819(h)(4) and 
1919(h)(4) of the Act), and to minimize the time between the 
identification of violations and final imposition of the other remedies 
(sections 1819(h)(2)(B) and 1919(h)(2)(B) of the Act), we have chosen 
not to shorten them, except for the same day (if necessary) 
installation of a State monitor in the case of an immediate jeopardy. 
We believe that, for other available remedies when there is an 
immediate jeopardy deficiency, the facility should be allowed at least 
2 days before imposition of sanctions. This is because we believe that 
even in cases of immediate jeopardy, providers are entitled to some 
notice before the imposition of sanctions. We believe that, in the case 
of non-immediate jeopardy, we should not allow any less than 15 days 
for similar reasons.
    We chose not to set the minimum amount of notice required any 
higher than 2 days in the case of immediate jeopardy because the longer 
immediate jeopardy persists, the greater the likelihood that actual 
harm or even death may result or continue. We have, for the reasons 
cited in the paragraph immediately preceding determined that a facility 
be given no less than 2 days before imposition of sanctions. Besides, 
it has been our experience that, as a practical matter, it takes longer 
than 2 days to complete termination proceedings once they are begun. It 
is our belief that we have struck a fair balance between giving 
facilities fair notice and a reasonable chance to correct deficiencies 
and fulfilling our responsibility to safeguard the health or safety of 
residents.
    We have chosen 15 days in the case of nonimmediate jeopardy by 
carefully weighing the same considerations. It is important to 
understand that we are bound by Federal law to minimize the time 
between the identification of violations and final imposition of 
remedies. While sections 1819 and 1919 of the Act do not require giving 
specific notice before the imposition of remedies, constitutional 
principles of due process generally do require such a notice of agency 
adverse action. On the other hand, neither the Act nor the Constitution 
require that providers have the opportunity to correct deficiencies 
before sanctions are imposed. In other words, there is a need for prior 
notice, but not an entitlement on the providers' part to an opportunity 
to correct deficiencies. This policy, we believe, satisfies due process 
concerns of providers. As we have said, the only exception is the 
immediate imposition of a State monitor when there is an immediate 
jeopardy situation, because, above all else, it is our responsibility 
to protect the lives of residents. The facility will not be required to 
pay the salary of the State monitor; nor will the State monitor have 
managerial authority to obligate facility funds. (That authority is 
reserved for the temporary manager who could be installed a couple of 
days later.) The State monitor can be appointed immediately, while 
other sanctions are pending during notice periods to protect residents. 
With respect to civil money penalties, we do not believe that any 
notice is required before HCFA or a State advises a facility that 
noncompliance has occurred and that a penalty is to be imposed. As the 
statute clearly suggests, civil money penalties may be imposed for past 
periods of noncompliance even if a facility is currently in compliance. 
Notice is required, however, before a civil money penalty can be 
collected, and the regulations call for exactly this procedure. Like 
any other commercial enterprise, nursing homes must structure their 
debits and credits around their cash flow. We believe that notifying a 
facility that it must pay a civil money penalty instantly is unfair, 
unrealistic, and not in accordance with the basic principles of due 
process.
    In this final rule, we are removing the provision requiring a 
maximum of 4 days notice before the imposition of a sanction in 
Sec. 488.402(f). We may impose a remedy for immediate jeopardy, as 
Sec. 488.410 allows, as long as we give the facility at least 2 days' 
notice before the imposition of the remedy and no more than 23 days 
from the last day of the survey to remove the jeopardy or be 
terminated. In actual practice, the facility is notified that there is 
an immediate jeopardy deficiency as soon as the survey has been 
completed. It is only the official notice of the imposition of a remedy 
that may not be sent until later, as long as it is received by the 
facility at least two days before the effective date of the remedy.
    As a result of our review of these comments, we are not making 
final proposed Sec. 488.180(e)(1)(i), Certification of compliance or 
noncompliance, because it appears to conflict with Sec. 488.402(f).
    As proposed, we are providing in Sec. 488.325(f), that the State 
must provide the State's long-term care ombudsman with any report of 
adverse actions specified at Sec. 488.406 imposed on a facility. We 
believe that this provision will keep residents informed about each 
enforcement action. Whatever additional publicity States may wish to 
give notices of adverse action is their decision.
    We are also revising paragraph (f) to note the exceptions in 
notification requirements for civil money penalties and restructured it 
to clarify them.

Section 488.404  Factors To Be Considered in Selecting Remedies

    We received comments on proposed Sec. 488.204, as well as on our 
solicitation of comments in the preamble to the proposed rule, about 
the scope and severity measures; specifically, we asked for comments on 
how scope and severity values were described and how they were to be 
assigned. We will address all of the comments we received on scope and 
severity in this section of the preamble.
    Comment: The majority of commenters did not comment on the scope 
scale. Several commenters expressed support for using scope and 
severity scales to determine the enforcement response to facility 
noncompliance. Other commenters opposed using these scales. Of those 
opposed, some believed that the scales, absent any measurable criteria, 
introduce another opportunity for surveyor inconsistencies to occur.
    Others thought the scope and severity level definitions were too 
broad and vague to be applied consistently by surveyors, allowing too 
much government discretion in the selection of remedies, while one 
commenter believed that the determination of remedies should be left to 
the judgment of the survey agency.
    A few commenters argued that the scales were impractical because 
they were either too complex or prescriptive and left no room for 
surveyor judgment.
    Several commenters argued that the use of scope and severity scales 
conflict with Congressional intent to eliminate a hierarchy of 
participation requirements. They contend that by ranking the 
seriousness, that is, importance, of a facility's deficiencies, the 
scope and severity scales foster the belief that some requirements are 
more important than others.
    One commenter questioned why the scope and severity scales were 
being put into regulation. This commenter believed that codifying the 
criteria used for determining remedies is inappropriate and will invite 
additional legal challenges by nursing home providers dissatisfied with 
severity and scope level determinations.
    One commenter was concerned that the scope and severity scales 
failed to provide enough regulatory guidance on the exact criteria that 
will be used in making remedy determinations to ensure that the 
enforcement response is appropriate to the nature of the noncompliance.
    We received a variety of proposals for reconfiguring the scope and 
severity scales from provider organizations, State governments and 
consumer advocate organizations.
    One consumer advocate organization proposed a scope and severity 
scale with three tiers of severity (immediate jeopardy, substandard 
quality of care, and other violations), while retaining the definition 
of scope as we proposed.
    This proposal called for a plan of correction for all level 1 
deficiencies (other violations) regardless of scope and a mandatory 
civil money penalty for scopes of 3 and 4. Additionally, the proposal 
specified that the State or HCFA must impose a directed plan of 
correction if the violation is repeated. All other remedies could be 
imposed at the option of the State or HCFA.
    The second tier (substandard quality of care) would require a civil 
money penalty, public notice, a plan of correction and, at the State's 
option, any other remedy. If repeated, the State or HCFA would require 
a State monitor and a directed plan of correction. There were 
additional mandatory remedies imposed at higher scope levels.
    The third tier (immediate jeopardy) would require the statutorily 
mandated temporary management and physician and nursing home 
administrator licensing board notice, as well as a denial of payment 
for new admissions and a plan of correction.
    Another organization also proposed three severity levels (Actual 
harm, impairment or death; potential harm, impairment and death; and 
negative outcome). The scope levels were also pared down to three 
levels (isolated, occasional and widespread/pattern). Substandard 
quality of care would be defined as a severity of 2 with a scope of 3 
in quality of care and all of severity level 3. For non-immediate 
jeopardy, this proposal would require termination in 180 days from the 
last date of survey unless compliance is achieved during the correction 
period. For immediate jeopardy, termination would take effect in 23 
days if no temporary manager is appointed or accepted. This proposal 
would not require any mandatory fines but rather, would leave the 
choice of remedy to the State or HCFA. Other statutorily driven 
remedies have also been included in the proposed plan.
    One State organization proposed a matrix which had five severity 
levels (harm or death; negative outcome non-staff action; negative 
outcome staff action; negative outcome likely; and no negative 
outcome). As in some other proposals, the scope levels remained as we 
had provided in the proposed rule. Under this plan, no remedies would 
be imposed for severity level of 1 and scope of 1 or severity level of 
1 and scope of 2 or severity level of 2 and scope of 1. A plan of 
correction would be required for a severity and scope of 1-3, 1-4 and 
2-2, respectively. A civil money penalty would be imposed for a 
severity and scope of 2-3 and 2-4. No fine would be imposed for a scope 
of 1, even if a deficiency is at the severity of 3 or 4. Denial of 
payment for new admissions would only be imposed for severity levels of 
4 and 5 (except severity 4 and scope of 1). This plan also would exempt 
facilities from any remedies in certain situations where new 
requirements had not been disseminated to nursing homes.
    Another State organization proposed a scope and severity scale 
using the four scope levels defined in our proposed rule, but defining 
the severity levels differently. The four severity levels would be 
defined as level 4--life threatening harm or death; 3--actual harm; 2--
potential harm; and 1--no harm or likelihood of harm. Severity and 
scope of 1 would have no remedies imposed. Severity level of 1 and 
scope of 2 and severity of 2 and scope of 1 or 2 would have no remedy 
imposed the first time the deficiency was cited, but the State or HCFA 
would impose a directed plan of correction if the same deficiency(ies) 
was found at the next survey. This plan also requires the State or HCFA 
to choose between a denial of payment for new admissions or a civil 
money penalty for severity levels of 3 and 4.
    Another State disagreed with our use of the term immediate jeopardy 
relative to the scales because it believes that the term, as described 
for the scales, carries no connotation of immediacy and is not 
equivalent to the language ``likely to cause at any time'' we had 
proposed in the definition of the term in Sec. 488.201 of the proposed 
rule. Also, the State questioned our definition of substandard quality 
of care in relationship to severity and scope. It believed that 
substandard quality of care should not apply to one or two residents 
but should reflect deficient patterns of care, policies or procedures 
present in or used by the facility. The State recommended that HCFA 
provide that a finding of substandard quality of care may be made (but 
is not required) for scope levels of 1 and 2 and severity levels of 3 
and 4.
    Several commenters suggested that severity levels 3 and 4 should be 
redefined. Specifically, these commenters found virtually no difference 
in the application of remedies in the two levels. Other commenters 
believed that a potential for life threatening harm should not be an 
immediate jeopardy finding subject to harsher remedies.
    Many commenters disagreed that facilities be furnished with a 
separate summary of all level 1-1 deficiencies rather than receiving 
notice of them on the official deficiency statement. They believed that 
it would be confusing to have a facility's deficiencies recorded, in 
parts, between two separate documents, as well as harder to track 
repeat deficiencies at the next standard survey.
    Many commenters made specific recommendations of required remedies 
for various levels of severity and scope. Some suggested that HCFA or 
the State only impose a plan of correction at the lower scope and 
severity levels, while other commenters wanted HCFA to mandate civil 
money penalties and other remedies.
    Many consumer advocates expressed concern that the proposed scope 
and severity scales did not represent the intent of the Congress to 
make resident rights and physical environment requirements equivalent 
to quality of care requirements. They contend that the way the scales 
are currently written, resident rights and physical environment 
deficiencies would never rise above severity level 2.
    A few commenters believe that the scope and severity scales should 
be predicated on a statistical analysis of probability and suggest that 
this could be done by health care professionals who could factor into 
the scales the predisposition of a given individual to a particular 
incident. Many commenters asked that the ambiguous terms used within 
the level descriptions be defined, for example, how many cases 
constitute ``in a number of cases.'' One commenter suggested that a 
numerical or percentage determination be made to clarify the terms, for 
example, 1-3 instances = isolated, or less than 17 percent occurrences 
= isolated.
    One commenter suggested that the scope scale include only three 
levels, combining the proposed levels 3 and 4 because there was no 
distinction for the remedies. Another commenter observed that the scope 
scale level descriptions were written in terms of the number of times 
that the surveyors made a particular observation, and contended that 
while this approach may be appropriate for certain types of problems, 
it is not for others. For example, when surveying for life safety code 
compliance, what scope would be assigned to a total sprinkler system 
failure? This problem is a single observation, but it is one that 
affects every resident in the facility. This commenter, therefore, 
suggested that if we are to accurately reflect the extent of the 
deficiency, then scope should be based on the number of residents who 
are affected by the deficient practice. Overall, many commenters feared 
that the scope and severity scales, as proposed, give the enforcing 
agency virtually unlimited discretion in selecting remedies. They 
contended that the proposed scheme does not limit imposition of the 
most onerous remedies only to the most serious deficiencies and they, 
therefore, suggest that a prescriptive approach be developed for 
correlating deficiencies and remedies.
    Response: Historically, the enforcement system was based on a 
hierarchical set of requirements called conditions of participation, 
standards, and elements. Each condition of participation included 
groups of standards, and standards were made up of separate elements. 
Enforcement was based on the level of the requirement for which a 
deficiency was cited. For example, condition-level deficiencies in a 
SNF resulted in the initiation of termination procedures or a denial of 
payment for new admissions. However, if only standard-level 
deficiencies were found, only a plan of correction was required. Since 
the Congress has expressly eliminated the use of hierarchical 
requirements in nursing homes, we needed an organized way to determine 
how serious a facility's deficiencies are, as well as a consistent 
approach to guide enforcing agencies in making enforcement decisions.
    We believe that we have implemented the Congress' mandate to 
abandon our pre-OBRA hierarchical requirements and to develop a system 
capable of detecting and responding to deficiencies in any 
participation requirement. The enforcement scheme provided in this 
final rule is built on the assumption that all requirements must be met 
and enforced and that requirements take on greater or lesser 
significance depending on the circumstances and resident outcomes in a 
particular facility. In addition, we wish to emphasize that measuring 
the seriousness of deficiencies is only for the purpose of determining 
the enforcement response most appropriate for specific degrees of 
noncompliance.
    In order to grant the statutory flexibility given to HCFA and the 
States to design their own enforcement approaches (with guidance from 
the Secretary), we are providing a modified enforcement scheme to be 
used to assess the seriousness of deficiencies and then used to select 
an enforcement response. The scheme requires that specified factors be 
considered by HCFA or the State to assess the seriousness of a 
facility's deficiencies, and it correlates seriousness to specific 
enforcement responses. However, with the exception of the immediate 
jeopardy level, the enforcing agencies may exercise the flexibility to 
design their own methods of interpreting and applying the assessment 
factors to the identified deficiencies. Historically, determinations of 
immediate jeopardy to resident health or safety have been made by HCFA 
and the States in accordance with guidance provided in Appendix Q of 
the State Operations Manual. We conclude that there is no compelling 
reason for States to redefine this level of noncompliance. The 
enforcing agencies may also exercise their statutory authority to 
determine whether an alternative remedy is or is not preferable to 
termination. In determining the seriousness of Life Safety Code (LSC) 
deficiencies, States are encouraged to apply the Fire Safety Evaluation 
System (FSES), which is Appendix C of the 1985 edition of the LSC. 
Since the FSES is an equivalency system based on point values, it is 
possible to utilize the system to document the seriousness of 
deficiencies on a quantitative basis in accordance with the revised 
enforcement matrix. Once the seriousness of the deficiencies is 
determined and the decision to impose alternative remedies instead of, 
or in addition to, termination, HCFA or the State must make its remedy 
selection from the remedy category associated with the specific level 
of noncompliance. This correlation is provided in Sec. 488.408 of this 
final rule.
    This approach has the added benefit of promoting national 
consistency because all systems will be considering the same initial 
assessment factors, and the remedy choice will then be based on the 
nature of the noncompliance and the corrective action most likely to 
achieve correction and continued compliance. In other words, we 
developed, for use by the States and by HCFA, an organized and 
consistent method by which to first, determine how serious a facility's 
deficiencies are, and second, to select an enforcement response from a 
specified remedy category linked to that degree of noncompliance.
    We believe that the enforcement scheme we are providing in this 
final rule for HCFA and the States to use in rating deficiencies and 
selecting remedies satisfies a variety of concerns posed by the former 
scope and severity scale and the proposed rule in general. Under the 
proposed rule, we set out two scales, one for scope and one for 
severity, that HCFA and the States were to apply in determining which 
remedy to apply once deficiencies were identified. While the rule 
provided some definition for each of the levels of scope and severity, 
HCFA and the States were essentially free to determine what constituted 
a ``sufficient'' number of ``repeated observations'' in concluding 
whether or not a ``pattern'' of deficiencies could be said to exist.
    In the final rule, we have removed the scope and severity scales, 
as such, and have replaced them with a set of criteria that must be 
used (should a decision be made to impose alternative remedies at all) 
to select an enforcement remedy. Specifically, while the enforcement 
scheme in this final rule is conceptually the same as the former scope 
and severity scales, it differs from that approach in numerous 
significant ways:
     It leaves to the judgment of both HCFA and the States 
whether to impose alternative remedies at all, regardless of the 
seriousness of a facility's deficiencies.
     It incorporates the concept of substantial compliance, 
whereby deficiencies found which constitute no more than a potential 
for minimal harm are not sanctioned.
     With the exception of immediate jeopardy, a State may use 
its own method for interpreting terms that describe the relative 
frequency or seriousness of deficiencies as long as it is consistent 
with the guidance presented in the regulation.
     It correlates, to a greater extent than in the proposed 
rule, specific enforcement categories from which an enforcement 
response must be selected with specified degrees of noncompliance.
     It can be applied to physical environment deficiencies, as 
well as to all others, and it should relieve commenters' fears that 
resident rights violations and physical environment deficiencies could 
not be considered as serious deficiencies.
     Providers will have a clearer idea of the enforcement 
consequences they could be subject to for specific degrees of 
noncompliance because, in Sec. 488.408, we have correlated enforcement 
categories with levels of noncompliance.
    The establishment of these remedy categories will provide 
regulatory guidance to HCFA and the States in selecting remedies and 
will necessitate that States and HCFA clearly define the seriousness of 
cited deficiencies in order to select an appropriate remedy.
    We have not accepted any of the commenters' proposed revisions to 
the scope and severity scales for inclusion in the modified enforcement 
scheme in this final rule. After reviewing the proposals, we concluded 
that, while the terminology may have been different, all of the 
proposals were conceptually the same as the scales that were published 
in the proposed rule. In addition, those commenting provided no 
evidence (for example, success data) to indicate that their respective 
proposed enforcement systems would be more effective than the scales we 
published in the proposed rule. We, therefore, have not adopted any of 
the commenters' proposals in place of the enforcement model we are 
presenting in this final rule. In addition and equally noteworthy, we 
spent considerable time meeting with various groups representing the 
nursing home industry, State agencies and consumer organizations to 
discuss and seek input on the various approaches to restructure and 
refocus the survey and enforcement processes. The resulting approach 
was presented in the notice of proposed rulemaking as well as in what 
has been carried over into this final rule.
    In response to concerns that repeated 1-1 deficiencies (now 
referred to as isolated deficiencies that HCFA or the State determines 
constitute no actual harm with a potential for minimum harm) would be 
hard to monitor on subsequent surveys, we note that, while such 
deficiencies are not cited on the official deficiency statement and are 
not sanctioned, their existence is maintained in the official provider 
file along with the official deficiency statement. The separate listing 
of these deficiencies is also accessible to the surveying agency and 
disclosable to the public.
    While we intend that the enforcement scheme provide internal 
guidance to States and to HCFA, we are including it in the regulations 
to provide the public, and particularly regulated facilities and 
facility residents, with full disclosure as to how enforcing agencies 
will determine appropriate remedies for providers that have been found 
out of compliance with Federal participation requirements.
    Comment: One commenter wanted a remedy to be imposed for 
insufficient nurse staffing.
    Response: The law requires that nursing homes meet all 
participation requirements. Should noncompliance with nurse staffing 
requirements be identified, either during an extended survey or when a 
waiver of RN and/or licensed nursing staffing has been requested or 
granted, the facility would be subject to an enforcement response from 
HCFA or the State, just as it would be for other instances of 
noncompliance.
    Comment: Some commenters wanted to remove the distinction between 
initial and secondary factors in Sec. 488.404 (proposed at 
Sec. 488.208) believing that the secondary criteria are equally 
important as the initial assessment.
    Response: The secondary factors are not less important; they just 
come later in the process of selecting an appropriate remedy or 
remedies. However, we are replacing the word ``secondary'' with the 
word ``other'' to avoid any further confusion. The first step is to 
assess the seriousness of the deficiency(ies), including the presence 
or absence of immediate jeopardy, to determine the minimum recommended 
categories of remedies to impose, as well as the suggested optional 
categories from which to choose. The other factors (that is, the 
relationship of one deficiency to other deficiencies, and the 
facility's prior compliance history in general and specifically with 
reference to the cited deficiencies) assist in making choices from 
among all remedies available in any of the categories applicable to 
specific deficiencies.
    Comment: Other commenters want the compliance history of the 
facility to remain secondary because facilities with a change of 
ownership and/or personnel may not be able to otherwise emerge 
positively due to poor compliance in the past. It was suggested that we 
change Sec. 408.404 (proposed at Sec. 488.208) accordingly.
    Response: We did not revise the regulations text to reflect this 
suggestion. A facility's prior compliance history should be considered 
regardless of a change in ownership. A facility is purchased ``as is.'' 
The new owner acquires the compliance history, good or bad, as well as 
the assets. While we agree that after consideration of the facility's 
compliance history, HCFA or the State may conclude that such history is 
no longer a valid predictive factor of the facility's ability to 
achieve and maintain compliance (for example, following a change of 
ownership where the new owner ``cleans house'') the burden of proof is 
on the new owner to demonstrate that poor past performance no longer is 
a predictive factor.
    Comment: Other commenters wanted additional factors to be 
considered in addition to those outlined in Sec. 488.404 (proposed at 
Sec. 488.208). The suggestions for additional factors are:
     Whether the deficiency or deficiencies are directly 
related to resident care;
     The corrective, long-term compliance, resident protective, 
and non-punitive outcomes sought by the agency;
     The facility's degree of culpability;
     The accuracy, extent, and availability of facility 
records;
     The facility's financial condition;
     Any adverse effect that the remedy would have on the 
health and safety of facility residents;
     Whether there has been a change in ownership or operation 
of the facility;
     The facility's action to correct the deficiency prior to 
the conclusion of the survey.
    Response: While we are not expanding Sec. 488.404 to include these 
additional factors, there is nothing to preclude HCFA or the State from 
considering any other factors they believe to be relevant in the 
decision-making process. We are, however, revising Sec. 488.404(b) to 
clarify that the other factors that HCFA and the State may consider 
include, but are not limited to, only those factors listed. Because we 
do not want to limit valid assessment considerations unnecessarily, we 
do not desire to provide an all-inclusive list. We realize that it is 
impossible to predict every factor that would have a bearing on every 
particular case. The two factors that we have included in the 
regulatory model have a direct bearing on the determination of the most 
appropriate remedy or remedies. We have explained above how the 
interrelationships among deficiencies can impact the decision to impose 
one as opposed to several remedies. The second factor, the facility's 
prior compliance history, is pertinent because sections 1819(h)(2)(B), 
1919(h)(2)(A), and 1919(h)(3)(C) of the Act provide for increased 
penalty amounts for uncorrected or repeated noncompliance. Moreover, 
sections 1819(h)(2)(E) and 1919(h)(2)(D) of the Act require the 
imposition of the denial of payment remedy for repeated substandard 
quality of care.
    Comment: One commenter didn't believe that surveyors should make 
binding decisions regarding remedies, but rather this authority should 
be retained by the surveyors' supervisor in order to promote 
centralization as well as consistency in decision making.
    Response: Surveyors do not have the authority to make binding 
enforcement determinations; rather, either HCFA or the State makes 
binding enforcement determinations in accordance with criteria at 
Sec. 488.452.

Section 488.406  Available Remedies

    While analyzing the comments for this section, we again reviewed 
the provisions of the Act to ensure conformance in the final 
regulation. In doing so, we noted that proposed Sec. 488.206(c) did not 
include the remedies of civil money penalties, temporary management, 
and closure of the facility and transfer of residents, or their 
equivalents, in the listing of available remedies. We have also 
clarified that, regardless of what other additional remedies a State 
may have approved, the State must establish, at a minimum, those 
specified remedies, or an approved alternative to a specified remedy, 
that is, termination, State monitoring, denial of payment for new 
admissions, closure of a facility by the State in emergency situations 
and/or transfer of residents, civil money penalties, and temporary 
management. We are correcting this oversight in this final regulation.
    In addition, during the process of reviewing and analyzing 
comments, we added another remedy. This remedy, directed in-service 
training, is described in the discussion of Sec. 488.425.
    Also, since the proposed Sec. 488.228, ``Alternative or additional 
State remedies'', contained virtually the same information as this 
section, we are eliminating the proposed Sec. 488.228 and moving the 
remaining non-duplicative provisions to this section. All comments 
received in response to proposed Sec. 488.228 are being included and 
addressed below.
    Comment: One of the major concerns expressed throughout the 
comments was that it should be possible to address many or most 
instances of facility noncompliance through a traditional plan of 
correction. Several commenters indicated that plan of correction should 
be added to the list of possible remedies.
    Response: A plan of correction is a minimum requirement for any 
facility with deficiencies other than those isolated deficiencies that 
HCFA or the State determines constitute no actual harm with a potential 
for minimal harm, and, as for other providers and suppliers, it is not 
considered an enforcement remedy. Therefore, while we are clarifying 
the regulation to require that a facility complete and submit a plan of 
correction each time deficiencies are noted (other than those isolated 
deficiencies that HCFA or the State determines constitute no actual 
harm with a potential for minimal harm), we are not adding plan of 
correction to the listing of available remedies.
    Comment: Many commenters expressed concerns that the proposed 
remedies are punitive rather than corrective in nature, excessively 
burdensome in relationship to the deficiencies, too harsh or that they 
will direct the focus away from resident care, thereby having a 
negative effect on long term care. Some commenters stated that the 
remedies do not allow for one time digressions from a facility's 
history of compliance. Others believed that the proposed remedies would 
threaten job security for nursing home staff or the security of 
facility residents.
    Response: As indicated in response to the previous comment, many 
commenters assumed that it was not possible to have a plan of 
correction as the only corrective measure required in a facility, even 
when the deficiencies were of a low degree of seriousness. In this 
final regulation, we acknowledge that a traditional plan of correction 
may be the only measure needed to correct deficiencies in some 
facilities which have only lower level deficiencies. While we believe 
that using plans of corrections in this fashion should alleviate some 
of the concerns expressed by the commenters, we do not accept the 
notion that the use of more severe remedies for more severe 
deficiencies is excessive. There can be little question that the 
Congress was concerned about what it concluded was an unsatisfactory 
enforcement scheme prior to nursing home reform. As a result, it wrote 
into the law a series of remedies that it expects to be used should 
circumstances at individual facilities warrant. The driving force 
behind the legislation in this context was to provide the Secretary and 
the States with the authority to aggressively enforce the Act's new 
requirements in a way that would discourage facility noncompliance that 
the Congress believed to be widely evident between surveys, and 
thereby, to encourage lasting compliance. The design of these 
enforcement rules provides for incrementally more severe remedies as 
cited noncompliance is more egregious. We do not believe that an 
enforcement approach styled this way is harsh or excessive.
    Comment: Six commenters suggested that the regulation include a 
remedy which would allow a ban on all admissions to a facility, 
regardless of the resident's source of payment. Three commenters 
further indicated that this remedy should be mandatory in cases 
involving immediate jeopardy.
    Response: We cannot accept these suggestions. The Act does not 
provide the authority to ban admissions for residents whose source of 
payment is other than Medicare or Medicaid. The Act does provide for 
the remedies of denial of all payment for SNFs and NFs by the Secretary 
and for denial of payment for all new admissions for SNFs by the 
Secretary, and for NFs, by the Secretary or the States. The proposed 
rule included denial of payment for all new admissions in certain 
diagnostic categories or requiring specialized care, but we have not 
included that remedy in this final rule for the reasons discussed under 
``Denial of Payment'' later in this preamble. We believe that these 
remedies, along with the other available remedies for noncompliance, 
should be sufficient to promote a shift from noncompliance to 
substantial compliance.
    Comment: Two commenters stated that the option of closing the 
facility should be available for SNFs and not just for those facilities 
that participate as NFs or SNF/NFs.
    Response: For SNFs, HCFA has termination as an option for remedying 
noncompliance. While HCFA can terminate a SNF's Medicare participation, 
it cannot revoke a facility's license to operate within a State. 
Therefore, actual closures of facilities and transfers of residents are 
remedies which are options only for those facilities for which the 
State is the enforcing agency because the State also has licensing 
authority; closures of facilities are license related actions.
    Comment: One commenter proposed that off-site monitoring be added 
to the list of available remedies.
    Response: We are not accepting this suggestion. Enforcement 
remedies are designed to motivate providers to achieve and maintain 
compliance with participation requirements. The motivation is provided 
by the nature of the various available enforcement remedies that either 
require some action to be taken by the provider or that involve 
financial consequences directly or indirectly to the provider. Since 
off-site monitoring would be performed by the State rather than imposed 
on the facility, and since there would be no responsibility and, 
therefore, no incentive for a facility response, we conclude that this 
type of monitor is not an enforcement remedy to be imposed against 
facilities with deficiencies.
    Comment: One commenter proposed the addition of State and 
Secretarial authority to order the hospitalization of residents in 
cases involving immediate jeopardy, if the facility is unable or 
unwilling to respond to the residents' needs.
    Response: We do not believe an additional remedy is needed in order 
to respond to this commenter's concern. As temporary management will be 
imposed in those cases where immediate jeopardy is identified in a 
facility that will not be terminated immediately, control of the 
situation, including determinations as to the care of individual 
residents, will be shifted away from the facility's own management 
until the jeopardy is removed. Should the facility fail to relinquish 
control to the temporary manager, termination will result and residents 
will be transferred to facilities that are able to provide care in a 
manner consistent with certification requirements.
    Comment: One commenter proposed that public notice be included as 
an available remedy.
    Response: Public notices are already required by regulation for any 
SNF termination. Public notices are also allowed, but not required 
(unless the State has its own public notice requirement), for NFs that 
will be subject to termination.
    We do not believe that the regulation should expand the use of 
public notices as a remedy for noncompliance by including them in this 
section's listing. Public notices are frequently costly, and they do 
not always serve the intent of notifying the widest possible audience 
of a facility's noncompliance. Further, facilities are already required 
to post the availability of the results of their surveys on their 
premises. Accordingly, we are not adopting this suggestion in the final 
regulation.
    Comment: A few commenters indicated that the prohibition of nurse 
aide training and competency evaluation programs (NATCEPs) is a penalty 
which should be included in the listing of available remedies.
    Response: The prohibition of a NATCEP is predicated on, among other 
things, the existence of a nurse staffing waiver, the fact that a 
facility has been subject to an extended or partial extended survey, or 
the imposition of an adverse action, including termination of the 
provider agreement. The enforcement remedies, on the other hand, are 
the consequences of facility noncompliance once deficiencies have been 
identified through the survey process. While the disapproval of a 
NATCEP is automatic when criteria set forth in the Act are met, the 
imposition of remedies is a matter requiring some discretion on the 
part of HCFA or the State.
    It is possible for a facility with a nurse staffing waiver to be 
surveyed and have no deficiencies identified or have no deficiencies 
found which cause the facility to be out of compliance. In these cases, 
an enforcement action would not be in order, even though other 
provisions of the Act and regulations would require that a prohibition 
of a NATCEP be imposed. Further, it would be possible for a facility 
with no nurse staffing waiver, which had not been subject to an 
extended or partial extended survey, to have a civil money penalty 
imposed as a remedy for deficiencies identified. In this latter case, 
the civil money penalty is the enforcement remedy, and not the 
prohibition of a NATCEP, which is an automatic statutory consequence of 
the civil money penalty being imposed.
    Because we believe that the Act, as well as regulations published 
on September 26, 1991, separately address how the State arrives at the 
disapproval of a NATCEP as opposed to how it or HCFA determines that an 
enforcement action is in order, we are not adopting these comments in 
the final regulation.
    Comment: One commenter indicated that denial of payment for new 
admissions for certain diagnostic categories is too difficult to 
implement or monitor. Another stated that it is too broadly defined and 
that it was not the intention of the Act to modify remedies included in 
the Act.
    Response: The first comment is discussed in detail under ``Denial 
of Payment'' later in this preamble.
    Regarding the comment that the Act does not allow for modifications 
of its listed remedies, we point to the provisions of the Act at 
sections 1819(h)(2)(B), 1919(h)(2)(A), 1919(h)(2)(B)(ii) and 
1919(h)(3)(C), all of which indicate that remedies other than those 
specified in the Act are allowed.
    Comment: Two commenters asked that the proposed available remedy of 
denial of payment for new admissions for certain diagnostic categories 
be amended to ensure that it not promote discrimination against 
residents a facility does not want to admit. Both indicated that a 
directed plan of correction should be required in these situations, and 
one comment further stated that the directed plan of correction should 
direct the facility on how to regain the capability to care for 
residents with the designated diagnoses.
    Response: This issue is discussed in detail under ``Denial of 
Payment'' later in this preamble.
    Comment: Five commenters indicated that HCFA should specify in the 
regulation the criteria by which the Secretary will determine whether a 
State's alternative or additional remedies are as effective in 
determining noncompliance and correcting deficiencies as the remedies 
specified in the Act. Other commenters insisted that any alternative or 
additional remedies must be made available for public comment before 
adoption.
    Response: We agree that there is a need for uniformity in the 
process which is used to approve State remedies which are alternative 
or additional to those included in the regulation. While we will 
prepare manual instructions that will address how these reviews and 
approvals should be processed, we believe such information is not 
appropriate for the text of the regulation itself since it would be 
impossible to contemplate the vast array of alternatives that States 
might propose. The Act does not require and HCFA will not require 
specific public notice procedures that limit State prerogatives in the 
State plan amendment process.
    Comment: One commenter indicated that States should be able to 
develop and implement additional or alternative remedies unless HCFA 
can demonstrate that the States' remedies are not as effective as the 
HCFA remedies.
    Response: We cannot adopt this comment. The Act provides, at 
section 1919(h)(2)(B)(ii), that the State must demonstrate to the 
Secretary's satisfaction that the alternative or additional remedies it 
proposes are as effective in deterring noncompliance and correcting the 
noncompliance as those included in the Act. To shift the burden of 
proof to HCFA would be contrary to the Act's clear instruction.
    Comment: One commenter indicated that any State remedies approved 
as alternative or additional remedies should apply to SNF/NFs as well 
as NFs, unless HCFA takes a different action based on a validation 
survey.
    Response: The determination of whose remedies prevail in a dually 
participating facility is made in accordance with section 1919(h)(7) of 
the Act and codified at Sec. 488.452 of this final rule.
    Comment: One commenter indicated that the final rule should clarify 
and refer to the relationship of these rules to the sanctions available 
under section 1128 of the Act and to how the Office of Inspector 
General's (OIG) actions will have an impact on enforcement actions 
taken under this regulation.
    Response: The provisions of sections 1819(h) and 1919(h) of the 
Act, for which HCFA takes action, and the provision of section 1128 of 
the Act, for which the OIG takes action, are two independent sources of 
enforcement authority that are triggered by separate considerations. 
Section 1128 of the Act contains mandatory and permissive exclusions 
which are, for the most part, applied in cases of individuals and 
entities who have been charged with or convicted of certain types of 
behavior (such as fraud and abuse, and obstruction of investigation) 
under Federal or State law. Section 1128 does not generally apply to 
cases of facility noncompliance, which are covered under sections 1819 
and 1919 of the Act that specify survey and enforcement provisions. 
Section 1128A is cited in sections 1819 and 1919 to give guidance on 
the imposition of civil money penalties which will be imposed in 
accordance with common statutory provisions by HCFA and OIG for their 
respective purposes. If a case happens to involve both noncompliance 
and fraud, abuse or obstruction of investigation, each agency has the 
authority to take separate action, independently of the other.
    Comment: Commenters from several States indicated that their States 
had effective remedies that should be adopted without change. One 
commenter stated that HCFA approval of alternative or additional 
remedies should not be required.
    Response: The Act gives the States the option of requesting that 
HCFA authorize the adoption of existing State remedies. The regulation 
follows the Act, which leaves the decision to request the adoption of 
these remedies up to each State. However, the Act provides that HCFA 
approval is necessary and that the State must bear the burden of proof 
that any alternative or additional remedies are as effective as the 
remedies specified in the Act.
    Comment: Several commenters were concerned that the State's ability 
to impose alternative remedies instead of termination was impaired by 
the proposed provision that would require the repayment of the Federal 
share of the Medicaid payment (FFP) if the correction of the 
deficiencies was not made in accordance with the approved plan and 
timetable. These commenters said that the regulations should allow 
States to enter into agreements under which the facilities would agree 
to repay States, which would then repay the Federal government FFP if 
compliance was not achieved according to the approved plan.
    Response: Neither the Act nor the proposed or final regulations 
prevent the States from entering into agreements with facilities to 
repay States if the facility fails to adhere to its plan of correction. 
The Act is silent on this issue. Therefore, it follows that the States 
have the option to consider such agreements with facilities. Many 
facilities may find such agreements preferable to termination.
    Comment: One commenter stated that the authority to implement 
alternative or additional remedies should rest within the single State 
agency.
    Response: The Act gives the States the authority to elect 
alternative or additional remedies through the use of the Medicaid 
State plan process. Medicaid regulations at Sec. 431.10 specify that a 
single State agency administer or supervise the administration of the 
State plan. In most States, the Medicaid agency is the single State 
agency that implements the current transitional enforcement remedies 
against Medicaid facilities. In some States, enforcement remedies, such 
as civil money penalties, are implemented by the survey agency. We 
believe that States should retain the flexibility to organize their 
enforcement activity as they deem necessary as long as the 
organizations meet Medicaid regulations.
    Comment: One commenter believed that every State should implement 
the same penalty system.
    Response: We cannot accept this suggestion because the Act permits 
the States to elect alternative or additional remedies if they can 
demonstrate that the alternative or additional remedies are as 
effective as the remedies specified by the Act. Further, section 
1919(h)(2)(A) of the Act provides that the State shall specify 
criteria, as to when and how each remedy is to be applied, the amount 
of any fines, and the severity of each of these remedies, to be used in 
the imposition of such fines.
    Comment: One commenter suggested that the final rule include a list 
of remedies other than termination which HCFA finds acceptable.
    Response: Such a list is provided at Sec. 488.406(a) and (b).

Section 488.408 Selection of Remedies

    The comments we received on this section, as it was proposed, which 
relate to the factors considered when making remedy determinations, 
have already been included and addressed in our discussion of 
Sec. 488.404 of this preamble.
    Comment: Some commenters were uncertain about how the 
``determination'' of remedies in Sec. 488.404 and the ``choice'' of 
remedies in Sec. 488.408 differ.
    Response: We are retitling Secs. 488.404 and 488.408 to ``Factors 
to be considered in selecting remedies'' and to ``Selection of 
remedies,'' respectively, and are revising the content of both sections 
as a result of the revision to the criteria for selecting among 
enforcement options as discussed earlier in this preamble. After the 
survey team has determined that a deficiency or deficiencies exist, it 
is required to determine the seriousness of the violations. The factors 
that HCFA and the States must and may consider in determining the 
seriousness of a facility's deficiencies can be found at Sec. 488.404. 
The optional process of determining the most appropriate enforcement 
action is described at Sec. 488.408, which correlates the level of 
noncompliance with a required and/or optional category of remedies.
    Comment: A few commenters wanted HCFA to include a statement from 
the preamble of the proposed rule that asserts ``the more pervasive or 
severe the facility's shortcomings, the more severe the penalty.''
    Response: We agree with the commenters, and are providing such a 
linkage in the revised Sec. 488.408.
    Comment: Some commenters wanted HCFA to explain the purpose of 
intermediate sanctions.
    Response: The purpose of an intermediate sanction (or alternative 
remedy) is to motivate providers to achieve and maintain substantial 
compliance before termination becomes necessary. Prior to OBRA '87, the 
term ``intermediate sanction'' was limited to a denial of payment for 
new admissions. Sections 1819(h) and 1919(h) of the Act specify that 
remedies for noncompliance are to be imposed in lieu of, or in addition 
to, the remedy of termination of a facility's participation in the 
programs. This legislation expanded the range of alternative remedies 
for the Secretary and the State to use as an incentive for correction 
and as a way that might avoid termination of the provider agreement.
    Comment: A few commenters wanted to revise Sec. 488.408 to require 
that HCFA and the State make appropriate remedy selections, but not 
select a specific remedy solely to punish the facility.
    Response: Alternative remedies are designed to motivate providers 
to comply quickly with the requirements of participation. While some 
providers may view the remedies as punishment, our first responsibility 
is to protect the health and safety of the residents. We are interested 
in motivating providers to achieve and maintain compliance with health 
and safety requirements so that they may continue to provide quality 
services to the residents. Accordingly, the selection of an enforcement 
action is based on that which is most likely to elicit a prompt 
response from the facility to achieve and maintain compliance before 
termination becomes necessary. We believe the proposed change does not 
significantly add to the process of selecting remedies; therefore, we 
are not incorporating it in the final regulation.
    Comment: A few commenters wanted a definition of ``clusters of 
deficiencies'' included in Sec. 488.408, which deals with the initial 
assessment of the seriousness of deficiencies. Other commenters wanted 
instruction on which deficiencies are cited as a cluster versus those 
deficiencies cited individually.
    Response: We have removed the reference to clusters in this final 
rule because we do not want to limit the discretion HCFA and the States 
have been given by the statute to make enforcement decisions. We 
believe that the relationship between and among deficiencies is 
inherent in remedy determinations and should be made on a case-by-case 
basis. While we do not intend to include instructions in this final 
rule on which deficiencies would be treated individually and which 
would be consolidated, we will offer examples in the HCFA Regional 
Office Manual and the State Operations Manual of how deficiencies could 
be grouped together.
    Comment: We received many general comments about how HCFA should be 
more specific in its guidance on selecting an appropriate remedy. This 
guidance must help determine the criteria for the selection of remedies 
and must require the use of specific remedies for particular 
deficiencies. Some of these commenters suggested a scope and severity 
scale linked with specific remedies at specific levels.
    Response: While we agree with the above commenters advocating more 
guidance on the selection of remedies, and have developed an 
enforcement scheme capable of doing just that, we are bound by the 
statutory provisions giving HCFA and the States some discretion in 
designing their own schemes within a Federal framework. Therefore, we 
are providing the method by which facility deficiencies, including 
physical environment deficiencies, will be measured, and we are linking 
specific categories of remedies with certain levels of noncompliance. 
We are revising Sec. 488.408 accordingly.
    Comment: Many commenters believe that level 1-1 deficiencies, now 
referred to as isolated deficiencies which HCFA or the State determines 
constitute no actual harm with a potential for minimal harm, must be 
cited and a plan of correction required. Additionally, these commenters 
urge that every deficiency should be cited before leaving the facility. 
They believe that unless each deficiency is cited, important patterns 
of repeat noncompliance can be missed.
    Response: We disagree. As we stated in the preamble to the proposed 
rule, providers must be aware that they are responsible for complying 
with all participation requirements. Notifying the facility of this 
level of deficiency acknowledges that a problem could potentially occur 
if the deficiency is permitted to go uncorrected. While no formal plan 
of correction is required for this low level deficiency and no remedy 
is applied, correction is necessary nevertheless.
    The exit conference focuses primarily on the most serious 
preliminary findings by the surveyors. While the survey team documents 
its observations relative to the survey, the surveyors' findings are 
not official until the provider receives the official deficiency 
statement.
    Comment: Many commenters commended HCFA for prohibiting facilities 
from challenging the choice of remedy or remedies. These commenters 
assert that giving the facility the right to challenge the existence of 
deficiencies adequately protects their rights. A few commenters agreed 
that the choice of the remedy should not be appealable but that the 
scope and severity of a deficiency should be. Other commenters believed 
providers should be permitted to formally appeal both the existence of 
a deficiency as well as challenge determinations of scope and severity 
and the remedy imposed.
    Response: The most important issue on which to grant an appeal is 
the existence of deficiencies which lead to a remedy. We are requiring 
that such an appeal before an administrative law judge be offered, and 
that dispute resolution procedures be applied first, at the request of 
the provider.
    Providers have the opportunity to appeal certifications of 
noncompliance leading to an enforcement remedy but, with the one 
exception noted below, do not have the opportunity to appeal either the 
level of noncompliance or the enforcement choice made by HCFA or the 
State. We have reached this conclusion for several reasons. First, as a 
general matter, whether HCFA or a State chooses one remedy or another 
to address facility noncompliance is a matter that we believe is a 
prosecutorial prerogative of the government, not with the provider of 
services. It is an inherent function of government in this context to 
make choices as to which kind of enforcement action will best achieve 
prompt compliance so that residents face noncompliant conditions for as 
short a time as possible.
    Second, in the case of provider agreement terminations, even if a 
facility were able to successfully contest a conclusion that immediate 
jeopardy exists, the agency could still proceed with the termination 
action since the agency's authority to bring such an action is not 
limited to immediate jeopardy cases, but may span all noncompliant 
facility behavior. As has been agency policy for many years, the 
determination of what remedy to seek is beyond challenge in light of 
the government's fundamental necessity to protect the welfare of 
facility residents as expeditiously as possible. This is especially the 
case with respect to provider agreement terminations since residents 
may be at considerable risk even where there is no immediate jeopardy.
    Third, in the case of most alternative sanctions, the regulations 
are structured so that whether a facility's noncompliance falls in 
category 1 or category 2, HCFA and the States have complete discretion 
to choose from either category. Thus, even if a facility were able to 
successfully demonstrate that the agency had erred in its conclusion 
that the noncompliance belonged in category 1, that fact would be 
irrelevant since noncompliance in category 1 could still trigger the 
same remedy. Only a showing that the facility was in substantial 
compliance would enable the facility to avoid sanctions, and it is this 
issue that we agree must be subject to challenge.
    Fourth, with respect to the imposition of temporary management, a 
facility facing this remedy would have the opportunity to argue during 
informal dispute resolution that the agency had erred in concluding 
that immediate jeopardy existed. Should it succeed in making this 
showing, the remedy would not be imposed. On the other hand, should the 
facility fail to convince agency officials that the noncompliance was 
of a lesser nature, the facility would face temporary management well 
before it could more formally challenge the agency finding of immediate 
jeopardy. Thus, even if the facility ultimately prevailed in a hearing 
in proving that its noncompliance posed less than immediate jeopardy, 
the facility's appeal would not be effective since the remedy would 
have already been imposed and the facility would either have achieved 
substantial compliance or been terminated by the time of the hearing.
    For this reason, we considered whether, in light of this sequence 
of events, facilities should be given a prior hearing in temporary 
management cases, but concluded that would completely undermine the 
purpose of this remedy which is to resolve the most serious 
noncompliance in the shortest possible time frame. This is particularly 
the case when facilities facing such remedies have available to them an 
informal means to contest agency action prior to the imposition of the 
remedy and when, ultimately, it is the facility's choice to accept 
temporary management rather than face termination. Accordingly, we 
concluded that in the balancing of interest of facilities and residents 
in such cases, the interests of residents must take precedence.
    Only in the case of civil money penalties could we see the 
necessity of allowing facilities the opportunity to challenge the level 
of noncompliance since the amount of these penalties hinges upon 
discrete levels of noncompliance rather than noncompliance as a whole. 
Thus, it may be legally significant to a facility facing a $10,000 per 
day civil money penalty to be able to prove that its noncompliance 
belonged in category 2, rather than category 3, since in category 2 the 
largest civil money penalty available to HCF or a State would be $3,000 
per day. Accordingly, we are revising the rules to allow a facility to 
challenge the level of noncompliance when a successful challenge on 
this issue would affect the amount of a civil money penalty that HCFA 
or a State could collect.
    We believe that a provider's burden of upsetting survey findings 
relating to the level of noncompliance should be high, however. As we 
indicated in the proposed rule, distinctions between different levels 
of noncompliance, whether measured in terms of their frequency or 
seriousness, do not represent mathematical judgments for which there 
are clear or objectively measured boundaries. Identifying failures in a 
facility's obligation to provide the kind of high quality care required 
by the Act and the implementing regulations most often reflect 
judgments that will reflect a range of noncompliant behavior. Thus, in 
civil money penalty cases, whether deficiencies pose immediate 
jeopardy, or are widespread and cause actual harm that is not immediate 
jeopardy, or are widespread and have a potential for more than minimal 
harm that is not immediate jeopardy does not reflect that a precise 
point of noncompliance has occurred, but rather that a range of 
noncompliance has occurred which may vary from facility to facility. 
While we understand the desire of those who seek the greatest possible 
consistency in survey findings, an objective that we share, the answer 
does not lie in designing yardsticks of compliance that can be reduced 
to rigid and objectively calculated numbers. Survey team members and 
their supervisors ought to have some degree of flexibility, and 
deference, in applying their expertise in working with these less than 
perfectly precise concepts. For these reasons, we have revised the 
regulations to require an administrative law judge or appellate 
administrative review authority to uphold State or HCFA findings on the 
seriousness of facility deficiencies in civil money penalty cases 
unless they are clearly erroneous.
    Comment: A few commenters believe it is not sufficient to simply 
state that the choice of a remedy is not appealable and recommend that 
the regulation explicitly state that HCFA will not look behind or 
``second guess'' the State's selection of remedy or remedies.
    Response: We cannot accept these comments as sections 1919(h)(6) 
and (7) of the Act specify the means to resolve any disagreement 
between the State and the Secretary regarding noncompliance or 
enforcement action.
    Comment: Some commenters wanted sanctions imposed upon the facility 
for interfering with the survey team, monitor or temporary manager.
    Response: Section 1128(b)(12) of the Act permits the Secretary to 
exclude SNFs from Medicare and to direct that NFs be excluded from 
Medicaid for failure to grant access to the applicable survey agencies 
performing survey and certification functions in accordance with 
sections 1864(a) and 1902(a)(33)(B) of the Act. Failure to grant access 
can certainly be regarded as interference with the activities of State 
agency personnel. However, interference with the temporary manager is 
different. Sections 488.410 and 488.438 specify that if the facility 
does not agree to the conditions under which the temporary manager is 
imposed, the facility may refuse to relinquish control to the temporary 
manager, and, in so doing, opt for termination.
    Comment: One commenter wanted HCFA to include a ``sole community 
provider exception'' to allow States to oversee the operations of 
noncompliant facilities with uncorrected deficiencies in rural areas, 
where the closure would result in hardship to the residents and the 
community.
    Response: States have the authority to oversee (appoint a State 
monitor) any noncompliant facility, regardless of the location. 
However, if the commenter wants a provider in a rural area to be 
exempted from correcting deficiencies, we do not have the authority to 
grant such an exception. Waiver authority requirements are provided at 
Sec. 483.70 and at Sec. 483.30(c) and (d), relative to the Physical 
Environment and Nursing Services participation requirements, 
respectively, and then only when specified conditions are met.

Section 488.410  Action When There Is Immediate Jeopardy

    In conducting our review of the provisions of the regulation for 
conformance with the Act, we noted that the Act uses ``immediate 
jeopardy to resident health or safety'' to describe those situations in 
which immediate corrections must be achieved and immediate enforcement 
action must ensue, while the text of the proposed rule refers to such 
situations as ``immediate and serious threat.'' We have attempted to 
modify the terminology used in the final regulation to consistently 
reflect the language of the Act.
    Comment: Many commenters stated that the 23-day timeframe for 
termination is not included in the Act, that it is too short and that 
it does not allow adequate time for corrections. Some suggested that 
other timeframes, such as 45 days or 90 days, be used, while others 
indicated that the 23-day clock should not start until the facility has 
been given a chance to undertake corrections.
    Response: While the 23-day timeframe is not specified in the Act, 
HCFA has for many years used a 23-day timeframe for addressing 
immediate jeopardy situations encountered in other provider and 
supplier types. In fact, the enforcement procedures which were in 
effect for long term care facilities prior to the implementation of 
OBRA '87 provisions called for processing termination actions within 23 
calendar days when immediate and serious threat to patient health or 
safety was documented. In these cases, if the immediate and serious 
threat was resolved before the end of the 23 calendar days, the 
termination action was lifted entirely, or if the threat was removed 
but other serious deficiencies remained, the termination date was 
extended to allow the facility additional time to correct the remaining 
deficiencies.
    Our experience in processing noncompliance actions against other 
facilities and against long term care facilities (both before and after 
OBRA '87 implementation) whose deficiencies constitute immediate 
jeopardy indicates that 23 calendar days is a reasonable amount of time 
for proper notice to the facility and to the public, as may be 
required. Further, it provides the facility sufficient time to react to 
the immediate jeopardy without unnecessarily lengthening the amount of 
time the facility's residents are at risk because of the situation or 
situations which constitute the immediate jeopardy.
    While we appreciate the concerns expressed by the commenters, we 
are not amending the 23-day timeframe in the final regulation.
    Comment: Another group of commenters believed that the 23-day 
timeframe is too long and that, for facilities in which immediate 
jeopardy is identified, the requirement should be that corrections be 
initiated immediately.
    Response: The 23-day timeframe is not the amount of time the 
facility has to begin making corrections. Rather, it is the maximum 
amount of time available to the facility to resolve the immediate 
jeopardy. It begins on the last day of the survey. A facility is 
ordinarily advised of the existence of immediate jeopardy at the 
conclusion of the survey which identified the immediate jeopardy. Most 
facilities in this situation that want to remain in the Medicare or 
Medicaid program will begin to make corrections immediately. Even for 
those that do not begin making corrections on their own, some time must 
be allowed for provision of proper notices, as required by regulation, 
and/or the appointment of temporary management. In consideration of 
these factors and the fact that it is also possible for the enforcement 
process to be completed in less than 23 calendar days, we are not 
adopting these comments in the final regulation.
    Comment: Some commenters asked that the regulation be amended to 
clarify that 23 calendar days is the maximum amount of time which a 
facility will be given to resolve a finding of immediate jeopardy, 
whether or not temporary management is utilized. One commenter said 
that the facility should be given an additional 23 days beyond the 
termination date during which a temporary manager would be utilized to 
attempt to achieve compliance.
    Response: We have accepted the first comment. We agree that 23 
calendar days is the maximum time allowed for a facility with immediate 
jeopardy to resolve the jeopardy. It is not possible for a facility to 
first be given 23 calendar days to correct deficiencies pending 
termination followed by another period of time during which temporary 
management is utilized in an attempt to regain compliance.
    Comment: Some commenters cited the 23-day timeframe as a 
disincentive for the use of temporary management as an alternative 
remedy.
    Response: We do not believe that use of the 23-day timeframe is a 
disincentive for use of temporary management based on the seriousness 
of deficiencies identified at this level as well as the need to take 
immediate corrective action.
    Comment: A number of commenters indicated that the facility should 
not be given the opportunity to refuse temporary management.
    Response: As noted in the comments and responses for Sec. 488.415, 
facilities will not be offered a formal choice of whether to accept or 
refuse temporary management. When HCFA or a State chooses to implement 
this remedy, a temporary manager will be installed unless the facility 
refuses to relinquish control to the temporary manager, in which case, 
immediate termination will be sought.
    Comment: A few comments indicated that there should be an immediate 
ban on admissions to the facility, large civil money penalties and/or 
immediate assignment of a State monitor for these cases.
    Response: While the Act does not allow for bans on all admissions 
under these or any other circumstances, it is possible for the State or 
HCFA to impose State monitoring as an additional remedy. While large 
civil money penalties are also allowed, they may not be as likely to 
result in immediate corrections, since they may not be collected until 
the facility has the opportunity for a hearing.
    Comment: Several commenters believed that the regulation as 
proposed does not promote the use of alternative remedies in situations 
involving immediate jeopardy and argued that this approach does not 
follow the spirit of OBRA '87.
    Response: The Act makes a clear distinction between how cases 
involving immediate jeopardy will be handled as opposed to how all 
other cases will be handled. The Act requires immediate action to 
remove the jeopardy and correct the deficiencies through the use of 
temporary management or termination, or both. While it allows for the 
use of other remedies which are in addition to temporary management or 
termination, it is clear that the penalty for a facility with 
noncompliance which constitutes immediate jeopardy is intended to be 
swift and severe. The regulation reflects the intent of the Act; 
therefore, the use of alternative remedies in addition to temporary 
management is allowed but not stressed for immediate jeopardy 
situations.
    Comment: Several commenters asked for a better definition of 
immediate and serious threat. Others indicated that the scope and 
severity scale, as issued for comment in the proposed rule, would lead 
to many more instances of immediate jeopardy than are now being 
identified.
    Response: In response to the many comments received regarding the 
proposed scope and severity scale, we are amending the definition of 
immediate jeopardy in the final regulation (see Sec. 488.301). In 
making decisions on the existence of immediate jeopardy, HCFA and the 
States will continue to refer to the traditional guidance on this 
subject which is contained in Appendix Q of the State Operations 
Manual.
    Comment: One commenter pointed out that the proposed regulation 
does not address who will prevail (HCFA or the State) about whether or 
not immediate jeopardy exists in a facility, and asked for 
clarification.
    Response: HCFA always has the option of reviewing the State's 
compliance determination and making its own decision based on the 
survey agency's survey findings. It is not necessary for HCFA to 
conduct its own survey of a facility in order to make a decision as to 
whether immediate jeopardy does or does not exist. Whether HCFA's 
decision is based on its own survey or on a review of the State's 
findings, the decision as to whether or not immediate jeopardy exists 
is made pursuant to section 1919(h)(5) of the Act. Specifically, the 
determination of immediate jeopardy, whether it is the survey agency's 
or the Secretary's, will prevail.
    Comment: One commenter asked that the facility and not the State be 
responsible for notifying attending physicians and licensure boards, as 
outlined in Secs. 488.410(e) and 488.325(h).
    Response: As indicated in sections 1819(g)(5)(C) and 1919(g)(5)(C) 
of the Act, Disclosure of Results of Inspections and Activities, the 
responsibility for this notification lies with the State; it may not be 
redelegated to the facility.
    Comment: One commenter asked that we clarify Sec. 488.410(e) to 
indicate that the notice should go to the licensing authority of the 
nursing home administrator.
    Response: We agree, and this comment is reflected in the final 
regulation.
    Comment: Two commenters asked that the text of 
Sec. 488.410(c)(2)(i) be amended to indicate that the use of temporary 
management is for the purpose of correcting the deficiencies that 
resulted in a finding of immediate jeopardy.
    Response: We are not adopting these comments, as we believe they 
would provide for a more narrow interpretation than the Act specifies 
at sections 1819(h)(4) and 1919(h)(5). These sections state that the 
appointment of a temporary manager shall be for the purpose of removing 
the jeopardy and correcting the deficiencies. Further, as indicated in 
the comments and responses for Sec. 488.415, temporary management will 
be removed when the facility is terminated, or when HCFA or the survey 
agency has determined that the facility is in substantial compliance 
and has the management capability to ensure continued substantial 
compliance with all requirements. Consistent with sections 1819(h)(2), 
1919(h)(2) and (h)(3) of the Act, temporary management would not 
necessarily end as soon as deficiencies causing the immediate jeopardy 
have been corrected.
    Comment: Four commenters indicated that HCFA should adopt a 
procedure utilized in Louisiana, whereby a facility may request 
sanctions other than a temporary manager and the request may be granted 
if the State determines that an adequate plan to correct has been 
devised by the facility and the State can monitor the implementation of 
the facility's plan.
    Response: As presented, this procedure does not appear to meet the 
requirements of the Act which call for immediate action to remove the 
immediate jeopardy through termination or appointment of temporary 
management, or both. It would appear that the proposed procedure would 
allow something similar to a directed plan of correction and State 
monitoring to replace termination or temporary management as the 
remedies for immediate jeopardy cases. Such a policy would constitute a 
violation of the Act.

Section 488.412  Action When There Is No Immediate Jeopardy

    Comment: Many commenters said that the requirement for the State or 
the facility to repay funds received from the Federal government if 
corrective action was not taken in accordance with the approved plan of 
correction conflicts with HCFA's intent to promote the use of 
alternative remedies.
    Response: Comments regarding the State and facility repayment 
provision of Sec. 488.412(a) will be answered in our discussion of 
proposed Sec. 488.232 (redesignated as Sec. 488.450, Continuation of 
payments to a facility with deficiencies).
    Comment: Several commenters objected to the requirement that a 
denial of payment for new admissions be imposed if any deficiency 
remains uncorrected 90 days after the survey. They believed that it is 
illogical to cut off funds after 90 days because the funds might be 
needed to make the corrections. Other commenters said that the 
regulations should allow continued participation with substantial 
compliance because the 100 percent compliance is impossible to achieve. 
Still other commenters made the following points:
     Major physical environment deficiencies may take longer 
than 90 days to correct;
     The regulations should permit an appeal of the decision to 
deny payments for new admissions;
     It is unclear whether mailing time is included in the 90 
days and whether an appeal stops the action; and
     It is unclear whether there is notice to the public 
regarding the remedy at the 90th day.
    Response: Sections 1819(h)(2)(D) and 1919(h)(2)(C) of the Act 
stipulate that the Secretary or the State, respectively, must impose a 
denial of payment for new admissions if the facility is not in 
compliance 3 months after the date that the facility was noncompliant, 
regardless of the requirement that is deficient. In answer to the 
commenter who raised the issue of substantial compliance, we are 
revising Sec. 488.412(c) to require a mandatory denial of payment for 
new admissions when a facility is not in substantial compliance 3 
months after the last day of the survey. Therefore, if a facility is in 
substantial compliance, it would not be subject to the mandatory denial 
of payment for new admissions remedy, or the denial of payment remedy 
would be lifted if it had already been imposed. Substantial compliance 
is discussed in detail earlier in this preamble. The fact that physical 
environment deficiencies may take longer to correct than others is an 
example of facility noncompliance which may not be wholly corrected 
after the completion of the 6-month continuation of payment period, but 
which could be considered substantial compliance if corrective action 
had progressed in accordance with the approved corrective action plan 
and timetable. With respect to the other points raised by the 
commenters, Sec. 488.330(e) (3) and (4) specify that a facility may 
appeal the certification of noncompliance leading to the denial of 
payment remedy; Sec. 488.330, paragraphs (e)(1)(ii) and (e)(2)(ii) 
specify that, except for civil money penalties, a pending appeal will 
not stop the action. Mailing time is included within the 3 months 
because the 3 months constitutes a statutory limit. There are neither 
statutory nor regulatory public notice requirements with regard to the 
denial of payment remedy.
    Comment: A great many individuals and organizations commented upon 
the requirement at proposed Sec. 488.212(b) which specifies that, 
although deficiencies with a scope and severity level of 1 are 
considered deficiencies, remedies or plans of correction are not 
required as long as corrections are achieved by the 90th day. 
Commenters' views varied widely as illustrated by the following--
     There should be no deficiency if the scope and severity 
level is 1;
     If no plan of correction is required there is no apparent 
reason for requiring correction in 90 days;
     A follow-up visit should not be required if the scope and 
severity level is 1;
     If deficiencies with a scope and severity level of 1 are 
to be treated differently than other deficiencies, then a new term 
should be used for them, such as findings;
     Deficiencies with a scope and severity level of 1 should 
be given to the facility on a separate document and not be disclosable 
to the public;
     Deficiencies with a scope and severity level of 1 should 
receive a plan of correction and be disclosable to the public;
     Deficiencies with a scope and severity level of 1 should 
not receive either a plan of correction or a remedy if substantial 
compliance is achieved;
     There is no such thing as an isolated problem. Excusing 
certain deficiencies as inconsequential sets a disturbing precedent for 
the health care industry;
     All deficiencies must be corrected;
     No deficiency should be found unless there is a quality of 
care issue;
     There doesn't appear to be a way for HCFA to track 
deficiencies with a scope and severity level of 1 without a follow-up 
visit;
     HCFA should clarify when a citation becomes a ``repeat 
deficiency.'' Remedies should be imposed in cases of repeated 
noncompliance only after a facility is found, after three standard 
surveys, to have furnished substandard care;
     A recurrence of a deficiency with a scope and severity 
level of 1 should be upgraded to a scope and severity level of 2;
     The regulation at proposed Sec. 488.212(b)(3) should 
specify continued noncompliance rather than recurrence;
     The regulation at proposed Sec. 488.212(b)(1) should read 
``both the severity level and the scope level are 2'' rather than 1;
     The regulation at proposed Sec. 488.212(b)(3) should 
impose a civil monetary penalty and one or more other remedies;
     HCFA should provide guidelines regarding what is an 
acceptable plan of correction;
     If a deficiency with a scope and severity level of 1 
recurs, HCFA or the State should impose a directed plan of correction 
or State monitoring; and
     The lack of appeal rights on recurring deficiencies with a 
scope and severity level of 1 will put the State at risk of increased 
informal administrative hearings, because of the requirement that 
remedies be imposed.
    Response: The issue of deficiencies at a severity and scope level 
of 1 are discussed under Sec. 488.408 of this preamble.
    We are retaining the definition of deficiency at Sec. 488.301. A 
deficiency is failure to meet a participation requirement. All 
deficiencies, with the exception of those isolated deficiencies that 
HCFA or the State determines constitute no actual harm with a potential 
for minimal harm, will be displayed on the HCFA-2567, Statement of 
Deficiencies and Plan of Correction, and will require a plan of 
correction to be tracked by the State survey agency. All deficiencies, 
including those isolated deficiencies that HCFA or the State determines 
constitute no actual harm with a potential for minimal harm, will be 
disclosable to the public. However, these low level deficiencies will 
not be recorded on the HCFA-2567 and will not precipitate any 
enforcement action. We conclude that this approach is reasonable and 
practical from both the provider's and the consumer's perspective. To 
react to low level deficiencies with the same degree of concern as to 
those that are more serious is not rational. We believe that providers 
and consumers will agree that deficiencies which constitute no actual 
harm with no more than a potential for minimal harm, and which bear no 
relationship to poor care or negative resident outcomes should not 
detract from actionable noncompliance.
    Comment: Many commenters suggested modifications to the use of the 
scope and severity scales for selection of remedies at proposed 
Sec. 488.412(c). The following comments and suggestions were made:
     Proposed paragraph (c)(3), (now paragraph (b)(3)), should 
read ``If HCFA or the State determines the existence of substandard 
care, the State must notify * * *'';
     Expand proposed paragraph (c)(3), to include deficiencies 
in quality of life, nurse staffing, and resident behavior and facility 
practices;
     For deficiencies with a severity level of 2, civil money 
penalties should be required using scope and severity to determine the 
size of the fine and other remedies should be applied according to 
Sec. 488.408;
     Provision should be made for remedies for deficiencies not 
in the area of quality of care with a severity level of 2 and scope 
level of 3 or 4;
     A variety of specific schemes were proposed for 
correlating each of the scope and severity levels to specific types of 
remedies; and
     Non-life threatening deficiencies should be exempted from 
remedies and fines.
    Response: As noted earlier, we addressed these issues under 
Sec. 488.408 of this preamble. Also, in response to the many comments 
we received advocating a clearer correlation between levels of 
noncompliance and types of remedies imposed, we are making extensive 
revisions to the scope and severity grid published in the proposed 
rule. We are, in fact, correlating categories of remedies to various 
categories of noncompliance. A revised grid appears below.

BILLING CODE 4120-01-P

TR10NO94.000


BILLING CODE 4120-01-C

Section 488.414  Action When There Is Repeated Substandard Quality of 
Care

    While analyzing the comments for this section, we again reviewed 
the provisions of the Act to ensure conformance in the final 
regulation. Through this process, we noted that this section does not 
address the portions of the statutory provisions at sections 
1819(h)(2)(E) and 1919(h)(2)(D) of the Act that specify that the denial 
of payment and monitoring must continue until the facility has 
demonstrated that it is in compliance and that it will remain in 
compliance. Accordingly, we are modifying this provision to specify 
that the mandatory denial of payment and State monitoring imposed for 
the finding of substandard quality of care on three consecutive 
standard surveys must continue until the facility has demonstrated that 
it has achieved substantial compliance and can maintain substantial 
compliance over the period of time specified by HCFA or the State.
    We further noted that the remedy described in section 
1819(h)(2)(B)(i) of the Act can be either denial of payment for all 
Medicare residents or denial of payment for all new Medicare admissions 
in a facility. In recognition of this fact, the regulation is being 
amended to reflect this distinction.
    Finally, because the provisions of the Act were in effect prior to 
the effective date of this regulation, we have had actual experience 
processing enforcement actions for facilities with substandard quality 
of care noted in three consecutive standard surveys. Our experience 
pointed out the need for further clarification in this section in two 
respects. One of these related to the handling of actions against 
facilities whose type of program participation changed during the 
period of time spanned by the three consecutive standard surveys, and 
the other related to whether remedies could be avoided through an 
allegation of compliance or actual corrections which followed the 
finding that there had been repeated substandard quality of care.
    In reviewing actual cases, we concluded that the determination of 
repeat substandard quality of care in a certified facility should be 
made without regard to the type of program participation involved; that 
is, any standard surveys conducted in the facility for Medicare, 
Medicaid or both should be considered. Since the survey process is the 
same for both Medicare and Medicaid participating facilities, there is 
no reason to consider the facility's type of program participation in 
the determination of whether repeated substandard quality of care has 
occurred. These issues are being clarified in Sec. 488.414.
    We also concluded that sections 1819(h)(2)(E) and 1919(h)(2)(D) of 
the Act indicate statutory intent that specific remedies be imposed any 
time substandard quality of care is repeatedly noted. Further, the 
Congress specifically provided the authority for continuation of these 
remedies after compliance has been achieved. The Congress' specific 
description of how this type of noncompliance must be dealt with 
clearly sets it apart from the handling of other cases. Therefore, we 
have concluded that a facility's allegation of compliance or actual 
attainment of compliance following the third consecutive standard 
survey which found substandard quality of care will not stop the 
imposition of the denial of payment or State monitoring. The remedy may 
be lifted when the facility has demonstrated its ability to maintain 
substantial compliance to the satisfaction of HCFA or the State. This 
point is also being clarified in this section of the regulation.
    Comment: A number of commenters asked for a clearer definition of 
``substandard care.'' Some asked whether substandard care and 
substandard quality of care are one and the same. Others pointed out 
that sections 1819(h)(2)(E) and 1919(h)(2)(D) of the Act specify that 
action is to be taken based on the provision of substandard quality of 
care.
    Response: We are changing the regulation to match the Act and 
indicate that this provision will apply when substandard quality of 
care is identified. For the purpose of this provision, substandard 
quality of care is defined in Sec. 488.301.
    Comment: Several commenters requested that the word ``standard'' be 
inserted between ``consecutive'' and ``surveys.'' They pointed out that 
the proposed regulation does not match the wording of the Act at 
sections 1819(h)(2)(E) and 1919(h)(2)(D), both of which specify that 
the substandard quality of care must be identified in three consecutive 
standard surveys.
    Response: We agree with the commenters. We are amending this 
section to indicate that the repeated substandard quality of care must 
have been noted through three consecutive standard surveys. Standard 
surveys are those described in Sec. 488.305.
    Comment: Four commenters asked for a clearer definition of repeated 
noncompliance. Two commenters indicated that repeat noncompliance 
should be defined as actual repeats of the same problem and the content 
of the deficiency and not just a repeat of a deficiency at the same tag 
number.
    Response: Sections 1819(h)(2)(E) and 1919(h)(2)(D) of the Act 
clearly indicate that action must be taken when repeat noncompliance in 
the form of substandard quality of care is identified. The Act does not 
narrow the scope to specify that the basis for finding substandard 
quality of care in a facility must be identical from one standard 
survey to the next or for all three of the consecutive standard surveys 
considered in making the determination that repeated substandard 
quality of care has occurred. Accordingly, we do not believe that the 
regulation should more narrowly define what constitutes substandard 
quality of care for the purpose of this provision.
    The regulation is being modified to clarify that action must be 
taken any time any deficiencies which constitute substandard quality of 
care are identified in the last three consecutive standard surveys. 
This provision will be applied solely on the basis of the repeated 
finding of substandard quality of care, and no attempt will be made to 
determine whether the substance of the noncompliance or the exact tag 
numbers for deficiencies which constitute noncompliance were repeated.
    Comment: One commenter stated that a facility's performance on 
surveys which were conducted prior to the effective date of this 
regulation should be counted in the determination of whether there is 
repeated noncompliance.
    Response: We agree with this comment. The survey process specified 
in the OBRA '87 provisions was effective for all surveys conducted on 
or after October 1, 1990. Even though the implementation of the 
corresponding enforcement provisions was not concurrent, any standard 
survey completed on or after October 1, 1990 must be considered in the 
determination of whether there is repeated noncompliance that resulted 
in substandard quality of care.
    Comment: One commenter suggested that to be consistent with the 
intent of the Act to have facilities maintain compliance, regulations 
should require that facilities maintain compliance with the deficient 
requirement after correction. The commenter recommended requiring 
termination if a facility corrects the deficiency, but then falls out 
of compliance with the same requirement during the same correction 
period.
    Response: The Act provides that when a facility has had findings of 
substandard quality of care on three consecutive standard surveys, the 
Secretary or the State must impose a denial of payment and a State 
monitor. In addition, sections 1819(h)(2)(E) and 1919(h)(2)(D) of the 
Act require that the denial of payment for new admissions and State 
monitor remedies must remain in force until the facility not only 
achieves substantial compliance but demonstrates that it can maintain 
substantial compliance. As we have explained earlier, substantial 
compliance constitutes compliance for the purpose of imposing or 
lifting a remedy, as well as issuing a certification of compliance.
    We do not foresee the situation described by the commenter as a 
problem. If a facility has corrected a deficiency, or is at least 
considered to be in substantial compliance, any remedy(ies) in effect 
would be lifted as well as compliance certified. We would not normally 
revisit a facility after compliance has been certified unless there is 
a complaint or some other impetus. If, at some later date after 
compliance has been certified, the facility is found to have a 
recurrence of the same deficiency that causes the facility to be out of 
substantial compliance, either a new continuation of payment period 
would begin, or termination (or cessation of FFP payments) would occur, 
depending on the seriousness of the noncompliance. However, any 
termination would be based on the fact that the facility was not in 
substantial compliance with sections 1819 (b), (c), and (d) and 1919 
(b), (c), and (d) of the Act by the end of the correction period, and 
not on the fact that the noncompliance was repeated. We have not 
adopted the commenter's suggestion to terminate a facility solely on 
the basis of repeated noncompliance.

Section 488.415  Temporary Management

    Comment: One commenter asked that we clarify the term 
``disciplinary action'' and state that the temporary manager must not 
have been found guilty of misconduct by any licensing board or 
professional society, and another commenter recommended that HCFA 
maintain a national registry of nursing home administrator disciplinary 
actions.
    Response: To avoid confusion surrounding the interpretation of 
``disciplinary action,'' we will not use the term in the requirement at 
Sec. 488.415(b)(2) as we did in Sec. 488.215(b)(3) of the proposed 
rule. Instead, we are structuring the provision to read that the 
temporary manager must ``not have been found guilty of misconduct by 
any licensing board or professional society in any State.'' We agree 
that it may be beneficial to have a misconduct registry for nursing 
home administrators, and we intend to examine the feasibility of 
developing one.
    Comment: Many commenters recommended that we include requirements 
that the temporary manager must have had no adverse ties to the problem 
facility, and must not have been fired from the facility in the past. 
Another commenter proposed that we include a requirement that the 
temporary manager have had no business or professional relationship 
with the facility for a minimum of 3 years prior to his or her 
appointment to operate the facility.
    Response: We agree with the commenters that the individual chosen 
to be temporary manager must not have been recently employed by the 
facility to be managed. We believe that an individual's previous 
employment relationship with a facility could positively or negatively 
prejudice that individual in his or her present dealings with the 
facility. Therefore, we are incorporating into the regulation, at 
Sec. 488.415(b)(4), a requirement that the temporary manager must not 
currently serve, or, within the past 2 years, have served as a member 
of the staff of the noncompliant facility. This requirement is similar 
to the requirement for surveyors, which we believe is appropriate, 
since effective evaluation is a necessary tool of both surveyors and 
temporary managers and requires their objectivity.
    Comment: One commenter asked how prior competency will be judged. 
Various commenters suggested that prior competency be defined by a 
minimum of one year of continuous experience as administrator of a long 
term care facility, by demonstrated expertise and experience in the 
operation of a nursing facility similar to the one the temporary 
manager is needed to manage, or by demonstrated experience in temporary 
management. Another commenter suggested that a measure of competency be 
whether the temporary manager served within the past 10 years as the 
administrator of a facility which furnished substandard quality of 
care.
    Response: As explained below, we are no longer requiring that the 
temporary manager be a licensed nursing home administrator or 
demonstrate prior competency as one. Because the skills and experience 
a temporary manager must have to correct deficiencies will vary on a 
case by case basis, HCFA and the State need to have the flexibility to 
appoint whoever is most suitable without the constraints of overly 
prescriptive eligibility requirements.
    When it happens that an individual interested in becoming a 
temporary manager is or has been a nursing home administrator, the 
compliance histories of the facilities managed by him or her will be 
reviewed. We will provide in manual instructions that there be such a 
review because we agree with the commenter that it would be 
inappropriate to appoint as a temporary manager an administrator who 
has had difficulty maintaining facility compliance in the past.
    Comment: A number of commenters believed that the temporary manager 
should not be a current competitor of the facility, have ownership 
interest in a competitor, or have been recently employed by a 
competitor. Commenters were concerned that these individuals would gain 
an unfair competitive advantage if appointed temporary manager.
    Response: We appreciate this concern, and we and the State will 
attempt to select temporary managers who are not affiliated with 
competitors of the facilities to be managed when the pool of temporary 
manager candidates allows. However, the purpose of imposing temporary 
management or any other remedy is to achieve and maintain substantial 
compliance with Federal requirements. When the only temporary manager 
candidate likely to accomplish this goal is affiliated with a 
competitor of the problem facility, HCFA and the State will necessarily 
consider that affiliation to be subordinate to the administrator's 
competency. If the facility feels more threatened by compromised 
competitiveness than it does by termination of its provider agreement, 
it has the right to refuse to relinquish control to the temporary 
manager selected by HCFA or the State, and subject itself to the 
possibility of termination instead.
    Comment: One commenter was concerned that persons interested in 
acquiring a financial interest in a facility would be motivated to 
serve as that facility's temporary manager in order to gain a 
competitive edge in later negotiations. The commenter asked that we 
prevent this possibility by precluding through contract with the 
temporary manager the purchase or other acquisition of the facility for 
a fixed period of time after completion of the temporary manager's 
responsibilities.
    Response: We do not have the authority to restrict a temporary 
manager's future business activities. If the facility to be managed has 
reason to believe that the temporary manager chosen by HCFA or the 
State would use the financial information he or she would acquire in 
the facility to the facility's disadvantage, the facility may raise 
this concern to HCFA or the State, and HCFA or the State may attempt to 
locate a temporary manager that is more acceptable to the facility. 
Should a temporary manager acceptable to the facility not be located, 
the facility may exercise its right to refuse to relinquish control to 
the temporary manager and face termination of its provider agreement.
    Comment: One commenter proposed that the temporary manager should 
neither have been an employee of, nor have been associated with an 
employee of HCFA, the Department of Health and Human Services, or any 
State licensing or survey agency.
    Response: We do not believe that a past affiliation with the 
aforementioned organizations would reduce a temporary manager's 
objectivity or effectiveness in any way. On the contrary, it is likely 
that the temporary manager would be more knowledgeable about Medicare 
and Medicaid participation requirements after having had exposure to 
the agencies that set and enforce the Medicare and Medicaid 
requirements, and we expect that the facility at which the temporary 
manager is imposed would benefit from this knowledge.
    Comment: A couple of commenters believed that the State must 
compile and update a list of people or organizations that meet the 
qualifications of temporary manager, and they asked that this list be 
available for public inspection. Another commenter proposed that the 
State or HCFA maintain a list of substantiated complaints or 
allegations concerning the performance of temporary managers.
    Response: We will not require that States catalogue complaints made 
against temporary managers, but will allow them to process complaint 
information in the way that they determine is most effective. Neither 
will we require the States to compile, update, and release a list of 
those qualified to be temporary managers. Because we have no authority 
to require the release of individuals' qualifications or other 
assignments, a list of temporary managers would contain no criteria by 
which facilities would be able to evaluate the candidates, and would be 
of little value. Moreover, HCFA and the State are not obligated to seek 
facility approval of temporary managers. It is neither the facility's 
responsibility nor right to select a temporary manager. (See additional 
response below.)
    Comment: A few commenters recommended that we allow a State or a 
team of people to qualify as a temporary manager. They believed that 
nursing guidance and expertise would be needed in addition to 
administrative supervision in order to remedy serious deficiencies.
    Response: Because a temporary manager has the authority to hire 
additional staff, it is possible for him or her to assemble what would 
be in essence a temporary management team. When the temporary manager 
determines that successful correction of a facility's deficiencies 
requires knowledge and skills in addition to his or her own, he or she 
may engage the specialists necessary.
    We have no statutory authority to require State survey agencies to 
make their staff available to function as temporary managers. Their 
role involves survey, certification, and monitoring, rather than the 
management (albeit temporary) of nursing homes.
    Comment: Several commenters asked that facilities be able to 
participate in the selection of the temporary manager. One recommended 
that the governing board of the facility be responsible for placing the 
temporary manager at the facility, and others requested that facilities 
be able to object to a particular temporary manager once selected by 
HCFA or the State.
    Response: The choice of a temporary manager will be made either by 
the State or by HCFA and will be based on the recommendation of the 
State survey agency. The State survey agency's geographic proximity to 
the providers it surveys and its knowledge of available and competent 
managers in the area place it in the best position to recommend a 
temporary manager. Because facilities have the right to refuse to 
relinquish control to the temporary manager, no facility will be forced 
to submit to a temporary manager that it objects to, and it may decide 
to subject itself to the possibility of termination instead.
    Comment: Certain commenters were concerned that the qualifications 
for a temporary manager will be hard to meet. A few commenters 
suggested that HCFA and the State be given latitude to appoint as 
temporary manager any qualified person, such as a registered nurse with 
nursing home experience, instead of having to appoint a licensed 
nursing home administrator.
    Response: We agree that a nursing home administrator's license is 
not the only valid indicator of an individual's fitness to serve as 
temporary manager. Certain combinations of educational and vocational 
achievement may also signify administrative competency. We are, 
therefore, amending paragraph (b)(1) and deleting paragraph (b)(2) of 
Sec. 488.215 as they appeared in the proposed rule to allow an 
individual who does not hold a nursing home administrator's license to 
serve as temporary manager if the State determines that he or she is 
qualified to oversee correction of deficiencies on the basis of 
experience and education. Because this change should expand the pool of 
qualified temporary manager candidates, it should reduce the number of 
terminations caused by inability to locate a temporary manager, a clear 
benefit to both providers and residents.
    Comment: One commenter believed that the State should be required 
to conduct an orientation session for people on the list of qualified 
temporary managers. That session would cover topics such as situations 
warranting the appointment of a temporary manager, and the 
responsibilities and authority of a temporary manager.
    Response: We agree that a temporary manager would not be able to do 
his or her job effectively without being oriented to the task, and will 
direct the State survey agencies in our State Operations Manual to 
provide an orientation, the form of which shall be determined by them.
    Comment: Many commenters requested that we impose an enforceable 
limit on the salary of the temporary manager, and a large number of 
those recommended that we use the prevailing salary limit set forth in 
the preamble to the NPRM. Other commenters proposed that we require 
compensation for the temporary manager to be set at a rate sufficient 
to attract people with the necessary qualifications, and they 
recommended that we not limit the salary of the temporary manager to 
the rate mentioned in the preamble. These commenters were concerned 
that it would be unlikely to draw the expertise needed.
    A few commenters requested that we identify who will determine the 
salary of the temporary manager, and certain of those asked whether it 
will be negotiable. Another commenter asked if the facility will be 
obligated to provide benefits to the temporary manager.
    Response: After reviewing the comments we received, we have 
concluded that the salary limit put forth in the preamble to the 
proposed rule would not be in the best interests of facilities or their 
residents because it would make it difficult to attract qualified 
temporary managers. The temporary managers that are available are 
sometimes located long distances from the facilities which need them, 
and unless the salary offered is sufficiently attractive, it will not 
induce individuals to temporarily upset their normal routines and 
accept the challenge of managing a severely deficient facility. If 
temporary managers cannot be secured, we will have no choice but to 
proceed with termination. In order to avoid this result and promote the 
use of temporary management as an alternative remedy, we will give 
facilities the flexibility to exceed the salary floor specified below 
if the State is otherwise unable to attract a qualified temporary 
manager and the facility considers a higher payment preferable to 
termination. The salary of the temporary manager must be at least 
equivalent to the prevailing salary paid by providers in the facility's 
geographic area for positions of this type, plus the prevailing cost of 
certain additional allowances. The additional allowances will include 
costs that would have reasonably been incurred by the provider if the 
temporary manager had been in an employment relationship, such as the 
cost of a benefits package, prorated for the amount of time the 
temporary manager is working in the facility. The facility will also be 
responsible for any other costs incurred by the temporary manager in 
furnishing services under such an arrangement or as otherwise set by 
the State.
    Because the State is in a better position than HCFA to determine 
the prevailing salary and other employment related costs of a nursing 
home administrator within what the State considers to be the facility's 
geographic area, it will be responsible for setting the salary/benefits 
floor of the temporary manager and for determining whether or not it is 
necessary to exceed it. The State may consult with a provider while it 
determines the appropriate salary, but we will not require that the 
salary of the temporary manager be negotiable.
    Comment: One commenter asked what would happen if a facility agreed 
to temporary management, but then failed to pay the salary.
    Response: We are considering requiring that facilities pay the 
salary of the temporary manager before the remedy begins, which would 
eliminate the need for a recoupment strategy. Until a decision is made, 
the mechanism that is currently used to recover Medicare and Medicaid 
funds from facilities which have been overpaid will be used to collect 
money from any facilities that owe the salary of the temporary manager. 
The amount owed would be withheld from future amounts due to the 
facility from HCFA or the State. Because Medicare and Medicaid payments 
may continue for up to 30 days after termination, salaries may be 
recouped even when they are owed by terminated facilities.
    Comment: A large number of commenters disagreed with the provision 
that the temporary manager's salary be paid by the facility. A few 
commenters stated that the money spent on temporary management would be 
better spent by the facility on its own improvements. Certain 
commenters complained that a lack of sufficient funds is often what 
leads to noncompliance, and so they were concerned that this remedy 
would be worthless without additional funding. A number of commenters 
argued that a facility's inability to pay for temporary management 
should not preclude its use as a remedy.
    Many commenters recommended that the temporary manager's salary be 
paid out of a fund composed of civil money penalties collected by the 
State, and certain commenters cited 42 U.S.C. 1396r(h)(2)(A)(ii) 
(section 1919(h)(2)(A)(ii) of the Act) as establishing the authority to 
do so. Other commenters believed that States should be required to use 
funds collected through imposition of civil money penalties to cover 
the costs of correcting deficiencies incurred by the temporary manager, 
but only if the facility cannot afford to pay these costs itself. 
Certain commenters believed that the facility and its operators should 
be liable to the fund for reimbursement of expenses. One commenter 
recommended that the States should be authorized to impose liens on the 
facility and other assets of the corporate entity until the facility 
reimburses the fund. Another commenter believed that the States should 
be charged with the duty of using all available collection methods 
afforded by law to recoup expenditures from the fund.
    One commenter noted that 42 U.S.C. 1396r(h)(2)(E) (section 
1919(h)(2)(e) of the Act) provides that temporary management costs are 
legitimately payable administrative expenses of the State. Therefore, 
this commenter and others believed that the temporary manager's salary 
and the costs that he or she incurs while managing the facility should 
be borne by the State and reimbursed under the State's Medicaid 
reimbursement system.
    Other commenters were in favor of obligating facilities to bear the 
cost of temporary management, and several asked that we state that the 
cost of temporary management is not an allowable expense for Medicare 
or Medicaid reimbursement. One commenter recommended that the salary 
payment be funded by the facility but routed to the State which would 
deliver the payment to the temporary manager. The commenter was 
concerned that direct facility payment would undermine the objectivity 
of the temporary manager.
    Response: We will continue to require that facilities pay the 
salary of the temporary manager, and we will not deem this cost to be 
an allowable expense for Medicare or Medicaid reimbursement. We believe 
that to do otherwise would undermine our enforcement efforts to 
motivate corrective action and encourage sustained substantial 
compliance. If we relieved facilities of their responsibility for 
bearing the costs of correcting serious deficiencies, we would be 
providing them with a clear disincentive to remain in substantial 
compliance. We also believe that providing the services of a temporary 
manager without charging for them would be an inappropriate response to 
a facility's failure to meet the responsibility it assumed upon 
entering the Medicare and/or Medicaid programs to meet participation 
requirements. A noncompliant facility must be held accountable for 
breaches of responsibility; therefore, it (and not HCFA or the State) 
should bear the cost of the temporary management it has incurred.
    Because responsibility for paying for the cost of the temporary 
management is one condition of the remedy, a facility's unwillingness 
to pay will be considered a failure to relinquish control to the 
temporary manager, and will cause the facility to be subject to the 
possibility of termination instead. A facility's inability to pay for 
the cost of the temporary management will have the same result. A 
provision has been added at paragraph (c)(4) to indicate this. The 
conspicuous absence of consideration of a facility's financial 
condition as a statutory criterion for imposing temporary management 
(as opposed to its inclusion as a criterion for determining the amount 
of a civil money penalty) implies that the Congress did not intend for 
it to be a factor in imposition of the remedy. Consequently, we are 
also compelled to proceed with action to terminate those facilities 
that are unable to assume the cost of the temporary management.
    We do not believe that our position conflicts with the statutory 
references cited by certain commenters. Section 1919(h)(2)(A)(ii) of 
the Act states that funds collected by a State as a result of 
imposition of civil money penalties shall be applied to the protection 
of the health or property of residents of nursing facilities that the 
State or the Secretary finds deficient, including maintenance of 
operation of a facility pending correction of deficiencies or closure. 
A temporary manager does not maintain operation of a facility. Rather, 
it is the facility ownership that is responsible for sustaining 
facility operations. If the State assumes control of a facility after 
it has been abandoned by its ownership, then it would be appropriate 
for the State to use civil money penalty funds to pay the expenses of 
maintaining the abandoned facility.
    We also believe that commenters misinterpreted the provision of the 
Act found at section 1919(h)(2)(E). This section states that the 
reasonable expenditures of a State to provide for temporary management 
shall be considered for Federal payment purposes to be necessary for 
the proper and efficient administration of the State plan. We believe 
this refers to the resources necessary to locate, orient, guide, and 
monitor the temporary manager, and does not include the cost of the 
temporary manager's service itself. When a facility pays for the 
temporary manager, we believe that it would be unnecessarily circuitous 
to route the salary payment to the State before delivering it to the 
temporary manager, and disagree that direct payment would compromise 
the temporary manager's objectivity. A facility would not be able to 
use the temporary manager's salary as leverage to influence his or her 
actions because a facility could not effectively keep the salary from 
the temporary manager. The temporary manager would be paid even if the 
facility attempted to withhold his or her salary because HCFA or the 
State could recoup the amount owed to the temporary manager from 
payments later made to the facility. Therefore, we are requiring that 
the facility pay the salary of the temporary manager directly, and are 
modifying the provision at Sec. 488.415(c) to reflect this.
    Comment: A large number of commenters believed that facilities 
should not be given the opportunity to refuse temporary management. 
Commenters were concerned that facilities would reject temporary 
management if given the choice, thereby subjecting residents to 
continued substandard quality of care, promoting facility terminations, 
and exposing residents to relocation trauma.
    Commenters proposed various ways for HCFA and the State to obviate 
facility consent when appointing a temporary manager. One suggestion 
was that we appoint the temporary manager subject to court order. 
Another recommendation was that we administratively appoint the 
temporary manager in accordance with the State's police power. 
Additional commenters proposed that we set limits on the duration of 
the temporary management (for example, restricting the appointment to 
two weeks), the circumstances under which the manager would be 
appointed, and the funds that the manager could spend in order to make 
the administrative appointment binding.
    Other commenters proposed not only that facilities be required to 
accept temporary management, but that HCFA and the State be required to 
impose temporary management in immediate jeopardy situations without a 
choice between it and termination.
    Response: We agree that facilities should not be offered a formal 
choice of whether to accept or reject temporary management because we 
believe that more facilities will exercise the right to refuse if it is 
explicitly offered. Therefore, once HCFA or the State has determined 
that temporary management is the optimal enforcement response, we will 
expect the facility to accept it, and we will proceed with the 
appointment of the temporary manager without requesting facility 
consent to do so. However, facilities will have the right to refuse to 
relinquish control to the temporary manager since the administrative 
process precludes us from forcing providers to relinquish control. A 
facility's refusal will initiate termination. While we realize that, in 
effect, the right of refusing to relinquish control to the temporary 
manager is tantamount to the prerogative of rejecting temporary 
management, we believe that the new arrangement will encourage the use 
of the remedy. We are amending Secs. 488.410, 488.415, and Sec. 488.456 
to delete references to a facility's choice of accepting or rejecting 
the remedy.
    We cannot force a facility to relinquish control to a temporary 
manager because, ultimately, participation in the Medicare or Medicaid 
program is voluntary under the Act, and we have no authority to compel 
a facility to stay in the program should it, for its own reasons, 
choose to withdraw. We will not seek judicial action to impose 
temporary management because the Act does not require that judicial 
intervention be a prerequisite for imposing this remedy.
    We do not believe it is appropriate to rest appointment of 
temporary managers upon the State's police power as described in State 
law. First, the Act does not suggest that this be the case. Second, 
this remedy is one imposed under the Act, not State law. Ultimate 
authority for this remedy lies, accordingly, in the Medicare and 
Medicaid laws and ought not look to State law without some indication 
by the Congress that it expected this to be the case.
    A facility's refusal to relinquish control to the temporary manager 
will cause HCFA or the State to proceed with action to terminate the 
facility's program participation. We share commenter concern about the 
protection of the health and safety of residents when termination 
proceedings have been initiated. Consequently, we will allow a State 
monitor to be imposed at all facilities that have failed to relinquish 
control to a temporary manager in cases of immediate jeopardy, and also 
at those facilities for which no temporary manager could be located. 
The monitor will notify HCFA or the State when the absence of temporary 
management subjects residents to substantial risks, and HCFA and the 
State may then opt to take additional enforcement action.
    We note that the Act does not require that temporary management be 
imposed when there is immediate jeopardy. Sections 1819(h)(2)(A)(i), 
1919(h)(1)(A), and 1919(h)(5) of the Act give HCFA and the State the 
option of using temporary management and/or termination to respond to a 
situation that immediately jeopardizes the health or safety of 
residents. In certain cases, facility shortcomings may be so severe and 
the likelihood of a temporary manager being able to successfully remove 
them so small, that HCFA or the State may decide that resident 
interests would be better served by terminating the facility and 
relocating the residents than by continuing to subject the residents to 
substandard conditions that are unlikely to improve. Because we believe 
there are situations where termination is more appropriate than 
temporary management, we do not accept the suggestion that HCFA and the 
State be required to impose a temporary manager in lieu of termination 
in cases of immediate jeopardy.
    Comment: Numerous commenters requested that we restructure the 
relationship between the facility and the temporary manager. Certain 
commenters believed that the temporary manager should act in a 
consultant capacity, and not as a replacement for the facility 
administrator. Others felt that the temporary manager should work under 
the control of the facility's governing body, and that we should 
require the temporary manager to consult with the governing body when 
developing the plan of correction. Another commenter favored giving the 
temporary manager legal but not financial control of the facility.
    Many other limitations on the temporary manager's authority were 
proposed. A number of commenters believed that the temporary manager 
should not be able to make employment decisions, and they recommended 
that we require the temporary manager to obtain approval from HCFA, the 
State, or the facility's governing body before hiring or firing 
facility employees. Other commenters proposed that there be limits on 
the expenditures the temporary manager can make in order to correct 
deficiencies, and they suggested that the regulation require that the 
temporary manager obtain the consent of the provider to spend beyond 
those limits. Another group of commenters requested that we limit the 
time period for which the temporary manager may legally commit or 
obligate the facility, and asked that we require the temporary manager 
to seek facility approval before entering into long term contracts. A 
few commenters recommended that facility ownership be able to appeal to 
the State to stay the actions of the temporary manager, and another 
requested that the facility have the right to object to the temporary 
manager's business practices.
    Response: Sections 1819(h)(2)(B)(iii) and 1919(h)(2)(A)(iii) of the 
Act specifically provide that the temporary manager is to oversee the 
operation of the facility and assure the health and safety of the 
facility's residents while improvements are made to bring the facility 
into compliance. Further, once the facility relinquishes authority to 
the temporary manager, the Act prohibits the removal of the temporary 
manager until the Secretary or the State has determined that the 
facility has the management capability to ensure continued compliance, 
assuming that the Secretary or State does not decide to terminate the 
facility before that time. We believe that implicit in the reason that 
the Act authorizes temporary management is the assumption that the 
facility's management staff lacks the capability to bring the facility 
into compliance. Therefore, the temporary manager needs to have the 
authority to completely manage the entire facility with enough autonomy 
to remove any immediate jeopardy and/or correct deficiencies. Imposing 
the limits proposed by commenters would handicap the ability of the 
temporary manager to make the necessary corrections, and thus 
jeopardize the successful completion of the temporary manager's 
mission.
    We believe that requiring that the governing body of the facility 
be allowed to become involved in the decision making process after it 
has demonstrated that its management skills are deficient would defeat 
the purpose of the remedy. The temporary manager may find it useful to 
consult with facility officials, but the extent to which the temporary 
manager interacts with the facility's management is at his or her 
discretion. This does not mean that we will deny the facility the 
opportunity to object to the actions of the temporary manager, or that 
we will force the facility to submit to the temporary manager's reform 
agenda against its will. At any time the governing body of the facility 
is not in agreement with the decisions or actions of the temporary 
manager, it may advise the owner or corporate official with appropriate 
authority to refuse to continue with the remedy. Such action would, of 
course, subject the facility to the possibility of termination instead.
    Comment: Many commenters believed that facilities should have 
recourse to HCFA or the State to express concerns regarding the 
administrative competency of the temporary manager. One commenter was 
worried that providers would not have the opportunity to lodge a 
complaint about the temporary manager before his or her services ended.
    Certain commenters proposed that HCFA and the State monitor the 
performance of the temporary manager and replace any manager whose 
performance is unsatisfactory. Another commenter asked that a provider 
be able to replace the temporary manager if the provider can 
demonstrate that the manager is incapable of correcting deficiencies or 
is jeopardizing or impairing the facility's continued operation.
    Response: HCFA and the State survey agency will monitor the actions 
of the temporary manager, and we expect the facility to do the same. We 
encourage an open dialogue with providers and invite them to 
communicate to HCFA or the State on an ongoing basis any concerns that 
they have with the decisions of the temporary manager. If HCFA or the 
State is dissatisfied with the performance of the temporary manager, we 
may respond by providing the temporary manager with remedial guidance 
or by replacing him or her with an alternate. However, if these actions 
are not possible or prove unsuccessful, we will have no choice but to 
remove the temporary manager and proceed with termination of the 
facility's provider agreement. The most appropriate and practical 
response will vary, and it will depend upon factors such as the 
availability of an alternate or the amount of time remaining in the 23 
days after the last day of the survey allotted for removal of the 
immediate jeopardy when the temporary manager is imposed in an 
immediate jeopardy situation.
    Comment: One commenter asked that providers be allowed a time 
period to demonstrate an ability to correct deficiencies if, because of 
a temporary manager's incompetence, deficiencies have not been 
corrected timely.
    Response: A temporary manager's failure to correct facility 
deficiencies does not absolve a facility of its responsibility for 
generating corrections to those deficiencies, and if deficiencies are 
not corrected or the immediate jeopardy is not removed timely, the 
facility will be terminated. HCFA and the State are not required to 
provide facilities with additional time to come back into substantial 
compliance, but we are obligated to ensure that Medicare beneficiaries 
and Medicaid recipients receive the quality care to which they are 
entitled.
    Comment: Many commenters requested that we clarify the fiduciary 
responsibility of the temporary manager. One commenter asked that we 
designate the temporary manager as a fiduciary of the facility, and 
stated that by doing so we would empower the facility to protect its 
interests through established legal principles governing the 
relationship of fiduciaries to their charges. Other commenters believed 
we should stipulate that the temporary manager has a responsibility to 
maintain confidentiality of facility information, and obligations to 
act in the facility's best interests and ensure that the facility's 
financial resources are properly managed while he or she works to bring 
the facility into compliance. Additional commenters asked that we 
require the temporary manager to conduct himself or herself in a 
professional manner and to act in a manner reasonably calculated to 
correct deficiencies and protect the facility's residents.
    Response: The temporary manager has a responsibility to further the 
enforcement efforts of HCFA or the State in an effort to protect the 
facility's residents, and not a duty to serve the facility. HCFA or the 
State commissions the temporary manager to correct deficiencies 
identified in the facility's operation, and we expect the temporary 
manager to exercise sound financial judgment and discretion while 
executing his or her duty. Likewise, we assume that the temporary 
manager will conduct himself or herself in a professional manner and 
act in the facility's best interests. However, we will not explicitly 
require these standards in the regulation. These terms could not be 
meaningfully defined because appropriate definitions for them would 
vary with the circumstances of each temporary management assignment.
    Comment: A great number of commenters asked that the temporary 
manager be held liable to the owner or governing body of a facility for 
gross negligence, intentional acts and omissions, unexplained 
shortfalls in facility funds, and breaches of fiduciary duty. Certain 
commenters proposed that HCFA, the State, or the temporary manager be 
required to secure a bond before overseeing operation of a facility, 
and others requested that HCFA or the State indemnify the facility for 
harmful consequences arising from the temporary manager's actions or 
omissions. Another felt that HCFA or the State should be identified as 
the temporary manager's employer for liability purposes.
    Response: We expect facilities to monitor the performance of the 
temporary manager, and if they have any apprehensions about his or her 
performance, they may have the remedy discontinued. Neither HCFA nor 
the State can force a facility to relinquish control to the temporary 
manager. Because it is the facility that decides to continue to yield 
to the temporary manager, neither HCFA nor the State will assume 
liability for the facility's decision. However, the facility does have 
the right to seek from the temporary manager any redress available 
under State laws relating to liability and fiduciary responsibilities.
    Comment: A few commenters asked whether the temporary manager will 
have a contract.
    Response: All of the actions needed to remove immediate jeopardy 
and correct deficiencies at a facility may not be readily apparent at 
the outset of the temporary management; therefore, it would be 
imprudent to delineate the specific duties and authorities of the 
temporary manager in contract form. The temporary manager must have the 
autonomy to take whatever steps are necessary to bring the facility 
into substantial compliance and ensure resident health and safety. 
Shortsighted contract provisions could prove restrictive and thus 
impede the temporary manager's progress.
    Comment: One commenter was concerned about the effect that the 
appointment of a temporary manager would have on a facility's liability 
insurance rates.
    Response: It would be more appropriate for a facility's insurer to 
address this issue. Should a facility find that the imposition of a 
temporary manager will cause the cost of its liability insurance to 
rise, this increase would be one of the factors that the facility would 
have to consider when evaluating the benefits and costs of 
relinquishing control to a temporary manager.
    Comment: One commenter asked that the temporary manager be 
authorized to not honor pre-existing leases, mortgages or contracts if 
their costs are excessive or if the contracts are otherwise 
unconscionable.
    Response: The temporary manager does not have the authority to 
selectively meet the financial obligations of the nursing home. That 
is, the temporary manager can not choose to pay some bills and not 
others, because he or she disagrees with the wisdom of the permanent 
facility management having assumed those financial obligations 
previously. It is the temporary manager's role to manage all aspects of 
the facility's operation, including its finances.
    Comment: One commenter believed that it would be problematic to 
bring temporary managers into county facilities because those 
facilities are subject to many restraints on hiring and the expenditure 
of funds set by county commissioners. Other commenters were concerned 
about whether the temporary manager would respect a facility's union 
agreements and contracts.
    Response: We recognize that a temporary manager in a public 
facility may be constrained in ways that he or she would not be in 
other facilities. We expect the temporary manager to work within any 
limitations under which the facility operates and to abide by union 
agreements and contracts. (See above response.)
    Comment: One commenter asked whether HCFA or the State would 
sanction a temporary manager who fails to rectify an immediate jeopardy 
situation within 23 days.
    Response: A failure to rectify an immediate jeopardy situation may 
be more indicative of the magnitude of a facility's deficiencies than 
the competency of the temporary manager, and neither HCFA nor the State 
will penalize automatically a temporary manager when his or her efforts 
failed to remove the immediate jeopardy. However, if HCFA or the State 
believes that the temporary manager was deficient in his or her duty, 
then that individual may be penalized to the extent that he or she is 
excluded from consideration for future temporary management 
assignments.
    Comment: Several commenters asked that we limit the duration of the 
temporary management. Many recommended that the temporary manager be 
discontinued when the immediate jeopardy is removed or when compliance 
with the requirements that triggered the temporary management is 
achieved.
    Response: Temporary management will be removed when the facility is 
terminated, or when HCFA or the State has determined that the facility 
is in substantial compliance and has the management capability to 
sustain substantial compliance. The temporary management might end when 
the immediate jeopardy has been removed and deficiencies have been 
corrected, but it would not have to. It would be premature to 
discontinue the temporary management before HCFA or the State is 
confident that the facility will not relapse into noncompliance. 
Effective enforcement involves promoting sustained substantial 
compliance, and we are revising Sec. 488.454, ``Duration of remedies'' 
to reflect this.
    Comment: One commenter recommended that HCFA or the State be able 
to continue special actions taken by the temporary manager which are 
necessary to protect resident health, welfare or safety. Facility 
management would request termination of the special conditions once it 
could show that they are no longer necessary. The commenter believed 
that this policy would ensure that the facility doesn't deteriorate 
when the temporary management ends.
    Response:  Neither HCFA nor the State will discontinue temporary 
management and restore control of a facility to its own management 
unless it is convinced that the facility is capable of and committed to 
sustaining substantial compliance. We do not believe an additional 
regulatory provision is necessary to ensure this result.
    Comment: Several commenters were opposed to the use of temporary 
management, and proposed alternatives to it. One commenter suggested 
that, instead of using temporary management in immediate jeopardy 
cases, HCFA require the non-compliant homes to hire consultants 
approved by HCFA to correct deficiencies. Another commenter proposed 
that HCFA itself create and train teams to act in an advisory capacity. 
A few commenters asked that temporary management be eliminated and 
replaced by State monitoring. Another commenter requested that we allow 
facilities to devise their own plans of correction to remove immediate 
jeopardy and have the State agency monitor implementation instead of 
imposing temporary management.
    Response: Temporary management is authorized by sections 
1819(h)(2)(B)(iii), 1919(h)(2)(A)(iii), and 1919(h)(3)(C)(iii) of the 
Act, and HCFA and the States are required to establish and implement 
it: we may not exclude it as an enforcement option. Sections 
1819(h)(2)(A)(i), 1919(h)(1)(A), and 1919(h)(5) of the Act specifically 
require that temporary management be used in immediate jeopardy 
situations when provider agreement termination is not sought.
    The Act provides that the temporary manager is to oversee the 
operation of a facility and assure the health and safety of the 
facility's residents while improvements are made to bring the facility 
into compliance. Therefore, we conclude that the Act intends the 
temporary manager's role to be more than that of just a monitor of the 
progress made by the facility or a consultant to management, and we 
believe that inherent in the Act's rationale for establishing temporary 
management is the assumption that the facility's management staff lacks 
the capability to bring the facility into compliance. It would be 
insufficient to substitute the use of a consultant or monitor for the 
appointment of a temporary manager, because a consultant or monitor 
would not have the authority to completely manage the entire facility 
as a temporary manager does. Only a temporary manager has a role active 
enough to substitute for the facility management, whose deficient 
skills or practices would impede correction of deficiencies and 
protection of the residents' health or safety.
    Comment: One commenter wondered how availability of temporary 
managers would affect the use of this remedy.
    Response: In cases of immediate jeopardy, if a temporary manager 
cannot be located within 10 days of the last day of the survey, HCFA or 
the State is required to proceed with action to terminate the 
facility's program participation in order to protect the health or 
safety of the residents. To safeguard residents when this takes place, 
we will allow a State monitor to be imposed who will notify HCFA or the 
State if residents are being subjected to substantial risks and need to 
be transferred from the facility. If a temporary manager cannot be 
located for a situation which does not immediately jeopardize the 
health or safety of the residents, HCFA or the State has the 
flexibility to impose another type of remedy which it believes will 
best motivate the facility to achieve substantial compliance. However, 
if temporary management is the most logical alternative remedy, and a 
temporary manager cannot be located, HCFA or the State has the 
authority to terminate the provider agreement. We do not believe that 
the imposition of temporary management in lieu of termination is a 
provider right. Rather, it is an accommodation to the provider if, in 
the judgment of HCFA or the State, it will lead to substantial 
compliance and there are competent temporary managers available in the 
given geographic area.
    Comment: A few commenters requested that States be able to appoint 
a trustee or a receiver in lieu of a temporary manager if they have 
State laws that provide for these enforcement actions.
    Response: Many States have developed laws in accordance with State 
licensure authority that provide for sanctions similar to temporary 
management. The States use these sanctions, such as receivership and 
trusteeship, to enforce compliance with State licensure requirements. 
Section 1919(h)(2)(B)(ii) of the Act also gives the State the authority 
to use these measures when enforcing compliance with Federal Medicaid 
participation requirements, if the State can demonstrate to HCFA's 
satisfaction through a State plan amendment that trusteeship or 
receivership is as effective in deterring noncompliance and correcting 
deficiencies as the remedy of temporary management. Therefore, if HCFA 
approves the State plan amendment establishing trusteeship or 
receivership as a remedy, a trustee or receiver may be used by a State 
as an acceptable alternative to a temporary manager when the State 
takes the enforcement action. The State may use the alternative remedy 
both when a temporary manager is required in cases of immediate 
jeopardy, and when one is selected as the most appropriate enforcement 
response in non-jeopardy cases.
    Comment: One commenter asked that we state the conditions under 
which temporary management will be imposed.
    Response: Other than the provisions in the law requiring temporary 
management in situations that immediately jeopardize the health or 
safety of residents, specific criteria for imposing temporary 
management in other types of situations would be impossible to develop. 
The decision of HCFA or the State to impose a temporary manager will be 
based on the deficiencies found at the time of survey coupled with 
other factors that exist at the facility at that particular point in 
time. For example, a facility might identify a deficiency before the 
State survey agency does and attempt to correct it. Although we could 
not dismiss the facility's failure to prevent the deficiency, neither 
would we ignore the administrative competence that the facility 
demonstrated by identifying and attempting to address the deficiency on 
its own initiative. We would consider both factors when selecting the 
appropriate remedy.

Section 488.417  Denial of Payment for All New Admissions

    Upon our review of comments and evaluation of the underlying 
statute, we noted that we did not make it clear in the proposed rule 
that the authority of the Secretary to deny payment to a facility is 
limited to Medicare facilities. In the case of Medicaid facilities, the 
State may deny payment to the facility and HCFA may deny payment to the 
State for all Medicaid residents in the facility. A related issue is 
the question of who must be satisfied that a facility has achieved and 
will remain in substantial compliance after the facility has been cited 
for repeated instances of substandard quality of care so that payments 
may resume. Section 1819(h)(2)(E) says that it is the Secretary for 
Medicare, and section 1919(h)(2)(D) says that it is the State for 
Medicaid.
    Comment: One commenter said that this remedy should be imposed only 
in cases posing a hazard to the residents or in cases when their rights 
are compromised.
    Response: We consider this remedy to be appropriate for both the 
cases in which we have designated it may be used and the cases in which 
we designate it must be used. We believe that it will be one of our 
most effective remedies because it will strongly motivate facilities to 
come into and remain in compliance.
    Comment: Some commenters said that the denial of payment for 
certain diagnostic categories set forth at Sec. 488.217(b) of the 
proposed rule would be ineffective, and lead to discrimination against 
individuals whose care may be more costly. This, they said, would be in 
violation of the Rehabilitation Act of 1974 and of the Americans with 
Disabilities Act of 1991.
    Response: We believe that these arguments are convincing, and to 
prevent facilities from using the provision as a means to discriminate, 
we have deleted it in this final rule.
    Comment: Many commenters said that this remedy as written is too 
broad and subject to too much interpretation, particularly with respect 
to the meaning of the terms ``adequate care,'' ``diagnostic 
categories,'' ``certain specified diagnoses,'' ``substandard quality of 
care,'' and ``new admission.'' Some said that residents who go to the 
hospital, then directly back to the facility, should not be considered 
to be ``new admissions.''
    Response: ``Substandard quality of care'' has been defined in 
Sec. 488.301. ``New admission'' has been defined at Sec. 488.401 and 
the definition already contained the statement that residents admitted 
before the effective date of the denial of payment and taking temporary 
leave are not considered new admissions, nor subject to the denial of 
payment. Since we have deleted the proposed Sec. 488.417(b), no 
definitions for those terms need be provided. Finally, the term 
``adequate care'' does not appear in the regulations text at 
Sec. 488.417. When it appears elsewhere in this regulation, it has the 
ordinary dictionary meaning.
    Comment: One facility offered criteria for imposing denial of 
payment for all new admissions based on a scope and severity scale of 
its own design, and suggested we say, at Sec. 488.417, that denial of 
payment for all new admissions will be in effect only until the date 
the facility is certified to be in substantial compliance.
    Response: We received several suggestions for revising our scope 
and severity scales, and the enforcement scheme that we have 
established at Sec. 488.408 (``Selection of remedies.'') reflects some 
of these suggestions. Neither a denial of payment nor any other remedy 
will be imposed at a facility in substantial compliance, as defined at 
Sec. 488.401. Once a denial of payment is imposed, it will be lifted 
when the facility achieves substantial compliance (and is capable of 
maintaining it, if necessary). This policy is set forth at paragraphs 
(c) and (d) of this section, as well as at Sec. 488.454 Duration of 
remedies.
    Comment: One commenter, in setting forth regulation text for 
proposed Sec. 488.217, said that--
     Denial of payment should be imposed, not only for any 
deficiency which remains uncorrected within 90 calendar days after the 
last day of survey identifying the deficiency, but for any deficiency 
which remains substantially uncorrected within that time period as 
well;
     If the facility can supply documentation that substantial 
compliance was attained on a date preceding that of the revisit of the 
survey team, the denial of payment only remains in effect until the 
date that substantial compliance was actually reached;
     Denial of payment for all new admissions should last only 
until the facility has ``substantially corrected'' the deficiencies;
     Denial of payment should not take effect until either HCFA 
or the State has provided notice to the facility and the public of the 
impending action. Public notice shall be provided by publication in a 
newspaper of general circulation in the county where the facility is 
located; (Another commenter agreed that denial of payment should not 
take effect until notice has been provided, and also said that HCFA 
should set forth regulations requiring States to give notice to 
facilities before denying payment for all new admissions.); and
     When payments resume, this too should be announced to the 
public in the same way as the denial notice.
    Response: We agree that denial of payment for all new admissions 
should last only until the facility is in substantial compliance. 
Because the final rule reflects the adoption of a substantial 
compliance standard, a denial of payment for new admissions, like other 
sanctions, will only be applied should a facility fail to meet that 
standard. Thus, under sections 1819(h)(2)(d) or 1919(h)(2)(C) of the 
Act, that facility must face a denial of payments for new admissions. 
Similarly, if, within 3 months of the survey that first identified 
deficiencies, the facility is successful in achieving substantial 
compliance, the denial of payments will be lifted as required by 
sections 1819(h)(3) and 1919(h)(4) of the Act. If the facility does not 
come into substantial compliance by 3 months after the last day of the 
survey, denial of payment will be imposed until substantial compliance 
is achieved or until the facility is terminated.
    We also agree that, except in the case of the mandatory denial of 
payment for substandard quality of care identified in three consecutive 
standard surveys, if the facility can supply documentation acceptable 
to HCFA or the State survey agency that it was in substantial 
compliance, and was capable of remaining in substantial compliance, if 
necessary, on a date preceding that of the revisit, the remedies 
terminate on the date that HCFA or the State can verify as the date 
that substantial compliance was achieved. (This is further discussed in 
connection with a comment on Sec. 488.454.) In the case of repeated 
substandard quality of care, the Act requires that the denial of 
payment (and State monitor) remain in place until the facility is in 
compliance and can demonstrate that it will remain in compliance.
    We agree that facilities should receive notice of remedies before 
they are imposed. Notification requirements are found at 
Sec. 488.402(f), and need not appear again at Sec. 488.417. The 
commenter cited section 1919(h)(2)(A)(i) of the Act as rationale for 
HCFA promulgating regulations setting forth procedures for States to 
use in informing the general public about remedies. We do not agree 
that the Act requires HCFA to promulgate regulations regarding how 
States must go about notifying the general public.
    Comment: Some commenters said that the remedy denial of payment for 
specific categories of residents to be used if the surveyor finds that 
the facility is not currently able to provide adequate care for these 
individuals, or determines that caring for such individuals would 
adversely affect care provided to other residents, was not one of the 
remedies provided in OBRA '87.
    Response: We are deleting the provisions for denial of payment for 
specific categories of residents from this final rule because, as we 
stated at the beginning of this section, we believe that this remedy 
could lead to inequities.
    Comment: A number of commenters expressed concern over whether 
survey agency revisits would be timely enough to ensure the prompt 
resumption of payments as soon as the facility corrects its 
deficiencies.
    Response: We are revising this final rule to state that 
deficiencies are considered to be corrected when a survey team revisit 
confirms that they have been corrected, or when a facility provides 
evidence satisfactory to HCFA or the State survey agency, which can be 
verified without an on-site visit, that the deficiencies have been 
corrected before the revisit or before the credible evidence was 
submitted. In addition, sections 1819(h)(3) and 1919(h)(4) of the Act 
allow for lifting the denial of payment for new admissions when the 
facility achieves substantial compliance. (Please see the discussion 
regarding substantial compliance under the comments pertaining to 
Sec. 488.454 in this final rule, Duration of remedies.)
    Comment: Two commenters suggested that, instead of denying payment 
for all new Medicare and/or Medicaid admissions when warranted, we 
impose a ban on all new admissions to a facility, regardless of the 
source of payment. They said that if we use this remedy, we should pair 
it with a directed plan of correction requiring the facility to take 
steps to restore capacity to provide a full range of NF/SNF services.
    Response: We cannot accept this suggestion since the Act does not 
give us the authority to regulate payments that may be made to 
facilities by private paying residents.
    Comment: Three commenters suggested that we add to proposed 
Sec. 488.217 (a)(2) and (b)(2) a sentence stating, ``No retroactive 
payments will be made when a ban on all new admissions is lifted.'' The 
rationale is that, if facilities know they will receive payments later, 
they may admit those residents they choose and thus cover the short 
term cash flow problem. They say that this would lessen the 
effectiveness of the sanction.
    Response: We agree in principle, and, for purposes of 
clarification, we are revising the suggested sentence to state, at 
Sec. 488.417(e), that no retroactive payments will be made for any new 
admissions to the facility for the period between the date the remedy 
was imposed and the date that HCFA or the State determines that the 
facility achieved substantial compliance.
    Comment: One commenter suggested that Sec. 488.417(a)(1)(i) be 
revised to state that HCFA or the State may impose a denial of payment 
for new admissions if a deficiency remains uncorrected after 90 
calendar days (as opposed to within) of the last day of survey 
identifying the deficiency. As worded in the proposed rule, the 
mandatory sanction would have been imposed if a deficiency had existed 
at any time during the 90 days.
    Response: We agree with the intent of the comment, and although we 
are no longer referring to 90 days but to 3 months as the Act does, we 
are making this revision. (Please note that the proposed 
Sec. 488.217(a)(1)(i) is now redesignated as Sec. 488.417(b)(1).)
    Comment: One commenter suggested that HCFA deny payment for all new 
admissions after the second consecutive survey which documents that 
substandard care is being provided. The rationale is that this would be 
more in keeping with the purpose of remedies, that is, encouraging 
rapid compliance with the program requirements. Another commenter 
suggested that denial of payment for new admissions be a mandatory 
remedy when there are widespread substandard quality of care violations 
or when there is a pattern of substandard quality of care violations.
    Response: While the Act, at section 1819(h)(2)(E) requires denial 
of payment for new admissions or for all Medicare residents, and, at 
1919(h)(2)(D) requires that denial of payment for new admissions be 
imposed after the third consecutive standard survey that shows 
substandard quality of care, it permits the imposition of this sanction 
anytime that noncompliance is found.
    Comment: One commenter said that provisions should be made for the 
protection of Medicare beneficiaries or Medicaid recipients, or both, 
admitted to a facility while the payment ban on new admissions is in 
effect. To protect such individuals, the commenter said, providers 
should be prohibited from seeking payment from residents or third 
parties for any care furnished during a period in which the providers 
were denied payment for new admissions.
    Response: This provision is already in the Act at section 
1866(a)(1)(A) for Medicare and at section 1919(c)(5)(A) for Medicaid. 
Additionally, 42 CFR 447.15 obligates providers to accept Medicaid 
payments as payment in full.
    Comment: One commenter said that, in order for this remedy to be 
effective, the duration must be such that there is some assurance that 
compliance will be sustained.
    Response: In the strictest sense, regardless of the nature of the 
deficiency, and regardless of the remedy imposed, there can be no 
guarantee that substantial compliance will continue once the survey 
team leaves. We can only impose reasonable sanctions and make periodic 
on-site inspections to ensure compliance. However, when HCFA or the 
State denies payment for instances of repeated substandard quality of 
care, we do, at paragraph (c) of this section, state that the sanction 
is not lifted until--
     The facility is in substantial compliance; and
     HCFA or the State survey agency believes that it will 
remain in substantial compliance.
    Comment: One commenter suggested we amend this section to state 
that a denial of payment for all new admissions will take effect on the 
date the facility receives the notice of the remedy.
    Response: Notification requirements are at Sec. 488.402(f). Section 
488.402(f)(1) states that, except when the State is taking the action 
for a non-State operated NF, HCFA gives the provider notice of the 
reasons for, and the effective date of, the remedy. Paragraph (f)(2) 
states that, for all remedies specified in Sec. 488.406, the notice 
must be given at least 2 calendar days before the effective date of the 
remedy in immediate jeopardy situations, and at least 15 calendar days 
before the effective date in non-immediate jeopardy situations. We 
believe that this is equitable. Nursing homes are businesses, some of 
them very large businesses. They have payrolls to meet, suppliers to 
pay, buildings and equipment to maintain, and similar overhead. An 
``effective immediately'' notice would not be reasonable.
    Comment: One commenter said that Sec. 488.417(a)(1)(i) is 
inconsistent with Sec. 488.412(b)(3). Section 488.417 says, at 
paragraph (a)(1), that HCFA or the State may deny payment for new 
admissions, and, at (a)(1)(i), that HCFA will and the State must deny 
payment for new admissions if any deficiency remains uncorrected within 
90 calendar days after the last day of survey identifying the 
deficiencies. (Since Sec. 488.412(b)(3) bears no direct relationship to 
Sec. 488.417(a)(1)(i) and Sec. 488.412(a)(3) does, we believe that the 
commenter meant to cite the latter, which says that if any deficiency 
remains uncorrected within 90 calendar days after the last day of 
survey, HCFA will and the State must deny payment for new admissions.)
    Response: While Secs. 488.417(a)(1)(i) and 488.412(a)(3) overlap, 
they are not inconsistent because a certain amount of overlapping has 
been purposely written into this final rule for ease of reference on 
the part of those who will use it. As previously, noted, we have 
amended the regulations text to reflect a 3 month timeframe to comport 
with the Act.
    Comment: One commenter asked if there was any difference between 
``all new admissions'' in Sec. 488.417(a) and ``new admissions'' in 
Sec. 488.417(a)(1).
    Response: There is no difference. We are revising the regulations 
text to conform to the section's title.
    Comment: Some general comments we received on the provisions in 
this section of the proposed rule were as follows:
     They are unjustifiably severe;
     Providers can not comply with them in all cases because 
some deficiencies take more than 90 days to correct; and
     They are unnecessary.
    Response: At HCFA's request, the Institute of Medicine (IoM), which 
is part of the National Academy of Sciences, conducted a study of the 
policies and regulations governing the certification of nursing homes 
participating in Medicare and Medicaid. Its report, issued in March 
1986, cited the urgent need for enacting statutory provisions extending 
the remedies available to HCFA and the States in enforcing compliance 
with nursing home regulations. A General Accounting Office (GAO) study 
(``Medicare and Medicaid: Stronger Enforcement of Nursing Home 
Requirements Needed'' (July 1987)) also concluded that penalties short 
of decertification of nursing homes are needed to deter noncompliance. 
HCFA's operating experience also bears this out. Traditionally, if 
facilities were unable to correct deficiencies within 90 days of the 
survey date, their provider agreements would have been terminated by 
the 90th day. We, along with the IoM, GAO, and the Congress believe 
that these regulations are necessary, are not unduly harsh or severe, 
and that it is possible for providers to comply with them. Furthermore, 
the denial of payment for new admissions is not only authorized by the 
Act, but required by the Act in certain circumstances, such as when 
noncompliance remains after 3 months or when substandard quality of 
care has been cited in three consecutive standard surveys.

Section 488.418  Secretarial Authority to Deny All Payment

    Upon our review of comments and evaluation of the underlying Act, 
we noted that we did not include a section in the proposed rule 
explicitly stating the Secretary's authority to deny all payment to a 
facility. Under section 1819(h)(2)(B) of the Act, if a facility has not 
met a requirement, the Secretary may deny payment for all Medicare 
residents. Under section 1819(h)(2)(E), the Secretary is required to 
deny payment for all current Medicare residents or for all Medicare new 
admissions if a SNF, on three consecutive standard surveys has been 
found to have provided substandard quality of care.
    Under section 1919(h)(3)(C)(i) of the Act, the Secretary may deny 
payments for all current Medicaid residents but this denial authority 
is exercised against the State, not the facility. Only with respect to 
State-operated facilities may the Secretary take action directly 
against a facility because section 1919(h)(3)(A) expressly provides 
such authority.
    We are adding new Sec. 488.418 to make explicit this authority. We 
provide that, if a facility has not met a requirement, in addition to 
the authority to deny payment for all new admissions as set forth at 
Sec. 488.417(a), HCFA has the authority to deny any further payment to 
the facility for all Medicare residents and to deny further payment to 
the State for all Medicaid residents.
    Under paragraph (b) of new Sec. 488.418, if the facility achieves 
substantial compliance, HCFA resumes payment to the facility or the 
State prospectively from the date that it verifies as the date that 
substantial compliance has been achieved, except as provided in 
paragraphs (c), (d), and (e) of this section.
    If payments to the facility or the State resume, no payments will 
be made for the period between the date the remedy was imposed and the 
date that HCFA verifies as the date that substantial compliance was 
achieved. This is the case with both denial of payment for all new 
admissions as well as with denial of payment for those already residing 
in the facility.
    Should HCFA or the State find that the facility was in substantial 
compliance before the date of the revisit, or before HCFA or the survey 
agency receives the credible evidence of such compliance, the remedy 
must be lifted as of the date that substantial compliance was achieved, 
as determined by HCFA. The exceptions to this rule occur when the 
denial of payment remedy is imposed for repeat instances of substandard 
quality of care. The remedy is not lifted until substantial compliance 
is achieved and HCFA believes that the facility will remain in 
substantial compliance.

Section 488.422  State Monitoring

    Comment: Some commenters expressed concern that the Act did not 
provide for State monitoring.
    Response: We disagree. The statutory authority for State monitoring 
is implicit for cases of repeated noncompliance (see sections 
1819(h)(2)(E)(ii) and 1919(h)(2)(D)(ii) of the Act with cross 
references to sections 1819(g)(4)(B) and 1919(g)(4)(B) of the Act for 
Medicare and Medicaid respectively).
    Comment: Some commenters asked in what instances the remedy of 
State monitoring is to be applied.
    Response: The Act requires State monitoring in cases of repeated 
noncompliance. That is, if a facility, on three consecutive standard 
surveys conducted under sections 1819(g)(2) and 1919(g)(2) of the Act 
has been found to have provided substandard quality of care, State 
monitoring is to be imposed. Otherwise, State monitoring may be 
considered as an optional remedy.
    Comment: Several commenters raised questions as to how funding for 
State monitors would be met. Some suggested that costs for monitoring 
be borne by the facility and not be an allowable cost for 
reimbursement.
    Response: We believe the costs of State monitoring should be part 
of the survey and certification process and, therefore, should be 
considered by the State survey agency in planning its annual Medicare 
and Medicaid workload. The budgeted amounts for these activities are 
approved by HCFA as part of the annual survey and certification budget 
process.
    Comment: A few commenters suggested that we prescribe the role of 
the State monitor in the final rule.
    Response: We do not wish to prescribe the role of the State 
monitor; however, we have clarified language in the final rule 
describing in general terms the purpose of the State monitor. The State 
monitor oversees the correction of cited deficiencies and ensures that 
residents are protected from harm. Any more specific description of 
State monitor roles and responsibilities will be addressed in manual 
instructions to the State survey agency.
    Comment: Some commenters expressed concerns regarding the length of 
time State monitoring would continue. Several commenters suggested that 
the State survey agency retain the ability to monitor ongoing 
conditions in the facility until the State survey agency or HCFA 
determines the serious condition(s) have been corrected.
    Response: We agree with the commenters. State monitoring remains in 
place at least until HCFA or the State survey agency determines that 
the provider is in substantial compliance with the requirements of 
participation. In the case of State monitoring imposed for repeated 
substandard quality of care, the sanction will stay in place until the 
facility has demonstrated to the Secretary or the State survey agency 
that it will stay in substantial compliance. At this time, any serious 
deficiencies must have been corrected to the point where the facility 
is in substantial compliance.
    Comment: We received several comments suggesting we write 
qualifications for a State monitor in the final rule.
    Response: Because of the broad spectrum of situations in which 
State monitoring might be used, we choose not to expand the current 
language in Sec. 488.422(a).
    Comment: Some commenters suggested we mandate State monitoring be 
used whenever a facility is undergoing termination or closure.
    Response: While we agree with commenters that installing a State 
monitor would be appropriate in a termination or closure situation, we 
will not require the States to use this remedy in all such cases.

Section 488.421  Directed Plans of Correction

    Comment: Some commenters wanted us to define a directed PoC as a 
facility-initiated PoC which the State or HCFA orders the facility to 
implement. Commenters reasoned that making this change would allow 
States to use directed PoC more efficiently and effectively since 
facilities' governing bodies will generally be more capable of drafting 
viable plans of correction based upon knowledge of facility resources. 
One commenter wanted to amend proposed Sec. 488.224 to read as follows: 
``HCFA, or the State (or the temporary manager with HCFA or State 
approval) has the responsibility to develop a plan of correction * * 
*''. Another commenter believed that when the State or HCFA orders (or 
directs) a facility to comply with the directed PoC, the State or HCFA 
have more authority to require the facility to revise any aspect of the 
PoC which is not acceptable. The commenter further suggested that the 
imposition of a governmentally created PoC on a facility raises 
questions of the government's and the facility's respective liabilities 
if the plan does not correct the deficiencies.
    Response: Defining a directed PoC as a facility-initiated plan 
which HCFA or the State orders or directs a facility to implement would 
be virtually identical to the way we have always defined a traditional 
PoC. The traditional PoC is a requirement when any deficiency is cited, 
except for isolated deficiencies where no actual harm has occurred and 
there may be potential for minimal harm. The exception to this is if a 
directed PoC is used as a remedy. The directed PoC can be used by 
itself for deficiencies which cause no actual harm. We also disagree 
that a PoC developed by the facility would give the State survey agency 
or HCFA any more authority than one developed by the State survey 
agency, HCFA, or a temporary manager. We do not believe that to say 
``HCFA * * * has the responsibility'' adds anything to the meaning of 
this section. Although it may be true that the facility's governing 
body may be more familiar with a facility's resources, developing a 
directed PoC does not rest solely on this knowledge. For the reasons 
stated above, we are not accepting these suggestions.
    With respect to the commenter's point that a governmentally-
initiated PoC could raise a question about the State's or HCFA's 
liability if the directed PoC does not correct deficiencies, we do not 
guarantee that any remedy will necessarily result in facility 
compliance. The directed PoC, as well as other remedies prescribed, are 
developed and recommended based on the professional judgment of State 
or HCFA staff and their consideration of which remedy(ies) would 
promote prompt achievement of compliance. If a remedy does not result 
in a facility achieving compliance, another remedy may be imposed to 
safeguard the health or safety of nursing home residents. This other 
remedy could be an additional remedy from the same category, or, if the 
deficiencies have been exacerbated, a remedy or remedies from a higher 
category, including termination. However, HCFA and the State will 
usually impose alternative remedies prior to terminating a facility.
    Comment: Other commenters wanted us to amend Sec. 488.424 to 
specify situations where a directed PoC would be mandatory. These 
commenters asked that a directed PoC be used when the following 
deficiencies are identified.
     Violations of admission requirements;
     Violations of Sarrassat requirements concerning notice of 
Medicare coverage and rights to demand billing;
     Violations of transfer prohibitions and bed hold 
requirements;
     All cases of violations of individual rights; and
     Care problems of specific, identifiable individuals.
    Commenters further suggested that the directed plans of correction 
must be developed by qualified health care professionals in 
consultation with the State survey agency.
    Response: We are rejecting this suggestion for several reasons. 
Mandating a directed PoC for certain deficiencies would limit HCFA or 
the State's choice of remedies and would run counter to the thrust of 
the Act which encourages the flexible application of enforcement 
options. Also, requiring a remedy for specific deficiencies would be 
inconsistent with the requirements associated with other remedies. We 
also do not want to prescribe in regulations which staff people must 
develop the directed PoC, but opt to give HCFA or State the flexibility 
to decide who will carry out this function. We expect that the State 
survey agency would develop the directed PoC, but the State would be 
responsible for officially notifying the facility of the remedy. 
However, in manual instructions, we will provide guidance in this 
regard by including examples of deficiency situations and corresponding 
directed PoCs which are appropriate in terms of content and the staff 
person responsible for development.
    Comment: One commenter urged HCFA to require that directed PoCs 
include specific corrective action to protect individual residents who 
suffered harm when those residents are clearly identifiable. Another 
commenter wanted the rule amended to provide that all PoCs are to make 
an injured resident or residents ``whole,'' whenever possible, and that 
the facility be required to take specific steps to ensure future 
compliance. The commenters offered, as an example, a facility which 
improperly denies a resident his or her bed hold rights. The commenters 
believed that in this example the directed PoC must require that the 
facility honor the resident's statutory right to return to the next 
available bed. Commenters feared that without such a requirement, the 
directed PoC will be nothing more than a facility's promise not to do 
it again.
    Response: Requiring in regulation that a facility make a resident 
whole whenever a resident has been injured or has been deprived of his 
or her rights would be virtually impossible. In many instances where 
irreparable harm has occurred this would be an unattainable goal. 
Although HCFA and the State survey agency consider the unique 
circumstances of a facility and the results on residents when 
developing a directed PoC, any PoC is based on prospective compliance. 
The principle behind a PoC is to ensure that the underlying cause of 
cited deficiencies does not recur. The purpose of the PoC is not, 
however, a checklist of past violations which must retroactively be 
corrected. In the example cited, if a facility denied a resident a bed 
through improper application of a bed hold policy, the resident would 
probably have to be admitted to another facility. Prescribing in the 
directed PoC that the resident would be eligible to be readmitted to 
the facility when the next bed became available would be pointless 
since he or she, being unable to wait, would probably already be placed 
in another home. We have not accepted this comment to mandate that the 
directed PoC include resident specific reparations.
    Comment: One commenter recommended the use of a directed PoC for 
substandard quality of care findings with a scope of 3 or 4 and for 
repeat substandard quality of care findings at a scope of 1 or 2 and 
for all other repeated violations.
    Response: We are not accepting this suggestion. Based on numerous 
public comments, we have reconfigured the scope and severity grid 
without numerical values, and are offering it in this preamble as one 
example of how a State could determine what remedies to impose in 
noncompliant facilities. Additionally, we have developed recommended 
categories of remedies for ranges of deficiencies. The directed PoC is 
a remedy which can be used for any deficiency and may be the only 
remedy used for lower level deficiencies. We do not intend to require a 
directed PoC for substandard quality of care findings but rather leave 
that option to the enforcing entity. Nor do we mandate the use of 
directed PoCs for repeat deficiencies. The law provides for denial of 
payment, State monitoring, and increased civil money penalties in 
certain cases of repeated noncompliance and those are the only 
enforcement actions related to repeat deficiencies that we have 
required in these regulations.

Section 488.425  Directed In-Service Training

    On the basis of our review of issues raised by commenters and our 
reevaluation of our statutory authority, we are including in the final 
rule a provision for the imposition of a directed inservice training 
program. After several years of experience with implementing the OBRA 
'87 provisions, we have come to a greater realization that some 
compliance problems are a result of imperfect knowledge on the part of 
the health services staff relative to state-of-art practices and 
resident outcome expectations. For example, we know that incontinence 
and decubitus ulcers are not an inevitable result of old age and 
immobility. The incidence and/or prevalence of these conditions in a 
particular long-term care facility may be the result of general lack of 
knowledge about the prevention and treatment of these conditions, and a 
lasting change may be produced in that facility by a directed inservice 
training program.
    We also believe that a directed inservice training program may be 
particularly effective in reducing reliance on chemical restraints. Two 
studies have been instructional on this point. The first, entitled ``A 
Randomized Trial of a Program to Reduce the Use of Psychoactive Drugs 
in Nursing Homes'' by Dr. Jerry Avorn and colleagues (New England 
Journal of Medicine; Vol. 327 No. 3; July 16, 1992, pages 168-173), 
demonstrates that a fairly intensive training program for the medical, 
as well as, all three shifts of the nursing staff (including aides) can 
bring a dramatic reduction in the use of psychoactive drugs without 
adversely affecting the overall behavior and level of functioning of 
the residents.
    Another study was entitled, ``Reducing Antipsychotic Drug Use in 
Nursing Homes: A Controlled Trial of Provider Education,'' by Dr. Wayne 
Ray and colleagues at Vanderbilt University School of Medicine 
published in the Archives of Internal Medicine; Vol. 153; March 22, 
1993, pages 713-721. This study applied a formalized training program 
to teach nursing personnel how to manage the most prevalent behavioral 
symptoms experienced by aged individuals in nursing homes. Common 
behavioral symptoms such as catastrophic reaction, yelling and 
screaming, fighting, wandering, etc. are addressed in this study, and 
non-drug interventions are described. The training program led to a 59 
percent reduction in the use of antipsychotic drugs over the control 
facility, and a 31 percent reduction in physical restraints over the 
control facility.
    We would invite facilities to use inservice programs conducted by 
sources with an in-depth knowledge of the area(s) which require 
specific training so the positive change is achieved and maintained. We 
would also encourage facilities to use programs developed by well 
established centers of geriatric health services education and 
training. These centers include, but are not limited to, schools of 
medicine or nursing, Area Health Education Centers, and centers for 
aging. These centers should have established programs in geriatrics and 
geriatric psychiatry. We only recommend to the facility where it can 
obtain its inservice training program. The ultimate test of the 
training program will be in the outcome of care achieved by the 
facility after completion of the training program. If the resident's 
care circumstance has not improved after training, the facility, upon 
resurvey by the State agency, will be subject to stronger sanctions. We 
also require that the payment for the directed inservice training is 
the responsibility of the facility.

Section 488.426  Closure or Transfer of Residents, or Both

    Comment: Several commenters said that HCFA should give more 
guidance on when closure of a facility and/or transfer of residents are 
appropriate. Others were concerned because the regulations did not set 
out procedures for State transfer of residents. A few commenters said 
that closures should be conducted in accordance with the provisions of 
the proposed Sec. 488.240. Some commenters insisted that closing a 
facility should only be a last resort when alternative methods have 
failed or the physical plant is unsafe. Other commenters said HCFA 
should include a definition of the term ``emergency'' in the 
regulations.
    Response: The closure of a facility and/or transfer of the 
residents are measures of last resort that are taken only in an 
emergency situation. These actions are rare, but most States have had 
experience with such actions. Most States have a relocation plan that 
outlines the circumstances under which the plan will be put into effect 
and the procedures to be followed. Because of this, we believe it would 
be unnecessary to mandate procedures for States to follow in cases of 
closure or transfer of residents. The Act places the responsibility for 
closure and/or transfer upon the States and proposed Sec. 488.240, the 
content of which is now incorporated into Sec. 488.426, requires any 
transfers to be orderly. We do not believe that any greater procedural 
specificity is required in Federal regulations. We also do not believe 
that it is necessary to define ``emergency.'' We define words only if 
their definitions will have a narrower application than definitions 
commonly found in dictionaries. That is not the case for the use of the 
word ``emergency'' in this regulation.
    Comment: Some commenters insisted that a temporary manager be 
appointed to oversee the transfers whenever large numbers of residents 
are involved. Other commenters believed that States should be required 
to get a court order before closing a facility or transferring 
residents.
    Response: We do not agree with these comments. We believe the 
States should retain the flexibility to implement emergency relocation 
plans according to the circumstances of each case. The States have the 
knowledge and experience to choose the optimum combination of 
procedures to handle each unique situation. Obtaining a court order 
could delay the implementation of the relocation plan in an emergency 
situation and would add nothing to the process. The same can be said 
about the imposition of a temporary manager, because it is the State 
that is experienced in closure and/or transfer of residents' 
situations, not necessarily a temporary manager.
    Comment: One commenter noted that the Act at section 1919(h)(5) 
cross references the transfer of residents to sections pertaining to 
facility-initiated transfers and discharges. Consequently, the final 
rule must require States to set up procedures which include written 
notice, involvement of ombudsmen and orientation procedures.
    Response: Sections 1819(h)(4) and 1919(h)(5) of the Act, which make 
reference to a resident's rights upon transfer, speak to them as they 
relate to the ``safe and orderly transfer of the residents * * *'' We 
believe that whatever appeal rights individual residents have when the 
facility in which they reside faces termination bear only on the 
appropriateness of the transfer plans for those individuals and not the 
correctness of the government's decision to terminate the facility's 
provider agreement. For example, an individual may disagree with the 
nature or location of the facility to which he is slated for transfer 
and could challenge such a decision under the appeals process provided 
by sections 1819(e)(3) and 1919(e)(3) of the Act.
    There is no evidence in the Act or the legislative history that the 
Congress intended to vest nursing home residents with the right to 
challenge the correctness of the decision to take enforcement measures 
against the facility. That decision lies with either the Secretary or 
the State and is subject to challenge by the facility, not the 
residents. There is no reason to believe that the Congress, in drafting 
these provisions, had as its objective the overturning of the Supreme 
Court's decision in O'Bannon v. Town Court Nursing Center, 447 U.S. 773 
(1980), and we cannot presume that O'Bannon has been overturned by 
indirection.
    Moreover, the plain implication of the transfer and discharge 
provisions in sections 1819(c) and 1919(c) of the Act is that their 
focus is on actions that may face an individual resident of a facility 
rather than all of a facility's residents. Thus, subsection (c)(2)(A) 
speaks to a transfer or discharge for the resident's welfare or for the 
health of individuals in the facility. These imply individualized 
determinations, not the kind of facility determination that 
automatically subjects the entire Medicare or Medicaid patient 
population to forced removal from the facility.
    Additionally, when describing the documentation requirements for 
discharge or transfer, the Act (in the paragraph immediately following 
the listing of permissible grounds for such actions) speaks to the 
necessity for documentation to appear in the resident's clinical record 
and often times to be entered by the resident's physician. We know, 
however, that decisions to terminate a facility's provider agreement 
are made by either the Secretary or the State, not by residents' 
physicians. Thus, it would seem that the kind of transfer appeals 
referred to in sections 1819(c)(2) and 1919(c)(2) of the Act do not 
encompass issues that are central to the provider agreement 
termination, but rather decisions affecting the fate of an individual 
resident that may be made by his or her physician.
    We believe that sections 1819(h)(4) and 1919(h)(5) of the Act give 
the Secretary and the States discretion in how to apply the transfer 
notice and appeal provisions of sections 1819(c)(2) and 1919(c)(2). The 
Act's enforcement provisions require that the transfer of residents 
whose facility faces termination be done in a manner ``consistent 
with'' the provisions of subsection (c)(2). Had the Congress intended 
that there be strict adherence to the Act's transfer provisions, it 
could easily have specified that they be followed precisely. Use of the 
phrase ``consistent with,'' however, implies a less rigorous standard 
that permits the Secretary and the States to make judgments as to how 
to best accommodate the notice provisions, for example, while not 
compromising the effectiveness of the termination action. Thus we 
believe residents should receive as much notice as possible of their 
impending transfer as long as the notice period does not further 
compromise their quality of care.
    Comment: A few commenters mentioned that the proposed regulation 
improperly references proposed Sec. 488.206(c).
    Response: The reference to proposed Sec. 488.206(c) has not been 
included in the final rule as Sec. 488.426 has been revised to include 
closure and transfer of residents in NFs and SNF/NFs.
    Comment: One commenter suggested that the term ``Medicaid 
facility'' be changed to read ``Medicaid certified facility `` so as 
not to give the false impression that a facility must be 100 percent 
Medicaid in order for these provisions to apply.
    Response: The term ``Medicaid facility'' is commonly used to 
designate Medicaid certification, regardless of whether or not the 
entire facility is occupied by Medicaid eligible patients.

Proposed Sec. 488.228  Alternative or Additional State
Remedies  (now incorporated in Sec. 488.406)
Proposed Sec. 488.230  Civil Money Penalties

    In the final rule, we are redesignating proposed Sec. 488.230 as 
the following sections:

------------------------------------------------------------------------
                                                           Proposed Sec.
                   Redesignated Section                       488.230   
------------------------------------------------------------------------
Sec. 488.430CMP: Basis for imposing penalty..............  (a)          
Sec. 488.432CMP: When penalty is collected...............  (b)          
Sec. 488.434CMP: Notice of penalty.......................  (c), (d)     
Sec. 488.436CMP: Waiver of hearing, reduction of penalty   (e)          
 amount.                                                                
Sec. 488.438CMP: Amount of penalty.......................  (f), (g)     
Sec. 488.440CMP: Effective date and duration of penalty..  (h), (i)     
Sec. 488.442CMP: Due date for payment of penalty.........  (j)          
Sec. 488.444CMP: Settlement of penalty...................  (k)          
------------------------------------------------------------------------

    Comment: We received many general comments regarding civil money 
penalties. A few commenters who supported this provision of the 
regulation stated they believed in a swift and certain fine structure 
which is mandatory in nature and imposed directly on ownership.
    Response: We appreciate the support of these commenters who realize 
that civil money penalties can be an effective remedy to encourage 
prompt compliance with participation requirements as well as to promote 
the continued rendering of quality health care in a safe environment.
    Comment: One commenter suggested that we prohibit the recoupment of 
fines through rate increases.
    Response: We do not accept this suggestion. Incorporating 
provisions to address the facility's recoupment of penalties through 
rate increases is beyond the scope of this rule which addresses the 
survey, certification and enforcement for skilled nursing facilities 
and nursing facilities.
    Comment: Several other commenters believed civil money penalties do 
not work, are not the answer, serve no purpose or are an insult to 
professionals.
    Response: We do not agree with these comments. We have the 
statutory responsibility to do what is necessary to promote the 
continued health and safety of residents in long term care facilities. 
We cannot say at this point that civil money penalties do not work. We 
can say the Congress perceived the effectiveness of this remedy and 
included it among the other remedies established to encourage prompt 
compliance with participation requirements.
    Comment: A few commenters stated that civil money penalties are not 
necessary, as there is an extensive list of available remedies.
    Response: We agree that there are many available remedies that can 
be used. We are including at Sec. 488.404 the factors to be considered 
when selecting the most effective enforcement remedy. OBRA '87 included 
revised and expanded authority for the enforcement of the Federal 
participation requirements for long-term care facilities which allow 
State and Federal governments to choose the most effective remedy to 
encourage rapid compliance with participation requirements. We do not 
agree with the statement that civil money penalties are not necessary, 
because using civil money penalties as a remedy provides another 
enforcement option for addressing the unique characteristics of each 
case of facility noncompliance.
    Comment: A few commenters said that civil money penalties are not 
fair and must be reasonable and realistic.
    Response: The ranges in the amounts of the civil money penalties 
are commensurate with the level of SNF or NF noncompliance and, we 
believe, permit penalties to be imposed in a fair, reasonable and 
realistic manner. In fact, the higher and wider range of fines ($3,050 
to $10,000 per day) is reserved for immediate jeopardy deficiencies, 
even though these deficiencies account for a very small minority of the 
cases of noncompliance.
    Comment: Several commenters expressed concern that civil money 
penalties will drive up the cost to the taxpayer and increase the 
government's debt.
    Response: Increased cost to taxpayers as a result of civil money 
penalties is possible if civil money penalties are imposed on publicly 
funded facilities. To the extent that such a provider's operation is 
characterized by deficiencies, and costs are excessive, financial 
burdens are imposed on the taxpayers. However, the money collected from 
penalties does not increase the Federal debt as it is returned to the 
Medicare Trust Fund or is earmarked for the protection of the health or 
property of Medicaid residents. Therefore, money is indirectly returned 
to the taxpayers' benefit.
    Comment: Several commenters expressed the concern that civil money 
penalties could cause small, independent, primarily Medicaid supported, 
rural facilities to be closed down, possibly displacing residents from 
their community home.
    Response: We reject this argument. Sections 1819(h)(2)(B)(ii) and 
1919(h)(3)(C)(ii) of the Act state that the Secretary or the State may 
(emphasis added) impose a civil money penalty. A civil money penalty 
need not be imposed in every situation. The Act provides the Secretary 
and the State the authority to choose a remedy which corresponds to the 
unique characteristics of each case. In addition, Sec. 488.438 states 
that a facility's financial condition is a factor considered in 
determining the amount of the civil money penalty.
    Comment: Several commenters are concerned that the imposition of 
civil money penalties could detract from resident care or redirect 
funds that could be used to continue to improve care.
    Response: We do not accept this comment. First, the money that is 
collected from civil money penalties is either transferred into the 
Medicare Trust Fund or is earmarked for the protection of Medicaid 
residents' health or property. Second, as soon as substantial 
compliance is achieved, civil money penalties are discontinued. 
Therefore, the facility is in control of how much money it ultimately 
is responsible for paying; that is, the sooner it corrects 
deficiencies, the less penalties it will pay.
    Comment: A professional organization commented that the proposed 
section on civil money penalties does not reflect all of the points 
discussed by the Institute of Medicine in its study, Improving the 
Quality of Care in Nursing Homes (1986). The Institute of Medicine 
envisioned civil money penalties as a valuable enforcement tool which 
could be applied in amounts appropriate to the seriousness, duration 
and repeat occurrence of the violation. It recommended prompt, short 
hearings on the imposition of the remedy, that fines be large enough to 
be more costly than the violation, and that fines be versatile enough 
to be used to correct minor violations, as well as to immediately 
punish life threatening violations.
    Response: We believe the regulatory provisions for civil money 
penalties encompass the above referenced points from the Institute of 
Medicine. The only point of departure is the suggestion with regard to 
promptness. Section 1128A of the Act requires that a hearing be 
provided to a provider that properly requests one before HCFA collects 
a civil money penalty. Section 1919(h)(8) of the Act requires the State 
to offer a hearing before collecting a civil money penalty.
    Comment: One commenter suggested that the civil money penalty 
system be changed to a monetary award program. Facilities in compliance 
with the regulations would be rewarded. This would lead to improved 
resident care and provide an incentive for the employees.
    Response: We do not accept this comment. Provisions for civil money 
penalties are located in sections 1819(h)(2)(B)(ii), 1919(h)(2)(A)(ii) 
and 1919(h)(3)(C)(ii) of the Act as part of an enforcement process. 
They are options that the Secretary and the State may exercise when 
SNFs and NFs are not in substantial compliance with participation 
requirements. Removing civil money penalties as an enforcement option 
and substituting a monetary reward system would not reflect the law as 
written. For participants in the Medicaid program, the State may 
separately establish a program to reward, through public recognition or 
incentive payments, or both, providers that provide the highest quality 
care. This reward provision is specified at Sec. 488.303 of this rule.
    Comment: Several State civil monetary penalty systems were 
submitted with the comments on the proposed rule for review. Different 
commenters recommended that HCFA adopt and/or evaluate these civil 
money penalty systems.
    Response: Before developing regulations for civil money penalties, 
we met with the nursing home industry, consumer groups and government 
entities to obtain input in the development of the proposed rule. In 
addition, we reviewed a variety of State civil money penalty systems. 
We do not believe we have sufficient data at this time to justify 
abandoning the system we developed in the proposed rule in favor of 
another or to cause us to consider any State's program to be more 
effective than the civil money penalty system in the regulation at this 
time.
    Comment: One commenter suggested changing ``HCFA or the State may 
impose * * *'' to ``HCFA or the State shall impose * * *'' at proposed 
Sec. 488.230(a)(1). The commenter's rationale is that if facilities are 
required to pay for every instance of noncompliance, compliance would 
be maintained and additional funds could be used to support critical 
areas, such as, Long Term Care Ombudsman Programs.
    Response: The regulation reflects the corresponding provisions of 
the Act. The Act permits HCFA's and the States' discretion in the 
imposition of this enforcement remedy. The Federal government cannot 
require the States to use this remedy in every instance of 
noncompliance, nor must it choose this remedy itself in every instance 
of noncompliance.
    Comment: Another commenter suggested that HCFA interpret its 
authority to include the delegation of the imposition of civil money 
penalties to the States for Medicare purposes when HCFA determines that 
it is appropriate. The commenter also suggested the State could 
recommend a civil money penalty, HCFA could monitor the State's 
performance in this area and funds collected could offset State costs 
in performing this task.
    Response: The Act does not permit the Secretary to delegate the 
authority to impose a civil money penalty on a Medicare participating 
facility to the State. Section 1819(h)(2) of the Act charges the 
Secretary, upon the recommendation of the State, with the authority to 
impose remedies. HCFA's decision to monitor a State's performance does 
not hinge on the imposition of civil money penalties. Further, any 
civil money penalties collected under Medicare will be returned to the 
Medicare Trust Fund.
    Comment: A few commenters are concerned that the proposed 
definition of deficiency will make any failure to comply, no matter how 
small, subject to a fine.
    Response: We agree with the commenters' concern that, as described 
in the proposed rule, very minimal deficiencies could be subject to 
civil money penalties. As a result, we revised the rule and developed 
enforcement action categories which correspond to the seriousness of 
the deficiencies. These enforcement action categories are described at 
Sec. 488.408, Selection of remedies.
    Also, as discussed previously in this preamble, we are accepting 
the commenters' implicit suggestion to incorporate the concept of 
substantial compliance as a standard SNFs and NFs must meet to 
participate in the Medicare and Medicaid programs. Using the standard 
of performance of substantial compliance for these providers ensures 
virtual compliance with sections 1819(b), (c), and (d) and 1919(b), 
(c), and (d) of the Act because the type of deficiency tolerated under 
a substantial compliance standard is very limited. We are defining 
substantial compliance at Sec. 488.301. We consider substantial 
compliance to satisfy a facility's obligation to meet requirements. 
Therefore, facilities in substantial compliance adequately protect the 
health and safety of nursing home residents and will not be subject to 
a civil money penalty.

Section 488.430  Basis for Imposing Penalty

    Comment: Several commenters were confused and requested that we 
clarify the number of days of noncompliance between two certifications 
of compliance at proposed Sec. 488.230(a)(2).
    Response: We revised this paragraph of the rule and redesignated it 
as Sec. 488.430(b). It now provides that HCFA or the State may impose a 
civil money penalty for the number of days of past noncompliance since 
the last standard survey, including the days of immediate jeopardy. We 
believe that this revision implements sections 1819(h) and 1919(h) of 
the Act, which state that if a facility meets the requirements of 
subsections (b), (c), and (d), but as of a previous period did not meet 
such requirements, a civil money penalty could be imposed for the days 
in which the facility was not in compliance with the requirements. We 
believe this statutory provision permits a civil money penalty to be 
imposed whenever there is past noncompliance with the participation 
requirements between standard surveys. The following example 
illustrates one application of this provision: A facility had a survey 
on July 1, 1993, and it was in substantial compliance with all of the 
participation requirements. During the orientation tour at the next 
survey, June 15, 1994, surveyors observed questionable infection 
control procedures. This observation prompted the surveyors to further 
examine records and the facility's infection control program. This 
examination indicated that the facility was out of compliance with 
infection control requirements (Sec. 483.65) from October 15 to October 
30, 1993. However, at the time of the June 15, 1994, survey, the 
facility was again in substantial compliance with participation 
requirements. The number of days of noncompliance would be 16, which is 
the number of days between (and including) October 15 and October 30. 
This noncompliance existed for 16 days, but it did not exist at the 
time of either survey.
    Although we may have discretion with respect to the selection of 
remedies to address noncompliance that is corrected by the time of a 
survey, it is likely that we would give serious consideration to civil 
money penalties in such cases. The Act, at sections 1819(h)(1) and 
1919(h) (1) and (3), expressly authorizes the impositions of these 
sanctions even if, at the time of the survey, the facility is in 
substantial compliance.
    Comment: Another commenter suggested incorporating language which 
says, ``HCFA or the State may impose a civil money penalty for the 
number of days of noncompliance between two certifications of 
compliance if the deficiency was at a severity level of 4 and the 
facility could have prevented it.''
    Response: We do not accept this suggestion. Adding this language 
narrows the authority of the Secretary and the State. Limiting this 
enforcement authority could allow noncompliance to go unsanctioned. We 
see no justification for narrowing this authority.
    Comment: A consumer organization specifically recommended we 
clarify proposed Sec. 488.230(a)(2) to say, ``the penalty accrues as of 
the first day that noncompliance existed in a previous period.'' 
Resident records or resident witnesses with corroboration would be 
sufficient evidence to determine noncompliance.
    Response: In this final rule, we are revising this paragraph to 
provide that HCFA or the State may impose a civil money penalty for the 
number of days of past noncompliance since the last standard survey, 
including the number of days of immediate jeopardy. It is evident in 
this situation the civil money penalty could be imposed for all of the 
days of noncompliance. We do not accept the suggestion to incorporate 
into the regulation what specific evidence must be used to determine 
noncompliance, as each situation of noncompliance is unique.
    Comment: Several commenters recommended that the word ``impose'' be 
changed to ``collect'' at proposed Sec. 488.230(a)(2), since the Act 
authorizes the use of civil money penalties for past noncompliance that 
has been corrected.
    Response: While it is true that the Act specifies that a civil 
money penalty may be imposed for past noncompliance that has been 
corrected, it is not necessarily true that a civil money penalty will 
be collected in every case. For instance, if a facility prevails at a 
hearing, a civil money penalty will not be collected. Accordingly, we 
are not adopting this recommendation.
    Comment: A provider organization suggested that we expand proposed 
Sec. 488.230(b) by adding, ``(2) HCFA will not and the State may not 
impose a civil money penalty on a facility that is being terminated or 
is under temporary management or a denial of payment for all new 
admissions, except for a denial of payment under paragraph (a)(1) of 
[proposed] Sec. 488.217.''
    Response: The purpose of all remedies is to protect residents 
against inadequate care and to motivate providers to promptly comply 
with the participation requirements so they may continue to provide 
quality services. Sections 1819(h) and 1919(h) of the Act specify that 
the State or HCFA may impose multiple sanctions to achieve these 
purposes. Limiting the authority of the Secretary and the State, as 
suggested by this comment, would reduce the ability of the Secretary 
and the State to tailor remedies to fit each unique situation of 
noncompliance, particularly those situations in which multiple remedies 
are warranted. If HCFA or the State chooses to impose a remedy, the 
procedures set forth in Secs. 488.404 and 488.408 of this rule are 
followed to determine the most appropriate remedy or remedies.

Section 488.432  When Penalty Is Collected

    Comment: Many commenters questioned the proposed provisions of 
Sec. 488.230(b) which stated that HCFA will not and the State may not 
impose a civil money penalty while the facility has a hearing pending 
on the imposition of a remedy. A few commenters recommended that the 
word ``impose'' be changed to ``collect'' at Sec. 488.230(b). 
Commenters wanted more information about:
     When a fine begins;
     Whether a fine is assessed for the days between the survey 
date and the hearing date, or only for days after the hearing date;
     Whether there is a conflict between Sec. 488.230(b) and 
Sec. 488.230(i) of the proposed rule.
    The commenters' recommendations included:
     Stop the assessment of civil money penalties on the date 
that a formal hearing is requested. If the appeal outcome upholds the 
remedy then the civil money penalty is imposed retroactive to the date 
that the appeal was requested.
     Permit the States and HCFA to impose but not collect a 
civil money penalty during the pendency of any hearing. The penalty 
would accumulate during the appeal until the deficiency is corrected or 
the appeal is decided; and
     Do not stop the clock from running on a civil money 
penalty while the appeal is pending, as this can insulate noncompliant 
facilities against the imposition of these penalties.
    Response: We are revising redesignated Sec. 488.432 to be more 
specific and discuss when penalties are collected. We say that, when a 
facility requests a hearing on the noncompliance which led to the 
imposition of the civil money penalty, HCFA or the State will not 
initiate collection of the penalty until a final administrative 
decision is rendered which upholds the determination of noncompliance.
    If a facility does not request a hearing within the time period for 
requesting a hearing, collection of the penalty will begin when the 
facility achieves substantial compliance or is terminated. If a 
facility waives its right to a hearing in writing within 60 days of the 
date of the notice of intent to impose the penalty, collection is 
initiated when the facility achieves substantial compliance with the 
participation requirements or is terminated. This section now 
references Sec. 488.440, which discusses the accrual of the civil money 
penalty and computation and notice of the amount due, and Sec. 488.442, 
which discusses when payments for civil money penalties are due.
    Comment: A commenter stated the proposed regulation does not permit 
the survey agency to impose a remedy for a second deficiency found as a 
result of a complaint survey until a pending hearing on a deficiency 
cited from a previous survey is concluded.
    Response: This regulatory provision does not compromise the ability 
of the Secretary or the State to impose another remedy if one is 
warranted for a second situation of noncompliance before a final 
administrative decision is concluded on the first situation of 
noncompliance which has led to the pending imposition of a civil money 
penalty. However, if a civil money penalty is the preferred remedy for 
the second instance of noncompliance, as it was for the first, it will 
not be collected until the final administrative decision supporting its 
imposition is concluded. In this case, the State or HCFA could increase 
the civil money penalty amount if the noncompliance found later creates 
a situation of immediate jeopardy. If the second situation of 
noncompliance results from repeated deficiencies, HCFA or the State 
would increase the civil money penalty. However, the noncompliance 
found at a later time may warrant a remedy other than a civil money 
penalty which could be imposed before there is a final administrative 
decision on the first situation of noncompliance.
    Comment: We received many comments stating that the proposed 
process will precipitate prolonged appeals without civil money 
penalties ever being assessed.
    Response: The Act requires that an administrative appeal be 
provided before civil money penalties are collected. Even a prolonged 
appeals process does not eliminate the civil money penalty unless the 
facility prevails at the hearing. For example, if a provider achieves 
substantial compliance by the time of the appeal, the correction is 
only relevant from the standpoint of the number of days the penalty 
applies. The fact that a facility achieves substantial compliance 
before the hearing does not eliminate the need for the hearing. If the 
facility does not prevail in the hearing, the civil money penalty is 
collectible for each day of noncompliance.
    Comment: Commenters endorsed incorporating a variety of ideas into 
the final rule to discourage frivolous appeals, including the 
following: provide for the accrual of interest pending appeal at a rate 
fixed by the State, stipulate that attorney fees will not be paid and 
are not an allowable cost if the appeal is unsuccessful, and, as stated 
in the Institute of Medicine Report, deny payment of provider fees for 
unsuccessful appeals of survey related costs. Another commenter 
requested the rule be revised to include that facilities not be allowed 
to claim on State or Federal income taxes civil money penalties and 
legal expenses upheld on appeal.
    Response: We do not support these revisions. It would not be fair 
practice to assess interest on a civil money penalty before the 
provider knows the outcome of the hearing on the imposition of that 
penalty. To charge interest for the time period during which a hearing 
is pending would be tantamount to punishing the provider for exercising 
its right to have an administrative hearing, as provided for in 
sections 1128A(c)(2) and 1919(h)(8) of the Act. Regarding the comments 
about attorney fees, other provider costs and income taxes, these 
payment issues are not addressed in the Act and are beyond the scope of 
this regulation.

Section 488.434  Notice of Penalty

    Comment: One commenter asked for further clarification of HCFA 
notice of penalty and State notice of penalty provisions of the 
regulation.
    Response: We revised the content of Sec. 488.434 to be more 
specific regarding the notice of intent to impose the penalty. The rule 
now states that, when HCFA proposes to impose a civil money penalty, it 
would deliver or send to the provider written notice of its intent to 
impose the penalty. The notice would include reference to the statutory 
basis for the penalty; the nature of the noncompliance; the amount of 
the penalty per day of noncompliance; any factors specified in 
Sec. 488.438(f) that were considered when determining the amount per 
day of the proposed penalty; the date the penalty starts accruing; when 
the penalty will stop accruing; when collection of the penalty will be 
made; and instructions for responding to the notice. These instructions 
would include a specific statement of the facility's right to a hearing 
and the implications of waiving a hearing.
    The rule now states that, when the State imposes a civil money 
penalty in the case of any non-State operated nursing facility, the 
State must notify the facility in accordance with State procedures; 
however, the State's notice must be written and it must include, at a 
minimum, the information specified in the HCFA notice of penalty as 
stated above.
    Comment: A few commenters were concerned about implementation of 
civil money penalties if HCFA could not issue the notice in a timely 
manner.
    Response: Although HCFA and the State will proceed quickly to issue 
notice of the imposition of the civil money penalty, its imposition 
does not hinge on specified notification timeframes. The notice of the 
imposition of the penalty is not required before a civil money penalty 
can start to accrue, since the Act permits the imposition of civil 
money penalties for past violations that have been corrected, and the 
penalty may start accruing as early as the date the facility was first 
out of compliance. For these reasons, in Sec. 488.402, we exclude the 
civil money penalty remedy in the discussion of the notification 
requirements when remedies are imposed.
    Comment: One provider organization recommended revising the notice 
of penalty section to specify that the State sends the notice via 
certified mail in all cases except State operated facilities and other 
facilities when HCFA is imposing the penalty based on a validation 
survey. This comment also listed specifics to be included in the 
notice.
    Another commenter recommended that the notification requirements 
HCFA uses when it imposes the civil money penalty must also be the 
minimal standards applied to the State, instead of allowing the State's 
notice to be prepared in accordance with State's procedures.
    Response: We are not accepting the suggestion that the notice be 
sent via certified mail because this would preclude sending a valid 
notice via other means, such as telefax, telegram, commercial overnight 
delivery services, or other means that may be faster. In fact, for 
these reasons we are revising this section of the rule to eliminate the 
requirement that the notice be sent by mail with a return receipt 
requested. Also, to have the State send the penalty notice to Medicare 
participating facilities and to dually participating facilities, as the 
commenter suggests, would be inappropriate as HCFA provides notices for 
Medicare facilities.
    We accept the comment to require that the contents included in the 
HCFA notice of penalty be contained in the State notice of penalty. 
Accordingly, as stated in a previous response, we are revising 
redesignated Sec. 488.434 to provide that the State must notify the 
facility in accordance with State procedures for all non-State operated 
NFs when the State takes the action; however, the State's notice must 
be written and must include, at a minimum, the information specified in 
redesignated Sec. 488.434(a). This revision is consistent with existing 
policy in prescribing the content of State notices in Medicaid provider 
termination cases and other Medicaid and AFDC matters.

Section 488.436  Waiver of Hearing; Reduction of Penalty Amount

    Comment: We received many comments opposing the facility's 
opportunity to have a 35 percent reduction in the civil money penalty 
if the facility waived its right to a hearing. Commenters said that 
this provision is inappropriate in the regulatory process, not 
reflective of Congressional intent, insulting, tantamount to blackmail 
and plea bargaining and without statutory basis for offering a bonus to 
providers who waive their appeal rights. Some commenters objected to 
the 35 percent reduction if a facility waives its right to a hearing 
because they felt a justified penalty should be imposed without any 
compromise or reduction. Another commenter stated that, if the 
penalties reflect the deficiencies, then reducing the penalty amount 
makes the penalty lose some of its deterrent value. One commenter was 
concerned that the waiver of hearing provision, as written, may induce 
HCFA or the State to inflate the penalty. Then, if the penalty is 
reduced 35 percent because of the waiver, the fine amount is the amount 
it would have been before the reduction.
    A commenter agreed with this regulatory provision on waiver of a 
hearing and stated that this is appropriate since informal conflict 
resolution can be used to eliminate misunderstandings or deficiencies 
that are not supported by the evidence.
    Response: The 35 percent reduction in the civil money penalty 
afforded providers for waiver of right to appeal is based on a State 
model (Sec. 488.436). Providers are free to reject the option to waive 
the right to a hearing. The intent behind this regulatory provision is 
to encourage facilities to carefully consider their position in terms 
of substantial compliance, as well as the costs they will incur in 
litigating the matter, before tying up already overburdened hearing 
resources.
    Also, if we are not confronted with the administrative costs of 
litigation, we believe we should consider offsetting civil money 
penalty amounts accordingly. On its face, these waiver provisions could 
seem to lessen the deterrent value of the civil money penalty. However, 
a 35 percent reduction of a $10,000 per day civil money penalty leaves 
a penalty amount of $6,500 per each day of noncompliance, and this is a 
significant deterrent to continued noncompliance.
    We disagree with the comment that the waiver provision may induce 
HCFA or the State to inflate the penalty because the per day amount of 
the civil money penalty will be determined before the facility would 
have the opportunity to exercise its option to waive a hearing. This is 
because the notice of the intent to impose the penalty includes the 
amount of the penalty per day of noncompliance, as well as the option 
to waive the hearing.
    Regarding dispute resolution, we appreciate the support of this 
commenter and agree that dispute resolution is an appropriate vehicle 
afforded the provider to address survey finding issues.
    Comment: One commenter stated that the waiver should not permit the 
facility to deny the existence of the deficiency for the purpose of 
determining whether repeat violations exist.
    Response: The opportunity to waive the right to a hearing and 
consequently receive a 35 percent reduction in the amount of the civil 
money penalty does not permit the facility to deny the existence of 
deficiencies for any purpose, nor will waiver of the right to a hearing 
remove the deficiencies from the facility's record. When a facility 
waives its right to a hearing, it is in effect not contesting the 
deficiency.
    Comment: One commenter suggested replacing may with must as 
alternative language indicating that, ``HCFA or the State must reduce 
the civil money penalty.'' A few commenters stated that the language 
used in the preamble regarding proposed Sec. 488.230(e) renders the 
reduction in the penalty mandatory, and the language used in the 
regulation text is permissive.
    Response: We erred in the proposed text. We accept the suggestion 
and intended to require that, when a facility requests a waiver of a 
hearing in writing, within the 60 day timeframe, HCFA or the State 
reduces the civil money penalty amount by 35 percent, and we are 
revising the final rule accordingly. We are also adding a paragraph to 
specify that, if the facility does not waive its right to a hearing, in 
writing, within 60 days from the date of the notice of intent to impose 
the penalty, the civil money penalty is not reduced. We believe the 
specified timeframe gives the provider ample opportunity to decide 
whether or not to exercise its option to waive a hearing.
    Comment: One commenter stated that allowing a reduction in the 
amount of the civil money penalty will necessitate that States develop 
and implement complicated and costly accounting systems for 
recordkeeping and reporting purposes. Another commenter suggested that 
the collection of civil money penalties will be very confusing and they 
would rather have lower penalty amounts than the opportunity for a 35 
percent reduction.
    Response: Less litigation as a result of the waiver of hearing 
provision more than compensates for the recordkeeping and reporting 
necessary to implement the 35 percent reductions in civil money 
penalties. We are striving not only to reduce litigation costs but also 
to reduce the considerable investment of time necessary to prepare for 
and participate in a hearing. Imposing lower fine amounts instead of 
allowing the 35 percent reduction for a waiver is not in keeping with 
the reasons, as stated above, for having this provision.
    Comment: A few commenters requested that the reduction of the civil 
money penalty amount when a facility waives its right to a hearing be 
50 percent. Another suggestion was permitting a reduction of up to 35 
percent. One commenter recommended the percent reduction be 10 percent 
and only available upon prompt payment.
    Response: We believe that 35 percent is reasonable and appropriate, 
based on our review of an existing State model, and it approximates the 
savings we believe are possible by not litigating these cases.
    Comment: One commenter suggested that the waiver of appeal rights 
submitted be written and that 50 percent of the civil money penalty be 
paid within 15 days from the date of notification.
    Response: We accept the suggestion that the waiver be in writing 
and have made this revision in the final rule. We do not accept the 
suggestion that 50 percent of the penalty be paid within 15 days from 
the date of the receipt of a request to waive appeal rights. If a 
facility waives its right to request a hearing in accordance with the 
provisions specified in Sec. 488.436, and subsequently receives a 35 
percent reduction in the amount of the penalty owed, we do not believe 
it is necessary to also offer the facility the opportunity to pay only 
50 percent of the civil money penalty at that time. To accept partial 
payments of a civil money penalty creates an unnecessary recordkeeping 
system and detracts from the financial incentive to motivate compliance 
which civil money penalties were intended to create. Also, we specified 
in the regulation that the entire penalty is payable on the due date, 
and that date would be 15 days after receipt of the waiver request if 
the facility has achieved substantial compliance with the requirements 
or the facility has been terminated. However, if the facility has not 
achieved substantial compliance or been terminated when the waiver 
request is received, the civil money penalty would continue to accrue 
until the facility achieves substantial compliance or is terminated. 
The due dates for civil money penalties are specified in Sec. 488.442.
    Comment: A few commenters proposed that the number of days in which 
a facility may request, or waive the right to, a hearing be changed. 
The alternatives were 10, 20 or 30 days.
    Response: We do not accept the commenters' recommendations to 
change the number of days in which a facility may request or waive its 
right to a hearing. The existing 60 day timeframe to request a hearing 
has been effective in accommodating the needs of the government to move 
quickly in situations of noncompliance without unduly compromising the 
due process considerations of the provider. It often provides 
sufficient time to the facility to resolve disagreements prior to the 
initiation of costly litigation or, failing resolution of 
disagreements, adequate time to prepare for a hearing. To adopt a 
shorter timeframe, as suggested by the commenters, could compromise 
these opportunities.
    Comment: A couple of the commenters offered the following 
alternative text for proposed Sec. 488.230(e): ``The facility must pay 
the civil money penalty that was imposed, less 35 percent, and correct 
the deficiencies for which the civil money was imposed, within 10 days 
of receipt of the notice. This waiver of hearing is called 
settlement.''
    Response: We do not accept these comments. We believe these 
suggestions do not allow a facility enough time to make a decision 
regarding whether to waive or request a hearing.

Section 488.438  Amount of Penalty

    Comment: Several commenters supported the ``two tier'' civil money 
penalty system as enunciated in proposed Sec. 488.230(f)(1).
    Response: We appreciate the support of these commenters for this 
regulatory provision.
    Comment: Many commenters believed that the civil money penalty 
fines of up to $10,000 a day are excessive and exorbitant. A few 
comments stated that the range is too broad and would create 
inconsistency on a national level. Some commenters said that imposing 
civil money penalties for non-immediate jeopardy deficiencies is 
severely punitive and ``overreacting'' and they should only be imposed 
in severe, life threatening or repeated situations.
    Response: The Act allows a maximum civil money penalty of $10,000 
per day of noncompliance. By designating the highest two thirds of the 
civil money penalties as the immediate jeopardy range, we believe we 
have developed a system for the States to use under which relatively 
few facilities will be subject to a maximum penalty. We expect that the 
higher penalties will seldom be imposed, because situations involving 
immediate jeopardy occur far less frequently than those with no 
immediate jeopardy. Furthermore, the range of civil money penalties for 
immediate jeopardy cases is broad enough to allow us the flexibility to 
impose the maximum civil money penalty in only the most egregious cases 
and some lower amount within the range for other situations of 
immediate jeopardy. We believe penalties imposed in the immediate 
jeopardy range are justified because residents are in life threatening 
situations, and we want to motivate the facility to immediately correct 
deficiencies. We set the amounts of the penalties within the two ranges 
to allow consideration of the unique characteristics of each situation 
of noncompliance. It is inappropriate to refer to a ``consistent'' 
application of civil money penalties because each situation of 
noncompliance and the factors that affect the amount of the civil money 
penalty are unique for each facility.
    Comment: Several commenters stated that the civil money penalty 
system appears to duplicate existing State systems and doubled fines 
could financially destroy facilities. A few commenters asked that the 
proposed rule be amended to allow States to use their civil money 
penalty system when they have demonstrated that their system is 
effective.
    Response: The Medicare and Medicaid programs are separate and 
distinct from State licensure programs. It is possible that a civil 
money penalty could be imposed under the State licensure program as 
well as under the Medicare and Medicaid programs; however, there is no 
reason to assume that the penalties would be doubled.
    A State can use its licensure civil money penalty system for 
Medicaid purposes when it has demonstrated its effectiveness in 
accordance with Sec. 488.406. These provisions state that alternative 
State remedies for facilities participating in Medicaid may be imposed 
if the State demonstrates to HCFA's satisfaction that the alternative 
remedies are as effective in deterring noncompliance and correcting 
deficiencies as the HCFA remedies.
    Comment: A few commenters recommended that civil money penalties be 
significantly reduced, because if a facility receives a civil money 
penalty of $5,000 or more, that facility loses its ability to train 
nurse aides.
    Response: As stated above, the $10,000 per day civil money penalty 
limit is established in the Act. While the Act gives the State and the 
Secretary the discretion to impose a penalty as high as the limit, we 
will not, as a matter of policy, lower civil money penalty amounts in 
specific cases to preclude facilities from losing their ability to 
train nurse aides. If a civil money penalty of $5,000 or more is 
imposed on a facility, it is indicative of the fact that an egregious 
situation of immediate jeopardy exists. In this case, we believe the 
facility's ability to continue to train nurse aides is compromised and 
the facility should lose approval of its nurse aide training and 
competency evaluation program. However, as we have already stated, we 
anticipate that the higher penalties will seldom be imposed, as 
situations involving immediate jeopardy occur far less frequently than 
those with no immediate jeopardy.
    Comment: One commenter recommended revising proposed 
Sec. 488.230(f)(2) to specify that a civil money penalty may not be one 
of the alternative remedies imposed when a facility does not meet the 
eligibility criteria for continuation of payment and HCFA will or the 
State must terminate a provider's agreement. Also, the commenter 
recommended that neither HCFA nor the State may impose more than four 
penalties against a facility on the basis of a single survey and the 
maximum total penalty amount that may be imposed against a facility 
during any twelve-month period is five hundred dollars per licensed or 
certified bed.
    Response: The Act does not preclude the imposition of a civil money 
penalty remedy as an enforcement option when the facility does not meet 
the eligibility criteria for continuation of payment or is terminated. 
In fact, section 1919(h)(7) of the Act discusses the special rules 
applicable when other remedies additional or alternative to termination 
are imposed. Concerning the specified amount of the penalty that can be 
imposed per licensed or certified bed during a specific time period, 
the Act does not specify such a limitation, and utilizing these 
limitations would unnecessarily restrict the authority of the Secretary 
and the State to tailor a civil money penalty remedy to the specific 
situation of noncompliance. However, the Act does set dollar 
limitations for each day of noncompliance. Therefore, the Act 
contemplates that all deficiencies will be aggregated for the purposes 
of determining the number of days of noncompliance (as opposed to the 
number of deficiencies).
    Comment: A few commenters requested that we clarify if survey 
agencies may exceed the specified penalty ranges when a facility 
alleges compliance but a revisit by HCFA or the State finds 
noncompliance. One commenter recommended that the penalty be doubled in 
this situation even if it exceeds the penalty limit. Another commenter 
suggested replacing may with shall at proposed Sec. 488.230(f)(3) so 
that this section reads, ``HCFA or the State shall increase the daily 
penalty if the facility alleges compliance * * *.''
    One commenter disagreed with Sec. 488.230(f)(3) concerning HCFA's 
or the State's ability to increase the daily penalty if the facility 
alleges compliance but a revisit finds noncompliance. The commenter 
recommended including an objective and quantifiable basis for 
increasing such penalties or deleting this regulatory provision. 
Another commenter suggested increasing the civil money penalty when a 
facility alleges completion of its plan of correction, but a revisit 
finds the facility has not completed its plan.
    Response: As noted above, we are revising redesignated Sec. 488.438 
to provide that a civil money penalty would be decreased to the lower 
range of penalty amounts if a revisit determines that the immediate 
jeopardy is removed but the noncompliance continues. However, if the 
noncompliance, that continues constitutes repeated deficiencies in the 
same regulatory grouping of requirements, the civil money penalty would 
be increased, as specified in sections 1819(h)(2)(B) and 1919(h)(2)(A) 
and (h)(3)(C) of the Act. A civil money penalty could be increased to 
the upper range of penalty amounts if deficiencies for which a lower 
level penalty amount was imposed have become sufficiently serious to 
pose immediate jeopardy. We are also revising Sec. 488.438 to provide 
that civil money penalties are increased, even if a new penalty amount 
exceeds the range for nonimmediate jeopardy, when deficiencies in the 
same regulatory grouping of requirements for which a civil money 
penalty was imposed are repeated.
    We cannot accept the suggestion to increase a civil money penalty 
if a facility does not follow its plan of correction. When a remedy is 
lifted for a facility, it is based on that facility's substantial 
compliance with the requirements, not on the facility's adherence to 
its plan of correction. The health or safety of a resident could be 
jeopardized by a situation in which a plan of correction was followed 
but the facility was still not in substantial compliance with the 
participation requirements.
    Comment: One commenter stated that there is no provision in the 
regulation which would prohibit daily penalties from mounting. This 
commenter added that this is not reflective of the Congressional intent 
behind sections 1819(h)(3) and 1919(h)(4) of the Act, which says that a 
finding to deny payment terminates when the State or Secretary finds 
that the facility is in substantial compliance with the requirements of 
subsections (b), (c), and (d).
    Response: A facility can always stop the accrual of a civil money 
penalty by correcting the situation that caused the noncompliance. With 
regard to all remedies, we received many comments recommending that the 
standard of substantial compliance with sections 1819(b), (c), and (d) 
and 1919(b), (c), and (d) of the Act be incorporated into the rule as 
an acceptable measure of compliance. As discussed previously in this 
preamble, we accept this comment and we will lift remedies imposed for 
noncompliance when a facility is in substantial compliance with 
sections 1819(b), (c), and (d) and 1919(b), (c), and (d) of the Act.
    Comment: A few commenters requested we add, at proposed 
Sec. 488.230(f), that interest accrues on all penalties not settled, at 
the credit card rate, from the date of citation.
    Response: We do not accept this comment. Redesignated Sec. 488.438 
discusses the base amount of the civil money penalties. We do not think 
it is appropriate to incorporate the interest rate in this section. A 
discussion of interest follows in redesignated Sec. 488.442.
    Comment: One commenter suggested that when noncompliance could 
financially benefit a facility, the amount of the penalty should never 
be less than twice what the State or HCFA can reasonably assume to have 
been the savings to the facility, as a facility should never believe it 
is in its financial self-interest to violate the law. This commenter 
also said that HCFA and the State should have access to any data 
(employee salaries, fees, supply costs, etc.) that will provide 
necessary information to determine the amount of the penalty.
    Response: We do not agree. First, it would be beyond the scope of 
this rule to require the State to determine or for HCFA to try to 
determine when noncompliance would financially benefit a facility. 
Moreover, to provide that civil money penalties be twice the presumed 
savings incurred by the facility would be to establish an arbitrary 
requirement that would unnecessarily complicate using civil money 
penalties as an enforcement option.
    A facility that perceives it is in its financial self interest to 
violate the law commits a grave error as it could face termination of 
its provider agreement for noncompliance.
    Comment: A few commenters recommended that all minimum penalty 
amounts specified at proposed Sec. 488.230(f) and the ``per day'' 
modifiers in the regulation be deleted to permit the Secretary or the 
State more discretion when imposing civil money penalty amounts.
    Response: We do not accept these comments. The minimum penalty 
amount is set at $50 because we believe that any lesser amount would 
not be a remedy for any provider. The $50 minimum penalty amount also 
corresponds to the imposition of civil money penalties in increments of 
$50; this process was designed for purposes of simplicity of 
implementation.
    The Act specifies that a civil money penalty may be imposed for 
each day of noncompliance. We believe that removing references to ``per 
day'' alters the clear instructions specified in the Act. Furthermore, 
the Secretary and the State always have discretion to impose or not to 
impose a civil money penalty, since the law states that a civil money 
penalty may be imposed for each day of noncompliance.
    Comment: Many commenters responded that the factors used to 
determine the amount of the civil money penalty are too broad and will 
promote inconsistency. A commenter posed that these factors are 
subjective, not uniform, and therefore, are challengeable in a court of 
law. A few commenters suggested removing the factors used to determine 
the amount of the civil money penalty from the final regulation while a 
few said that HCFA and the State should be required to give due 
consideration to the information provided by the facility.
    Many commenters were generally negative in response to using the 
facility's financial condition as a factor affecting the amount of 
penalty and offered the following arguments about this policy:
     It is not equitable;
     It would result in inconsistent civil money penalties for 
the same deficiency;
     Poorly managed and/or not-for-profit facilities should not 
be excused or pay a lower civil money penalty;
     It discriminates against facilities that are more solvent;
     It is inappropriate if the facility can not appeal the 
amount of the penalty;
     Neither the Secretary nor the States have adequate 
information to evaluate a facility's financial condition;
     It would be difficult to apply objectively and would 
require an audit of the facility; and
     The regulation does not clarify how financial information 
is obtained, who evaluates this information and if it will be available 
promptly.
    Another commenter requested that we remove a facility's financial 
condition as a factor and consider instead the location of the facility 
and the percent of Medicaid or Medicare patient days relative to the 
total patient days of the facility.
    A few commenters suggested including the facility's degree of 
culpability as a factor in determining the amount of the civil money 
penalty as mentioned in the preamble of the proposed rule.
    Response: In determining the amount of the penalty, section 1128A 
of the Act, which is incorporated by reference into sections 1819(h) 
and 1919(h) of the Act, requires the Secretary to consider specific 
matters and also provides authority to take into account any other 
items relevant to the penalty determination. We are requiring the State 
to also consider these specific matters to make Medicare and Medicaid 
requirements equivalent for SNFs and NFs. The specific matters the 
Secretary and the State must take into account, as stipulated in 
section 1128A of the Act, include the facility's degree of culpability, 
history of prior offenses and financial condition. Therefore, we cannot 
remove financial condition as the commenters suggested, and we are 
revising redesignated Sec. 488.438(f) to include the facility's degree 
of culpability, which was inadvertently omitted from the proposed 
regulatory text.
    We explain in Sec. 488.438 what we mean by ``culpability'' in the 
context of provider certification. Section 1128A authorizes civil money 
penalties for criminal or quasi-criminal acts, such as, false claims or 
claims for charges in excess of those permitted by law. The intent of 
the individual who commits one of these acts plays a prominent role in 
determining the amount of the civil money penalty. For example, if this 
individual submits a false claim while under the influence of drugs or 
the individual has a psychiatric condition, that person's culpability 
for submitting false claims may be reduced.
    The enforcement provisions for civil money penalties in sections 
1819(h) and 1919(h) incorporate section 1128A of the Act and require a 
consideration of a facility's culpability in determining the amount of 
the civil money penalty. However, this consideration is not limited to 
situations in which a provider ``intends'' for a situation of 
noncompliance to exist. In fact, a facility is culpable if 
noncompliance causing harm or placing a resident at risk of harm is 
intentional or is a product of neglect, indifference or disregard. 
While a facility's culpability for serious noncompliance is a factor in 
the determination of the amount of the civil money penalty, the absence 
of culpability is not a factor, as a facility is always fully 
responsible for the health and safety of its residents.
    Comment: One commenter asked that we specifically define 
``history'' as used at proposed Sec. 488.230(g)(1). Another commenter 
suggested that the facility's history of prior compliance only include 
the period of operation under the current owners.
    Response: Information concerning a facility's history of 
noncompliance, as discussed with regard to Sec. 488.438(f)(1) of the 
final rule, is maintained in the State survey agency, the HCFA regional 
office and the Online Survey Certification and Reporting system 
(OSCAR). The OSCAR system can provide facility specific reports from 
the four most recent surveys. We do not accept the comment that the 
facility's history of prior noncompliance only include that of the 
current owner because when a change of ownership occurs, all Medicare 
penalties and sanctions are automatically assigned to the new owner or 
owners with the exception of the two year restriction on Nurse Aide 
Training and Competency Evaluation Programs (which is explained later 
in this preamble).
    Comment: Several commenters suggested that we provide that if a 
facility wants its financial condition considered it must fully 
disclose all financial information.
    Response: As stated above, it is a statutory requirement that a 
facility's financial condition be considered as a factor to determine 
the amount of the civil money penalty. We do not specify in the 
regulation what we will examine in determining the facility's financial 
condition, because these factors are unique for each facility. 
Therefore, it is the responsibility of the facility to furnish the 
information it believes appropriately represents its financial status. 
We consider a facility's financial condition in conjunction with the 
other factors specified in the rule when determining the amount of a 
civil money penalty, because it is not our intent to put facilities out 
of business, and the amount of the civil money penalty is determined on 
a case by case basis.
    Comment: We received a suggestion to remove the facility's 
financial condition as a factor in determining the amount of the civil 
money penalty but to permit the facility an opportunity to negotiate a 
payment schedule if it can demonstrate that the civil money penalty 
would cause financial hardship after the assessment and final 
adjudication of a civil money penalty.
    Response: We do not accept this comment. First, as previously 
stated, it is a statutory requirement to consider a facility's 
financial condition as a factor in determining the amount of the 
penalty. Second, to negotiate a payment schedule based on the 
facility's financial condition after the assessment and final 
adjudication of a civil money penalty would not be necessary since the 
facility's financial condition has already been considered in the 
determination of the penalty amount.
    Comment: Many commenters submitted examples of existing State civil 
money penalty systems which assigned a specific dollar amount per bed 
to each scope and severity level or assigned a maximum daily fine 
amount for each scope and severity level. Another commenter asked that 
we clarify that there will not be a correlation between the number of 
beds and the amount of the civil money penalty.
    Response: We are revising Secs. 488.404 and 488.408 to correlate 
the seriousness of the deficiencies with the selection of remedies when 
HCFA or the State chooses to impose a remedy. (See explanation at 
Sec. 488.404, Factors to be considered in selecting remedies and 
Sec. 488.408, Selection of remedies.) Civil money penalties may be used 
for deficiencies constituting immediate jeopardy. Civil money penalties 
may also be used for deficiencies which constitute no actual harm but 
have a potential for more than minimal harm; or for deficiencies that 
constitute actual harm.
    We do not accept the comment suggesting assigning a dollar amount 
per bed because the regulation, in accordance with section 1128A of the 
Act, requires a consideration of a facility's financial condition in 
the determination of the civil money penalty amount. We assume that a 
primary reason some States compute civil money penalty amounts based on 
the number of beds is to take into account the financial condition of 
facilities, that is, the larger facilities would be presumed to have a 
greater availability of cash than the smaller facilities. This is not 
necessarily the case, and even if it were a valid consideration in some 
cases, to take this relationship into account would be to consider 
financial condition twice. Nor have we assigned a specific dollar 
amount for each degree of seriousness.
    While we have assigned ranges of penalties to immediate jeopardy 
and non-immediate jeopardy, we have not refined the figures further. We 
believe that this allows for the additional discretion on the part of 
HCFA or the State to assign a penalty amount once the facility's 
financial condition and other factors have been considered.
    Comment: A commenter asked how the terms scope, severity and 
duration of noncompliance used at proposed Sec. 488.230(g)(3) will be 
defined.
    Response: In response to the concern raised by this commenter, we 
are revising redesignated Sec. 488.438(f). We are replacing the phrase, 
``The scope, severity, and duration of the noncompliance'' with, ``The 
factors in section 488.404.'' The factors specified in Sec. 488.404 
address the assessment of the seriousness of deficiencies and include 
assessing the scope, severity and duration of the noncompliance in more 
specific terms.
    Comment: A commenter suggested the specific category of the unmet 
requirement be a factor in determining the amount of the penalty. 
Another commenter asked that we explain the difference between ``health 
and safety requirements'' and ``administrative requirements'' as stated 
in Sec. 488.230(g)(4) of the proposed regulation. We also received many 
recommendations to revise this regulatory provision to require that 
HCFA or the State consider whether the requirements with which the 
facility is out of compliance are health and safety requirements, 
residents' rights, quality of life or failure to attain the highest 
practicable functioning or administrative requirements when determining 
the amount of the civil money penalty.
    Response: After considering the above comments, we are eliminating 
this provision because we believe that the factors inherent in this 
provision are reflected in revised Sec. 488.438(f), which now requires 
the consideration of the factors contained in Sec. 488.404 when 
determining the amount of the penalty. These factors include 
consideration of whether the facilities' deficiencies constitute: no 
actual harm, with a potential for minimal harm; no actual harm, with 
the potential for more than minimal harm that is not immediate 
jeopardy; actual harm that is not immediate jeopardy; or immediate 
jeopardy to resident health or safety. These factors also require 
considering whether the deficiencies are isolated, constitute a pattern 
or are widespread. A consideration of these factors includes 
considering the specific type of unmet requirement.
    Comment: A few commenters recommended that civil money penalties be 
mandatory for all substandard quality of care deficiencies, immediate 
jeopardy situations and repeated deficiencies at their proposed 
severity level 1 and scope of 3 or 4. A few other commenters who 
proposed a new scope and severity grid suggested that we modify the 
civil money penalty provisions to reflect the grid that they proposed. 
One commenter suggested doubling the civil money penalty for repeated 
deficiencies, and another suggested simply increasing the penalty for 
repeated deficiencies. Other commenters requested that we add a 
description of civil money penalties that would include a flat, one 
time fine for:
     Single deficiencies regardless of the severity;
     Deficiencies with a starting point that cannot be 
determined;
     Repeated deficiencies; and
     Deficiencies where the State finds it more difficult to 
document continuous noncompliance.

Many commenters suggested requiring that civil money penalties be 
imposed at specific scope and severity levels.
    Response: We do not accept these recommendations. Requiring that 
civil money penalties be imposed for specific types of deficiencies 
would be inconsistent with the Act which provides that civil money 
penalties may (emphasis added) be imposed for each day of 
noncompliance. The Secretary does not have the authority to require the 
States to impose civil money penalties where the Act gives States' 
discretion. While the Secretary could implement a policy by which each 
specific degree of seriousness would automatically precipitate civil 
money penalties at specific amounts, such a policy would undermine the 
Secretary's flexibility to tailor enforcement action to the exact 
nature of deficiencies in specific facilities. As a matter of policy, 
we will limit the use of civil money penalties to more serious 
deficiencies. Civil money penalties are included as a remedy choice 
when the seriousness of the deficiencies is such that Category 2 or 
Category 3 remedies would be applicable, as specified in Sec. 488.408, 
Selection of remedies.
    In cases of repeated or uncorrected deficiencies, imposing a flat, 
one time civil money penalty for these deficiencies would ignore the 
statutory requirement to provide for the imposition of incrementally 
more severe fines for repeated or uncorrected deficiencies as specified 
in sections 1819(h)(2)(B), 1919(h)(2)(A), and 1919(h)(3)(C) of the Act. 
While we are providing in redesignated Sec. 488.438 that penalties are 
increased for repeated deficiencies in the same regulatory grouping of 
requirements, we do not accept the recommendation to double the fines 
because mandating the magnitude of the increase would detract from the 
kind of flexibility the Congress gave to the Secretary and the States. 
With regard to uncorrected deficiencies, we may propose to increase a 
civil money penalty for those cases in which a lower level penalty 
amount was imposed should those uncorrected deficiencies become 
sufficiently serious to pose immediate jeopardy.
    To assign a flat, one time fine to a single deficiency regardless 
of its seriousness does not take into consideration the factors 
included in section 1128A of the Act and specified in Sec. 488.438 of 
this final rule, and ignores the fact that the Act mandates that a 
civil money penalty, when imposed, be computed for each day of 
noncompliance. The Act contemplates the imposition of civil money 
penalties for whatever period HCFA or the State determines the 
noncompliance exists.
    Comment: A commenter asked if the hearing officer makes the 
assessment decision on the amount of the civil money penalty.
    Response: As previously stated, when a facility requests a hearing 
on the noncompliance which led to the imposition of the civil money 
penalty, HCFA or the State will not initiate collection of the penalty 
until a final administrative decision is rendered which upholds the 
determination of noncompliance. Upon further analysis, we are adding a 
paragraph to redesignated Sec. 488.438 to explain the reviewability of 
the civil money penalty that is imposed on a SNF or NF for 
noncompliance with participation requirements. We now specify that in 
any case in which an administrative law judge or State hearing officer 
(or higher administrative review authority) finds that the basis for 
imposing a civil money penalty exists, as described in Sec. 488.430, 
the administrative law judge or State hearing officer (or higher 
administrative review authority) may not: set a penalty of zero or 
reduce a penalty to zero; review the exercise of discretion by the 
Secretary or the State to impose a civil money penalty; or consider any 
factors in reviewing the amount of the penalty other than those 
specified at Sec. 488.438(f). In other words, when the administrative 
law judge or State hearing officer (or higher administrative review 
authority) finds noncompliance supporting the imposition of the civil 
money penalty, he or she must remedy it with some amount of penalty 
consistent with the ranges of penalty amounts established in 
Sec. 488.438. This provision is consistent with other provisions 
specified in this rule to motivate a SNF's and NF's compliance with 
participation requirements in which we state that these providers have 
the opportunity to appeal certifications of noncompliance leading to an 
enforcement remedy. This provision is also consistent with section 
1128A(d) of the Act, which requires that specific factors be considered 
in determining the amount of any penalty.

Section 488.440  Effective Date and Duration of Penalty

    Comment: We received many comments on the effective date of the 
civil money penalty. Some commenters recommended that the effective 
date:
     Be stayed if a hearing is requested;
     Begin on the date an appeals decision is issued; or
     Begin on the date the facility receives notice of the 
proposed penalty.
    A commenter recommended that no civil money penalty be imposed if 
the facility is in compliance by the effective date of the notice.
    Many commenters advocated that this regulatory section be changed 
to require that the effective date of the civil money penalty be the 
date when the deficiency began as can be documented by the surveyors. 
They said that the effective date provision of the proposed rule:
     Implies a ``grace period'' for providers to correct 
deficiencies;
     Is inconsistent with OBRA '87;
     Contradicts Sec. 488.230(a)(2) of the proposed rule;
     Undermines the States' ability to use civil money 
penalties; and
     Defeats the deterrent effect of this remedy and the goal 
of encouraging prompt compliance.
    Response: We are revising redesignated Sec. 488.440 after 
thoughtful consideration of the many comments received. We are changing 
the heading of paragraph (a) to read, ``When penalty begins to 
accrue.'' This phrase is more appropriate in the context of a civil 
money penalty since this penalty cannot be collected until the provider 
has an opportunity for a hearing if one is requested; however, it can 
begin to accrue before the hearing. Also, this revision includes the 
accrual of the civil money penalty for past days of noncompliance since 
the last standard survey which are corrected by the time of the current 
survey as provided in the Act at sections 1819(h) and 1919(h). Revised 
paragraph (a) now provides that the civil money penalty may start 
accruing as early as the date that the facility was first out of 
compliance, as determined by HCFA or the State. To stay the accrual of 
the penalty if a hearing is requested, to start the accrual when a 
hearing decision is made, or to begin the accrual on the date of the 
notice, as the commenters suggest, would allow noncompliance to 
continue without a remedy being imposed and would not be implementing 
the remedy as the Congress intended. This intent is clearly stated in 
the Committee report that accompanied OBRA '87:

    * * * the Committee amendment would expressly allow a State to 
impose civil money penalties for each day in which a facility was 
found out of compliance with one or more of the requirements of 
participation, even if the facility subsequently corrected its 
deficiencies and brought itself into full compliance. This, in the 
Committee's view, is essential to creating a financial incentive for 
facilities to maintain compliance with the requirements for 
participation. The Committee amendment would set no upper limit on 
the amount of these penalties and would allow States to increase the 
amounts in cases of repeated noncompliance. States could impose 
civil money penalties prior to a hearing.
    * * * the Committee amendment would create an incentive for 
facilities to maintain compliance with all of the requirements of 
participation by authorizing the Secretary to impose and collect 
civil money penalties for each day a facility is out of compliance 
even though the facility may subsequently bring itself back into 
full compliance. (H.R. Report No. 391, 100th Cong., 1st Sess., 473-6 
(1987)).

    Moving the date when the penalty can accrue to be as early as the 
date of the noncompliance permits noncompliance to be sanctioned 
promptly and addresses the concerns of the commenters who said that the 
effective date in the proposed rule implied a ``grace period'' for 
providers to correct deficiencies before a civil money penalty was 
imposed and undermined the States' abilities to use this remedy. We 
expect that in virtually all cases, the civil money penalty would start 
accruing from the date of the noncompliance. The only exception could 
be those cases in which the survey identifies the noncompliance but 
there is undue delay before HCFA or the State notifies the provider of 
the imposition of the penalty. However, the provider would receive a 
second notice before the collection of the civil money penalty, as 
explained in Sec. 488.440.
    Comment: A commenter recommended deleting proposed 
Sec. 488.230(i)(6) (redesignated as Sec. 488.440(g)), which provides 
that, in the case of immediate and serious threat deficiencies, HCFA 
will or the State must terminate the provider agreement on the 23rd day 
after the appointment of temporary management if the threat remains.
    Response: We do not accept the suggestion to delete this provision 
because we believe it is important to specify the situations that 
affect the accrual of civil money penalties. However, we are revising 
redesignated Sec. 488.440(g) to specify that termination occurs within 
23 days after the last day of the survey if immediate jeopardy remains, 
and the daily accrual of civil money penalties stops on that day.
    Comment: Many commenters suggested that the regulation incorporate 
a provision assuring prompt revisits by HCFA or the States to evaluate 
compliance based upon a facility's allegation of compliance, because 
several commenters stated that survey teams often are not prompt in the 
follow-up process. Others asked if civil money penalties accrue when a 
revisit is not timely. Several commenters asked that we clarify if 
there must be on-site revisits by the State to verify reports by 
facilities. One commenter requested revisits be within a specified 
timeframe and another specified a 10 day timeframe in which revisits 
must be conducted. One commenter recommended that civil money penalties 
be suspended immediately (until the survey team can revisit) when 
authorities receive notification through certified mail that 
deficiencies have been corrected.
    Response: While we understand the concern expressed by the 
commenters that surveyors conduct prompt revisits to confirm 
substantial compliance, the fact remains that when a SNF or NF 
participates in the Medicare and/or Medicaid program, that facility 
agrees to maintain substantial compliance with the participation 
requirements. When a civil money penalty or any other remedy is imposed 
upon a SNF or NF, it is because it has not maintained substantial 
compliance with these requirements, and we want to motivate corrective 
action. While HCFA and the States will try to revisit the facility in 
as timely a fashion as possible, when a revisit is necessary to verify 
substantial compliance, neither HCFA nor the States will be constrained 
by a specified timeframe in which to conduct these revisits. Nor will 
HCFA or the States suspend a penalty until a revisit can be conducted. 
The revisit would not be necessary if the SNF or NF had met its 
commitment to remain in substantial compliance with the participation 
requirements. Therefore, it is the provider's poor performance that has 
generated the need for a revisit. Moreover, timeframes for revisits can 
vary from State to State and within a State due to geographical 
variations and available personnel.
    Hence, in those cases in which an on-site revisit is determined 
necessary to verify that the SNF or NF has come back into substantial 
compliance with participation requirements, civil money penalties may 
accrue from as early as the date the facility was first out of 
compliance, as determined by HCFA or the State, until the date of the 
revisit which finds substantial compliance. Or, the civil money penalty 
may accrue from as early as the date the facility was first out of 
compliance, as determined by HCFA or the State, until the date 
substantial compliance was achieved as documented by written credible 
evidence submitted to, and accepted by, HCFA or the State before an on-
site revisit, but which, in certain situations, must be confirmed by an 
on-site revisit.
    Sometimes an on-site revisit is not necessary to establish that a 
facility has come back into substantial compliance; in those cases, the 
civil money penalty may accrue from as early as the date the facility 
was first out of compliance, as determined by HCFA or the State, until 
the date for which there is written credible evidence of substantial 
compliance which is acceptable to HCFA or the State without the on-site 
visit. In these cases, there is no reason to ``assure'' the timeframe 
of a revisit as stated by a commenter. In response to the concerns and 
questions of the commenters, we are revising Sec. 488.438(h) to provide 
for the policies expressed above.
    Comment: Several commenters asked what documentation will be 
acceptable to HCFA or the State as credible evidence as stated in 
proposed Sec. 488.230(i)(7) (redesignated as Sec. 488.440(h)).
    Response: In order to appropriately respond to each unique 
situation of noncompliance, HCFA or the State will evaluate written 
credible evidence on a case by case basis. HCFA and the State have the 
discretion to determine what constitutes written credible evidence. For 
example, a survey may determine that a facility's furnace is broken 
constituting a deficiency for violating a Physical Environment 
requirement by its failure to maintain all essential mechanical, 
electrical and patient care equipment in safe operating condition 
(Sec. 488.70(c)(2)). In such a case, the facility may buy a new 
furnace, have it installed, and submit the receipt to the State or HCFA 
as written credible evidence of substantial compliance. If this written 
credible evidence is accepted by HCFA or the State, the accrual of the 
civil money penalty would stop as of the date substantial compliance 
was achieved.
    Sometimes substantial compliance can be achieved before an on-site 
revisit and the retroactive substantial compliance date can be verified 
with an on-site revisit. For example, during a closed record review 
(which is an examination of the records of discharged, transferred or 
deceased residents), it may be determined that a facility was not 
recording the reason for transfer or discharge in the residents' 
clinical records. This would be a violation of a requirement under 
Admission, Transfer and Discharge Rights set forth at 42 CFR 483.12. 
Since it would be inappropriate to send residents' records in the mail 
as evidence of correction, a revisit would be necessary. During the 
revisit on May 30, 1994, documentation confirms that the facility came 
into compliance with this requirement on May 10, 1994, 20 days before 
the revisit. Since the revisit confirms compliance with this 
requirement as having occurred on May 10, 1994, the accrual of the 
civil money penalty for the facility could be from as early as the date 
the facility was first out of compliance as determined by HCFA or the 
State until the date for which the revisit established that substantial 
compliance was achieved, which would be May 10, 1994 in this example.
    There are other cases in which documentation cannot confirm the 
correction of noncompliance, and in these cases an on-site revisit is 
necessary. For example, one of the requirements for Infection Control 
is that personnel must handle, store, process and transport linens so 
as to prevent the spread of infection as specified in Sec. 483.65. If a 
deficiency is cited for a violation of this requirement and a civil 
money penalty is imposed, submitting written documentation would not 
confirm the correction of the violation. An on-site revisit to observe 
personnel behavior is necessary in this case to confirm that the 
facility is, in fact, back in substantial compliance with this 
regulatory provision.
    Comment: One commenter stated that fines should accrue until a 
follow-up survey confirms compliance. This commenter said proposed 
Sec. 488.230(i)(7) should be revised because it rests on a clause 
rejected by OBRA '87 that paper review cannot adequately determine 
compliance. The commenter also said that if a facility requests a 
survey and is found out of compliance, the facility would be held 
liable for the costs of the survey.
    Response: We do not accept this comment. First, we are not 
suggesting that written credible evidence submitted to HCFA or the 
State can confirm substantial compliance in every situation. We are 
well aware that not every deficiency can be determined to be corrected 
by written evidence as not every requirement is related to a written 
record. OBRA '87 did increase the number of outcome oriented 
requirements and reduce the number of paper compliance requirements; 
however, it did not eliminate all paper compliance requirements. The 
examples used in the discussion of the comment above describe 
situations in which written credible evidence can confirm substantial 
compliance. When we can confirm substantial compliance without an on-
site revisit, valuable resources can be conserved, creating a savings 
for the taxpayer.
    We do not accept the comment to charge the facility for the costs 
of the survey when it alleges substantial compliance but is found to be 
noncompliant at a revisit. The Act does not include the imposition of a 
survey charge as an available remedy.
    Comment: A commenter asked how a facility will notify the State 
when it has corrected the noncompliance.
    Response: When a facility has corrected the noncompliance, it may 
notify the State in whatever manner it feels is most appropriate. For 
instance, in certain situations written credible evidence sent through 
the mail will be the best method of notification. In other cases a 
telephone call to request an on-site revisit will be the most 
appropriate method of notification.
    Comment: A commenter asked how penalties will be computed during 
the interim when a facility believes it is in compliance and a survey 
team, upon revisit, disagrees.
    Response: While a revisit is pending, the penalties continue to 
accrue at the rate originally specified by HCFA or the State. However, 
HCFA or the State may propose to increase the daily penalty if a 
facility with nonimmediate jeopardy deficiencies alleges compliance, 
but on a revisit, HCFA or the State finds that the facility's 
deficiencies have become sufficiently serious to pose immediate 
jeopardy.
    When a facility disagrees with the decision made at the time of the 
revisit, this disagreement could be resolved through the administrative 
hearing process. HCFA has authority to settle cases at any time prior 
to a final administrative decision for facilities in which HCFA's 
enforcement action prevails. The State has authority to settle cases at 
any time prior to the evidentiary hearing decision for all cases in 
which the State's enforcement action prevails. These provisions are 
specified in redesignated Sec. 488.444. However, a civil money penalty 
would not be computed and collected until substantial compliance is 
verified, HCFA's or the State's decision of noncompliance is upheld 
after a final administrative decision, the facility waives its right to 
a hearing, or the facility is terminated.
    Comment: One commenter suggested adding a new provision to require 
that follow-up surveys be conducted within 10 days of the facility 
notifying the State or HCFA that it has substantially corrected 
deficiencies. The penalty is terminated on the date the facility 
provided the notice if the deficiencies are substantially corrected at 
the time of the revisit or the 10 day period for a revisit has elapsed 
and the revisit has not occurred. If a revisit determines the scope and 
severity of the deficiencies has changed, the penalty amount is 
adjusted and the penalty is effective on the date of the facility's 
notice.
    Response: We cannot accept this comment in total. However, as 
previously explained in this preamble, we are accepting the commenters' 
suggestion to incorporate the concept of substantial compliance into 
the regulation as the standard providers must meet to participate in 
the Medicare and Medicaid programs as SNFs or NFs. Consequently, a 
remedy is lifted when deficiencies lessen to the point that the 
facility is in substantial compliance.
    The amount of the civil money penalty is increased to reflect 
repeated deficiencies in the same regulatory grouping of requirements. 
The civil money penalty may be increased for a facility that has 
deficiencies, which, after imposition of a lower level penalty amount 
remain uncorrected and, in fact, become sufficiently serious to pose 
immediate jeopardy. The civil money penalty would be shifted to the 
lower range of penalty amounts for a facility which had immediate 
jeopardy deficiencies if the immediate jeopardy is removed. However, if 
the noncompliance that continues after the immediate jeopardy is 
removed constitutes repeated deficiencies in the same regulatory 
grouping of requirements, the civil money penalty would be increased in 
accordance with Sec. 488.438(d)(2) of this final rule. In a previous 
discussion, we clarified the reasons why we will not be constrained by 
a specified timeframe to conduct on-site revisits or suspend a penalty 
until we can revisit and the date when the penalty begins to accrue.
    Comment: One commenter suggested that at proposed Sec. 488.230(i) 
we provide for the accrual of interest.
    Response: We are revising redesignated Sec. 488.440 to require that 
the notice of the penalty amount due include a statement of the 
interest rate so that a provider is aware of the interest rate 
applicable if the penalty is not paid on the due date. Redesignated 
Sec. 488.442(c), which discusses the collection procedures for civil 
money penalties, specifies how the rate of interest is computed. 
Redesignated Sec. 488.442 Due date for payment of penalty.
    Comment: Several commenters proposed changing the date when civil 
money penalties are due as stipulated at Sec. 488.230(j)(1) of the 
proposed rule to one of the following:
     30 days everywhere the proposed rule specifies 15 days, as 
30 days is more commonly used in commerce;
     30 days from the date of notification or any earlier 
period as provided for by State law; or
     Within 10 days of receipt of notice of penalty or within 
10 days of receipt of the final hearing decision unless the decision is 
appealed.
    Response: We do not accept the recommendations of the commenters to 
change the due date. The due date proposed (now in redesignated 
Sec. 488.442) is consistent with existing HCFA notification procedures 
in which we give the provider a 15 day notice before a remedy begins, 
such as, in the case of the denial of payment for new admissions or 
termination in nonimmediate jeopardy situations. Because we have no 
compelling reason to conclude that reducing the 15 days to 10 days or 
increasing the 15 days to 30 days would result in a more effective 
enforcement process, we are not changing this policy.
    However, while reviewing these comments, we realized that we did 
not include all of the provisions explaining when the civil money 
penalty can be collected. Consequently, we are adding these provisions 
to redesignated Sec. 488.442(a).
    Comment: One commenter said that a facility should not have to pay 
any penalty until it has fully exhausted its appeal rights, including 
appeals to the appropriate State or Federal court.
    Response: We do not accept this recommendation. We are revising 
redesignated Sec. 488.442(a) to make clear that the civil money penalty 
is collectible when a final administrative decision is issued upholding 
the imposition of the penalty. This position is in accordance with the 
intent of section 1128A(e) of the Act, as stated in the conference 
agreement. The conference agreement provides that no penalties will be 
assessed nor payment prohibited until all administrative remedies have 
been exhausted. (See H.R. Rept. 97-208, 97 Cong., 1st Sess. Book 2 
(Conference Report) p. 950. (1981)).
    Comment: Many commenters supported the provision that allows the 
civil money penalty to be deducted from any sum then or later owing to 
the facility by HCFA or the State. The commenters believe that this 
provision is time saving and cost effective.
    A few commenters recommended only deducting the civil money penalty 
from any sum then or later owing by HCFA or the State if the penalty 
payment is not received in full within 30 days from the date of 
notification. A commenter asked if HCFA or the State will notify the 
facility when they plan to deduct the penalty from future monies that 
HCFA or the State owe the facility.
    Response: We appreciate the support of the commenters who agree 
that the amount of the penalty when determined, may be deducted from 
any sum then or later that HCFA or the State owe to the facility as 
specified in redesignated Sec. 488.442(b). This provision implements 
section 1128A(f) of the Act.
    The comments to only deduct the penalty if the facility has not 
paid in full within 30 days and the question about notifying a facility 
of a deduction are concerns that will be addressed in forthcoming 
manual instructions. However, a facility is not precluded from paying 
the civil money penalty, when it is collectible, at any time prior to 
the time when the penalty would be deducted from sums then or later 
owing to the facility.
    Comment: A commenter stated that HCFA and/or the State should 
collect the civil money penalty after all appeal rights are exhausted 
because the ability to deduct a civil money penalty, when determined, 
from any sum then or later owing, is unfair and could financially 
cripple the facility.
    Response: We do not accept the comment. First, a civil money 
penalty is not collectible until, as explained in a previous comment, a 
final administrative decision is made that supports the imposition of 
the penalty. Second, a facility's financial condition is one of the 
many factors considered in determining the amount of the penalty. It is 
not our intent to cause a facility undue hardship; however, if the 
penalty imposed is in the upper limit of the immediate jeopardy range, 
we believe it is justified, because residents are in life threatening 
situations and we want to motivate the facility to immediately correct 
deficiencies. Finally, the Act permits that civil money penalties may 
be deducted from any sum that HCFA or the State owes or will owe the 
facility, and since a provider has ample notice of the due date, the 
option exists to pay the civil money penalty on or before the due date 
as opposed to the money being deducted from sums owed or owing.
    Comment: Another commenter said more consistency between regulatory 
requirements and enforcement practice would be demonstrated by 
requiring the agreement of the patient and his or her attending 
physician with the monetary penalty to be imposed prior to the 
withholding of monies from the patient's funding source.
    Response: To solicit the agreement of each and every resident and 
his or her attending physician before the imposition of a civil money 
penalty would unnecessarily delay the imposition of the civil money 
penalty. Also, if a facility is not motivated to promptly correct 
noncompliance, due to the lengthy delay created by seeking resident and 
physician approval, the health and safety of residents could be 
compromised for an even longer period of time. Furthermore, when a 
provider enters into an agreement with HCFA or the State, or both, to 
participate in the Medicare and/or Medicaid programs, it is responsible 
for providing the agreed upon level of care to the residents. There is 
no justification for asking each resident and his or her attending 
physician for permission to impose a civil money penalty since the 
resident is the recipient and/or the beneficiary of the program and not 
a party to the agreement.
    Comment: Many commenters suggested that the rate of interest not be 
negotiable as stated in the proposed rule's preamble. The commenters 
said this can promote inconsistency, is unworkable and inequitable. 
Commenters wanted to know how the rate will be negotiated (as stated in 
the proposed preamble) and who will determine this rate.
    Many commenters offered alternative language for this regulatory 
provision which included the following:
     Interest accrues at the credit card rate from the date of 
citation on all penalties not paid prior to a request for a hearing;
     Interest is assessed at an annual rate which is 2 percent 
above the prime rate on the unpaid balance of the civil money penalty 
beginning on the due date;
     Interest accrues from the date of the violation at the 
highest rate permitted by State usury laws;
     Interest is based on a national index (for example, 6-
month Treasury bills); and
     The interest rate must be placed in regulation.
    Response: We agree that the interest rate should not be negotiable 
and we are revising redesignated Sec. 488.442(c) to specify the 
interest rate applicable to the collection of civil money penalties. 
For Medicare, the interest rate is the rate fixed by the Secretary of 
the Treasury and used by the Department of Health and Human Services. 
The rule now states that the interest rate is the higher of either--(1) 
the rate fixed by the Secretary of the Treasury after taking into 
consideration private consumer rates of interest prevailing on the date 
of the notice of the penalty amount due (this rate is published 
quarterly in the Federal Register by the Department under 45 CFR 
30.13(a)); or (2) 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). For Medicaid, the interest 
rate is determined by the State.
    Comment: We received many comments on the collection of civil money 
penalties from dually participating facilities. A few commenters were 
confused and asked for clarification of this regulatory provision. 
Commenters suggested amending the language of the proposed rule, which 
says, ``the relative proportions of Medicare and Medicaid beds at the 
facility actually in use'' by adding ``by residents covered by the 
respective programs * * *'' to this sentence. Another commenter 
recommended the regulation say, ``the relative proportions of Medicare 
and Medicaid residents in the facility at the time the facility 
receives notice of the imposition of the civil money penalty.''
    Response: We are revising redesignated Sec. 488.442(e) to include 
the phrase ``by residents covered by the respective programs on the 
date the civil money penalty begins to accrue.'' By including this 
phrase, we require that civil money penalties collected from dually 
participating facilities be apportioned to the Medicare and Medicaid 
programs, not according to the proportionate number of beds but 
proportionate to the number of residents in each program on the date 
the civil money penalty begins to accrue. For example, a facility has 
the capacity and is certified to provide care for 50 Medicare 
beneficiaries and 50 Medicaid recipients. On the date the penalty 
begins to accrue, 15 Medicare beneficiaries and 45 Medicaid recipients 
are residing in the facility and 40 beds of the 100 beds are empty. The 
amount of the civil money penalty is apportioned as follows: 25 percent 
(15/60) of the civil money penalty would be apportioned to the Medicare 
Trust Fund for Medicare beneficiaries and 75 percent (45/60) of the 
civil money penalty would be applied to the protection of the health 
and property of Medicaid residents of facilities that the State or HCFA 
finds deficient.
    Comment: Many commenters suggested alternative uses for the civil 
money penalties collected by HCFA or the State. Many suggested using 
the civil money penalty amount to address the situation which led to 
the deficiency so as to protect the health of the residents as OBRA 
requires. Other commenters suggested that civil money penalties 
collected be used to:
     Fund the State incentive program;
     Offer financial improvement grants to needy facilities;
    Other commenters suggested:
     Placing the monies collected into a fund to be used by 
HCFA or the appropriate State agency, rather than placing them in the 
State's general revenue fund;
     Depositing the monies with the State Treasurer into the 
Long Term Care Monitor/Receiver Fund; and
     Not using the monies to fund government administrative 
activities or those activities not related to resident care.
    Response: We cannot accept the above suggestions for the 
disposition of a civil money penalty imposed in accordance with 
sections 1819(h)(2)(B)(ii), 1919(h)(3)(C)(ii) or 1919(h)(2)(A)(ii) of 
the Act. If the civil money penalty is used by the facility to correct 
the noncompliance which led to its imposition, it is, in effect, not a 
remedy. While the use of the civil money penalty to fund the State 
incentive program, to finance grants for needy facilities or to deposit 
into the Long Term Care Monitor/Receiver Fund would be beneficial uses, 
the Congress has directed the use of the civil money penalty amounts 
collected as specified in section 1128(A)(f) of the Act. Civil money 
penalties collected from Medicare facilities are returned to the 
Medicare Trust Fund and, as specified at section 1919(h)(2)(A)(ii) of 
the Act and redesignated Sec. 488.442(e). Civil money penalties 
collected by the Medicaid State agency, in accordance with section 
1919(h)(2)(A)(ii) of the Act, are applied to the protection of the 
health or property of residents of nursing facilities that the State or 
the Secretary finds deficient, including payment for the costs of 
relocation of residents to other facilities, maintenance of operation 
of a facility pending correction of deficiencies or closure, and 
reimbursement of residents for personal funds or property lost 
(redesignated Sec. 488.442(f)). The law does not require that the money 
received through civil money penalties be spent on direct patient care. 
In fact, the Act suggests that those funds will be spent on 
administrative expenses, such as those incurred in moving patients to 
other facilities.
    Comment: Many commenters support the use of civil money penalties 
by the State for the protection of the health and property of the 
residents. A few commenters raised questions, such as:
     How the disposition of civil money penalties will be 
implemented to assure that money collected by the State is used 
appropriately;
     What State costs are included at proposed 
Sec. 488.230(j)(6)(ii);
     Whether a priority would be assigned to the items included 
in the State's use of civil money penalties (such as, relocation of 
residents and resident reimbursement); and
     How resident reimbursement would be accomplished.
    Response: These questions raised by the commenters are issues that 
need not be addressed through the Federal regulatory process. The Act 
permits each State to implement its own procedures.
    Comment: A commenter supported the application of civil money 
penalties as specified in the regulation; however, the commenter was 
concerned that this provision conflicts with this party's State 
constitution which requires all civil forfeitures to be placed in the 
State's school fund. The commenter asked which provision takes 
precedence.
    Response: Medicare and Medicaid are Federal programs, so when a 
civil money penalty is collected as an enforcement action because a 
participating SNF or NF is out of compliance with the Medicare or 
Medicaid requirements, the Federal regulation takes precedence.
    Comment: A few commenters recommended amending proposed 
Sec. 488.230(j)(6)(iii) to include the reimbursement of lost resident 
property. A few commenters suggested replacing ``including'' at 
Sec. 488.230(j)(6) with the words ``such as.''
    Response: Section 1919(h)(2)(A) of the Act specifies that civil 
money penalties collected by the State be applied to the protection of 
the health or property of residents of nursing facilities that the 
State or Secretary finds deficient. We believe the Congress intended 
that this include the State reimbursement of a resident for personal 
property and funds lost at the facility as a result of actions by the 
facility or by individuals used by the facility to provide services to 
residents. We are revising the rule accordingly.
    We accept the suggestion to replace the word ``including'' with the 
word ``such as'' in the paragraph that discusses the use of civil money 
penalties collected by the State. This revision does not alter the 
meaning of the provision, but does provide needed clarity. The Act, as 
referenced above, enumerates certain specified activities for which a 
collected civil money penalty may be used; however, it is not an 
exhaustive list. As long as the intended use of the funds may be said 
to relate to protecting resident health or property, it is not 
necessary that each use of the civil money penalty be expressly stated 
in the regulation. Using the words ``such as'' more precisely conveys 
the intent of this provision and allows the State to have flexibility 
in determining what activities relate to protecting residents' health 
or property.

Section 488.444  Settlement of Penalties

    Comment: A few commenters said that the regulatory provision at 
proposed Sec. 488.230(k) does not offer guidelines on how civil money 
penalties may be settled and that there is no control over the States' 
or Secretary's discretion.
    A consumer organization commented that granting States complete 
discretion to settle cases whenever and however they choose undermines 
the effectiveness of civil money penalties. They added that this 
regulatory provision opens the door too wide for parties interested in 
not paying fines to make inappropriate deals with decision-makers and 
avoid responsibility for their noncompliance.
    Several commenters suggested deleting this regulatory provision, 
and a few commenters specifically suggested that this section be 
deleted in accordance with their changes proposed at Sec. 488.230(e) 
which provide for settlement in which a facility pays the civil money 
penalty that was imposed (less the 35 percent), and corrects the 
deficiencies which led to the penalty, within 10 days of receipt of the 
notice.
    Response: We cannot accept these comments. The authority provided 
HCFA or the State to settle any case at any time prior to a final 
administrative decision, as specified at redesignated Sec. 488.444, is 
consistent with other regulatory provisions pertaining to civil money 
penalties. Regarding the comment that this provision opens the door for 
decision makers to make deals with providers, we contend that the 
survey, certification and enforcement process is built on a system of 
integrity and implements the necessary controls to assure that this 
integrity is maintained. To remove this provision, as suggested by a 
few commenters, would deny providers the opportunity to promptly settle 
their cases. We believe that the suggestion to settle by deducting 35 
percent from the civil money penalty if the deficiencies which led to 
the penalty are corrected within 10 days does not allow a facility 
enough time to make a decision regarding whether to waive or request a 
hearing. Moreover, the provision in redesignated Sec. 488.436 deals 
specifically with a provider waiving its right to a hearing. 
Redesignated Sec. 488.444 provides the opportunity to settle a case, 
even if the hearing right was not previously waived. This provision was 
incorporated into the regulation in the interest of resolving 
disagreements at the stage in the process before sizeable expenditures 
of time and money are devoted to hearing procedures. Even if a hearing 
had been requested, if, before the proceeding, all parties can reach 
agreement over the deficiencies to be corrected and the penalty to be 
paid until corrections are made, costly hearings procedures can be 
avoided.
    Comment: A commenter requested that press releases and a notice to 
the long term care ombudsman accompany settlement, and if the civil 
money penalty was imposed as a result of a complaint investigation, 
notice should be given to the complainant.
    Response: We do not accept this comment. Sections 1819(g)(5) and 
1919(g)(5) of the Act provide for the disclosure of information 
regarding inspections and other activities of skilled nursing 
facilities and nursing facilities. Survey and certification 
information, which includes but is not limited to statements of 
deficiencies, plans of correction and appeal results, is available to 
the public. The regulation at Sec. 488.325 expands disclosure to 
include among other things, notice of SNF or NF noncompliance and 
adverse action(s) imposed to the long term care ombudsman. Existing 
State survey agency procedures require that a notice be sent to the 
complainant informing him or her of the disposition of the allegation. 
We maintain that the present methods of disclosure used for all 
noncompliance situations provide ample opportunity for public 
awareness, and we do not believe that any additional benefit is derived 
by having separate disclosure procedures for those cases in which civil 
money penalties are used as a remedy (see discussion for Sec. 488.325 
Disclosure of results of surveys and activities).
    Comment: A provider organization recommended that issues that may 
be resolved at settlement include citation of a deficiency; severity 
and scope of the deficiency; the remedy imposed; exclusion of the 
deficiency as the basis for increased sanctions in the future; and 
exclusion of the deficiency or deficiencies cited on the HCFA Form-2567 
as the basis for further enforcement action by any other agency or 
office of the Department of Health and Human Services (HHS).
    Response: We do not accept the suggestion to include in the 
regulation specific deficiency related issues that may be discussed at 
settlement. Providers have many opportunities to discuss and resolve 
the deficiency-related issues raised by the commenter before the 
settlement of the civil money penalty would occur. Providers have the 
opportunity to question survey findings during the survey, at the exit 
conference, while awaiting receipt of the official deficiency 
statement, upon receipt of same, and through ongoing dialogue with the 
State and HCFA regional offices. Also, all States must have a dispute 
resolution process as required by Sec. 488.331 of this rule to enable 
providers to discuss perceived discrepancies in the survey process. 
While the existence of a deficiency may arise at settlement 
discussions, it is unnecessary to mention it or any other of the above 
issues which are predicated on the existence of deficiencies and which 
may arise. Moreover, we have no authority, as the commenter suggests, 
to exclude a deficiency in the present but increase the enforcement 
action if it is repeated in the future.

Section 488.450  Continuation of Payments to a Facility With 
Deficiencies

    Virtually everyone who commented vehemently disagrees with this 
proposed section. Consumer groups oppose this section because, they 
believe, it forces HCFA or the State to terminate a facility's provider 
agreement rather than to impose alternative remedies. State 
organizations disagree with the provision that the State must agree to 
repay FFP for Medicaid facilities rather than the facility agreeing to 
repay (as stipulated for Medicare). Providers argue that the proposed 
rule is too strict, because repayment of Federal funding would begin 
the day that the State survey agency identifies deficiencies rather 
than when HCFA or the State imposes remedies when facilities do not 
correct deficiencies. Providers also believe that asking for an 
agreement to repay Federal funds for deficiencies at low scope and 
severity levels is harsh.
    Comment: Several commenters believed that proposed Sec. 488.232, as 
redesignated at Sec. 488.450, will force States to impose termination 
instead of alternative remedies for all instances of noncompliance in 
NFs. They based their belief on the provision that says that, when the 
State survey agency prefers an alternative remedy in lieu of 
termination, the State must agree to repay FFP. If the NF fails to 
correct the deficiencies during the correction period, the State would 
be liable. These commenters said, that because many States have no 
intention of entering into an agreement to repay FFP, the State must 
start termination. One commenter stated that if the provision remains 
as a prerequisite to the use of alternative remedies, reliance on 
termination procedures will continue. In the commenter's view, the end 
result will be more litigation, because providers will be placed in the 
unenviable position of having to respond to potential decertification 
for relatively minor infractions.
    Other commenters criticized HCFA's proposed rule because it denies 
the intent of OBRA to make available to States a range of remedies to 
be used as alternatives to termination for deficiencies of lesser 
severity and places NFs in the undesirable position of having to 
respond to decertification actions for relatively minor violations.
    Response: We are aware of the difficulties posed by the repayment 
provisions of sections 1819(h)(2)(C) and 1919(h)(3)(D) of the Act. As 
almost all commenters noted, these requirements constitute a 
significant disincentive to impose alternative remedies because the Act 
requires that either the facility (under Medicare) or the State (under 
Medicaid) repay the Federal government should the facility fail to 
correct identified deficiencies.
    We note, however, that sections 1819(h)(2)(C) and 1919(h)(3)(D) of 
the Act specify the rules that must apply to SNFs and NFs when the only 
course chosen to respond to the violation of certification requirements 
is through alternative remedies. We reach this conclusion because of 
the literal language of both of the provisions of the Act, which 
specifies that these remediation provisions apply when the State survey 
agency determines that it would be more appropriate to employ 
alternative means to assure compliance than to seek a provider 
agreement termination. Thus, the commenters are quite right that when 
an alternative remedy only is being sought, the repayment provisions of 
the Act for SNFs and NFs are inescapable.
    While we see the desirability of being able to pursue only 
alternative remedies in many cases of facility noncompliance, the fact 
is that section 1919(h)(7) of the Act offers the availability of 
alternative remedies when coupled with an action to terminate a 
provider agreement when there would be no repayment consequences for 
either the facility or the State. In these cases, when HCFA agrees with 
the State's assessment that a provider agreement termination should be 
sought, the State's timing for the termination controls. If the State 
opts for one or more alternative remedies in addition to termination, 
those remedies would be applied unless the Secretary chooses to impose 
an alternative remedy. When both the State and the Secretary choose to 
impose one or more alternative remedies, section 1919(h)(7)(B)(ii) of 
the Act specifies that only the Secretary's remedies are imposed. As 
already discussed, when the State's decision to terminate the provider 
agreement as well as impose alternative remedies prevails, we do not 
believe the rules of section 1919(h)(3)(D) of the Act would govern the 
imposition of the alternative remedy.
    Thus, where a SNF's or NF's deficiencies do not pose an immediate 
jeopardy to resident health or safety, HCFA or the State may opt for a 
``slow-track'' termination and apply one or more alternative remedies 
in the interim period. Should the facility achieve substantial 
compliance before the effective date of the termination, as we would 
expect to occur in almost every case, the termination action would be 
rescinded. Should the facility fail to correct deficiencies by the 
effective date of the termination, the termination would proceed, but 
neither the State nor the facility would be liable to us for a 
repayment of funds for the time following the identification of 
deficiencies. While we are not suggesting that States or HCFA make a 
decision to terminate a provider agreement in all cases where facility 
deficiencies have been identified, we believe it is important that 
States, and all others affected by these provisions, be clear as to the 
consequences of using the various provisions of the Act.
    We have concluded that the approach we have described above can be 
applied to SNFs as well as to NFs and dually- participating facilities. 
When we have identified deficiencies for SNFs and seek provider 
agreement termination in accordance with section 1866(b) of the Act, we 
would not be seeking only an alternative remedy. In such cases, we 
believe the rules of section 1819(h)(2)(C) would not apply since the 
State's recommendation is for a termination and alternative remedies.
    We believe proceeding in the fashion we have described relative to 
all nursing homes may strike the kind of balance that the Congress was 
seeking through its placing of alternative remedies in greater 
prominence than had been the case before nursing home reform. Most 
importantly, nursing home residents would be protected, because the 
facilities in which they reside would have every incentive to comply 
quickly in order to have alternative remedies lifted. With that 
incentive, residents would face the unsatisfactory care that gave rise 
to the enforcement action for only short periods of time without facing 
the specter of relocating were termination the first remedy of choice. 
Second, States would have considerably more flexibility to impose 
alternative remedies knowing that neither they nor the facility will be 
liable to us for the repayment of funds should a facility, in fact, 
fail to achieve substantial compliance by the time that the termination 
action is effective. Of course, the mandatory denial of payment which 
the State or the Secretary is required to impose after the third month 
of noncompliance would not require the State for Medicaid or the 
facility for Medicare to sign an agreement to repay Federal funds if 
substantial compliance is not achieved.
    Comment: One commenter believed that the continuation of payments 
pending remediation provision should only be applied in situations 
where the Secretary and the State disagree about whether to terminate 
and the Secretary believes that termination should occur but the State 
believes that the facility can correct the problems. The commenter 
states:

    This interpretation flows very logically from the wording of 
section 1919(h)(3)(D), which gives the Secretary permission to 
continue payments (``The Secretary may continue payments * * *'' 
emphasis added). Since the Secretary has ample authority elsewhere 
in the Act to pay facilities, he does not need this ``permission'' 
and therefore the provision would appear to be redundant. It 
acquires meaning only if it is understood as making an exception to 
a situation where the Secretary would otherwise be barred from 
making payment.

    One commenter believes that sections 1919(h)(3)(D) and1819(h)(2)(D) 
of the Act, if not redundant, were incorporated into the Act to 
constitute guidance in a situation that otherwise would make it unclear 
as to whether or not payment should continue, that is, disagreement 
between HCFA and the State.
    Other commenters noted that, ``A reasonable reading of the statute 
does not require the Secretary to second-guess every determination by a 
State that intermediate sanctions should be attempted before resorting 
to termination.'' The commenters assert that the statutory provision 
should only apply in those very rare circumstances where the Secretary 
concludes that termination is necessary, but yields to the State's 
recommendation that intermediate remedies be imposed instead.
    Response: While we agree that the Secretary has the authority to 
pay Medicare facilities and pay States for Medicaid facilities in 
accordance with sections 1861(v)(1) and 1903 of the Act, respectively, 
the provisions of sections 1819(h)(2)(C) and 1919(h)(3)(D) limit the 
Secretary's authority to make payments for Medicare providers and 
States (for Medicaid providers), respectively. However, that is not the 
only situation in which there would be lack of clarity as to whether or 
not payment should continue. The clearer reading and the one we have 
adopted is that, without this provision, a lack of clarity would exist 
over whether or not payments should continue despite noncompliance with 
the statutory participation requirements. Further, we do not agree that 
the Act provides for the scheme offered by the commenter (that is, that 
we only invoke section 1919(h)(3)(D) of the Act if there is 
disagreement about termination). Such disagreements between the State 
and the Secretary over termination and establishing remedies are 
addressed at section 1919(h)(7) of the Act.
    Comment: One commenter expressed the opinion that there is almost 
universal agreement that terminating nursing homes from Medicare and 
Medicaid is harmful to residents. The commenter believed that in most 
terminations, residents are transferred to other substandard nursing 
homes farther away from family and friends. The end result of most 
provider terminations is to expose residents to relocation trauma 
without getting better care. Other commenters also expressed concern 
over the resident's reaction to a potential termination. Commenters 
believed that even when a facility has come into compliance, residents 
suffer from the uncertainty of their situations. Although commenters 
agreed with our statement in the preamble that we see provider 
agreement terminations generally to be the enforcement response to the 
most serious deficiencies, they believed the proposed regulation allows 
almost unrestricted use of termination as a sanction.
    Response: We disagree with the commenter, who gave no evidence to 
support the contention that most provider terminations expose residents 
to relocation trauma without getting better care. We acknowledge that 
there are instances in which termination will cause some hardship to 
residents, but the advantages of removing residents from a noncompliant 
nursing home could outweigh any disadvantages. Usually, HCFA and the 
State will impose alternative remedies prior to terminating or in 
addition to terminating a facility in hopes that a facility will 
achieve substantial compliance. We believe that in those cases in which 
termination becomes necessary, the termination is for the ultimate 
benefit of the residents to assure that they receive the care to which 
they are entitled.
    Comment: One commenter stated that section 1919(h)(3)(D) of the Act 
requires the Secretary to establish guidelines for the approval of 
corrective actions requested by the States. The commenter pointed out 
there are no proposed rules that address this statutory requirement.
    Response: We will issue these guidelines in manual instructions. We 
do not believe including them in regulations is required or necessary.
    Comment: Many commenters believed that the proposed rule was so 
broadly worded that it could be understood to apply to every situation 
where the extra time and the intermediate sanctions did not produce 
compliance. These commenters asked that we revise the regulation to use 
the continuation of payment during remediation provision in only in the 
most egregious situations where the Secretary disagrees with the State 
survey agency regarding termination.
    Response: Sections 1819(h)(2)(C) and 1919(h)(3)(D) of the Act do 
not provide any flexibility about the seriousness of a deficiency in 
applying the continuation of payment during remediation provision. 
Indeed because the statute in both places makes reference to the 
payment limitations being triggered if a facility is ``not in 
compliance with a requirement of subsections (b), (c), or (d)'' 
(emphasis added), we believe that the Congress was focusing on any 
deficiency that might cause a facility to not be in substantial 
compliance, not just cases of egregious noncompliance. Therefore, we 
cannot accept the commenter's request.
    Comment: One commenter recommended that we add the following 
sentence at the end of proposed Sec. 488.232(a)(1)(i): ``In considering 
whether it is more appropriate to impose alternative remedies than to 
terminate the facility, the State shall take into account the relative 
effects on the facility's residents of relocation and remaining in the 
facility, including the availability of suitable alternative placements 
for them.''
    Response: We are not adopting this recommendation because there may 
be instances when termination is necessary despite the fact that it 
will cause some hardship to residents. As noted earlier, usually, HCFA 
and the State will impose alternative remedies prior to terminating a 
facility; however, there may be instances where this is not possible. 
For example, a facility could refuse to allow access to the surveyors, 
or could refuse to submit a plan of correction. A facility might also 
remain out of substantial compliance with requirements after an up to 
6-month period allowed for correction, at which time the Act would 
require termination despite hardships to the residents.
    Comment: Several commenters urged us to delete the provision at 
paragraph (a)(2) that HCFA or the State may terminate the SNF or NF 
agreement before the end of a 6-month correction period if the criteria 
in paragraph (a)(1) of this section are not met. Commenters believed 
that the Act does not authorize HCFA or the State to terminate a 
provider agreement if a facility does not meet the threshold criteria 
(that is, the State survey agency finds that it is more appropriate to 
impose an alternative remedy than to terminate the facility; the State 
has submitted a plan and timetable for correction approved by HCFA; and 
the facility, in the case of a Medicare SNF, or the State, in the case 
of a Medicaid NF, agrees to repay the Federal government payments 
received if corrective action is not taken in accordance with the 
approved plan of correction). Commenters believed that once a 
determination is made to invoke the continuation of payment provision, 
a facility should not be terminated or have its Federal funding 
discontinued unless it is found on a subsequent survey to present 
immediate jeopardy, or the 6 months expire and the originally cited 
deficiencies have not been corrected. On the other hand, a few 
commenters recommended that we change the section to read ``HCFA or the 
State must terminate'' rather than ``may terminate'' as it was 
proposed.
    Response: We disagree with these commenters. First, on its face, 
the statute does not limit the authority of the Secretary to deny 
further payments to facilities or States under these provisions to only 
those cases where deficiencies pose immediate jeopardy. Rather, the 
statute speaks to all providers which do not meet ``a'' requirement of 
the Act. Second, the States and the Secretary have plenary authority to 
terminate provider agreements any time there is facility noncompliance, 
and sections 1819(h)(2)(C) and 1919(h)(3)((D) pose no limitation on 
that authority. If the State survey agency does not prefer an 
alternative remedy in lieu of termination to remedy noncompliance, the 
Act compels the Secretary to cease payments to the facility under 
Medicare or the State under Medicaid. If the State survey agency 
prefers an alternative remedy in lieu of termination and the other two 
criteria are not met, the Secretary does not have authority to continue 
payments under either program. However, if the State survey agency 
prefers termination, we cannot preclude a State from imposing 
additional remedies while the termination is pending, which can be up 
to six months from the last day of the survey. Therefore, we are not 
accepting the commenter's suggestion that we should continue Federal 
funding unless we found on a subsequent survey that deficiencies 
present immediate jeopardy, or the 6 months have expired and the 
facility has not corrected the originally cited deficiencies. To do so 
would be clearly inconsistent with the Act, as we have discussed above. 
Neither immediate jeopardy nor a full 6 months of noncompliance have to 
have occurred in order for the State or HCFA to terminate a provider 
agreement.
    We are also not accepting the suggestion to change HCFA or the 
State ``may'' to HCFA or the State ``must,'' since the text of the 
regulations mirrors the Act, which affords States and HCFA discretion 
in these matters.
    Comment: Many commenters suggested that we delete the requirement 
that States submit the plan of correction to HCFA for approval in every 
case for which alternative remedies are to be imposed. Some commenters 
assert that this provision, as written, provides strong incentives to 
using termination rather than alternative remedies. They point out that 
if a State survey agency wants to impose any remedy other than 
termination, it must submit a plan of correction to HCFA. The 
commenters believed that this will encourage States to terminate a 
provider agreement rather than to impose an alternative remedy because 
the requirement that HCFA approve plans of correction under the 
continuation of payment provision will be administratively burdensome.
    Response: The requirement that State survey agencies submit a plan 
of correction to HCFA as part of the continuation of payment provision 
is statutory. Sections 1819(h)(2)(C) and 1919(h)(3)(D) of the Act 
provide that, ``the State has submitted a plan and timetable for 
corrective action to the Secretary for approval and the Secretary 
approves the plan of corrective action.'' We do not have the authority 
to delegate this function to the State. However, we may, through manual 
instruction provide for a mechanism whereby, if the State survey agency 
has not received approval or disapproval from HCFA within a prescribed 
amount of time, we would deem the plan and timetable for corrective 
action approved.
    Comment: One commenter believed that the Secretary should require 
States to seek HCFA approval for all plans of correction involving use 
of alternative remedies only if the review will be done for the purpose 
of determining whether the State has chosen its remedy strategically to 
achieve the appropriate change in facility behavior toward residents.
    Response: Sections 1819(h)(2)(C)(ii) and 1919(h)(3)(D)(ii) of the 
Act require that the Secretary approve all plans of corrective action. 
Moreover, the Act does not delve into the purpose behind approving the 
plans of corrective action (that is only reviewing the plan of 
correction to determine whether the State imposed the best remedy for a 
given situation of noncompliance.) Adding such a requirement to the 
regulation would inappropriately limit the authority of the Secretary. 
For this reason, we are not accepting this suggestion.
    Comment: One commenter believed that alternatives to termination 
should be allowed to be imposed because, without a distinction between 
level and type of deficiency, even minor noncompliance becomes grounds 
for withholding of Medicaid funds.
    Response: We assume the commenter means that HCFA should not use 
the continuation of payment provision for minor noncompliance. As we 
have explained before, the Act makes no such distinction for minor 
deficiencies. Therefore, we have no basis to revise the rule. If the 
commenter is urging the use of remedies instead of termination, we 
believe that the enforcement scheme we have designed and in 
Sec. 488.408, which correlates specific enforcement responses to 
specific levels of noncompliance, provides for incrementally more 
severe remedies for more serious deficiencies. Also, as discussed 
elsewhere in this final rule, while all facility noncompliance will be 
identified, the enforcement response can range from a provider's 
commitment to correct with no remedies imposed, to termination of the 
provider agreement. Providers found to be in substantial compliance 
will not have remedies imposed.
    Comment: The majority of commenters who responded to this section 
asked that we take out paragraph (a)(1)(iii), which requires that 
States repay Federal funds paid to a nursing facility when alternative 
remedies are used. One organization stated that they believe HCFA is 
basing the regulation on a specific statutory requirement but they 
believe that this issue should be discussed before implementation of 
its provision in the enforcement rules. They said that they believe 
that a stronger public policy rests on the use of the alternative 
remedies and that a facility's failure to comply should not create a 
financial threat to the State.
    Response: First, we must point out that the repayment provision in 
redesignated Sec. 488.450(a)(1)(iii) is based on the Act and pertains 
to facilities, in the case of Medicare SNFs, as well as to the State, 
for NFs, that are not in substantial compliance. Second, we recognize 
that the statutory requirement for State agreement to repay FFP for NFs 
if facilities do not achieve substantial compliance can be a barrier 
for a State survey agency choosing to impose an alternative remedy in 
lieu of termination. We understand the commenters' concern that many 
States will not agree to repay because a NF's achievement of 
substantial compliance is not wholly within the State's control. We 
have been studying the repayment issue and hope to develop a 
legislative proposal to remedy the inherent barriers in the Act. Absent 
a legislative change, we cannot eliminate the requirement that States 
agree to repay Federal funds in accordance with section 1919(h)(3)(D) 
of the Act. Neither do we have the authority to delay the 
implementation of this provision without legislative intervention. 
However, the Act does not prevent States from obtaining a repayment 
agreement from a facility. The State could obtain the facility's 
repayment agreement either before or after it enters into a repayment 
agreement with the Secretary. Nor does the Act require that repayment 
of Federal funds be made if a facility is not in compliance with 
Federal requirements. If the facility does not take corrective action 
in accordance with its approved plan and timetable and is not in 
substantial compliance at the end of the correction period, the 
facility (for Medicare) or the State (for Medicaid) would be 
responsible for repaying Federal payments for the correction period and 
HCFA would stop any further payment to the facility (for Medicare) or 
the State (for Medicaid) for nursing home services. If the facility 
followed its approved plan and timetable, but was not able to achieve 
substantial compliance at the end of the correction period, the 
facility or State would not be responsible for repayment of Federal 
funds, but HCFA would stop further payment to the facility or State for 
nursing home services. If a facility does not take action in accordance 
with its approved plan or correction and timetable, but is able to 
achieve substantial compliance, the facility or State would not be 
responsible for repaying Federal funds for the correction period, and 
the facility could continue in the Medicare and Medicaid programs. 
Section 1919(h)(3)(D) of the Act provide that the State agrees to repay 
``if corrective action is not taken in accordance with the approved 
plan and timetable'' that was approved by the Secretary. Furthermore, 
we have explained above that alternative remedies can be imposed in 
addition to termination, and in such cases they would not be subject to 
the requirements of section 1919(h)(3)(D) of the Act.
    Comment: Many commenters urged HCFA to delay the requirement for 
the State to indemnify HCFA for FFP repayment until day 90 if a 
facility is not in compliance with the requirements. Some commenters 
believed that the proposed rule eliminates any incentive for State 
survey agencies to recommend alternative remedies by imposing a 
requirement to indemnify HCFA for FFP from day one. Others wanted to 
modify the regulations so that States would not be required to 
guarantee repayment until day 90. One commenter believed that such a 
policy would be consistent with the Act and would ensure that 
facilities have the opportunity to make corrections.
    Response: Sections 1819(h)(2)(C) and 1919(h)(3)(D) of the Act 
specify that the Secretary may continue payments over a period of not 
longer than 6 months after the effective date of the findings. To read 
``the effective date of the findings'' to mean the 90th day would 
extend the correction period from up to six months and up to nine 
months. Moreover, it would greatly distort the intent and clear meaning 
of the phrase ``effective date of the findings'' to designate the 90th 
day after the findings were first cited as the effective date. 
Therefore, the period covered by the sections 1819(h)(3)(C) and 
1919(h)(3)(D) of the Act is a maximum of six months, starting with the 
last day of the survey. Sections 1819(h)(3)(C)(iii) and 
1919(h)(3)(D)(iii) of the Act provides that the facility (for Medicare) 
and the State (for Medicaid) agree to repay the Federal government 
payments received under these subparagraphs if the corrective action is 
not taken in accordance with the approved plan and time period. 
Therefore, if the facility or the State must agree to repay money 
received for the period covered by section 1819(h)(3)(C) or 
1919(h)(3)(D), they must agree to repay money received since the last 
day of the survey. Therefore, when the State or a facility enters into 
a repayment agreement and the facility does not take action in 
accordance with its approved plan and timetable for corrective action 
or does not achieve substantial compliance, the State or facility would 
be held financially accountable for the period covered by the repayment 
agreement.
    We also disagree with the commenter's assertion that the repayment 
period should not start until the 90th day in order to give facilities 
more time to correct deficiencies. The facility is notified of its 
deficiencies during the survey, at the exit conference and then 
formally through the Statement of Deficiencies shortly after the 
completion of the survey. We believe that the beginning of the 
repayment period is irrelevant to the correction period. The facility 
has up to 6 months to take corrective action in accordance with its 
approved plan and timetable for corrective action or achieve 
substantial compliance, or both. If the facility does not meet that 
goal, the State or the facility will be expected to pay back the 
Federal funding for the period covered by the repayment agreement.
    Comment: Many commenters recommended that we delete redesignated 
Sec. 488.450(a)(1)(iii). Their comments included the following:
     It is unrealistic that a State will agree to repay the 
Federal government payments received if corrective action is not taken 
in accordance with a facility's plan of correction;
     The language does not fit within the concept of 
enforcement as envisioned in the Act;
     This provision is a heavy disincentive to use intermediate 
remedies;
     A State should not be monetarily penalized for a 
facility's failure to comply with regulations when an alternative 
remedy is chosen over termination;
     To put the State at risk for something that is ultimately 
out of the State's control does not make for good public policy; and
     The provision is beyond statutory authority and should be 
left to the States as to whether or not they wish to recover 
reimbursement from the facilities for noncompliant actions.
    A number of commenters asked that we amend this subsection to 
explicitly permit States to enter into agreements with facilities to 
repay Medicaid funds if deficiencies are not corrected according to the 
approved plan of correction. Other commenters suggested that we only 
hold a State liable for repayment of Federal Medicaid payments to a 
noncompliant facility if the facility remains out of compliance and the 
State has not made full use of available intermediate remedies. One 
commenter wanted us to broaden the rule used for Medicare (that is, 
that the facility agree to repay) to apply to Medicaid as well.
    Response: Absent a legislative change, we have limited choices when 
a State survey agency finds a facility out of substantial compliance 
with Federal requirements and alternative remedies only are the 
recommended enforcement response. For Medicare, we must obtain an 
agreement to repay from the facility or cease making payment to the 
facility. For Medicaid, we either obtain a repayment agreement from the 
State or stop Federal financial participation to the State for that 
facility. In addition, the State may terminate a NF. In response to the 
commenter who worried about the State's liability for up to six months 
of FFP, the Act does not prevent States from securing an agreement to 
repay from the facility before agreeing to repay monies to the Federal 
government. In fact, during the transition period between when the new 
nursing home requirements became effective and the effective date of 
the final survey process and enforcement rules, some States have 
obtained agreements to repay from facilities before signing agreements 
to repay to HCFA. However, we will not explicitly include in regulation 
that States are permitted to enter into repayment agreements with 
facilities, nor will we broaden the rule for Medicare to apply to 
Medicaid. The State has the discretion to determine whether repayment 
agreements between it and the Medicaid facilities would be beneficial.
    We also are not accepting the recommendation to only hold a State 
liable for the repayment of Federal funds if the State had not made 
full use of available alternative remedies. Accepting this 
recommendation would limit the Secretary's ability to implement the 
provisions of section 1919(h)(3)(D) of the Act.
    Comment: One commenter suggested that we replace ``of the 
determination of noncompliance by'' with ``that the facility's provider 
agreement is terminated by'' at Sec. 488.432(b).
    Response: The amended language suggested by the commenter 
substantially alters the meaning of this section and, if accepted, 
would be contrary to the Act. Sections 1819(h)(2)(C) and 1919(h)(3)(D) 
of the Act permit the Secretary to continue payments pending 
remediation if the State, for Medicaid, and the facility, for Medicare, 
meet certain criteria. If the State agency prefers alternative remedies 
rather than termination and the criteria of section 1819(h)(2)(C) and 
1919(h)(3)(D) of the Act are not met, the Secretary has no authority to 
make any payments to the facility from the ``effective date of the 
findings,'' that is, from the last day of the survey that found the 
facility was not in substantial compliance with the requirements of 
section 1819 (b), (c) or (d) or 1919 (b), (c) or (d) of the Act, or 
both. If termination of a facility's provider agreement is sought, 
payments continue until the effective date of termination, which may 
not be more than 6 months after the last day of the survey. 
Substituting ``that the facility's provider agreement is terminated 
by'' would permit more payments to the State or the facility than the 
Act allows. In fact, such a policy would be no different than pre-
existing policies to stop Federal payments on the effective date of 
termination. For these reasons, we have not accepted this comment.
    Comment: One commenter pointed out that Sec. 488.432(c) allows 
continuation of payments for up to 6 months from the last day of 
survey. The commenter further stated that if HCFA intends that the 
government can decide to give a facility less than 6 months of 
continued payments, HCFA should specify clear criteria in the 
regulations to guide this decision. Because the proposed regulations do 
not contain any such criteria, the commenter suggests that we delete 
the words ``up to.''
    Response: We are not accepting the commenter's suggestion, and we 
have not specified criteria as to when HCFA or the State would allow 
continued payments for less than 6 months. We do not want to in any way 
restrict HCFA's or the State's ability to decide, on a case-by-case 
basis, the optimal amount of time for continuation of payment for a 
particular facility.
    Comment: One commenter offered alternative language for 
Sec. 488.432(d) to insert ``substantially'' before ``correct.''
    Response: We are accepting the spirit of the commenter's alternate 
language, and are revising redesignated Sec. 488.450 to say ``If the 
facility does not * * * achieve substantial compliance''.
    Comment: One commenter stated the Act does not require that a 
facility correct all deficiencies; rather, the Act requires that a 
facility must have taken corrective action in accordance with the 
approved plan and timetable.
    Response: While we believe that a provider must be in substantial 
compliance by the end of the allotted correction period to avoid a loss 
of Federal payments or termination, we agree with the commenter that 
our language could be more precise and are revising Sec. 488.450(d) to 
delete the section title ``Deficiencies not corrected'' and renaming it 
``Action not taken in accordance with approved plan and timetable for 
corrective action.''
    Comment: Several commenters wanted to expand the period for 
providing notice of payment cutoff under the six month rule from 15 to 
60 days. Commenters asserted that 15 days is insufficient time for the 
facility to correct any remaining problems and obtain a follow-up 
survey. They contend it is even less sufficient if the facility 
disputes the continued existence of the deficiencies and desires a 
hearing on the matter.
    Response: We are not expanding the notice period from 15 days to 60 
days nor do we agree that the 15-day notice period is inadequate. We 
base the 15-day notice period prior to termination on our experience 
with Sec. 489.53(c)(1), which sets forth notice requirements for other 
providers and suppliers. Moreover, the purpose of the notice is not for 
a facility to make last minute corrections, but for the government to 
help fulfill its duty to provide due process to facilities before 
termination. Facilities generally have had notice of their 
noncompliance long before the 15 days prior to termination.
    Comment: One commenter recommended that, unless HCFA is the only 
party acting (that is, the State does not terminate Medicaid 
participation), the State should provide the hearing and final 
decision. The commenter believed that if HCFA subsequently disagrees 
with the State's decision, the facility should not be affected. HCFA's 
action would be against the State alone, for recoupment of Federal 
financial participation, and should be appealed through the normal 
Departmental Appeals Board (DAB) process.
    Response: We assume this commenter is referring to a NF. When a 
NF's provider agreement is terminated, the appeal procedures which 
apply depend on who is taking the enforcement action. If the State is 
terminating a NF and the Secretary is taking no action, the appeal 
procedures at 42 CFR part 431 apply. If the Secretary exercises her 
authority, finds noncompliance, and terminates the NF, the appeal 
procedures at 42 CFR part 498 apply. If a NF is a State-operated 
entity, the Secretary always takes the enforcement action, and the 
appeal procedures at 42 CFR part 498 would apply. In the case of 
facilities which participate as a NF and a SNF (dually participating 
facilities), where both the State and the Secretary are making 
enforcement decisions on the Medicaid and Medicare agreements 
respectively, the appeal procedures at 42 CFR part 498 apply. Since 
nearly 80% of all nursing homes are dually participating, the majority 
of NFs will appeal their enforcement actions through the Federal appeal 
procedures at 42 CFR part 498. The appeals mechanism for providers 
adversely affected by the repayment provision would be the same as an 
appeal of noncompliance which led to termination or other enforcement 
remedies, except that a State can also appeal the recoupment of FFP 
under a DAB hearing in accordance with 45 CFR part 16. The recoupment 
of Federal funds will be one of the results of the termination; 
however, the noncompliance which led to termination remains the initial 
determination which is at issue at the hearing, and is the action on 
which the recoupment of funds is predicated.

Section 488.452 State and Federal Disagreements Involving Findings Not 
in Agreement in Situations When There Is No Immediate Jeopardy

    Many commenters were not aware that most of the provisions in this 
section are required by the Act. Most of the comments we received 
concerned proposed Sec. 488.234 as a whole; therefore, we have grouped 
the comments under generic headings, rather than under specific 
subsections. HCFA's Role in Enforcement Decisions.
    Comment: Some commenters stated that the proposed regulations give 
HCFA too large of a role in enforcement decisions.
    Response: The regulations reflect the statutory role given to the 
Secretary by the Congress in the enforcement provisions of the Act. 
Specifically, sections 1919(h) (5), (6), and (7) require the 
Secretary's involvement in enforcement decisions with respect to 
Medicaid NFs should the Secretary find facility noncompliance and seek 
to impose either alternative sanctions or termination or both.
    Comment: Several commenters stated that the Congress did not intend 
HCFA to make all compliance decisions on dually certified SNF/NFs.
    Response: HCFA does not make ``all the decisions'' on a dually 
certified SNF/NF. The Act itself prescribes that a finding of 
noncompliance, by either the State or the Secretary, will prevail over 
the other agency's finding of compliance. Therefore, the Congress 
decided that in cases where the agencies disagree, the finding of 
noncompliance becomes the effective finding regardless of whether it is 
the Secretary or the State that has made the finding. In addition, the 
Act provides that a State's decision to terminate prevails over HCFA's 
decision not to terminate, and the State's timing of a termination also 
prevails over HCFA's.
    Comment: Some commenters stated that the Congress did not intend 
that HCFA ``second guess'' States' decisions on every survey.
    Response: We have no intention of second guessing the results of 
every State survey. Sections 1819(g)(3) and 1919(g)(3) of the Act, 
however, require the Secretary to conduct validation surveys of a 
representative sample of SNFs and NFs in each State within 2 months of 
surveys by the State survey agency. Section 1919(h)(3)(B) of the Act 
provides for the Secretary's general validation authority exclusive of 
actual on-site validation surveys. As we stated in the proposed rule, 
prior to the effective date of OBRA '87, HCFA, acting for the 
Secretary, monitored State surveys. OBRA '87 formalized this process. 
The Congress also made explicit provision for whose enforcement 
approach would prevail in the case of a disagreement between the State 
and HCFA. Sections 1919(h) (6) and (7) of the Act, as implemented by 
redesignated Sec. 488.452, specify situations in which the State rather 
than the Federal government prevails, with regard to the choice of a 
remedy or the timing of an enforcement action.
    Comment: A few commenters stated that HCFA should take enforcement 
action against a Medicaid provider only after a validation survey or 
other on-site survey. Some wanted to change the above regulation by 
inserting the phrase: ``on the basis of a validation survey'' after 
``HCFA finds.'' Some commenters wanted a State's enforcement decision 
to be the controlling decision because the States understand local 
conditions better than HCFA does.
    Response: We are not adopting these proposals to act only on the 
basis of an on-site validation survey, because they would limit HCFA's 
oversight responsibility and limit HCFA's ability to protect residents' 
health, safety and rights. Federal surveyors are able to review a 
State-prepared Statement of Deficiencies and come to an independent 
conclusion about whether the deficiencies cited indicate substantial 
compliance or noncompliance with the statutory and regulatory 
requirements. This has been a routine part of HCFA's monitoring of 
State survey agencies in the past. We do not think the Congress 
intended to reduce these monitoring responsibilities.

Federal-State Disagreement

    Comment: One commenter noted that under Sec. 488.452, if a State 
and HCFA have a difference of opinion on the deficiencies cited, the 
one that finds noncompliance prevails. The commenter wondered how an 
administrator of the facility could understand how to comply, if the 
State and HCFA could not agree on compliance/noncompliance.
    Response: The Act mandates that the finding of noncompliance 
prevails over the finding of compliance. All facility administrators 
can read the Act, the regulations and the detailed guidelines that have 
been issued to implement the regulations. We believe that facilities 
have a duty to operate in compliance at all times, regardless of 
whether the State and Secretary agree that a noncompliance exists. 
Disagreements between the State and Secretary could be a result of 
different findings between Federal and State surveys from different 
observations at different times, and not necessarily a disagreement 
about the same set of facts. The surveys could occur 2 months apart, 
for example, during which time conditions at the facility could change.
    Comment: One commenter stated that Sec. 488.452(d)(1) appears to 
pose double jeopardy for nursing facilities in that compounded remedies 
may be applied by both HCFA and the State agency. The commenter did not 
think that providers should have to face corrective action from both 
agencies. Another commenter noted that in case of a Federal survey 
following a State survey, two different remedies could apply; for 
example a State could terminate an agreement and the Secretary could 
impose additional civil monetary penalties. The commenter stated that 
the one-time Federal survey could not consistently or fairly evaluate 
the facility, and double sanctions from both agencies would not improve 
quality of care. The commenter suggested that only one type of sanction 
be applied ``after'' the Federal and State surveyors concur on the 
findings.
    Response: Section 1919(h)(7) of the Act, specifically envisions 
cases where a facility may face remedies at the hands of both a State 
and HCFA. Section 1919(h)(7)(B) of the Act expressly sets forth the 
rules as to whose remedies will apply when either or both parties are 
seeking to impose alternative sanctions in addition to a provider 
agreement termination.
    We do not accept the implication that one-time Federal surveys 
cannot fairly evaluate a facility. Federal surveyors are trained, just 
as State surveyors are, in the requirements of the Act and the 
regulations. Federal surveyors have always conducted Federal monitoring 
surveys to monitor State survey agency performance; therefore these, 
statutory requirements formalize long-standing agency practice.
    Comment: One commenter stated that the net effect of the 
regulations is that facilities will be assumed to be out of compliance. 
This commenter stated that historically, facilities were deemed to be 
in compliance unless there were allegations to the contrary, and that 
if Federal and State surveyors disagreed, another survey should be 
required.
    Response: We do not agree that another survey should be conducted 
whenever there is disagreement between Federal and State surveyors. 
Whatever the commenter may think of the wisdom of the Act's ``tie-
breaker'' rule, the Congress has been quite clear in directing which 
survey decision applies when HCFA and the State disagree about 
compliance and remedies. We also do not agree that facilities will be 
assumed to be out of compliance. Facilities are required to meet all 
the requirements at all times. When a facility signs a provider 
agreement, the facility is agreeing to maintain compliance. The 
surveyors' job is to verify that compliance. If either a Federal or 
State survey finds the facility to be out of compliance with program 
requirements, deference must be given to that certification of 
noncompliance in the interest of the protection of resident health and 
safety.

Preference for Intermediate Sanctions Rather thanTermination

    Comment: Several commenters stated that the proposed regulations 
allow almost unrestricted use of terminations and do not promote the 
use of intermediate sanctions. They wanted HCFA to revise the proposed 
rules to encourage and promote the use of intermediate sanctions rather 
than terminations.
    Some commenters said that intermediate sanctions enable States and 
HCFA to promote correction of deficiencies with incentives and 
pressures different from those imposed by termination or the threat of 
termination. They enable the State and HCFA to move quickly against 
facilities with deficiencies and to target their enforcement actions to 
the nature, character, and extent of the deficiencies. They quoted 
House Report No. 100-391(I) at 451-452, 470-497, as reprinted in 4 U.S. 
Code and Cong. & Ad. News, 100th Cong. 1st Sess. at 2313-271 through 
2313-272, 2313-290 through 2313-296; IOM at Chapter 5 (pp. 146-170); 
General Accounting Office, ``Medicare and Medicaid Requirements: 
Stronger Enforcement of Nursing Home Requirements Needed'' (July 1987).
    Some stated that the regulations place roadblocks to the use of 
intermediate sanctions. They commented that Sec. 488.456 allows 
termination if a facility fails to submit a plan of correction, or 
fails to comply with a plan of correction. They also noted that 
Sec. 488.406 describes other remedies as being ``in addition to 
termination of the provider agreement.'' They stated that this wording 
makes it appear as if termination is the preferred or most common 
remedy. They were also concerned that Secs. 488.410 and 488.415 make 
termination mandatory if a facility refuses the appointment of a 
temporary manager, despite the fact that temporary management ``is not 
an optional remedy under the reform law.''
    These commenters were concerned that nursing home residents would 
be subjected to harm because of actual or threatened terminations of 
their nursing homes. They stated that language in the preamble, 
indicating that terminations were an enforcement response of last 
resort, was not reflected in the language of the regulations 
themselves.
    Some commenters recommended that the regulations prohibit use of 
termination as a remedy, except in those circumstances required under 
OBRA '87 or when alternative remedies have failed and the condition of 
the building is unsafe. They wanted State regulators to find ways to 
use alternative remedies to protect residents, rather than making them 
homeless, or subjecting them to the trauma of threatened termination, 
stating that ``If the building is safe but care is bad, the operator 
should be evicted rather than the residents. Used properly, alternative 
remedies can be used to force a substandard provider to sell the 
facility.''
    Response: We agree that the use of alternative remedies should be 
encouraged. However, if a facility chooses not to submit a plan of 
correction, neither HCFA nor the State survey agency has any means to 
determine how the facility intends to improve conditions of inadequate 
care and, therefore, no clear picture for how residents will be 
protected. In such a case, failure to terminate the provider agreement 
would be irresponsible on the part of HCFA or the State. However, if 
the facility fails to comply with a plan of correction but achieves 
substantial compliance, we would not terminate the facility's provider 
agreement. Allowing a nursing home to participate with deficiencies and 
with a plan of correction represents a certain degree of risk. The 
nursing home's lack of success in making corrections could indicate 
that the risk to the residents has not dissipated. Moreover, facilities 
that had a civil money penalty imposed could face an increase in their 
penalty because the noncompliance was uncorrected. The responsible 
exercise of certification duties requires that residents be protected, 
even if termination is necessary to achieve that protection.
    We disagree that temporary management ``is not an optional 
remedy.'' It is the State's or HCFA's decision as to whether or not to 
impose temporary management, whether in immediate jeopardy or non-
immediate jeopardy situations. In the former cases, there is a choice 
between temporary management and immediate termination. If temporary 
management is not imposed, either because HCFA or the State considers 
that action inappropriate or because the facility refuses to relinquish 
management control to the temporary manager, the Act requires that the 
facility's provider agreement be terminated. We have no authority to 
ignore this explicit statutory requirement. In the latter cases, 
temporary management is an optional remedy when facilities are found to 
have widespread actual harm.
    We note that we have no authority to evict non-complying officers 
or staff of the provider, as the commenter suggests, or to force the 
sale of substandard facilities.
    Comment: Some commenters stated that we had not presented a 
coherent scheme for choosing remedies which are tailored to fit the 
desired corrective action.
    Response: It is our intent that both HCFA and the State apply 
remedies tailored to fit specific problems. We have developed an 
enforcement model which correlates categories of remedies to the 
seriousness of noncompliance. However, with approximately 16,000 
nursing homes in the United States, it is impossible to specify in 
regulations precise remedies to fit every particular problem in 
facilities. The seriousness of the noncompliance dictate the category 
of minimum enforcement action to be taken. The exact choice of a remedy 
or remedies from that category should be based on an evaluation of the 
nature of the situation in a particular nursing home and the course of 
action most likely to precipitate the rapid correction of the 
noncompliance.

``Pay Back Provisions''

    Comment: Some commenters proposed interpreting the ``pay back'' 
provisions in section 1919(h)(3)(D) of the Act as applying only to 
those rare situations in which the Secretary concludes that termination 
is necessary, but yields to the State's recommendation that 
intermediate sanctions be imposed instead. In situations in which the 
Secretary does yield to the State, that action could properly be 
contingent on the State's promise to repay Federal funds if the 
intermediate sanctions do not succeed in bringing the facility into 
compliance. These commenters wanted HCFA to add language giving 
guidance to the States on the corrective action plans mentioned in the 
Act.
    Response: We believe that the Congress intended to give facilities 
the chance to come into substantial compliance during a period when 
only limited, alternative remedies are imposed, but that in return for 
this grace period, during which Federal money is expended on 
noncompliant facilities, the facilities (and the State) must agree to 
repay the Federal money if substantial compliance is not achieved. 
Because of the procedural specificity of preparing corrective action 
plans, we have decided to incorporate such guidance in manual 
instructions.

Other Comments

    Comment: Several commenters suggested that the State be designated 
the primary enforcement agency, with authority to select and carry out 
remedies prior to HCFA review. They feared that enforcement would be 
delayed if the survey agency only recommended to HCFA, and waited for 
HCFA's determination on what remedies to apply. Several commenters 
suggested that we delete the requirement that State survey agencies 
submit the plan of correction along with suggested intermediate 
sanctions, to HCFA for approval prior to imposing the intermediate 
sanctions.
    Response: The Act is quite clear in its division of 
responsibilities between the States and the Federal government when it 
comes to the enforcement of Federal certification requirements. Under 
the Medicare program, the State has no authority to impose remedies as 
the commenter suggests. Section 1819(h) of the Act reserves all 
enforcement decisions to the Secretary and permits States to make 
recommendations only on the basis of the surveys they do under their 
section 1864 agreements with the Secretary.
    Under the Medicaid program, however, we agree with the commenter 
that in most cases it is the States in the first instance that are 
responsible for enforcement decisions affecting providers of services. 
In either case, we believe we have designed an enforcement model that 
will place a premium on swift action once noncompliance is identified 
by either the State or the Secretary, and we do not anticipate delay in 
the implementation of decisions.
    Comment: A few commenters wanted to add provisions that would 
require HCFA and the State to consider the availability of other 
nursing home beds, when a termination action is considered. They wanted 
HCFA and the State to consider the relative effects on the facility's 
residents of relocation compared to remaining in the facility.
    Response: We are not adopting this recommendation because we 
believe that there may be instances in which termination is necessary 
despite the fact that it may cause hardship to residents. Usually, HCFA 
and the State will impose alternative remedies prior to terminating a 
facility, including a mandatory denial of payment for new admissions 
remedy imposed at the 3rd month; however, there may be instances when 
this is not possible. For example, a facility could refuse to allow 
access to the surveyors, or could refuse to submit a plan of 
correction. A facility might also remain out of substantial compliance 
with requirements after a 6-month period of correction, at which time 
the Act would no longer authorize continued payment, despite hardships 
to the residents. We believe that in those cases in which termination 
becomes necessary, the termination is for the ultimate benefit of the 
residents to assure that they receive the care to which they are 
entitled.
    Comment: A few commenters suggested that States should be allowed 
the discretion to develop their own enforcement systems.
    Response: The enforcement scheme delineated at Sec. 488.408, 
Selection of Remedies, is a model that States must adopt. States have 
the authority granted them under section 1919(h)(2)(A) of the Act to 
specify their own criteria as to when and how to apply each of the 
remedies provided by the Act. Moreover, States are authorized to 
develop alternative remedies, in accordance with section 
1919(h)(2)(B)(ii) of the Act, and we encourage them to do so.

Section 488.454  Duration of Remedies

    Comment: In the proposed rule, we said that alternative remedies 
would continue until HCFA or the State determines that the facility has 
corrected all deficiencies, until HCFA or the State terminates the 
provider agreement, and until HCFA discontinues FFP. This statement 
included a typographical error (``and'' was used instead of ``or'') 
that changed the meaning of the statement. We meant to say that 
alternative remedies would continue until HCFA or the State determines 
that the facility has corrected all deficiencies, until HCFA or the 
State terminates the provider agreement, or until HCFA discontinues 
FFP.
    Some commenters expressed concern over when deficiencies are 
considered to be corrected:
     One said that it is not clear whether compliance is 
considered achieved when procedures for alleviating the problem are in 
place, or when the actual problem no longer exists.
     One said that once the facility has notified HCFA that a 
deficiency has been corrected, penalties should be suspended 
immediately until the survey team is able to return to the facility to 
alleviate a possible financial burden on the facility.
     Another said that the State should be required to do a 
follow-up within a specified period of time, and, if it fails to do so, 
the remedy should be lifted automatically.
    A number of commenters said that the duration of alternative 
remedies should be linked solely to the deficiencies that led to their 
imposition, not to the correction of all deficiencies. They said that 
consideration should be given for significant progress and substantial 
compliance, suggesting that remedies should be lifted as soon as the 
facility corrects all deficiencies that led to the imposition of the 
remedy. One commenter suggested that even if a deficiency remains 
uncorrected, the remedy should be lifted if the scope and severity 
combination is brought down to a level that does not authorize the 
remedy.
    Response: Sections 1819(h)(3) and 1919(h)(4) of the Act 
specifically state that the denial of payment sanction ends when HCFA 
or the State determines that the facility is in ``substantial 
compliance'' with program requirements. In this final rule, we are 
extending this principle to all other alternative remedies as well. The 
determination that the facility is in substantial compliance may be 
made either through a survey team's revisit, or, through some other 
review, if HCFA or the State, based on credible evidence which can be 
verified without an on-site visit, determines that at least substantial 
compliance has been achieved.
    However, the Act, at sections 1819(h)(2)(E) and 1919(h)(2)(D), and 
at sections 1819(h)(2)(B) and 1919(h)(2)(A)(iii) provides for certain 
additional qualifications as to when remedies are lifted, and we are 
incorporating them in the regulation as follows:
     In the case of temporary management, and in the cases of 
denial of payment and State monitoring imposed because of repeated 
substandard quality of care, the remedy continues in effect until the 
facility has demonstrated, to the satisfaction of the State or HCFA, 
that it is in substantial compliance, and that it is capable of 
remaining in substantial compliance. (See Sec. 488.414)
    In addition, with respect to the duration of all other remedies, we 
state in this final regulation they remain in effect until--
     A revisit confirms that the facility has achieved 
substantial compliance;
     The date HCFA or the State, based on credible written 
evidence which can be verified without an on-site visit, determines 
that the facility has achieved substantial compliance; or
     HCFA or the State terminates the provider agreement.
    In accordance with Sec. 488.430(i)(7), if a facility can show that 
substantial compliance was achieved on a date earlier than a revisit by 
a survey team or before the State or HCFA receives or examines 
acceptable credible evidence, the remedies cease to apply as of that 
date.
    Comment: One commenter said that no alternative remedies should be 
imposed on facilities because it would hamper their efforts in 
correcting their deficiencies.
    Response: The Congress enacted the various types of alternative 
sanctions that appear at sections 1819(h) and 1919(h) of the Act with 
the expectation that they would be used. Drawing from the IoM study on 
nursing homes, which criticized the large numbers of facilities that 
fluctuated between compliance and noncompliance, the Act is designed to 
impose alternative sanctions swiftly once noncompliance is identified 
as a means of spurring facilities to correct deficiencies more rapidly 
than might otherwise be the case. While this may prove costly to those 
facilities that find themselves subject to such sanctions, this is a 
cost that the Congress obviously anticipated and concluded was 
necessary to assure high quality care for program beneficiaries.

Section 488.456  Termination of Provider Agreement

    Comment: Several commenters argued that the proposed regulations 
rely too heavily upon termination as a remedy. These commenters feel 
that termination should be used as a last resort and only where other 
remedies have failed or where the building is unsafe. In addition, some 
of these commenters want to consider the effect of termination on 
residents (transfer trauma) and a few of them go further to recommend 
that the regulations prohibit the use of termination unless immediate 
jeopardy to residents is present and only after everything else has 
failed.
    Response: One of the main goals of the proposed enforcement 
regulations was to increase the number of remedies available to HCFA 
and the States in order to ensure compliance with the health and safety 
requirements. We believe that implementation of these final regulations 
will accomplish that goal. While we will encourage the use of 
alternative sanctions, we firmly believe that provider agreement 
terminations may be appropriate in certain cases of noncompliance 
whether or not deficiencies pose immediate jeopardy to residents. We, 
too, are concerned about the potential harm to residents when they are 
required to move from a facility. For this reason, the regulations are 
designed to provide HCFA and the State survey agency with the ability 
to target noncompliance with appropriate remedies to assure compliance 
with the least disruption to residents and the facility. We cannot, 
however, restrict the use of termination to immediate jeopardy 
situations. Sections 1819(a)(3) and 1919(a)(3) of the Act require that 
a facility meet all of the statutory participation requirements to be 
considered a SNF or a NF, respectively (in other words, participate in 
either Medicare or Medicaid). While we have explained elsewhere why it 
is justifiable to consider substantial compliance as acceptable, the 
Act does not limit the above provisions by allowing indefinite 
noncompliance in non-immediate jeopardy situations. Indeed, sections 
1819(h)(2)(C) and 1919(h)(3)(D) of the Act only permit continuation of 
Federal payments to facilities with non-immediate jeopardy deficiencies 
for a maximum of 6 months, and then only if certain criteria are met. 
Continuation of payment after 6 months is only permissible if 
substantial compliance has been achieved. Further, section 
1919(h)(7)(A)(i) reinforces the 6 months maximum for participation for 
a noncompliant SNF.
    Comment: One commenter recommended that HCFA create a conditional 
waiver, not to exceed two years, that would apply to all physical 
environment requirements. The commenter recognized that no period of 
correction may exceed the 6-month limitation but pointed out that it 
may be physically impossible to correct structural deficiencies within 
that timeframe. Such correction may necessitate applications for bank 
loans and certificate of need approval; moreover, the construction 
season is limited by geographical location. The commenter believed that 
creation of conditional waiver not to exceed two years, for physical 
environment requirements, would allow facilities to continue to 
participate legitimately while correcting problems that the facility 
cannot correct within the 6-month period.
    Response: We agree that some physical environment deficiencies may 
take longer to correct than others and that these deficiencies may not 
be wholly corrected within 6 months of the last day of the survey. 
However, as we have discussed previously, facilities must meet the 
standard of ``substantial compliance'' in order to continue 
participation in the Medicare and Medicaid programs. To meet the 
standard of ``substantial compliance'', deficiencies must be such that 
they cause no harm or potential for more than minimal harm. Although we 
have no desire to terminate facilities that are otherwise providing 
good quality of care, we believe that facilities have had ample time to 
comply with these requirements. Physical environment requirements have 
been in place since October 1990. Moreover, this regulation will not 
become effective until 6 months after the first day of the month after 
the regulation is published in the Federal Register, so facilities will 
have even more time to comply.
    Comment: A few commenters stated that the termination notice period 
of 2 days was inadequate to allow a fair opportunity for elimination of 
jeopardy. These commenters and others mentioned that the 2-day notice 
period was inconsistent with the 23-day termination process outlined at 
Sec. 488.410. One commenter proposed a termination notice of 60 days 
for cases not involving immediate jeopardy. The same commenter said the 
time period should start when the facility receives notice of the 
remedies being proposed. One commenter asked how the public was to be 
notified of a termination action and another felt a notice should be 
posted on the front door of the facility.
    Response: We are not accepting these comments, although we believe 
that there may be some misunderstanding among commenters as to the 
workings of the fast track termination cycle and the notice provisions 
applicable to facilities facing adverse action. In describing these 
procedures in the proposed rule, we were stressing the paramount 
significance of protecting resident health or safety in cases where 
immediate jeopardy is identified during the survey process. In such 
cases, the overriding concern is the removal of the threat either 
through immediate correction by the facility or by the transfer of 
residents to other more qualified facilities following the termination 
of the deficient facility's provider agreement.
    We continue to believe that the 2-day prior notice provision of the 
proposed rule is necessary to protect these resident interests and we 
are retaining it for this reason in this final rule. Past experience 
with this notice provision in the case of Medicare SNFs has 
demonstrated to us that it is effective. Having said this, however, we 
want to dispel those fears about this provision that in all cases a 
provider will never have more than 2 days' notice before having its 
provider agreement terminated. As described in the proposed rule, we 
will have in place a 23-day termination cycle in immediate jeopardy 
cases. This time frame spans the maximum period of time between the 
last day of the survey that identified immediate jeopardy and the 
effective date of the termination. Thus, in many cases, providers, 
which will have been advised of the survey findings during the survey 
or at the exit conference, will often have ample time to remove the 
conditions that gave rise to the immediate jeopardy finding. The prior 
notice must be given early enough so that the termination date does not 
extend beyond the 23-day period should the facility fail to remove the 
immediate jeopardy.
    Facilities facing adverse action in these cases will not be 
guaranteed the maximum amount of time provided by these regulations. 
For those facilities whose substandard conditions warrant the quickest 
possible response, it is entirely possible that the effective date of 
the termination action will occur sooner than the 23rd day after the 
survey; and it is these facilities that will likely receive notice of 
the impending action against them as quickly as administratively 
feasible following the survey.
    Extensive experience has demonstrated that it is possible to 
schedule revisits in a short time frame to verify that the immediate 
jeopardy has been removed. Because of our experience that the 23-day 
process works, we will continue to start the clock on the last day of 
the survey to ensure that jeopardy situations do not remain long 
uncorrected. We see no justification for facilities to receive 
additional time to correct instances of immediate jeopardy. In the same 
vein, we will continue to give a 15-day notice to the public and the 
facility in non- immediate jeopardy cases, and a maximum of 6 months 
from the last day of the survey to reach substantial compliance before 
termination is effective. A 15-day notice in nonimmediate jeopardy 
cases is a well established practice for all provider types. For both 
immediate jeopardy and non-immediate jeopardy situations, the public 
will be notified of terminations by a variety of means; in most 
instances, this will be accomplished by a newspaper notice, as is the 
predominant present practice. We believe that a public notice posted on 
the front door of the facility would be an unnecessary affront to the 
facility when Federal requirements stipulate that the survey results be 
made available to residents for examination in a place readily 
accessible to residents and a notice of their availability must be 
posted (see Sec. 483.10(g)).
    Comment: A few commenters felt that termination should not be 
applied if deficiencies were corrected within the delineated 
timeframes. One commenter said that the timeframe for termination 
should be no shorter than 6 months in cases that do not constitute 
immediate jeopardy. One commenter suggested that the regulation require 
an ``acceptable plan of correction'' from the facility.
    Response: Current practice and the final regulations assure that 
termination will not be applied if noncompliance has been corrected 
within the designated timeframes. Redesignated Sec. 488.456(b)(1) 
states that the facility's provider agreement may be terminated if the 
facility--
     Is not in substantial compliance with the requirements of 
participation; or
     Fails to submit a plan of correction with the time 
specified by HCFA or the State.
    Section 488.456(b)(2) states that HCFA and the State will terminate 
a facility's provider agreement if a facility--
     Fails to relinquish control to the temporary manager, if 
that remedy is imposed by HCFA or the State; or
     Does not meet the eligibility criteria for continuation of 
payment as set forth in Sec. 488.412(a)(1).
    However, the Act does not mandate an automatic 6 month period for 
the correction of all deficiencies; 6 months is the outside limit 
permitted for correction of deficiencies that constitute noncompliance 
and then only when specific statutory criteria are met. The States and 
HCFA must have the flexibility to choose appropriate remedies, 
including termination, and timeframes appropriate to the noncompliance 
identified. We agree with the suggestion to revise redesignated 
Sec. 488.456(b)(1)(ii) to read ``an acceptable plan of correction.'' 
This change is in line with our current practice.
    Comment: A few commenters were concerned that the proposed 
regulations were unreasonable and that HCFA and the States should have 
an objective, measurable mechanism to govern the enforcement 
procedures. Another commenter felt the new regulations would inflate 
termination actions tenfold and increase the State agency workload.
    Response: We do not agree with these comments. These regulations 
are designed to encourage the selection of a particular remedy based on 
the nature of the noncompliance and the likelihood of immediate and 
sustained compliance. It was the intent of the Act that the 
availability of additional remedies will mean that HCFA and the States 
will use termination as a remedy less frequently. The use of these 
regulations for the selection of remedies will help ensure that the 
selection of remedies is consistent and appropriate. We expect that 
these new regulations will not cause greater expenditures for the State 
agencies. However, as we said in the proposed rule, a reallocation of 
resources, particularly geared to more intensive monitoring of marginal 
facilities may well occur.
    Comment: One commenter recommended amending the regulations to 
permit the survey agency to initiate termination actions based upon 
poor compliance history.
    Response: The Act provides the States and HCFA with the authority 
to terminate facilities with poor compliance histories. Specifically, 
sections 1819(h)(2)(C) and 1919(h)(3)(D) of the Act provide for State 
and Federal discretion as to whether or not termination is preferable 
to the imposition of alternative remedies in the case of noncompliance 
that constitutes non-immediate jeopardy. We expect that a facility's 
previous history will be a significant factor in the determination of 
whether termination or an alternative remedy is preferred. However, 
poor history in and of itself can not warrant termination if the 
noncompliance has not persisted. That is, if the provider has indicated 
poor performance in the past but is in compliance in the present, there 
would be no basis for termination.

Section 488.426  Transfer of Residents

    After considering comments we received on proposed Sec. 488.226 and 
Sec. 488.240, we have decided to combine both sections in a new 
Sec. 488.426. We believe this change will be less confusing as 
transfers for all nursing homes can be referenced in one place.
    Comment: One commenter asked the following questions: If a facility 
is terminated, who will be responsible for placing the residents 
elsewhere? If no bed is available, who will pay for the residents' care 
in the facility until a bed is found? The commenter stated that the 
State should have the responsibilities regarding transfer and discharge 
(in other words, tour of the new facility, counseling, orientation to 
the new facility, etc.), to avoid transfer trauma.
    Response: Proposed Sec. 488.240, now incorporated into 
Sec. 488.426, stated that the State must arrange for the orderly 
transfer of residents when a facility is closed or its provider 
agreement is terminated. Further protection for residents is available 
in regulation. Section 489.55 provides that payment is available for up 
to 30 days after the effective date of termination for eligible 
residents and Sec. 441.11(a)(2) states that, in the case of 
continuation of FFP for Medicaid, the Medicaid agency must make 
reasonable efforts to transfer recipients to other facilities. The 
regulation clearly gives the responsibility for orderly transfer of 
residents to the State. Each case involving the transfer of residents 
could potentially be different. We are, therefore, leaving it up to the 
State to decide, on a case-by-case basis, what steps need to be taken 
to reduce the risk of transfer trauma, understanding that the State's 
responsibility is to minimize the period of time during which residents 
are receiving less than adequate care.
    Comment: One commenter stated that a finding of immediate jeopardy 
will result in the facility's emergency closure and transfer of the 
residents. This commenter asked where residents would be transferred if 
a county or particular area had too few available beds?
    Response: The finding of immediate jeopardy will not, in and of 
itself, require States to close a facility and transfer Medicare and 
Medicaid residents. In an emergency, the State could transfer Medicare 
and Medicaid residents to another facility or facilities. There could 
be situations, such as an earthquake or other natural disaster, where 
the State would temporarily transfer residents to another facility 
until the facility can adequately care for its residents. In this case, 
the facility did nothing wrong. However, in the case of immediate 
jeopardy, the facility failed to protect the health or safety of its 
residents. For immediate jeopardy situations, the statute at sections 
1819(h)(4) and 1919(h)(5) of the Act provides for immediate termination 
if the jeopardy is not removed, but it does not require the State to 
close the facility. However, when a facility is terminated for 
immediate jeopardy, the State has up to 30 days to transfer the 
facility's Medicare and Medicaid residents. Most States have a 
relocation plan that outlines the circumstances under which the plan 
will be put into effect and the procedures to be followed. These plans 
usually provide for first attempting to place residents in the closest 
facility or facilities and then attempting placement at increasingly 
distant facilities until available beds are found. We believe it is 
unnecessary to mandate procedures for States to follow in cases of 
closure or transfer of residents, and that no greater procedural 
specificity is required in regulations.
    Comment: One commenter expressed concern that after coming to a 
nursing home with the expectation of living out the rest of one's life 
there, a resident may be forced to move to another location because of 
some technicality.
    Response: Termination and closure of a facility are among several 
remedies available to protect the health and safety of Medicare and 
Medicaid residents. Although it is possible that a noncompliant 
facility could be terminated for not submitting to a plan of 
correction, as is required for continuing participation in the Medicare 
or Medicaid program, it is not likely. Most nursing homes are 
interested in participating in the Medicare and Medicaid programs and 
will not risk termination based on such noncompliance.
    Comment: Several commenters requested that we place more 
requirements upon the States to assist residents, should a facility 
lose its Medicare or Medicaid certification. Two of the commenters, 
representing consumer organizations, believe proposed Sec. 488.240 is 
inadequate in terms of requirement specificity, and they provided a 
complete and detailed rewrite of the section. Their experience with 
closures and decertifications in the last 5 years has led them to 
believe that providers and regulators cannot be trusted to provide a 
``safe and orderly'' transfer process. As a result, their rewrite 
focuses on the recommendation that HCFA mandate the States to develop 
plans that provide requirements for the ``safe and orderly'' transfer 
of all residents when the State closes a facility.
    Included in the rewrite are provisions that outline specific 
residents' rights in the transfer process such as, determining the 
location of the transfer, availability of counseling and support, and 
the transferring of residents' possessions and trust funds. The 
commenters also address requirements for the new admitting facility, as 
well as requirements for the coordination among appropriate agencies, 
organizations and ombudsmen involved in the transfer process.
    To ensure proper development and execution of the plan, the 
commenters recommend that we require the State to submit its transfer 
plan to HCFA for approval. HCFA, in turn, should assess performance 
under the transfer plan annually, during the review of the State's 
enforcement performance. The commenters end their rewrite of proposed 
Sec. 488.240 with an enforcement recommendation that if the State's 
transfer plan is found inadequate, HCFA should take actions as 
described in proposed Sec. 488.243 (b) and (c). They also recommend 
that immediate implementation of the plan be waived during a crisis or 
disaster which makes it impossible to fully implement a State's 
transfer plan.
    In addition to the detailed rewrite of the section, the commenters 
recommend that the term ``all residents'' be defined, because the 
amount of assistance residents receive in the transfer process is 
directly related to their Medicaid, Medicare, or private payment 
status. For example, Medicaid residents receive services such as notice 
of closing, information about care options, counseling, transportation, 
and other types of relocation assistance. Medicare residents are often 
not offered any of these services, and private pay residents usually 
receive no help whatsoever. One commenter suggested that it is 
inappropriate to ``require'' the transfer of residents if the facility 
has not been delicensed by the State and the residents choose to remain 
at the facility.
    Further, one of the commenters states that the preamble and the 
text of the proposed regulation differ as to which agency has the 
responsibility for transferring residents, with the preamble stating 
that the State agency must arrange for transfer, proposed Sec. 488.240 
stating that the State has the responsibility, and Sec. 441.11(a)(2) 
stating that the Medicaid agency does.
    Response: We believe the commenters inadvertently transposed 
proposed section numbers Sec. 488.234 (b) and (c) as there are no 
proposed sections Sec. 488.243 (b) and (c). We appreciate these very 
thorough and specific comments and the amount of effort that went into 
them. Although there are valid considerations in the suggested rewrite 
of this section, some of them may be impossible for the States to 
implement. We, therefore, choose not to impose such stringent 
requirements on the States. Existing regulations at Sec. 483.12(a) 
provide numerous procedural safeguards regarding the transfer and 
discharge of residents. In addition, the States are already required by 
sections 1819(h)(4) and 1919(h)(5) of the Act to provide for the 
orderly transfer of residents when a facility is terminated or closed, 
and at sections 1819(c)(2) and 1919(c)(2) of the Act, to provide notice 
of transfer at least 30 days in advance in most cases. We agree that 
proposed Sec. 488.240, now incorporated into Sec. 488.426, which uses 
the words ``all residents,'' may be overly broad and we are revising 
that section to specify that only Medicare and Medicaid residents are 
affected by this section. We accept the suggestion that the term 
``orderly transfer'' be amended to ``safe and orderly transfer'' to 
maintain consistency with the language of sections 1819(h)(4) and 
1919(h)(5) of the Act. Since sections 1819(h)(4) and 1919(h)(5) address 
immediate jeopardy terminations, we cannot accept the comment that it 
is appropriate to allow any Medicare or Medicaid residents to remain in 
a facility that is being terminated for such serious situations. To do 
so, would put these residents in jeopardy and would be clearly contrary 
to sections 1819(h)(4) and 1919(h)(5) of the Act.
    The following addresses what one of the commenters perceives as 
conflicting information regarding responsibility for the orderly 
transfer of residents. The preamble did indeed state that the survey 
agency is responsible for arranging for transfers, while proposed 
Sec. 488.240 (now incorporated into Sec. 488.426) is taken directly 
from sections 1819(h) and 1919(h) of the Act and places the 
responsibility generally on the State. We wish to give the States the 
greatest latitude in determining which State agencies they will use. 
Therefore, it is our intent to rely on the broader interpretation in 
proposed Sec. 488.240 and place the responsibility on the State as 
required by the Act. Although the commenter has correctly pointed out 
that Sec. 441.11(a)(2) places the responsibility on the Medicaid 
agency, we believe that each State should be given the flexibility to 
select the appropriate agency under its particular governmental 
structure. Therefore, we are revising Sec. 441.11(a)(2) accordingly.
    Comment: This commenter stated that, in the past, the 
responsibility for arranging for the orderly transfer of residents to 
another facility whenever a provider agreement is terminated has been 
placed on the facility operator subject to the State's oversight. This 
commenter stated that the proposed regulations would impose substantial 
costs and uncertain legal liabilities upon the State.
    Response: According to existing regulations at Sec. 483.12(a), the 
State, not the facility, has had the responsibility in the past for 
numerous procedural safeguards regarding the transfer and discharge of 
residents and has funded such costs. Sometimes the facilities cooperate 
in the transfer of residents and sometimes they do not. Sometimes they 
have no resources with which to help. Therefore, the ultimate 
responsibility for all aspects relative to transfer of residents in the 
case of a facility closure lies with the State to ensure that the well-
being of residents is protected.
    Comment: Another commenter agreed with the regulatory text but 
wanted us to require, in the case of provider agreement termination, 
that the State permit a resident to remain in a terminated facility 
provided the resident arranges to pay for his or her care and the 
facility does not close.
    Response: It is not necessary to require States to allow residents 
to remain in terminated facilities because they already have that 
right. If a resident prefers to remain in a terminated facility that is 
still operating, and is able to pay for his or her own care, that 
resident has every right to do so. The government has fulfilled its 
obligation by providing notice to residents that the facility's 
provider agreement has been terminated. This applies whether or not 
immediate jeopardy exists. The State is the only entity that has the 
authority to close or delicense a facility.
    Comment: One commenter suggested that if residents are transferred 
because a facility is terminated, we should require that the State 
provide for such transfer, at its own expense, and that it be held 
liable for its action during such action.
    Response: We already require the State to transfer Medicare and 
Medicaid residents to another facility or facilities in immediate 
jeopardy terminations. In fact, for Medicaid residents, the State is 
paid up to 30 days of FFP for the safe and orderly transfer to another 
facility or facilities after termination. We have not accepted the 
comment that the State be held liable for its action during such 
transfer. A State's liability should come under the purview of State 
law. We have no statutory basis to hold States liable for such actions. 
Therefore, we have not included this provision in the regulation.
    Comment: One commenter, representing a State Department of Aging, 
stated that the language in the proposed rule regarding transfer of 
residents is inadequate and provided a list of minimum requirements for 
States. The twelve requirements listed have all been covered by the 
preceding commenters except for the following two instances. The 
commenter recommends that a facility that is being terminated be 
monitored daily and also recommends that ongoing counseling for 
residents include follow-up post- transfer counseling.
    Response: Although the suggestion that facilities in the process of 
being terminated be monitored daily is well- intentioned, the specifics 
of transfer plans are under the purview of the States. We are not 
mandating that the States take specific action other than that already 
required and it is unlikely they could implement this suggestion given 
the uncertainty of how long the process will take and how much funding 
they will have available. Regarding the suggestion that follow-up post-
transfer counseling be provided to residents, again it is the State 
that determines which services are provided for transfer of residents.

Informal Dispute Resolution (Sec. 488.331)

    In the preamble to the proposed rule, we specifically asked for 
public comment about the desirability and feasibility of establishing a 
formal conflict resolution process whereby providers dissatisfied with 
survey findings could request a review of the deficiencies after the 
survey and prior to the formal administrative and judicial review 
processes. We also acknowledged the existence of the numerous informal 
opportunities providers currently have throughout the survey process to 
challenge survey findings: during the survey, at the exit conference, 
while awaiting receipt of the official deficiency statement, through 
dialogue with State and regional officials, and upon receiving the 
official deficiency statement.
    The term ``conflict'' resolution has been changed to ``dispute'' 
resolution in this final rule to be consistent with terminology used in 
the Administrative Dispute Resolution Act (ADRA) of 1990 and Executive 
Order 12778, which encourage such a process.
    Many commenters believe that a dispute resolution process is 
necessary. A few do not.
    Comment: The majority of commenters in favor of a dispute 
resolution process contend that there is currently no means for 
providers to resolve conflicts with survey findings short of costly 
litigation. Most say that they are either not afforded the informal 
opportunities to resolve conflicts to which we referred in the preamble 
to the proposed rule, or that the outcome of those opportunities is 
predetermined and, therefore, of little value. Also, many cite the ADRA 
of 1990 and Executive Order 12778 which (they claim) direct Federal 
agencies to develop dispute resolution mechanisms in an effort to 
reduce costly and lengthy litigation. A few commenters believe such a 
process could also serve as a means to measure surveyor quality 
assurance.
    The majority of comments supporting a process suggested that HCFA 
mandate an informal dispute resolution process, while less than one-
third preferred that HCFA mandate a formal one. Several commenters 
suggested that HCFA adopt the current dispute resolution process of a 
specific State, for example, Ohio or Louisiana. These commenters 
contend that existing programs in specific States have been successful 
in resolving conflicts about survey findings. Others suggested that 
HCFA require that each State establish a State-specific process, in 
order to give States the flexibility to work within their existing 
administrative framework. Commenters proposed that since most States 
already have some type of dispute resolution process, we need only to 
require that it be formalized; in other words, in written form and 
publicly recognized. Commenters also suggested that HCFA establish one 
process to be used by all States. These comments were presumably based 
on the belief that a single process mandated by HCFA is the most 
effective means to ensure that consistent opportunities are offered in 
a consistent manner to all nursing home providers dissatisfied with 
survey findings. The proposals we received for a single process varied 
in extent and sophistication and included suggestions that the dispute 
resolution process:
     Offer resolution opportunities at specific times during 
the survey (for example, conduct daily exit conferences or communicate 
at the time a deficiency is identified), and cease offering 
opportunities beyond specific events (for example, after the exit 
conference or after the issuance of the deficiency statement);
     Provide multi-tiered opportunities that could include 
monitoring of corrections and mandatory revisits;
     Be limited to deficiencies at specific scope and severity 
levels;
     Offer opportunities proportionate to the noncompliance;
     Allow incorrectly cited deficiencies and scope and 
severity scale levels to be removed from the deficiency statement;
     Require that another survey be conducted by different 
surveyors;
     Establish local or national advisory councils, arbitration 
panels, or quality assurance committees, etc., comprised of specific 
types of individuals not previously directly involved in the dispute; 
and
     Involve consumers and ombudsmen.
    Conversely, other commenters did not believe that a dispute 
resolution process is necessary. They said that providers already have 
numerous opportunities to refute survey findings throughout the survey 
process. Some alleged that an additional process would only serve to 
delay the enforcement process which would be contrary to the OBRA '87 
mandate to minimize the time between the identification of violations 
and final imposition of enforcement remedies. Some also believed that 
if such a process were in place, deficiencies may not be cited or, at a 
minimum, they would be cited at lower scope and severity scale levels 
to reduce the universe for challenges.
    One consumer organization argued that the regulatory system is not 
a two-party system in which the facilities and the State negotiate. 
Rather, it is a contractual arrangement in which the State holds the 
public's trust and acts as the public's agent to ensure that the 
contractees satisfy the arrangement. They believed that if any party 
should have ``appeal'' rights, it is the residents who should be able 
to contest survey findings that do not require facilities to comply 
with the law. They submitted, therefore, that instead of establishing a 
dispute resolution process for providers, HCFA should build mechanisms 
into the survey procedures to notify residents, families, ombudsmen and 
others when surveyors, during the course of the survey, have not yet 
been able to substantiate suspected problems. These procedures would 
provide an opportunity for residents and families to provide additional 
information to surveyors.
    One commenter, opposed to a dispute resolution process, remarked 
that there is currently so much interaction between surveyors and 
providers during the survey process that providers are actually 
interfering with the performance of the survey. This commenter 
suggested that a sanction be imposed against providers when this 
occurs.
    Overall, most commenters, including States, offered strong support 
for a dispute resolution process. These commenters were interested in 
resolving conflicts as early in the survey process as possible and 
prior to litigation. They prefer to minimize the number of issues that 
could advance to formal litigation by resolving early those conflicts 
caused by misunderstandings, miscommunication, oversights, etc. 
However, the consumer advocacy groups were adamant in their opposition, 
arguing that any additional process will delay the enforcement process 
against noncompliant facilities and shift focus away from resident 
care. These commenters believe that the perceived need by providers for 
a dispute resolution process must be secondary to the responsibility 
HCFA, the States, and facilities have to provide for the health and 
well-being of nursing home residents.
    Response: We recognize the validity of both major points of view 
and have concluded that both perspectives must be addressed.
    In the Fall of 1992, we asked the States to provide us with a 
description of existing dispute resolution processes offered to 
providers who disagree with survey findings. All States responded. 
Washington, DC, Puerto Rico, and Guam were not asked to provide their 
comments due to the small number of facilities surveyed. We discovered 
that all States currently have a dispute resolution process. Nevada's 
system of due process is required by State law. The other States' 
processes, although not legally mandated, are reflective of State 
policy and not legislation. The policies vary among States, and there 
are numerous differences in the details of the processes of individual 
States.
    Overall, the opportunities offered to providers by States to 
challenge survey findings can be divided into two basic stages: during 
and after the survey. All States offer the providers a chance for 
rebuttal during at least one of these stages; half of the States 
include both in the process. During the survey, the opportunities 
afforded providers include the chance for the provider's staff to 
interact with the survey team throughout the process and the specific 
opportunity to discuss survey findings at the exit conference. After 
the survey, many States allow the providers to elevate unresolved 
issues to survey agency management and/or the HCFA regional office for 
resolution. Moreover, providers in all States may record their 
disagreement with survey findings on the Statement of Deficiencies 
HCFA-2567.
    Our State Operations Manual currently requires that States allow 
facilities to interact with the survey team during the survey, to 
discuss findings at an exit conference, to raise unresolved issues to 
the survey agency and/or to the HCFA regional office and to record 
their disagreements with survey findings on the HCFA-2567.
    As we reviewed all of the comments supporting a dispute resolution 
process, it became apparent that, while the words ``informal'' and 
``formal'' were used to distinguish the type of process a specific 
commenter preferred, many commenters, regardless of which word was 
used, preferred the same process. The majority of those in favor of a 
dispute resolution process have asked that it be required by HCFA. 
Since many believe that a process can be required only through 
rulemaking, most commenters, therefore, prefer a regulatory process.
    We note that the Administrative Dispute Resolution Act of 1990 and 
the Executive Order 12778 of October 23, 1991, Civil Justice Reform (56 
FR 55195), encourage, but do not direct dispute resolution, as some 
commenters have claimed.
    We are not accepting those comments proposing that we adopt a 
specific State's process on a national level, nor those suggesting that 
each State be permitted to design its own process in its entirety. 
While we have concluded that all States offer some opportunity to 
resolve disputes, we have no evidence that suggests that any particular 
State's process is more successful or effective than that of another 
State.
    However, we are accepting, with modification, the suggestion that 
HCFA adopt one process to be used by all States. Just as participation 
requirements and the survey and certification process for nursing homes 
are consistent from State to State, so should the opportunity for 
providers to challenge survey findings. In Sec. 488.331, we are 
requiring several core elements that all informal dispute resolution 
processes must include as a minimum:
     The entity conducting the survey must offer nursing home 
providers the opportunity, if they request it, to refute survey 
findings beginning with their receipt of the official HCFA-2567 with 
which they disagree;
     Providers must be able to advance their disagreements to 
survey agency or HCFA regional office officials, or both;
     In no case, will dispute resolution delay the effective 
date of an enforcement action;
     The dispute resolution process (whether or not it exceeds 
the minimum requirements specified in this final rule) must be 
available to providers, upon their request, in written form. HCFA 
regional offices provide dispute resolution to providers upon request, 
relative to Federal surveys.
    We believe that specific procedural requirements that determine the 
manner in which dispute resolution proceeds, for example, such things 
as how the request is made, the method by which the process is 
conducted, and who may participate in the process, should be left to 
the individual States. Upon the facility's request, the State will 
provide a written summary of that State's procedures relative to the 
informal dispute resolution process. Any attempt on our part to codify 
procedural aspects of dispute resolution that would be applicable to 
all States would limit States' as well as providers' flexibility in 
utilizing and refining the process, as necessary, to satisfy their 
needs.
    To allay commenters' fears that dispute resolution would stall the 
survey process and delay enforcement action, we are providing in 
Sec. 488.331 the opportunity for providers to dispute survey findings 
upon receipt of the official HCFA-2567 with which they disagree, while 
prohibiting challenges by providers from postponing or otherwise 
delaying the enforcement process. In no case will dispute resolution 
delay the effective date of an enforcement action. Thus, while it is 
our hope that dispute resolution procedures could be completed in all 
cases before the effective date of the enforcement action, we wish to 
make it clear that where the completion of these procedures does not 
occur by that time, this will not be grounds to either delay the 
enforcement action or give providers a right to challenge the 
inadequacy of these procedures. We believe that to have a process that 
would allow for enforcement to be deferred pending the scheduling and 
completion of this informal appeals process is far outweighed by the 
needs of residents to face a minimum of time during which they receive 
care that does not meet the requisite health and safety standards. We 
also believe that not delaying the effective date of the enforcement 
action until the conclusion of the dispute resolution process will 
encourage facilities to make the kind of swift corrections the Congress 
obviously intended when it enacted nursing home reform. If a provider 
is subsequently successful, during the dispute resolution process, at 
demonstrating that deficiencies should not have been cited, the 
deficiencies are removed from the HCFA-2567 and any enforcement actions 
that had been imposed as a result of those cited deficiencies are 
lifted.
    This dispute resolution system does not introduce additional 
requirements into the survey process; rather, it reinforces 
instructions that already exist but which have been applied 
inconsistently up to this point. Because we are formalizing this 
element of the appeals process, we are amending the appeals procedures 
at 42 CFR parts 431 and 498 to eliminate the reconsideration process 
for SNFs and NFs, respectively. Informal dispute resolution will 
duplicate, in every pertinent way, this element of the process since it 
will provide the opportunity for providers to contest survey findings 
informally just as reconsiderations currently are designed to do. 
Accordingly, we have concluded that retaining the reconsideration 
process for SNFs and NFs would create redundant procedures and are 
amending it so that it applies only to other provider and supplier 
types.
    Regarding the comment to use dispute resolution as a means to 
measure surveyor consistency, accuracy, and decision-making, section 
1819(g)(2)(D) of the Act requires the Secretary and the States, and 
section 1919(g)(2)(D) of the Act requires that States, implement 
programs to measure and reduce inconsistency in the application of 
survey results among surveyors. HCFA and the States will develop their 
own mechanisms to satisfy this requirement and may choose to use the 
dispute resolution process as a means to evaluate surveyor performance 
in this area.
    We do not agree with some commenters' characterization of dispute 
resolution as negotiation between providers and the survey agency, nor 
do we agree that a process should be established to notify residents 
and their families when surveyors require additional information in 
identifying deficiencies. First, dispute resolution as required in this 
final rule does not contemplate bargaining between providers and the 
survey agency; rather, it is a preliminary opportunity for providers to 
refute survey findings that they believe are inaccurate and to present 
evidence to support their belief. The purpose of this informal process 
is to clarify, if not eliminate, the issues that might otherwise lead 
to needless litigation and to sharpen the issues for an administrative 
law judge or State hearing official so that litigation, should it 
occur, may be less burdensome and costly. This may work in two ways. It 
may convince the State or HCFA officials that erroneous deficiencies 
have been cited, or it may convince providers that, because the State 
and HCFA have ample support for their conclusions, it would be unwise 
for providers to pursue litigation.
    Second, States enter into an agreement with the Secretary (HCFA), 
in accordance with section 1864 of the Act, to act as HCFA's agent for 
the purpose, (among others), of determining if a facility meets 
participation requirements. After following the survey protocol, which 
includes interviews with residents, and family members or legal 
representatives, surveyors may find that they do not have sufficient 
information to cite a deficiency. However, we note that whenever 
nursing home residents or their families believe that a deficient or 
otherwise inappropriate practice exists in the facility, regardless of 
whether a survey is in process, they should contact the State 
ombudsman, request a complaint investigation, or both.
    Some commenters believe that a dispute resolution mechanism may 
impact on how surveyors recognize deficiencies as well as how they 
assign scope and severity scale levels to cited deficiencies. First, it 
is important that commenters be absolutely clear that neither the 
enforcement scheme presented in the proposed rule nor the modified 
model in this final rule was developed for the purpose of identifying 
deficiencies. Rather, the assessment factors discussed under ``Factors 
to be Considered in Selecting Remedies'' of this preamble and codified 
at Sec. 488.404 of this final rule will be used (as the former scope 
and severity scale was to be used) to evaluate the seriousness of 
deficiencies already identified in order to determine what, if any, 
enforcement action is appropriate. Second, in response to public 
comment, this final rule has incorporated the concept of substantial 
compliance. This concept, which is discussed in detail under 
``Certification of Compliance'' of this preamble, provides that not all 
deficiencies will result in enforcement action and should, therefore, 
eliminate resistance or hesitation of surveyors to cite deficiencies 
that they have identified for fear of provider disputes of lower-level 
assessment determinations. As we have stated elsewhere in this 
preamble, the survey process provides several opportunities for 
deficient practices or otherwise inadequate performance on the part of 
the State to be identified and sanctioned. Therefore, if the situation 
described by the commenters should occur, there are adequate statutory 
and regulatory mechanisms to respond to it.
    We do not accept the comment that we should sanction a provider for 
interfering in the performance of a survey. We believe that this 
situation is adequately addressed in section 2713 of the State 
Operations Manual, which provides that surveyors may allow, or refuse 
to allow, facility personnel to accompany them during a survey. Each 
case is at the surveyors' discretion and is to be worked out with 
facility management. If it cannot be worked out, surveyors should 
contact their supervisors.

Determination of a Deficiency

    Many commenters responded to our request in the proposed rule for 
recommendations for a regulatory design that could accommodate the use 
of scope and severity scales for determining deficiencies.
    Comment: A large number of commenters recommended that we adopt a 
system for determining deficiencies similar to that used by the State 
of Ohio. The Ohio system employs the use of a worksheet that must be 
completed for each violation of a requirement. The worksheet evaluates 
violations against criteria such as preventability and resident choice, 
and then classifies violations based on ratings of scope and severity 
into two types. The first type is called a deficiency and the second, 
lesser violation, is called a finding. Both a deficiency and a finding 
are recorded on the statement of deficiencies and are disclosable to 
the public, but only a deficiency would require a remedy. To the extent 
that the State of Ohio does not use scope and severity scales to 
determine whether a violation should appear on the statement of 
deficiencies but rather to determine appropriate enforcement action, 
the Ohio enforcement system is similar to the one that we proposed.
    Another model proposed requires a mathematical weight for each tag 
number identified in the interpretive guidelines. Individual data 
elements would be ranked in descending order according to their 
importance in a regulation. The model then calls for a statistical 
computation incorporating scope to determine whether a deficiency 
exists.
    A third model submitted involves two factors in determining whether 
an observation is a deficiency. The first factor is preventability. 
Under this proposal, if either the negative outcome could not have 
reasonably been foreseen or if the facility could foresee the negative 
outcome and did everything reasonably possible to prevent its 
occurrence but it occurred nonetheless, a deficiency would not be 
cited, regardless of scope and severity. The second factor is 
substantiality. If a facility were determined to be in substantial 
compliance with a requirement, a deficiency would not exist. Scope and 
severity would be used to determine if the requirement were met.
    Other models that incorporate the concept of substantial compliance 
into the determination of deficiencies but that do not involve the use 
of scope and severity scales were also recommended. One commenter 
suggested that we create an audit form outlining the minimum 
requirements for long term care facilities, and then rate each item 
either a ``pass'' or a ``fail'' depending upon whether the requirement 
was substantially met. Another suggestion was that we calculate a 
percentage of error rate for each requirement and evaluate the rating 
against a tolerable threshold of compliance. Certain commenters 
believed that for resident outcomes to have significance in the survey 
process, negative findings which have no adverse impact upon the care 
being received by residents should not constitute citable deficiencies. 
One commenter recommended that we adopt the Joint Commission on the 
Accreditation of Healthcare Organizations' accreditation system which 
places any minor deficiencies that do not meet substandard care 
criteria on a recommendation report and reserves the official citations 
for substandard care. Other commenters believed that guidelines should 
express a standard of ``practicably met compliance with requirements'' 
which they asserted would be comparable to the ``highest practicable'' 
language applied to facility responsibility for resident care.
    Although the majority of commenters (mostly from the provider 
community) favored the use of scope and severity scales to determine 
deficiencies, a significant number of commenters did oppose it. Many of 
these were concerned that the use of scope and severity scales to 
determine deficiencies would violate the intent of the Act that all 
requirements be met and enforced. One commenter noted that the intent 
of the Act is to ensure that each individual's needs are met ``at the 
highest practicable level,'' not just at minimum standards. Others 
asserted that for enforcement to be resident centered, residents' 
individual problems must matter, and that using scope and severity 
scales to determine deficiencies would force residents to put up with a 
certain amount of misery before the facility would be required to 
address their problems.
    Response: We are not adopting the use of scope and severity scales 
to identify deficiencies because, as described below, the Act imposes 
limitations that make it impractical. However, we are adopting 
substantial compliance as the standard of performance to which 
providers will be held. This is consistent with the intent of the Act, 
and will accomplish much of what the advocates of scope and severity 
scales claimed that the scales would accomplish. Although the thrust of 
nursing home reform was to codify a system of nursing home regulation 
that is outcome oriented, the Congress enacted a number of requirements 
that simply do not lend themselves to an outcome analysis. Moreover, 
the Act does not always lend itself to an analysis of whether the 
resident population as a whole was treated properly which, in our view, 
would be essential to a workable scope index.
    For example, section 1919(b)(3)(C)(i)(I) of the Act requires 
facilities to conduct a resident assessment no later than 14 days after 
admission. Whether a facility complies with this obligation, which the 
Act makes applicable to each resident, rests only on whether the 
assessment was in fact done by the date prescribed in the Act. Should a 
facility conduct an assessment on the 15th day after a resident's 
admission, that facility will have failed to comply with the 
requirement, notwithstanding the fact that it may have conducted timely 
assessments on all other residents, and notwithstanding the fact that 
there may have been no negative outcome for the resident who received 
the untimely assessment. In the same fashion, section 1919(b)(7) of the 
Act requires that facilities having more than 120 beds employ a full-
time social worker. Should a facility having 121 beds not have such an 
employee, that failure is a clear violation of the statutory standard 
regardless of whether there are any documented negative outcomes that 
resulted from this failure. There are numerous other examples of this 
type of requirement in the Act.
    Other requirements in the Act, as some commenters pointed out, 
focus on a facility's duty with respect to each resident and not its 
duty to perform in a certain fashion for the bulk of all individuals in 
residence. Other than the resident assessment requirement discussed 
above, section 1919(c)(1)(A) of the Act requires facilities to protect 
and promote the rights of each resident. Should a facility, therefore, 
not perform in such a manner (as further described in the Act and 
implementing regulations) even for one resident, it cannot be said that 
the facility was not deficient in this area notwithstanding the fact 
that the failure was an isolated one. In the same way, section 
1919(b)(6) of the Act requires that the health care of every resident 
be under the supervision of a physician (or, at the State's option, 
other specified health care professionals). Here, too, a facility may 
not be determined to meet this requirement if it has successfully 
provided for such supervision for most of its residents as long as even 
one of its residents has not had the benefit of such supervision.
    This is not to say that any violation of these or other similar 
requirements ought to result in the imposition of sanctions of 
consequence. As we suggested in the proposed rule, and as we require in 
this final rule, the degree of seriousness of a deficiency looms large 
in determining the appropriateness of a remedy. In some of the 
hypothetical situations cited above, there may be nothing more than a 
plan of correction that is called for. The point is, however, that the 
kind of analysis that allows for the consideration of a deficiency's 
seriousness in determining an appropriate remedy will not always work 
when seriousness is considered to determine whether a deficiency 
exists. None of the commenters who sought the use of scales in this 
context acknowledged these issues squarely or made suggestions that 
would allow us to address this matter in a way that comports with the 
structure of the Act.
    The substantial compliance standard that we are adopting tolerates 
a reasonable degree of imperfection. Even though deficiencies will be 
cited for violations that constitute no actual harm and a potential for 
no more than minimal harm, these deficiencies, due to their negligible 
seriousness, will not deny a provider a certification of compliance nor 
subject a provider to a remedy. The substantial compliance standard 
should also insulate providers from the uneven enforcement that may 
result from inconsistent surveyor behavior, because the marginal 
deficiencies that surveyors are likely to be the most uncertain about 
citing are liable to be the deficiencies that fall into the substantial 
compliance range, and, consequently, neither a facility in which a 
situation constituting no actual harm and a potential for no more than 
minimal harm was cited as a deficiency nor a facility in which the same 
situation was not cited as a deficiency will be penalized.
    Comment: One commenter was concerned that a formal scope and 
severity scheme to determine deficiencies would add issues to hearings.
    Response: Providers have the opportunity to appeal certifications 
of noncompliance leading to an enforcement remedy, and if we adopted 
scope and severity scales for determining deficiencies, the commenter 
is correct that scope and severity assignments would be an integral 
part of the determination of noncompliance, and would therefore be 
subject to challenge if the deficiency led to the imposition of an 
enforcement remedy.
    Comment: Many commenters requested that we incorporate the survey 
guidelines into the body of survey and enforcement regulations. Certain 
commenters believed that a failure to do so would violate the Federal 
Administrative Procedure Act, 5 U.S.C. 553, which requires that general 
notice of proposed rulemaking be published in the Federal Register when 
the rulemaking is substantive.
    Response: We do not believe that the current survey materials are 
subject to the notice and comment procedures of the Administrative 
Procedure Act. As a result of OBRA '87, the Medicare and Medicaid law 
and regulations now contain comprehensive, detailed criteria for 
assessing the quality of care provided to Medicare and Medicaid 
residents, as well as the standards and methodology for determining 
deficiencies. The survey forms, procedures and guidelines merely enable 
surveyors to certify whether facilities are, in fact, complying with 
these binding statutory and regulatory requirements. These materials do 
not, in any way, add to or change these requirements and thus cannot be 
characterized as ``substantive'' rules; rather, they are a mixture of 
``interpretive rules,'' ``general statements of policy,'' and ``rules 
of agency procedure'' within the meaning of 5 U.S.C. 553(b)(A) which 
excludes such rules from the notice and comment requirements.
    Comment: In the course of reviewing comments, it became apparent 
that many commenters associated the use of scope and severity scales to 
determine deficiencies with results that do not depend on using scope 
and severity scales in this way. Many commenters were concerned that 
surveyors would not investigate extenuating circumstances surrounding 
violations of requirements unless they were required to use scope and 
severity scales for determining deficiencies.
    Response: This is not the case. The surveyor guidelines provide 
surveyors with a consistent structure to evaluate situations and 
analyze information prior to making compliance decisions. One such 
evaluation that surveyors are directed to make under certain 
requirements is the assessment of a facility's responsibility for a 
certain situation. For example, survey guidelines list situations where 
pressure sores may be unavoidable and aid surveyors in determining 
whether a resident's pressure sore was preventable or not. This type of 
guidance is provided for many of the resident-centered requirements. In 
addition, surveyor training courses stress ways to arrive at consistent 
and accurate conclusions as to facility responsibility.
    Comment: A number of commenters requested that we require surveyors 
to consider, when identifying deficiencies, whether or not the facility 
identified a violation before the survey and attempted to correct it.
    Response: We believe that it would be inappropriate to ignore a 
failure to prevent a negative outcome, but the regulation does allow 
the competence that the facility demonstrated by identifying and 
addressing the deficiency on its own initiative to be considered when 
enforcement action is selected.
    Comment: Certain commenters asked that we direct surveyors to 
determine whether a negative outcome is the result of a resident's 
refusal of treatment, which is a resident's right.
    Response: Whenever there appears to be a conflict between a 
resident's right and the resident's health or safety, we do direct the 
surveyor in the guidance to surveyors to determine if the facility 
attempted to accommodate both the exercise of the resident's right and 
the resident's health, including exploration of care alternatives 
through a thorough planning process in which the resident may 
participate.
    Comment: An additional factor that commenters believed surveyors 
should take into consideration when determining deficiencies is whether 
the noncompliance occurred because the facility was following a 
physician's orders.
    Response: We cannot allow this to be considered in the deficiency 
determination. The facility is accountable for providing to the 
resident the medical services to which he or she is entitled as a 
Medicare or Medicaid beneficiary, and it is the facility's 
responsibility to ensure that the services provided by physicians will 
satisfy the facility's obligations under the Act and regulations. The 
statute specifically contemplates a relationship between a facility and 
either the Secretary or the State in which the facility, in exchange 
for certification and payments for the care of program beneficiaries, 
commits to provide care in a manner consistent with statutory 
requirements. A facility cannot excuse itself from this obligation by 
deferring responsibility to an individual (the physician) with whom 
neither the State nor the Secretary has any statutory relationship for 
the purpose of maintaining compliance with facility health and safety 
standards.
    Comment: Many commenters were also very concerned that we correlate 
the stringency of the enforcement action with the seriousness of the 
deficiency.
    Response: It is not necessary to use scope and severity scales when 
determining deficiencies to ensure this result. We establish criteria 
for determining remedies in Sec. 488.408, Selection of remedies, and we 
link infractions with specific categories of remedial action. Under 
this scheme, a facility with a single deficiency that caused no harm is 
not treated the same as a facility with on-going, widespread problems 
that threaten resident lives.
    Comment: Certain commenters requested that we give facilities with 
a good history of patient care the opportunity to correct occasional 
isolated problems before the end of the survey so as to avoid 
deficiency citations for these problems.
    Response: Any violation of Federal participation requirements must 
be noted and we cannot direct surveyors to ignore violations on account 
of a facility's past compliance record. If violations of participation 
requirements are corrected during the survey, surveyors will note the 
correction along with the citation on the statement of deficiencies, 
and this information will be considered when enforcement action is 
selected.
    Comment: Certain commenters believed that all deficiency citations 
made by surveyors should include what the negative outcome is.
    Response: A violation of any participation requirement must be 
considered a deficiency, even if the violation caused no negative 
outcome to occur. As discussed earlier, there are a number of 
requirements in the Act for which questions of outcomes are irrelevant. 
The deficiency citation will in all cases clearly identify how or why 
the requirement is or was not met and the extent of the deficient 
practice, but will only detail the impact or potential impact of the 
facility's non-compliance on the resident when it is appropriate.
    Comment: A great number of commenters complained that facilities do 
not know what is required of them until they are cited for deficiencies 
at the time of survey. They requested that we inform providers of the 
Medicare or Medicaid participation requirements, or both, to which they 
will be held accountable. Certain commenters specifically requested 
that we provide copies of those standards to facilities at no cost.
    Response: There is no reason why any Medicare or Medicaid provider 
should be unaware of program participation requirements. The 
requirements are public knowledge, and it is incumbent upon facilities 
that enter into Medicare and Medicaid agreements to familiarize 
themselves with the requirements with which they have voluntarily 
agreed to comply. Moreover, copies of the State Operations Manual 
Transmittal No. 250, which contains the interpretive guidelines, 
procedures, and forms used by surveyors to assess facility compliance, 
are available to the public for purchase from the National Technical 
Information Service. The address is: National Technical Information 
Service, 5285 Port Royal Road, Springfield, Virginia 22161, (703) 487-
4600. The document publication order number is PB-92-950003.
    Comment: One commenter recommended that violations of requirements 
be cited as they are discovered so that the facility can act upon them 
immediately. The commenter believed that correction should not be 
delayed until after the exit conference.
    Response: Because we direct surveyors to maintain an ongoing 
dialogue with facility staff, there should be few instances where the 
facility is not aware of surveyors' most serious concerns prior to the 
exit conference. We do expect surveyors to immediately communicate to 
the facility staff any findings that jeopardize the health or safety of 
residents, but it would be impractical for surveyors to advise the 
facility of each and every violation as it is identified. It could also 
be misleading because the deficiencies cited on the HCFA-2567 are not 
official until they are reviewed by supervisory personnel and the State 
or HCFA. This review could invalidate or alter some of the deficiencies 
cited by surveyors while onsite at the facility.
    Comment: Certain commenters asked that we recognize that a 
facility's failure to comply with participation requirements does not 
always occur at the time of the survey visit. These commenters 
requested that we empower surveyors to write citations for deficiencies 
that occurred before the survey, even if they were corrected prior to 
it.
    Response: If surveyors determine that a facility did not meet one 
or more participation requirements during a period preceding the 
survey, they may cite the deficiency, which may be sanctionable despite 
its correction prior to the survey. The Congress intended for past 
deficiencies to be identified and addressed. Sections 1819(h)(2)(A) and 
1919(h)(1) of the Act provide that if the Secretary or the State finds 
that a facility meets participation requirements, but as of a previous 
period did not meet such requirements, then the Secretary or the State 
may provide for a civil money penalty for the days for which it finds 
that the facility was not in compliance.
    Comment: Certain individuals believed that State survey agency 
supervisors should review the survey results and make the compliance 
determinations instead of the surveyors. These commenters believed that 
this measure would enhance consistent decisionmaking.
    Response: Surveyors do not make the ultimate compliance decision, 
which is why only a draft of the statement of deficiencies is available 
to the facility at the time of the exit conference, if at all. The 
statement of deficiencies is reviewed by the State survey agency which 
makes the final compliance decision.

Scope and Severity Scales

    In the preamble to the proposed rule, we requested general public 
comment about how the severity scale levels were described as well as 
assigned. We specifically asked for comments on the proposed 
construction of the severity scale whereby deficiencies at a severity 
of 3 or 4 can result in the same sanctions.
    All comments received in response to this section have been 
included and addressed under Sec. 488.404 of this preamble.

Nurse Aide Training and Competency Evaluation Programs

    Comment: As mentioned elsewhere in this document, a number of 
commenters expressed concern that HCFA or the survey agency may decide 
to conduct an extended survey at any time for any reason. One of the 
reasons for this concern is that, under regulations at 
Sec. 483.151(b)(2)(iii), which expressly reflect the statutory 
requirement, when a facility undergoes an extended (or a partial 
extended) survey, it automatically loses approval of its Nurse Aide 
Training and Competency Evaluation Program (NATCEP) for 2 years.
    Response: Our response to that particular comment was stated 
earlier in this preamble under our discussion of extended surveys. 
However, there is a closely related policy we would like to address 
here that goes beyond NATCEP rescission as a result of an extended 
survey. There are other circumstances described at Sec. 483.151(b)(2) 
that also trigger a 2-year prohibition on NATCEP. It has been our 
policy that the remainder (if any) of a 2-year prohibition on NATCEPs 
also applies to a new owner when the provider undergoes a change of 
ownership as defined in Sec. 489.18(a), Change of ownership or leasing: 
Effect on provider agreement. The implicit basis for this policy has 
been paragraph (d) of Sec. 489.18, which states that an ``assigned 
agreement is subject to all applicable statutes and regulations and to 
the terms and conditions under which it was originally issued * * *.''
    This policy was explicitly set forth in the Federal Register (56 FR 
48894) on September 26, 1991, as well as in State Operations Letter 91-
75. The latter reads in part that, ``a facility subject to the 
prohibition on [NATCEP] training remains subject for two years after 
the event triggering the prohibition regardless of the change of 
ownership.'' While we have been consistent in this policy, we have been 
reexamining it within the larger context of drafting these regulations. 
We have been reexamining all of our policies and regulations concerning 
remedies to ensure that they are consonant with the fundamental purpose 
of remedies, which is to motivate providers to come quickly into 
compliance with program requirements.
    In the proposed rule, we spoke to the purpose of sanctions, saying 
in part that our intent is to ``deter violations as well as encourage 
immediate (emphasis added) response and sustained compliance.'' If the 
new owner of a provider must wait for the expiration of the remainder 
of a 2-year prohibition of NATCEP that was imposed on a previous owner, 
regardless of any action he or she may take to correct the deficiencies 
that triggered the prohibition, the 2-year prohibition on NATCEP would 
be unlike other remedies. As soon as a new owner corrects the 
noncompliance that led to the imposition of any other remedy, the 
remedy can be lifted. The exception to this is that when a facility has 
had a denial of payment imposed against it for repeated substandard 
quality of care or has been placed under temporary management, in 
addition to achieving substantial compliance, it must demonstrate to 
HCFA's or the State's satisfaction that it will remain in substantial 
compliance.
    However, it is not just the inconsistency with the other remedies 
which has led us to reexamine our policy on this issue. In addition, 
HCFA does not want to discourage new, capable ownership interests from 
improving the quality of care that residents receive. Investing in a 
NATCEP may enhance quality of care; to prohibit a new owner from having 
such a program would be counterproductive with the larger purposes of 
the programs. Therefore, under this regulation, we are changing our 
policy on transfer of the prohibition of NATCEP to a new owner to bring 
it into line with the workings of other remedies. The 2-year 
restriction of NATCEP will not apply to the new owner of a provider 
unless that new owner or organization has been the subject of an 
extended (or partial extended) survey, or is otherwise subject to the 
terms of Sec. 483.151, under its tenure. If all other requirements for 
the approval of NATCEP are met, including substantial compliance with 
all program requirements, the new owner may provide NATCEP.
    We have received numerous inquiries from providers as well as their 
attorneys asking what appeal rights are available when approval of a 
facility's NATCEP has been denied or withdrawn. While the Act does not 
provide for any formal appeals for denial or withdrawal of a NATCEP, we 
believe that providers ought to have some opportunity to challenge this 
disapproval. Therefore, we expect providers to appeal their NATCEP 
disapproval within the timeframes established for dispute resolution, 
as described in Sec. 488.331 of this final rule.
    We have reached this result because, notwithstanding the fact that 
the Act permits us and the State survey agencies to conduct extended 
(or partial extended) surveys for any reason, we are nevertheless under 
this regulation choosing to conduct such surveys only when we or a 
State survey agency determines that substandard quality of care exists. 
Just as we believe a provider ought to have access to an informal 
dispute resolution mechanism to challenge what it perceives to be 
inaccurate survey findings, we believe that it ought to be able to 
challenge the correctness of the State survey agency's or HCFA's 
determination that substandard quality of care existed. If successful 
in that challenge, then the factual basis for doing the extended survey 
will have been removed, and, in such cases, it would be inequitable to 
saddle the provider with the loss of its NATCEP when there was no 
factual basis for doing so.
    We are limiting the appeals of these matters to the informal 
dispute resolution process because we do not believe the loss of a 
NATCEP is a remedy of the same magnitude or type as other statutory 
remedies for which a more formal appeals mechanism is available. Unlike 
the case with other remedies, a facility losing its NATCEP will not, on 
that basis alone, face exclusion from the Medicare or Medicaid 
programs, nor will it face the same kind of deprivation that is 
arguably the case with respect to civil money penalties, denial of 
payment, or the imposition of temporary management. We believe the 
informal dispute resolution process satisfies essential elements of due 
process here, since a provider will have notice of the intended denial 
of its NATCEP and the opportunity to meet with agency officials to 
challenge the findings that gave rise to the denial.
    Comment: One commenter believed that every State should implement 
the same penalty system.
    Response: The Act permits the States to elect alternative remedies 
if they can demonstrate that the alternative remedies are as effective 
as the remedies specified by the Act.

V. Additional Conforming Changes.

    In addition to change to our regulations identified above, it is 
necessary that we make minor, technical, editorial or cross reference 
changes to several other regulation sections. We are making conforming 
changes to:
     Part 401 (Secs. 401.130, and 401.133), part 431 
(Secs. 431.115, 431.151, 431.152, 431.153, 431.154, 431.221, and 
431.610);
     Part 435 (Sec. 435.1009);
     Part 440 (Sec. 440.40, 440.140, 440.150); we recodified 
Sec. 440.150 to separate NFs and ICFs/MR to make it clear which 
provisions apply to each. No substantive changes have been made as a 
result of this new section.
     Part 441 (Sec. 441.11);
     Part 442 (Secs. 442.1, 442.12, 442.14, 442.15, 442.16, 
442.20, 442.30, 442.40, 442.42, 442.101, 442.105, 442.109, 442.110, 
442.111, 442.117, 442.118, and 442.119);
     Part 488 (Secs. 488.8, 488.11, 488.14, 488.18, 488.20, 
488.24, 488.26, 488.28, and 488.50);
     Part 489 (Secs. 489.3, 489.11, 489.12, 489.15, 489.16, 
489.18, 489.53, 489.60, 489.62, and 489.64); and
     Part 498 (Secs. 498.1, 498.2, 498.3, and 498.5).
     Part 498 (Secs. 498.1, 498.2, 498.3, and 498.5); we 
revised Sec. 498.3(b)(7) to exclude SNF and NF terminations. SNFs and 
NFs may appeal the noncompliance that led to a termination under 
Sec. 498.3(b)(13).

VI. Regulatory Impact Analysis

A. Introduction

    We generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612), unless the Secretary certifies that a regulation will not 
have a significant economic impact on a substantial number of small 
entities. For purposes of the RFA, all long term care facilities are 
considered small entities. However, individuals and States are not 
included in the definition of a small entity.
    Also, section 1102(b) of the Act requires the Secretary to prepare 
a regulatory impact analysis for any final rule that may have a 
significant impact on the operations of a substantial number of small 
rural hospitals. Such an analysis must conform to the provisions of 
section 604 of the RFA. For purposes of section 1102(b) of the Act, we 
define a small rural hospital as a hospital that is located outside a 
metropolitan statistical area and has fewer than 50 beds.
    As described earlier in the preamble, OBRA '87 mandated extensive 
revisions to the Medicare and Medicaid requirements for nursing 
facilities. Under the previous system, long term care facilities were 
required to meet a set of requirements called conditions of 
participation. Each condition of participation included groups of 
standards, and standards were made up of separate elements. Enforcement 
was based on the level of the requirement for which a deficiency was 
cited. For example, condition-level deficiencies in a SNF resulted in 
the initiation of termination procedures and/or a denial of payment for 
new admissions. However, if only standard-level deficiencies were 
found, a plan of correction was required with no further immediate 
sanctions. Conditions of participation later became Level A 
requirements, and standards and elements became Level B requirements, 
as the result of a preliminary effort to dismantle the hierarchy of 
requirements as mandated by OBRA '87. We revised the requirements that 
long term care facilities must meet in order to participate in the 
Medicare and Medicaid programs on September 26, 1991 (56 FR 48826). 
These requirements focus generally on actual facility performance in 
meeting residents' needs in a safe and healthy environment, as compared 
to prior requirements which focused on the capacity of the facility to 
provide appropriate care.
    As of October 1993, there were 10,512 facilities certified for both 
Medicare and Medicaid (dually participating), 939 SNFs certified only 
for Medicare, and 4,974 NFs certified only for Medicaid. HCFA data 
indicate that 7.3 percent (1,141) of all long term care facilities 
surveyed in 1992 were found to be deficiency-free. Facilities in full 
compliance with the participation requirements would not, of course, be 
subject to the enforcement remedies contained in this final rule. Six 
and one-half percent (1,021) of the surveyed facilities were found to 
have at least one Level A deficiency and would have been subject to 
denial of payment for new admissions and/or termination under the 
former enforcement rules. However, the number of involuntary 
terminations of long term care facilities for calendar year 1992 was 53 
(29 SNFs/NFs and 24 NFs), less than one-half of one percent of all 
participating facilities. This figure demonstrates that most of the 
facilities identified during a survey to have at least one serious 
deficiency can and do correct deficiencies to avoid termination. The 
majority of the facilities surveyed (86.2 percent) were determined to 
have no Level A but at least one Level B deficiency, a finding that 
usually would allow the facility to continue to participate for a 
longer period of time while taking corrective action.
    The intent of the OBRA '87 legislation was to provide the Secretary 
and States with the authority to impose timely, alternative remedies on 
noncompliant facilities that, under the previous enforcement process, 
had no incentive to promptly correct deficiencies and maintain lasting 
compliance. Our proposed rule (57 FR 39278, August 28, 1992) delineated 
the process we would use to survey, assess, and enforce facility 
compliance with all participation requirements.
    It is clear that a large number of small entities will be affected 
by adoption of these procedures, and, as intended by OBRA '87, a 
substantial number of those entities are at risk of some remedy if they 
are noncompliant until they make changes in their operations to meet 
certification requirements. Therefore, we have prepared the following 
analysis which, in combination with the rest of the preamble, is 
intended to conform to the objectives of the RFA. We are not preparing 
a rural impact statement since we have determined, and the Secretary 
certifies, that this final rule will not have a significant impact on 
the operations of substantial number of small rural hospitals.

B. Affected Entities

    We expect that the implementation of these final regulations will 
significantly influence facilities to conform quickly with the Federal 
participation requirements in order to avoid remedies. We recognize 
that not all of the potential effects of this final rule can be 
definitely anticipated, especially in view of their interaction with 
other Federal, State, and local activities regarding adherence to 
requirements for participation in Medicare and Medicaid. In particular, 
considering the effects of our efforts to improve survey and 
certification activities, through both new survey procedures and 
instruments and the promulgation of regulations, it is impossible to 
quantify precisely the future effect of all of these regulations on 
facilities' compliance activities or costs. We also are unable to 
accurately project the frequency with which enforcement proceedings may 
occur in light of the options to apply a host of remedies short of 
termination.
    As a result of the 27,900 comments received in response to our 
proposed rule, virtually every aspect of the regulation was re-
evaluated. Where warranted, changes were made and the details of those 
changes were discussed in detail in the preceding section of the 
preamble to this rule. In response to our proposed revisions to part 
431, most of the negative comments concerned the effect on ICFs/MR of 
withdrawing FFP during appeals. Some commenters noted that OBRA '87 
specifically exempted ICFs/MR from its scope, and stated that it is not 
appropriate to change the ICF/MR rules in implementing a law that 
applies to other facilities. We agree that it would be preferable to 
include the provisions applicable to ICFs/MR at a later date in 
rulemaking focused on ICFs/MR. Therefore, we are adopting the 
commenters' proposals that the 120 days of FFP continue for ICFs/MR 
until such rulemaking is carried out, and are leaving the existing 
appeals system in place for ICFs/MR. Thus, neither ICFs/MR nor their 
residents will experience any impact from this final rule.
    Also based on commenters' suggestions, we incorporate in this final 
rule the concept of substantial compliance as the standard that 
prospective providers and existing providers must meet in order to 
begin or continue to participate in the Medicare and Medicaid programs. 
After evaluation of the comments received, and in consideration of the 
fact that, as noted earlier, only 7.3 percent of all nursing homes 
surveyed in 1992 were deficiency-free, we believe that total compliance 
with all requirements is unrealistic and, in fact, a standard that many 
providers or prospective providers would find impossible to meet. We 
note that the statute now sets forth more than 100 requirements that 
facilities have to meet in order to participate in the Medicare or 
Medicaid programs, whereas before OBRA '87, facilities had to comply 
with approximately 15. With the seven-fold increase in statutory 
requirements, there is a greater likelihood that facilities will be 
found not to meet the statutory definition of a SNF or NF. We are 
convinced, however, based on experience and commenters' views, that 
many statutory deficiencies do not result in actual harm to residents, 
nor do they constitute the potential for anything more than minimal 
harm. We realized that under the provisions of our proposed rule, a 
facility could have been subject to the most severe remedies, including 
denial of payment for new admissions, termination of the provider 
agreement for SNFs and discontinuation of FFP for NFs, if any 
deficiency, no matter how minor, was identified at the time of the 
survey. We recognized that imposing a remedy in all cases would be 
contrary to our intention to correlate the severity of the remedy to 
the seriousness of the deficiency, and would have a negative effect on 
facilities and residents. Instead, this final rule provides that 
remedies will not be imposed when a facility is in substantial 
compliance with all participation requirements.
    We are removing the scope and severity scales from the regulation 
and are, instead, providing assessment factors which consider scope and 
severity to be used in evaluating the seriousness of deficiencies and 
determining whether an enforcement response is required. We continue to 
believe, as we proposed, that because remedies are tailored to reflect 
the seriousness of the violations, the use of the assessment factors 
will provide consistent remedy recommendations and enforcement actions 
among all facilities. Since facilities will be aware of the correlation 
between the seriousness of the noncompliance and the penalty imposed, 
we anticipate that remedies applied in this manner will deter 
violations and encourage immediate response and sustained compliance. 
Based on the large number of comments we received expressing concern 
over the imposition of civil money penalties, which can be imposed for 
past periods of noncompliance, we expect that the regulations will have 
the desired effect of motivating facilities to remain in substantial 
compliance at all times.
    Under these final rules, a facility with isolated deficiencies that 
constitute no actual harm with potential for minimal harm will be 
expected to correct the deficiencies and maintain compliance. However, 
a formal plan of correction is required for deficiencies that 
constitute no actual harm with potential for minimal harm if the 
deficiencies are widespread or if they constitute a pattern. A formal 
plan of correction is also required for all deficiencies that 
constitute noncompliance. Facilities with deficiencies that constitute 
no actual harm with potential for no more than minimal harm will be 
considered in substantial compliance with the participation 
requirements and will have no remedy applied. We believe that the 
majority of the 86 percent of the facilities cited in 1992 with at 
least one Level B deficiency would fall within this range. We note, 
however, that some noncompliance categorized previously as Level B 
deficiencies could now result in remedies because of their effect on 
the residents.
    In response to commenters, we are requiring that States provide an 
opportunity for informal dispute resolution whereby providers 
dissatisfied with survey findings can request a review of the 
deficiencies upon receipt of the official HCFA-2567. Dispute resolution 
augments the various other opportunities facilities have during and 
after the survey to challenge the surveyors' findings, including during 
the survey, at the exit conference, while awaiting receipt of the 
official deficiency statement, through dialogue with State and regional 
officials, and upon receipt of the official statement of deficiencies. 
The process we are requiring generally reflects current practice and 
guidance we have consistently given States, except that here it is 
formally adopted as a rule. While we believe that many formal hearings 
will be avoided by utilizing dispute resolution, the regulations 
provide facilities with the opportunity to appeal certifications of 
noncompliance leading to an enforcement remedy, and specify the formal 
administrative and judicial review processes. However, because the Act 
mandates that enforcement systems minimize the time between 
identification of violations and the imposition of remedies, we are not 
requiring that hearings be held before the effective date of the 
enforcement action, except in the case of civil money penalties. 
Facilities facing civil money penalties may also appeal the level of 
noncompliance but only where a successful challenge would affect the 
amount of the civil money penalty that HCFA or the State could collect.
    Because of the variety of alternative remedies now available, we 
believe termination will be the enforcement response to the most 
serious noncompliance, and it can be avoided by facilities that are 
willing and able to effectively allocate their resources to ensure 
substantial compliance. To the extent that those marginal facilities 
that are most at risk from these provisions are able to come into 
substantial compliance, there may even be a reduction in the frequency 
of enforcement actions. Of course, facilities will ordinarily incur 
some costs associated with compliance efforts. Those costs could be 
significant if they necessitate substantial staffing increases or 
alterations to a physical plant. Our elimination of FFP after 
termination of the provider agreement during the administrative hearing 
process provides an incentive for facilities to comply promptly with 
enforcement actions, but could also add to the impact on facilities.

C. Effect on State Survey Process

    The impact that this final rule will have on State survey agencies' 
surveys must be viewed in the context of other ongoing activities 
related to survey and certification.
    On October 1, 1986, HCFA implemented its new long term care 
outcome-oriented survey process (formerly called PACs: Patient Care and 
Services Survey Process). This system shifted the emphasis away from 
the facility's capacity to provide adequate care to the facility's 
success in providing such care. On October 1, 1990, HCFA implemented a 
revised outcome-oriented survey process that includes the OBRA 
provision of resident rights review. Because the effective date of this 
rule is July 1, 1995, training courses can be designed and offered 
timely to provide the State agency surveyors and other staff with 
information on assessing the seriousness of deficiencies. The knowledge 
they gain in applying Federal survey requirements in an accurate, 
consistent, and time efficient manner, should lead to improved surveys 
at no increase in costs. We do not expect that assessing the 
seriousness of the deficiencies will add to the time needed to conduct 
a survey since this process is one that surveyors have essentially 
engaged in for years. We do not expect these regulations to necessitate 
greater expenditures on the part of State survey agencies; however, 
they probably will result in a reallocation of resources, particularly 
geared to more intensive monitoring of marginal facilities. Further, 
these regulatory changes will contribute to a shift toward more 
enforcement-oriented roles for State survey agencies and surveyors. 
Although States will have an expanded role and increased responsibility 
as a result of this final rule, they will also be given increased 
flexibility in carrying out their responsibilities.
    We expect some incremental costs to facilities and to States as a 
result of facility appeals of termination and alternative remedies. 
Although we have no experience on which to predict increases in volume 
or cost, we believe that the increase will be offset somewhat as some 
hearings will be avoided as a result of dispute resolution. The appeals 
process has been thoroughly explained elsewhere in this preamble. The 
responses to comments illustrate the thoughtful approach taken, with a 
view to minimizing burden in implementing statutory requirements.

D. Effect on Residents

    We expect this final rule to result in improved quality of life and 
care for residents of long term care facilities. Because of the various 
enforcement tools provided by this regulation, facilities will have 
more of an incentive to remain in compliance with participation 
requirements. This sustained compliance will provide residents with 
consistent, high quality health care. Because quality of life can be 
affected by a resident's sense of satisfaction with his or her 
environment, the quality of care received, and the extent of control 
over his or her life, heightened facility interest in maintaining 
substantial compliance should be perceived by residents and their 
families as improved care.
    While termination of SNFs and NFs could have a significant impact 
on residents, especially those living in rural areas, this final rule 
provides a variety of alternatives to termination for those facilities 
that are able to come into compliance. To the extent that termination 
occurs less frequently, there would be less disruption to nursing home 
residents and ensured access to needed services. In those cases in 
which termination becomes necessary, the termination is for the 
ultimate benefit of the residents to assure that they receive the 
quality care to which they are entitled.

VII. Information Collection Requirements

    Sections 4204(b) and 4214(d) of OBRA '87 provide a waiver of Office 
of Management and Budget review of information collection requirements 
for the purpose of implementing the nursing home reform amendments.

List of Subjects

42 CFR Part 401

    Claims, Freedom of information, Health facilities, Medicare, 
Privacy.

42 CFR Part 431

    Grant programs-health, Health facilities, Medicaid, Privacy, 
Reporting and recordkeeping requirements.

42 CFR Part 435

    Aid to Families with Dependent Children, Grant programs-health, 
Medicaid, Reporting and recordkeeping requirements, Supplemental 
Security Income (SSI), Wages.

42 CFR Part 440

    Grant programs-health, Medicaid.

42 CFR Part 441

    Family planning, Grant programs-health, Infants and children, 
Medicaid, Penalties, Reporting and recordkeeping requirements.

42 CFR Part 442

    Grant programs-health, Health facilities, Health professions, 
Health records, Medicaid, Nursing homes, Nutrition, Reporting and 
recordkeeping requirements; Safety.

42 CFR Part 447

    Accounting, Administrative practice and procedure, Drugs, Grant 
programs-health, Health facilities, Health professions, Medicaid, 
Reporting and recordkeeping requirements, Rural areas.

42 CFR Part 483

    Grant programs-health , Health facilities, Health professions, 
Health records, Medicaid, Medicare, Nursing homes, Nutrition, Reporting 
and recordkeeping requirements, Safety.

42 CFR Part 488

    Health facilities, Survey and certification, Forms and guidelines.

42 CFR Part 489

    Health facilities, Medicare.

42 CFR Part 498

    Administrative practice and procedure, Health facilities, Health 
professions, Medicare, Reporting and recordkeeping requirements.

    42 CFR Chapter IV is amended as set forth below:
    A. Part 401 is amended as follows:

PART 401--GENERAL ADMINISTRATIVE REQUIREMENTS

    1. The authority citation for part 401 is revised to read as 
follows:

    Authority: Secs. 205, 1102, 1106, 1819, 1871, and 1919(g) and 
(h) of the Social Security Act (42 U.S.C. 405, 1302, 1306, 1395i-3, 
1395hh, and 1396r(g) and (h)); the Freedom of Information Act (5 
U.S.C. 552); and the Privacy Act (5 U.S.C. 552a).

    2. Section 401.130 is amended by revising paragraph (b) (17) to 
read as follows:


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

* * * * *
    (b) Materials available for inspection and copying.
* * * * *
    (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.
* * * * *
    3. Section 401.133 is amended by revising the introductory text to 
read as follows:


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:
* * * * *
    B. Part 431 is amended as follows:

PART 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION

    1. The authority citation for part 431 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

    2. Section 431.115 is amended by revising paragraph (c) to read as 
follows:


Sec. 431.115  Disclosure of survey information and provider or 
contractor evaluation.

* * * * *
    (c) State plan requirements. A State plan must provide that the 
requirements of this section and Sec. 488.325 of this chapter are met.
* * * * *
    3. The heading for subpart D is revised to read as follows:

Subpart D--Appeals Process for NFs and ICFs/MR

    4. Section 431.151 is revised to read as follows:


Sec. 431.151  Scope and applicability.

    (a) This subpart specifies the appeal procedures the State must 
make available to a nursing facility (NF) or intermediate care facility 
for the mentally retarded (ICF/MR), when the State's finding of 
noncompliance leads to a denial or termination of a provider agreement 
under the Medicaid program or nonrenewal of an agreement in the case of 
an ICF/MR.
    (b) This subpart also specifies the appeal procedures for NFs which 
disagree with a certification of noncompliance which led to the 
imposition of a remedy.
    (c) The choice of remedy is not appealable.
    (d) A NF may not challenge the level of noncompliance found by the 
State, except that in the case of a civil money penalty, a NF may 
challenge the level of noncompliance found by the State only if a 
successful challenge on this issue would affect the range of civil 
money penalty amounts that the State could collect.
    (e) For a NF, the scope of review on the imposition of a civil 
money penalty is specified in Sec. 488.438(e) of this chapter.
    5. Section 431.152 is revised to read as follows:


Sec. 431.152  State plan requirements.

    The State plan must provide for appeals procedures that, as a 
minimum, satisfy the requirements of Secs. 431.153 through 431.154.
    6. Section 431.153 is revised to read as follows:


Sec. 431.153  Evidentiary hearing.

    (a) For actions specified in Sec. 431.151, the Medicaid agency must 
give a provider the opportunity for a full evidentiary hearing.
    (b) When a NF requests a hearing. Except when a civil money penalty 
is imposed, when a NF requests a hearing, the hearing need not be 
completed before the proposed effective date of the denial or 
termination of participation, or imposition of any remedy.
    (c) When an ICF/MR requests a hearing. When an ICF/MR requests a 
hearing, it must be completed--
    (1) Before the effective date of the denial, termination or 
nonrenewal of participation; or
    (2) Within 120 days after that date.
    (d) Time period for request of hearing. The affected NF or ICF/MR, 
or its legal representative or other authorized official, must file the 
request for hearing in writing within 60 days from receipt of the 
notice of the proposed denial, termination, or nonrenewal of 
participation, or imposition of a civil money penalty or other 
remedies.
    (e) When remedies are imposed. (1) Notwithstanding any provision of 
State law, the State must impose all remedies timely on any provider of 
services participating in the Medicaid program--
    (i) After notifying the facility timely of the deficiencies and 
impending remedies; and
    (ii) Except as specified in paragraph (e)(2) of this section, 
during any pending hearing that may be requested by the provider of 
services, as provided in paragraph (b) of this section.
    (2) The State must not collect a civil money penalty until a final 
administrative decision is made that supports the imposition of the 
penalty.
    (f) Non-State operated NF. In the case of a non-State operated NF 
upon which remedies have been imposed, the State must give the 
facility--
    (1) Notice, as specified in paragraph (h) of this section; and
    (2) An opportunity for a full evidentiary hearing on the issue of 
the noncompliance that led to the imposition of enforcement actions, 
except for State monitoring and loss of nurse aide training, as 
provided in Sec. 488.406 of this chapter.
    (g) Remedies imposed during pending hearing. Except for the 
collection of civil money penalties, the State must impose all such 
remedies during any pending hearing.
    (h) Contents of notice. The notice to the facility must include--
    (1) The basis for the decision; and
    (2) A statement of deficiencies on which the decision is based.
    (i) Required elements of hearing. The hearing must, at a minimum, 
include--
    (1) An opportunity for the facility to appear before an impartial 
decision maker to refute the certification of noncompliance upon which 
the denial, termination, nonrenewal of participation for ICFs/MR, or 
upon which the denial, termination, or imposition of other remedies for 
NFs are based;
    (2) An opportunity for the facility to be represented by counsel or 
another representative;
    (3) An opportunity for the facility or its representatives to be 
heard in person, to call witnesses, and to present documentary 
evidence; and
    (4) A written decision by the impartial decision maker, setting 
forth the reasons for the decision and the evidence upon which the 
decision is based.
    (j) In civil money penalty cases, a State's conclusion about a NF's 
level of noncompliance must be upheld unless clearly erroneous.
    (k) Dually participating facilities. If a NF is also participating 
or seeking to participate in Medicare as a SNF, and the basis for the 
State's denial or termination of participation in Medicaid is also a 
basis for denial or termination of participation in Medicare, the State 
must advise the facility that--
    (1) The appeal procedures specified for Medicare facilities in part 
498 of this chapter apply; and
    (2) A final decision entered under the Medicare review procedures 
is binding for the purposes of Medicaid participation and Medicare 
participation in a dually participating facility or a facility seeking 
to participate in Medicare and Medicaid.
    (l) If HCFA determines that a NF is not in substantial compliance 
with participation requirements, thereby resulting in HCFA's imposition 
of alternative remedies, or if HCFA denies, or terminates the provider 
agreement(s) of such a facility, and the findings and proposed remedies 
of HCFA prevail in accordance with Sec. 488.452 of this chapter, the 
facility is entitled only to the review procedures specified in part 
498 of this chapter, in lieu of the procedures specified in this 
subpart.
    7. Section 431.154 is amended by revising the section heading and 
paragraph (a) to read as follows:


Sec. 431.154  Informal reconsideration for ICFs/MR.

    (a) If the State decides to provide the opportunity for an 
evidentiary hearing required by Sec. 431.153(a) only after the 
effective date of a denial, or nonrenewal of participation, the State 
must offer the facility an informal reconsideration, to be completed 
before the effective date.
* * * * *
    8. Section 431.610 is amended by adding a new paragraph (a)(3), 
revising the introductory text in paragraph (g), and revising 
paragraphs (g)(2) to read as follows:


Sec. 431.610  Relations with standard-setting and survey agencies.

    (a) * * *
    (3) Section 1919(g)(1)(A) of the Act, concerning responsibilities 
of the State for certifying the compliance of non-State operated NFs 
with requirements of participation in the State's Medicaid program.
* * * * *
    (g) Responsibilities of survey agency. The plan must provide that, 
in certifying NFs and ICFs/MR, the survey agency designated under 
paragraph (e) of this section will--
* * * * *
    (2) Have qualified personnel perform on-site inspections 
periodically as appropriate based on the timeframes in the correction 
plan and--
    (i) At least once during each certification period or more 
frequently if there is a compliance question; and
    (ii) For non-State operated NFs, within the timeframes specified in 
Sec. 488.308 of this chapter.
* * * * *
    C. Part 435 is amended as follows:

PART 435--ELIGIBILITY IN THE STATES, DISTRICT OF COLUMBIA, THE 
NORTHERN MARIANA ISLANDS, AND AMERICAN SAMOA

    1. The authority citation for part 435 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

    2. Section 435.1009 is amended by revising in the definition of 
Publicly operated community residence that serves no more than 16 
residents the introductory text of the definition, paragraph (b) 
introductory text, and paragrapgh (b)(4) and removing the definition of 
Resident of an intermediate care facility to read as follows:


Sec. 435.1009  Definitions relating to institutional status.

* * * * *
    Publicly operated community residence that serves no more than 16 
residents is defined in 20 CFR 416.231(b)(6)(i). A summary of that 
definition is repeated here for the information of readers.
* * * * *
    (b) A publicly operated community residence does not include the 
following facilities, even though they accommodate 16 or fewer 
residents:
* * * * *
    (4) Hospitals, nursing facilities, and intermediate care facilities 
for the mentally retarded.
* * * * *
    D. Part 440 is amended as follows:

PART 440--SERVICES: GENERAL PROVISIONS

    1. The authority citation for part 441 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

    2. Section 440.40 is revised to read as follows:

Sec. 440.40  Nursing facility services for individuals age 21 or older 
(other than services in an institution for mental diseases). EPSDT, and 
family planning services and supplies.

    (a) Nursing facility services. (1) ``Nursing facility services for 
individuals age 21 or older, other than services in an institution for 
mental diseases'', means services that are--
    (i) Needed on a daily basis and required to be provided on an 
inpatient basis under Secs. 409.31 through 409.35 of this chapter.
    (ii) Provided by--
    (A) A facility or distinct part of a facility that is certified to 
meet the requirements for participation under subpart C of part 442 of 
this chapter, as evidenced by a valid agreement between the Medicaid 
agency and the facility for providing nursing facility services and 
making payments for services under the plan; or
    (B) If specified in the State plan, a swing-bed hospital that has 
an approval from HCFA to furnish skilled nursing facility services in 
the Medicare program; and
    (iii) Ordered by and provided under the direction of a physician.
    (2) Nursing facility services includes services provided by any 
facility located on an Indian reservation and certified by the 
Secretary as meeting the requirements of subpart B of part 483 of this 
chapter.
    (b) EPSDT. ``Early and periodic screening and diagnosis and 
treatment'' means--
    (1) Screening and diagnostic services to determine physical or 
mental defects in recipients under age 21; and
    (2) Health care, treatment, and other measures to correct or 
ameliorate any defects and chronic conditions discovered. (See subpart 
B of part 441 of this chapter.)
    3. Section 440.140 is revised to read as follows:


Sec. 440.140  Inpatient hospital services, nursing facility services, 
and intermediate care facility services for individuals age 65 or older 
in institutions for mental diseases.

    (a) Inpatient hospital services. ``Inpatient hospital services for 
individuals age 65 or older in institutions for mental diseases'' means 
services provided under the direction of a physician for the care and 
treatment of recipients in an institution for mental diseases that 
meets the requirements specified in Sec. 482.60(b), (c), and (e) of 
this chapter and--
    (1) Meets the requirements for utilization review in 
Sec. 482.30(a), (b), (d), and (e) of this chapter; or
    (2) Has been granted a waiver of those utilization review 
requirements under section 1903(i)(4) of the Act and Subpart H of Part 
456 of this chapter.
    (b) Nursing facility services. ``Nursing facility services for 
individuals age 65 or older in institutions for mental diseases'' means 
nursing facility services as defined in Sec. 440.40 and in subpart B of 
part 483 of this chapter that are provided in institutions for mental 
diseases, as defined in Sec. 435.1009 of this chapter.
    4. Section 440.150 is revised to read as follows:


Sec. 440.150  Intermediate care facility (ICF/MR) services.

    (a) ``ICF/MR services'' means those items and services furnished in 
an intermediate care facility for the mentally retarded if the 
following conditions are met:
    (1) The facility fully meets the requirements for a State license 
to provide services that are above the level of room and board;
    (2) The primary purpose of the ICF/MR is to furnish health or 
rehabilitative services to persons with mental retardation or persons 
with related conditions;
    (3) The ICF/MR meets the standards specified in subpart I of part 
483 of this chapter.
    (4) The recipient with mental retardation for whom payment is 
requested is receiving active treatment, as specified in Sec. 483.440 
of this chapter.
    (5) The ICF/MR has been certified to meet the requirements of 
subpart C of part 442 of this chapter, as evidenced by a valid 
agreement between the Medicaid agency and the facility for furnishing 
ICF/MR services and making payments for these services under the plan.
    (b) ICF/MR services may be furnished in a distinct part of a 
facility other than an ICF/MR if the distinct part--
    (1) Meets all requirements for an ICF/MR, as specified in subpart I 
of part 483 of this chapter;
    (2) Is clearly an identifiable living unit, such as an entire ward, 
wing, floor or building;
    (3) Consists of all beds and related services in the unit;
    (4) Houses all recipients for whom payment is being made for ICF/MR 
services; and
    (5) Is approved in writing by the survey agency.
    5. A new Sec. 440.155 is added to read as follows:


Sec. 440.155  Nursing facility services, other than in institutions for 
mental diseases.

    (a) ``Nursing facility services, other than in an institution for 
mental diseases'' means services provided in a facility that--
    (1) Fully meets the requirements for a State license to provide, on 
a regular basis, health-related services to individuals who do not 
require hospital care, but whose mental or physical condition requires 
services that--
    (i) Are above the level of room and board; and
    (ii) Can be made available only through institutional facilities;
    (2) Has been certified to meet the requirements of subpart C of 
part 442 of this chapter as evidenced by a valid agreement between the 
Medicaid agency and the facility for providing nursing facility 
services and making payments for services under the plan; and
    (b) ``Nursing facility services'' include services--
    (1) Considered appropriate by the State and provided by a Christian 
Science sanatorium operated, or listed and certified, by the First 
Church of Christ, Scientist, Boston, Mass.; or
    (2) Provided by a facility located on an Indian reservation that--
    (i) Furnishes, on a regular basis, health-related services; and
    (ii) Is certified by the Secretary to meet the standards in Subpart 
E of Part 442 of this chapter.
    (c) ``Nursing facility services'' may include services provided in 
a distinct part of a facility other than a nursing facility if the 
distinct part--
    (1) Meets all requirements for a nursing facility;
    (2) Is an identifiable unit, such as an entire ward or contiguous 
ward, a wing, floor, or building;
    (3) Consists of all beds and related facilities in the unit;
    (4) Houses all recipients for whom payment is being made for 
nursing facility services, except as provided in paragraph (d) of this 
section;
    (5) Is clearly identified; and
    (6) Is approved in writing by the survey agency.
    (d) If a State includes as nursing facility services those services 
provided by a distinct part of a facility other than a nursing 
facility, it may not require transfer of a recipient within or between 
facilities if, in the opinion of the attending physician, it might be 
harmful to the physical or mental health of the recipient.
    (e) Nursing facility services may include services provided in a 
swing-bed hospital that has an approval to furnish nursing facility 
services.
    E. Part 441 is amended as follows:

PART 441--SERVICES: REQUIREMENTS AND LIMITS APPLICABLE TO SPECIFIC 
SERVICES

    1. The authority citation for part 441 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

    2. Section 441.11 is revised to read as follows:


Sec. 441.11  Continuation of FFP for institutional services.

    (a) Basic conditions for continuation of FFP. FFP may be continued 
for up to 30 days after the effective date of termination or expiration 
of a provider agreement, if the following conditions are met:
    (1) The Medicaid payments are for recipients admitted to the 
facility before the effective date of termination or expiration.
    (2) The State agency is making reasonable efforts to transfer those 
recipients to other facilities or to alternate care.
    (b) When the 30-day period begins. The 30-day period begins on one 
of the following:
    (1) The effective date of termination of the facility's provider 
agreement by HCFA;
    (2) The effective date of termination of the facility's Medicaid 
provider agreement by the Medicaid agency on its own volition; or
    (3) In the case of an ICF/MR, the later of--
    (i) The effective date of termination or nonrenewal of the 
facility's provider agreement by the Medicaid agency on its own 
volition; or
    (ii) The date of issuance of an administrative hearing decision 
that upholds the agency's termination or nonrenewal action.
    (c) Services for which FFP may be continued. FFP may be continued 
for any of the following services, as defined in subpart A of part 440 
of this chapter:
    (1) Inpatient hospital services.
    (2) Inpatient hospital services for individuals age 65 or older in 
an institution for mental diseases.
    (3) Nursing facility services for individuals age 21 or older.
    (4) Nursing facility services for individuals age 65 or older in an 
institution for mental diseases.
    (5) Inpatient psychiatric services for individuals under age 21.
    (6) Nursing facility services for individuals under 21.
    (7) Intermediate care facility services for the mentally retarded.
    F. Part 442 is amended as follows:

PART 442--STANDARDS FOR PAYMENT FOR NURSING FACILITIES AND 
INTERMEDIATE CARE FACILITIES FOR THE MENTALLY RETARDED

    1. The authority citation for part 442 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302) 
unless otherwise indicated.

    2. The heading for part 442 is revised as set forth above.
    3. Section 442.1 is amended by revising paragraph (a) to read as 
follows:


Sec. 442.1  Basis and purpose.

    (a) This part states requirements for provider agreements for 
facility certification relating to the provision of services furnished 
by nursing facilities and intermediate care facilities for the mentally 
retarded. This part is based on the following sections of the Act:

    Section 1902(a)(4), administrative methods for proper and 
efficient operation of the State plan;
    Section 1902(a)(27), provider agreements;
    Section 1902(a)(28), nursing facility standards;
    Section 1902(a)(33)(B), State survey agency functions; Section 
1902(i), circumstances and procedures for denial of payment and 
termination of provider agreements in certain cases;
    Section 1905(c), definition of nursing facility;
    Section 1905(d), definition of intermediate care facility for 
the mentally retarded;
    Section 1905 (f), definition of nursing facility services;
    Section 1910, certification and approval of ICFs/MR and of RHCs;
    Section 1913, hospital providers of nursing facility services;
    Section 1919 (g) and (h), survey, certification and enforcement 
of nursing facilities; and
    Section 1922, correction and reduction plans for intermediate 
care facilities for the mentally retarded.
* * * * *
    4. Section 442.2 is amended by removing the definition Immediate 
jeopardy or immediate threat and adding in alphabetical order the 
definition of Immediate jeopardy to read as follows:


Sec. 442.2  Terms.

* * * * *
    Immediate jeopardy means a situation in which immediate corrective 
action is necessary because the provider's noncompliance with one or 
more requirements of participation or conditions of participation has 
caused, or is likely to cause, serious injury, harm, impairment, or 
death to an individual receiving care in a facility.
* * * * *
    5. Section 442.12 is amended by revising paragraph (c) to read as 
follows:


Sec. 442.12  Provider agreement: General requirements.

* * * * *
    (c) Conformance with certification condition. An agreement must be 
in accordance with the certification provisions set by the Secretary or 
the survey agency under subpart C of this part for ICFs/MR or subpart E 
of part 488 of this chapter for NFs.
* * * * *
    6. Section 442.13 is amended by revising paragraphs (b) and (c) to 
read as follows:


Sec. 442.13  Effective date of agreement.

* * * * *
    (b) All Federal requirements are met on the date of the survey. The 
agreement must be effective on the date the on-site survey is completed 
(or on the day following the expiration of a current agreement) if, on 
the date of the survey the provider meets all Federal health and safety 
conditions of participation or requirements for NFs and any other 
requirements imposed by the Medicaid agency.
    (c) All Federal requirements are not met on the date of the survey. 
If the provider fails to meet any of the requirements specified in 
paragraph (b) of this section, the agreement must be effective on the 
earlier of the following dates:
    (1) The date on which the provider meets all requirements.
    (2) The date on which an ICF/MR--
    (i) Is found to meet all conditions of participation; and
    (ii) The facility submits an acceptable plan of correction for 
lower level deficiencies, or an approvable waiver request, or both.
    (3) The date on which a NF--
    (i) Is in substantial compliance, as defined in Sec. 488.301 of 
this title; and
    (ii) Submits an acceptable plan of correction, if applicable, or an 
approvable waiver request, or both.
    7. Section 442.14 is amended by revising paragraph (b)(2) to read 
as follows:


Sec. 442.14  Effect of change of ownership.

* * * * *
    (b) * * *
    (2) Any expiration date for ICFs/MR.
* * * * *
    8. Section 442.15 is amended by removing paragraph (d) and revising 
the section heading to read as follows:


Sec. 442.15  Duration of agreement for ICFs/MR.

* * * * *
    9. Section 442.16 is amended by revising the section heading to 
read as follows:


Sec. 442.16  Extension of agreement for ICFs/MR.

* * * * *
    10. Section 442.30 is amended by revising paragraphs (a)(1), 
(a)(2), (a)(4), and (a)(7) to read as follows:


Sec. 442.30  Agreement as evidence of certification.

    (a) * * *
    (1) The survey agency failed to apply the applicable requirements 
under subpart B of part 483 of this chapter for NFs or subpart I of 
part 483 of this chapter, which set forth the conditions of 
participation for ICFs/MR.
    (2) The survey agency failed to follow the rules and procedures for 
certification set forth in subpart C of this part, subpart E of part 
488, and Sec. 431.610 of this subchapter;
* * * * *
    (4) The agency failed to use the Federal standards, and the forms, 
methods and procedures prescribed by HCFA as required under 
Sec. 431.610(f)(1) or Sec. 488.318(b) of this chapter, for determining 
the qualifications of providers; or
* * * * *
    (7) Required elements of the NF survey process fails to include all 
of the following:
* * * * *
    11. Section 442.40 is amended by revising the section heading and 
paragraphs (b)(1), (b)(2)(ii), and (c)(1) to read as follows:


Sec. 442.40  Availability of FFP during appeals for ICFs/MR.

* * * * *
    (b) Scope, applicability, and effective date. (1) Scope. This 
section sets forth the extent of FFP in State Medicaid payments to an 
ICF/MR after its provider agreement has been terminated or has expired 
and not been renewed.
    (2) * * *
    (ii) When the State acts under instructions from HCFA, FFP ends on 
the date specified by HCFA (HCFA instructs the State to terminate the 
Medicaid provider agreement when HCFA in validating a State survey 
agency certification, determines that an ICF/MR does not meet the 
requirements for participation.)
* * * * *
    (c) Basic rules. (1) Except as provided in paragraphs (d) and (e) 
of this section, FFP in payments to an ICF/MR ends on the effective 
date of termination of the facility's provider agreement, or if the 
agreement is not terminated, on the effective date of expiration.
* * * * *
    12. Section 442.42 is amended by revising paragraph (a) to read as 
follows:


Sec. 442.42  FFP under a retroactive provider agreement following 
appeal.

    (a) Basic rule. Except as specified in paragraph (b) of this 
section, if an NF or ICF/MR prevails on appeal from termination or, in 
the case of an ICF/MR, nonrenewal of a provider agreement, and the 
State issues a retroactive agreement, FFP is available beginning with 
the retroactive effective date, which must be determined in accordance 
with Sec. 442.13.
* * * * *
    13. The heading for subpart C is revised to read as follows:

Subpart C--Certification of ICFs/MR


Sec. 442.101  [Amended]

    14. Section 442.101(d) is amended as follows:
    a. In paragraph (d)(1), ``subpart D'' is removed and ``subpart I'' 
is added.
    b. In paragraph (d)(2), ``subpart D.'' is removed and ``subpart I 
of part 483 of this chapter.'' is added.
    15. Section 442.105 is amended by revising the section heading, the 
introductory text, and paragraphs (c)(1), and (d)(1) to read as 
follows:


Sec. 442.105  Certification of ICFs/MR with deficiencies: General 
provisions.

    If a survey agency finds a facility deficient in meeting the 
standards for ICFs/MR, as specified under subpart I of part 483 of this 
chapter, the agency may certify the facility for Medicaid purposes 
under the following conditions:
* * * * *
    (c) * * *
    (1) Was unable to stay in compliance with the standard for ICFs/MR 
for reasons beyond its control, or despite intensive efforts to comply; 
and
* * * * *
    (d) * * *
    (1) Did achieve compliance with the standard for ICFs/MR at some 
time during the prior certification period;
* * * * *
    16. The heading for Sec. 442.109 is revised to read as follows:


Sec. 442.109  Certification period for ICFs/MR: General provisions.

* * * * *
    17. The heading for Sec. 442.110 and paragraph (a) are revised to 
read as follows:


Sec. 442.110  Certification period for ICFs/MR with standard-level 
deficiencies.

    (a) Facilities with deficiencies may be certified under 
Sec. 442.105 for the period specified in either paragraph (b) or (c) of 
this section.
* * * * *


Sec. 442.116  [Removed]

    18. Section 442.116 is removed.
    19. Section 442.117 is amended by revising the section heading and 
paragraph (a) to read as follows:


Sec. 442.117  Termination of certification for ICFs/MR whose 
deficiencies pose immediate jeopardy.

    (a) A survey agency must terminate a facility's certification if it 
determines that--
    (1) The facility no longer meets conditions of participation for 
ICFs/MR as specified in subpart I of part 483 of this chapter.
    (2) The facility's deficiencies pose immediate jeopardy to 
residents' health and safety.
* * * * *
    20. Section 442.118 is amended by removing paragraph (c) and 
revising the section heading, paragraphs (a), (b)(1) and (b)(3)(i) to 
read as follows:


Sec. 442.118  Denial of payments for new admissions to an ICF/MR.

    (a) Basis for denial of payments. The Medicaid agency may deny 
payment for new admissions to an ICF/MR that no longer meets the 
applicable conditions of participation specified under subpart I of 
part 483 of this chapter.
    (b) * * *
    (1) Provide the facility up to 60 days to correct the cited 
deficiencies and comply with conditions of participation for ICFs/MR.
* * * * *
    (3) * * *
    (i) The opportunity for the facility to present, before a State 
Medicaid official who was not involved in making the initial 
determination, evidence or documentation, in writing or in person, to 
refute the decision that the facility is out of compliance with the 
conditions of participation for ICFs/MR.
* * * * *
    21. Section 442.119 is amended by revising the section heading, 
paragraph (a)(1) and (b)(1) to read as follows:


Sec. 442.119  Duration of denial of payments and subsequent termination 
of an ICF/MR.

    (a) * * *
    (1) The facility has corrected the deficiencies or is making a good 
faith effort to achieve compliance with the conditions of participation 
for ICFs/MR; or
* * * * *
    (b) * * *
    (1) Upon the agency's finding that the facility has been unable to 
achieve compliance with the conditions of participation for ICFs/MR 
during the period that payments for new admissions have been denied;
* * * * *
    G. Part 447 is amended as follows:

PART 447--PAYMENTS FOR SERVICES

    1. The authority citation for part 447 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

    2. Section 447.280 is revised to read as follows:


Sec. 447.280  Hospital providers of NF services (swing-bed hospitals).

    (a) General rule. If the State plan provides for NF services 
furnished by a swing-bed hospital, as specified in Secs. 440.40(a) and 
440.150(f) of this chapter, the methods and standards used to determine 
payment rates for routine NF services must--
    (1) Provide for payment at the average rate per patient day paid to 
NFs, as applicable, for routine services furnished during the previous 
calendar year; or
    (2) Meet the State plan and payment requirements described in this 
subpart, as applicable.
    (b) Application of the rule. The payment methodology used by a 
State to set payment rates for routine NF services must apply to all 
swing-bed hospitals in the State.
    H. Part 483 is amended as follows:

PART 483--REQUIREMENTS FOR STATES AND LONG TERM CARE FACILITIES

    1. The authority citation for part 483 is revised to read as 
follows:

    Authority: Secs. 1102, 1819(a)-(h), 1861 (j) and (l), 1863, 
1871, 1902(a)(28), 1905 (a), (c) and (d), and 1919(a)-(h) of the 
Social Security Act (42 U.S.C. 1302, 1395i-3(a)-(h), 1395x (j) and 
(l), 1395z, 1395hh, 1396a(a)(28), and 1396d (a), (c) and (d), and 
1396r(a)-(h)), unless otherwise noted.

    2. Section 483.75 is amended by revising the heading to read as 
follows:


Sec. 483.75  Administration.

* * * * *
    I. Part 488 is amended as follows:

PART 488--SURVEY, CERTIFICATION, AND ENFORCEMENT PROCEDURES

    1. The heading for part 488 is revised as set forth above.
    2. The authority citation for part 488 is revised to read as 
follows:

    Authority: Secs. 1102, 1128, 1128A, 1814, 1819, 1861, 1863, 
1864, 1865, 1866, 1871, 1880, 1881, 1883, 1902, and 1919 of the 
Social Security Act (42 U.S.C. 1302, 1320a-7, 1320a-7a, 1395f, 
1395i-3, 1395x, 1395z, 1395aa, 1395bb, 1395cc, 1395hh, 1395qq, 
1395rr, 1395tt, 1396a, and 1396r).

    3. Section 488.11 is amended by revising paragraph (b) to read as 
follows:


Sec. 488.11  State survey agency functions.

* * * * *
    (b) Conduct validation surveys of accredited facilities as provided 
in Sec. 488.6; and
* * * * *
    5. Section 488.14 is revised to read as follows:


Sec. 488.14  Effect of PRO review.

    When a PRO is conducting review activities under section 1154 of 
the Act and Part 466 of this chapter, its activities are in lieu of the 
utilization review and evaluation activities required of health care 
institutions under sections 1861(e)(6), and 1861(k) of the Act.
    6. Section 488.18 is amended by revising paragraphs (a) and (b) to 
read as follows:


Sec. 488.18  Documentation of findings.

    (a) The findings of the State agency with respect to each of the 
conditions of participation, requirements (for SNFs and NFs), or 
conditions for coverage must be adequately documented. When the State 
agency certifies to the Secretary that a provider or supplier is not in 
compliance with the conditions or requirements (for SNFs and NFs), and 
therefore not eligible to participate in the program, such 
documentation includes, in addition to the description of the specific 
deficiencies which resulted in the agency's recommendation, any 
provider or supplier response.
    (b) If a provider or supplier is certified by the State agency as 
in compliance with the conditions or participation requirements (for 
SNFs and NFs) or as meeting the requirements for special certification 
(see Sec. 488.54), with deficiencies not adversely affecting the health 
and safety of patients, the following information will be incorporated 
into the finding:
    (1) A statement of the deficiencies that were found.
    (2) A description of further action that is required to remove the 
deficiencies.
    (3) A time-phased plan of correction developed by the provider and 
supplier and concurred with by the State agency.
    (4) A scheduled time for a resurvey of the institution or agency to 
be conducted by the State agency within 90 days following the 
completion of the survey.
* * * * *
    7. Section 488.20 is amended by revising paragraph (a) to read as 
follows:


Sec. 488.20  Periodic review of compliance and approval.

    (a) Determinations by HCFA to the effect that a provider or 
supplier is in compliance with the conditions of participation, or 
requirements (for SNFs and NFs), or the conditions for coverage are 
made as often as HCFA deems necessary and may be more or less than a 
12-month period, except for SNFs, NFs and HHAs. (See Sec. 488.308 for 
special rules for SNFs and NFs.)
* * * * *
    8. Section 488.24 is revised to read as follows:


Sec. 488.24  Certification of noncompliance.

    (a) Special rules for certification of noncompliance for SNFs and 
NFs are set forth in Sec. 488.330.
    (b) The State agency will certify that a provider or supplier is 
not or is no longer in compliance with the conditions of participation 
or conditions for coverage where the deficiencies are of such character 
as to substantially limit the provider's or supplier's capacity to 
furnish adequate care or which adversely affect the health and safety 
of patients; or
    (c) If HCFA determines that an institution or agency does not 
qualify for participation or coverage because it is not in compliance 
with the conditions of participation or conditions for coverage, or if 
a provider's agreement is terminated for that reason, the institution 
or agency has the right to request that the determination be reviewed. 
(Appeals procedures are set forth in Part 498 of this chapter.)
    9. Section 488.26 is revised to read as follows:


Sec. 488.26  Determining compliance.

    (a) Additional rules for certification of compliance for SNFs and 
NFs are set forth in Sec. 488.330.
    (b) The decision as to whether there is compliance with a 
particular requirement, condition of participation, or condition for 
coverage depends upon the manner and degree to which the provider or 
supplier satisfies the various standards within each condition. 
Evaluation of a provider's or supplier's performance against these 
standards enables the State survey agency to document the nature and 
extent of deficiencies, if any, with respect to a particular function, 
and to assess the need for improvement in relation to the prescribed 
conditions.
    (c) The State survey agency must adhere to the following principles 
in determining compliance with participation requirements:
    (1) The survey process is the means to assess compliance with 
Federal health, safety and quality standards;
    (2) The survey process uses resident outcomes as the primary means 
to establish the compliance status of facilities. Specifically 
surveyors will directly observe the actual provision of care and 
services to residents, and the effects of that care, to assess whether 
the care provided meets the needs of individual residents;
    (3) Surveyors are professionals who use their judgment, in concert 
with Federal forms and procedures, to determine compliance;
    (4) Federal procedures are used by all surveyors to ensure uniform 
and consistent application and interpretation of Federal requirements;
    (5) Federal forms are used by all surveyors to ensure proper 
recording of findings and to document the basis for the findings.
    (d) The State survey agency must use the survey methods, 
procedures, and forms that are prescribed by HCFA.
    (e) The State survey agency must ensure that a facility's actual 
provision of care and services to residents and the effects of that 
care on residents are assessed in a systematic manner.
    10. Section 488.28 is revised to read as follows:


Sec. 488.28  Providers or suppliers, other than SNFs and NFs, with 
deficiencies.

    (a) If a provider or supplier is found to be deficient with respect 
to one or more of the standards in the conditions of participation or 
conditions for coverage, it may participate in or be covered under the 
Health Insurance for the Aged and Disabled Program only if the facility 
has submitted an acceptable plan of correction for achieving compliance 
within a reasonable period of time acceptable to the Secretary.
    (b) The existing deficiencies noted either individually or in 
combination neither jeopardize the health and safety of patients nor 
are of such character as to seriously limit the provider's capacity to 
render adequate care.
    (c)(1) If it is determined during a survey that a provider or 
supplier is not in compliance with one or more of the standards, it is 
granted a reasonable time to achieve compliance.
    (2) The amount of time depends upon the--
    (i) Nature of the deficiency; and
    (ii) State survey agency's judgment as to the capabilities of the 
facility to provide adequate and safe care.
    (d) Ordinarily a provider or supplier is expected to take the steps 
needed to achieve compliance within 60 days of being notified of the 
deficiencies but the State survey agency may recommend that additional 
time be granted by the Secretary in individual situations, if in its 
judgment, it is not reasonable to expect compliance within 60 days, for 
example, a facility must obtain the approval of its governing body, or 
engage in competitive bidding.


Sec. 488.50  [Removed]

    11. Section 488.50 is removed.
    4. A new subpart E is added to read as follows:

Subpart E--Survey and Certification of Long-Term Care Facilities

Sec.
488.300  Statutory basis.
488.301  Definitions.
488.303  State plan requirement.
488.305  Standard surveys.
488.307  Unannounced surveys.
488.308  Survey frequency.
488.310  Extended survey.
488.312  Consistency of survey results.
488.314  Survey teams.
488.318  Inadequate survey performance.
488.320  Sanctions for inadequate survey performance.
488.325  Disclosure of results of surveys and activities.
488.330  Certification of compliance and noncompliance.
488.331  Informal dispute resolution.
488.332  Investigation of complaints of violations and monitoring of 
compliance.
488.334  Educational programs.
488.335  Action on complaints of resident neglect and abuse, and 
misappropriation of resident property.

Subpart E--Survey and Certification of Long-Term Care Facilities


Sec. 488.300  Statutory basis.

    Sections 1819 and 1919 of the Act establish requirements for 
surveying SNFs and NFs to determine whether they meet the requirements 
for participation in the Medicare and Medicaid programs.


Sec. 488.301  Definitions.

    As used in this subpart--
    Abbreviated standard survey means a survey other than a standard 
survey that gathers information primarily through resident-centered 
techniques on facility compliance with the requirements for 
participation. An abbreviated standard survey may be premised on 
complaints received; a change of ownership, management, or director of 
nursing; or other indicators of specific concern.
    Abuse means the willful infliction of injury, unreasonable 
confinement, intimidation, or punishment with resulting physical harm, 
pain or mental anguish.
    Deficiency means a SNF's or NF's failure to meet a participation 
requirement specified in the Act or in part 483, subpart B of this 
chapter.
    Dually participating facility means a facility that has a provider 
agreement in both the Medicare and Medicaid programs.
    Extended survey means a survey that evaluates additional 
participation requirements subsequent to finding substandard quality of 
care during a standard survey.
    Facility means a SNF or NF, or a distinct part SNF or NF, in 
accordance with Sec. 483.5 of this chapter.
    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.
    Immediate jeopardy means a situation in which the provider's 
noncompliance with one or more requirements of participation has 
caused, or is likely to cause, serious injury, harm, impairment, or 
death to a resident.
    Misappropriation of resident property means the deliberate 
misplacement, exploitation, or wrongful, temporary or permanent use of 
a resident's belongings or money without the resident's consent.
    Neglect means failure to provide goods and services necessary to 
avoid physical harm, mental anguish, or mental illness.
    Noncompliance means any deficiency that causes a facility to not be 
in substantial compliance.
    Nurse aide means an individual, as defined in Sec. 483.75(e)(1) of 
this chapter.
    Nursing facility (NF) means a Medicaid nursing facility.
    Partial extended survey means a survey that evaluates additional 
participation requirements subsequent to finding substandard quality of 
care during an abbreviated standard survey.
    Skilled nursing facility (SNF) means a Medicare nursing facility.
    Standard survey means a periodic, resident-centered inspection 
which gathers information about the quality of service furnished in a 
facility to determine compliance with the requirements for 
participation.
    Substandard quality of care means one or more deficiencies related 
to participation requirements under Sec. 483.13, Resident behavior and 
facility practices, Sec. 483.15, Quality of life, or Sec. 483.25, 
Quality of care of this chapter, which constitute either immediate 
jeopardy to resident health or safety; a pattern of or widespread 
actual harm that is not immediate jeopardy; or a widespread potential 
for more than minimal harm, but less than immediate jeopardy, with no 
actual harm.
    Substantial compliance means a level of compliance with the 
requirements of participation such that any identified deficiencies 
pose no greater risk to resident health or safety than the potential 
for causing minimal harm.
    Validation survey means a survey conducted by the Secretary within 
2 months following a standard survey, abbreviated standard survey, 
partial extended survey, or extended survey for the purpose of 
monitoring State survey agency performance.


Sec. 488.303  State plan requirement.

    (a) A State plan must provide that the requirements of this subpart 
and subpart F of this part are met, to the extent that those 
requirements apply to the Medicaid program.
    (b) A State may establish a program to reward, through public 
recognition, incentive payments, or both, nursing facilities that 
provide the highest quality care to Medicaid residents. For purposes of 
section 1903(a)(7) of the Social Security Act, proper expenses incurred 
by a State in carrying out such a program are considered to be expenses 
necessary for the proper and efficient administration of the State 
plan.
    (c) A State must conduct periodic educational programs for the 
staff and residents (and their representatives) of NFs in order to 
present current regulations, procedures, and policies under this 
subpart and subpart F of this part.
    (d) Required remedies for a non-State operated NF. A State must 
establish the following remedies or an approved alternative to the 
following remedies for imposition against a non-State operated NF:
    (1) Termination of the provider agreement.
    (2) Temporary management.
    (3) Denial of payment for new admissions.
    (4) Civil money penalties.
    (5) Closure of the facility in emergency situations or transfer of 
residents, or both.
    (6) State monitoring.
    (e) Optional remedies for a non-State operated NF. A State may 
establish the following remedies for imposition against a non-State 
operated NF:
    (1) Directed plan of correction.
    (2) Directed in-service training.
    (3) Alternative or additional State remedies.
    (f) Alternative or additional State remedies. If a State uses 
remedies that are in addition to those specified in paragraph (d) or 
(e) of this section, or alternative to those specified in paragraph (d) 
of this section (other than termination of participation), it must--
    (1) Specify those remedies in the State plan; and
    (2) Demonstrate to HCFA's satisfaction that those alternative 
remedies are as effective in deterring noncompliance and correcting 
deficiencies as the remedies listed in paragraphs (d) and (e) of this 
section.


Sec. 488.305  Standard surveys.

    (a) For each SNF and NF, the State survey agency must conduct 
standard surveys that include all of the following:
    (1) A case-mix stratified sample of residents;
    (2) A survey of the quality of care furnished, as measured by 
indicators of medical, nursing, and rehabilitative care, dietary and 
nutrition services, activities and social participation, and 
sanitation, infection control, and the physical environment;
    (3) An audit of written plans of care and residents' assessments to 
determine the accuracy of such assessments and the adequacy of such 
plans of care; and
    (4) A review of compliance with residents' rights requirements set 
forth in sections 1819(c) and 1919(c) of the Act.
    (b) The State survey agency's failure to follow the procedures set 
forth in this section will not invalidate otherwise legitimate 
determinations that a facility's deficiencies exist.


Sec. 488.307  Unannounced surveys.

    (a) Basic rule. All standard surveys must be unannounced.
    (b) Review of survey agency's scheduling and surveying procedures. 
(1) HCFA reviews on an annual basis each State survey agency's 
scheduling and surveying procedures and practices to ensure that survey 
agencies avoid giving notice of a survey through the scheduling 
procedures and the conduct of the surveys.
    (2) HCFA takes corrective action in accordance with the nature and 
complexity of the problem when survey agencies are found to have 
notified a SNF or NF through their scheduling or procedural policies. 
Sanctions for inadequate survey performance are in accordance with 
Sec. 488.320.
    (c) Civil money penalties. An individual who notifies a SNF or NF, 
or causes a SNF or NF to be notified, of the time or date on which a 
standard survey is scheduled to be conducted is subject to a Federal 
civil money penalty not to exceed $2,000.


Sec. 488.308  Survey frequency.

    (a) Basic period. The survey agency must conduct a standard survey 
of each SNF and NF not later than 15 months after the last day of the 
previous standard survey.
    (b) Statewide average interval. (1) The statewide average interval 
between standard surveys must be 12 months or less, computed in 
accordance with paragraph (d) of this section.
    (2) HCFA takes corrective action in accordance with the nature of 
the State survey agency's failure to ensure that the 12-month statewide 
average interval requirement is met. HCFA's corrective action is in 
accordance with Sec. 488.320.
    (c) Other surveys. The survey agency may conduct a survey as 
frequently as necessary to--
    (1) Determine whether a facility complies with the participation 
requirements; and
    (2) Confirm that the facility has corrected deficiencies previously 
cited.
    (d) Computation of statewide average interval. The statewide 
average interval is computed at the end of each Federal fiscal year by 
comparing the last day of the most recent standard survey for each 
participating facility to the last day of each facility's previous 
standard survey.
    (e) Special surveys. (1) The survey agency may conduct a standard 
or an abbreviated standard survey to determine whether certain changes 
have caused a decline in the quality of care furnished by a SNF or a 
NF, within 60 days of a change in the following:
    (i) Ownership;
    (ii) Entity responsible for management of a facility (management 
firm);
    (iii) Nursing home administrator; or
    (iv) Director of nursing.
    (2) The survey agency must review all complaint allegations and 
conduct a standard or an abbreviated standard survey to investigate 
complaints of violations of requirements by SNFs and NFs if its review 
of the allegation concludes that--
    (i) A deficiency in one or more of the requirements may have 
occurred; and
    (ii) Only a survey can determine whether a deficiency or 
deficiencies exist.
    (3) The survey agency does not conduct a survey if the complaint 
raises issues that are outside the purview of Federal participation 
requirements.


Sec. 488.310  Extended survey.

    (a) Purpose of survey. The purpose of an extended survey is to 
identify the policies and procedures that caused the facility to 
furnish substandard quality of care.
    (b) Scope of extended survey. An extended survey includes all of 
the following:
    (1) Review of a larger sample of resident assessments than the 
sample used in a standard survey.
    (2) Review of the staffing and in-service training.
    (3) If appropriate, examination of the contracts with consultants.
    (4) A review of the policies and procedures related to the 
requirements for which deficiencies exist.
    (5) Investigation of any participation requirement at the 
discretion of the survey agency.
    (c) Timing and basis for survey. The survey agency must conduct an 
extended survey not later than 14 calendar days after completion of a 
standard survey which found that the facility had furnished substandard 
quality of care.


Sec. 488.312  Consistency of survey results.

    HCFA does and the survey agency must implement programs to measure 
accuracy and improve consistency in the application of survey results 
and enforcement remedies.


Sec. 488.314  Survey teams.

    (a) Team composition. (1) Surveys must be conducted by a 
multidisciplinary team of professionals, which must include a 
registered nurse.
    (2) Examples of professionals include, but are not limited to, 
physicians, physician assistants, nurse practitioners, physical, 
speech, or occupational therapists, registered professional nurses, 
dieticians, sanitarians, engineers, licensed practical nurses, or 
social workers.
    (3) The State determines what constitutes a professional, subject 
to HCFA approval.
    (4) Any of the following circumstances disqualifies a surveyor for 
surveying a particular facility:
    (i) The surveyor currently works, or, within the past two years, 
has worked as an employee, as employment agency staff at the facility, 
or as an officer, consultant, or agent for the facility to be surveyed.
    (ii) The surveyor has any financial interest or any ownership 
interest in the facility.
    (iii) The surveyor has an immediate family member who has a 
relationship with a facility described in paragraphs (a)(2) (i) or (ii) 
of this section.
    (iv) The surveyor has an immediate family member who is a resident 
in the facility to be surveyed. For purposes of this section, an 
immediate family member is defined at Sec. 488.301 of this part.
    (b) HCFA training. HCFA provides comprehensive training to 
surveyors, including at least the following:
    (1) Application and interpretation of regulations for SNFs and NFs.
    (2) Techniques and survey procedures for conducting standard and 
extended surveys.
    (3) Techniques for auditing resident assessments and plans of care.
    (c) Required surveyor training. (1) Except as specified in 
paragraph (c)(3) of this section, the survey agency may not permit an 
individual to serve as a member of a survey team unless the individual 
has successfully completed a training and testing program prescribed by 
the Secretary.
    (2) The survey agency must have a mechanism to identify and respond 
to in-service training needs of the surveyors.
    (3) The survey agency may permit an individual who has not 
completed a training program to participate in a survey as a trainee if 
accompanied on-site by a surveyor who has successfully completed the 
required training and testing program.


Sec. 488.318  Inadequate survey performance.

    (a) HCFA considers survey performance to be inadequate if the State 
survey agency--
    (1) Indicates a pattern of failure to--
    (i) Identify deficiencies and the failure cannot be explained by 
changed conditions in the facility or other case specific factors;
    (ii) Cite only valid deficiencies;
    (iii) Conduct surveys in accordance with the requirements of this 
subpart; or
    (iv) Use Federal standards, protocols, and the forms, methods and 
procedures specified by HCFA in manual instructions; or
    (2) Fails to identify an immediate jeopardy situation.
    (b) Inadequate survey performance does not--
    (1) Relieve a SNF or NF of its obligation to meet all requirements 
for program participation; or
    (2) Invalidate adequately documented deficiencies.


Sec. 488.320  Sanctions for inadequate survey performance.

    (a) Annual assessment of survey performance. HCFA assesses the 
performance of the State's survey and certification program annually.
    (b) Sanctions for inadequate survey performance. When a State 
demonstrates inadequate survey performance, as specified in 
Sec. 488.318, HCFA notifies the survey agency of the inadequacy and 
takes action in accordance with paragraphs (c) and (d) of this section.
    (c) Medicaid facilities. (1) For a pattern of failure to identify 
deficiencies in Medicaid facilities, HCFA--
    (i) Reduces FFP, as specified in paragraph (e) of this section, and 
if appropriate;
    (ii) Provides for training of survey teams.
    (2) For other survey inadequacies in Medicaid facilities, HCFA 
provides for training of survey teams.
    (d) Medicare facilities. For all survey inadequacies in Medicare 
facilities, HCFA--
    (1) Requires that the State survey agency submit a plan of 
correction;
    (2) Provides for training of survey teams;
    (3) Provides technical assistance on scheduling and procedural 
policies;
    (4) Provides HCFA-directed scheduling; or
    (5) Initiates action to terminate the agreement between the 
Secretary and the State under section 1864 of the Act, either in whole 
or in part.
    (e) Reduction of FFP. In reducing FFP for inadequate survey 
performance, HCFA uses the formula specified in section 1919(g)(3)(C) 
of the Act, that is 33 percent multiplied by a fraction--
    (1) The numerator of which is equal to the total number of 
residents in the NFs that HCFA found to be noncompliant during 
validation surveys for that quarter; and
    (2) The denominator of which is equal to the total number of 
residents in the NFs in which HCFA conducted validation surveys during 
that quarter.
    (f) Appeal of FFP reduction. When a State is dissatisfied with 
HCFA's determination to reduce FFP, the State may appeal the 
determination to the Departmental Appeals Board, using the procedures 
specified in 45 CFR part 16.


Sec. 488.325  Disclosure of results of surveys and activities.

    (a) Information which must be provided to public. As provided in 
sections 1819(g)(5) and 1919(g)(5) of the Act, the following 
information must be made available to the public, upon the public's 
request, by the State or HCFA for all surveys and certifications of 
SNFs and NFs:
    (1) Statements of deficiencies and providers' comments.
    (2) A list of isolated deficiencies that constitute no actual harm, 
with the potential for minimal harm.
    (3) Approved plans of correction.
    (4) Statements that the facility did not submit an acceptable plan 
of correction or failed to comply with the conditions of imposed 
remedies.
    (5) Final appeal results.
    (6) Notice of termination of a facility.
    (7) Medicare and Medicaid cost reports.
    (8) Names of individuals with direct or indirect ownership interest 
in a SNF or NF, as defined in Sec. 420.201 of this chapter.
    (9) Names of individuals with direct or indirect ownership interest 
in a SNF or NF, as defined in Sec. 420.201 of this chapter, who have 
been found guilty by a court of law of a criminal offense in violation 
of Medicare or Medicaid law.
    (b) Charge to public for information. HCFA and the State may charge 
the public for specified services with respect to requests for 
information in accordance with--
    (1) Section 401.140 of this chapter, for Medicare; or
    (2) State procedures, for Medicaid.
    (c) How public can request information. The public may request 
information in accordance with disclosure procedures specified in 45 
CFR part 5.
    (d) When information must be disclosed. The disclosing agency must 
make available to the public, upon the public's request, information 
concerning all surveys and certifications of SNFs and NFs, including 
statements of deficiencies, separate listings of any isolated 
deficiencies that constitute no actual harm, with the potential for 
minimal harm, and plans of correction (which contain any provider 
response to the deficiency statement) within 14 calendar days after 
each item is made available to the facility.
    (e) Procedures for responding to requests. The procedures and time 
periods for responding to requests are in accordance with--
    (1) Section 401.136 of this chapter for documents maintained by 
HCFA; and
    (2) State procedures for documents maintained by the State.
    (f) Information that must be provided to the State's long-term care 
ombudsman. The State must provide the State's long-term care ombudsman 
with the following:
    (1) A statement of deficiencies reflecting facility noncompliance, 
including a separate list of isolated deficiencies that constitute no 
harm with the potential for minimal harm.
    (2) Reports of adverse actions specified at Sec. 488.206 imposed on 
a facility.
    (3) Written response by the provider.
    (4) A provider's request for an appeal and the results of any 
appeal.
    (g) Information which must be provided to State by a facility with 
substandard quality of care. (1) To provide for the notice to 
physicians required under sections 1819(g)(5)(C) and 1919(g)(5)(C) of 
the Act, not later than 10 working days after receiving a notice of 
substandard quality of care, a SNF or NF must provide the State with a 
list of--
    (i) Each resident in the facility with respect to which such 
finding was made; and
    (ii) The name and address of his or her attending physician.
    (2) Failure to disclose the information timely will result in 
termination of participation or imposition of alternative remedies.
    (h) Information the State must provide to attending physician and 
State board. Not later than 20 calendar days after a SNF or NF complies 
with paragraph (g) of this section, the State must provide written 
notice of the noncompliance to--
    (1) The attending physician of each resident in the facility with 
respect to which a finding of substandard quality of care was made; and
    (2) The State board responsible for licensing the facility's 
administrator.
    (i) Access to information by State Medicaid fraud control unit. The 
State must provide access to any survey and certification information 
incidental to a SNF's or NF's participation in Medicare or Medicaid 
upon written request by the State Medicaid fraud control unit 
established under part 1002, subpart C, of this title, consistent with 
current State laws.


Sec. 488.330  Certification of compliance or noncompliance.

    (a) General rules--(1) Responsibility for certification. (i) The 
State survey agency surveys all facilities for compliance or 
noncompliance with requirements for long term care facilities. The 
survey by the State survey agency may be followed by a Federal 
validation survey.
    (A) The State certifies the compliance or noncompliance of non-
State operated NFs. Regardless of the State entity doing the 
certification, it is final, except in the case of a complaint or 
validation survey conducted by HCFA, or HCFA review of the State's 
findings.
    (B) HCFA certifies the compliance or noncompliance of all State-
operated facilities.
    (C) The State survey agency certifies the compliance or 
noncompliance of a non-State operated SNF, subject to the approval of 
HCFA.
    (D) The State survey agency certifies compliance or noncompliance 
for a dually participating SNF/NF. In the case of a disagreement 
between HCFA and the State survey agency, a finding of noncompliance 
takes precedence over that of compliance.
    (ii) In the case of a validation survey, the Secretary's 
determination as to the facility's noncompliance is binding, and takes 
precedence over a certification of compliance resulting from the State 
survey.
    (2) Basis for certification. (i) Certification by the State is 
based on the survey agency findings.
    (ii) Certification by HCFA is based on either the survey agency 
findings (in the case of State-operated facilities), or, in the case of 
a validation survey, on HCFA's own survey findings.
    (b) Effect of certification--(1) Certification of compliance. A 
certification of compliance constitutes a determination that the 
facility is in substantial compliance and is eligible to participate in 
Medicaid as a NF, or in Medicare as a SNF, or in Medicare and Medicaid 
as a dually participating facility.
    (2) Certification of noncompliance. A certification of 
noncompliance requires denial of participation for prospective 
providers and enforcement action for current providers in accordance 
with subpart F of this part. Enforcement action must include one of the 
following:
    (i) Termination of any Medicare or Medicaid provider agreements 
that are in effect.
    (ii) Application of alternative remedies instead of, or in addition 
to, termination procedures.
    (c) Notice of certification of noncompliance and resulting action. 
The notice of certification of noncompliance is sent in accordance with 
the timeframes specified in Sec. 488.402(f), and resulting action is 
issued by HCFA, except when the State is taking the action for a non-
State operated NF.
    (d) Content of notice of certification of noncompliance. The notice 
of certification of noncompliance is sent in accordance with the 
timeframes specified in Sec. 488.402(f) and includes information on all 
of the following:
    (1) Nature of noncompliance.
    (2) Any alternative remedies to be imposed under subpart F of this 
part.
    (3) Any termination or denial of participation action to be taken 
under this part.
    (4) The appeal rights available to the facility under this part.
    (5) Timeframes to be met by the provider and certifying agency with 
regard to each of the enforcement actions or appeal procedures 
addressed in the notice.
    (e) Appeals. (1) Notwithstanding any provision of State law, the 
State must impose remedies promptly on any provider of services 
participating in the Medicaid program--
    (i) After promptly notifying the facility of the deficiencies and 
impending remedy or remedies; and
    (ii) Except for civil money penalties, during the pendency of any 
hearing that may be requested by the provider of services.
    (2) HCFA imposes remedies promptly on any provider of services 
participating in the Medicare or Medicaid program or any provider of 
services participating in both the Medicare and Medicaid programs--
    (i) After promptly notifying the facility of the deficiencies and 
impending remedy or remedies; and
    (ii) Except for civil money penalties, during any pending hearing 
that may be requested by the provider of services.
    (3) The provisions of part 498 of this chapter apply when the 
following providers request a hearing on a denial of participation, or 
certification of noncompliance leading to an enforcement remedy 
(including termination of the provider agreement), except State 
monitoring:
    (i) All State-operated facilities;
    (ii) SNFs and dually participating SNF/NFs; and
    (iii) Any other facilities subject to a HCFA validation survey or 
HCFA review of the State's findings.
    (4) The provisions of part 431 of this chapter apply when a non-
State operated Medicaid NF, which has not received a HCFA validation 
survey or HCFA review of the State's findings, requests a hearing on 
the State's denial of participation, termination of provider agreement, 
or certification of noncompliance leading to an alternative remedy, 
except State monitoring.
    (f) Provider agreements. HCFA or the Medicaid agency may execute a 
provider agreement when a prospective provider is in substantial 
compliance with all the requirements for participation for a SNF or NF, 
respectively.
    (g) Special rules for Federal validation surveys. (1) HCFA may make 
independent certifications of a NF's, SNF's, or dually participating 
facility's noncompliance based on a HCFA validation survey.
    (2) HCFA issues the notice of actions affecting facilities for 
which HCFA did validation surveys.
    (3) For non-State-operated NFs and non-State-operated dually 
participating facilities, any disagreement between HCFA and the State 
regarding the timing and choice of remedies is resolved in accordance 
with Sec. 488.452.
    (4) Either HCFA or the survey agency, at HCFA's option, may revisit 
the facility to ensure that corrections are made.


Sec. 488.331  Informal dispute resolution.

    (a) Opportunity to refute survey findings. (1) For non-Federal 
surveys, the State must offer a facility an informal opportunity, at 
the facility's request, to dispute survey findings upon the facility's 
receipt of the official statement of deficiencies.
    (2) For Federal surveys, HCFA offers a facility an informal 
opportunity, at the facility's request, to dispute survey findings upon 
the facility's receipt of the official statement of deficiencies.
    (b)(1) Failure of the State or HCFA, as appropriate, to complete 
informal dispute resolution timely cannot delay the effective date of 
any enforcement action against the facility.
    (2) A facility may not seek a delay of any enforcement action 
against it on the grounds that informal dispute resolution has not been 
completed before the effective date of the enforcement action.
    (c) If a provider is subsequently successful, during the informal 
dispute resolution process, at demonstrating that deficiencies should 
not have been cited, the deficiencies are removed from the statement of 
deficiencies and any enforcement actions imposed solely as a result of 
those cited deficiencies are rescinded.
    (d) Notification. Upon request, HCFA does and the State must 
provide the facility with written notification of the informal dispute 
resolution process.


Sec. 488.332  Investigation of complaints of violations and monitoring 
of compliance.

    (a) Investigation of complaints. (1) The State survey agency must 
establish procedures and maintain adequate staff to investigate 
complaints of violations of participation requirements.
    (2) The State survey agency takes appropriate precautions to 
protect a complainant's anonymity and privacy, if possible.
    (3) If arrangements have been made with other State components for 
investigation of complaints, the State must have a means of 
communicating information among appropriate entities, and the State 
survey agency retains responsibility for the investigation process.
    (4) If, after investigating a complaint, the State has reason to 
believe that an identifiable individual neglected or abused a resident, 
or misappropriated a resident's property, the State survey agency must 
act on the complaint in accordance with Sec. 488.335.
    (b) On-site monitoring. The State survey agency conducts on-site 
monitoring on an as necessary basis when--
    (1) A facility is not in substantial compliance with the 
requirements and is in the process of correcting deficiencies;
    (2) A facility has corrected deficiencies and verification of 
continued substantial compliance is needed; or
    (3) The survey agency has reason to question the substantial 
compliance of the facility with a requirement of participation.
    (c) Composition of the investigative team. A State may use a 
specialized team, which may include an attorney, auditor and 
appropriate health professionals, to identify, survey, gather and 
preserve evidence, and administer remedies to noncompliant facilities.


Sec. 488.334  Educational programs.

    A State must conduct periodic educational programs for the staff 
and residents (and their representatives) of SNFs and NFs in order to 
present current regulations, procedures, and policies on the survey, 
certification and enforcement process under this subpart and subpart F 
of this part.


Sec. 488.335  Action on complaints of resident neglect and abuse, and 
misappropriation of resident property.

    (a) Investigation. (1) The State must review all allegations of 
resident neglect and abuse, and misappropriation of resident property 
and follow procedures specified in Sec. 488.332.
    (2) If there is reason to believe, either through oral or written 
evidence that an individual used by a facility to provide services to 
residents could have abused or neglected a resident or misappropriated 
a resident's property, the State must investigate the allegation.
    (3) The State must have written procedures for the timely review 
and investigation of allegations of resident abuse and neglect, and 
misappropriation of resident property.
    (b) Source of complaints. The State must review all allegations 
regardless of their source.
    (c) Notification--(1) Individuals to be notified. If the State 
makes a preliminary determination, based on oral or written evidence 
and its investigation, that the abuse, neglect or misappropriation of 
property occurred, it must notify in writing--
    (i) The individuals implicated in the investigation; and
    (ii) The current administrator of the facility in which the 
incident occurred.
    (2) Timing of the notice. The State must notify the individuals 
specified in paragraph (c)(1) of this section in writing within 10 
working days of the State's investigation.
    (3) Contents of the notice. The notice must include the--
    (i) Nature of the allegation(s);
    (ii) Date and time of the occurrence;
    (iii) Right to a hearing;
    (iv) Survey agency's intent to report the substantiated findings in 
writing, once the individual has had the opportunity for a hearing, to 
the nurse aide registry or appropriate licensure authority;
    (v) Fact that the individual's failure to request a hearing in 
writing within 30 days from the date of the notice will result in the 
survey agency reporting the substantiated findings to the nurse aide 
registry or appropriate licensure authority.
    (vi) Consequences of waiving the right to a hearing;
    (vii) Consequences of a finding through the hearing process that 
the alleged resident abuse or neglect, or misappropriation of resident 
property did occur; and
    (viii) Fact that the individual has the right to be represented by 
an attorney at the individual's own expense.
    (d) Conduct of hearing. (1) The State must complete the hearing and 
the hearing record within 120 days from the day it receives the request 
for a hearing.
    (2) The State must hold the hearing at a reasonable place and time 
convenient for the individual.
    (e) Factors beyond the individual's control. A State must not make 
a finding that an individual has neglected a resident if the individual 
demonstrates that such neglect was caused by factors beyond the control 
of the individual.
    (f) Report of findings. If the finding is that the individual has 
neglected or abused a resident or misappropriated resident property or 
if the individual waives the right to a hearing, the State survey 
agency, which may not delegate this responsibility, must report the 
findings in writing within 10 working days to--
    (1) The individual;
    (2) The current administrator of the facility in which the incident 
occurred; and
    (3) The administrator of the facility that currently employs the 
individual, if different than the facility in which the incident 
occurred;
    (4) The licensing authority for individuals used by the facility 
other than nurse aides, if applicable; and
    (5) The nurse aide registry for nurse aides. The findings must be 
included in the registry within 10 working days of the findings, in 
accordance with Sec. 483.156(c) of this chapter.
    (g) Contents and retention of report of finding to the nurse aide 
registry. (1) The report of finding must include information in 
accordance with Sec. 483.156(c) of this chapter.
    (2) The survey agency must retain the information as specified in 
paragraph (g)(1) of this section, in accordance with the procedures 
specified in Sec. 483.156(c) of this chapter.
    (h) Survey agency responsibility. (1) The survey agency must 
promptly review the results of all complaint investigations and 
determine whether or not a facility has violated any requirements in 
part 483, subpart B of this chapter.
    (2) If a facility is not in substantial compliance with the 
requirements in part 483, subpart B of this chapter, the survey agency 
initiates appropriate actions, as specified in subpart F of this part.
    5. A new subpart F is added to read as follows:
Subpart F-- Enforcement of Compliance For Long-Term Care Facilities 
with Deficiencies
Sec.
488.400  Statutory basis.
488.401  Definitions.
488.402  General provisions.
488.404  Factors to be considered in selecting remedies.
488.406  Available remedies.
488.408  Selection of remedies.
488.410  Action when there is immediate jeopardy.
488.412  Action when there is no immediate jeopardy.
488.414  Action when there is repeated substandard quality of care.
488.415  Temporary management.
488.417  Denial of payment for all new admissions.
488.418  Secretarial authority to deny all payments.
488.422  State monitoring.
488.424  Directed plan of correction.
488.425  Directed inservice training.
488.426  Closure of a facility or transfer of residents, or both.
488.430  Civil money penalties: Basis for imposing penalty.
488.432  Civil money penalties: When penalty is collected.
488.434  Civil money penalties: Notice of penalty.
488.436  Civil money penalties: Waiver of hearing, reduction of 
penalty amount.
488.438  Civil money penalties: Amount of penalty.
488.440  Civil money penalties: Effective date and duration of 
penalty.
488.442  Civil money penalties: Due date for payment of penalty.
488.444  Civil money penalties: Settlement of penalties.
488.450  Continuation of payments to a facility with deficiencies.
488.452  State and Federal disagreements involving findings not in 
agreement in non-State operated NFs and dually participating 
facilities when there is no immediate jeopardy.
488.454  Duration of remedies.
488.456  Termination of provider agreement.

Subpart F--Enforcement of Compliance for Long-Term Care Facilities 
with Deficiencies


Sec. 488.400  Statutory basis.

    Sections 1819(h) and 1919(h) of the Act specify remedies that may 
be used by the Secretary or the State respectively when a SNF or a NF 
is not in substantial compliance with the requirements for 
participation in the Medicare and Medicaid programs. These sections 
also provide for ensuring prompt compliance and specify that these 
remedies are in addition to any others available under State or Federal 
law, and, except for civil money penalties, are imposed prior to the 
conduct of a hearing.


Sec. 488.401  Definitions.

    As used in this subpart--
    New admission means a resident who is admitted to the facility on 
or after the effective date of a denial of payment remedy and, if 
previously admitted, has been discharged before that effective date. 
Residents admitted before the effective date of the denial of payment, 
and taking temporary leave, are not considered new admissions, nor 
subject to the denial of payment.
    Plan of correction means a plan developed by the facility and 
approved by the certifying agency which describes the actions the 
facility will take to correct deficiencies and specifies the date by 
which those deficiencies will be corrected.


Sec. 488.402  General provisions.

    (a) Purpose of remedies. The purpose of remedies is to ensure 
prompt compliance with program requirements.
    (b) Basis for imposition and duration of remedies. When HCFA or the 
State chooses to apply one or more remedies specified in Sec. 488.406, 
the remedies are applied on the basis of noncompliance found during 
surveys conducted by HCFA or by the survey agency.
    (c) Number of remedies. HCFA or the State may apply one or more 
remedies for each deficiency constituting noncompliance or for all 
deficiencies constituting noncompliance.
    (d) Plan of correction requirement. (1) Except as specified in 
paragraph (d)(2) of this section, regardless of which remedy is 
applied, each facility that has deficiencies with respect to program 
requirements must submit a plan of correction for approval by HCFA or 
the survey agency.
    (2) Isolated deficiencies. A facility is not required to submit a 
plan of correction when it has deficiencies that are isolated and have 
a potential for minimal harm, but no actual harm has occurred.
    (e) Disagreement regarding remedies. If the State and HCFA disagree 
on the decision to impose a remedy, the disagreement is resolved in 
accordance with Sec. 488.452.
    (f) Notification requirements--(1) All facilities other than non-
State operated NFs. Except when the State is taking action against a 
non-State operated NF, HCFA gives the provider notice of the remedy, 
including the--
    (i) Nature of the noncompliance;
    (ii) Which remedy is imposed;
    (iii) Effective date of the remedy; and
    (iv) Right to appeal the determination leading to the remedy.
    (2) Non-State operated NF. When a State is taking action against a 
non-State operated NF, the State's notice must include the same 
information required by HCFA in paragraph (f)(1) of this section.
    (3) Immediate jeopardy--2 day notice. Except for civil money 
penalties and State monitoring imposed when there is immediate 
jeopardy, for all remedies specified in Sec. 488.406 imposed when there 
is immediate jeopardy, the notice must be given at least 2 calendar 
days before the effective date of the enforcement action.
    (4) No immediate jeopardy--15 day notice. Except for civil money 
penalties and State monitoring, notice must be given at least 15 
calendar days before the effective date of the enforcement action in 
situations in which there is no immediate jeopardy.
    (5) Latest date of enforcement action. The 2 and 15-day notice 
periods begin when the facility receives the notice, but, in no event 
will the effective date of the enforcement action be later than 20 
calendar days after the notice is sent.
    (6) Civil money penalties. For civil money penalties, the notices 
must be given in accordance with the provisions of Secs. 488.434 and 
488.440.
    (7) State monitoring--immediate jeopardy. For State monitoring 
imposed when there is immediate jeopardy, no prior notice is required.


Sec. 488.404  Factors to be considered in selecting remedies.

    (a) Initial assessment. In order to select the appropriate remedy, 
if any, to apply to a facility with deficiencies, HCFA and the State 
determine the seriousness of the deficiencies.
    (b) Determining seriousness of deficiencies. To determine the 
seriousness of the deficiency, HCFA considers and the State must 
consider at least the following factors:
    (1) Whether a facility's deficiencies constitute--
    (i) No actual harm with a potential for minimal harm;
    (ii) No actual harm with a potential for more than minimal harm, 
but not immediate jeopardy;
    (iii) Actual harm that is not immediate jeopardy; or
    (iv) Immediate jeopardy to resident health or safety.
    (2) Whether the deficiencies--
    (i) Are isolated;
    (ii) Constitute a pattern; or
    (iii) Are widespread.
    (c) Other factors which may be considered in choosing a remedy 
within a remedy category. Following the initial assessment, HCFA and 
the State may consider other factors, which may include, but are not 
limited to the following:
    (1) The relationship of the one deficiency to other deficiencies 
resulting in noncompliance.
    (2) The facility's prior history of noncompliance in general and 
specifically with reference to the cited deficiencies.


Sec. 488.406  Available remedies.

    (a) General. In addition to the remedy of termination of the 
provider agreement, the following remedies are available:
    (1) Temporary management;
    (2) Denial of payment including--
    (i) Denial of payment for all individuals, imposed by HCFA, to a--
    (A) Skilled nursing facility, for Medicare;
    (B) State, for Medicaid; or
    (ii) Denial of payment for all new admissions;
    (3) Civil money penalties;
    (4) State monitoring;
    (5) Closure of the facility by the State in emergency situations or 
transfer of residents, or both;
    (6) Directed plan of correction;
    (7) Directed in-service training; and
    (8) Alternative or additional State remedies approved by HCFA.
    (b) Remedies that must be established. At a minimum, the State must 
establish the following remedies or approved alternatives to the 
following remedies:
    (1) Termination of the provider agreement.
    (2) Temporary management.
    (3) Denial of payment for new admissions.
    (4) Civil money penalties.
    (5) Closure of the facility in emergency situations or transfer of 
residents, or both.
    (6) State monitoring.
    (c) State plan requirement. If a State wishes to use remedies for 
noncompliance that are either additional or alternative to those 
specified in paragraphs (a) or (b) of this section, it must--
    (1) Specify those remedies in the State plan; and
    (2) Demonstrate to HCFA's satisfaction that those remedies are as 
effective as the remedies listed in paragraph (a) of this section, for 
deterring noncompliance and correcting deficiencies.
    (d) State remedies in dually participating facilities. If the 
State's remedy is unique to the State plan and has been approved by 
HCFA, then that remedy, as imposed by the State under its Medicaid 
authority, may be imposed by HCFA against the Medicare provider 
agreement of a dually participating facility.


Sec. 488.408  Selection of remedies.

    (a) Categories of remedies. In this section, the remedies specified 
in Sec. 488.406(a) are grouped into categories and applied to 
deficiencies according to how serious the noncompliance is.
    (b) Application of remedies. After considering the factors 
specified in Sec. 488.404, as applicable, if HCFA and the State choose 
to impose remedies, as provided in paragraphs (c)(1), (d)(1) and (e)(1) 
of this section, for facility noncompliance, instead of, or in addition 
to, termination of the provider agreement, HCFA does and the State must 
follow the criteria set forth paragraphs (c)(2), (d)(2), and (e)(2) of 
this section, as applicable.
    (c) Category 1. (1) Category 1 remedies include the following:
    (i) Directed plan of correction.
    (ii) State monitoring.
    (iii) Directed in-service training.
    (2) HCFA or the State must apply one or more of the remedies in 
Category 1 when there--
    (i) Are isolated deficiencies that constitute no actual harm with a 
potential for more than minimal harm but not immediate jeopardy; or
    (ii) Is a pattern of deficiencies that constitutes no actual harm 
with a potential for more than minimal harm but not immediate jeopardy.
    (3) Except when the facility is in substantial compliance, HCFA or 
the State may apply one or more of the remedies in Category 1 to any 
deficiency.
    (d) Category 2. (1) Category 2 remedies include the following:
    (i) Denial of payment for new admissions.
    (ii) Denial of payment for all individuals imposed only by HCFA.
    (iii) Civil money penalties of $50-3,000 per day.
    (2) HCFA applies one or more of the remedies in Category 2, or, 
except for denial of payment for all individuals, the State must apply 
one or more of the remedies in Category 2 when there are--
    (i) Widespread deficiencies that constitute no actual harm with a 
potential for more than minimal harm but not immediate jeopardy; or
    (ii) One or more deficiencies that constitute actual harm that is 
not immediate jeopardy.
    (3) Except when the facility is in substantial compliance, HCFA or 
the State may apply one or more of the remedies in Category 2 to any 
deficiency.
    (e) Category 3. (1) Category 3 remedies include the following:
    (i) Temporary management.
    (ii) Immediate termination.
    (iii) Civil money penalties of $3,050-$10,000 per day.
    (2) When there are one or more deficiencies that constitute 
immediate jeopardy to resident health or safety--
    (i) HCFA does and the State must do one or both of the following:
    (A) Impose temporary management; or
    (B) Terminate the provider agreement;
    (ii) HCFA and the State may impose a civil money penalty of $3,050-
$10,000 per day, in addition to imposing the remedies specified in 
paragraph (e)(2)(i) of this section.
    (3) When there are widespread deficiencies that constitute actual 
harm that is not immediate jeopardy, HCFA and the State may impose 
temporary management, in addition to Category 2 remedies.
    (f) Plan of correction. (1) Except as specified in paragraph (F)(2) 
of this section, each facility that has a deficiency with regard to a 
requirement for long term care facilities must submit a plan of 
correction for approval by HCFA or the State, regardless of--
    (i) Which remedies are imposed; or
    (ii) The seriousness of the deficiencies.
    (2) When there are only isolated deficiencies that HCFA or the 
State determines constitute no actual harm with a potential for minimal 
harm, the facility need not submit a plan of correction.
    (g) Appeal of a certification of noncompliance. (1) A facility may 
appeal a certification of noncompliance leading to an enforcement 
remedy.
    (2) A facility may not appeal the choice of remedy, including the 
factors considered by HCFA or the State in selecting the remedy, 
specified in Sec. 488.404.


Sec. 488.410  Action when there is immediate jeopardy.

    (a) If there is immediate jeopardy to resident health or safety, 
the State must (and HCFA does) either terminate the provider agreement 
within 23 calendar days of the last date of the survey or appoint a 
temporary manager to remove the immediate jeopardy. The rules for 
appointment of a temporary manager in an immediate jeopardy situation 
are as follows:
    (1) HCFA does and the State must notify the facility that a 
temporary manager is being appointed.
    (2) If the facility fails to relinquish control to the temporary 
manager, HCFA does and the State must terminate the provider agreement 
within 23 calendar days of the last day of the survey, if the immediate 
jeopardy is not removed. In these cases, State monitoring may be 
imposed pending termination.
    (3) If the facility relinquishes control to the temporary manager, 
the State must (and HCFA does) notify the facility that, unless it 
removes the immediate jeopardy, its provider agreement will be 
terminated within 23 calendar days of the last day of the survey.
    (4) HCFA does and the State must terminate the provider agreement 
within 23 calendar days of the last day of survey if the immediate 
jeopardy has not been removed.
    (b) HCFA or the State may also impose other remedies, as 
appropriate.
    (c)(1) In a NF or dually participating facility, if either HCFA or 
the State finds that a facility's noncompliance poses immediate 
jeopardy to resident health or safety, HCFA or the State must notify 
the other of such a finding.
    (2) HCFA will or the State must--
    (i) Take immediate action to remove the jeopardy and correct the 
noncompliance through temporary management; or
    (ii) Terminate the facility's participation under the State plan. 
If this is done, HCFA will also terminate the facility's participation 
in Medicare if it is a dually participating facility.
    (d) The State must provide for the safe and orderly transfer of 
residents when the facility is terminated.
    (e) If the immediate jeopardy is also substandard quality of care, 
the State survey agency must notify attending physicians and the State 
board responsible for licensing the facility administrator of the 
finding of substandard quality of care, as specified in 
Sec. 488.325(h).


Sec. 488.412  Action when there is no immediate jeopardy.

    (a) If a facility's deficiencies do not pose immediate jeopardy to 
residents' health or safety, and the facility is not in substantial 
compliance, HCFA or the State may terminate the facility's provider 
agreement or may allow the facility to continue to participate for no 
longer than 6 months from the last day of the survey if--
    (1) The State survey agency finds that it is more appropriate to 
impose alternative remedies than to terminate the facility's provider 
agreement;
    (2) The State survey agency has submitted a plan of correction 
approved by HCFA; and
    (3) The facility in the case of a Medicare SNF or the State in the 
case of a Medicaid NF agrees to repay to the Federal government 
payments received after the last day of the survey that first 
identified the deficiencies if corrective action is not taken in 
accordance with the approved plan of correction.
    (b) If a facility does not meet the criteria for continuation of 
payment under paragraph (a) of this section, HCFA will and the State 
must terminate the facility's provider agreement.
    (c) HCFA does and the State must deny payment for new admissions 
when a facility is not in substantial compliance 3 months after the 
last day of the survey.
    (d) HCFA terminates the provider agreement for SNFs and NFs, and 
stops FFP to a State for a NF for which participation was continued 
under paragraph (a) of this section, if the facility is not in 
substantial compliance within 6 months of the last day of the survey.


Sec. 488.414  Action when there is repeated substandard quality of 
care.

    (a) General. If a facility has been found to have provided 
substandard quality of care on the last three consecutive standard 
surveys, as defined in Sec. 488.305, regardless of other remedies 
provided--
    (1) HCFA imposes denial of payment for all new admissions, as 
specified in Sec. 488.417, or denial of all payments, as specified in 
Sec. 488.418;
    (2) The State must impose denial of payment for all new admissions, 
as specified in Sec. 488.417; and
    (3) HCFA does and the State survey agency must impose State 
monitoring, as specified in Sec. 488.422, until the facility has 
demonstrated to the satisfaction of HCFA or the State, that it is in 
substantial compliance with all requirements and will remain in 
substantial compliance with all requirements.
    (b) Repeated noncompliance. For purposes of this section, repeated 
noncompliance is based on the repeated finding of substandard quality 
of care and not on the basis that the substance of the deficiency or 
the exact tag number for the deficiency was repeated.
    (c) Standard surveys to which this provision applies. Standard 
surveys completed by the State survey agency on or after October 1, 
1990, are used to determine whether the threshold of three consecutive 
standard surveys is met.
    (d) Program participation. (1) The determination that a certified 
facility has repeated instances of substandard quality of care is made 
without regard to any variances in the facility's program participation 
(that is, any standard survey completed for Medicare, Medicaid or both 
programs will be considered).
    (2) Termination would allow the count of repeated substandard 
quality of care surveys to start over.
    (3) Change of ownership. (i) A facility may not avoid a remedy on 
the basis that it underwent a change of ownership.
    (ii) In a facility that has undergone a change of ownership, HCFA 
does not and the State may not restart the count of repeated 
substandard quality of care surveys unless the new owner can 
demonstrate to the satisfaction of HCFA or the State that the poor past 
performance no longer is a factor due to the change in ownership.
    (e) Facility alleges corrections or achieves compliance after 
repeated substandard quality of care is identified. (1) If a penalty is 
imposed for repeated substandard quality of care, it will continue 
until the facility has demonstrated to the satisfaction of HCFA or the 
State that it is in substantial compliance with the requirements and 
that it will remain in substantial compliance with the requirements for 
a period of time specified by HCFA or the State.
    (2) A facility will not avoid the imposition of remedies or the 
obligation to demonstrate that it will remain in compliance when it--
    (i) Alleges correction of the deficiencies cited in the most recent 
standard survey; or
    (ii) Achieves compliance before the effective date of the remedies.


Sec. 488.415  Temporary management.

    (a) Definition. Temporary management means the temporary 
appointment by HCFA or the State of a substitute facility manager or 
administrator with authority to hire, terminate or reassign staff, 
obligate facility funds, alter facility procedures, and manage the 
facility to correct deficiencies identified in the facility's 
operation.
    (b) Qualifications. The temporary manager must--
    (1) Be qualified to oversee correction of deficiencies on the basis 
of experience and education, as determined by the State;
    (2) Not have been found guilty of misconduct by any licensing board 
or professional society in any State;
    (3) Have, or a member of his or her immediate family have, no 
financial ownership interest in the facility; and
    (4) Not currently serve or, within the past 2 years, have served as 
a member of the staff of the facility.
    (c) Payment of salary. The temporary manager's salary--
    (1) Is paid directly by the facility while the temporary manager is 
assigned to that facility; and
    (2) Must be at least equivalent to the sum of the following--
    (i) The prevailing salary paid by providers for positions of this 
type in what the State considers to be the facility's geographic area;
    (ii) Additional costs that would have reasonably been incurred by 
the provider if such person had been in an employment relationship; and
    (iii) Any other costs incurred by such a person in furnishing 
services under such an arrangement or as otherwise set by the State.
    (3) May exceed the amount specified in paragraph (c)(2) of this 
section if the State is otherwise unable to attract a qualified 
temporary manager.
    (d) Failure to relinquish authority to temporary management--(1) 
Termination of provider agreement. If a facility fails to relinquish 
authority to the temporary manager as described in this section, HCFA 
will or the State must terminate the provider agreement in accordance 
with Sec. 488.456.
    (2) Failure to pay salary of temporary manager. A facility's 
failure to pay the salary of the temporary manager is considered a 
failure to relinquish authority to temporary management.
    (e) Duration of temporary management. Temporary management ends 
when the facility meets any of the conditions specified in 
Sec. 488.454(c).


Sec. 488.417  Denial of payment for all new admissions.

    (a) Optional denial of payment. Except as specified in paragraph 
(b) of this section, HCFA or the State may deny payment for all new 
admissions when a facility is not in substantial compliance with the 
requirements, as defined in Sec. 488.401, as follows:
    (1) Medicare facilities. In the case of Medicare facilities, HCFA 
may deny payment to the facility.
    (2) Medicaid facilities. In the case of Medicaid facilities--
    (i) The State may deny payment to the facility; and
    (ii) HCFA may deny payment to the State for all new Medicaid 
admissions to the facility.
    (b) Required denial of payment. HCFA does or the State must deny 
payment for all new admissions when--
    (1) The facility is not in substantial compliance, as defined in 
Sec. 488.401, 3 months after the last day of the survey identifying the 
noncompliance; or
    (2) The State survey agency has cited a facility with substandard 
quality of care on the last three consecutive standard surveys.
    (c) Resumption of payments: Repeated instances of substandard 
quality of care. When a facility has repeated instances of substandard 
quality of care, payments to the facility or, under Medicaid, HCFA 
payments to the State on behalf of the facility, resume on the date 
that--
    (1) The facility achieves substantial compliance as indicated by a 
revisit or written credible evidence acceptable to HCFA (under 
Medicare) or the State (under Medicaid); and
    (2) HCFA (under Medicare) or the State (under Medicaid) believes 
that the facility is capable of remaining in substantial compliance.
    (d) Resumption of payments: No repeated instances of substandard 
quality of care. When a facility does not have repeated instances of 
substandard quality of care, payments to the facility or, under 
Medicaid, HCFA payments to the State on behalf of the facility, resume 
prospectively on the date that the facility achieves substantial 
compliance, as indicated by a revisit or written credible evidence 
acceptable to HCFA (under Medicare) or the State (under Medicaid).
    (e) Restriction. No payments to a facility or, under Medicaid, HCFA 
payments to the State on behalf of the facility, are made for the 
period between the date that the--
    (1) Denial of payment remedy is imposed; and
    (2) Facility achieves substantial compliance, as determined by HCFA 
or the State.


Sec. 488.418  Secretarial authority to deny all payments.

    (a) HCFA option to deny all payment. If a facility has not met a 
requirement, in addition to the authority to deny payment for all new 
admissions as specified in Sec. 488.417, HCFA may deny any further 
payment for all Medicare residents in the facility and to the State for 
all Medicaid residents in the facility.
    (b) Prospective resumption of payment. Except as provided in 
paragraphs (d) and (e) of this section, if the facility achieves 
substantial compliance, HCFA resumes payment prospectively from the 
date that it verifies as the date that the facility achieved 
substantial compliance.
    (c) Restriction on payment after denial of payment is imposed. If 
payment to the facility or to the State resumes after denial of payment 
for all residents, no payment is made for the period between the date 
that--
    (1) Denial of payment was imposed; and
    (2) HCFA verifies as the date that the facility achieved 
substantial compliance.
    (d) Retroactive resumption of payment. Except when a facility has 
repeated instances of substandard quality of care, as specified in 
paragraph (e) of this section, when HCFA or the State finds that the 
facility was in substantial compliance before the date of the revisit, 
or before HCFA or the survey agency received credible evidence of such 
compliance, payment is resumed on the date that substantial compliance 
was achieved, as determined by HCFA.
    (e) Resumption of payment--repeated instances of substandard care. 
When HCFA denies payment for all Medicare residents for repeated 
instances of substandard quality of care, payment is resumed when--
    (1) The facility achieved substantial compliance, as indicated by a 
revisit or written credible evidence acceptable to HCFA; and
    (2) HCFA believes that the facility will remain in substantial 
compliance.


Sec. 488.422  State monitoring.

    (a) A State monitor--
    (1) Oversees the correction of deficiencies specified by HCFA or 
the State survey agency at the facility site and protects the 
facility's residents from harm;
    (2) Is an employee or a contractor of the survey agency;
    (3) Is identified by the State as an appropriate professional to 
monitor cited deficiencies;
    (4) Is not an employee of the facility;
    (5) Does not function as a consultant to the facility; and
    (6) Does not have an immediate family member who is a resident of 
the facility to be monitored.
    (b) A State monitor must be used when a survey agency has cited a 
facility with substandard quality of care deficiencies on the last 3 
consecutive standard surveys.
    (c) State monitoring is discontinued when--
    (1) The facility has demonstrated that it is in substantial 
compliance with the requirements, and it will remain in compliance for 
a period of time specified by HCFA or the State; or
    (2) Termination procedures are completed.


Sec. 488.424  Directed plan of correction.

    HCFA, the State survey agency, or the temporary manager (with HCFA 
or State approval) may develop a plan of correction and HCFA, the 
State, or the temporary manager require a facility to take action 
within specified timeframes.


Sec. 488.425  Directed inservice training.

    (a) Required training. HCFA or the State agency may require the 
staff of a facility to attend an inservice training program if--
    (1) The facility has a pattern of deficiencies that indicate 
noncompliance; and
    (2) Education is likely to correct the deficiencies.
    (b) Action following training. After the staff has received 
inservice training, if the facility has not achieved substantial 
compliance, HCFA or the State may impose one or more other remedies 
specified in Sec. 488.206.
    (c) Payment. The facility pays for directed inservice training.


Sec. 488.426  Closure of a facility or transfer of residents, or both.

    (a) Closure of facility or transfer of residents, or both, during 
an emergency. In an emergency, the State has the authority to--
    (1) Transfer Medicaid and Medicare residents to another facility; 
or
    (2) Close the facility and transfer the Medicaid and Medicare 
residents to another facility.
    (b) Required transfer in immediate jeopardy situations. When the 
State or HCFA terminates a facility's provider agreement for a 
deficiency that constitutes immediate jeopardy, the State arranges for 
the safe and orderly transfer of all Medicare and Medicaid residents to 
another facility.
    (c) All other situations. Except for immediate jeopardy situations, 
as specified in paragraph (b) of this section, when the State or HCFA 
terminates a facility's provider agreement, the State arranges for the 
safe and orderly transfer of all Medicare and Medicaid residents to 
another facility.


Sec. 488.430  Civil money penalties: Basis for imposing penalty.

    (a) HCFA or the State may impose a civil money penalty for the 
number of days a facility is not in substantial compliance with one or 
more participation requirements, regardless of whether or not the 
deficiencies constitute immediate jeopardy.
    (b) HCFA or the State may impose a civil money penalty for the 
number of days of past noncompliance since the last standard survey, 
including the number of days of immediate jeopardy.


Sec. 488.432  Civil money penalties: When penalty is collected.

    (a) When facility requests a hearing. (1) A facility must request a 
hearing on the determination of the noncompliance that is the basis for 
imposition of the civil money penalty within the time specified in--
    (i) Section 498.40 of this chapter for a
    (A) SNF;
    (B) Dually participating facility; or
    (C) State-operated NF.
    (ii) Section 431.153 of this chapter for a non-State operated NF.
    (2) If a facility requests a hearing within the time specified in 
paragraph (a)(1) of this section, HCFA or the State initiates 
collection of the penalty when there is a final administrative decision 
that upholds HCFA's or the State's determination of noncompliance after 
the facility achieves substantial compliance or is terminated.
    (b) When facility does not request a hearing. If a facility does 
not request a hearing, in accordance with paragraph (a) of this 
section, HCFA or the State initiates collection of the penalty when the 
facility--
    (1) Achieves substantial compliance; or
    (2) Is terminated.
    (c) When facility waives a hearing. If a facility waives its right 
to a hearing in writing, as specified in Sec. 488.436, HCFA or the 
State initiates collection of the penalty when the facility--
    (1) Achieves substantial compliance; or
    (2) Is terminated.
    (d) Accrual and computation of penalties for a facility that--
    (1) Requests a hearing or does not request a hearing are specified 
in Sec. 488.440;
    (2) Waives its right to a hearing in writing, are specified in 
Secs. 488.436(b) and 488.440.
    (e) The collection of civil money penalties is made as provided in 
Sec. 488.442.


Sec. 488.434  Civil money penalties: Notice of penalty.

    (a) HCFA notice of penalty. (1) HCFA sends a written notice of 
intent to impose the penalty to the facility for all facilities except 
non-State operated NFs when the State is imposing the penalty.
    (2) Content of notice. The notice that HCFA sends includes--
    (i) The nature of the noncompliance;
    (ii) The statutory basis for the penalty;
    (iii) The amount of penalty per day of noncompliance;
    (iv) Any factors specified in Sec. 488.438(f) that were considered 
when determining the amount of the penalty;
    (v) The date on which the penalty begins to accrue;
    (vi) When the penalty stops accruing;
    (vii) When the penalty is collected; and
    (viii) Instructions for responding to the notice, including a 
statement of the facility's right to a hearing, and the implication of 
waiving a hearing, as provided in Sec. 488.436.
    (b) State notice of penalty.
    (1) The State must notify the facility in accordance with State 
procedures for all non-State operated NFs when the State takes the 
action.
    (2) The State's notice must--
    (i) Be in writing; and
    (ii) Include, at a minimum, the information specified in paragraph 
(a)(2) of this section.


Sec. 488.436  Civil money penalties: Waiver of hearing, reduction of 
penalty amount.

    (a) Waiver of a hearing. The facility may waive the right to a 
hearing, in writing, within 60 days from the date of the notice of 
intent to impose the civil money penalty.
    (b) Reduction of penalty amount. (1) If the facility waives its 
right to a hearing in accordance with the procedures specified in 
paragraph (a) of this section, HCFA or the State reduces the civil 
money penalty amount by 35 percent.
    (2) If the facility does not waive its right to a hearing in 
accordance with the procedures specified in paragraph (a) of this 
section, the civil money penalty is not reduced by 35 percent.


Sec. 488.438  Civil money penalties: Amount of penalty.

    (a) Amount of penalty. The penalties are within the following 
ranges, set at $50 increments:
    (1) Upper range--$3,050-$10,000. Penalties in the range of $3,050-
$10,000 per day are imposed for deficiencies constituting immediate 
jeopardy, and as specified in paragraph (d)(2) of this section.
    (2) Lower range--$50-$3,000. Penalties in the range of $50-$3,000 
per day are imposed for deficiencies that do not constitute immediate 
jeopardy, but either caused actual harm, or caused no actual harm, but 
have the potential for more than minimal harm.
    (b) Basis for penalty amount. The amount of penalty is based on 
HCFA's or the State's assessment of factors listed in paragraph (f) of 
this section.
    (c) Decreased penalty amounts. Except as specified in paragraph 
(d)(2) of this section, if immediate jeopardy is removed, but the 
noncompliance continues, HCFA or the State will shift the penalty 
amount to the lower range.
    (d) Increased penalty amounts. (1) Before the hearing, HCFA or the 
State may propose to increase the penalty amount for facility 
noncompliance which, after imposition of a lower level penalty amount, 
becomes sufficiently serious to pose immediate jeopardy.
    (2) HCFA does and the State must increase the penalty amount for 
any repeated deficiencies for which a lower level penalty amount was 
previously imposed, regardless of whether the increased penalty amount 
would exceed the range otherwise reserved for nonimmediate jeopardy 
deficiencies.
    (3) Repeated deficiencies are deficiencies in the same regulatory 
grouping of requirements found at the last survey, subsequently 
corrected, and found again at the next survey.
    (e) Review of the penalty. When an administrative law judge or 
State hearing officer (or higher administrative review authority) finds 
that the basis for imposing a civil money penalty exists, as specified 
in Sec. 488.430, the administrative law judge or State hearing officer 
(or higher administrative review authority) may not--
    (1) Set a penalty of zero or reduce a penalty to zero;
    (2) Review the exercise of discretion by HCFA or the State to 
impose a civil money penalty; and
    (3) Consider any factors in reviewing the amount of the penalty 
other than those specified in paragraph (f) of this section.
    (f) Factors affecting the amount of penalty. In determining the 
amount of penalty, HCFA does or the State must take into account the 
following factors:
    (1) The facility's history of noncompliance, including repeated 
deficiencies.
    (2) The facility's financial condition.
    (3) The factors specified in Sec. 488.404.
    (4) The facility's degree of culpability. Culpability for purposes 
of this paragraph includes, but is not limited to, neglect, 
indifference, or disregard for resident care, comfort or safety. The 
absence of culpability is not a mitigating circumstance in reducing the 
amount of the penalty.


Sec. 488.440  Civil money penalties: Effective date and duration of 
penalty.

    (a) When penalty begins to accrue. The civil money penalty may 
start accruing as early as the date that the facility was first out of 
compliance, as determined by HCFA or the State.
    (b) Duration of penalty. The civil money penalty is computed and 
collectible, as specified in Secs. 488.432 and 488.442, for the number 
of days of noncompliance until the date the facility achieves 
substantial compliance, or, if applicable, the date of termination 
when--
    (1) HCFA's or the State's decision of noncompliance is upheld after 
a final administrative decision;
    (2) The facility waives its right to a hearing in accordance with 
Sec. 488.436; or
    (3) The time for requesting a hearing has expired and HCFA or the 
State has not received a hearing request from the facility.
    (c) The entire accrued penalty is due and collectible, as specified 
in the notice sent to the provider under paragraphs (d) and (e) of this 
section.
    (d) When a facility achieves substantial compliance, HCFA does or 
the State must send a separate notice to the facility containing--
    (1) The amount of penalty per day;
    (2) The number of days involved;
    (3) The total amount due;
    (4) The due date of the penalty; and
    (5) The rate of interest assessed on the unpaid balance beginning 
on the due date, as provided in Sec. 488.442.
    (e) In the case of a terminated facility, HCFA does or the State 
must send this penalty information after the--
    (1) Final administrative decision is made;
    (2) Facility has waived its right to a hearing in accordance with 
Sec. 488.436; or
    (3) Time for requesting a hearing has expired and HCFA or the state 
has not received a hearing request from the facility.
    (f) Accrual of penalties when there is no immediate jeopardy. (1) 
In the case of noncompliance that does not pose immediate jeopardy, the 
daily accrual of civil money penalties is imposed for the days of 
noncompliance prior to the notice specified in Sec. 488.434 and an 
additional period of no longer than 6 months following the last day of 
the survey.
    (2) After the period specified in paragraph (f)(1) of this section, 
if the facility has not achieved substantial compliance, HCFA 
terminates the provider agreement and the State may terminate the 
provider agreement.
    (g) Accrual of penalties when there is immediate jeopardy. (1) When 
a facility has deficiencies that pose immediate jeopardy, HCFA does or 
the State must terminate the provider agreement within 23 calendar days 
after the last day of the survey if the immediate jeopardy remains.
    (2) The accrual of the civil money penalty stops on the day the 
provider agreement is terminated.
    (h) Documenting substantial compliance. (1) If an on-site revisit 
is necessary to confirm substantial compliance and the provider can 
supply documentation acceptable to HCFA or the State agency that 
substantial compliance was achieved on a date preceding the revisit, 
penalties only accrue until that date of correction for which there is 
written credible evidence.
    (2) If an on-site revisit is not necessary to confirm substantial 
compliance, penalties only accrue until the date of correction for 
which HCFA or the State receives and accepts written credible evidence.


Sec. 488.442  Civil money penalties: Due date for payment of penalty.

    (a) When payments are due--(1) After a final administrative 
decision. A civil money penalty payment is due 15 days after a final 
administrative decision is made when--
    (i) The facility achieves substantial compliance before the final 
administrative decision; or
    (ii) The effective date of termination occurs before the final 
administrative decision.
    (2) When no hearing was requested. A civil money penalty payment is 
due 15 days after the time period for requesting a hearing has expired 
and a hearing request was not received when--
    (i) The facility achieved substantial compliance before the hearing 
request was due; or
    (ii) The effective date of termination occurs before the hearing 
request was due.
    (3) After a request to waive a hearing. A civil money penalty 
payment is due 15 days after receipt of the written request to waive a 
hearing when--
    (i) The facility achieved substantial compliance before HCFA or the 
State received the written waiver of hearing; or
    (ii) The effective date of termination occurs before HCFA or the 
State received the written waiver of hearing.
    (4) After substantial compliance is achieved. A civil money penalty 
payment is due 15 days after substantial compliance is achieved when--
    (i) The final administrative decision is made before the facility 
came into substantial compliance;
    (ii) The facility did not file a timely hearing request before it 
came into substantial compliance; or
    (iii) The facility waived its right to a hearing before it came 
into substantial compliance;
    (5) After the effective date of termination. A civil money penalty 
payment is due 15 days after the effective date of termination, if 
before the effective date of termination--
    (i) The final administrative decision was made;
    (ii) The time for requesting a hearing has expired and the facility 
did not request a hearing; or
    (iii) The facility waived its right to a hearing.
    (6) In the cases specified in paragraph (a)(4) of this section, the 
period of noncompliance may not extend beyond 6 months from the last 
day of the survey.
    (b) Deduction of penalty from amount owed. The amount of the 
penalty, when determined, may be deducted from any sum then or later 
owing by HCFA or the State to the facility.
    (c) Interest--(1) Assessment. Interest is assessed on the unpaid 
balance of the penalty, beginning on the due date.
    (2) Medicare interest. Medicare rate of interest is--
    (i) Fixed by the Secretary of the Treasury after taking into 
consideration private consumer rates of interest prevailing on the date 
of the notice of the penalty amount due (published quarterly in the 
Federal Register by HHS under 45 CFR 30.13(a)); or
    (ii) The current value of funds (published annually in the Federal 
Register by the Secretary of the Treasury, subject to quarterly 
revisions).
    (3) Medicaid interest. The interest rate for Medicaid is determined 
by the State.
    (d) Civil money penalties and corresponding interest collected by 
HCFA or the State from Medicare and Medicaid facilities must be 
returned to the Medicare Trust Fund or the State, respectively.
    (e) Collection from dually participating facilities. Civil money 
penalties collected from dually participating facilities are returned 
to the Medicare Trust Fund and the State in proportion commensurate 
with the relative proportions of Medicare and Medicaid beds at the 
facility actually in use by residents covered by the respective 
programs on the date the civil money penalty begins to accrue.
    (f) Penalties collected by the State. Civil money penalties 
collected by the State must be applied to the protection of the health 
or property of residents of facilities that the State or HCFA finds 
deficient, such as--
    (1) Payment for the cost of relocating residents to other 
facilities;
    (2) State costs related to the operation of a facility pending 
correction of deficiencies or closure; and
    (3) Reimbursement of residents for personal funds or property lost 
at a facility as a result of actions by the facility or by individuals 
used by the facility to provide services to residents.


Sec. 488.444  Civil money penalties: Settlement of penalties.

    (a) HCFA has authority to settle cases at any time prior to a final 
administrative decision for Medicare-only SNFs, State-operated 
facilities, or other facilities for which HCFA's enforcement action 
prevails, in accordance with Sec. 488.330.
    (b) The State has the authority to settle cases at any time prior 
to the evidentiary hearing decision for all cases in which the State's 
enforcement action prevails.


Sec. 488.450  Continuation of payments to a facility with deficiencies.

    (a) Criteria. (1) HCFA may continue payments to a facility not in 
substantial compliance for the periods specified in paragraph (c) of 
this section if the following criteria are met:
    (i) The State survey agency finds that it is more appropriate to 
impose alternative remedies than to terminate the facility;
    (ii) The State has submitted a plan and timetable for corrective 
action approved by HCFA; and
    (iii) The facility, in the case of a Medicare SNF, or the State, in 
the case of a Medicaid NF, agrees to repay the Federal government 
payments received under this provision if corrective action is not 
taken in accordance with the approved plan and timetable for corrective 
action.
    (2) HCFA or the State may terminate the SNF or NF agreement before 
the end of the correction period if the criteria in paragraph (a)(1) of 
this section are not met.
    (b) Cessation of payments. If termination is not sought, either by 
itself or along with another remedy or remedies, or any of the criteria 
set forth in paragraph (a)(1) if this section are not met or agreed to 
by either the facility or the State, the facility or State will receive 
no Medicare or Federal Medicaid payments, as applicable, from the last 
day of the survey.
    (c) Period of continued payments. If the conditions in paragraph 
(a)(1) of this section are met, HCFA may continue payments to a 
Medicare facility or to the State for a Medicaid facility with 
noncompliance that does not constitute immediate jeopardy for up to 6 
months from the last day of the survey.
    (d) Failure to achieve substantial compliance. If the facility does 
not achieve substantial compliance by the end of the period specified 
in paragraph (c) of this section,
    (1) HCFA will--
    (i) Terminate the provider agreement of the Medicare SNF in 
accordance with Sec. 488.456; or
    (ii) Discontinue Federal funding to the SNF for Medicare; and
    (iii) Discontinue FFP to the State for the Medicaid NF.
    (2) The State may terminate the provider agreement for the NF.


Sec. 488.452  State and Federal disagreements involving findings not in 
agreement in non-State operated NFs and dually participating facilities 
when there is no immediate jeopardy.

    The following rules apply when HCFA and the State disagree over 
findings of noncompliance or application of remedies in a non-State 
operated NF or dually participating facility:
    (a) Disagreement over whether facility has met requirements. (1) 
The State's finding of noncompliance takes precedence when--
    (i) HCFA finds that a NF or a dually participating facility is in 
substantial compliance with the participation requirements; and
    (ii) The State finds that a NF or dually participating facility has 
not achieved substantial compliance.
    (2) HCFA's findings of noncompliance take precedence when--
    (i) HCFA finds that a NF or a dually participating facility has not 
achieved substantial compliance; and
    (ii) The State finds that a NF or a dually participating facility 
is in substantial compliance with the participation requirements.
    (3) When HCFA's survey findings take precedence, HCFA may--
    (i) Impose any of the alternative remedies specified in 
Sec. 488.406;
    (ii) Terminate the provider agreement subject to the applicable 
conditions of Sec. 488.450; and
    (iii) Stop FFP to the State for a NF.
    (b) Disagreement over decision to terminate. (1) HCFA's decision to 
terminate the participation of a facility takes precedence when--
    (i) Both HCFA and the State find that the facility has not achieved 
substantial compliance; and
    (ii) HCFA, but not the State, finds that the facility's 
participation should be terminated. HCFA will permit continuation of 
payment during the period prior to the effective date of termination 
not to exceed 6 months, if the applicable conditions of Sec. 488.450 
are met.
    (2) The State's decision to terminate a facility's participation 
and the procedures for appealing such termination, as specified in 
Sec. 431.153(c) of this chapter, takes precedence when--
    (i) The State, but not HCFA, finds that a NF's participation should 
be terminated; and
    (ii) The State's effective date for the termination of the NF's 
provider agreement is no later than 6 months after the last day of 
survey.
    (c) Disagreement over timing of termination of facility. The 
State's timing of termination takes precedence if it does not occur 
later than 6 months after the last day of the survey when both HCFA and 
the State find that--
    (1) A facility is not in substantial compliance; and
    (2) The facility's participation should be terminated.
    (d) Disagreement over remedies. (1) When HCFA or the State, but not 
both, establishes one or more remedies, in addition to or as an 
alternative to termination, the additional or alternative remedies will 
also apply when--
    (i) Both HCFA and the State find that a facility has not achieved 
substantial compliance; and
    (ii) Both HCFA and the State find that no immediate jeopardy 
exists.
    (2) Overlap of remedies. When HCFA and the State establish one or 
more remedies, in addition to or as an alternative to termination, only 
the HCFA remedies apply when both HCFA and the State find that a 
facility has not achieved substantial compliance.
    (e) Regardless of whether HCFA's or the State's decision controls, 
only one noncompliance and enforcement decision is applied to the 
Medicaid agreement, and for a dually participating facility, that same 
decision will apply to the Medicare agreement.


Sec. 488.454  Duration of remedies.

    (a) Except as specified in paragraph (b) of this section, 
alternative remedies continue until--
    (1) The facility has achieved substantial compliance, as determined 
by HCFA or the State based upon a revisit or after an examination of 
credible written evidence that it can verify without an on-site visit; 
or
    (2) HCFA or the State terminates the provider agreement.
    (b) In the cases of State monitoring and denial of payment imposed 
for repeated substandard quality of care, remedies continue until--
    (1) HCFA or the State determines that the facility has achieved 
substantial compliance and is capable of remaining in substantial 
compliance; or
    (2) HCFA or the State terminates the provider agreement.
    (c) In the case of temporary management, the remedy continues 
until--
    (1) HCFA or the State determines that the facility has achieved 
substantial compliance and is capable of remaining in substantial 
compliance;
    (2) HCFA or the State terminates the provider agreement; or
    (3) The facility which has not achieved substantial compliance 
reassumes management control. In this case, HCFA or the State initiates 
termination of the provider agreement and may impose additional 
remedies.
    (d) If the facility can supply documentation acceptable to HCFA or 
the State survey agency that it was in substantial compliance, and was 
capable of remaining in substantial compliance, if necessary, on a date 
preceding that of the revisit, the remedies terminate on the date that 
HCFA or the State can verify as the date that substantial compliance 
was achieved.


Sec. 488.456  Termination of provider agreement.

    (a) Effect of termination. Termination of the provider agreement 
ends--
    (1) Payment to the facility; and
    (2) Any alternative remedy.
    (b) Basis for termination. (1) HCFA and the State may terminate a 
facility's provider agreement if a facility--
    (i) Is not in substantial compliance with the requirements of 
participation, regardless of whether or not immediate jeopardy is 
present; or
    (ii) Fails to submit an acceptable plan of correction within the 
timeframe specified by HCFA or the State.
    (2) HCFA and the State terminate a facility's provider agreement if 
a facility--
    (i) Fails to relinquish control to the temporary manager, if that 
remedy is imposed by HCFA or the State; or
    (ii) Does not meet the eligibility criteria for continuation of 
payment as set forth in Sec. 488.412(a)(1).
    (c) Notice of termination. Before terminating a provider agreement, 
HCFA does and the State must notify the facility and the public--
    (1) At least 2 calendar days before the effective date of 
termination for a facility with immediate jeopardy deficiencies; and
    (2) At least 15 calendar days before the effective date of 
termination for a facility with non-immediate jeopardy deficiencies 
that constitute noncompliance.
    (d) Procedures for termination. (1) HCFA terminates the provider 
agreement in accordance with procedures set forth in Sec. 489.53 of 
this chapter; and
    (2) The State must terminate the provider agreement of a NF in 
accordance with procedures specified in parts 431 and 442 of this 
chapter.

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

    I. Part 489 is amended as follows:
    1. The authority citation for part 489 is revised to read as 
follows:

    Authority: Secs. 1102, 1819, 1861, 1864(m), 1866, and 1871 of 
the Social Security Act (42 U.S.C. 1302, 1395i-3, 1395x, 1395aa(m), 
1395cc, and 1395hh).

    2. The heading for part 489 is revised as set forth above.
    3. In Sec. 489.3, the definition of ``immediate jeopardy'' is 
revised to read as follows:


Sec. 489.3  Definitions.

* * * * *
    Immediate jeopardy means a situation in which immediate corrective 
action is necessary because the provider's noncompliance with one or 
more requirements of participation has caused, or is likely to cause, 
serious injury, harm, impairment, or death to a resident.
* * * * *


Sec. 489.11  [Amended]

    4. Section 489.11 is amended by removing paragraph (c)(3).
    5. Section 489.12 is amended by revising paragraph (a) to read as 
follows:


Sec. 489.12  Decision to deny an agreement.

    (a) Bases for denial. HCFA may refuse to enter into an agreement 
for any of the following reasons:
    (1) Principals of the prospective provider have been convicted of 
fraud (see Sec. 420.204 of this chapter);
    (2) The prospective provider has failed to disclose ownership and 
control interests in accordance with Sec. 420.206 of this chapter; or
    (3) The prospective provider is unable to give satisfactory 
assurance of compliance with the requirements of title XVIII of the 
Act.
* * * * *
    6. Section 489.13 is revised to read as follows:


Sec. 489.13  Effective date of agreement.

    (a) All Federal requirements are met on the date of the survey. The 
agreement is effective on the date the on-site survey is completed if, 
on the date of the survey, the provider meets all Federal health and 
safety conditions of participation or requirements (for SNFs), and any 
other requirements imposed by HCFA.
    (b) All Federal requirements are not met on the date of the survey. 
If the provider fails to meet any of the requirements specified in 
paragraph (a) of this section, the agreement will be effective on the 
earlier of the following dates:
    (1) The date on which the provider meets all requirements.
    (2) Except for SNFs, the date on which the provider is found to 
meet all conditions of participation and submits a plan of correction 
acceptable to HCFA for lower-level deficiencies or an approvable waiver 
request, or both.
    (3) The date on which a SNF--
    (i) Is in substantial compliance, as defined in Sec. 488.301; and
    (ii) Submits an acceptable plan of correction, if applicable, or an 
approvable waiver request, or both.


Sec. 489.15  [Removed]

    7. Section 489.15 is removed.


Sec. 489.16  [Removed]

    8. Section 489.16 is removed.
    9. Section 489.18 is amended by revising paragraph (d) to read as 
follows:


Sec. 489.18  Change of ownership or leasing: Effect on provider 
agreement.

* * * * *
    (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) Any existing plan of correction.
    (2) Compliance with applicable health and safety standards.
    (3) Compliance with the ownership and financial interest disclosure 
requirements of part 420, subpart C, of this chapter.
    (4) Compliance with civil rights requirements set forth in 45 CFR 
Parts 80, 84, and 90.
* * * * *
    10. Section 489.53 is amended by removing and reserving paragraph 
(b), adding a new paragraph (a)(13), and revising paragraph (c) to read 
as follows:


Sec. 489.53  Termination by HCFA.

    (a) * * *
    (13) It refuses to permit photocopying of any records or other 
information by, or on behalf of HCFA, as necessary to determine or 
verify compliance with participation requirements.
    (b) [Reserved]
    (c) Notice of termination--(1) Timing: Basic rule. Except as 
provided in Sec. 488.456 of this chapter, HCFA gives the provider 
notice of termination at least 15 days before the effective date of 
termination of the provider agreement.
    (2) Immediate jeopardy deficiencies. For a provider or supplier 
with deficiencies that pose immediate jeopardy to residents' or 
patients' health or safety, HCFA gives notice of termination at least 2 
days before the effective date of termination of the provider 
agreement.
    (3) Content of notice. The notice states the reasons for, and the 
effective date of, the termination, and explains the extent to which 
services may continue after that date, in accordance with Sec. 489.55.
    (4) Notice to public. HCFA concurrently gives notice of the 
termination to the public.
* * * * *

Subpart F--[Removed]

    10. Subpart F, consisting of Secs. 489.60, 489.62, 489.64, and 
489.66 is removed.

PART 498--APPEALS PROCEDURES FOR DETERMINATIONS THAT AFFECT 
PARTICIPATION IN THE MEDICARE PROGRAM AND FOR DETERMINATIONS THAT 
AFFECT THE PARTICIPATION OF ICFS/MR AND CERTAIN NFS IN THE MEDICAID 
PROGRAM

    K. Part 498 is amended as follows:
    1. The authority citation for part 498 is revised to read as 
follows:

    Authority: Secs. 205(a), 1102, 1819, 1861(aa), 1869(c), 1871, 
1872, and 1919 of the Social Security Act (42 U.S.C. 405(a), 1302, 
1395i-3, 1395x(aa), 1395ff(c), 1395hh, 1395ii and 1396r(g) and (h)), 
unless otherwise noted.

    2. The heading of part 498 is revised as set forth above.
    3. Section 498.1 is amended by adding a new paragraph (h) to read 
as follows:


Sec. 498.1  Statutory basis.

* * * * *
    (h) Section 1128A of the Act provides that HCFA will not collect a 
civil money penalty while a SNF or NF has a final administrative 
decision pending on the noncompliance that led to the imposition of the 
civil money penalty.
    4. Section 498.2 is amended by revising the definition of Provider 
to read as follows:


Sec. 498.2  Definitions.

* * * * *
    Provider means a hospital, rural primary care hospital (RPCH), 
skilled nursing facility (SNF), comprehensive outpatient rehabilitation 
facility (CORF), home health agency (HHA), or hospice, that has in 
effect an agreement to participate in Medicare, a nursing facility 
(NF), or intermediate care facility for the mentally retarded (ICF/MR) 
that has in effect an agreement to participate in Medicaid, or a 
clinic, rehabilitation agency, or public health agency that has a 
similar agreement but only to furnish outpatient physical therapy or 
outpatient speech pathology services, and ``prospective provider'' 
means any of the listed entities that seeks to participate in Medicare 
as a provider.
* * * * *
    5. Section 498.3 is amended by revising paragraph (b)(7), adding 
new paragraphs (b)(12) and (b)(13), revising paragraphs (d)(1) and 
(d)(10), redesignating paragraphs (d)(11) and (d)(12) as (d)(13) and 
(d)(14), respectively, and adding new paragraphs (d)(11) and (d)(12), 
to read as follows:


Sec. 498.3  Scope and applicability.

* * * * *
    (b)* * *
    (7) Except for SNFs and NFs, the termination of a provider 
agreement in accordance with Sec. 489.53 of this chapter, or the 
termination of a rural health clinic agreement in accordance with 
Sec. 405.2404 of this chapter, or the termination of a Federally 
qualified health center agreement in accordance with Sec. 405.2400 of 
this chapter.
* * * * *
    (12) Except as provided at Sec. 498.3(d)(11). for SNFs and NFs, the 
finding of noncompliance leading to the imposition of enforcement 
actions specified in Sec. 488.406 of this chapter, but not the 
determination as to which remedy to impose. The scope of review on the 
imposition of a civil money penalty is specified in Sec. 488.438(e) of 
this chapter.
    (13) The level of noncompliance found by HCFA in a SNF or NF only 
if a successful challenge on this issue would affect the range of civil 
money penalty amounts that HCFA could collect.
    (d) * * *
    (1) The finding that a provider or supplier determined to be in 
compliance with the conditions of participation or the conditions for 
coverage has deficiencies.
* * * * *
    (10) With respect to an SNF or NF that is not in substantial 
compliance with the requirements, the finding that the SNF's or NF's 
deficiencies pose immediate jeopardy to residents' health or safety, 
except as provided in paragraph (b)(14) of this section.
    (11) For SNFs and NFs, the imposition of State monitoring or loss 
of nurse aide training.
    (12) Except as provided in paragraph (b)(14) of this section, a 
determination by HCFA concerning the level of noncompliance in an SNF 
or NF.
* * * * *
    6. A new Sec. 498.4 is added to read as follows:


Sec. 498.4  NFs subject to appeals process in part 498.

    A NF is considered a provider for purposes of this part when it has 
in effect an agreement to participate in Medicaid, including an 
agreement to participate in both Medicaid and Medicare and it is a--
    (a) State-operated NF; or
    (b) Non State-operated NF that is subject to compliance action as a 
result of--
    (1) A validation survey by HCFA; or
    (2) HCFA's review of the State's survey findings.
    7. Section 498.5 is amended by revising paragraphs (f)(1), (i)(2), 
and (j)(1) to read as follows:


Sec. 498.5  Appeal rights.

* * * * *
    (f) Appeal rights of suppliers and prospective suppliers. (1) Any 
supplier or prospective supplier dissatisfied with the hearing decision 
may request Departmental Appeals Board review of the ALJ's decision.
* * * * *
    (i) Appeal rights for suspended or excluded practitioners, 
providers, or suppliers.
* * * * *
    (2) Any suspended or excluded practitioner, provider, or supplier 
dissatisfied with a hearing decision may request Departmental Appeals 
Board review and has a right to seek judicial review of the Board's 
decision by filing an action in Federal district court.
* * * * *
    (j) Appeal rights for Medicaid ICFs/MR terminated by HCFA. (1) Any 
Medicaid ICF/MR that has had its approval cancelled by HCFA in 
accordance with Sec. 498.3(b)(8) has a right to a hearing before an 
ALJ, to request Departmental Appeals Board review of the hearing 
decision, and to seek judicial review of the Board's decision.
* * * * *
    8. Section 498.61 is revised to read as follows:


Sec. 498.61  Evidence.

    (a) Evidence may be received at the hearing even though 
inadmissible under the rules of evidence applicable to court procedure. 
The ALJ rules on the admissibility of evidence.
    (b) In civil money penalty cases, HCFA's conclusions as to a SNF's 
or NF's level of noncompliance must be upheld unless clearly erroneous.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program; No. 93.773, Medicare Hospital Insurance)

    Editorial Note: This document was received by the Office of the 
Federal Register on November 3, 1994.

    Dated: June 13, 1994.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.

    Dated: July 25, 1994.
Donna E. Shalala,
Secretary.
[FR Doc. 94-27703 Filed 11-9-94; 8:45 am]
BILLING CODE 4120-01-M