[Federal Register Volume 60, Number 62 (Friday, March 31, 1995)]
[Rules and Regulations]
[Pages 16754-16757]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7846]



      

[[Page 16753]]

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Part V





Department of Health and Human Services





_______________________________________________________________________



Public Health Service



_______________________________________________________________________



42 CFR Part 124



Medical Facility Construction and Modernization; Requirements for 
Provision of Services to Persons Unable to Pay; Final Rule

  Federal Register / Vol. 60, No. 62 / Friday, March 31, 1995 / Rules 
and Regulations   
[[Page 16754]] 

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Public Health Service

42 CFR Part 124

RIN: 0905-AE33


Medical Facility Construction and Modernization; Requirements for 
Provision of Services to Persons Unable to Pay

AGENCY: Public Health Service, DHHS.

ACTION: Final rule.

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SUMMARY: This document revises the rules currently governing how 
certain health care facilities, assisted under Titles VI and XVI of the 
Public Health Service Act, fulfill the assurance, given in their 
applications for assistance, that they would provide a reasonable 
volume of services to persons unable to pay. Public comment on the 
current rules and operational experience with them indicated the need 
to revise the current requirements with respect to nursing homes, many 
of which are unable under current requirements to meet their obligation 
to provide such services. The rules below should permit qualified 
facilities to satisfy their uncompensated services assurance.

DATES: These rules are effective on May 1, 1995.

    Applicability For facilities certified under 42 CFR 124.516(b)(1), 
these rules are applicable on the later of May 1, 1995 or the beginning 
of the facility's next fiscal year. For all other facilities, these 
rules are applicable on May 1, 1995.
FOR FURTHER INFORMATION CONTACT: Mr. Eulas Dortch, 301-443-5656.

SUPPLEMENTARY INFORMATION: On April 4, 1994, the Secretary of Health 
and Human Services proposed amending the rules governing what is 
popularly known as the Hill-Burton uncompensated services program. 59 
FR 15693. As explained more fully below, the Notice of Proposed 
Rulemaking (NPRM) proposed to expand the income eligibility limits 
applicable to patients served by obligated nursing homes, to help such 
facilities meet their existing uncompensated services obligations.
    The Public Health Service strongly encourages all grant recipients 
to provide a smoke-free workplace and promote the non-use of all 
tobacco products. This is consistent with the PHS mission to protect 
and advance the physical and mental health of the American people.

Regulatory Background

    Health care facilities covered by the program received construction 
assistance under two titles of the Public Health Service Act, Title VI 
(the ``Hill-Burton Act'', 42 U.S.C. 291, et seq.) and Title XVI (42 
U.S.C. 300q, et seq.). Under both titles, facilities receiving such 
construction assistance have been required, as a condition of receiving 
the construction assistance, to provide an assurance that ``there will 
be available in the facility or portion thereof to be constructed or 
modernized a reasonable volume of services to persons unable to pay 
therefor * * *.'' 42 U.S.C. 291c(e). See also 42 U.S.C. 300s-
1(b)(1)(K)(ii). This assurance is known as the ``uncompensated services 
assurance.''
    Regulations governing compliance with the uncompensated services 
assurance were first issued in 1947, and have been revised several 
times. On May 18, 1979, comprehensive regulations governing compliance 
with the assurance were issued at 44 FR 29372. Among other things, the 
1979 regulations: established a minimum level of uncompensated services 
facilities were required to provide; set an annual compliance level of 
uncompensated services to be provided and required facilities to make 
up any deficit in meeting the annual compliance level through provision 
of more uncompensated services in later years; required facilities to 
allocate their uncompensated services either under a plan meeting 
certain requirements or on a first-request, first-served basis; 
required facilities to notify the public of the existence of their 
uncompensated services programs through public notice and provision of 
personal notice to individuals served by the facilities; and required 
facilities to keep records documenting compliance and to periodically 
report concerning compliance. The 1979 regulations also for the first 
time established national eligibility criteria, based on income: 
Individuals whose annual income was at or below the poverty level 
(known as ``Category A individuals'') were automatically eligible for 
uncompensated services; individuals whose annual income was at or below 
two times the poverty level (known as ``Category B individuals'') were 
also eligible for uncompensated services, unless the facility decided 
to limit its services to Category A individuals only. However, the 1979 
regulations also provided that amounts to which an individual was 
entitled under a third-party insurance or governmental program could 
not be credited towards a facility's uncompensated services quota.
    On December 3, 1987, the Secretary revised the 1979 regulations at 
52 FR 46022. As pertinent here, the 1987 regulations effected a 
technical revision of the 1979 regulations, making explicit what had 
formerly been implicit in those regulations; i.e., that coverage of an 
indigent under a third-party insurance or governmental program 
precludes eligibility for uncompensated services. 42 CFR 124.505(a)(1) 
(1988). This policy simply reflects the long-standing agency view of 
the uncompensated services program as a program of last resort, 
designed to serve persons who have no source of payment, such as 
Medicaid or private insurance, for medical care.
    This policy has created major compliance problems for many Hill-
Burton-obligated nursing homes. HHS determined that, of the 287 nursing 
homes with outstanding uncompensated services obligations under the 
general compliance standards of the regulations, 243 have deficits; the 
majority of these have received no uncompensated services credit. These 
deficits persist despite many attempts by HHS to provide technical 
assistance to nursing homes to bring them into compliance. The 
fundamental problem is that, in most of these nursing homes, the only 
individuals who meet the income-eligibility requirements for receipt of 
uncompensated services are also covered by their state's Medicaid 
program; hence, they are by definition ineligible for uncompensated 
services under Sec. 124.505(a)(1). Thus, in states in which the 
Medicaid eligibility limits exceed the Hill-Burton eligibility limits 
and which cover most or all medical services, nursing homes are 
chronically unable to fulfill their uncompensated services obligations.

Proposed Rules

    HHS established a task force to analyze nursing home compliance 
issues and develop strategies for dealing with compliance problems. 
Based on the task force findings and its own survey of regional offices 
of the Health Care Financing Administration, which administers the 
Medicaid program, HHS proposed to triple the income eligibility limit 
for individuals in nursing homes, to create a broader pool of eligible 
individuals for such facilities. The NPRM accordingly proposed to 
establish a third income eligibility level (Category C) for nursing 
home services only. See, proposed Sec. 124.505(a)(2)(iii). A Category C 
individual would be an individual whose annual income is greater than 
two times, but does not [[Page 16755]] exceed three times, the poverty 
level. The regulations already define which facilities are ``nursing 
homes'' within the scope of the regulation. See, Sec. 124.502(h). In 
addition, the NPRM proposed certain technical and conforming amendments 
to other sections of the regulations. The principal one was the 
proposed change to Sec. 124.506(a)(1)(v), to provide that if a nursing 
home provides services on a reduced charge basis to both Category B and 
Category C individuals, it may not employ a discount method that gives 
Category C individuals greater discounts than those given to Category B 
individuals.

Public Comment and Department's Response

    The Department received seven comments on the NPRM, two from 
nursing home associations and five from representatives of individual 
nursing homes. While most of the commentors applauded the proposed 
revisions as a step in the right direction, they made a number of 
suggestions for other policies that would, in their view, better 
address the chronic deficit problem faced by so many nursing homes. 
These comments and the Department's responses thereto are set out 
below.
    1. The most common criticism was that the proposed remedy fails to 
address what the commentors in general see as the chief problem: The 
inadequacy of Medicaid reimbursements. The commentors generally noted 
that their facilities run large losses attributable to the differential 
between Medicaid reimbursement and actual costs, and suggested that 
facilities be permitted to write off this differential as uncompensated 
services. An Ohio facility that advocated this approach noted that, in 
Ohio, all persons with incomes up to the cost of nursing home services 
qualify for Medicaid, so that there are no non-Medicaid eligible 
patients who would qualify for uncompensated services. A variation of 
this approach was the suggestion that a compliance alternative be 
created for facilities with a Medicaid patient census of at least 70%.
    The Department does not agree that it should treat as uncompensated 
services amounts in excess of ``reasonable costs'' (the amount 
reimbursed by Medicaid). To do so would result in facility credit for 
unreasonable charges and a reduction in the amount of uncompensated 
services to persons unable to pay. Rather, it wishes to look at the 
effect of the rules below, together with the recently adopted 
charitable facility alternative, on reducing the incidence of 
intractable deficits. For the same reasons, it is not prepared to craft 
a compliance alternative for majority-Medicaid facilities along the 
lines suggested. These facilities, by virtue of their high volume 
Medicaid levels, have an inherently smaller compliance level under the 
3 percent compliance option. However, the Department intends to 
continue to study this issue.
    With respect to the Ohio situation, it is likely that such 
facilities will qualify under the recently published charitable 
facility alternative. See, 59 FR 44634 (Aug. 30, 1994). Such facilities 
may be able to satisfy their obligations and make up their deficits 
under that alternative, as long as they collect no monies (other than 
those required to be collected under governmental programs) from Hill-
Burton eligible patients.
    2. One provider association, while supportive of the proposed 
rules, suggested that the Department adopt additional compliance 
alternatives for facilities in states which have medically needy 
programs and which, accordingly, are likely to be unable to benefit 
from the proposed increase in the income eligibility level. The 
association suggested that (1) services uncovered by Medicaid be 
identified and considered eligible for inclusion as uncompensated 
services, such as additional hours of nursing care, therapies, or other 
activities; (2) health-related services provided to eligible non-
residents on the nursing facility premises be counted as uncompensated 
services; and (3) services provided by nursing homes off-premises under 
Medicaid home and community-based waivers be counted as uncompensated 
services.
    Generally, the Department agrees that health services provided by a 
Hill-Burton facility that are not covered by Medicaid should count as 
uncompensated services, and it has traditionally accepted them as such. 
However, since Medicaid patients are not liable for additional hours of 
care provided which exceed established Medicaid standards, such costs 
are not considered to be uncompensated services. With respect to the 
second proposal, there is no problem under the present regulations with 
counting, toward a facility's uncompensated services quota, health 
services provided on-premises to eligible nonresidents of the facility. 
Thus, facilities may include such services in their allocation plans. 
However, the association's third proposal is not one that the 
Department can accept, since services which are reimbursed by Medicaid 
are, by definition, ineligible for Hill-Burton credit.
    3. A couple of facilities objected to the proposed rules on the 
grounds that expanding the income eligibility limits would create a 
larger pool of eligibles and thus be devastating to facilities that are 
already in financial straits. One facility asked in particular that it 
be allowed to write off necessary building maintenance and improvement 
expenses as uncompensated services, as it is unable to afford to serve 
more persons below cost than it already does.
    These facilities appear to misapprehend the requirements of the 
current uncompensated services regulations. Under the current 
regulations, facilities that are financially unable to meet their 
uncompensated services obligation may apply to have it deferred until 
they are financially able to make it up. See 42 CFR 124.503(b)(1)(i) 
and 124.511(c). However, except to the extent building maintenance and 
improvement expenses are factored into a facility's indirect cost rate 
that forms part of the basis for its charges for services, such 
expenses are not creditable as ``uncompensated services,'' because they 
are not ``services'' within the meaning of the statute.
    4. A couple of commenters stated that the proposed increase in 
income eligibility limits would be problemmatic for other reasons: (1) 
Because such individuals would be covered under the proposed Health 
Security Act; and (2) because the proposed limit exceeds the costs of 
nursing home services in certain states. The Department, however, does 
not share the commenters' concerns in this regard. Should health care 
reform become law, this program (like others) will have to be reviewed 
for consistency with the operation of the reform statute enacted, but 
this is not an issue that can productively be addressed before 
enactment of such a statute. With respect to the second comment, the 
Department thinks that the income limit will not be a problem in such 
states, as a facility cannot, in any event, receive credit for more 
than it charges.
    5. No comments were received concerning the conforming and 
technical amendments proposed. However, the recent adoption of the 
charitable facility compliance alternative has necessitated a 
conforming amendment to that section (see Sec. 124.516 below). 
Otherwise, however, no changes to the proposed technical and conforming 
amendments have been made.
    6. Dates. Note that, with respect to facilities certified under the 
alternative in the newly adopted Sec. 124.516(b)(1), this amendment is 
applicable on May 1, 1995 or the beginning of the facility's 
[[Page 16756]] next fiscal year, whichever is later. Thus, it is the 
Department's intention that the three-year base in Sec. 124.516 will 
operate prospectively only with respect to the amendment to the 
charging restriction of Sec. 124.516(b)(1). For example, a nursing home 
applying for certification under Sec. 124.516(b)(1) in 1996 would only 
have to demonstrate that it had not charged persons with incomes up to 
three times the poverty level for that part of the three-year period in 
which the amendment below applied to it, not for the entire three-year 
period.
    It should be noted that the changes adopted below will not have the 
same automatic effect for other nursing homes. Rather, unless a nursing 
home has failed to adopt an allocation plan, it will generally not be 
required to provide uncompensated services to Category C individuals 
unless it takes an affirmative action to do so, through publication of 
a revised allocation plan covering Category C individuals. See, 
Sec. 124.506(a)(1)(v) below. However, to facilitate prompt coverage of 
such individuals, a facility need not wait until the effective date of 
these amendments to publish a revised allocation plan under 
Sec. 124.506(c), but may do so any time after publication of these 
amendments, with the effective date of the revised allocation plan 
being at least 60 days following publication.

Regulatory Flexibility Act and Executive Order 12866

    The rules below do not change the existing procedural and reporting 
requirements for obligated facilities. The Department has determined 
that the impact will not approach the annual $100 million threshhold 
for major economic consequences as defined in Executive Order 12866. 
Therefore, a regulatory impact analysis is not required.
    Consistent with the provisions of the Regulatory Flexibility Act (5 
U.S.C. 605(b)), the Secretary certifies that this rule will not have a 
significant economic impact on a substantial number of small entities.

Paperwork Reduction Act of 1980

    The rules below contain no information collection or reporting 
requirements which are subject to review by the Office of Management 
and Budget (OMB) under the Paperwork Reduction Act of 1980.

List of Subjects in 42 CFR Part 124

    Grant programs--health, Health facilities, Loan programs--health, 
Low income persons.

    Dated: January 12, 1995.
Philip R. Lee,
Assistant Secretary for Health.
Approved: March 24, 1995.
Donna E. Shalala,
Secretary.
    For reasons set out in the preamble, subpart F of 42 CFR part 124 
is hereby amended to read as follows:

Subpart F--Reasonable Volume of Uncompensated Services to Persons 
Unable to Pay

    1. The authority citation for 42 CFR part 124, subpart F, continues 
to read as follows:

    Authority: 42 U.S.C. 216; 42 U.S.C. 300s(3).

    2. The first two sentences of Sec. 124.503(b)(4) are revised to 
read as follows:


Sec. 124.503  Compliance level.

    (a) * * *
    (b) * * *
    (4) Affirmative action plan for precluding future deficits. Except 
where a facility reports to the Secretary in accordance with 
Sec. 124.509(a)(2)(iii) that it was financially unable to provide 
uncompensated services at the annual compliance level, a facility that 
fails to meet its annual compliance level in any fiscal year shall, in 
the following year, develop and implement a plan of action that can 
reasonably be expected to enable the facility to meet its annual 
compliance level. Such actions may include special notice to the 
community through newspaper, radio, and television, or expansion of 
service to Category B, or, with respect to nursing homes, Category C, 
persons. * * *
* * * * *
    3. Section 124.505 is amended by revising paragraph (a)(2)(ii) and 
adding (a)(2)(iii) to read as follows:


Sec. 124.505  Eligibility criteria.

    (a) * * *
    (2) * * *
    (ii) Category B--A person whose annual individual or family income, 
as applicable, is greater than but not more than twice the poverty line 
issued by the Secretary pursuant to 42 U.S.C. 9902 that applies to the 
individual or family. If persons in Category B are included in the 
allocation plan, the facility shall provide uncompensated services to 
these persons without charge, or in accordance with a schedule of 
charges as specified in the allocation plan.
    (iii) Category C--With respect only to persons seeking or receiving 
nursing home services, a person whose annual or family income, as 
applicable, is more than twice but not greater than three times the 
poverty line issued by the Secretary pursuant to 42 U.S.C. 9902 that 
applies to the individual or family. If persons in Category C are 
included in the allocation plan, the facility shall provide 
uncompensated services to these persons without charge, or in 
accordance with a schedule of charges as specified in the allocation 
plan; and
* * * * *
    4. Section 124.506 is amended by revising paragraph (a)(1)(iii) 
through (a)(1)(v), the first sentence of paragraph (b)(2), and by 
adding paragraph (a)(1)(vi), to read as follows:


Sec. 124.506  Allocation of services; plan requirement.

    (a)(1) * * *
    (iii) State whether Category B or, in the case of nursing homes 
only, Category C persons will be provided uncompensated services, and 
if so, whether the services will be available without charge or at a 
reduced charge;
    (iv) If services will be made available to Category B persons at a 
reduced charge, specify the method used for reducing charges, and 
provide that the method is applicable to all persons in Category B;
    (v) With respect to nursing homes only, if services will be made 
available to Category C persons at a reduced charge, specify the method 
used for reducing charges, provided that such method may not result in 
greater reductions than those afforded to Category B persons, and 
provide that this method is applicable to all persons in Category C; 
and
    (vi) Provide that the facility provides uncompensated services to 
all persons eligible under the plan who request uncompensated services.
    (b)(1) * * *
    (2) If no plan was previously published in accordance with 
paragraph (a)(2) of this section, the facility must provide 
uncompensated services without charge to all applicants in Category A 
and Category B, and, with respect to nursing homes, Category C, who 
request service in the facility.* * *
* * * * *
    5. Section 124.516 is amended by revising paragraph (b)(1) to read 
as follows:


Sec. 124.516  Charitable facility compliance alternative.

    (a) * * *
    (b) * * *
    (1)(i) For facilities that are nursing homes: It received, for the 
three most recent fiscal years, no monies directly from patients with 
incomes up to triple the current poverty line issued by the 
[[Page 16757]] Secretary pursuant to 42 U.S.C. 9902, exclusive of 
amounts charged or received for purposes of claiming reimbursement 
under third party insurance or governmental programs, such as Medicaid 
or Medicare deductible or coinsurance amounts;
    (ii) For all other facilities. It received, for the three most 
recent fiscal years, no monies directly from patients with incomes up 
to double the current poverty line issued by the Secretary pursuant to 
42 U.S.C. 9902, exclusive of amounts charged or received for purposes 
of claiming reimbursement under third party insurance or governmental 
programs, such as Medicaid or Medicare deductible or coinsurance 
amounts; or
* * * * *
[FR Doc. 95-7846 Filed 3-30-95; 8:45 am]
BILLING CODE 4160-15-M