[Federal Register Volume 60, Number 123 (Tuesday, June 27, 1995)]
[Rules and Regulations]
[Pages 33123-33126]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14782]



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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 413

[BPD-689-F]
RIN 0938-AE80


Medicare Program; Uniform Electronic Cost Reporting System for 
Hospitals

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

ACTION: Final rule.

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SUMMARY: This final rule responds to comments on the May 25, 1994, 
final rule with comment period that implemented a standardized 
electronic cost reporting system for all hospitals under the Medicare 
program. In that rule, we solicited comments on the requirement that 
cost reporting software be able to detect changes made to the 
electronic file after the provider has submitted it to the fiscal 
intermediary. This final rule responds to comments on that requirement 
and clarifies that although changes to the ``as-filed'' electronic cost 
report are prohibited, an intermediary makes a working copy of the as-
filed electronic cost report for use in the settlement process.

EFFECTIVE DATE: These regulations are effective on July 27, 1995.

FOR FURTHER INFORMATION CONTACT: Thomas Talbott (410) 966-4592.

SUPPLEMENTARY INFORMATION:

I. Background

A. General

    Under Medicare, hospitals are paid for inpatient hospital services 
that they furnish to beneficiaries under Part A (Hospital Insurance). 
Currently, most hospitals are paid for their inpatient hospital 
services under the prospective payment systems for operating and 
capital costs in accordance with sections 1886(d) and (g) of the Social 
Security Act (the Act) and 42 CFR Part 412. Under these systems, 
Medicare payment is made at a predetermined, specific rate for each 
hospital discharge based on the information contained on actual bills 
submitted.
    Section 1886(f)(1)(A) of the Act provides that the Secretary will 
maintain a system for reporting costs of hospitals paid under the 
prospective payment systems. Section 412.52 requires all hospitals 
participating in the prospective payment systems to meet the 
recordkeeping and cost reporting requirements of Secs. 413.20 and 
413.24, which include submitting a cost report for each 12-month 
period.
    The hospitals and hospital units that are excluded from the 
prospective payment systems are generally paid an amount based on the 
reasonable cost of services furnished to beneficiaries. The inpatient 
operating costs of these hospitals and hospital units are subject to 
the ceiling on the rate of hospital cost increases in accordance with 
section 1886(b) of the Act and Sec. 413.40.
    Sections 1815(a) and 1833(e) of the Act provide that no payments 
will be made to a hospital unless it has furnished the information, 
requested by the Secretary, needed to determine the amount of payments 
due the hospital under the Medicare program. In general, hospitals 
submit this information through cost reports that cover a 12-month 
period.
    All hospitals participating in the Medicare program, whether they 
are paid on a reasonable cost basis or under the prospective payment 
systems, are required under Sec. 413.20(a) to ``maintain sufficient 
financial records and statistical data for proper determination of 
costs payable under the program.'' In addition, hospitals must use 
standardized definitions and follow accepted accounting, statistical, 
and reporting practices. Under the provisions of Secs. 413.20(b) and 
413.24(f), hospitals are required to submit cost reports annually, with 
the reporting period based on the hospital's accounting year.
    Section 1886(f)(1)(B)(i) of the Act provides that the Secretary 
will place into effect a standardized electronic cost reporting format 
for hospitals under Medicare. This standardized electronic cost 
reporting format does not require any additional data from hospitals. 
Section 1886(f)(1)(B)(ii) of the Act provides that the Secretary may 
delay or waive the implementation of the electronic format in instances 
where such implementation would result in financial hardship for a 
hospital (for example, a hospital with a small percentage of inpatients 
entitled to Medicare benefits). These provisions apply to hospital cost 
reporting periods beginning on or after October 1, 1989.

B. Provisions of the August 19, 1991 Proposed Rule

    On August 19, 1991, we published a proposed rule (56 FR 41110) to 
implement sections 1886(f)(1)(B)(i) and (ii) of the Act. We proposed 
that cost reports be submitted in a standardized electronic format. We 
proposed that the hospital's cost report software must be able to 
produce a standardized output file in American Standard Code for 
Information Interchange (ASCII) format. We proposed that all 
intermediaries have the ability to read this standardized file and 
produce an accurate cost report. We proposed rules for suspension of 
Medicare payment if a hospital refuses to submit the cost report 
electronically. We also specified that if a hospital believes that 
implementation of the electronic submission requirement would cause a 
financial hardship, the hospital should submit a written request for a 
waiver or a delay of these requirements, with supporting documentation, 
to the hospital's intermediary. See section III of the proposed rule 
(56 FR 41111 through 41112).

C. Provisions of the May 25, 1994 Final Rule With Comment Period

    On May 25, 1994, we published a final rule with comment period to 
confirm the proposed regulations and respond to public comments on the 
proposed rule (59 FR 26960). As a result of public comments on the 
proposed rule, we eliminated the requirement that providers file a hard 
copy cost report in addition to the electronic file. Instead, we 
required that, in addition to the electronic file, a hospital must 
submit hard copies of a settlement summary, a statement of certain 
worksheet totals found in the electronic file, and a signed statement 
certifying the accuracy of the [[Page 33124]] electronic file or the 
manually prepared cost report.
    The purpose of these changes was to reduce the burden on providers 
and ensure the accuracy of the data contained in the electronic file. 
However, we also needed to ensure the electronic cost report is not 
altered once it leaves the provider. Thus, in conjunction with the 
changes made based on public comments, we implemented several changes 
designed to preserve the integrity of the electronic cost report once 
the provider files it with the intermediary. We required in 
Sec. 413.24(f)(4)(ii) that the provider's software must be capable of 
disclosing that changes have been made to the cost report file after 
the provider has submitted it to the intermediary. We stated that 
electronic cost reporting software will be modified so that the cost 
report will calculate a ``hash total,'' that is, a number representing 
the sum of the worksheet totals contained in the provider's as-filed 
cost report. If any data in the electronic file are changed after the 
hash total is calculated, the electronic file will disclose that a 
change has been made. We also required that an intermediary may not 
alter a cost report once it has been filed by a hospital and must 
reject any cost report that does not pass all specified edits and 
return it to the provider for correction.
    Because providers may not have anticipated the changes needed to 
preserve the integrity of the cost report, we solicited comments on the 
requirement in Sec. 413.24(f)(4)(ii) that all cost reporting software 
must be able to disclose changes made to the electronic file after the 
provider has submitted its cost report to the intermediary.

II. Discussion of Public Comments

    In response to the May 25, 1994 final rule with comment period, we 
received three timely items of correspondence related to the 
requirement that cost reporting software be able to detect changes to 
the electronic cost report after the provider has submitted it to the 
intermediary.
    Comment: One commenter pointed out that a strict interpretation of 
the requirement in Sec. 413.24(f)(4)(ii) that the ``intermediary may 
not alter the cost report once it has been filed by the hospital'' 
would mean that the intermediary could not make audit adjustments to 
the provider's as-filed electronic cost report. Another commenter asked 
whether the intermediary can adjust the cost report for additional 
information not required for acceptability but needed in such cases as 
Hospital Cost Report Information System (HCRIS) preparation.
    Response: We did not intend to imply that the intermediary may not 
make audit adjustments to a provider's cost report. To clarify this 
point, we are revising Sec. 413.24(f)(4)(ii) to state that the as-filed 
cost report may not be altered, but the intermediary must make a 
working copy of the as-filed cost report to be used for the settlement 
process.
    Specifically, we are revising Sec. 413.24(f)(4)(ii) to require 
that--
     The fiscal intermediary store the hospital's as-filed 
electronic cost report and not alter that file for any reason.
     The fiscal intermediary make a working copy of the as-
filed electronic cost report to be used, as necessary, throughout the 
settlement process (that is, desk review, processing audit adjustments, 
final settlement, etc).
    The fiscal intermediary may also employ a working copy of the as-
filed electronic cost report for making any adjustments needed for 
HCRIS purposes.
    Comment: Two commenters suggested that, to maintain the integrity 
of the provider's electronic file, HCFA should require the 
establishment of a print file submitted on diskette as a substitute for 
the hard copy cost report. Another commenter supported the use of 
``hash totals'' in the electronic cost report (ECR) if the vendors are 
able to create ECR files that cannot be edited without detection. The 
commenter suggested that the ``hash totals'' in the ECR be printed in 
cost report text and on the hard copy certification page. The commenter 
also indicated that time and date stamps on the ECR file and printed 
cost report are not useful.
    Response: As stated in the final rule with comment period, 
hospitals are no longer required to submit hard copies of the cost 
report in addition to the electronic file. We agree with the 
commenters' suggestion that an electronic file containing the complete 
printed text of the provider's cost report should be submitted in place 
of the hard copy. Since the ASCII file contains input data only, the 
print file will be helpful in settling discrepancies between the fiscal 
intermediary's settlement amounts and the provider's settlement 
amounts. Therefore, we intend to publish in the Provider Reimbursement 
Manual (HCFA Pub. 15-II) the requirement that providers submit an 
electronic file containing the entire printed text and an encryption 
file (hash totals) of the provider's cost report in addition to the 
ASCII file used for electronic cost reporting.
    We disagree that the time and date stamps on the electronic cost 
report are not useful. The time and date stamps on the electronic cost 
report file must agree with the certification page that accompanies the 
electronic cost report file. This requirement assures us that the cost 
report has been reviewed and accepted and has not been altered after 
certification by the signing officer. This requirement coupled with the 
encryption file will ensure that the integrity of the file has been 
maintained.
    Comment: One commenter suggested that the regulation mention what 
the responsibility of each of the 11 vendors will be to maintain 
consistency between software programs, particularly in the 
implementation of edits. The commenter indicated that if the ADR vendor 
establishes additional edits not specified by HCFA, the electronic cost 
report file created by the provider's software vendor system may result 
in rejection by the intermediary. This possibility places an undue 
burden on the provider who filed under the assumption that all errors 
were detected and corrected before submission.
    Response: All vendors will be responsible for providing their 
clients with the software to create a print file, an encryption file, 
and the electronic cost report file. In addition, the three Automated 
Desk Review (ADR) vendors are responsible for developing a software 
program that will accept the filing of all three files, as mentioned 
above, with the intermediary. All of the software programs will 
maintain consistent edits that, when specified edits are failed, will 
result in the intermediary rejecting the cost report. These edits are 
established by HCFA and published in section 130 of the Provider 
Reimbursement Manual (HCFA Pub. 15-II). An ADR vendor may establish 
additional edits, but failure to meet such edits may not result in 
rejection of the cost report by the intermediary.

III. Technical Changes

    We received several inquiries implying that it is unclear in the 
regulations when an electronic cost report is considered timely filed. 
Therefore, in Sec. 413.24(f)(4)(ii), we are clarifying that, for 
purposes of the due date requirements specified in Sec. 413.24(f)(2), 
an electronic cost report is not considered to be filed until it is 
accepted by the intermediary.
    In the May 25, 1994 final rule with comment period, we eliminated 
the requirement that providers file a hard copy of the cost report. We 
stated that effective for cost reporting periods ending on or after 
October 1, 1994, this requirement is replaced with the submittal of a 
hard copy of a settlement [[Page 33125]] summary, a statement of 
certain worksheet totals found within the electronic file, and a 
certification statement. After publication, we realized that making 
this requirement effective for cost reporting periods ending on or 
after October 1, 1994, did not make sense since cost reporting periods 
generally end on the last day of a month. To eliminate any confusion 
associated with this requirement, we are making a technical correction 
to Sec. 413.24(f)(4)(iii) to specify that the replacement of the 
submission of a hard copy of the cost report with the revised 
documentation is effective for cost reporting periods ending on or 
after September 30, 1994, rather than for periods ending on or after 
October 1, 1994.

IV. Collection of Information Requirements

    As discussed in our May 25, 1994 final rule with comment period (59 
FR 26963), Sec. 413.24 contains information collection and 
recordkeeping requirements related to cost reporting that are subject 
to review by the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). The overall 
recordkeeping and information collection burden associated with filing 
the hospital cost report has been approved by OMB through August 31, 
1996 under OMB No. 0938-0050.
    In the May 25, 1994 final rule with comment period, we revised 
Sec. 413.24 to implement the statutory requirement that hospitals 
submit their cost reports in a uniform electronic format. As we stated 
in the May 25, 1994 document, approximately 90 percent of hospitals 
participating in Medicare already file their cost reports 
electronically and thus are essentially unaffected by the requirement 
that hospitals submit cost reports in an electronic format. For the 
remaining hospitals, we stated that it was possible they would 
initially experience a small additional reporting burden. However, once 
these hospitals become familiar with electronic reporting, there will 
no longer be an additional burden and there may be a decrease in burden 
since the time needed to compute the cost report will no longer be 
required.
    This final rule responds to comments on the May 25, 1994 document 
and makes only minor technical changes to Sec. 413.24. We received no 
comments relating to the discussion in the May 25, 1994 document of the 
information collection and recordkeeping burden. The technical changes 
contained in this final rule have no effect for information collection 
and recordkeeping purposes. However, as stated in the May 25, 1994 
final rule with comment period, the information collection and 
recordkeeping requirements contained in Sec. 413.24 are not effective 
until they have been approved by OMB. A notice will be published in the 
Federal Register when approval is obtained. Organizations and 
individuals desiring to submit comments on the information collection 
and recordkeeping requirements set forth in Sec. 413.24 should direct 
them to the Office of Information and Regulatory Affairs, Office of 
Management and Budget, Human Resources and Housing Branch, Room 10235, 
New Executive Office Building, Washington, D.C. 20503, Attention: 
Allison Herron Eydt, HCFA Desk Officer.

V. Impact Statement

    Unless we certify that a final rule will not have a significant 
economic impact on a substantial number of small entities, we generally 
prepare a regulatory flexibility analysis that is consistent with the 
Regulatory Flexibility Act (RFA) (5 U.S.C. 601 through 612). For 
purposes of the RFA, all hospitals and small businesses that distribute 
cost-report software to hospitals are considered to be small entities. 
Intermediaries are not included in the definition of a small entity.
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a final rule 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 has fewer than 50 beds and is located 
outside of a Metropolitan Statistical Area.
    This final rule is merely making clarifying and technical changes 
to the regulations and will not have a significant effect on Medicare-
participating hospitals or software suppliers. Therefore, a regulatory 
flexibility analysis is not required. We are not preparing a rural 
impact statement since we certify that this final rule will not have a 
significant economic impact on the operation of a substantial number of 
small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was not reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 413

    Health facilities, Kidney diseases, Medicare, Puerto Rico, 
Reporting and recordkeeping requirements.

    42 CFR part 413 is amended as follows:

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES

    1. The authority citation for part 413 continues to read as 
follows:

    Authority: Secs. 1102, 1122, 1814(b), 1815, 1833(a), (i), and 
(n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act 
(42 U.S.C. 1302, 1302a-1, 1395f(b), 1395g, 13951(a), (i), and (n), 
1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww).

Subpart B--Accounting Records and Reports

    2. In Sec. 413.24, the headings for paragraphs (f) and (f)(4) are 
republished, paragraph (f)(4)(ii) and the first sentence of paragraph 
(f)(4)(iii) are revised to read as follows:


Sec. 413.24  Adequate cost data and cost finding.

* * * * *
    (f) Cost reports. * * *
    (4) Electronic submission of cost reports. * * *
    (ii) The fiscal intermediary stores the hospital's as-filed 
electronic cost report and may not alter that file for any reason. The 
fiscal intermediary makes a ``working copy'' of the as-filed electronic 
cost report to be used, as necessary, throughout the settlement process 
(that is, desk review, processing audit adjustments, final settlement, 
etc). The hospital's electronic program must be able to disclose if any 
changes have been made to the as-filed electronic cost report after 
acceptance by the intermediary. If the as-filed electronic cost report 
does not pass all specified edits, the fiscal intermediary rejects the 
cost report and returns it to the hospital for correction. For purposes 
of the requirements in paragraph (f)(2) of this section concerning due 
dates, an electronic cost report is not considered to be filed until it 
is accepted by the intermediary.
    (iii) Effective for cost reporting periods ending on or after 
September 30, 1994, a hospital must submit a hard copy of a settlement 
summary, a statement of certain worksheet totals found within the 
electronic file, and a statement signed by its administrator or chief 
financial officer certifying the accuracy of the electronic file or the 
manually prepared cost report. * * *
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance)

    [[Page 33126]] Dated: May 22, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 95-14782 Filed 6-26-95; 8:45 am]
BILLING CODE 4120-01-P