[Federal Register Volume 63, Number 104 (Monday, June 1, 1998)]
[Rules and Regulations]
[Pages 29648-29656]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14309]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 441 and 489

[HCFA-1152-1-F]
RIN 0938-AI86


Medicare and Medicaid Programs; Surety Bond Requirements for Home 
Health Agencies

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

ACTION: Final rule.

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SUMMARY: This final rule revises several provisions of an earlier final 
rule concerning surety bond requirements published in the Federal 
Register on January 5, 1998 (63 FR 292). This rule also establishes the 
surety bond submission compliance date, as described in a notice of 
intent and in a final rule concerning surety bond requirements 
published in the Federal Register on March 4, 1998 (63 FR 10730 and 
10732). The March 4 documents advised the public that we intended to

[[Page 29649]]

make technical revisions to the January 5, 1998 final rule and extend 
the February 27, 1998 compliance date for all home health agencies 
(HHAs) to furnish a surety bond to HCFA and/or the State Medicaid 
agency, or both, until 60 days after the date of publication of this 
final rule. In this rule, for Medicare-participating HHAs, we are 
establishing a new compliance date to submit a surety bond that is 60 
days after the date of publication of this final rule. For Medicaid-
participating HHAs, we are establishing a new compliance date to 
furnish a surety bond that is a date established by the State Medicaid 
agency up to 120 days after the date of publication of this final rule. 
We are also responding to comments we received in response to the 
January 5, 1998 final rule that pertain to the technical revisions we 
discussed in our March 4, 1998 notice. It is our intention to respond 
to all comments not addressed herein in a future Federal Register 
document. This final rule revision does not change the beginning date 
of the term the initial surety bond is to cover, that is, January 1, 
1998.

EFFECTIVE DATE: This final rule is effective on July 1, 1998.

FOR FURTHER INFORMATION CONTACT: Ralph Goldberg, (410) 786-4870 
(Medicare Provisions). Mary Linda Morgan, (410) 786-2011 (Medicaid 
Provisions).

SUPPLEMENTARY INFORMATION:

I. Background

    The Balanced Budget Act of 1997 (BBA '97) requires each home health 
agency (HHA) to secure a surety bond in an amount of at least $50,000 
in order to participate in either the Medicare or the Medicaid 
programs. This requirement applies to all participating HHAs and those 
that seek to participate in the Medicare and Medicaid programs. On 
January 5, 1998, we published in the Federal Register a final rule with 
comment period (63 FR 292) to implement the surety bond requirements of 
BBA '97. The comment period for that final rule ended on March 6, 1998.
    Generally, the rule requires each HHA participating in Medicare to 
obtain from an authorized Surety and then to furnish to HCFA a surety 
bond in an amount that is the greater of $50,000 or 15 percent of the 
annual amount paid to the HHA by the Medicare program, as such annual 
amount appears in the HHA's most recently accepted cost report.
    The rule also prohibits payment to a State for home health services 
furnished to Medicaid recipients unless the HHA has furnished the 
Medicaid State agency with a surety bond similar to one that meets 
Medicare requirements. The amount of the Medicaid surety bond would be 
the greater of $50,000 or 15 percent of the annual amount paid to the 
HHA by the Medicaid State agency for home health services.

II. Provisions of the March 4 Notice and Final Rule

    As a result of technical issues concerning potential Surety 
liability raised by representatives of both the Surety and HHA 
industries after the publication of the January 5, 1998 final rule, we 
published a notice in the Federal Register on March 4, 1998 (63 FR 
10732). That notice advised the public that we intended to make 
technical revisions to the January 5, 1998 final rule and would extend 
the compliance date for submitting bonds. In a final rule also 
published in the March 4, 1998 Federal Register (63 FR 10730), we 
removed the February 27, 1998 compliance date, and announced that we 
intended to establish the compliance date as 60 days after the date of 
publication of a subsequent (i.e., this) final rule.
    Described below are our responses to the comments we received 
concerning our technical changes, a discussion of their intended 
effect, and the changes that we are making in this rulemaking. In 
general, these changes address concerns regarding the uncertainty of 
the scope of a Surety's liability under the January 5, 1998 regulation, 
which appears to have resulted in less than a fully robust market for 
underwriting bonds for HHAs in Medicare and Medicaid.

III. Discussion of Public Comments

    In response to the January 5, 1998 final rule, we received 344 
timely items of correspondence. A summary of the comments that pertain 
to those issues discussed in our March 4, 1998 notice and our responses 
are set forth below. We will respond to the remaining comments on the 
January 5, 1998 final rule in a subsequent Federal Register document. 
The following sections generally follow the order the topics were 
discussed in the January 5, 1998 final rule.

Continuous Bond

    Comment: Several Surety associations suggested that we consider 
using a continuous bond that, when necessary, would be updated by the 
Surety. The continuous bond would be an alternative option to the 
annual bond.
    Response: We understand that the use of a continuous bond is common 
practice in the surety industry. A continuous bond is one that remains 
in full force and effect unless it is canceled or terminated. The use 
of a continuous bond would significantly reduce the paperwork burden 
and administrative processes for the HHAs, Sureties, and the Medicare 
and Medicaid programs. Therefore, in 42 CFR 441.16(i)(2) and 489.67(b), 
we are providing that the HHA--at its option--may submit an annual bond 
each year or may submit a continuous bond that remains in effect from 
year to year. A continuous bond would be updated by the Surety at the 
start of a new year if the amount of the required bond increases or 
decreases. The updating of a continuous bond would be accomplished by 
the Surety issuing a ``rider,'' which is a notice issued by a Surety 
that a change in the bond has occurred or will occur. A continuous bond 
should not be misinterpreted as providing cumulative liability. For 
example, this does not mean that an initial bond in the amount of 
$50,000 would increase to $100,000 in the second year, $150,000 in the 
third year, etc. This change affects several regulation sections and is 
more fully discussed in section IV. of this preamble.

Government Security

    Comment: One commenter suggested that we consider allowing HHAs to 
furnish a Government security in lieu of furnishing a surety bond, in 
that the Department of Treasury regulations authorize such 
substitution.
    Response: We are exploring the desirability of this option as well 
as the various means by which this option may be implemented. We will 
issue the result of our decision in a subsequent document.

Surety Liability

    Comment: Several commenters had concerns regarding the uncertainty 
of the scope of a Surety's liability under the current regulation. The 
commenters were specifically concerned that our ability to reach back 
several years to recover payments leaves the door open for almost 
unlimited Surety liability.
    Response: The uncertain scope of potential liability for Sureties 
has made it difficult for some apparently reputable and well-run HHAs 
to obtain an affordable surety bond. We are addressing this concern by 
limiting the Surety's liability on the bond to the term during which we 
determine that funds owed have become unpaid, regardless of when the 
overpayment or other events causing such funds to be owed took place. 
In the Medicare program, the Surety is liable if the claim, civil money

[[Page 29650]]

penalty, or assessment becomes unpaid, as defined in Sec. 489.60, and 
we make a written demand for payment from the Surety during the term of 
the bond. If the HHA fails to furnish a bond that meets our 
requirements for the year following expiration of the term of the bond, 
or if the HHA's provider agreement terminates prior to the end of the 
fiscal year, the last bond in effect has an additional 2-year discovery 
period for unpaid claims, civil money penalties, and assessments that 
we impose on or assert against the HHA.
    Likewise, in the Medicaid program, the Surety is liable for 
uncollected overpayments, as defined by paragraph (a), provided such 
uncollected overpayments are determined during the term of the bond and 
regardless of when the overpayments took place. In addition, the Surety 
remains liable if the HHA fails to furnish a subsequent annual bond 
that meets the requirements of this subpart or fails to furnish a rider 
for a year for which a rider is required to be submitted, or if the 
HHA's provider agreement terminates and that the Surety's liability 
will be based on the last bond or rider in effect for the HHA. The 
Surety's period of liability will remain in effect for an additional 2 
year period.

Appeals

    Comment: Several commenters recommended that the Surety be given 
appeal rights.
    Response: To address this concern, we are making another technical 
revision to the regulation. In the Medicare program, we are giving 
Surety bond companies the right to appeal overpayments, civil money 
penalties, and assessments. This change grants the Surety standing to 
appeal any matter that the HHA could appeal, provided the Surety 
satisfies all jurisdictional and procedural requirements that would 
otherwise have applied to the HHA and provided the HHA is not, itself, 
actively pursuing its appeal rights, and provided further that, with 
respect to unpaid claims, the Surety has paid HCFA all amounts owed to 
HCFA by the HHA on such unpaid claims, up to the amount of the bond. In 
order to ensure that Sureties are furnished with proper notice of 
matters on which an appeal right may ripen, we are further specifying 
that surety bonds must include the Surety's full name and address to 
which we can send a written notice of an overpayment, civil money 
penalty, or assessment. In the Medicaid program, we are directing the 
State Medicaid agencies to grant Sureties appeal rights. This change 
affects several regulation sections and is more fully discussed in 
section IV. of this preamble.

Surety Reimbursement

    Comment: A commenter recommended that we provide for reimbursing 
the Surety when HCFA collects from both the HHA and the Surety on the 
same overpayment, civil money penalty, or assessment.
    Response: We have provided for reimbursement to the Surety in cases 
where both the HHA and Surety have repaid the Medicare or Medicaid 
program on the same overpayment, civil money penalty, or assessment. We 
are adding a new subsection (m) to Sec. 441.16 and a new Sec. 489.73 to 
effectuate this change.

HCFA Payment Demand

    Comments: Several commenters wanted to know the circumstances under 
which we will demand payment from a Surety.
    Response: We will first seek collection from the HHA, employing 
available administrative collection methods, e.g., offset of interim 
payments, repayment schedule, etc., prior to seeking payment from the 
Surety under the terms of the bond.

Computation of the 15 Percent of Annual Payments

    Comment: Commenters questioned the application of the 15 percent 
standard to the annual payments paid to the HHA by the Medicare program 
as reflected on the most recently accepted cost report, in determining 
the bond amount.
    Response: Approximately half of the current Medicare overpayments 
are attributable to HHAs. In comparing overpayments to revenues paid to 
the HHAs for four previous years, we also found that uncollected 
overpayments have been rising significantly both in absolute dollar 
amounts and as a percentage of the original amount of overpayment.
    In developing our regulation, we reviewed the Office of Inspector 
General's (OIG) July 1997 report Home Health: Problem Providers and 
Their Impact on Medicare (page 18), in which the OIG recommended that 
each HHA be required to obtain a surety bond equal to the amount of 
anticipated Medicare billings during the fiscal year. We also consulted 
with industry representatives.
    We believe that a bond amount of 15 percent of payments will 
adequately cover the overpayment amounts, if any, for which the vast 
majority of HHAs would be responsible and yet would not be so high that 
it would prevent reputable and well-run HHAs from obtaining bonds at a 
reasonable cost. The 15 percent standard was also adopted in 
conjunction with other provisions of this rule that afford us more 
protection by permitting us to apply the standard to more recent 
payment history and by permitting us to substitute the amount of prior 
overpayments as the bond amount when the overpayment amount exceeds 15 
percent of payments. Thus, we believe that the rules established in 
Sec. 489.65 for calculating the bond amount are a reasonable starting 
point for implementing the bond provision. However, we will continue to 
monitor payments to HHAs and will modify our policy for future years if 
conditions warrant. Any revisions would be proposed in a Federal 
Register document. Also, we are including a provision that will sunset 
the 15 percent bond amount provision on June 1, 2005. Prior to that 
time, we will analyze available data on the impact of the surety bond 
requirement and the prospective payment system for HHAs to determine if 
the 15 percent computation is appropriate. We will publish a Federal 
Register document addressing the 15 percent amount prior to the sunset 
date. However, we may act sooner if we believe circumstances warrant.

IV. Provisions of the Final Rule

    In this final rule, we are revising certain sections of the January 
5, 1998 final rule as a result of public comments on that rule that 
pertain to the issues discussed in our March 4, 1998 notice. These 
changes are as follows:

A. Surety Bond Requirements Under Medicare

    In Sec. 489.60 (``Definitions.''), we are revising the definition 
of ``Unpaid civil money penalty or assessment'' to add the Surety as a 
potential party to the administrative appeals process. We are also 
adding a new definition for the term ``Rider'' in this section.
    In Sec. 489.62 (``Requirement waived for Government-operated 
HHAs.''), we are making an editorial change by removing the word 
``section'' and replacing it with the word ``subpart''.
    In Sec. 489.65(g) (``Expiration of the 15 percent provision.''), we 
provide that for an annual surety bond, or for a rider on a continuous 
surety bond, that is required to be submitted on or after June 1, 2005, 
notwithstanding any reference in this subpart to 15 percent as a basis 
for determining the amount of the bond, the amount of the bond or 
rider, as applicable, must be $50,000 or such amount as HCFA specifies 
in

[[Page 29651]]

accordance with paragraph (f) of this section, whichever amount is 
greater.
    In Sec. 489.66(b) (``Additional requirements of the surety 
bond.''), we specify that a Surety's liability is based on unpaid 
claims, unpaid civil money penalties, and unpaid assessments that are 
determined to have become unpaid during the term of the bond, 
regardless of when the payment, overpayment, or other event giving rise 
to the unpaid claim, civil money penalty, or assessment occurred. Also, 
we specify that if an HHA fails to furnish us with a subsequent annual 
bond that meets the requirements of this subpart, or fails to furnish 
us with a rider for a year for which a rider is required to be 
submitted, or if the HHA's provider agreement terminates prior to the 
end of the fiscal year, then the last bond or rider in effect for such 
HHA remains in effect and the Surety remains liable for an additional 
2-year period.
    We revise Sec. 489.66(c) to correct a drafting error to clarify 
that the Surety's liability may be extinguished if the Surety furnishes 
us with a notice of an HHA's action to terminate or limit the scope of 
the bond not later than 10 days after receiving notice from the HHA of 
such action by the HHA, or not later than 60 days before the effective 
date of such action by the Surety or if the HHA has submitted to HCFA a 
new bond that meets our requirements.
    In new Sec. 489.66(e), we are making a technical change to specify 
that surety bonds must include the Surety's full name and address to 
which we can send a written notice of an overpayment, civil money 
penalty, or assessment.
    In Sec. 489.67(a) (``Submission date and term of the bond.''), we 
have amended this provision to specify that the initial bond must be 
submitted to HCFA by 60 days from the date of publication of this rule, 
for the term beginning January 1, 1998. An HHA that submitted an 
initial surety bond under the provisions of the January 5, 1998 final 
rule is not required to, but may, submit a substitute surety bond that 
conforms to the technical revisions established by this final rule. If 
an annual bond is submitted for the initial term, it must be effective 
through the ending date of the HHA's current fiscal year. For 
subsequent terms, an HHA must submit to us either an annual surety bond 
or where the HHA has submitted a continuous bond, a rider (showing the 
period for which the rider is effective), not later than 30 days before 
the beginning of the HHA's fiscal year. When an HHA has furnished a 
continuous bond, no action is necessary by the HHA to submit a rider as 
long as the continuous bond remains in full force and effect and there 
is no change in the bond amount.
    In Sec. 489.67(b), we specify the type of bond that an HHA must 
secure as either an annual or continuous bond.
    In Sec. 489.71 (``Surety's standing to appeal Medicare 
determinations.''), we specify that a Surety has standing to appeal any 
matter that the HHA could appeal, provided the Surety satisfies all 
jurisdictional and procedural requirements that would otherwise have 
applied to the HHA and provided the HHA, itself, is not pursuing its 
appeal rights, and provided further that, with respect to unpaid 
claims, the Surety has paid HCFA all amounts owed to HCFA by the HHA on 
such unpaid claims, up to the amount of the bond.
    In new Sec. 489.73 (``Effect of conditions of payment''), we 
specify that if the Surety has paid an amount on the basis of liability 
incurred under a bond obtained by an HHA, and we subsequently collect 
from the HHA on the same indebtedness that gave rise to the Surety's 
liability, we will reimburse the Surety the amount we collected from 
the HHA up to the amount paid to us by the Surety, provided the Surety 
has no other liability to us under the bond.

B. Surety Bond Requirements Under Medicaid

    In keeping with our intent and practice of affording States 
flexibility in implementing these surety bond provisions, and in 
recognition that the States' administration of Medicaid may differ 
significantly from the Medicare model, we have not changed the Medicaid 
requirements in Sec. 441.16 to conform to all of Medicare's changes in 
part 489, subpart F. We believe that allowing States the discretion to 
decide, for example, the means and mechanism by which the Surety is 
notified of any overpayment that is asserted against the HHA is the 
best way to retain State flexibility. Nevertheless, the Medicaid 
changes in part 441 that are discussed below were made generally in 
order to conform with changes being made to Medicare in part 489, 
subpart F.
    In Sec. 441.16(g)(7) (``Expiration of the 15 percent provision''), 
we provide that for an annual surety bond, or for a rider on a 
continuous surety bond, that is required to be submitted on or after 
June 1, 2005, notwithstanding any reference in this section to 15 
percent as a basis for determining the amount of the bond, the amount 
of the bond or rider, as applicable, must be $50,000 or such amount as 
the Medicaid agency specifies in accordance with subparagraph (6) of 
this paragraph, whichever amount is greater.
    In Sec. 441.16(h)(2) (``Additional requirements of the surety 
bond''), we state that the bond must provide that the Surety is liable 
for uncollected overpayments as defined in paragraph (a), provided such 
uncollected overpayments are determined during the term of the bond and 
regardless of when the overpayments took place.
    In addition, we state that if an HHA fails to furnish the Medicaid 
State agency with a subsequent annual bond that meets the requirements 
of this subpart, or fails to furnish a rider for a year for which a 
rider is required to be submitted, or if the HHA's agreement with the 
State Medicaid agency terminates, then the last bond or rider in effect 
for such HHA remains in effect for an additional 2-year period.
    In Sec. 441.16(h)(3)(i), we state that the Surety's potential 
liability under a bond may be extinguished if the Surety furnishes the 
Medicaid agency with notice of an HHA's action to terminate or limit 
the scope of the bond not later than 10 days after receiving notice 
from the HHA of such action by the HHA or not later than 60 days before 
the effective date of such action by the Surety, or if the HHA has 
submitted a new bond to the Medicaid agency and the bond meets all 
Federal and State requirements.
    In Sec. 441.16(i)(1) (``Submission date, term, and type of the 
bond''), we have amended this provision to specify that the initial 
bond must be submitted by a date specified by the State Medicaid agency 
up to 120 days following the publication of this rule. (The term of the 
initial bond is for a term beginning January 1, 1998.) In the preamble 
to the March 4, 1998 rule, we stated our intention to establish a new 
surety bond compliance date that would be 60 days after the date of 
publication of this rule. However, upon further consideration and 
analysis, we concluded that 60 days may not be sufficient time for all 
States to furnish appropriate notice to Medicaid-participating HHAs. 
Therefore, we are providing for each State to establish a compliance 
date for the submission of a surety bond up to 120 days from the date 
of publication of this rule.
    We have also amended this provision to specify that an HHA must 
submit a ``rider'' to the Medicaid agency for subsequent terms in the 
event the HHA has previously submitted a continuous bond and the 
required amount of the bond changes.
    In Sec. 441.16(i)(2), we specify that the bond submitted by an HHA 
must be either an annual bond (that is, a bond that specifies an 
effective annual period corresponding to an annual period

[[Page 29652]]

specified by the Medicaid agency) or a continuous bond (that is, a bond 
that remains in full force and effect from term to term unless it is 
terminated or canceled as provided for in the bond or as otherwise 
provided by law) and which must be updated by the Surety, for a 
particular annual period via the issuance of a ``rider,'' when the bond 
amount changes. We have defined a ``rider'' to mean a notice issued by 
a Surety that a change in a bond has occurred or will occur. In 
addition, we state that if the HHA has submitted a continuous bond and 
there is no increase or decrease in the bond amount, no action is 
necessary by the HHA to submit a rider as long as the continuous bond 
remains in full force and effect.
    In Sec. 441.16(l) (``Surety's standing to appeal Medicaid 
determinations''), we specify that the Medicaid agency must establish 
procedures for granting appeal rights to Sureties.
    In new Sec. 441.16(m) (``Effect of conditions of payment''), we 
require that in the event a Surety has paid the Medicaid agency an 
amount on the basis of liability incurred under a bond obtained by an 
HHA under this section, and the Medicaid agency subsequently collects 
an amount on the overpayment from the HHA, which overpayment gave rise 
to the Surety's liability, the Medicaid agency must reimburse the 
Surety the amount the agency collected from the HHA up to the amount 
paid to the agency by the Surety, provided the Surety has no other 
liability under the bond.

V. Regulatory Impact Statement

    Consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612), we prepare a regulatory flexibility analysis unless we 
certify that a rule will not have a significant economic impact on a 
substantial number of small entities. For purposes of the RFA, we treat 
all providers and suppliers as small entities. Individuals and States 
are not included in the definition of a small entity.
    Also, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. That 
analysis must conform to the provisions of section 603 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 of a Metropolitan 
Statistical Area and has fewer than 50 beds.
    Publication of this rule generally limits the Surety's liability on 
the bond to the term when it is determined that funds owed to Medicare 
and Medicaid have become ``unpaid,'' regardless of when the payment, 
overpayment, or other action causing such funds to be owed took place; 
establishes that a Surety remains liable on a bond for an additional 2 
years after the date an HHA leaves the Medicare or Medicaid program; 
gives a Surety the right to appeal, under Medicare, any matter that the 
HHA could appeal, provided the Surety satisfies all jurisdictional and 
procedural requirements that would otherwise have applied to the HHA 
and provided the HHA, itself, is not pursuing its appeal rights and 
provided the Surety has paid HCFA on amounts relating to unpaid claims; 
directs State Medicaid agencies to grant appeal rights to Sureties; and 
establishes the use of a continuous or annual bond.
    While we cannot predict the effect these revisions will have on the 
number of HHAs having an agreement with us and with the Medicaid 
agencies, we believe these revisions will remove the uncertainty of the 
scope of a Surety's liability. The removal of this underwriting 
uncertainty, coupled with the fact that Sureties are provided with 
their own appeal rights, should result in a more robust surety bond 
market, thereby giving HHAs an increased opportunity to obtain a bond.
    Although we are unable to estimate either savings or costs to the 
Medicare Trust Funds, the savings that may result from this regulation 
would be, principally, from recovery of overpayments that Medicare and 
Medicaid may collect from the Sureties and from the prevention of 
overpayments that would have been generated by HHAs that are unable to 
obtain surety bonds. In the final rule published on January 5, 1998, we 
estimated Medicare savings at $10 million beginning in 2000 and $20 
million each year thereafter. These estimates were based on the 
assumption that HHAs will not repeat their past aberrant billing 
activities and that we will experience a reduction in unrecovered 
program overpayments as a result of either having debts guaranteed by a 
Surety company, or by high risk businesses being unable to obtain 
surety bonds and, thus, leaving the Medicare and/or Medicaid program. 
While the changes made by this rule may make it possible for some of 
the HHAs that were not able to obtain a surety bond that met the 
requirements of the January 5, 1998 rule to now obtain a bond, we do 
not believe that those HHAs will be the high-risk business whose 
departure from the program was a factor in making our savings 
estimates.
    For these reasons, we have determined, and we certify, that this 
regulation does not result in a significant impact on a substantial 
number of small entities and does not have a significant effect on the 
operations of a substantial number of small rural hospitals. Therefore, 
we are not preparing an analysis for either the RFA or section 1102(b) 
of the Act because we have determined, and we certify, that this 
proposed rule would not have a significant impact on a substantial 
number of small entities or a significant impact on the operations of a 
substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

VI. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite prior public comment on the proposed rule. 
The notice of proposed rulemaking can be waived, however, if an agency 
finds good cause that notice-and-comment procedures are impracticable, 
unnecessary, or contrary to the public interest and it incorporates a 
statement of the finding and its reasons in the rule issued.
    In this final rule, we are addressing matters on which we received 
public comments to our January 5, 1998 final rule with comment, as well 
as on matters on which we received interim comments from both the 
Surety and HHA industries that concern the technical issues discussed 
in our March 5, 1998 notice.
    We find good cause to waive notice-and-comment procedures for this 
final rule because it is impracticable to employ notice-and-comment 
procedures with respect to both the Medicare and Medicaid regulations 
and establish new, timely compliance dates for submission of surety 
bonds. Because a fully viable market for HHA surety bonds apparently 
failed to develop following the publication on January 5, 1998 of a 
final rule establishing surety bond requirements for HHAs, on March 4, 
1998 we published a final rule to remove from the January 5th rule the 
date by which HHAs were required to submit surety bonds. This measure 
was taken in order to consider technical revisions to the rule that 
might be necessary in order to facilitate the development of a fully 
viable surety bond market for reputable and well-run HHAs. This rule 
includes those revisions and establishes new submission compliance 
dates for both

[[Page 29653]]

the Medicare and Medicaid bonds. We believe that the new submission 
compliance dates should not be so remote in time from the effective 
date of the initial bonds, i.e., January 1, 1998, so as, possibly, to 
create another market disincentive for surety bond companies and 
possible access problems for program beneficiaries. However, employing 
notice and comment procedures would substantially delay establishing 
new, timely submission compliance dates. Accordingly, we find it 
impracticable both to employ notice and comment procedures and to 
establish new submission compliance dates that are not temporally 
remote from the effective date of the term of the initial bonds.
    We also find good cause to waive notice-and-comment procedures 
because employing such procedures for this rule would be contrary to 
the public interest. For the reasons just discussed, this final rule 
must be published as soon as possible so as to ensure a fully viable 
surety bond market for reputable and well-run HHAs and to establish new 
bond submission compliance dates. Employing notice-and-comment 
procedures would, as a practical matter, substantially delay the 
implementation of the surety bond requirement and such substantial 
delay would be contrary to the public interest.
    For these reasons, we find good cause to waive notice-and-comment 
procedures and to issue this final rule.

VII. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, agencies are required to 
provide a 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 (PRA) requires that we solicit comment on the following issues:
     Whether the information collection is necessary and useful 
to carry out the proper functions of the agency;
     The accuracy of the agency's estimate of the information 
collection burden;
     The quality, utility, and clarity of the information to be 
collected; and
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In compliance with section 3506(c)(2)(A) of the PRA, we are 
submitting to the OMB the following requirements for emergency review. 
We are requesting an emergency review because the collection of this 
information is needed before the expiration of the normal time limits 
under OMB's regulations at 5 CFR Part 1320, to ensure compliance with 
section 4312(b) and 4724(b) of BBA '97, which requires Medicare and 
Medicaid-participating HHAs to secure a surety bond, effective as of 
January 1, 1998, in order to continue participation in the Medicare and 
Medicaid programs. We cannot reasonably comply with normal clearance 
procedures because public harm is likely to result if the agency cannot 
enforce the surety bond requirements of the BBA '97 in order to protect 
the Federal government (especially the Medicare Trust Funds) from 
losses due to uncollectible debts incurred by HHAs.
    Written comments and recommendations will be accepted from the 
public if received by the individuals designated below within 10 
workings days from the date of this publication. HCFA is requesting OMB 
review and approval of this collection within 11 working days of this 
publication, with a 180-day approval period. During this 180-day 
period, we will publish a separate Federal Register notice announcing 
the initiation of an extensive 60-day agency review and public comment 
period on these requirements. We will submit the requirements for OMB 
review and an extension of this emergency approval.
    The information collection requirements contained in the rule 
published in the Federal Register on January 5, 1998 have been approved 
by OMB under approval number 0938-0713, with an expiration date of May 
31, 1998. Under the terms of OMB approval, HCFA is required to submit 
this revised final rule for emergency PRA clearance. As such, we are 
requesting an emergency review of the information collections contained 
in this final rule and re-approval of the information collection 
requirements currently approved under OMB approval number 0938-0713.
    Type of Information Request: Revision of a currently approved 
collection.
    Title of Information Collection: Surety Bond Requirements for Home 
Health Agencies (HHA) and Supporting Regulations in 42 CFR 
Secs. 441.16, 489.66, and 489.67.
    Form Number: HCFA-R-213.
    OMB Approval Number: 0938-0713.
    Use: In summary, these information collection requirements ensure 
that HHAs furnish the required surety bond and continue to demonstrate 
that they meet the applicable requirements set forth in 42 CFR Parts 
441 and 489, in order to continue participation in the Medicare and 
Medicaid programs.
    Frequency: Other; As needed.
    Affected Public: Business or other for-profit, Not-for-profit 
institutions.
    Number of Respondents: 8,062.
    Total Annual Responses: 7,001.
    Total Annual Hours Requested: 18,071.
    In addition to HCFA's continued solicitation of comments on the 
currently approved information collection requirements we are 
particularly interested in obtaining comment on each of the 
modifications to the currently approved information collections 
requirements, as referenced in this regulation and summarized below.
    Section 441.16(h)(3)(i) requires that if a Surety wants to avoid 
future liability with respect to a particular bond, the Surety must 
furnish the Medicaid agency with notice of any action by the HHA or the 
Surety to terminate or limit the scope or term of the bond and that 
such notice must be furnished not later than 10 days after the date of 
notice of such action by the HHA, or not later than 60 days before the 
effective date of the action by the Surety.
    The burden associated with this requirement is the time required 
for a Surety to provide a State Medicaid agency with a notice of an 
action by the HHA or the Surety to terminate or limit the scope or term 
of the bond. HCFA met with surety bond industry representatives to 
discuss the time and effort associated with furnishing a notice to 
terminate or limit the scope or term of a bond. It is estimated that 
less than 1 percent (80 entities) of all 8,062 participating HHAs will 
terminate or limit the scope or term of a bond. It is also estimated 
that it will take a surety company 3 hours to generate and furnish a 
notice of such action for a total burden of 240 hours.
    Section 441.16(i)(1)(ii) requires that, for subsequent terms of a 
bond, by a date as the Medicaid agency specifies, the HHA must submit 
to the Medicaid agency a surety bond or, if the HHA has furnished a 
continuous bond and the required amount of the bond has changed, a 
rider, that is effective for an annual period specified by the Medicaid 
agency.
    Previously, all HHAs were required to submit, on an annual basis, a 
copy of an annual surety bond. However, HHAs now have the option to 
submit a continuous surety bond. If an HHA submits a continuous surety 
bond it must thereafter submit a rider to the

[[Page 29654]]

Medicaid agency when the amount of the continuous surety bond changes.
    Therefore, the burden associated with this modified requirement is 
the time required to submit either an annual bond or, if necessary, a 
rider with a continuous bond. Since we anticipate that virtually all 
HHAs will obtain a continuous surety bond, but only approximately 1,100 
HHAs will require a bond in a different amount each year, we estimate 
it will take 1 hour each for 1,100 HHAs to submit a rider on an annual 
basis.
    Section 489.66 (c)(1) provides that the Surety's liability on the 
bond is not extinguished unless, in the event the HHA or the Surety 
takes any action to terminate or limit the scope or term of the bond, 
the Surety furnishes us with notice of such action not later than 10 
days after receiving notice of such action by the HHA, or not later 
than 60 days before the effective date of such action by the Surety.
    The burden associated with this requirement is the time required 
for a Surety to provide Medicare with a notice of an action by the HHA 
or the Surety to terminate or limit the scope or term of the bond. It 
is estimated that less than 1 percent (80 entities) of all 8,062 
participating HHAs will terminate or limit the scope or term of a bond. 
It is also estimated that it will take a surety company 3 hours to 
generate and furnish a notice of such action for a total burden of 240 
hours.
    Section 489.66(e) has been modified to explicitly require that the 
bond provide the Surety's name, street address or post office box 
number, city, state, and zip code to which the HCFA notice provided for 
in paragraph (a) of this section is to be sent. Since this requirement 
was inherent to the previous surety bond submission requirement, there 
is no additional burden associated with this requirement.
    Section 489.67(a)(2) now requires that not later than 30 days 
before the beginning of the HHA's fiscal year, a surety bond or, if 
necessary, a rider, effective for a term concurrent with the HHAs 
fiscal year, be submitted to HCFA.
    Previously, all HHAs were required to submit, on an annual basis, a 
copy of an annual surety bond. However, HHAs now have the option to 
submit a continuous surety bond. If an HHA submits a continuous surety 
bond, it must thereafter submit a rider to HCFA when the amount of the 
continuous surety bond changes.
    Therefore, the burden associated with this modified requirement is 
the time required to submit either an annual bond or, if necessary, a 
rider reflecting a change to a continuous bond. Since, we anticipate 
that virtually all HHAs will obtain a continuous surety bond, but only 
approximately 1,100 HHAs will require a bond in a different amount each 
year, we estimate it will take 1 hour each for 1,100 HHAs to submit a 
rider on an annual basis.
    We have submitted a copy of this final rule and the revised PRA 
submission to OMB for its review of the information collection 
requirements. These revised requirements are not effective until they 
have been approved by OMB. A notice will be published in the Federal 
Register when approval is obtained.
    To obtain copies of the supporting statement and any related forms 
for the proposed paperwork collections referenced above, access HCFA's 
Web Site address at http://www.hcfa.gov/regs/prdact95.htm, or E-mail 
your request, including your address, phone number, OMB number, and 
HCFA document identifier, to P[email protected], or call the Reports 
Clearance Office on (410) 786-1326.
    Interested persons are invited to send comments regarding the 
burden or any other aspect of these collections of information 
requirements. However, as noted above, comments on these information 
collection and recordkeeping requirements must be mailed and/or faxed 
to the designees referenced below, within 10 working days of this 
publication:

Health Care Financing Administration, Office of Information Services, 
Information Technology Investment Management Group, Division of HCFA 
Enterprise Standards, Room C2-26-17, 7500 Security Boulevard, 
Baltimore, MD 21244-1850 ATTN: John Burke HCFA-1152-1-F Fax number: 
(410) 786-1415 and,
Office of Information and Regulatory Affairs, Office of Management and 
Budget Room 10235, New Executive Office Building Washington, D.C. 20503 
Attn.: Allison Herron Eydt, HCFA Desk Officer Fax number: (202) 395-
6974 or (202) 395-5167.

List of Subjects

42 CFR Part 441

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

42 CFR Part 489

    Health facilities, Medicare, Reporting and record keeping 
requirements.
    42 CFR Chapter IV is amended as set forth below:

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

    A. Part 441 is amended as follows:
    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 441.16 is amended by adding paragraph (g)(7), 
republishing the introductory text of paragraph (h), revising paragraph 
(h)(2), republishing the introductory text of paragraph (h)(3), 
revising paragraph (h)(3)(i), revising the title of paragraph (i), 
paragraphs (i)(1)(i) and (ii), redesignating paragraphs (i)(2) through 
(i)(5) as (i)(3) through (i)(6), respectively and adding a new 
paragraph (i)(2), revising paragraph (l), and adding a new paragraph 
(m), to read as follows:


Sec. 441.16  Home health agency requirements for surety bonds; 
Prohibition on FFP.

    (g) Amount of the bond.
* * * * *
    (7) Expiration of the 15 percent provision. For an annual surety 
bond, or for a rider on a continuous surety bond, that is required to 
be submitted on or after June 1, 2005, notwithstanding any reference in 
this section to 15 percent as a basis for determining the amount of the 
bond, the amount of the bond or rider, as applicable, must be $50,000 
or such amount as the Medicaid agency specifies in accordance with 
paragraph (g)(6) of this section, whichever amount is greater.
    (h) Additional requirements of the surety bond. The surety bond 
that an HHA obtains under this section must meet the following 
additional requirements:
* * * * *
    (2) The bond must provide that the Surety is liable for uncollected 
overpayments, as defined in paragraph (a), provided such uncollected 
overpayments are determined during the term of the bond and regardless 
of when the overpayments took place. Further, the bond must provide 
that the Surety remains liable if the HHA fails to furnish a subsequent 
annual bond that meets the requirements of this subpart or fails to 
furnish a rider for a year for which a rider is required to be 
submitted, or if the HHA's provider agreement terminates and that the 
Surety's liability shall be based on the last bond or rider in effect 
for the HHA, which shall then remain in effect for an additional 2-year 
period.
    (3) The bond must provide that, except as provided in paragraph 
(h)(3)(i)

[[Page 29655]]

of this section, the Surety's liability to the Medicaid agency is not 
extinguished by any of the following:
    (i) Any action by the HHA or the Surety to terminate or limit the 
scope or term of the bond. The Surety's liability may be extinguished, 
however, when--
    (A) The Surety furnishes the Medicaid agency with notice of such 
action not later than 10 days after receiving notice from the HHA of 
action by the HHA to terminate or limit the scope of the bond, or not 
later than 60 days before the effective date of such action by the 
Surety; or
    (B) The HHA furnishes the Medicaid agency with a new bond that 
meets the requirements of both this section and the Medicaid agency.
* * * * *
    (i) Submission date, term, and type of bond.
    (1) Each participating HHA that is not exempted by paragraph (d) of 
this section must submit to the Medicaid agency a surety bond for a 
term as follows:
    (i) Initial submission date and term. By a date specified by the 
State Medicaid agency up to September 29, 1998. The initial bond is for 
a term beginning January 1, 1998. If an annual bond is submitted for 
the initial term, it must be effective for an annual period specified 
by the State Medicaid agency.
    (ii) Subsequent submission date and term. By a date the Medicaid 
agency specifies, effective for an annual period specified by the 
Medicaid agency a surety bond or rider as described in subparagraph 
(e).
    (2) Type of bond. The type of bond required to be submitted by an 
HHA, under this section, may be either--
    (i) An annual bond (that is, a bond that specifies an effective 
annual period that corresponds to an annual period specified by the 
Medicaid agency); or
    (ii) A continuous bond (that is, a bond that remains in full force 
and effect from term to term unless it is terminated or canceled as 
provided for in the bond or as otherwise provided by law) that is 
updated by the Surety for a particular period, via the issuance of a 
``rider,'' when the bond amount changes. For the purposes of this 
section, ``Rider'' means a notice issued by a Surety that a change to a 
bond has occurred or will occur. If the HHA has submitted a continuous 
bond and there is no increase or decrease in the bond amount, no action 
is necessary by the HHA to submit a rider as long as the continuous 
bond remains in full force and effect.
* * * * *
    (l) Surety's standing to appeal Medicaid determinations. The 
Medicaid agency must establish procedures for granting appeal rights to 
Sureties.
    (m) Effect of conditions of payment. If a Surety has paid the 
Medicaid agency an amount on the basis of liability incurred under a 
bond obtained by an HHA under this section, and the Medicaid agency 
subsequently collects from the HHA, in whole or in part, on such 
overpayment that was the basis for the Surety's liability, the Medicaid 
agency must reimburse the Surety such amount as the Medicaid agency 
collected from the HHA, up to the amount paid by the Surety to the 
Medicaid agency, provided the Surety has no other liability under the 
bond.

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

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

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

    2. In section 489.60, the definition of ``Unpaid civil money 
penalty or assessment, the words ``90 days after the HHA'' are removed, 
and the words ``after the HHA or Surety'' are added in their place. 
Section 489.60 is further amended by adding the definition of the term 
``Rider'', in alphabetical order, to read as follows:


Sec. 489.60  Definitions.

    Rider means a notice issued by a Surety that a change in the bond 
has occurred or will occur.
* * * * *


Sec. 489.62  [Amended]

    3. In Sec. 489.62 introductory text, the word ``section'' is 
removed, and the word ``subpart'' is added in its place.
    4. In Sec. 489.65, paragraph (g) is added to read as follows:


Sec. 489.65  Amount of the bond.

* * * * *
    (g) Expiration of the 15 percent provision. For an annual surety 
bond, or for a rider on a continuous surety bond, that is required to 
be submitted on or after June 1, 2005, notwithstanding any reference in 
this subpart to 15 percent as a basis for determining the amount of the 
bond, the amount of the bond or rider, as applicable, must be $50,000 
or such amount as HCFA specifies in accordance with paragraph (f) of 
this section, whichever amount is greater.
    5. In Sec. 489.66, paragraph (b) is revised, paragraph (c) 
introductory text is republished, paragraph (c)(1) is revised, and new 
paragraph (e) is added, to read as follows:


Sec. 489.66  Additional requirements of the surety bond.

* * * * *
    (b) The bond must provide the following:
    (1) The Surety is liable for unpaid claims, unpaid civil money 
penalties, and unpaid assessments that are discovered when the surety 
bond is in effect, regardless of when the payment, overpayment, or 
other event giving rise to the claim, civil money penalty, or 
assessment occurred, provided HCFA makes a written demand for payment 
from the Surety during, or within 90 days after, the term of the bond.
    (2) If the HHA fails to furnish a bond meeting the requirements of 
this subpart F for the year following expiration of the term of an 
annual bond, or if the HHA fails to submit a rider when a rider is 
required to be submitted under this subpart, or if the HHA's provider 
agreement is terminated, the last bond or rider, as applicable, 
submitted by the HHA to HCFA, which bond or applicable rider meets the 
requirements of this subpart, remains effective and the Surety remains 
liable for unpaid claims, civil money penalties, and assessments that--
    (i) HCFA determines or imposes on or asserts against the HHA based 
on overpayments or other events that took place during or prior to the 
term of the last bond or rider; and
    (ii) Were determined or imposed during the 2 years following the 
date the HHA failed to submit a bond or required rider or the date the 
HHA's provider agreement is terminated, whichever is later.
    (c) The bond must provide that, except as provided in paragraph 
(c)(1) of this section, the Surety's liability to HCFA under the bond 
is not extinguished by any action of the HHA, the Surety, or HCFA, 
including but not necessarily limited to any of the following actions:
    (1) Action by the HHA or the Surety to terminate or limit the scope 
or term of the bond. The Surety's liability may be extinguished, 
however, when--
    (i) The Surety furnishes HCFA with notice of such action not later 
than 10 days after receiving notice from the HHA of action by the HHA 
to terminate or limit the scope of the bond, or not later than 60 days 
before the effective date of such action by the Surety; or
    (ii) The HHA furnishes HCFA with a new bond that meets the 
requirements of this subpart.
* * * * *
    (e) The bond must provide the Surety's name, street address or post 
office box number, city, state, and

[[Page 29656]]

zipcode to which the HCFA notice provided for in paragraph (a) of this 
section is to be sent.
    6. In Sec. 489.67, paragraphs (b) through (e) are redesignated as 
paragraphs (c) through (f), respectively, paragraph (a) is revised, and 
a new paragraph (b) is added to read as follows:


Sec. 489.67  Submission date and term of the bond.

    (a) Each participating HHA that does not meet the criteria for 
waiver under Sec. 489.62 must submit to HCFA, in such a form as HCFA 
may specify, a surety bond as follows:
    (1) Initial submission date and term: By July 31, 1998. The term of 
the initial bond is for a term beginning January 1, 1998. If an annual 
bond is submitted for the initial term, it must be effective through 
the end of the HHA's current fiscal year.
    (2) Subsequent submission date and term. Not later than 30 days 
before the beginning of the HHA's fiscal year, a surety bond, or, if 
necessary, a rider, effective for a term concurrent with the HHA's 
fiscal year.
    (b) Type of bond. The type of bond required to be submitted by an 
HHA under this subpart may be either--
    (1) An annual bond (that is, a bond that specifies an effective 
annual period corresponding to the HHA's fiscal year); or
    (2) A continuous bond (that is, a bond that remains in full force 
and effect from term to term unless it is terminated or canceled as 
provided for in the bond or as otherwise provided by law) that is 
updated by the Surety, via the issuance of a rider, for a particular 
fiscal year for which the bond amount has changed or will change.
* * * * *
    7. Section 489.71 is revised to read as follows:


Sec. 489.71  Surety's standing to appeal Medicare determinations.

    A Surety has standing to appeal any matter that the HHA could 
appeal, provided the Surety satisfies all jurisdictional and procedural 
requirements that would otherwise have applied to the HHA, and provided 
the HHA is not, itself, actively pursuing its appeal rights under this 
chapter, and provided further that, with respect to unpaid claims, the 
Surety has paid HCFA all amounts owed to HCFA by the HHA on such unpaid 
claims, up to the amount of the bond.
    8. Section 489.73 is redesignated as Sec. 489.74 in subpart F, and 
a new Sec. 489.73 is added to read as follows:


Sec. 489.73  Effect of conditions of payment.

    If a Surety has paid an amount to HCFA on the basis of liability 
incurred under a bond obtained by an HHA under this subpart F, and HCFA 
subsequently collects from the HHA, in whole or in part, on such unpaid 
claim, civil money penalty, or assessment that was the basis for the 
Surety's liability, HCFA reimburses the Surety such amount as HCFA 
collected from the HHA, up to the amount paid by the Surety to HCFA, 
provided the Surety has no other liability to HCFA under the bond.

(Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh)).

(Catalog of Federal Domestic Assistance Program No. 93.774, 
Medicare--Supplementary Medical Insurance Program, and Program No. 
93.778, Medical Assistance Program)

    Dated: April 8, 1998.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
    Dated: May 8, 1998.
Donna E. Shalala,
Secretary.
[FR Doc. 98-14309 Filed 5-26-98; 4:58 pm]
BILLING CODE 4120-01-P