[Federal Register Volume 63, Number 154 (Tuesday, August 11, 1998)]
[Proposed Rules]
[Pages 42797-42801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-21423]



[[Page 42797]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 413

[HCFA-1883-P]
RIN 0938-AI80


Medicare Program; Revision of the Procedures for Requesting 
Exceptions to Cost Limits for Skilled Nursing Facilities and 
Elimination of Reclassifications

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise the procedures for granting 
exceptions to the cost limits for skilled nursing facilities (SNFs) and 
retain the current procedures for exceptions to the cost limits for 
home health agencies (HHAs). It also would remove the provision 
allowing reclassifications for all providers.

DATES: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5:00 p.m. on 
October 13, 1998.

ADDRESSES: Mail written comments (one original and three copies) to the 
following address:
Health Care Financing Administration, Department of Health and Human 
Services, Attention: HCFA-1883-P, P.O. Box 31850, Baltimore, MD 21144-
0517.
If you prefer, you may deliver your written comments (one original and 
three copies) to one of the following addresses:
Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, S.W., 
Washington, DC 20201, or Room C5-09-26, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code HCFA-1883-P. Comments received timely will be available 
for public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a document, in Room 309-G of 
the Department's offices at 200 Independence Avenue, SW., Washington, 
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. 
(phone: (202) 690-7890).
FOR FURTHER INFORMATION CONTACT: Steve Raitzyk, (410) 786-4599.

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I. Background

    Cost Limits
    Section 223 of the Social Security Amendments of 1972 (Pub Law 92-
603) amended section 1861(v)(1)(A) of the Social Security Act (the Act) 
to authorize the Secretary to establish ``* * * limits on the direct 
and indirect overall incurred costs or incurred costs of specific items 
or services or groups of items or services * * *'' as a presumptive 
estimate of reasonable costs. Under section 1861(v)(1)(A), a provider's 
cost in excess of its Medicare cost limit is deemed to be unreasonable 
for the efficient delivery of needed health care services under the 
Medicare program. The Congress, however, in the House Committee report 
``H.R. Rep. No. 92-231, 92nd Congress, 1st Session 5071 (1971),'' 
stated that ``Providers would, of course, have the right to * * * 
obtain relief from the effect of the cost limits on the basis of 
evidence of the need for such an exception.''
    On June 1, 1979, we published a final rule in the Federal Register 
at 44 FR 31802, revising 42 CFR 405.460 to implement more effectively 
and equitably section 223 of the Social Security Amendments of 1972. 
Section 405.460, which was subsequently redesignated as Sec. 413.30, 
describes the general principles and procedures for establishing cost 
limits and the process by which providers may appeal the applicability 
of these cost limits. Under Sec. 413.30(c), a provider may obtain 
relief from the effects of applying cost limits, either by requesting 
an exemption from its limit as a new provider of inpatient services, by 
requesting a reclassification, or by requesting an exception to the 
cost limit.
    In the preamble of the June 1, 1979 final rule (44 FR 31806), we 
clarified the difference between an exemption and an exception. If a 
provider receives an exemption, it is not affected at all by the cost 
limits and it is paid under the standard rules for reasonable cost or 
customary charges. If a provider receives an exception, it is paid on 
the basis of the cost limit, plus an incremental sum for the reasonable 
costs warranted by the circumstances that justified the exception.
    The cost limit is a presumptive estimate of reasonable costs, which 
excludes costs found to be unnecessary for the efficient delivery of 
needed health care services. We may establish limits for direct or 
indirect costs, for costs of specific services, or for groups of 
services. Medicare payable provider costs may not exceed the amounts, 
estimated by us, to be necessary for the efficient delivery of needed 
health care services furnished by a provider.
    We imposed these limits prospectively and they may be calculated on 
a per admission, per discharge, per diem, per visit, or other basis. 
All SNFs and HHAs that are paid under the cost payment methodology are 
subject to these cost limits.
    The routine service cost per diem limits are based on the average 
cost of furnishing services and are determined by the SNF's or HHA's 
geographical location classification (urban or rural) and type of 
facility classification (hospital-based or freestanding). We publish in 
the Federal Register, the schedule of limits that apply to the cost 
reporting periods beginning during the fiscal year indicated in the 
notice. This published ``Schedule of Limits'' outlines the methodology 
and data we use to determine the average cost of providing the routine 
services on which we base the cost limits.
    The servicing intermediary notifies each SNF or HHA of its cost 
limit at

[[Page 42798]]

least 30 days before the start of a cost reporting period to which the 
cost limit applies. If there is a delay, we advise the intermediary of 
any alternate process to compute an interim cost limit. Each 
intermediary ``cost limit notification'' must contain the following:
     The provider's classification and calculation of the 
applicable limit.
     A statement that, if the provider believes it has been 
incorrectly classified, it is the provider's responsibility to furnish 
to the intermediary evidence that demonstrates the classification is 
incorrect.
     A statement that the provider may be entitled to an 
exemption from, or an exception to, the cost limits under the 
provisions of Sec. 413.30.
    This proposed rule focuses on two provisions of Sec. 413.30 
established in the June 1, 1979 final rule. First, we propose to change 
the approval process for granting exceptions to the cost limits for 
SNFs; second, we propose to delete the provision for obtaining a 
reclassification for all providers.

II. Skilled Nursing Facility and Home Health Agency Requests 
Regarding Applicability of Cost Limits

A. Current Regulations Regarding SNF and HHA Exceptions to Cost Limits

    The current regulation at Sec. 413.30(f) allows a provider that is 
subject to cost limits to request an exception to the cost limits if 
its costs exceed, or are expected to exceed, the limits as a result of 
one of the following unusual situations:
     Atypical services.
     Extraordinary circumstances.
     Providers in areas with fluctuating populations.
     Medical and paramedical education costs.
     Unusual labor costs.
    An adjustment is made only to the extent that the costs are 
reasonable, attributable to the circumstance specified, separately 
identified by the provider, and verified by the intermediary.
    The provider must file a request for an exception to the cost 
limits no later than 180 days from the date of the intermediary's 
notice of program reimbursement. The intermediary reviews the request 
with all supporting documentation. The intermediary also makes and 
submits to us a recommendation on the provider's request. We make a 
final determination and respond to the intermediary within 180 days 
from the date of the intermediary's recommendation. If we do not 
respond within 180 days, it is considered good cause for the granting 
of an extension of the time limit to apply for a Provider Reimbursement 
Review Board review.
    In the past, Providers and intermediaries had raised many questions 
about the documentation needed to properly file SNF exception requests. 
In addition, we received many complaints from the SNFs about the length 
of time that it took to get a response to their exception requests, 
mainly because the regulation did not require a time limit for the 
intermediary's recommendation to us.
    In order to address this situation and to clarify the exceptions 
process, we published, in July, 1994, section 2530 of HCFA Pub. 15-1 
(Transmittal No. 378), which gives SNFs detailed instructions for 
requesting exceptions to the SNF cost limits. Under transmittal No. 
378, intermediaries process SNF exceptions in a more expeditious 
manner. Section 2531.1 of Transmittal 378 requires intermediaries to 
submit to us their recommendations on a SNF's exception request within 
90 days of the receipt of the request from the SNF. Also, under section 
2531.1 of Transmittal 378, we notify the intermediary of our final 
determination on the exception within 90 days of the date that the 
request is received (the current regulation (Sec. 413.30(c)) allows us 
180 days to make our final determination).

B. Provisions of this Rule Regarding Exceptions to the Cost Limits for 
SNFs and HHAs

    After reviewing SNF exception requests submitted by intermediaries 
under the rules in Transmittal 378, we identified six intermediaries 
that were proficiently adjudicating SNF exceptions within 90 days of 
reviewing the SNF's requests. We gave the six intermediaries the 
additional responsibility in making the determination on SNF exception 
requests subject to our oversight and review. This has resulted in a 
substantial decrease in processing time and effort. The resulting 
increase in administrative efficiency has benefitted SNFs, fiscal 
intermediaries, and the Medicare program.
    We propose to revise Sec. 413.30(c) to give all intermediaries the 
authority to make final determinations on SNF exception requests. This 
would result in an increase in administrative efficiency that would 
benefit all SNFs that file SNF exception requests and fiscal 
intermediaries that process those exception requests.
    In order to assure that all intermediaries will be able to 
adjudicate exception requests proficiently, we would work with the Blue 
Cross Association to perform additional training for all fiscal 
intermediaries. In addition, we would designate a single contact person 
to handle all inquiries from fiscal intermediaries regarding exception 
requests.
    Under proposed Sec. 413.30(c), if the intermediary determines that 
the SNF did not provide adequate documentation from which a proper 
determination can be made, the intermediary would notify the SNF that 
the request is denied. The intermediary would also notify the SNF that 
it has 45 days from the date on the intermediary's denial letter to 
submit a new exception request with the complete documentation, that we 
continue to allow the SNF to request a review by the Provider 
Reimbursement Review Board, and that the time we need to review the 
request (through the intermediary) is considered good cause for 
extending the time limit for the SNF to apply for the review. 
Otherwise, the denial is our final determination.
    Section 4432 of the Balanced Budget Act of 1997, (Public Law 105-
33) enacted August 5, 1997, mandates that a prospective payment system 
for SNFs be implemented effective for cost reporting periods beginning 
on or after July 1, 1998. This prospective payment system will replace 
the retrospective reasonable cost based system currently used by 
Medicare for payment of SNF services. Accordingly, exceptions will no 
longer be available to SNFs with cost reporting periods beginning on or 
after July 1, 1998. Fiscal intermediaries will continue to process, 
beyond July 1, 1998, SNF exception requests for cost reporting periods 
beginning before July 1, 1998.
    Effective with cost reporting periods beginning on or after July 1, 
1998, there will be a 3-year transition period to the prospective 
payment system. During the transition period, SNFs will be reimbursed a 
blended payment that is based partially on a facility-specific rate and 
a prospective payment rate. The base period for the facility-specific 
rate will be cost reporting periods beginning during the period October 
1, 1994 and September 30, 1995. We recognize that providers might have 
questions about the relationship between the exceptions process and the 
calculation of the facility-specific rate under section 1888(e) of the 
Social Security Act, as added by the BBA. We are currently developing 
the regulation to implement the SNF prospective payment system enacted 
by the BBA and we will address those issues in that document.
    The procedures for HHA exception requests would remain unchanged 
but would be set forth at Sec. 413.30(c)(1).

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III. Reclassification of Providers

A. Current Regulations Regarding Reclassifications

    Section 413.30(d) states that a provider may obtain a 
reclassification if the provider can show that its classification is at 
variance with the criteria specified in promulgating the limits.
    When cost limits were first developed, we manually arrayed the data 
collected from the providers' cost reports and classified them by type 
(hospital-based or freestanding) and location (metropolitan area or 
nonmetropolitan area). There were instances when providers were 
misclassified. Accordingly, we allowed providers to file 
reclassification requests under Sec. 413.30(d) if they could show that 
the data we used for the classification were incorrect.

B. Provisions of this Rule To Remove the Regulation Allowing 
Reclassifications

    We propose to remove Sec. 413.30(d) to discontinue the use of 
reclassifications. HHAs and SNFs are now filing specific cost reports, 
and metropolitan and nonmetropolitan area designations have become 
linked, through automation, to the county and State where each provider 
is located. As a result, there is no chance that a SNF or HHA can be 
misclassified.
    Hospitals now file for reclassifications with the Medicare 
Geographic Review Board. These reclassifications are specific to 
hospitals and are governed under subpart L of part 412. Hospitals no 
longer apply for reclassifications under Sec. 413.30.

IV. Technical Changes

    A. We would remove paragraph (h), pertaining to hospital cost 
report adjustments, as it is obsolete.
    B. We would make minor editorial changes to Sec. 413.30.

V. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments that we receive by the date and time specified in the 
``DATES'' section of this preamble, and, if we proceed with a 
subsequent document, we will respond to the comments, in the preamble 
to that document.

VI. 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 would not have a significant economic impact on a 
substantial number of small entities. For purposes of the RFA, all SNFs 
and HHAs are considered to be small entities. Individuals and States 
are not included in the definition of a small entity.
    In addition, 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. Such 
an 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. The proposed rule to 
eliminate reclassifications for HHAs and SNFs would have no effect, 
since they no longer need reclassifications. Hospitals can obtain any 
needed reclassifications and exceptions under subpart L of part 412. 
The proposed rule to change the method of processing requests for 
exceptions to cost limits would have no economic impact on either the 
providers or the Medicare program.
    For these reasons, we are not preparing an analyses for either the 
RFA or section 1102(b) of the Act because we have determined, and we 
certify, that this rule would not have a significant economic 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.

VII. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 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 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    Therefore, we are soliciting public comment on each of these issues 
for the information collection requirements discussed below.


Sec. 413.30  Limitations on Payable Costs

    (e) Exceptions. Limits established under this section may be 
adjusted upward for a SNF or HHA under the circumstances specified in 
paragraphs (e)(1) through (e)(5) of this section. An adjustment is made 
only to the extent that the costs are reasonable, attributable to the 
circumstances specified, separately identified by the SNF or HHA, and 
verified by the intermediary.
    The current regulation at Sec. 413.30(f) allows a provider that is 
subject to cost limits to request an exception to the cost limits if 
its costs exceed, or are expected to exceed, the limits as a result of 
one of the following unusual situations:
     Atypical services.
     Extraordinary circumstances.
     Providers in areas with fluctuating populations.
     Medical and paramedical education costs.
     Unusual labor costs.
    An adjustment is made only to the extent that the costs are 
reasonable, attributable to the circumstance specified, separately 
identified by the provider, and verified by the intermediary.
    The provider must file a request for an exception to the cost 
limits no later than 180 days from the date of the intermediary's 
notice of program reimbursement. The intermediary reviews the request 
with all supporting documentation. The intermediary also makes and 
submits to us a recommendation on the provider's request. We make a 
final determination and respond to the intermediary within 180 days 
from the date of the intermediary's recommendation. If we do not 
respond within 180 days, it is considered good cause for the granting 
of an extension of the time limit to apply for a Provider Reimbursement 
Review Board review.
    We propose to revise Sec. 413.30(c) to give all intermediaries the 
authority to make final determinations on SNF exception requests. This 
would result in an increase in administrative efficiency that would 
benefit all SNFs that file SNF exception requests and fiscal 
intermediaries that process those exception requests.
    Under proposed Sec. 413.30(c), if the intermediary determines that 
the SNF did not provide adequate

[[Page 42800]]

documentation from which a proper determination can be made, the 
intermediary would notify the SNF that the request is denied. The 
intermediary would also notify the SNF that it has 45 days from the 
date on the intermediary's denial letter to submit a new exception 
request with the complete documentation, that we continue to allow the 
SNF to request a review by the Provider Reimbursement Review Board, and 
that the time we need to review the request (through the intermediary) 
is considered good cause for extending the time limit for the SNF to 
apply for the review. Otherwise, the denial is our final determination.
    Section 4432 of the Balanced Budget Act of 1997, (Public Law 105-
33) enacted August 5, 1997, mandates that a prospective payment system 
for SNFs be implemented effective for cost reporting periods beginning 
on or after July 1, 1998. Accordingly, exceptions will no longer be 
available to SNFs with cost reporting periods beginning on or after 
July 1, 1998.
    As referenced above, a SNF or HHA may request an exception based on 
the information provided in its cost report, as submitted to the 
appropriate HCFA intermediary. Accordingly, HCFA believes that the 
supplemental information submitted by the provider is not subject to 
the PRA, as stipulated in 5 CFR 1320.3(h)(6) and 5 CFR 1320.3(h)(9). In 
particular, on an individual basis, providers are given an opportunity 
to submit additional information designed to clarify the responses 
disclosed in a currently approved collection, e.g., HHA/SNF cost 
reports (OMB #0938-0022 & 0938-0463), to demonstrate an exception.
    We have submitted a copy of this rule to OMB for its review of the 
information collection requirements above. If you comment on these 
information collection and recordkeeping requirements, please mail 
copies directly to the following:

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-1883.
      And,
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503,

List of Subjects in 42 CFR Part 413

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

    For the reasons set out in the preamble, 42 CFR Chapter IV, 
Subchapter B, part 413, subpart C would be amended as follows:

PART 413--[AMENDED]

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

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

    2. Section 413.30 is revised to read as follows:


Sec. 413.30  Limitations on payable costs.

    (a) Introduction--(1) Scope. This section implements section 
1861(v)(1)(A) of the Act, by setting forth the general rules under 
which HCFA may establish limits on SNF and HHA costs recognized as 
reasonable in determining Medicare program payments. It also sets forth 
rules governing exemptions and exceptions to limits established under 
this section that HCFA may make as appropriate in consideration of 
special needs or situations.
    (2) General principle. Payable SNF and HHA costs may not exceed the 
costs HCFA estimates to be necessary for the efficient delivery of 
needed health services. HCFA may establish estimated cost limits for 
direct or indirect overall costs or for costs of specific services or 
groups of services. HCFA imposes these limits prospectively and may 
calculate them on a per admission, per discharge, per diem, per visit, 
or other basis.
    (b) Procedure for establishing limits. (1) In establishing limits 
under this section, HCFA may classify SNFs and HHAs by factors that 
HCFA finds appropriate and practical, including the following:
    (i) Type of services furnished.
    (ii) Geographical area where services are furnished, allowing for 
grouping of noncontiguous areas having similar demographic and economic 
characteristics.
    (iii) Size of institution.
    (iv) Nature and mix of services furnished.
    (v) Type and mix of patients treated.
    (2) HCFA bases its estimates of the costs necessary for efficient 
delivery of health services on cost reports or other data providing 
indicators of current costs. HCFA adjusts current and past period data 
to arrive at estimated costs for the prospective periods to which 
limits are applied.
    (3) Before the beginning of a cost period to which revised limits 
will be applied, HCFA will publish a notice in the Federal Register, 
establishing cost limits and explaining the basis on which they are 
calculated.
    (4) In establishing limits under paragraph (b)(1) of this section, 
HCFA may find it inappropriate to apply particular limits to a class of 
SNFs or HHAs due to the characteristics of the SNF or HHA class, the 
data on which HCFA bases those limits, or the method by which HCFA 
determines the limits. In these cases, HCFA may exclude that class of 
SNFs or HHAs from the limits, explaining the basis of the exclusion in 
the notice setting forth the limits for the appropriate cost reporting 
periods.
    (c) Requests regarding applicability of cost limits. A SNF may 
request an exception or exemption to the cost limits imposed under this 
section. An HHA may request only an exception to the cost limits. The 
SNF's or HHA's request must be made to its fiscal intermediary within 
180 days of the date on the intermediary's notice of program 
reimbursement.
    (1) Home health agencies. The intermediary makes a recommendation 
on the HHA's request to HCFA, which makes the decision. HCFA responds 
to the request within 180 days from the date HCFA receives the request 
from the intermediary. The intermediary notifies the HHA of HCFA's 
decision. The time required by HCFA to review the request is considered 
good cause for the granting of an extension of the time limit for the 
HHA to apply for a Provider Reimbursement Review Board review, as 
specified in Sec. 405.1841 of this chapter. HCFA's decision is subject 
to review under subpart R of part 405 of this chapter.
    (2) Skilled nursing facilities. The intermediary makes the final 
determination on the SNF's request within 90 days from the date that 
the intermediary receives the request from the SNF. If the intermediary 
determines that the SNF did not provide adequate documentation from 
which a proper determination can be made, the intermediary notifies the 
SNF that the request is denied. The intermediary also notifies the SNF 
that it has 45 days from the date on the intermediary's denial letter 
to submit a new exception request with the complete documentation and 
that otherwise, the denial is the final determination. The time 
required by the intermediary to review the request is considered good 
cause for the granting of an extension of the time limit for the SNF to 
apply for a Provider Reimbursement Review Board review, as specified in 
Sec. 405.1841 of this

[[Page 42801]]

chapter. The intermediary's determination is subject to review under 
subpart R of part 405 of this chapter.
    (d) Exemptions. Exemptions from the limits imposed under this 
section may be granted to a new SNF. A new SNF is a provider of 
inpatient services that has operated as the type of SNF (or the 
equivalent) for which it is certified for Medicare, under present and 
previous ownership, for less than 3 full years. An exemption granted 
under this paragraph, expires at the end of the SNF's first cost 
reporting period beginning at least 2 years after the provider accepts 
its first inpatient.
    (e) Exceptions. Limits established under this section may be 
adjusted upward for a SNF or HHA under the circumstances specified in 
paragraphs (e)(1) through (e)(5) of this section. An adjustment is made 
only to the extent that the costs are reasonable, attributable to the 
circumstances specified, separately identified by the SNF or HHA, and 
verified by the intermediary.
    (1) Atypical services. The SNF or HHA can show that the--
    (i) Actual cost of services furnished by a SNF or HHA exceeds the 
applicable limit because the services are atypical in nature and scope, 
compared to the services generally furnished by SNFs or HHAs similarly 
classified; and
    (ii) Atypical services are furnished because of the special needs 
of the patients treated and are necessary in the efficient delivery of 
needed health care.
    (2) Extraordinary circumstances. The SNF or HHA can show that it 
incurred higher costs due to extraordinary circumstances beyond its 
control. These circumstances include, but are not limited to, strikes, 
fire, earthquake, flood, or other unusual occurrences with substantial 
cost effects.
    (3) Areas with fluctuating populations. The SNF or HHA meets the 
following conditions:
    (i) Is located in an area (for example, a resort area) that has a 
population that varies significantly during the year.
    (ii) Is furnishing services in an area for which the appropriate 
health planning agency has determined does not have a surplus of beds 
or services and has certified that the beds or services furnished by 
the SNF or HHA are necessary.
    (iii) Meets occupancy or capacity standards established by the 
Secretary.
    (4) Medical and paramedical education. The SNF or HHA can 
demonstrate that, if compared to other SNFs or HHAs in its group, it 
incurs increased costs for items or services covered by limits under 
this section because of its operation of an approved education program 
specified in Sec. 413.85.
    (5) Unusual labor costs. The SNF or HHA has a percentage of labor 
costs that varies more than 10 percent from that included in the 
promulgation of the limits.
    (f) Operational review. Any SNF or HHA that applies for an 
exception to the limits established under paragraph (e) of this section 
must agree to an operational review at the discretion of HCFA. The 
findings from this review may be the basis for recommendations for 
improvements in the efficiency and economy of the SNF's or the HHA's 
operations. If recommendations are made, any future exceptions are 
contingent on the SNF's or HHA's implementation of these 
recommendations.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: December 8, 1997.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.

    Dated: April 6, 1998.
Donna E. Shalala,
Secretary.
[FR Doc. 98-21423 Filed 8-10-98; 8:45 am]
BILLING CODE 4120-01-P