[Federal Register Volume 64, Number 52 (Thursday, March 18, 1999)]
[Rules and Regulations]
[Pages 13354-13362]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6618]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 488

[HCFA-2035-FC]
RIN 0938-AJ35


Medicare and Medicaid Programs; Civil Money Penalties for Nursing 
Homes (SNF/NF), Change in Notice Requirements, and Expansion of 
Discretionary Remedy Delegation

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

ACTION: Final rule with comment period.

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SUMMARY: This final rule with comment period expands current Medicare 
and Medicaid regulations regarding the imposition of civil money 
penalties imposed on nursing homes that are not in compliance with 
program requirements. The existing regulations provide for the 
imposition of a civil money penalty in a specific amount for each day 
of noncompliance and provide further that the civil money penalty stays 
in place until the facility comes into substantial compliance with all 
participation requirements or the facility is terminated from 
participation in the program. This new rule adds the ability for HCFA 
or the State to impose a single civil money penalty amount for an 
instance of a nursing home's noncompliance. We are also deleting 
language to remove the requirement of a maximum notification period for 
imposition of a remedy.

DATES: Effective date: These regulations are effective on May 17, 1999.
    Comment date: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on May 17, 
1999.

ADDRESSES: Mail an original and 3 copies of written comments to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: HCFA-2035-FC, P.O. Box 26585, 
Baltimore, MD 21207-0385.
    If you prefer, you may deliver an original and 3 copies of your 
written comments to one of the following addresses: Room 309-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW., Washington, D.C. 
20201, or Room C5-09-26, 7500 Security Boulevard, Baltimore, Maryland 
21244-1850.
    Comments may also be submitted electronically to the following e-
mail address: [email protected]. For e-mail comment procedures, see 
the beginning of SUPPLEMENTARY INFORMATION. For further information on 
ordering copies of the Federal Register contained in this document, see 
the beginning of Supplementary Information.

FOR FURTHER INFORMATION CONTACT: Cynthia Graunke, 410-786-6782


SUPPLEMENTARY INFORMATION:

E-mail, Comments, Procedures, and Availability of Copies

    E-mail comments must include the full name and address of the 
sender, and must be submitted to the referenced address in order to be 
considered. All comments must be incorporated in the e-mail message 
because we may not be able to access attachments. Electronically 
submitted comments will be available for public inspection at the 
Independence Avenue address, below. Because of staffing and resource 
limitations, we cannot accept comments by facsimile (FAX) transmission. 
In commenting, please refer to file code HCFA-2035-FC. 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, D.C., on Monday through Friday of 
each week from 8:30 a.m. to 5 p.m. (phone: (202) 690-7890).
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password required).

I. Background

    To participate in the Medicare and or Medicaid programs, long-term 
care facilities must be certified as meeting Federal participation 
requirements. Long-term care facilities include skilled nursing 
facilities for Medicare and nursing facilities for Medicaid. The 
Federal participation requirements for these facilities are specified 
in the statute at sections 1819 and 1919 of the Social Security Act 
(the Act) and in implementing regulations at 42 CFR Part 483, Subpart 
B.
    Section 1864(a) of the Act authorizes the Secretary to enter into 
agreements with State survey agencies to determine whether skilled 
nursing facilities meet the Federal participation requirements for 
Medicare. Section 1902(a)(33)(B) of the Act provides for State survey 
agencies to perform the same survey tasks for facilities participating 
or seeking to participate in the Medicaid program. The results of these 
Medicare and Medicaid surveys are used by HCFA and the State Medicaid 
agency, respectively, as the basis for a decision

[[Page 13355]]

to enter into, deny, or terminate a provider agreement with the 
facility. They are also used to determine whether one or more remedies 
should be imposed where noncompliance is identified.
    To assess compliance with Federal participation requirements, 
surveyors conduct onsite inspections (surveys) of facilities. In the 
survey process, surveyors directly observe the actual provision of care 
and services to residents and the effect or possible effects of that 
care to assess whether the care provided meets the assessed needs of 
individual residents.
    Among the remedies available to the Secretary and the States under 
the statute to address facility noncompliance is a civil money penalty. 
Authorized by sections 1819(h) and 1919(h) of the Act, civil money 
penalties may be imposed to remedy noncompliance at amounts not to 
exceed $10,000 per day. The statute additionally permits the Secretary 
and the States to impose a civil money penalty for past instances of 
noncompliance even if a facility is in compliance at the time of a 
current survey. The Secretary is obliged to follow the procedures set 
out at section 1128A of the Act in processing these remedies.
    The implementing regulations that govern the imposition of civil 
money penalties, as well as the other remedies authorized by the 
statute, were published on November 10, 1994 (59 FR 56116). The 
enforcement rules are set forth at 42 CFR Part 488, Subpart F, and the 
provisions directly affecting civil money penalties are set forth at 42 
CFR 488.430 to 488.444. The final enforcement rule was indicative of 
more fundamental changes in the principles upon which the enforcement 
system is based. We implemented the Congress' mandate, as originally 
embodied in the Omnibus Budget Reconciliation Act of 1987, to abandon 
our hierarchical system of requirements and to develop instead a system 
capable of detecting and responding to noncompliance with any 
requirement. The new system is built on the assumption that all 
requirements must be met and enforced and that requirements take on 
greater or lesser significance as a function of the circumstances and 
resident outcomes in the facility at the time of the survey. Thus, in 
the case of civil money penalties, facilities can expect to receive 
increased penalties as the nature and extent of their noncompliance 
increases. Current procedures allow for penalties to be assessed for 
$3,050 per day up to $10,000 per day for noncompliance that constitutes 
immediate jeopardy to patient health and safety, while penalties of $50 
to $3,000 per day may be imposed where immediate jeopardy does not 
exist.
    In addition, the regulations currently require multiple notices 
prior to imposition of remedies. One of the notification requirements 
contained at 42 CFR 488.402(f)(5) establishes a maximum number of days 
that may pass before a remedy must be imposed.

II. Provisions of the Final Rule with Comment

A. Latest date of enforcement action.

    Regulations at 42 CFR 488.402(f)(5) establish a maximum time frame 
of 20 calendar days for HCFA or the State, as appropriate, to both 
notify a provider that remedies will be imposed and actually impose the 
remedy(ies). Establishment of a maximum time frame to accomplish both 
notice and imposition of remedies has proven to be problematic as well 
as unnecessarily restrictive for HCFA and the State. Briefly stated, 
this regulation requires that remedies must be imposed within 20 days 
of their notice to the provider and when they are not, HCFA or the 
State, as appropriate, must issue another notice. The purpose of 
providing notice is to assure an entity that it will be reasonably 
informed in advance of an adverse action of the factual and legal basis 
for that action. Such due process concerns have been satisfied for many 
years by providing nursing homes with at least 2 days' notice in 
immediate jeopardy cases and 15 days in all other cases. Since a 
provider is initially notified of the remedies to be imposed following 
the survey, establishing a maximum time of twenty days for a remedy to 
be imposed unnecessarily requires an additional notice.
    By eliminating the maximum notice period, providers will receive no 
less prior notice than has traditionally been the case and, as 
importantly, would receive no less information than were the maximum 
notice period requirement to stay in effect. Thus, the only impact of 
the current rule has been to artificially delay enforcement actions 
when providers have already been well apprised of the grounds for the 
action in previous correspondence from either HCFA or the State, but 
HCFA or the State is unable to administratively impose the remedy (ies) 
within 20 days of that notice. That is not a sufficient reason to 
retain the requirement.
    Therefore, Sec. 488.402(f)(5) will merely state that the 2-and 15-
day notice periods begin when the facility receives the initial notice 
that a remedy is being imposed.

B. Per instance civil money penalties

    When the civil money penalty provisions of the enforcement 
regulations were published four years ago, they reflected an 
interpretation of the statute that required HCFA and the States to make 
a determination of not only the beginning date of identified 
deficiencies, but an ending date as well. Where the beginning date of a 
deficiency could be determined, that date would signify the beginning 
of the provider's liability even if that date preceded the time of the 
survey that first surfaced the issue. When the beginning date of the 
deficiency could not be determined, the liability, for purposes of a 
civil money penalty, would be the date of the survey. Determining the 
ending date of the noncompliance, however, has at times proved to be 
more troublesome because it has required, most often, a revisit to the 
facility to document that the noncompliance has, in fact, been 
corrected. It has been an issue of some consequence between the 
provider industry and HCFA and States that survey teams have not 
returned to facilities as quickly as facilities might like in order to 
establish that noncompliance no longer exists. It has also been an 
issue to providers that civil money penalty liability has continued in 
many cases even where the originally identified deficiencies have been 
corrected, but new ones have arisen. This has occurred because 
providers must establish substantial compliance with all requirements 
to avoid civil money penalty liability, not just compliance with the 
deficiencies that triggered the decision to impose the penalty in the 
first place. At the same time, current utilization of our civil money 
penalty authority has been an issue with the consumer community because 
of what it perceives to be a less than fully effective enforcement 
tool. As relevant here, some consumers have expressed their belief that 
whatever the features are to the regulatory scheme that arguably slow 
the pace of enforcement, these features should be revised quickly to 
maximize the benefits conferred by the enforcement provisions of the 
statute.
    Beyond this, under the enforcement scheme that HCFA and the States 
have followed, it has largely been the case that, except where 
immediate jeopardy has been involved or the provider has been found to 
be a poor performing facility, civil money penalties have not been 
imposed where facilities have been able to correct deficiencies before 
a predetermined date for the completion of corrections. As a result, we 
believe that many facilities have avoided the

[[Page 13356]]

imposition of penalties although subsequent to achieving compliance 
these same facilities have failed to maintain substantial compliance. 
This phenomenon has, to some degree, perpetuated the problem posed by 
the so-called ``yo-yo'' facilities that were of concern to the Congress 
when it enacted nursing home reform as well as to the Institute of 
Medicine whose recommendations formed the basis for many of the changes 
now appearing in the statute. When the per instance civil money penalty 
is selected we do not envision a period to correct prior to imposition. 
As we have noted previously, many facilities have avoided the 
imposition of penalties because a period to correct has been provided 
and they have initially come into compliance but failed to maintain 
substantial compliance. Since the per instance civil money penalty will 
be used when noncompliance is documented, and the penalty does not 
accrue until substantial compliance is achieved, permitting a period to 
correct before imposing the penalty defeats the purpose of this remedy.
    While we believe that the basic approach we have taken to the 
imposition of civil money penalties is still merited since we believe 
it has provided both a sentinel effect in discouraging facility 
noncompliance and has provided an effective response to facility 
noncompliance where it has been identified, we have concluded that the 
statute offers greater flexibility than we have exercised up to now. 
Specifically, we believe the statute permits the Secretary and the 
States to focus on individual instances of noncompliance without having 
to track the duration of time that the facility remains out of 
compliance with those requirements (or with other program 
requirements). Thus, where sections 1819(h)(2)(B)(ii) and 1919(h)(2) of 
the Act provide that a civil money penalty may be imposed for up to 
$10,000 for each day of noncompliance, it is entirely consistent with 
the statute that HCFA or a State impose a penalty for the noncompliance 
it identifies without regard to additional days of noncompliance that 
might yet be identified. Indeed, there is nothing in the statute that 
compels either us or the States to await a determination of the total 
number of days of noncompliance before having the authority to react to 
the noncompliance that has been identified. By statute, HCFA or the 
State may increase a civil money penalty to reflect additional days of 
noncompliance beyond those identified during the survey. However, this 
neither reflects an exclusive route to a civil money penalty liability 
nor establishes a necessary precondition to the triggering of this 
particular remedy. Not only do we derive this interpretation directly 
from the civil money penalty provisions of the statute, but we find 
support as well in the statute's broader mandate (at sections 
1819(h)(2)(A) and 1919(h)(1) of the Act) that nothing in the 
enforcement provisions ``shall be construed as restricting the remedies 
available to the Secretary [or the State] to remedy a skilled nursing 
facility's [or nursing facility's] deficiencies.''
    Thus, should a survey team identify a particular instance of 
noncompliance during a survey, such as the presence of an avoidable 
pressure sore in a facility resident, we believe the statute authorizes 
us or a State to impose an immediate civil money penalty for that one 
instance of noncompliance. The only limitation that the statute would 
provide is that the civil money penalty liability for that instance of 
noncompliance could not be more than $10,000 for the day during which 
the noncompliance was identified.
    On the other hand, HCFA or a State could identify several instances 
of noncompliance, perhaps relating to different aspects of facility 
obligations (as, for example, could be the case when deficiencies have 
been identified in areas of hydration, diet, resident assessment, and 
resident rights) and find itself imposing several different civil money 
penalties for each instance of noncompliance as long as the total 
facility liability did not exceed $10,000 per day.
    What we mean by an ``instance'' in this regulation is a single 
deficiency identified by the tag number used as a reference on the 
statement of deficiencies. While we consider an instance as a singular 
event of noncompliance, there can be more than one instance of 
noncompliance identified during a survey. For example, during the 
course of a survey, HCFA or a State may identify several instances of 
noncompliance, each in distinct regulatory areas such as resident 
rights (42 CFR 483.10) and quality of care (Sec. 483.25). If the 
noncompliance in the former area involves a violation of a resident's 
right to privacy, that instance of noncompliance might trigger a civil 
money penalty of $1,000. If noncompliance with the latter requirement 
relates to an avoidable pressure sore, that instance of noncompliance 
might trigger a civil money penalty of $4,000. The sum of these 
penalties, $5,000, would be within the statutory limitation of $10,000 
specified by the statute for a facility's liability for any given day 
of noncompliance.
    When considering whether a civil money penalty will be used as a 
remedy, the survey agency must also decide whether to establish the 
penalty on the basis of per day or per instance. This regulation does 
not authorize the use of both. When compliance with Federal 
requirements is evaluated by the survey agency and a decision is 
reached to impose a civil money penalty, a concomitant decision must be 
made whether the civil money penalty will be based on a determination 
of per instance or per day.
    Accordingly, we are adopting in this regulation the option of 
permitting the imposition of civil money penalties for each instance of 
noncompliance in addition to the option already set out in existing 
regulations to assess a civil money penalty for each day of 
noncompliance as long as the facility fails to achieve substantial 
compliance with all requirements.
    Therefore, we are revising Sec. 488.408, Selection of remedies; 
Sec. 488.430, Civil money penalties: Basis for imposing penalty; 
Sec. 488.432, Civil money penalties: When penalty is collected; 
Sec. 488.434, Civil money penalties: Notice of penalty; Sec. 488.438, 
Civil money penalties: Amount of penalty; Sec. 488.440, Civil money 
penalties: Effective date and duration of penalty; Sec. 488.442, Civil 
money penalties: Due date for payment of penalty; and Sec. 488.454, 
Duration of remedies, to incorporate per instance civil money penalties 
to our procedures.
    Since a per instance civil money penalty is not cumulative, we 
believe that a different calculus needs to be applied to better 
formulate amounts that may be imposed as penalties under this 
regulation. First, we are establishing a minimum of $1,000 for a per 
instance civil money penalty. Because this penalty will not lap over to 
a second or successive days of noncompliance, we believe it is 
important that this penalty have a significant impact on noncompliant 
providers to encourage their compliance at the earliest possible date 
and to discourage similar conduct in the future. Were we to impose 
penalties in lower amounts, we do not believe the necessary incentive 
would be present. Additionally, we are not limiting penalty amounts (as 
we did in the already existing rule) depending on whether immediate 
jeopardy is present. First, the statute does not distinguish between 
these two types of noncompliance in terms of determining an appropriate 
penalty amount. Second, because here, too, a per instance penalty would 
be a response to a specifically identified example of noncompliance

[[Page 13357]]

that would provide for no penalty aggregation beyond the first day, we 
believe there needs to be an ability for HCFA and States to respond to 
egregious instances of noncompliance in a way that is commensurate with 
the seriousness that this type of violation represents.
    Determination of the actual amount per instance will be governed by 
the following:
     Use of scope and severity (as that matrix has been applied 
under the existing enforcement rule) to assist in determining the 
magnitude of the noncompliance, including whether actual harm has 
occurred.
     The facility's degree of culpability.
     The facility's history of prior offenses, including repeat 
deficiencies.
    These criteria are the same as those applied to determining penalty 
amounts under the current regulation.
    The seriousness of the infraction should be apparent in the 
decision; e.g., an unnecessary death of a resident as a result of no 
active supervision presents a far different problem than does the 
infraction of finding that a confused person has been inappropriately 
attired or that a resident has not been given the proper privacy while 
receiving personal care from a caregiver. A determination of the scope 
and severity of the infraction should occur before any determination of 
the amount of the per instance civil money penalty is made. Ultimately, 
the amount of money assigned to a per instance issue of noncompliance 
when compared to the problem, and whether the civil money penalty 
proves sufficient to provide a long term remedy, will have to withstand 
the test of reasonableness.
    We do not expect these penalty determinations to be made with 
mathematical precision. As we have learned from our experience over the 
past few years, the determination of deficiencies (and decisions 
concerning an appropriate enforcement response) involve some degree of 
judgment. This is not only inevitable but desirable because patient 
care failings, for the most part, do not represent arithmetic 
deviations from a norm. Rather, they represent varying degrees of the 
many forms of harm that facility residents may experience. Our 
expectation is that, as a whole, what we will see in the implementation 
of this regulation is a pattern that generally associates more severe 
penalties as deficiencies pose greater harm or risks to residents' 
well-being. We expect to provide additional guidance and training to 
surveyors and others who will be asked to apply this regulation, and 
this guidance and training will reflect the approach taken in this 
regulation.
    The Department is considering as well another CMP methodology on 
which we seek public comment. If comment is favorable, we would 
implement this option when we finalize this interim regulation.
    Under this additional option, a survey agency could recommend a per 
day penalty of not more than $3,000 for non-immediate jeopardy 
violations (or not more than $10,000 in cases of immediate jeopardy) 
for any documented period of noncompliance without having an obligation 
to determine the entire period of time that the noncompliance may be 
present. For example, a survey team enters a facility on June 1 and 
observes that a facility is not in substantial compliance. The team 
returns July 1 and determines that the noncompliance it initially 
identified has continued unabated. The survey agency could at that time 
recommend a penalty of up to $3,000 per day (or $10,000 in the case of 
immediate jeopardy ) for each of the 30 days of noncompliance between 
June 1 and July 1. This would be the case even if the noncompliance 
might yet extend for additional days or weeks. Thus, the CMP in such a 
case would be based on the number of days of noncompliance actually 
identified without an affirmative obligation on HCFA's or the State's 
part to ascertain when, in fact, the noncompliance ceases to exist in 
order to calculate the penalty amount. Or, in another hypothetical 
situation, a survey team that enters a facility on June 1 may determine 
from facility records or other evidence that the facility has been out 
of compliance since May 15. The survey agency could then determine that 
there have been 15 days of noncompliance for this past period and 
recommend a penalty up to the regulatory maximum amounts for each of 
those days of noncompliance without regard to how much longer after 
June 1 the noncompliance may be present.
    The new option would be intended to complement, not supplant, the 
current CMP authority and the new per instance CMP described above. Our 
goal in considering the adoption of this third option is to improve 
nursing home compliance in a way that does not require multiple 
revisits to impose but which also could have significant financial 
impact. The potential advantage of this new option over the current CMP 
authority is that a penalty can be imposed for documented violations 
without the requirement of multiple revisits by the survey team, in 
order to determine the amount of the CMP. Under current CMP authority, 
no penalty may be collected until an ending date for the noncompliance 
is determined. We believe this policy would serve to motivate a 
facility to provide care to its residents in a fully compliant manner 
that would enable it to avoid these potentially significant CMP's in 
the first place. If a facility were not to undertake its 
responsibilities in this fashion, it would know in advance that there 
would be swift action taken to remedy noncompliant behavior.
    The Department is especially interested in hearing from states, 
consumer groups, and providers as to whether they regard this 
additional type of penalty authority to be useful, and likely to 
enhance the objective of seeing nursing homes achieve substantial 
compliance on a sustained basis. We would also want to receive comments 
on whether this proposal would be administratively practical. Lastly, 
we encourage comments on whether there should be a maximum daily 
penalty amount established for this option other than what the statute 
already provides.

III. State Authorization to Initiate Notice-Notice of Policy Change

    Regulations at Sec. 488.402(f)(1) currently permit States, as 
authorized by HCFA, to send notice of adverse actions to facilities 
which would otherwise be notified directly by HCFA. In the preamble of 
the Federal Register document that set forth this specific regulation 
(60 FR 50115, September 28, 1995), we discussed our intent to permit 
States to give notice of remedies, on behalf of HCFA, only in cases of 
minimal noncompliance. Limiting the State notification to situations of 
minimal noncompliance was based on our belief at the time that HCFA 
should be more directly involved in providing notice of remedies in 
cases of serious noncompliance.
    Our experience has shown us that the current interpretation impedes 
our ability to respond as quickly as we would like to in instances of 
facility noncompliance because of the extra time that HCFA's direct 
involvement requires. Just as we retain responsibility for making 
decisions about the imposition of remedies for lesser degrees of 
noncompliance, so too we want to provide the same review, and retain 
the same responsibility, of cases that pose more serious examples of 
noncompliance before authorizing a State to impose remedies on our 
behalf. Thus, under the interpretation we are adopting here for 
Sec. 488.402(f)(1), States are authorized to impose any remedy which we 
have the authority to impose, but only as directed by HCFA. We

[[Page 13358]]

expect that this adjustment to our process will result in the 
imposition of remedies in a more expeditious and efficient manner than 
has previously been the case.

IV. 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 we receive by the date and time specified in the DATES 
section of this preamble, and, when we proceed with a subsequent 
document, we will respond to the major comments in the preamble to that 
document.

V. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived, however, if an agency 
finds good cause that a notice-and-comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued. We believe 
that dispensing with proposed rulemaking is in the public interest and, 
accordingly, are proceeding here directly with a final rule.
    Residents of the nation's nursing homes are among the most 
vulnerable members of our society. Their well-being is entrusted 
completely to the care givers with whom they come into contact at these 
facilities, and, in no small measure, they rely significantly on the 
machinery of Federal and State government to protect their interests 
through the enforcement mechanisms authorized by the Medicare and 
Medicaid statutes. We believe that the more diligent we are in our 
enforcement efforts, the greater the likelihood that facilities will be 
encouraged to comply with our requirements, and the greater the 
likelihood that facility residents will receive the kind of quality 
care that the statute envisions.
    While we believe that we have made material progress in advancing 
the well-being of facility residents since the advent of nursing home 
reform, we know that there are opportunities to improve on our record. 
A report recently issued by the United States General Accounting Office 
(GAO), in which there was a focus on nursing home conditions, spoke of 
the continuing presence of unacceptable care in many facilities. Citing 
continuing problems with meeting some of the most basic needs of 
residents, such as hydration, nutrition, weight maintenance, and the 
avoidance of pressure sores, the GAO concluded that there was still 
important work to be done to make the enforcement scheme of the nursing 
home reform legislation as effective as it might be. The GAO made 
strong recommendations for HCFA to bolster its enforcement scheme in an 
effort to minimize, if not eliminate, the kinds of care problems it 
identified.
    We are most troubled by these reports of poor care. We recognize 
the importance of making whatever adjustments we have the authority to 
make as swiftly as we reasonably can if we are to best protect resident 
well-being. Were we to subject these rules on the imposition of civil 
money penalties to the full course of proposed rulemaking before 
finalizing them, we believe we would lose valuable opportunities to 
respond to cases of noncompliance where the more rapid imposition of 
penalties would likely reduce the exposure of larger numbers of the 
nation's nursing home residents to substandard, and sometimes 
dangerous, levels of care. Because these rules would focus on specific 
instances of noncompliance, and would permit HCFA and the States to 
thereby focus swiftly on pinpointed unacceptable care practices, we 
believe it is in the public interest to make these rules effective at 
the earliest possible time. We believe additionally that where this 
rule is so reflective of what it is that the statute is aimed at, there 
is particular urgency to make these rules available quickly.
    For similar reasons, we believe we have good cause to eliminate the 
requirement establishing a maximum time frame of 20 days to notify a 
provider of the imposition of remedies contained at Sec. 488.402(f)(5). 
Elimination of this maximum time frame does not eliminate the 
providers' right to notice in advance of an adverse action. Such due 
process continues to be satisfied with at least 2 days' notice in 
immediate jeopardy cases and 15 days in all other cases. The only 
impact of the current rule is to artificially delay enforcement actions 
when providers have already been well apprised of the grounds for the 
action in previous correspondence from either HCFA or the State. Again, 
we believe it is in the public interest to make this rule change 
effective at the earliest possible time and dispense with the full 
course of proposed rulemaking.
    In the case of the change to our interpretation of 42 CFR 
488.402(f)(1), in addition to the reasons already cited, we believe 
that engaging in proposed rulemaking would be unnecessary. In the case 
of this modification of our enforcement process, no change in the 
regulation text is needed since it is only an interpretation of the 
current rule that is being affected. Beyond this, providers will 
receive no less notice of impending adverse actions than they have in 
the past. The only difference will be that the letter they receive will 
arrive under the signature of a State official rather than one from a 
HCFA regional office. We believe this change will permit HCFA and the 
States to focus more swiftly on specific instances of noncompliance 
and, therefore, it is in the public interest for this change to be 
accomplished as quickly as possible.
    Therefore, we find good cause to waive the notice of proposed 
rulemaking and to issue this rule as a final rule with comment. We are, 
however, providing a 60-day comment period and will respond to comments 
we receive in any subsequent Federal Register document.

VI. Collection of Information Requirements

    Sections 4204(b) and 4214(d) of the Omnibus Budget Reconciliation 
Act of 1987 (Public Law 100-203) provide a waiver of Office of 
Management and Budget review of information collection requirements for 
the purpose of implementing the nursing home reform amendments and 
these enforcement provisions as referred to in section 4203 of that 
act.

VII. Regulatory Impact Statement

    We have examined the impacts of this final rule with comment as 
required by Executive Order 12866 and the Regulatory Flexibility Act 
(RFA) (Public Law 96-354). Executive Order 12866 directs agencies to 
assess all costs and benefits of available regulatory alternatives and, 
when regulation is necessary, to select regulatory approaches that 
maximize net benefits (including potential economic, environmental, 
public health and safety effects, distributive impacts, and equity). 
The RFA requires agencies to analyze options for regulatory relief of 
small businesses. For purposes of the RFA, small entities include small 
businesses, non-profit organizations and government agencies. For 
purposes of the RFA, most long term care facilities are considered to 
be small entities.
    Section 1102(b) of the Social Security Act requires us to prepare a 
regulatory impact analysis if a rule may have a

[[Page 13359]]

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.
    The intent of the ``per instance'' penalty in this final rule and 
the ``limited per day'' option discussed earlier in this preamble is to 
offer greater administrative ease to the survey agency in applying 
penalties and offer a more flexible approach to ensuring compliance. 
The current per day penalty is administratively difficult to apply, 
consuming increased surveyor time. The ``per instance'' and ``limited 
per day'' would allow the imposition of financial penalties that on a 
per case basis may be less onerous. In developing these two options 
HCFA is recognizing the range of severity of violations and providing 
survey agencies increased enforcement flexibility, in the form of 
additional civil money penalty options.
    We view the anticipated results of this rule as beneficial to 
nursing home residents. Specifically, we believe that a per instance 
civil money penalty will allow us to more specifically tailor the 
response to facility noncompliance in a way that assures that 
appropriate resident care occurs. Nevertheless, we recognize that this 
rule could be controversial and may be responded to unfavorably by some 
interested parties. We also recognize that not all of the potential 
effects of this rule can be definitely anticipated, especially in view 
of their interaction with other Federal, State, and local activities 
regarding health and safety assurance. In particular, considering the 
effects of our simultaneous efforts to improve the survey and 
enforcement activities, through both new and existing instruments and 
the nursing home provider's responsibility to maintain continuous 
compliance with the participation requirements, it is impossible to 
quantify meaningfully the future effect of this rule on facilities' 
compliance activities or costs. We also are unable to project the 
frequency with, or increase or decrease in, which facilities will be 
found to be out of compliance and subject to the imposition of a civil 
money penalty. While it is not possible to anticipate frequency HCFA 
must consider the facility's financial condition in determining the 
amount of penalty if a civil money penalty is selected.

Affected Entities

    As of August 24, 1998, there are a total of 17,346 nursing homes 
participating in the Medicare and Medicaid programs; there are 1,488 
skilled nursing facilities certified for Medicare, 2,343 nursing 
facilities certified for Medicaid, and 13,515 dually participating 
facilities certified for both Medicare and Medicaid. The majority (65 
percent) of these facilities are proprietary. Approximately 28 percent 
are not-for-profit and 7 percent are government operated.
    In order to determine what is a small entity, we use $5 million as 
a threshold. In estimating the number of nursing facilities with annual 
revenues in excess of $5 million, bed size was used as a proxy. We 
assumed facilities with 120 beds or more would have annual gross 
revenues of $5 million or more. Information on average revenue per day 
was obtained from the HCFA Office of the Actuary, National Health 
Statistics Group. In determining the facility bed size, the national 
1997 average facility occupancy was considered. The occupancy rate was 
taken from a January 1999 report ``Nursing Facilities, Staffing, 
Residents, and Facility Deficiencies, 1991 Through 1997.'' The Online 
Survey Certification and Report (OSCAR) was used in preparing the 
report as well as our using the data to gather information regarding 
facility size. Approximately 61 percent of the proprietary facilities 
have 119 beds or fewer. Government-owned facilities are not considered 
small entities because they are not independently owned and operated 
even though they are not-for-profit.
    There should be no additional cost to the provider. This is based 
upon the fact the regulations and operating directions against which 
compliance is evaluated have been readily available and widely 
distributed to the provider community for a number of years and the 
requirements have not changed. The requirements against which 
compliance is evaluated are known and the provider has both the ability 
and expectation to maintain compliance. The provider should be in 
compliance. This would mean no civil money penalty would be imposed. 
However, should the provider be determined out of compliance and a 
decision reached to impose a per instance civil money penalty, it is 
difficult to project the number of times that may occur. While it may 
not be fully instructive to evaluate the impact of the current process 
for imposing a civil money penalty, the only experience the HCFA has to 
draw upon is our experience since the regulation became effective in 
July 1995. Historical information spanning the three fiscal years since 
July 1995 indicates the average number of facilities per year that have 
had civil money penalties imposed is between one and 1.5 and 3 percent. 
The yearly average amount of the civil money penalty per facility has 
been $15,672 to $21,280. The facility's management has the ability to 
control operation of the business. The facility's management also has 
the ability and legal responsibility to maintain compliance with 
requirements. Since the majority of the businesses have annual 
operating budgets in excess of $1 million dollars, the impact of the 
per instance civil money penalty, when compliance is not maintained, 
does not appear particularly onerous.
    We do not know the impact of this rule on nursing homes. As has 
previously been stated, if the facility is in substantial compliance 
with Federal regulations, there is no basis to utilize any enforcement 
remedy. However, should a remedy be indicated, a number of alternative 
remedies may be considered in addition to a civil money penalty. It 
would not be accurate to assume that a civil money penalty would be the 
remedy of choice or the one most frequently used. Selection of 
enforcement remedies appropriate to the noncompliance requires careful 
consideration on the part of the regulatory agency and does not 
automatically imply a civil money penalty will be imposed. While it may 
be argued the per instance civil money penalty will be more heavily 
utilized than the per day civil money penalty, we have no data to 
support that perspective.
    We have also considered the potential impact of the ``limited per 
day'' methodology of imposing a civil money penalty on nursing homes. 
The same difficulty is present in attempting to assess the impact of 
this approach as is present with the per instance provision. It is not 
possible to project the frequency of noncompliance or increases or 
decreases in the number of facilities that will be found to be out of 
compliance and subject to imposition of a civil money penalty. This is 
especially true when considering that selection of a civil money 
penalty is not a requirement and but one of an array of remedies that 
may be selected.
    A nursing home certified to participate in the Medicare and 
Medicaid programs is expected to be in compliance with Federal 
requirements as a condition of receiving payment for services provided 
to beneficiaries. If the provider is in compliance, no action to impose 
a remedy, which could include a civil money penalty, would be 
justified. However, should the provider be determined out of compliance 
and a decision reached to impose a civil money penalty, it is difficult 
to project the number of times that may occur. As we have indicated, if 
a civil money

[[Page 13360]]

penalty is selected as an enforcement option, the facility's financial 
condition must be considered in determining the amount of the penalty.
    There are currently a number of activities occurring that we 
believe will sharpen public and provider awareness of problems in 
nursing homes. These activities include the President's ``Initiatives 
to Improve the Quality of care In Nursing Homes'' and activities of the 
Senate Committee on Aging. We believe that the increased awareness of 
nursing homes problems may influence greater facility compliance and 
mitigate against increased use of remedies to achieve compliance with 
Federal requirements.
    Because this rule affects no rural hospitals, we are not preparing 
an analysis for section 1102(b) of the Act because we have determined, 
and we certify, that this rule will not have a significant impact on 
the operations of a substantial number of small rural hospitals.
    This rule has been reviewed in accordance with the Unfunded 
Mandates Reform Act of 1995 (2 U.S.C. 1501 et seq.), which requires 
that agencies assess anticipated costs and benefits before issuing any 
rule that may result in an annual expenditure by State, local, or 
tribal governments, in the aggregate, or by the private sector, of $100 
million. Although this interim final rule will affect nursing 
facilities, we anticipate this effect to be less than $100 million in 
the aggregate.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 488

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.
    For the reasons set forth in the preamble, 42 CFR part 488, subpart 
F, is amended as set forth below:

PART 488--SURVEY, CERTIFICATION, AND ENFORCEMENT PROCEDURES

    1. The authority citation for Part 488 continues to read as 
follows:

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

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

    2. In Sec. 488.402, paragraph (f)(5) is revised to read as follows:


Sec. 488.402  General provisions.

* * * * *
    (f) Notification requirements--* * *
    (5) Date of enforcement action. The 2-and 15-day notice periods 
begin when the facility receives the notice.
* * * * *
    3. In Sec. 488.408, the introductory text of paragraphs (d)(1), 
(e)(1), and (e)(2) are republished, paragraphs (d)(1)(iv) and 
(e)(1)(iv) are added, and paragraph (e)(2)(ii) is revised to read as 
follows:


Sec. 488.408  Selection of remedies.

* * * * *
    (d) Category 2. (1) Category 2 remedies include the following:
* * * * *
    (iv) Civil money penalty of $1,000-$10,000 per instance of 
noncompliance.
* * * * *
    (e) Category 3. (1) Category 3 remedies include the following:
* * * * *
    (iv) Civil money penalty of $1,000-$10,000 per instance of 
noncompliance.
    (2) When there are one or more deficiencies that constitute 
immediate jeopardy to resident health or safety--
* * * * *
    (ii) HCFA and the State may impose a civil money penalty of $3,050-
$10,000 per day or $1,000-$10,000 per instance of noncompliance, in 
addition to imposing the remedies specified in paragraph (e)(2)(i) of 
this section.
* * * * *
    4. Section 488.430(a) is revised to read as follows:


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

    (a) HCFA or the State may impose a civil money penalty for either 
the number of days a facility is not in substantial compliance with one 
or more participation requirements or for each instance that a facility 
is not in substantial compliance, regardless of whether or not the 
deficiencies constitute immediate jeopardy.
* * * * *
    5. In Sec. 488.432, the section heading and paragraphs (a)(2), (b), 
and (c) are revised to read as follows:


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

    (a) When a facility requests a hearing. * * *
    (2) (i) If a facility requests a hearing within the time specified 
in paragraph (a)(1) of this section, for a civil money penalty imposed 
per day, HCFA or the State initiates collection of the penalty when 
there is a final administrative decision that upholds HCFA's or the 
State's determination of noncompliance after the facility achieves 
substantial compliance or is terminated.
    (ii) If a facility requests a hearing for a civil money penalty 
imposed per instance of noncompliance within the time specified in 
paragraph (a)(1) of this section, HCFA or the State initiates 
collection of the penalty when there is a final administrative decision 
that upholds HCFA's or the State's determination of noncompliance.
    (b) When a facility does not request a hearing for a civil money 
penalty imposed per day. (1) If a facility does not request a hearing 
in accordance with paragraph (a) of this section, HCFA or the State 
initiates collection of the penalty when the facility--
    (i)Achieves substantial compliance; or
    (ii) Is terminated.
    (2) When a facility does not request a hearing for a civil money 
penalty imposed per instance of noncompliance. If a facility does not 
request a hearing in accordance with paragraph (a) of this section, 
HCFA or the State initiates collection of the penalty when the time 
frame for requesting a hearing expires.
    (c) When a facility waives a hearing. (1) If a facility waives, in 
writing, its right to a hearing as specified in Sec. 488.436, for a 
civil money penalty imposed per day, HCFA or the State initiates 
collection of the penalty when the facility--
    (i) Achieves substantial compliance; or (ii) Is terminated.
    (2) If a facility waives, in writing, its right to a hearing as 
specified in Sec. 488.436, for a civil money penalty imposed per 
instance of noncompliance, HCFA or the State initiates collection of 
the penalty upon receipt of the facility's notification.
* * * * *
    6. In Sec. 488.434, the introductory text of paragraph (a)(2) is 
republished and paragraphs (a)(2)(iii), (a)(2)(v), and (a)(2)(vi) are 
revised to read as follows:


Sec. 488.434  Civil money penalties: Notice of penalty.

    (a) HCFA notice of penalty. * * *
    (2) Content of notice. The notice that HCFA sends includes--
* * * * *
    (iii) The amount of penalty per day of noncompliance or the amount 
of the penalty per instance of noncompliance;
* * * * *
    (v) The date of the instance of noncompliance or the date on which 
the penalty begins to accrue;
    (vi) When the penalty stops accruing, if applicable;
* * * * *
    7. In Sec. 488.438, the introductory text of paragraph (a) is 
redesignated as (a)(1) and republished; paragraphs (a)(1) and (a)(2) 
are redesignated as paragraphs (a)(1)(i) and (a)(1)(ii), respectively; 
a new paragraph (a)(2) is added; and

[[Page 13361]]

paragraphs (c) and (d) are revised to read as follows:


Sec. 488.438  Civil money penalties: Amount of penalty.

    (a) Amount of penalty--(1) Per day penalties. The per day penalties 
are within the following ranges, set at $50 increments:
    (i) Upper range. * * *
    (ii) Lower range. * * *
    (2) Per instance penalty. When penalties are imposed for an 
instance of noncompliance, the penalties will be in the range of 
$1,000-$10,000 per instance.
* * * * *
    (c) Decreased penalty amounts. Except as specified in paragraph 
(d)(2) of this section, if immediate jeopardy is removed, but the 
noncompliance continues, HCFA or the State will shift the penalty 
amount imposed per day to the lower range.
    (d) Increased penalty amounts. (1) Before a hearing requested in 
accordance with Sec. 488.432(a), HCFA or the State may propose to 
increase the per day penalty amount for facility noncompliance which, 
after imposition of a lower level penalty amount, becomes sufficiently 
serious to pose immediate jeopardy.
    (2) HCFA does and the State must increase the per day penalty 
amount for any repeated deficiencies for which a lower level penalty 
amount was previously imposed, regardless of whether the increased 
penalty amount would exceed the range otherwise reserved for 
nonimmediate jeopardy deficiencies.
* * * * *
    8. In Sec. 488.440, paragraphs (a), (c), (d), (g), and (h); the 
introductory text of paragraphs (b) and (e); and paragraph (f)(1) are 
revised to read as follows:


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

    (a)(1) The per day civil money penalty may start accruing as early 
as the date that the facility was first out of compliance, as 
determined by HCFA or the State.
    (2) A civil money penalty for each instance of noncompliance is 
imposed in a specific amount for that particular deficiency .
    (b) The per day civil money penalty is computed and collectible, as 
specified in Secs. 488.432 and 488.442, for the number of days of 
noncompliance until the date the facility achieves substantial 
compliance, or, if applicable, the date of termination when--
* * * * *
    (c) The entire penalty, whether imposed on a per day or per 
instance basis, is due and collectible as specified in the notice sent 
to the provider under paragraphs (d) and (e) of this section.
    (d) (1) When a civil money penalty is imposed on a per day basis 
and the facility achieves substantial compliance, HCFA does or the 
State must send a separate notice to the facility containing the 
following information:
    (i) The amount of penalty per day.
    (ii) The number of days involved.
    (iii) The total amount due.
    (iv) The due date of the penalty.
    (v) The rate of interest assessed on the unpaid balance beginning 
on the due date, as provided in Sec. 488.442.
    (2) When a civil money penalty is imposed for an instance of 
noncompliance, HCFA does or the State must send a separate notice to 
the facility containing the following information:
    (i) The amount of the penalty.
    (ii) The total amount due.
    (iii) The due date of the penalty.
    (iv) The rate of interest assessed on the unpaid balance beginning 
on the due date, as provided in Sec. 488.442.
    (e) In the case of a facility for which the provider agreement has 
been terminated and on which a civil money penalty was imposed on a per 
day basis, HCFA does or the State must send this penalty information 
after the--
* * * * *
    (f)(1) In the case of noncompliance that does not pose immediate 
jeopardy, the daily accrual of per day civil money penalties is imposed 
for the days of noncompliance prior to the notice specified in 
Sec. 488.434 and an additional period of no longer than 6 months 
following the last day of the survey.
* * * * *
    (g)(1) In a case when per day civil money penalties are imposed, 
when a facility has deficiencies that pose immediate jeopardy, HCFA 
does or the State must terminate the provider agreement within 23 
calendar days after the last day of the survey if the immediate 
jeopardy remains.
    (2) The accrual of the civil money penalty imposed on a per day 
basis stops on the day the provider agreement is terminated.
    (h)(1) If an on-site revisit is necessary to confirm substantial 
compliance and the provider can supply documentation acceptable to HCFA 
or the State agency that substantial compliance was achieved on a date 
preceding the revisit, penalties imposed on a per day basis only accrue 
until that date of correction for which there is written credible 
evidence.
    (2) If an on-site revisit is not necessary to confirm substantial 
compliance, penalties imposed on a per day basis only accrue until the 
date of correction for which HCFA or the State receives and accepts 
written credible evidence.
    9. In Sec. 488.442, the heading of paragraph (a) is revised, 
paragraphs (b) through (f) are redesignated as paragraphs (c) through 
(g), respectively, and new paragraph (b) is added to read as follows:


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

    (a) When payments are due for a civil money penalty imposed on a 
per day basis--
* * * * *
    (b) When payments are due for a civil money penalty imposed for an 
instance of noncompliance. Payment of a civil money penalty is due 15 
days after one of the following dates:
    (1) The final administrative decision is made;
    (2) The time for requesting a hearing has expired and the facility 
did not request a hearing; or
    (3) The facility waived its right to a hearing.
* * * * *
    10. In Sec. 488.454, the introductory text of paragraph (a) is 
revised, paragraph (d) is redesignated as paragraph (e) and revised, 
and new paragraph (d) is added to read as follows:


Sec. 488.454  Duration of remedies.

    (a) Except as specified in paragraphs (b) and (d) of this section, 
alternative remedies continue until--
* * * * *
    (d) In the case of a civil money penalty imposed for an instance of 
noncompliance, the remedy is the specific amount of the civil money 
penalty imposed for the particular deficiency.
    (e) If the facility can supply documentation acceptable to HCFA or 
the State survey agency that it was in substantial compliance and was 
capable of remaining in substantial compliance, if necessary, on a date 
preceding that of the revisit, the remedies terminate on the date that 
HCFA or the State can verify as the date that substantial compliance 
was achieved and the facility demonstrated that it could maintain 
substantial compliance, if necessary.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program; Program No. 93.773, Medicare--Hospital 
Insurance; and Program No. 93.774, Medicare--Supplementary Medical 
Insurance Program)


[[Page 13362]]


    Dated: February 12, 1999.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.

    Dated: March 3, 1999.
Donna E. Shalala,
Secretary.
[FR Doc. 99-6618 Filed 3-16-99; 9:20 am]
BILLING CODE 4120-01-P