[Federal Register Volume 64, Number 150 (Thursday, August 5, 1999)]
[Rules and Regulations]
[Pages 42610-42614]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-20015]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Part 413
[HCFA-1883-F]
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: Final rule.
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SUMMARY: This final rule revises the procedures for granting exceptions
to the cost limits for skilled nursing facilities (SNFs) and retains
the current procedures for exceptions to the cost limits for home
health agencies (HHAs). It also removes the provision allowing
reclassification for all providers.
EFFECTIVE DATE: This final rule is effective September 7, 1999.
FOR FURTHER INFORMATION CONTACT: Steve Raitzyk, (410) 786-4599.
SUPPLEMENTARY INFORMATION:
I. Background
Section 223 of the Social Security Amendments of 1972 (Pub. L. 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), if a
provider's cost exceeds its Medicare cost limit, it is deemed to be
unreasonable for the efficient delivery of needed health care services.
The Congress, however, in the House Committee report ``H.R. Rep. No.
92-231, 92nd Congress, 1st Session 5071 (1971),'' stated that providers
could obtain relief from the effect of the cost limits based on
evidence of the need for an exception.
We published a final rule on June 1, 1979 (44 FR 31802) to
implement the legislation. The provisions are presently in 42 CFR
413.30 and concern principles of reasonable cost reimbursement.
Section 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 seek 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 of its provider
status, or by requesting an exception to the cost limit.
On August 11, 1998, we published a proposed rule concerning
procedures for requesting exceptions to cost limits in the Federal
Register (63 FR 42797). We proposed to revise the approval process for
granting exceptions to the cost limits for skilled nursing facilities
(SNFs) and to remove the provision for obtaining a reclassification for
all providers. In that proposed rule, we traced the development of cost
limits since 1972.
In the proposed rule, we stated that we may find it inappropriate
to apply particular limits to a class of providers because of provider
class characteristics, the data on which the limits are based, or the
method by which the limits are determined (63 FR 42800). We further
stated that we may explain our reasoning for exclusion in a notice
setting forth the limits for the appropriate cost reporting periods. We
explained that estimates of the costs necessary for efficient delivery
of health services may be based on cost reports or other data providing
indicators of current costs. Current and past period data would be
adjusted to arrive at estimated costs for the prospective periods to
which limits are being applied.
We described the process of establishing cost limits and the basis
on which they were calculated. We also explained that the servicing
intermediary would have to notify each SNF or HHA of its cost limit at
least 30 days before the applicable cost reporting period. Each
intermediary cost limit notification would have to 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
[[Page 42611]]
exception to, the cost limits under the provisions of Sec. 413.30.
II. Provisions of the Proposed Rule
A. Provider Reclassification
In the proposed rule, we noted that under current Sec. 413.30(d), a
provider may obtain a reclassification of its provider status if it can
show that its classification is at variance with the criteria specified
in establishing the limits. We noted that 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).
We stated there were instances when providers were misclassified. Thus,
we allowed providers to file reclassification requests if they could
show that the data we used for the classification were incorrect.
We noted that HHAs and SNFs now file 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, a SNF or HHA cannot be misclassified.
Reclassifications for hospitals, now filed with the Medicare Geographic
Review Board, are governed under the provisions of subpart L (The
Medicare Geographic Classification Review Board) of part 412
(Prospective Payment System for Inpatient Hospital Services). Hospitals
no longer apply for reclassifications under Sec. 413.30. Therefore, we
proposed to remove Sec. 413.30(d) to discontinue the use of
reclassifications.
B. Exceptions to Cost Limits
In the preamble to the June 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.
Our current regulation at Sec. 413.30(f) (Sec. 413.30(c) in this
final rule) 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; and unusual labor costs. A SNF may request an
exception for cost reporting periods occurring before July 1, 1998.
We stated that 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 pay. 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 July 1994, we published manual instructions (HCFA Pub. 15-1,
Transmittal No. 378) that give SNFs detailed instructions for
requesting exceptions to the SNF cost limits. Under this transmittal,
in section 2531.1, intermediaries are required to submit their
recommendations on a SNF's exception request within 90 days of receipt.
We stated that we notify the intermediary of our final determination on
the exception within 90 days of the date the request is received. We
further stated that our current regulation at Sec. 413.30(c) allows us
180 days to make our final determination.
We explained that 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 the required time frame. The resulting increase in
administrative efficiency has benefited SNFs, fiscal intermediaries,
and the Medicare program.
We proposed in the August 1998 rule to revise Sec. 413.30(c) to
give all intermediaries the authority to make final determinations on
SNF exception requests. We stated that this would result in an increase
in administrative efficiency benefiting all SNFs who file SNF exception
requests and fiscal intermediaries that process those exception
requests.
We also stated our intent to work with the Blue Cross Association
to perform additional training for all fiscal intermediaries and to
designate a single contact person to handle all inquiries from fiscal
intermediaries regarding exception requests.
Under our 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 (PRRB), and that the time we need to review
the request (through the intermediary) is considered good cause for
extending the time limit for a PRRB review. Otherwise, the denial is
our final determination.
We stated, in accordance with section 4432 of the Balanced Budget
Act of 1997 (Pub. L. 105-33), that 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 paid 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 is cost reporting
periods beginning during the period October 1, 1994 through September
30, 1995. Exceptions for SNFs will no longer be available for cost
reporting periods beginning on or after July 1, 1998.
The procedures for HHA exception requests would remain unchanged
and are set forth in this final rule at Sec. 413.30(c)(1). We note that
we will not make exception payments to an HHA that is subject to the
per-beneficiary limit described in a final rule with comment period
that we published on March 31, 1998 (63 FR 15718).
C. Technical Changes
We proposed to remove paragraph (h) of Sec. 413.30, pertaining to
hospital cost report adjustments, because it is obsolete, and we also
proposed to make minor editorial changes to other portions of
Sec. 413.30.
III. Analysis of and Responses to Comments
We received comments on the proposed rule from an organization
representing nursing homes and from a consulting company. The comments
and our responses to those comments are as follows:
Comment: The commenter expressed concerns that fiscal
intermediaries have a mounting workload due to the implementation of
the SNF prospective payment system, and that this
[[Page 42612]]
regulation will create additional workload responsibilities for fiscal
intermediaries.
Response: Fiscal intermediaries have been processing SNF exception
requests since July 1994, under Transmittal No. 378 of HCFA Pub. 15-1.
An intermediary processes an exception within 90 days of receipt from
the SNF and sends its recommendation to our staff who also makes a
final determination within 90 days. This final regulation will allow an
intermediary to implement its recommendation without having to submit
it to us for a final determination. Not only is there no additional
workload required of an intermediary, this regulation will actually
reduce the intermediary's workload by not having to submit the
exception to us and wait for our response. We have designated Joseph
Menning as the contact person available to assist the intermediaries
with any questions or problems and we will monitor the performance of
the intermediaries. He may be reached by telephone at (410) 786-4594,
or by e-mail at [email protected], or by mail at: HCFA, 7500 Security
Boulevard, Room C5-06-05, Baltimore, MD 21244.
Comment: One commenter requested that we establish a separate
arbitration board to hear SNF claims relating to disagreements about
exception decisions made by a fiscal intermediary.
Response: If errors in either computations or the application of
exception methodologies are detected by the SNF, the SNF should notify
the fiscal intermediary and the intermediary will review the SNF's
claim. If there is still a disagreement, the SNF can ask that its
intermediary contact the HCFA-designated exceptions contact person in
an effort to resolve the disagreement between the SNF and the
intermediary. If the SNF still disagrees with the intermediary's
determination, it can request a review by the PRRB.
Comment: A commenter claimed that there are inconsistencies in the
methodology and calculation of SNF exceptions among intermediaries and
that some intermediaries consistently miss responding to a SNF's
exception request within the required 90-day timeframe.
Response: We have trained all intermediaries to follow the
instructions in Transmittal No. 378 of HCFA Pub. 15-1. We are not aware
of any inconsistent applications of exceptions policies among
intermediaries. We monitor the performance of intermediaries on various
pay issues, including exceptions, under the Contractor Performance
Evaluation Program (CPEP). Also, if the intermediary misses the 90-day
timeframe to respond to a SNF's exception request, this failure to
respond is considered good cause for an extension of the time limit for
the SNF to apply for a review by the PRRB.
Comment: One commenter expressed the view that many intermediaries
know very little about SNF operations or regulatory compliance issues
and this makes it difficult for them to make a proper decision on
exceptions issues such as the ``low occupancy'' adjustment.
Response: All intermediaries employ personnel who deal with
operational and regulatory compliance issues. We know of no
intermediaries that have had problems in this area. If a fiscal
intermediary or SNF encounters a problem concerning any exceptions
policy, including operational and regulatory compliance issues, it may
contact the HCFA-designated contact person for assistance. Also, a SNF
that encounters a problem may contact the HCFA-designated exceptions
contact.
Comment: The same commenter indicated that in its estimation, many
intermediaries ignore low occupancy arguments and calculations made by
SNFs and either make arbitrary partial adjustments or 100 percent low
occupancy adjustments.
Response: We have instructed fiscal intermediaries to submit all
alternate proposals to the low occupancy adjustment to us for a
determination. We have received many alternate proposals to the low
occupancy adjustment submitted by fiscal intermediaries on behalf of
SNFs and their representatives. We issued program instructions to the
fiscal intermediaries based on these proposals.
IV. Provisions of the Final Rule
Based on our review and analysis of comments, we are adopting the
proposed rule as final. We are making, however, a technical
clarification to the proposed Sec. 413.30(d) to indicate that SNF
exemptions apply only to cost reporting periods beginning before July
1, 1998. We are revising the approval process for granting exceptions
to the cost limits for SNFs (Sec. 413.30(c)) and retaining the current
procedures for exceptions to the cost limits for HHAs
(Sec. 413.30(c)(1)). We are also removing the current provision
allowing reclassification for all providers (Sec. 413.30(d)).
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, 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. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 50 beds.
This rule to eliminate reclassifications for HHAs and SNFs has no
effect on them since they currently do not need to be reclassified.
Hospitals can obtain any needed reclassifications and exceptions under
subpart L of part 412. The change in the method of processing requests
for exceptions to cost limits has no economic impact on either the
providers or the Medicare program.
For these reasons, 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 rule will 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.
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, part 413, is
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
[[Page 42613]]
payments. It also sets forth rules governing exemptions and exceptions
to limits established under this section that HCFA may make as
appropriate in considering 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 care 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 publishes 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. For cost
reporting periods beginning before July 1, 1998, 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 or HHA
must make its request to its fiscal intermediary within 180 days of the
date on the intermediary's notice of program pay.
(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 PRRB 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 and notifies the SNF of its
determination 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
PRRB review, as specified in Sec. 405.1841 of this 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 with cost reporting periods
beginning before July 1, 1998 as stated in Sec. 413.1(g)(1). 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 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)
[[Page 42614]]
Dated: January 19, 1999.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
Dated: April 22, 1999.
Donna E. Shalala,
Secretary.
[FR Doc. 99-20015 Filed 8-4-99; 8:45 am]
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