[Federal Register Volume 65, Number 35 (Tuesday, February 22, 2000)]
[Rules and Regulations]
[Pages 8660-8662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-3580]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 413

[HCFA-1860-FC]


Medicare Program; Payment Amount if Customary Charges are Less 
Than Reasonable Costs: Technical Amendments

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

ACTION: Final rule with comment period.

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SUMMARY: In accordance with HCFA's regulatory burden reduction program, 
this technical regulation modifies or removes from regulations language 
that references the following aspects of the Medicare program:
    The Lower of Cost or Charges (LCC) carryover provision; this 
provision was removed from HCFA regulations several years ago.
    The application of the LCC principle to durable medical equipment 
(DME) furnished by home health agencies (HHAs); these items are now 
paid in accordance with a fee schedule.

DATES: Effective Date: These regulations are effective on March 23, 
2000. Comments must be submitted on or before March 23, 2000.

ADDRESSES: Mail written comments (one original and three copies) to the 
Following address ONLY: Health Care Financing Administration, 
Department of Health and Human Services, Attention: HCFA-1860-FC, PO 
Box 8013, Baltimore, MD 21244-1850.
    If you prefer, you may deliver your written comments (one original 
and three copies) to one of the following addresses: Room 443-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW, Washington, DC, or 
C5-14-03, Central Building, 7500 Security Boulevard, Baltimore, MD 
21244-1850. Comments mailed to those addresses may be delayed and could 
be considered late.
    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. in commenting, please refer 
to file code HCFA-1860-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 443-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 5:00 p.m. (Phone (202) 690-7890).

FOR FURTHER INFORMATION CONTACT: Ward Pleines, (410) 786-4528.

SUPPLEMENTARY INFORMATION:

I. Background

    While the Medicare program's Lower of Cost or Charges (LCC) 
principle is mandated by sections 1814(b) and 1833(a)(2) of the Social 
Security Act (the Act), the inclusion of the carryover provision in the 
regulations at 42 CFR 413.13(h) was not required by the law. When we 
believed that the provider community had sufficient experience with the 
LCC principle to warrant the elimination of the carryover provision, we 
amended the regulations to permit the carryover of unreimbursed costs 
only for cost reporting periods starting on or after January 1, 1974 
(the start of the LCC principle) but before April 28, 1988 (the 
elimination of the carryover provision). This change was accomplished 
through the publication of a final regulation in the Federal Register 
at 53 FR 10077, published March 29, 1988. We now believe that 
sufficient time has passed since the publication of the revision 
eliminating the carryover provision so that it is no longer necessary 
to maintain any reference to the carryover provision in the 
regulations. Accordingly, we have deleted sections referring to the LCC 
carryover provision from the regulations.
    Section 4062(b) of the Omnibus Reconciliation Act of 1987 (Public 
Law 100-203) added section 1834 to the Act. Section 1834(a) provides 
for payment for durable medical equipment (DME) at 80 percent of the 
lesser of the actual charge for the item or the payment amount 
recognized under the DME fee schedule. For nominal charge Home Health 
Agencies (HHAs), payment is made based on 80 percent of the DME fee 
schedule amount. Since payment for DME provided by HHAs is no longer 
based on the lesser of reasonable cost or reasonable charges, the LCC 
principle is no longer applicable to DME provided by HHAs. Therefore, 
all regulation sections referring to the application of the LCC 
principle to DME provided by HHAs are being deleted.

II. Provisions of the Final Regulations

    In Sec. 413.13 we clarified the language, making the following 
changes:
    In paragraph (a), we removed the definition of ``provider with a 
significant portion of low-income patients'' (the term is explained in 
the one place it is used), simplified the definitions of ``fair 
compensation'', and added definitions of ``customary charges'' 
``nominal charge'', and ``reasonable cost'.
    In paragraph (b)(1), we removed the last sentence and, (as 
throughout the section), any provisions that expired 10 or more years 
ago and all beginning dates earlier than 1989.
    In paragraph (c), we removed paragraph (c)(2)(iii).
    Wherever appropriate, we added descriptive headings to paragraph 
subdivisions.
    We removed paragraphs (g) and (h). The paragraph (g)(2) rule 
(separate consideration of Part A and Part B services) which is the 
only part of paragraph (g) which is not obsolete now appears in 
paragraph (b)(1) of the section.
    In Sec. 413.134, we have removed paragraph (k) because it is no 
longer applicable. We have also redesignated paragraph (l) as paragraph 
(k).
    In Sec. 413.153, we have removed paragraph (e) because it is no 
longer applicable. We have also redesignated paragraph (f) as paragraph 
(e).

III. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

IV. Regulatory Impact Statement

    We have examined the impact of this rule as required by Executive 
Order

[[Page 8661]]

(E.O.) 12866 and the Regulatory Flexibility Act (RFA) (Public Law 96-
354). E.O. 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 (5 U.S.C. 601 through 612) requires agencies to analyze 
options for regulatory relief for small entities. Consistent with the 
RFA, we prepare a regulatory flexibility analysis unless we certify 
that a rule will not have a significant economic impact on a 
substantial number of small entities. For purposes of the RFA, we treat 
most hospitals and most other providers, physicians, health care 
suppliers, carriers, and intermediaries as small entities, either by 
nonprofit status or by having revenues of $5 million or less annually. 
Individuals and States are not included in the definition of a small 
entity.
    Also, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. That 
analysis must conform to the provisions of section 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.
    The Unfunded Mandates Reform Act of 1995 requires (in section 202) 
that agencies prepare an assessment of anticipated costs and benefits 
for any rule that may result in a mandated expenditure in any one year 
by State, local, and tribal governments, in the aggregate or by both 
the private sector, of $100 million. This rule has no mandated 
consequential effect on State, local, or tribal governments, or the 
private sector and will not create an unfunded mandate.
    We have not prepared a regulatory flexibility analysis because we 
have determined and we certify that these rules will not have a 
significant economic impact on a substantial number of small entities 
or a significant impact on the operation of a substantial number of 
small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
rule was not reviewed by the Office of Management and Budget.
    We have reviewed this final rule under the threshold criteria of 
Executive Order 13132, Federalism. We have determined that it does not 
significantly affect the rights, roles, and responsibilities of States.

V. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on a proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, the terms and substance of 
the proposed rule and 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.
    The changes made by this rule are technical and editorial in nature 
and do not alter the substance of the regulation. It clarifies several 
portions of Sec. 413.13 and removes provisions that have not been in 
effect for several years.
    Therefore, we find good cause to waive the notice of proposed 
rulemaking and to issue this final rule on an interim basis. For the 
same reason, we believe that we have good cause to dispense with the 
usual 30-day delay in the effective date of a rule, and believe that 
this rule should become effective immediately upon publication. We are 
providing a 60-day comment period for public comment.

List of Subjects in 42 CFR Part 413

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

    42 CFR part 413 is amended as follows:

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED 
PAYMENT RATES FOR SKILLED NURSING FACILITIES

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

    Authority: Secs. 1102, 1861(v)(1)(A), and 1871 of the Social 
Security Act (42 U.S.C. 1302, 1395x(v)(1)(A), and 1395hh).

    2. Section 413.13 is revised to read as follows:


Sec. 413.13  Amount of payment if customary charges for services 
furnished are less than reasonable costs.

    (a) Definitions. As used in this section--
    Customary charges means the regular rates that providers charge 
both beneficiaries and other paying patients for the services furnished 
to them.
    Fair compensation means the reasonable cost of covered services.
    Nominal charge means a charge equal to 60 percent or less of the 
reasonable cost of a service.
    Public provider means a provider operated by a Federal, State, 
county, city, or other local government agency or instrumentality.
    Reasonable cost means cost actually incurred, to the extent that 
cost is necessary for the efficient delivery of the service, and 
subject to the exclusions specified in paragraph (d) of this section.
    (b) Application of the lesser of costs or charges (LCC) 
principle.--(1) General rule. Except as provided in paragraph (c) of 
this section, HCFA pays providers the lesser of the reasonable cost or 
the customary charges for services furnished to Medicare beneficiaries. 
Reasonable cost and customary charges are compared separately for Part 
A services and Part B services.
    (2) Example. (i) A provider's reasonable cost for covered services 
furnished to Medicare beneficiaries during a cost reporting period is 
$125,000.
    (ii) The provider's customary charges for those services is 
$110,000.
    (iii) HCFA pays the provider $110,000 less the deductible and 
coinsurance amounts for which the beneficiaries are responsible.
    (c) Exceptions to the LCC principle. (1) Providers not subject to 
the LCC principle.
    HCFA pays the following providers the fair compensation for the 
services they furnish:
    (i) CORFs.
    (ii) Public providers that furnish services free of charge or at a 
nominal charge.
    (iii) Any provider that requests payment of fair compensation and 
can demonstrate to its intermediary that a significant portion of its 
patients are low income and that its charges are less than costs 
because its customary practice is to charge patients on the basis of 
their ability to pay.
    (2) Services not subject to the LCC principle. The following 
services are not subject to the LCC principle:
    (i) Part A inpatient hospital services. Inpatient hospital services 
are not subject to the LCC principle if they are subject to either of 
the following:
    (A) The prospective payment system under part 412 of this chapter.
    (B) The rate of increase limits set forth in Sec. 413.40.
    (ii) Facility services related to ambulatory surgical procedures

[[Page 8662]]

performed in outpatient hospital departments. Facility services related 
to ambulatory surgical procedures performed in hospital outpatient 
departments are subject to the payment methodology set forth in 
Sec. 413.118.
    (iii) Services furnished by a critical access hospital (CAH). 
Inpatient and outpatient services furnished by a CAH are subject to the 
payment methodology set forth in Sec. 413.70.
    (iv) Hospital outpatient radiology services. Hospital outpatient 
radiology services are subject to the payment methodology set forth in 
Sec. 413.122.
    (v) Other diagnostic procedures performed by a hospital on an 
outpatient basis. Other outpatient diagnostic procedures are subject to 
the payment methodology set forth in Sec. 413.122.
    (vi) Skilled nursing facility services. Skilled nursing facility 
services subject to the payment methodology set forth in Secs. 413.330 
et seq.
    (d) Exclusions from reasonable cost. For purposes of comparison 
with customary charges under this section, reasonable cost does not 
include the following:
    (1) Payments made to a provider as reimbursement for bad debts 
arising from noncollection of Medicare deductible and coinsurance 
amounts, as provided in Sec. 413.80.
    (2) Amounts that represent the recovery of excess depreciation 
resulting from termination from the Medicare program or a decrease in 
Medicare utilization applicable to prior cost reporting periods, as 
provided in Sec. 413.134.
    (3) Amounts that result from disposition of depreciable assets, 
applicable to prior cost reporting periods, as provided in 
Sec. 413.134.
    (4) Payments to funds for the donated services of teaching 
physicians, as provided in Sec. 413.85.
    (5) Except as provided in paragraph (f)(2)(iii) of this section for 
making nominal charge determinations in special situations, graduate 
medical education costs.
    (e) Reductions in customary charges. Customary charges are reduced 
in proportion to the ratio of the aggregate amount actually collected 
from charge-paying non-Medicare patients to the amount that would have 
been realized had customary charges been paid, if the provider--
    (1) Did not actually impose charges on most of the patients liable 
for payment for its services on a charge basis; or
    (2) Failed to make a reasonable effort to collect those charges.
    (f) Nominal charge determinations. In determining whether a 
provider's customary charges equal 60 percent or less of its reasonable 
costs, the following rules apply:
    (1) General rule. The determination is based on charges actually 
billed to charge-paying, non-Medicare patients, and (except for 
clinical diagnostic laboratory tests that are paid under section 
1833(h) of the Act) is made separately for Part A services and Part B 
services.
    (2) Determination in special situations. (i) Charges based on 
ability to pay. For providers that have a sliding scale or discounted 
charges based on patients' ability to pay, the determination--
    (A) Is based on charges billed to all charge-paying patients;
    (B) Uses the ratio of the sliding scale charges to the provider's 
full customary charges; and
    (C) Applies the ratio to the discounted charges to equate those 
charges to customary charges.
    (ii) HHA services. In determining nominal charges for HHAs, all 
Part A and Part B services, with the exception of DME, are considered 
together.
    (iii) Graduate medical education. When making the nominal charge 
determination, graduate medical education payments (or the provider's 
reasonable costs for that education, if supported by appropriate data) 
are included in reasonable costs.


Sec. 413.134  [Amended]

    3. Section 413.134 is amended by removing paragraph (k) and 
redesignating paragraph (l) as paragraph (k).


Sec. 413.153  [Amended]

    4. Section 413.153 is amended by removing paragraph (e) and 
redesignating paragraph (f) as paragraph (e).


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

    Dated: November 2, 1999.
Michael M. Hash,
Deputy Administrator, Health Care Financing Administration.
[FR Doc. 00-3580 Filed 2-18-00; 8:45 am]
BILLING CODE 4120-01-P