[Federal Register Volume 68, Number 74 (Thursday, April 17, 2003)]
[Rules and Regulations]
[Pages 18895-18906]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-9497]



[[Page 18895]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Part 160

[CMS-0010-IFC]
RIN 0938-AM63


Civil Money Penalties: Procedures for Investigations, Imposition 
of Penalties, and Hearings

AGENCY: Office of the Secretary, HHS.

ACTION: Interim final rule; request for comments.

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SUMMARY: This interim final rule establishes rules of procedure for the 
imposition, by the Secretary of Health and Human Services, of civil 
money penalties on entities that violate standards adopted by the 
Secretary under the Administrative Simplification provisions of the 
Health Insurance Portability and Accountability Act of 1996 
(``HIPAA''). We intend that this be the first installment of a rule 
that we term the ``Enforcement Rule.'' The Enforcement Rule, when 
issued in complete form, will set forth procedural and substantive 
requirements for imposition of civil money penalties. In the interim, 
we are issuing these rules of procedure to inform regulated entities of 
our approach to enforcement and to advise regulated entities of certain 
procedures that will be followed as we enforce the Administrative 
Simplification provisions of HIPAA.

DATES: Effective Date: This interim final rule is effective May 19, 
2003.
    Comment Date: Comments on the interim final rule must be received 
by June 16, 2003.
    Expiration Date: This interim final rule will cease to be in effect 
on September 16, 2003.

ADDRESSES: In commenting, please refer to file code CMS-0010-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (``FAX'') transmission. Mail written comments (one original 
and three copies) to the following address only: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-0010-IFC, P.O. Box 8010, Baltimore, MD 21244-8010.
    Please allow sufficient time for mailed comments to be timely 
received in the event of delivery delays.
    If you prefer, you may deliver (by hand or courier) your written 
comments (one original and three copies) to one of the following 
addresses: Room 445-G, Hubert H. Humphrey (``HHH'') Building, 200 
Independence Avenue, SW., Washington, DC 20201, or Room C5-14-03, 7500 
Security Boulevard, Baltimore, MD 21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for commenters wishing to retain a proof of filing by 
stamping in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and could be considered late.
    Comments may also be submitted electronically to the following e-
mail address: [email protected]. For e-mail procedures, see the 
beginning of the SUPPLEMENTARY INFORMATION section.
    For further information on viewing public comments, see the 
beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Karen Shaw, (202) 690-7711.

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments

    Comments received timely will be available for public inspection as 
they are received, generally beginning approximately 3 weeks after 
publication of this document, at the headquarters of the Centers for 
Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, 
Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 
p.m. To schedule an appointment to view public comments, call Sharon 
Jones at (410) 786-9994.

Electronic Comments

    We will consider all electronic comments that include the full 
name, postal address, and affiliation (if applicable) of the sender and 
are submitted to the electronic address identified in the ADDRESSES 
section of this preamble. All comments must be incorporated in the e-
mail message because we may not be able to access attachments. Copies 
of electronically submitted comments will be available for public 
inspection as soon as practicable at the address provided, and subject 
to the same process described, in the preceding paragraph.

Copies

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Electronic Access

    This document is available electronically at the following web 
sites of the Department of Health and Human Services (``HHS'' or the 
``Department''): http://www.hhs.gov/ocr/hipaa/ and http://www.cms.gov/hipaa/hipaa2. It is also available at the web site of the Government 
Printing Office at http://www.access.gpo.gov/nara/index.html.

I. Background

    This interim final rule establishes rules of procedure for the 
imposition, by the Secretary of Health and Human Services, of civil 
money penalties on entities that violate the Administrative 
Simplification regulations (``HIPAA rules'') adopted by the Secretary 
under subtitle F of Title II of HIPAA (``HIPAA provisions''). We intend 
this interim final rule to be the first installment of a rule termed 
the ``Enforcement Rule.'' The Enforcement Rule, when issued in complete 
form, will set forth procedural and substantive requirements for 
imposition of civil money penalties. In the interim, we are issuing 
these rules of procedure to inform regulated entities of our approach 
to enforcement and to advise regulated entities of certain procedures 
that will be followed with regard to enforcement. We intend to revise 
the procedural rule by the expiration date provided above.
    We set out below the statutory and regulatory background of the 
rule, describe our approach to enforcement of the HIPAA provisions and 
rules in general and this rule in particular, and then discuss each 
section of the interim final rule. We also set out our analyses of 
impact and other issues under applicable law.

[[Page 18896]]

Statutory Background

    HIPAA became law in 1996 (Public Law 104-191). Subtitle F of Title 
II of HIPAA, entitled ``Administrative Simplification,'' requires the 
Secretary of HHS to adopt national standards for certain information-
related activities of the health care industry. The purpose of subtitle 
F is to improve the Medicare program under title XVIII of the Social 
Security Act (``Act''), the Medicaid program under title XIX of the 
Act, and the efficiency and effectiveness of the health care system, by 
mandating the development of standards and requirements to enable the 
electronic exchange of certain health information. Section 262 of 
subtitle F added a new Part C to Title XI of the Act. Part C (42 U.S.C. 
1320d-1320d-8) requires the Secretary to adopt national standards for 
certain financial and administrative transactions and various data 
elements to be used in those transactions, such as code sets and 
certain unique health identifiers. Recognizing that the industry trend 
toward computerizing health information, which HIPAA encourages, may 
increase the access to that information, the statute also requires 
national standards to protect the security and privacy of the 
information.
    The HIPAA provisions, by statute, apply only to the following 
persons:
    (1) A health plan.
    (2) A health care clearinghouse.
    (3) A health care provider who transmits any health information in 
electronic form in connection with a transaction referred to in section 
1320d-2(a)(1) of this title.

42 U.S.C. 1320d-1(a)

    Collectively, these entities are known as ``covered entities.'' The 
statute requires certain consultations with industry as a predicate to 
the issuance of standards and gives most covered entities 2 years 
(small health plans have 3 years) to come into compliance with the 
standards, once adopted. 42 U.S.C. 1320d-1(c), 42 U.S.C. 1320d-4(b). 
The statute establishes civil money penalties and criminal penalties 
for violations. 42 U.S.C. 1320d-5, 42 U.S.C. 1320d-6. HHS will enforce 
the civil money penalties, while the U.S. Department of Justice will 
enforce the criminal penalties.
    HIPAA's civil money penalty (``CMP'') provision authorizes the 
Secretary to impose CMPs, as follows:

    (1) In general. Except as provided in subsection (b), the 
Secretary shall impose on any person who violates a provision of 
this part [42 U.S.C. 1320d et seq.] a penalty of not more than $100 
for each such violation, except that the total amount imposed on the 
person for all violations of an identical requirement or prohibition 
during a calendar year may not exceed $25,000.
    (2) Procedures. The provisions of section 1128A [42 U.S.C. 
1320a-7a] (other than subsections (a) and (b) and the second 
sentence of subsection (f)) shall apply to the imposition of a civil 
money penalty under this subsection in the same manner as such 
provisions apply to the imposition of a penalty under such section 
1128A.

42 U.S.C. 1320d-5(a)

    Subsection (b) of section 1320d-5 sets out a number of substantive 
limitations on the Secretary's authority to impose CMPs. First, a CMP 
may not be imposed with respect to an act that ``constitutes an offense 
punishable'' under the criminal penalty provision. 42 U.S.C. 1320d-
5(b)(1). Second, a CMP may not be imposed ``if it is established to the 
satisfaction of the Secretary that the person liable for the penalty 
did not know, and by exercising reasonable diligence would not have 
known, that such person violated the provision.'' 42 U.S.C. 1320d-
5(b)(2). Third, a CMP may not be imposed if the failure to comply was 
due ``to reasonable cause and not to willful neglect'' and is corrected 
within a certain time. 42 U.S.C. 1320d-5(b)(3). Finally, a CMP may be 
reduced, if not waived entirely, ``to the extent that the payment of 
such penalty would be excessive relative to the compliance failure 
involved.'' 42 U.S.C. 1320d-5(b)(4).
    As noted above, HIPAA incorporates by reference certain provisions 
of section 1128A of the Act (42 U.S.C. 1320a-7a). Those provisions, as 
relevant here, provide a number of procedural requirements with respect 
to the imposition of CMPs. The Secretary may not initiate a CMP action 
``later than six years after the date'' of the occurrence that forms 
the basis for the CMP. The Secretary may initiate a CMP action by 
serving notice ``in any manner authorized by Rule 4 of the Federal 
Rules of Civil Procedure.'' 42 U.S.C. 1320a-7a(c)(1). A person upon 
whom the Secretary seeks to impose a CMP must be given written notice 
and an opportunity for a determination to be made ``on the record after 
a hearing at which the person is entitled to be represented by counsel, 
to present witnesses, and to cross-examine witnesses against the 
person.'' 42 U.S.C. 1320a-7a(c)(2). There are provisions authorizing 
the sanctions the hearing officer may impose for misconduct in 
connection with the CMP proceeding, judicial review of the Secretary's 
determination in the United States Court of Appeals for the circuit in 
which the person resides, and the issuance of subpoenas by the 
Secretary and the enforcement of those subpoenas. 42 U.S.C. 1320a-
7a(c)(4), (e), (j). These provisions are discussed more fully below.

Regulatory Background

    As noted above, HIPAA requires the Secretary of HHS to adopt a 
number of national standards to facilitate the exchange of certain 
health information. The Secretary has already issued a number of these 
HIPAA standards by regulation. We summarize these HIPAA Administrative 
Simplification rules below.
    [sbull] Regulations implementing the statutory requirement for the 
adoption of standards for transactions and code sets (``Transactions 
Rule'') were published on August 17, 2000 (65 FR 50312), and were 
recently modified (68 FR 8381, February 20, 2003). The Transactions 
Rule became effective on October 16, 2000, with an initial compliance 
date of October 16, 2002 for covered entities other than small health 
plans. The passage of the Administrative Simplification Compliance Act, 
Pub. L. 107-105, in 2001 enabled covered entities to obtain an 
extension of the compliance date to October 16, 2003 by filing a 
compliance plan by October 15, 2002. If a covered entity (other than a 
small health plan) did not file such a plan, it was required to comply 
with the Transactions Rule by October 16, 2002. All covered entities 
must be in compliance with the Transactions Rule, as modified, by 
October 16, 2003.
    [sbull] Regulations implementing the statutory requirement for the 
adoption of privacy standards were published on December 28, 2000 (65 
FR 82462) (``Privacy Rule''). The Privacy Rule became effective on 
April 14, 2001, with an initial compliance date of April 14, 2003 for 
covered entities other than small health plans. Modifications to the 
Privacy Rule were published on August 14, 2002 (67 FR 53182), and 
compliance with the modified privacy standards is required by the 
initial compliance date, April 14, 2003, for those covered entities 
that must comply by that date.
    [sbull] Regulations implementing the statutory requirement for the 
adoption of an employer identifier standard were published on May 31, 
2002 (67 FR 38009) and became effective on July 30, 2002. The initial 
compliance date is July 30, 2004 for most covered entities; small 
health plans have until July 30, 2005 to come into compliance.
    [sbull] Regulations implementing the statutory requirement for the 
adoption of security standards were published on February 20, 2003 (68 
FR 8334). They

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are effective on April 21, 2003, and the initial compliance date for 
covered entities other than small health plans is April 20, 2005; small 
health plans have until April 20, 2006 to comply.
    The authority for administering and enforcing compliance with the 
Privacy Rule has been delegated to the Office for Civil Rights 
(``OCR'') of HHS.\1\ Responsibility for administering and enforcing the 
remaining HIPAA rules has been assigned to the Centers for Medicare & 
Medicaid Services (``CMS'').\2\
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    \1\ On December 28, 2000, the Secretary delegated to the 
Director of OCR authority to enforce, administer, interpret, and 
implement the Privacy Rule. 65 FR 82381.
    \2\ HHS press release of October 15, 2002.
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II. General Approach

    As the discussion above makes clear, the duty to comply with 
certain of the HIPAA rules is now a reality for many, if not most, 
covered entities. The immediacy of the compliance obligation brings 
with it the issue of how these rules will be enforced. Accordingly, we 
lay out below our general approach to enforcement. We then discuss how 
the rules below will fit in with the projected Enforcement Rule in its 
entirety and the basic approach of the interim final rule.

HHS's General Approach to Enforcement

    The Department intends to seek and promote voluntary compliance 
with the rules promulgated to carry out the HIPAA provisions. With 
respect to the Privacy Rule, OCR has developed and is continuing to 
produce guidance and a wide array of other technical assistance 
materials to help covered entities effectively implement the Privacy 
Rule. These materials are available on the OCR Privacy web site at 
http://www.hhs.gov/ocr/hipaa. These efforts will continue after the 
April 14, 2003 compliance date, as OCR learns from its compliance 
activities and from those who are implementing the Privacy Rule where 
additional guidance and assistance are needed. Other components of the 
Department are also developing guidance and technical assistance on the 
Privacy Rule for their partners.
    This approach reflects the requirements in 45 CFR part 160, subpart 
C, that, to the extent practicable, OCR will seek the cooperation of 
covered entities in obtaining compliance with the Privacy Rule, and may 
provide technical assistance to help covered entities voluntarily 
comply with the Rule. See 45 CFR 160.304. As further provided in 45 CFR 
160.312(a)(2), OCR will seek to resolve matters by informal means 
before issuing findings of non-compliance, under its authority to 
investigate and resolve complaints, and to engage in compliance 
reviews.
    With respect to enforcement of the remainder of the HIPAA rules, 
the enforcement approach of CMS is similar. ``Enforcement activities 
will focus on obtaining voluntary compliance through technical 
assistance. The process will be primarily complaint driven and will 
consist of progressive steps that will provide opportunities to 
demonstrate compliance or submit a corrective action plan.'' HHS press 
release of October 15, 2002, announcing assignment of enforcement 
responsibility to CMS. CMS provides a wide variety of technical 
assistance and informational materials on its Web site, at http://www.cms.gov/hipaa/hipaa2.

HHS's Approach to the Enforcement Rule

    As noted above, HHS intends to issue an Enforcement Rule in 
furtherance of its implementation of 42 U.S.C. 1320d-5. The Enforcement 
Rule, in its entirety, will address a number of substantive issues 
relating to the imposition of CMPs under section 1320d-5, such as the 
Department's policies for determining violations and calculating CMPs. 
In addition, the Enforcement Rule will establish various procedures for 
the imposition of CMPs, including the procedures for providing notice 
and a hearing on the Secretary's determination to impose a CMP. This 
interim final rule implements this latter aspect of the Enforcement 
Rule.

Administrative Procedure Act

    We recognize that under the Administrative Procedure Act (``APA'') 
most of the above-described provisions of the Enforcement Rule must be 
promulgated through notice-and-comment rulemaking. We intend to do so. 
However, to allow covered entities and the public to be informed as 
soon as possible of procedural requirements that will apply as 
compliance proceeds, we are expediting the publication of these 
procedural rules in final form. These rules set out the procedures for 
provision by the agency of the statutorily required notice and hearing 
and procedures for issuing administrative subpoenas. Such provisions 
are exempted from the requirement for notice-and-comment rulemaking 
under the ``rules of agency * * * procedure, or practice'' exemption at 
5 U.S.C. 553(b)(3)(A). Even though notice-and-comment rulemaking is, 
therefore, not required with respect to the procedural rules adopted 
below, HHS is interested in input from the public, and thus is 
requesting public comment on them. We expect to augment these 
procedural rules with provisions that, while related to procedure, are 
substantive in nature. We anticipate including those provisions in the 
notice-and-comment rulemaking that we plan for the remainder of the 
Enforcement Rule. In any event, we plan to revise the procedural rule 
by the expiration date.

Approach of the Interim Final Rule

    As noted above, the provisions of 42 U.S.C. 1320a-7a apply to the 
imposition of a CMP under 42 U.S.C. 1320d-5 ``in the same manner as'' 
they apply to the imposition of CMPs under section 1320a-7a itself. 
Within HHS, section 1320a-7a is implemented by the Office of Inspector 
General (``OIG'') and, as pertinent here, through the OIG regulations 
that are codified at 42 CFR parts 1003, 1005, and 1006. We have used 
the OIG regulations as the platform for the rules below for two 
reasons. First, we read the ``in the same manner as'' language of the 
statute as indicating that the procedures for the imposition of CMPs 
under 42 U.S.C. 1320d-5 should be, in general, similar to those used by 
the OIG under 42 U.S.C. 1320a-7a. Second, HHS and much of the health 
care industry have operated under the OIG regulations implementing 
section 1320a-7a for more than a decade. There is, thus, a significant 
body of experience with, and understanding of, the OIG procedural 
rules, both within HHS and in a large part of the regulated universe. 
Based on this experience, we believe that the rules below will be 
workable and promote the efficient resolution of cases where the 
Secretary's proposed imposition of a CMP is challenged.
    Accordingly, the rules below are based upon, and are in many 
respects the same as, the OIG regulations at 42 CFR parts 1003, 1005, 
and 1006. We have adapted, re-ordered, or combined the OIG language in 
a number of places for clarity of presentation or to reflect concepts 
peculiar to the HIPAA provisions or rules. To avoid confusion, we have 
also employed certain language usages in order to make the usage in the 
rules below consistent with that in the other HIPAA rules (for example, 
for mandatory duties, ``must'' instead of ``will'' or ``shall''; for 
discretionary duties, ``may'' instead of ``has the authority to''). We 
do not discuss those nonsubstantive changes below. Where we have 
materially changed the language of the OIG regulations, however, we 
discuss our reasons for doing so.

[[Page 18898]]

    We also note that the rules below, as well as the Enforcement Rule 
as a whole, are not HIPAA standards, and thus the requirement for 
industry consultations in 42 U.S.C. 1320d-1(c) does not apply. 
Therefore, we have not engaged in such consultations with respect to 
the interim final rule below. For the same reason, HIPAA's timeframes 
for compliance (42 U.S.C. 1320d-4) do not apply to the interim final 
rule below.

III. Provisions of the Interim Final Rule

    We discuss the interim final rule on a provision-by-provision basis 
below. As a general matter, we note that the provisions adopted are in 
many cases the same as or similar to analogous provisions of the OIG 
regulations. Where we have closely followed the OIG regulations, we 
have done so because we believe that these procedures work and 
satisfactorily address issues of concern addressed in prior rulemakings 
by the OIG. We do not reiterate those concerns, or their resolutions, 
here, but they have informed our decisionmaking on these rules.

Applicability

    Section 160.500 states that the procedures established by this 
subpart are applicable to investigations, imposition of penalties, and 
hearings conducted as a result of a proposed imposition of civil money 
penalties. We use ``applicability'' instead of the basis and purpose 
statement of the OIG regulations, because we have followed a different 
format in the remainder of the HIPAA rules and wish to be consistent 
with that approach. Furthermore, this preamble constitutes the 
requisite basis and purpose statement.

Definitions

    Definitions for the terms used in this new subpart that are not set 
forth elsewhere in part 160 are included in Sec.  160.502.
    [sbull] ALJ means an administrative law judge, the natural person 
who presides at and conducts a hearing requested by a respondent 
pursuant to this subpart.
    [sbull] Entity means a legal person that is not a natural person. 
The term is intended to include all manner of organizations, such as 
corporations, associations, partnerships, and other entities that have 
a legal existence, other than a natural person. The term ``entity'' is 
necessary for this subpart to distinguish such legal persons from 
natural persons, because certain procedures in this rule, such as those 
involving subpoenas, are different for entities than they are for 
natural persons.
    The term ``entity'' should not be confused with the regulatory term 
``covered entity.'' The latter term, which is defined at Sec.  160.103, 
denotes those entities to which the HIPAA rules apply. The term 
``entity,'' as used in this interim final rule, describes a broader 
class of persons. For example, subpoenas could be directed to entities 
that are not covered entities under Sec.  160.504 below.
    [sbull] Penalty is defined to mean the amount calculated under 42 
U.S.C. 1320d-5. This section of HIPAA sets a penalty of not more than 
$100 for each violation, subject to a calendar-year cap of $25,000 for 
all violations of an identical requirement or prohibition. The term 
includes the plural form of the word.
    [sbull] Person is defined to mean a natural person or a legal 
person (such as an entity described above). The term includes, but is 
not limited to, covered entities. The term is broader than ``covered 
entities,'' because some sections of the provisions below by their 
nature apply to persons other than covered entities in certain 
circumstances. For example, the provisions for subpoenas relate to 
natural persons who will be called to testify, and many, if not most, 
of these persons will not be covered entities. While the term 
``person'' is used generically throughout the HIPAA rules, we have 
provided a definition of the term ``person'' for use in this subpart to 
provide a clear and efficient way of permitting these distinctions to 
be drawn. This definition is not intended to define ``person'' as that 
term is used in HIPAA.
    [sbull] Respondent means a person (as defined herein) upon whom a 
penalty has been imposed, whether proposed or final, by the Secretary. 
Respondents will necessarily be covered entities. See the discussion 
below of Sec.  160.506.

Investigational Subpoenas and Inquiries

    Section 160.504 provides procedures for the issuance of subpoenas 
to both named persons and unnamed persons associated with subpoenaed 
entities. A subpoenaed entity is required to name a natural person or 
persons knowledgeable about the subjects on which information is 
sought. This procedure is similar to that provided for in Rule 30(b)(6) 
of the Federal Rules of Civil Procedure. Subpoenas issued under this 
section may require either testimony or the production of evidence.
    The procedures adopted in this section are similar to those in 42 
CFR part 1006. Like Sec.  1006.4, Sec.  160.504 provides that 
investigational inquiries are non-public proceedings conducted by the 
Secretary. A witness is entitled to be represented by an attorney 
during an investigational inquiry. However, while this section provides 
for the taking of witness testimony, it does not include all of the 
provisions of Sec.  1006.4 regarding claims of privilege or objections, 
clarification of answers by the witness, corrections to the transcript, 
or the use by the Secretary of testimony or evidence obtained in an 
investigational inquiry. We anticipate addressing these issues in the 
notice-and-comment rulemaking that we plan for the remainder of the 
Enforcement Rule.

Basis for Penalty

    Under Sec.  160.506, CMPs are imposed for violations of 42 U.S.C. 
1320d-1320d-8, section 264 of Pub. L. 104-191, or the implementing 
regulations at parts 160, 162 or 164 of this subchapter. CMPs may be 
imposed only on covered entities. As we have stated in prior 
rulemakings, it is the view of HHS that only covered entities are 
subject to the HIPAA provisions and rules. Thus, only covered entities 
can be liable for a CMP under 42 U.S.C. 1320d-5. See, for example, 67 
FR 53252. Regulatory definition of what constitutes a violation 
requiring imposition of a CMP will be addressed in the subsequent 
notice-and-comment rulemaking that we plan for the remainder of the 
Enforcement Rule. This section, thus, functions to clarify and 
establish the linkage of the procedural rules to the criteria and 
processes for the substantive determinations that are to be developed 
through notice-and-comment rulemaking.

Amount of Penalty

    Under Sec.  160.508, the amount of the penalty is determined in 
accordance with 42 U.S.C. 1320d-5 and the provisions of this part. We 
anticipate addressing how penalties will be determined in the notice-
and-comment rulemaking that we plan for the remainder of the 
Enforcement Rule. This section thus functions to clarify and establish 
the linkage of the procedural rules to the criteria and processes for 
the substantive determinations that are still to be developed.

Authority To Settle

    Section 160.510 enunciates the authority of the Secretary to settle 
any issue or case or to compromise any penalty during the process 
addressed in this subpart. This authority is the same

[[Page 18899]]

as that set forth in Sec.  1003.106(f)(3) of the OIG regulations and 
implements statutory authority provided by the first sentence of 42 
U.S.C. 1320a-7a(f). It provides for flexible resolution of cases and 
issues between the Secretary and a respondent. We anticipate that 
factors to be taken into account in determinations regarding the amount 
of penalties, like those set forth in Sec.  1003.106(a) through Sec.  
1003.106(e) of the OIG regulations, will be addressed in the notice-
and-comment rulemaking that we plan for the remainder of the 
Enforcement Rule. This section, like the preceding sections, thus 
serves to link substantive provisions yet to be developed into the 
procedural process put in place by the rules below.

Notice of Proposed Determination

    Section 160.514 sets forth the requirements for the notice to a 
respondent sent when the Secretary proposes a penalty under this part. 
These requirements are substantially the same as those in Sec.  
1003.109 of the OIG regulations. Statistical sampling provisions, 
however, are not included in this section at this time. We anticipate 
addressing statistical sampling in the notice-and-comment rulemaking 
that we plan for the remainder of the Enforcement Rule.

Failure To Request a Hearing

    Under Sec.  160.516, when a respondent does not timely request a 
hearing on a proposed penalty, the Secretary will impose the proposed 
penalty or any less severe penalty permitted by 42 U.S.C. 1320d-5. The 
penalty is then final, and the respondent has no right to appeal a 
penalty imposed under these circumstances. This section is similar to 
Sec.  1003.110 of the OIG regulations. This section simply states the 
necessary consequence of a respondent's failure to exercise the right 
to a hearing.

Collection of Penalty

    Section 160.518 provides that once a determination to impose a 
penalty has become final, the penalty must be collected by the 
Secretary. The penalty may be recovered in a civil action in United 
States District Court, or by deduction from any sum owed to the 
respondent by the United States or a State agency. If the Secretary 
seeks to recover the penalty in a civil action, the respondent is 
prohibited from raising in that proceeding any matter that was raised 
or could have been raised in a hearing or appeal under this subpart. 
These provisions restate statutory provisions at 42 U.S.C. 1320a-7a(f) 
and (g).

Limitations

    Section 160.522 sets forth the 6-year limitations period provided 
for by 42 U.S.C. 1320a-7a(c)(1). The section includes only the part of 
the statutory language that is relevant to the imposition of penalties 
in the context of the HIPAA rules. The statutory language concerning 
the ``claim was presented'' and ``request for payment'' are not 
included, because these phrases pertain to violations described in the 
parts of 42 U.S.C. 1320a-7a that are not incorporated by reference into 
42 U.S.C. 1320d-5. Section 160.522 accordingly differs in this respect 
from Sec.  1003.132 of the OIG regulations.

Hearing Before an ALJ

    The requirements for a hearing request are contained in Sec.  
160.526. The parties to a hearing are the party against whom the 
Secretary has proposed a penalty (the respondent) and the Secretary. We 
recognize that the HHS party will be OCR and/or CMS. We have not 
described the party more specifically here, however, for several 
reasons. First, it is not feasible to parse out which component will 
actually appear for the Secretary, because the appropriate component 
(if both are not) will depend on the facts of the case. Second, the 
designation of the proper party component can be handled through the 
normal delegation process. Third, similar issues arise in other 
sections of this interim final rule (see, for example, Sec.  160.514), 
and they are handled this way in those sections as well. A consistent 
approach is less confusing and more manageable.
    The respondent may request a hearing following receipt of a notice 
of a proposed determination. The request for a hearing must be in 
writing. If the respondent fails to timely request a hearing, or 
thereafter withdraws or abandons the request for a hearing, or if the 
hearing request fails to raise any issue that may properly be addressed 
in a hearing, the administrative law judge (ALJ) is required to dismiss 
the hearing request. In such a case, the penalty becomes final, with no 
further appeal permitted.
    Paragraph (c) of Sec.  160.526 differs slightly from the 
corresponding paragraph in Sec.  1005.2. Our provision requires 
specific admissions, denials or explanations in a respondent's hearing 
request. The degree of specificity required generally parallels the 
requirements applicable to the notice of proposed determination at 
Sec.  160.514. Based on experience in prior administrative hearings, we 
believe that such additional specificity will assist the parties and 
the ALJ in ascertaining the findings of fact and conclusions of law 
that are actually in dispute in a case. This certainty will promote 
procedural regularity and permit more timely and efficient resolution 
of the case between the parties or adjudication of the case by the ALJ.

Rights of Parties; Authority of the ALJ

    The provisions in Sec.  160.528 and Sec.  160.530 list the rights 
of the parties and the authorities of the ALJ not specifically provided 
elsewhere in this part. These sections are based upon Sec.  1005.3 and 
Sec.  1005.4 of the OIG regulations, but do not address attorneys' fees 
under 42 U.S.C. 406 or any limitation on the ALJ's authority to review 
the Secretary's exercise of discretion to impose a penalty. We 
anticipate addressing such issues in the notice-and-comment rulemaking 
that we plan for the remainder of the Enforcement Rule. We have 
clarified in Sec.  160.530 that a summary judgment decision constitutes 
a hearing on the record.

Ex-parte Contacts

    The provisions of Sec.  160.532 are designed to ensure the fairness 
of the hearing by prohibiting ex-parte contacts with the ALJ on matters 
in issue. Routine questions about administrative procedures or the 
status of the case are permitted. These requirements are generally 
applicable to administrative hearings under 5 U.S.C. 554(d)(1) and are 
the same as those in Sec.  1005.5 of the OIG regulations.

Prehearing Conferences

    The provisions of Sec.  160.534 closely track the provisions of the 
analogous OIG regulation at Sec.  1005.6. The ALJ is required to 
schedule at least one prehearing conference, in order to narrow the 
issues to be addressed at the hearing and thus expedite the formal 
hearing process. Matters that may be discussed at a prehearing 
conference are identified and include the protection of the privacy of 
individually identifiable health information submitted into evidence, 
if appropriate.

Settlement

    The Secretary has exclusive authority to settle any issue or case 
at any time and need not obtain the consent of the ALJ. This provision 
in Sec.  160.536 tracks Sec.  1003.126 of the OIG regulations.

Discovery

    Consistent with the approach of Sec.  1005.7 of the OIG 
regulations, Sec.  160.538 provides for limited discovery in the form 
of the production for

[[Page 18900]]

inspection and copying of documents that are relevant and material to 
the issues before the ALJ. Like the OIG, we are specifically not 
authorizing other forms of discovery, such as depositions and 
interrogatories. Prehearing discovery is not provided for under the APA 
and is rarely available in administrative hearings. Full-scale 
discovery is inappropriate in administrative hearings, as it would 
unduly delay the streamlined administrative process. These regulations 
do, however, provide for exchange of relevant and material documents, 
as well as the exchange of witness lists, prior witness statements, and 
exhibits before the hearing, as provided in Sec.  160.540 of the rule.

Exchange of Witness Lists, Statements, and Exhibits

    Section 160.540 provides for the prehearing exchange of certain 
documents, including witness lists, copies of prior statements of 
witnesses, and copies of hearing exhibits.
    Paragraph (a) of this section differs slightly from the 
corresponding paragraph in Sec.  1005.8 of the OIG regulations, in that 
it provides for the exchange of witness lists, witness statements and 
exhibits at least 15 days before the hearing, but also allows the ALJ 
to order an earlier exchange if he or she deems it necessary.
    Paragraph (b) provides that the ALJ must exclude witnesses and 
documents offered by a party that did not provide those materials 
before the hearing, except where there is good cause for the failure, 
or where there is not substantial prejudice to the objecting party. As 
with the OIG regulations, this provision is mandatory and serves to 
prevent the parties from litigating by surprise and to promote the 
procedural regularity of the hearing. Paragraph (b)(3) provides that 
where the witnesses or exhibits are not excluded, the ALJ must recess 
the hearing for a reasonable time to allow the objecting party the 
opportunity to prepare and respond to them, unless the objecting party 
agrees to proceed. This paragraph differs from Sec.  1005.8(b)(3) of 
the OIG regulations, under which the decision to postpone the hearing 
is within the ALJ's discretion. This modification is equally beneficial 
to both parties to a hearing and will reduce the potential for unfair 
surprise during a hearing. It is preferable to the OIG provision that 
grants the ALJ discretion, because it provides clear notice to the 
parties and clear direction to the ALJ in the event witnesses or 
exhibits are not excluded.
    Finally, any documents exchanged before the hearing would be deemed 
authentic for purposes of admissibility at the hearing unless a party 
objected to a particular document before the hearing.

Subpoenas for Attendance at the Hearing

    Section 160.542 outlines procedures for the ALJ to issue, and for 
parties and prospective witnesses to contest, subpoenas to appear at 
the hearing. Subpoenas are authorized by 42 U.S.C. 1320a-7a(j) and may 
be issued by an ALJ pursuant to 5 U.S.C. 556(c). Either party may 
request that the ALJ issue a subpoena, if the appearance of a witness 
and the testimony are reasonably necessary for the party's case. The 
subpoena procedures here are the same as those at Sec.  1005.9 of the 
OIG regulations.

Fees

    Section 160.544 provides for the payment of witness fees by the 
party requesting a subpoena. This section tracks Sec.  1005.10 of the 
OIG regulations.

Form, Filing, and Service of Papers; Computation of Time

    Section 160.546 sets forth requirements for documents filed with 
the ALJ. Section 160.548 outlines the method for computing time periods 
under this part. These provisions track, respectively, Sec.  1005.11 
and Sec.  1005.12 of the OIG regulations.

Motions

    The provisions of Sec.  160.550 set forth requirements for the 
content of motions and the time allowed for responses. This section 
tracks Sec.  1005.13 of the OIG regulations.

Sanctions

    Section 160.552 outlines the sanctions an ALJ may impose on parties 
and their representatives for failing to comply with an order or 
procedure, failing to defend an action, or other misconduct. These 
sanctions are specifically provided for by the statutory provision at 
42 U.S.C. 1320a-7a(c)(4). This section tracks Sec.  1005.14 of the OIG 
regulations.

The Hearing

    Section 160.554 provides for a public hearing on the record. It 
allows for the admission of rebuttal evidence not exchanged before the 
hearing.
    This section is based upon Sec.  1005.15 of the OIG regulations, 
which also addresses the burden of proof at the hearing, and provides 
that the hearing is not limited to the items and information set forth 
in the notice of proposed determination. We anticipate addressing those 
issues in the notice-and-comment rulemaking that we plan for the 
remainder of the Enforcement Rule.

Witnesses

    Under Sec.  160.556, the ALJ may allow testimony to be admitted in 
the form of a written statement or deposition so long as the opposing 
party has a sufficient opportunity to subpoena the person whose 
statement is being offered. This section also allows an HHS 
investigator or other expert to be a witness, in addition to assisting 
counsel for the Secretary at counsel table during the hearing. These 
provisions closely track Sec.  1005.16 of the OIG regulations.

Evidence

    With certain limited exceptions, the Federal Rules of Evidence are 
not binding on the ALJ. However, the ALJ may apply the Federal Rules of 
Evidence to exclude unreliable evidence. Section 160.558 is 
substantially similar to Sec.  1005.17 of the OIG regulations, but does 
not contain a paragraph corresponding to Sec.  1005.17(j) regarding 
evidence as to the respondent's willingness and/or ability to enter 
into a corrective action plan. We anticipate addressing this issue in 
the notice-and-comment rulemaking that we plan for the remainder of the 
Enforcement Rule.

The Record

    Section 160.560 provides for recording and transcription of the 
hearing, and for the record to be available for inspection and copying 
by any person. For good cause, the ALJ may order appropriate redactions 
made to the record. These provisions track Sec.  1005.18 of the OIG 
regulations.

Post-Hearing Briefs

    Section 160.562 provides that the ALJ has discretion to order post-
hearing briefs, although the parties may file post-hearing briefs in 
any event if they desire. This section tracks Sec.  1005.19 of the OIG 
regulations.

ALJ Decision

    Section 160.564 provides that not later than 60 days after the 
filing of post-hearing briefs, the ALJ shall serve on the parties a 
decision making specific findings of fact and conclusions of law. The 
ALJ's decision is the final decision of the Secretary.
    Section 1005.20 of the OIG regulations, upon which this section is 
based, provides for the ALJ to issue an ``initial decision,'' which is 
then reviewable by the Departmental Appeals Board if properly appealed. 
We have not provided for a second level of administrative review in 
this rule, and

[[Page 18901]]

thus this section refers to the ``ALJ decision'' rather than to an 
``initial decision.'' Neither section 1320a-7a nor the APA requires a 
second level of administrative review, although this is generally 
available in Department hearings. We anticipate addressing the issue of 
further administrative review in the notice-and-comment rulemaking that 
we plan for the remainder of the Enforcement Rule.

Judicial Review; Stay of ALJ Decision

    Section 160.568 provides for judicial review of penalties imposed 
under this part, as authorized by 42 U.S.C. 1320a-7a(e). Section 
160.570 provides that a respondent may request a stay of the effective 
date of a penalty pending judicial review. This section tracks Sec.  
1005.22(b) of the OIG regulations.

IV. Impact Statement and Other Required Analyses

Paperwork Reduction Act

    We reviewed this interim final rule to determine whether it invokes 
issues that would subject it to the Paperwork Reduction Act (PRA). 
While the PRA applies to agencies and collections of information 
conducted or sponsored by those agencies, 5 CFR 1320.4(a) exempts 
collections of information that occur ``during the conduct of . . . an 
administrative action, investigation, or audit involving an agency 
against specific individuals or entities,'' except for investigations 
or audits ``undertaken with reference to a category of individual or 
entities such as a class of licensees or an entire industry.'' The 
rules adopted below come squarely within this exemption, as they deal 
entirely with administrative investigations and actions against 
specific individuals or entities. Therefore, we have determined that 
the PRA does not apply to this rule.

Executive Order 12866; Unfunded Mandates Reform Act of 1995; Regulatory 
Flexibility Act; Small Business Regulatory Enforcement Fairness Act of 
1996; Executive Order 13132

    We have examined the impacts of this rule as required by E.O. 12866 
(September 1993, Regulatory Planning and Review), the Regulatory 
Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-354), section 
1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 
1995 (Pub. L. 104-4), and E.O. 13132.
    E.O. 12866 (as amended by E.O. 13258, which merely reassigns 
responsibility of duties) directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). HHS has 
concluded that this rule should be treated as a ``significant 
regulatory action'' within the meaning of section 3(f)(4) of E.O. 12866 
because the HIPAA provisions to be enforced have extremely broad 
implications for the nation's health care system, and because of the 
novel issues presented by, and the uncertainties surrounding, 
compliance among covered entities. However, E.O. 12866 requires a full 
economic impact analysis only for ``economically significant'' rules, 
which are defined in section 3(f)(1) of the order as rules that may 
``have an annual effect on the economy of $100 million or more, or 
adversely affect in a material way the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local, or tribal governments or communities.'' Because this rule is 
procedural in nature, it has no intrinsic significant economic impact; 
therefore, no economic impact analysis has been prepared.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit status or by having revenues of $6 
million in any 1 year. This interim final rule is purely procedural in 
nature and, as such, HHS has determined that this regulation will not 
have a significant economic impact on a substantial number of small 
entities. The regulation simply implements procedures necessitated by 
enactment of HIPAA, in order to allow the Secretary to enforce subtitle 
F of Title II of HIPAA.
    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 603 (proposed 
documents)/604 (final documents) 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 100 beds. This rule will not have a significant impact on small 
rural hospitals. The rule implements procedures necessary for the 
Secretary to enforce subtitle F of Title II of HIPAA.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditure in any 1 year by State, 
local, or tribal governments, in the aggregate, or by the private 
sector, of $100 million. Because this rule is procedural in nature, it 
will not impose a burden large enough to require a section 202 
statement under the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531 
et seq.).
    E.O. 13132 establishes certain requirements that an agency must 
meet when it promulgates a proposed rule (and subsequent final rule) 
that imposes substantial direct requirement costs on State and local 
governments, preempts State law, or otherwise has Federalism 
implications. This interim final rule does not have ``Federalism 
implications.'' The rule does not have ``substantial direct effects on 
the States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government'' and therefore is not subject to E.O. 
13132 (Federalism).
    The Small Business Regulatory Enforcement Fairness Act of 1996 (5 
U.S.C. 801 et seq.) requires that rules that will have an impact on the 
economy of $100 million or more per annum be submitted for 
Congressional review. Because this rule is procedural in nature, it 
will not impose a burden large enough to require Congressional review 
under the statute.

List of Subjects in 45 CFR Part 160

    Administrative practice and procedure, Computer technology, 
Healthcare, Health facilities, Health insurance, Health records, 
Hospitals, Investigations, Medicaid, Medicare, Penalties, Reporting and 
recordkeeping requirements.

0
For the reasons set forth in the preamble, the Department of Health and 
Human Services amends 45 CFR subtitle A, subchapter C, part 160 as set 
forth below.

PART 160--GENERAL ADMINISTRATIVE REQUIREMENTS

0
1. The authority citation for part 160 is revised to read as follows:

    Authority: 42 U.S.C. 1302(a), 42 U.S.C. 1320d--1320d-8, and sec. 
264 of Pub. L. 104-191, 110 Stat. 2033-2034 (42 U.S.C. 1320d-
2(note)).

[[Page 18902]]


0
2. Add a new subpart E to part 160 to read as follows:

Subpart E--Civil Money Penalties: Procedures for Investigations, 
Imposition of Penalties, and Hearings

Sec.
160.500 Applicability.
160.502 Definitions.
160.504 Investigational subpoenas and inquiries.
160.506 Basis for penalty.
160.508 Amount of penalty.
160.510 Authority to settle.
160.512 [Reserved]
160.514 Notice of proposed determination.
160.516 Failure to request a hearing.
160.518 Collection of penalty.
160.520 [Reserved]
160.522 Limitations.
160.524 [Reserved]
160.526 Hearing before an ALJ.
160.528 Rights of parties.
160.530 Authority of the ALJ.
160.532 Ex parte contacts.
160.534 Prehearing conferences.
160.536 Settlement.
160.538 Discovery.
160.540 Exchange of witness lists, witness statements, and exhibits.
160.542 Subpoenas for attendance at hearing.
160.544 Fees.
160.546 Form, filing, and service of papers.
160.548 Computation of time.
160.550 Motions.
160.552 Sanctions.
160.554 The hearing.
160.556 Witnesses.
160.558 Evidence.
160.560 The record.
160.562 Post hearing briefs.
160.564 ALJ decision.
160.566 [Reserved]
160.568 Judicial review.
160.570 Stay of ALJ decision.
160.572 [Reserved]

Subpart E--Civil Money Penalties: Procedures for Investigations, 
Imposition of Penalties, and Hearings


Sec.  160.500  Applicability.

    This subpart applies to investigations conducted, penalties 
imposed, hearings conducted, and subpoenas issued, under the authority 
of 42 U.S.C. 1320d-5, relating to the imposition of civil money 
penalties.


Sec.  160.502  Definitions.

    For the purposes of this subpart:
    ALJ means Administrative Law Judge.
    Entity means a legal person.
    Penalty means the amount calculated under 42 U.S.C. 1320d-5, as 
determined in accordance with this part, and includes the plural of 
that term.
    Person means a natural or legal person.
    Respondent means the person upon whom the Secretary has imposed, or 
proposes to impose, a penalty.


Sec.  160.504  Investigational subpoenas and inquiries.

    (a) The provisions of this paragraph govern subpoenas issued by the 
Secretary in accordance with 42 U.S.C. 405(d) and (e), 1320a-7a(j), and 
1320d-5 to require the attendance and testimony of witnesses and the 
production of any other evidence during an investigation pursuant to 
this part.
    (1) A subpoena issued under this paragraph must--
    (i) State the name of the person to whom the subpoena is addressed;
    (ii) State the statutory authority for the subpoena;
    (iii) Indicate the date, time, and place that the testimony will 
take place;
    (iv) Include a reasonably specific description of any documents or 
items required to be produced; and
    (v) If the subpoena is addressed to an entity, describe with 
reasonable particularity the subject matter on which testimony is 
required. In that event, the named entity must designate one or more 
natural persons who will testify on its behalf, and must state as to 
each person so designated that person's name and address and the 
matters on which he or she will testify. The person so designated must 
testify as to matters known or reasonably available to the entity.
    (2) A subpoena under this section must be served by--
    (i) Delivering a copy to the natural person named in the subpoena 
or to the entity named in the subpoena at its last principal place of 
business; or
    (ii) Registered or certified mail addressed to the natural person 
at his or her last known dwelling place or to the entity at its last 
known principal place of business.
    (3) A verified return by the natural person serving the subpoena 
setting forth the manner of service or, in the case of service by 
registered or certified mail, the signed return post office receipt, 
constitutes proof of service.
    (4) Witnesses are entitled to the same fees and mileage as 
witnesses in the district courts of the United States (28 U.S.C. 1821 
and 1825). Fees need not be paid at the time the subpoena is served.
    (5) A subpoena under this section is enforceable through the 
District Court of the United States for the district where the 
subpoenaed natural person resides or is found or where the entity 
transacts business.
    (b) Investigational inquiries are non-public investigational 
proceedings conducted by the Secretary.
    (1) Testimony at investigational inquiries will be taken under oath 
or affirmation.
    (2) Attendance of non-witnesses is discretionary with the 
Secretary, except that a witness is entitled to be accompanied, 
represented, and advised by an attorney.
    (3) The proceedings will be recorded and transcribed. The witness 
is entitled to a copy of the transcript, upon payment of prescribed 
costs, except that, for good cause, the witness may be limited to 
inspection of the official transcript of his or her testimony.


Sec.  160.506  Basis for penalty.

    The Secretary shall impose a penalty on a person who is a covered 
entity and who the Secretary determines in accordance with this subpart 
has violated a provision of--
    (a) 42 U.S.C. 1320d-1320d-8, as amended;
    (b) Section 264 of Pub. L. 104-191 (42 U.S.C. 1320d-2(note)); or 
(c) Parts 160, 162 or 164 of this subchapter.


Sec.  160.508  Amount of penalty.

    The penalty imposed under Sec.  160.506 must be in accordance with 
42 U.S.C. 1320d-5 and the applicable provisions of this part.


Sec.  160.510  Authority to settle.

    Nothing in this subpart limits the authority of the Secretary to 
settle any issue or case or to compromise any penalty.


Sec.  160.512  [Reserved]


Sec.  160.514  Notice of proposed determination.

    (a) If a penalty is proposed in accordance with this part, the 
Secretary must deliver, or send by certified mail with return receipt 
requested, to the respondent written notice of the Secretary's intent 
to impose a penalty. This notice of proposed determination must 
include--
    (1) Reference to the statutory basis for the penalty;
    (2) A description of the findings of fact regarding the act(s) or 
omission(s) with respect to which the penalty is proposed;
    (3) The reason(s) why the act(s) or omission(s) subject(s) the 
respondent to a penalty;
    (4) The amount of the proposed penalty;
    (5) Instructions for responding to the notice, including a 
statement of the respondent's right to a hearing, a statement that 
failure to request a hearing within 60 days permits the imposition of 
the proposed penalty without the right to a hearing under Sec.  160.554 
or a right of appeal under Sec.  160.568, and the address to which the 
hearing request must be sent.
    (b) The respondent may request a hearing before an ALJ on the 
proposed

[[Page 18903]]

penalty by filing a request therefor in accordance with Sec.  160.526 
of this subpart.


Sec.  160.516  Failure to request a hearing.

    If the respondent does not request a hearing within the time 
prescribed by Sec.  160.526, the Secretary must impose the proposed 
penalty or any less severe penalty permitted by 42 U.S.C. 1320d-5. The 
Secretary must notify the respondent by certified mail, return receipt 
requested, of any penalty that has been imposed and of the means by 
which the respondent may satisfy the penalty. The respondent has no 
right to appeal under Sec.  160.568 with respect to a penalty with 
respect to which the respondent has not timely requested a hearing.


Sec.  160.518  Collection of penalty.

    (a) Once a determination of the Secretary to impose a penalty has 
become final, the penalty must be collected by the Secretary.
    (b) The penalty may be recovered in a civil action brought in the 
United States district court for the district where the respondent 
resides, is found, or is located.
    (c) The amount of a penalty, when finally determined, or the amount 
agreed upon in compromise, may be deducted from any sum then or later 
owing by the United States, or by a State agency, to the respondent.
    (d) Matters that were raised or that could have been raised in a 
hearing before an ALJ or in an appeal under 42 U.S.C. 1320a-7a(e) may 
not be raised as a defense in a civil action by the United States to 
collect a penalty under this part.


Sec.  160.520  [Reserved]


Sec.  160.522  Limitations.

    No action under this subpart may be entertained unless commenced by 
the Secretary, in accordance with Sec.  160.514 of this subpart, within 
6 years from the date on which the latest act or omission that is the 
subject of the action occurred.


Sec.  160.524  [Reserved]


Sec.  160.526  Hearing before an ALJ.

    (a) The respondent may request a hearing before an ALJ. The parties 
to the hearing proceeding consist of--
    (1) The respondent; and
    (2) The Secretary.
    (b) The request for a hearing must be made in writing signed by the 
respondent or by the respondent's attorney and sent by certified mail, 
return receipt requested, to the address specified in the notice of 
proposed determination. The request for a hearing must be mailed within 
60 days after notice of the proposed determination is received by the 
respondent. For purposes of this section, the respondent's date of 
receipt of the notice of proposed determination is presumed to be 5 
days after the date of the notice unless the respondent makes a 
reasonable showing to the contrary to the ALJ.
    (c) The request for a hearing must clearly and directly admit, 
deny, or explain each of the findings of fact contained in the notice 
of proposed determination with regard to which the respondent has any 
knowledge. If the respondent has no knowledge of a particular finding 
of fact and so states, the finding shall be deemed denied. The request 
for a hearing must also state the circumstances or arguments that the 
respondent alleges constitute the grounds for any defense and the 
factual and legal basis for opposing the penalty.
    (d) The ALJ must dismiss a hearing request where--
    (1) The respondent's hearing request is not filed as required by 
paragraphs (b) and (c) of this section;
    (2) The respondent withdraws the request for a hearing;
    (3) The respondent abandons the request for a hearing; or
    (4) The respondent's hearing request fails to raise any issue that 
may properly be addressed in a hearing.


Sec.  160.528  Rights of parties.

    (a) Except as otherwise limited by this part, each party may--
    (1) Be accompanied, represented, and advised by an attorney;
    (2) Participate in any conference held by the ALJ;
    (3) Conduct discovery of documents as permitted by this subpart;
    (4) Agree to stipulations of fact or law that will be made part of 
the record;
    (5) Present evidence relevant to the issues at the hearing;
    (6) Present and cross-examine witnesses;
    (7) Present oral arguments at the hearing as permitted by the ALJ; 
and
    (8) Submit written briefs and proposed findings of fact and 
conclusions of law after the hearing.
    (b) A party may appear in person or by a representative. Natural 
persons who appear as an attorney or other representative must conform 
to the standards of conduct and ethics required of practitioners before 
the courts of the United States.


Sec.  160.530  Authority of the ALJ.

    (a) The ALJ must conduct a fair and impartial hearing, avoid delay, 
maintain order, and ensure that a record of the proceeding is made.
    (b) The ALJ may--
    (1) Set and change the date, time and place of the hearing upon 
reasonable notice to the parties;
    (2) Continue or recess the hearing in whole or in part for a 
reasonable period of time;
    (3) Hold conferences to identify or simplify the issues, or to 
consider other matters that may aid in the expeditious disposition of 
the proceeding;
    (4) Administer oaths and affirmations;
    (5) Issue subpoenas requiring the attendance of witnesses at 
hearings and the production of documents at or in relation to hearings;
    (6) Rule on motions and other procedural matters;
    (7) Regulate the scope and timing of documentary discovery as 
permitted by this subpart;
    (8) Regulate the course of the hearing and the conduct of 
representatives, parties, and witnesses;
    (9) Examine witnesses;
    (10) Receive, rule on, exclude, or limit evidence;
    (11) Upon motion of a party, take official notice of facts;
    (12) Conduct any conference, argument or hearing in person or, upon 
agreement of the parties, by telephone; and
    (13) Upon motion of a party, decide cases, in whole or in part, by 
summary judgment where there is no disputed issue of material fact. A 
summary judgment decision constitutes a hearing on the record for the 
purposes of this subpart.
    (c) The ALJ may not--
    (1) Find invalid or refuse to follow Federal statutes or 
regulations or delegations of authority by the Secretary;
    (2) Enter an order in the nature of a directed verdict;
    (3) Compel settlement negotiations; or
    (4) Enjoin any act of the Secretary.


Sec.  160.532  Ex parte contacts.

    No party or person (except employees of the ALJ's office) may 
communicate in any way with the ALJ on any matter at issue in a case, 
unless on notice and opportunity for both parties to participate. This 
provision does not prohibit a party or person from inquiring about the 
status of a case or asking routine questions concerning administrative 
functions or procedures.


Sec.  160.534  Prehearing conferences.

    (a) The ALJ must schedule at least one prehearing conference, and 
may schedule additional prehearing conferences as appropriate, upon 
reasonable notice to the parties.
    (b) The ALJ may use prehearing conferences to discuss the 
following--

[[Page 18904]]

    (1) Simplification of the issues;
    (2) The necessity or desirability of amendments to the pleadings, 
including the need for a more definite statement;
    (3) Stipulations and admissions of fact or as to the contents and 
authenticity of documents;
    (4) Whether the parties can agree to submission of the case on a 
stipulated record;
    (5) Whether a party chooses to waive appearance at an oral hearing 
and to submit only documentary evidence (subject to the objection of 
the other party) and written argument;
    (6) Limitation of the number of witnesses;
    (7) Scheduling dates for the exchange of witness lists and of 
proposed exhibits;
    (8) Discovery of documents as permitted by this subpart;
    (9) The time and place for the hearing;
    (10) The potential for the settlement of the case by the parties; 
and
    (11) Other matters as may tend to encourage the fair, just and 
expeditious disposition of the proceedings, including the protection of 
privacy of individually identifiable health information that may be 
submitted into evidence, if appropriate.
    (c) The ALJ must issue an order containing the matters agreed upon 
by the parties or ordered by the ALJ at a prehearing conference.


Sec.  160.536  Settlement.

    The Secretary has exclusive authority to settle any issue or case 
without the consent of the ALJ.


Sec.  160.538  Discovery.

    (a) A party may make a request to another party for production of 
documents for inspection and copying that are relevant and material to 
the issues before the ALJ.
    (b) For the purpose of this section, the term ``documents'' 
includes information, reports, answers, records, accounts, papers and 
other data and documentary evidence. Nothing contained in this section 
may be interpreted to require the creation of a document, except that 
requested data stored in an electronic data storage system must be 
produced in a form accessible to the requesting party.
    (c) Requests for documents, requests for admissions, written 
interrogatories, depositions and any forms of discovery, other than 
those permitted under paragraph (a) of this section, are not 
authorized.
    (d) This section may not be construed to require the disclosure of 
interview reports or statements obtained by any party, or on behalf of 
any party, of persons who will not be called as witnesses by that 
party, or analyses and summaries prepared in conjunction with the 
investigation or litigation of the case, or any otherwise privileged 
documents.
    (e)(1) When a request for production of documents has been 
received, within 30 days the party receiving that request must either 
fully respond to the request, or state that the request is being 
objected to and the reasons for that objection. If objection is made to 
part of an item or category, the part must be specified. Upon receiving 
any objections, the party seeking production may then, within 30 days 
or any other time frame set by the ALJ, file a motion for an order 
compelling discovery. The party receiving a request for production may 
also file a motion for protective order any time before the date the 
production is due.
    (2) The ALJ may grant a motion for protective order or deny a 
motion for an order compelling discovery if the ALJ finds that the 
discovery sought--
    (i) Is irrelevant;
    (ii) Is unduly costly or burdensome;
    (iii) Will unduly delay the proceeding; or
    (iv) Seeks privileged information.
    (3) The ALJ may extend any of the time frames set forth in 
paragraph (e)(1) of this section.
    (4) The burden of showing that discovery should be allowed is on 
the party seeking discovery.


Sec.  160.540  Exchange of witness lists, witness statements, and 
exhibits.

    (a) The parties must exchange witness lists, copies of prior 
written statements of proposed witnesses, and copies of proposed 
hearing exhibits, including copies of any written statements that the 
party intends to offer in lieu of live testimony in accordance with 
Sec.  160.556, at least 15 days before the hearing, unless the ALJ 
orders an earlier exchange.
    (b) (1) If at any time a party objects to the proposed admission of 
evidence not exchanged in accordance with paragraph (a) of this 
section, the ALJ must determine whether the failure to comply with 
paragraph (a) of this section should result in the exclusion of that 
evidence.
    (2) Unless the ALJ finds that extraordinary circumstances justified 
the failure timely to exchange the information listed under paragraph 
(a) of this section, the ALJ must exclude from the party's case-in-
chief--
    (i) The testimony of any witness whose name does not appear on the 
witness list; and
    (ii) Any exhibit not provided to the opposing party as specified in 
paragraph (a) of this section.
    (3) If the ALJ finds that extraordinary circumstances existed, the 
ALJ must then determine whether the admission of that evidence would 
cause substantial prejudice to the objecting party. If the ALJ finds 
that there is no substantial prejudice, the evidence may be admitted. 
If the ALJ finds that there is substantial prejudice, the ALJ may 
exclude the evidence, or, if he or she does not exclude the evidence, 
must postpone the hearing for such time as is necessary for the 
objecting party to prepare and respond to the evidence, unless the 
objecting party waives postponement.
    (c) Unless the other party objects within a reasonable period of 
time before the hearing, documents exchanged in accordance with 
paragraph (a) of this section will be deemed to be authentic for the 
purpose of admissibility at the hearing.


Sec.  160.542  Subpoenas for attendance at hearing.

    (a) A party wishing to procure the appearance and testimony of any 
person at the hearing may make a motion requesting the ALJ to issue a 
subpoena if the appearance and testimony are reasonably necessary for 
the presentation of a party's case.
    (b) A subpoena requiring the attendance of a person in accordance 
with paragraph (a) of this section may also require the person (whether 
or not the person is a party) to produce relevant and material evidence 
at or before the hearing.
    (c) When a subpoena is served by a respondent on a particular 
employee or official or particular office of HHS, the Secretary may 
comply by designating any HHS representative to appear and testify.
    (d) A party seeking a subpoena must file a written motion not less 
than 30 days before the date fixed for the hearing, unless otherwise 
allowed by the ALJ for good cause shown. That motion must--
    (1) Specify any evidence to be produced;
    (2) Designate the witnesses; and
    (3) Describe the address and location with sufficient particularity 
to permit those witnesses to be found.
    (e) The subpoena must specify the time and place at which the 
witness is to appear and any evidence the witness is to produce.
    (f) Within 15 days after the written motion requesting issuance of 
a subpoena is served, any party may file an opposition or other 
response.

[[Page 18905]]

    (g) If the motion requesting issuance of a subpoena is granted, the 
party seeking the subpoena must serve it by delivery to the person 
named, or by certified mail addressed to that person at the person's 
last dwelling place or principal place of business.
    (h) The person to whom the subpoena is directed may file with the 
ALJ a motion to quash the subpoena within 10 days after service.
    (i) The exclusive remedy for contumacy by, or refusal to obey a 
subpoena duly served upon, any person is specified in 42 U.S.C. 405(e).


Sec.  160.544  Fees.

    The party requesting a subpoena must pay the cost of the fees and 
mileage of any witness subpoenaed in the amounts that would be payable 
to a witness in a proceeding in United States District Court. A check 
for witness fees and mileage must accompany the subpoena when served, 
except that when a subpoena is issued on behalf of the Secretary, a 
check for witness fees and mileage need not accompany the subpoena.


Sec.  160.546  Form, filing, and service of papers.

    (a) Forms. (1) Unless the ALJ directs the parties to do otherwise, 
documents filed with the ALJ must include an original and two copies.
    (2) Every pleading and paper filed in the proceeding must contain a 
caption setting forth the title of the action, the case number, and a 
designation of the paper, such as motion to quash subpoena.
    (3) Every pleading and paper must be signed by and must contain the 
address and telephone number of the party or the person on whose behalf 
the paper was filed, or his or her representative.
    (4) Papers are considered filed when they are mailed.
    (b) Service. A party filing a document with the ALJ or the 
Secretary must, at the time of filing, serve a copy of the document on 
the other party. Service upon any party of any document must be made by 
delivering a copy, or placing a copy of the document in the United 
States mail, postage prepaid and addressed, or with a private delivery 
service, to the party's last known address. When a party is represented 
by an attorney, service must be made upon the attorney in lieu of the 
party.
    (c) Proof of service. A certificate of the natural person serving 
the document by personal delivery or by mail, setting forth the manner 
of service, constitutes proof of service.


Sec.  160.548  Computation of time.

    (a) In computing any period of time under this part or in an order 
issued thereunder, the time begins with the day following the act, 
event or default, and includes the last day of the period unless it is 
a Saturday, Sunday, or legal holiday observed by the Federal 
Government, in which event it includes the next business day.
    (b) When the period of time allowed is less than 7 days, 
intermediate Saturdays, Sundays, and legal holidays observed by the 
Federal Government must be excluded from the computation.
    (c) Where a document has been served or issued by placing it in the 
mail, an additional 5 days must be added to the time permitted for any 
response. This paragraph does not apply to requests for hearing under 
Sec.  160.526.


Sec.  160.550  Motions.

    (a) An application to the ALJ for an order or ruling must be by 
motion. Motions must state the relief sought, the authority relied upon 
and the facts alleged, and must be filed with the ALJ and served on all 
other parties.
    (b) Except for motions made during a prehearing conference or at 
the hearing, all motions must be in writing. The ALJ may require that 
oral motions be reduced to writing.
    (c) Within 10 days after a written motion is served, or such other 
time as may be fixed by the ALJ, any party may file a response to the 
motion.
    (d) The ALJ may not grant a written motion before the time for 
filing responses has expired, except upon consent of the parties or 
following a hearing on the motion, but may overrule or deny the motion 
without awaiting a response.
    (e) The ALJ must make a reasonable effort to dispose of all 
outstanding motions before the beginning of the hearing.


Sec.  160.552  Sanctions.

    The ALJ may sanction a person, including any party or attorney, for 
failing to comply with an order or procedure, for failing to defend an 
action or for other misconduct that interferes with the speedy, orderly 
or fair conduct of the hearing. The sanctions must reasonably relate to 
the severity and nature of the failure or misconduct. The sanctions may 
include--
    (a) In the case of refusal to provide or permit discovery under the 
terms of this part, drawing negative factual inferences or treating the 
refusal as an admission by deeming the matter, or certain facts, to be 
established;
    (b) Prohibiting a party from introducing certain evidence or 
otherwise supporting a particular claim or defense;
    (c) Striking pleadings, in whole or in part;
    (d) Staying the proceedings;
    (e) Dismissal of the action;
    (f) Entering a decision by default;
    (g) Ordering the party or attorney to pay the attorney's fees and 
other costs caused by the failure or misconduct; and
    (h) Refusing to consider any motion or other action that is not 
filed in a timely manner.


Sec.  160.554  The hearing.

    (a) The ALJ must conduct a hearing on the record in order to 
determine whether the respondent should be found liable under this 
part.
    (b) The hearing must be open to the public unless otherwise ordered 
by the ALJ for good cause shown.
    (c) After both parties have presented their cases, evidence may be 
admitted in rebuttal even if not previously exchanged in accordance 
with Sec.  160.540.


Sec.  160.556  Witnesses.

    (a) Except as provided in paragraph (b) of this section, testimony 
at the hearing must be given orally by witnesses under oath or 
affirmation.
    (b) At the discretion of the ALJ, testimony of witnesses other than 
the testimony of expert witnesses may be admitted in the form of a 
written statement. Any such written statement must be provided to all 
other parties along with the last known address of the witness, in a 
manner that allows sufficient time for the other party to subpoena the 
witness for cross-examination at the hearing. Prior written statements 
of witnesses proposed to testify at the hearing must be exchanged as 
provided in Sec.  160.540. The ALJ may, at his or her discretion, admit 
prior sworn testimony of experts that has been subject to adverse 
examination, such as a deposition or trial testimony.
    (c) The ALJ must exercise reasonable control over the mode and 
order of interrogating witnesses and presenting evidence so as to:
    (1) Make the interrogation and presentation effective for the 
ascertainment of the truth;
    (2) Avoid repetition or needless consumption of time; and
    (3) Protect witnesses from harassment or undue embarrassment.
    (d) The ALJ must permit the parties to conduct cross-examination of 
witnesses as may be required for a full and true disclosure of the 
facts.

[[Page 18906]]

    (e) The ALJ may order witnesses excluded so that they cannot hear 
the testimony of other witnesses. This provision does not authorize the 
exclusion of--
    (1) A party who is a natural person;
    (2) In the case of a party that is an entity, the officer or 
employee of the party appearing for the entity pro se or designated as 
the party's representative; or
    (3) A natural person whose presence is shown by a party to be 
essential to the presentation of its case, including a person engaged 
in assisting the attorney for the Secretary.


Sec.  160.558  Evidence.

    (a) The ALJ must determine the admissibility of evidence.
    (b) Except as provided in this subpart, the ALJ is not bound by the 
Federal Rules of Evidence. However, the ALJ may apply the Federal Rules 
of Evidence where appropriate, for example, to exclude unreliable 
evidence.
    (c) The ALJ must exclude irrelevant or immaterial evidence.
    (d) Although relevant, evidence may be excluded if its probative 
value is substantially outweighed by the danger of unfair prejudice, 
confusion of the issues, or by considerations of undue delay or 
needless presentation of cumulative evidence.
    (e) Although relevant, evidence may be excluded if it is privileged 
under Federal law.
    (f) Evidence concerning offers of compromise or settlement shall be 
inadmissible to the extent provided in Rule 408 of the Federal Rules of 
Evidence.
    (g) Evidence of crimes, wrongs, or acts other than those at issue 
in the instant case is admissible in order to show motive, opportunity, 
intent, knowledge, preparation, identity, lack of mistake, or existence 
of a scheme. This evidence is admissible regardless of whether the 
crimes, wrongs, or acts occurred during the statute of limitations 
period applicable to the acts or omissions that constitute the basis 
for liability in the case and regardless of whether they were 
referenced in the Secretary's notice of proposed determination sent in 
accordance with Sec.  160.514.
    (h) The ALJ must permit the parties to introduce rebuttal witnesses 
and evidence.
    (i) All documents and other evidence offered or taken for the 
record must be open to examination by both parties, unless otherwise 
ordered by the ALJ for good cause shown.


Sec.  160.560  The record.

    (a) The hearing must be recorded and transcribed. Transcripts may 
be obtained following the hearing from the ALJ.
    (b) The transcript of the testimony, exhibits, and other evidence 
admitted at the hearing, and all papers and requests filed in the 
proceeding constitute the record for decision by the ALJ and the 
Secretary.
    (c) The record may be inspected and copied (upon payment of a 
reasonable fee) by any person, unless otherwise ordered by the ALJ for 
good cause shown.
    (d) For good cause, the ALJ may order appropriate redactions made 
to the record.


Sec.  160.562  Post hearing briefs.

    The ALJ may require the parties to file post-hearing briefs. In any 
event, any party may file a post-hearing brief. The ALJ must fix the 
time for filing the briefs. The time for filing may not exceed 60 days 
from the date the parties receive the transcript of the hearing or, if 
applicable, the stipulated record. The briefs may be accompanied by 
proposed findings of fact and conclusions of law. The ALJ may permit 
the parties to file reply briefs.


Sec.  160.564  ALJ decision.

    (a) The ALJ must issue a decision, based only on the record, which 
must contain findings of fact and conclusions of law.
    (b) The ALJ may affirm, increase, or reduce the penalties imposed 
by the Secretary.
    (c) The ALJ must issue the decision to both parties within 60 days 
after the time for submission of post-hearing briefs and reply briefs, 
if permitted, has expired. If the ALJ fails to meet the deadline 
contained in this paragraph, he or she must notify the parties of the 
reason for the delay and set a new deadline.
    (d) The ALJ's decision is the final decision of the Secretary.


Sec.  160.566  [Reserved]


Sec.  160.568  Judicial review.

    Judicial review of a penalty that has become final is authorized by 
42 U.S.C. 1320a-7a(e).


Sec.  160.570  Stay of ALJ decision.

    (a) Pending judicial review, the respondent may file a request for 
stay of the effective date of any penalty with the ALJ. The request 
must be accompanied by a copy of the notice of appeal filed with the 
Federal court. The filing of the request automatically stays the 
effective date of the penalty until such time as the ALJ rules upon the 
request.
    (b) The ALJ may not grant a respondent's request for stay of any 
penalty unless the respondent posts a bond or provides other adequate 
security.
    (c) The ALJ must rule upon a respondent's request for stay within 
10 days of receipt.


Sec.  160.572  [Reserved]

    Dated: April 11, 2003.
Tommy G. Thompson,
Secretary.
[FR Doc. 03-9497 Filed 4-14-03; 3:54 pm]
BILLING CODE 4120-01-P