[Federal Register Volume 75, Number 132 (Monday, July 12, 2010)]
[Proposed Rules]
[Pages 39641-39651]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-16927]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 75, No. 132 / Monday, July 12, 2010 / 
Proposed Rules  

[[Page 39641]]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare and Medicaid Services

42 CFR Part 488

[CMS-2435-P]


Medicare and Medicaid Programs; Civil Money Penalties for Nursing 
Homes

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would revise and expand current Medicare 
and Medicaid regulations regarding the imposition and collection of 
civil money penalties by CMS when nursing homes are not in compliance 
with Federal participation requirements in accordance with the Patient 
Protection and Affordable Care Act of 2010.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. EST on August 11, 
2010.

ADDRESSES: In commenting, please refer to file code CMS-2435-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-2435-P, P.O. Box 8012, 
Baltimore, MD 21244-8012.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-2435-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey 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 persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-9994 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Lori Chapman, (410) 786-9254.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments. Comments received timely will also be available 
for public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a 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, phone 1-800-743-3951.

I. Background

    To participate in the Medicare program or the Medicaid program, or 
both, long-term care facilities must be certified as meeting Federal 
participation requirements. Long-term care facilities include skilled 
nursing facilities (SNFs) for Medicare and nursing facilities (NFs) for 
Medicaid. The Federal participation requirements for these facilities, 
generally referred to as ``nursing home(s),'' ``facility'' or 
``facilities'' in this proposed rule, are specified in regulations at 
42 CFR part 483, subpart B.
    Section 1864(a) of the Social Security Act (the Act) authorizes the 
Secretary to enter into agreements with State survey agencies to 
determine whether facilities meet the Federal participation 
requirements for Medicare. Section 1902(a)(33)(B) of the Act provides 
for State survey agencies to perform the same survey tasks for 
facilities participating or seeking to participate in the Medicaid 
program. The results of Medicare and Medicaid related surveys are used 
by CMS and the State Medicaid agency, respectively, as the basis for a 
decision to enter into or deny a provider agreement, recertify facility 
participation in one or both programs, or terminate the facility from 
the program. They are also used to determine whether one or more 
enforcement remedies should be imposed where noncompliance with Federal 
requirements is identified.
    To assess compliance with Federal participation requirements, 
surveyors conduct onsite inspections (surveys) of facilities. In the 
survey process, surveyors directly observe the actual provision of care 
and services to residents and the effect or possible effects of that 
care to assess whether the care provided meets the assessed needs of 
individual residents.

[[Page 39642]]

    Among the statutory enforcement remedies available to the Secretary 
and the States to address facility noncompliance are civil money 
penalties. Authorized by sections 1819(h) and 1919(h) of the Act, civil 
money penalties may be imposed for each day or each instance of 
facility noncompliance, as well as for past instances of noncompliance 
even if a facility is in compliance at the time of the current survey. 
The regulations that govern the imposition of civil money penalties, as 
well as other enforcement remedies authorized by the statute, were 
published in the Federal Register on November 10, 1994 (59 FR 
56116),and on March 18, 1999 (64 FR 13354). These rules are set forth 
at 42 CFR Part 488, Subpart F, and the provisions directly affecting 
civil money penalties are set forth at Sec.  488.430 through Sec.  
488.444.
    A per day civil money penalty may be imposed from $50 up to $10,000 
for each day of noncompliance. An upper civil money penalty range of 
$3,050 up to $10,000 per day may be imposed for noncompliance that 
constitutes immediate jeopardy, meaning the noncompliance has caused or 
is likely to cause serious injury, harm, impairment or death to a 
resident, and as specified in Sec.  488.438(d)(2) for repeat 
deficiencies. A lower range of $50 up to $3,000 per day may be imposed 
for noncompliance that does not constitute immediate jeopardy. The 
current regulations at Sec.  488.438(a)(2) also specify that a civil 
money penalty may be imposed per instance of facility noncompliance in 
the range of $1,000 to $10,000 per instance. Current regulations at 
Sec.  488.438(f)(2) also provide that, among other factors, a 
facility's financial condition will be considered when determining the 
amount of a civil money penalty.
    Facilities that are dissatisfied with a certification of 
noncompliance have an informal opportunity, if they request it, to 
dispute cited deficiencies upon receipt of the official statement of 
deficiencies. For surveys conducted pursuant to section 1864 of the 
Act, this informal dispute resolution process is provided by the State. 
The requirement for informal dispute resolution is currently specified 
at Sec.  488.331. Policy guidance in section 7212C of CMS's State 
Operations Manual (Pub. L. 100-07) specifies the mandatory elements 
that must be included in each State's informal dispute resolution 
process. While States have the option to involve outside persons or 
entities that they believe to be qualified to participate in the 
informal dispute resolution process, it is the States, not the outside 
individuals or entities that are responsible and accountable for the 
informal dispute resolution decisions. Further, when a facility is 
successful during the informal dispute resolution process at 
demonstrating that deficiencies should not have been cited, and CMS 
accepts these informal dispute resolution findings, the deficiency is 
or deficiencies are removed from the Statement of Deficiencies. Any 
enforcement sanctions, not only a civil money penalty, that were 
imposed as a result of those removed deficiencies are rescinded and 
adjusted accordingly.
    When civil money penalties are imposed by the State and CMS for a 
determination of noncompliance with nursing home participation 
requirements and the facility requests a hearing on that determination, 
a civil money penalty is not currently due and collectible under Sec.  
488.432 until after the facility has had an opportunity for an 
administrative hearing and received a final agency decision about the 
noncompliance upon which the penalty was imposed. Only with respect to 
civil money penalties does the Act specify that a nursing home provider 
would be entitled to a hearing before an adverse action is taken 
against it. Aside from this one exception for civil money penalties, as 
provided in section 1128A of the Act, appeal procedures for both the 
Medicare and Medicaid programs provide the opportunity for formal 
relief only after enforcement sanctions have taken effect. Indeed, 
sections 1819(h)(5) and 1919(h)(8) of the Act specifically state that 
the remedies permitted under the statute may be imposed during the 
pending of any hearing. This is consistent with the intent of the 
enforcement provisions which is to impose remedies as soon as possible 
in order to protect the residents.
    Regulations at Sec.  488.436 provide that a facility may waive its 
right to a hearing within specified timeframes and procedures and, as a 
result, will have the civil money penalty reduced by 35 percent. This 
reduction is intended to encourage facilities to carefully consider 
their position in terms of substantial compliance, as well as the costs 
they will incur in litigating the matter, before engaging the hearing 
process. Reducing a civil money penalty by 35 percent is based on the 
recognition that a legal challenge is costly to both the provider and 
to CMS.
    Current regulations at Sec.  488.432 specify when the civil money 
penalty is collected, based on whether or not a hearing is requested:
     When a facility appropriately requests a hearing, in 
accordance with specified procedures, on the determination of 
noncompliance that is the basis for a per day civil money penalty, the 
penalty is collected when there is a final administrative decision that 
upholds the State's or CMS's determination after the facility achieves 
substantial compliance or is terminated.
     When a facility does not request a hearing, in accordance 
with specified procedures, on the determination of noncompliance that 
is the basis for a per day civil money penalty, the penalty is 
collected when the facility achieves substantial compliance or is 
terminated.
     When a facility waives its right to a hearing, in 
accordance with specified procedures, on the determination of 
noncompliance that is the basis for a per day civil money penalty, the 
penalty is collected when the facility achieves substantial compliance 
or is terminated.
     When a facility appropriately requests a hearing, in 
accordance with specified procedures, on the determination of 
noncompliance that is the basis for a per instance civil money penalty, 
the penalty is collected when there is a final administrative decision 
that upholds the State's or CMS's determination of noncompliance.
     When a facility does not request a hearing, in accordance 
with specified procedures, on the determination of noncompliance that 
is the basis for a per instance civil money penalty, the penalty is 
collected when the time frame for requesting a hearing expires.
     When a facility waives its right to a hearing, in 
accordance with specified procedures, on the noncompliance that is the 
basis for a per instance civil money penalty, the penalty is collected 
upon receipt of the facility's notification.
    As specified in section 1128A(f) of the Act, which is incorporated 
in sections 1819(h) and 1919(h) of the Act, and consistent with the way 
other civil money penalties are recovered, monies collected by CMS are 
returned to the State in proportion commensurate with the relative 
proportion of Medicare and Medicaid beds at the facility in use by 
residents of the respective programs on the date the civil money 
penalty begins to accrue, and remaining funds are deposited as 
miscellaneous receipts of the United States Department of the Treasury. 
Section 1919(h)(2)(A)(ii) of the Act specifies that civil money 
penalties collected by the State must be applied to the protection of 
the health or property of residents of any nursing facility that the 
State or CMS finds deficient, including payment for the cost of 
relocating residents to other facilities, maintenance of operation of a 
facility pending correction of deficiencies or closure, and

[[Page 39643]]

reimbursement of residents for personal funds lost.

II. Provisions of the Proposed Regulations

    Section 6111 of the Patient Protection and Affordable Care Act (the 
Affordable Care Act) (Pub. L. 111-148), enacted on March 23, 2010, 
amended sections 1819(h) and 1919(h) of the Act to incorporate specific 
provisions pertaining to the imposition and collection of civil money 
penalties when facilities do not meet Medicare and Medicaid 
participation requirements.
    We believe that through these new statutory provisions, Congress 
has expressed its intent to improve efficiency and effectiveness of the 
nursing home enforcement process, particularly as it relates to civil 
money penalties imposed by CMS.
    Section 6111 of the Affordable Care Act provides the Secretary 
discretion to reduce the amount of a civil money penalty by not more 
than 50 percent in cases where a facility self-reports and promptly 
corrects a deficiency for which a penalty was imposed within ten 
calendar days of the date of imposition. However, the Secretary may not 
reduce the civil money penalty if either of the following is true: (1) 
The Secretary has reduced a civil money penalty imposed in the 
preceding year under this provision with respect to a repeat 
deficiency; or (2) the penalty is imposed on the facility for a 
deficiency that is found to result in a pattern of harm or widespread 
harm, immediately jeopardizes the health or safety of a resident or 
residents, or results in the death of a resident of the facility. 
Section 6111 of the Affordable Care Act also requires the Secretary to 
issue regulations that provide facilities an opportunity to participate 
in an independent informal dispute resolution process prior to the 
collection of a civil money penalty, allows for the collection and 
deposit of a civil money penalty in an escrow account prior to the 
resolution of any formal appeals, provides for return of escrowed civil 
money penalty funds in cases where a nursing home is successful in a 
formal appeal, and allows for a portion of the retained penalty funds 
pertinent to Medicare to support activities that benefit residents.
    These provisions in section 6111 of the Affordable Care Act seek to 
reduce the delay which results between the identification of problems 
with noncompliance and the effect of certain penalties that are 
intended to motivate a nursing home to maintain continuous compliance 
with basic expectations regarding the provision of quality care and 
eliminate a facility's ability to significantly defer the direct 
financial effect of an applicable civil monetary penalty until after an 
often long litigation process.
    To implement these new statutory provisions, we are proposing to 
revise 42 CFR part 488 by adding new Sec.  488.431 and Sec.  488.433. 
We are also proposing revisions to existing regulations throughout part 
488 to further incorporate the new statutory provisions. These proposed 
changes would be consistent with Section 6111 of the Affordable Care 
Act. Specifically, this proposed rule would allow for civil money 
penalty reductions when facilities self-report and promptly correct 
their noncompliance; offer in cases where civil money penalties are 
imposed an independent informal dispute resolution process where 
interests of both facilities and residents are represented and 
balanced; provide for the establishment of an escrow account where 
civil money penalties may be placed until any applicable administrative 
appeal processes have been completed; and, improve the extent to which 
civil money penalties collected from Medicare facilities can benefit 
nursing home residents. Through the proposed revisions, we intend to 
directly promote and improve the health, safety, and overall well-being 
of residents.

A. Proposed Establishment of an Escrow Account for Civil Money 
Penalties

    Under the existing process, facilities are able to avoid paying a 
civil money penalty for years because it can often take a long time for 
administrative appeals to be completed. Concerns about the delays in 
payment of a civil money penalty have been raised in independent 
reports issued by both the United States Government Accountability 
Office (GAO) and the Office of the Inspector General of the Department 
of Health and Human Services (OIG). These referenced reports are 
identified as GAO-07-241, ``Efforts to Strengthen Federal Enforcement 
Have Not Deterred Some Homes from Repeatedly Harming Residents,'' 
(March 2007), and OEI-06-02-00720, ``Nursing Home Enforcement: The Use 
of Civil Money Penalties,'' (April 2005). Both GAO and OIG studied the 
civil money penalty collection process for nursing homes. Each 
concluded that the significant time that can elapse between 
identification of noncompliance and the facility's payment of an 
imposed civil money penalty diminishes the immediacy of the enforcement 
response, insulates the facility from the repercussions of enforcement, 
and may undermine the sanction's deterrent effect. For example, the OIG 
reported that, in the cases they reviewed, collection of civil money 
penalties in appealed cases took an average of 420 days. As a result of 
its own independent study, GAO recommended that CMS seek a legislative 
change that would allow for the collection of civil money penalties 
before exhaustion of appeals.
    Sections 6111(a) and (b) of the Affordable Care Act created new 
authorities at sections 1819(h) and 1919(h) of the Act that now permit 
the Secretary to collect and place civil money penalties into an escrow 
account pending the resolution of any formal appeal. We believe that 
through the passage of this specific provision and the creation of an 
exception to current collection timeframe for civil money penalties 
imposed by CMS, the Congress expressed its intent to address the 
current delay in collection of civil money penalties and mitigate the 
deleterious effect of such delays that the GAO and OIG identified in 
their reports.
    Specifically, sections 6111(a) and (b) of the Affordable Care Act 
expand sections 1819(h)(2)(B)(ii) and 1919(h)(3)(C)(ii) of the Act by 
adding a new subsection (IV)(bb) which states that, in the case of per 
day civil money penalties, the penalty will not be imposed until after 
a facility has had an opportunity for an independent informal dispute 
resolution process by which the facility may informally challenge the 
noncompliance on which the penalty was based. (The added provisions 
regarding the new independent informal dispute resolution process are 
discussed later in section II-C. of this preamble.)
    In the proposed rule, we interpret the language of this new section 
(IV)(bb) to mean that any per day civil money penalty would be 
effective and continue to accrue but would not be collected during the 
time that the determination of noncompliance which led to the 
imposition of a civil money penalty is subject to the independent 
informal dispute resolution process. This is consistent with other 
provisions of Section 6111 of the Affordable Care Act and when viewed 
in the context of the purpose of the enforcement process of the Social 
Security Act. First, new subsection (IV)(cc) of sections 
1819(h)(2)(B)(ii) and 1919(h)(3)(C)(ii), as amended by section 6111 of 
the Affordable Care Act, provide for the collection of the civil money 
penalty upon completion of an independent informal dispute resolution 
process. If the per day civil money penalty did not apply and accrue 
during the period of

[[Page 39644]]

an independent informal dispute resolution process, there would not be 
any civil money penalty funds to collect upon completion of the process 
in those cases where the dispute resolution does not result in any 
change to the findings. In those cases where this independent informal 
dispute resolution process does result in a change to the findings that 
would lower the civil money penalty amounts, then the accrual would be 
immaterial because the civil money penalties were reduced or rescinded 
back to the effective date of the civil money penalty. Second, it has 
been CMS' longstanding position that sections 1819(h) and 1919(h) of 
the Act provide that a per day civil money penalty can begin to accrue 
as early as the date that a facility was first determined to be out of 
compliance and continues to accrue, without interruption, until a 
facility has achieved substantial compliance or is terminated from the 
program. Additionally, the Act also provides that the effective date of 
a civil money penalty can be retroactive to the date of an adverse 
event that was documented through the survey process to have occurred 
prior to the issuance of a formal written notice informing the facility 
that a per day civil money penalty has been applied. Section 6111 of 
the Affordable Care Act does not change the existing nursing home 
enforcement process; rather it adds an additional process to be 
available to facilities as a result of the Secretary's new authority to 
collect a civil money penalty before exhaustion of administrative 
remedies. Third, since a facility may continue to be out of substantial 
compliance for a period of time until it is terminated from the 
program, an interruption in the civil money penalty accrual would be 
contrary to the intended effect of creating financial incentives for 
facilities to maintain compliance and promptly correct any 
noncompliance. Since we believe Congress intended to speed and 
strengthen the motivational and deterrent effects of civil money 
penalties, we believe that suspending the accrual of a civil money 
penalty while the underlying noncompliance was being informally 
challenged would undermine such motivational effects.
    We therefore propose that CMS will not collect applicable civil 
money penalty funds until either an independent informal dispute 
resolution process is completed or 90 days has passed since the notice 
of civil money penalty imposition has been issued, whichever is 
earlier. The 90 day period is the maximum combined time period 
permitted from the date of the notice of civil money penalty imposition 
(when a facility has the opportunity to request an independent informal 
dispute resolution) to the date for completion of the independent 
informal dispute resolution process itself. This combined maximum time 
period is consistent with the provisions of new sections 
1819(h)(2)(B)(ii)(IV)(cc) and 1919(h)(3)(C)(ii)(IV)(cc) of the Act, as 
amended by section 6111 of the Affordable Care Act (which is discussed 
in more detail below).
1. Collection and Placement in Escrow Account
    Sections 6111(a) and (b) of the Affordable Care Act add new 
sections 1819(h)(2)(B)(ii)(IV)(cc) and 1919(h)(3)(C)(ii)(IV)(cc) of the 
Act which provide the authority for CMS to collect and place into 
escrow accounts civil money penalties. This may be done on the earlier 
of (1) the date when a requested independent informal dispute 
resolution process is completed, or (2) 90 days after imposition of the 
civil money penalty. We are proposing to implement these requirements 
at Sec.  488.431(b)(1)(i) and Sec.  488.431(b)(1)(ii). While the 
amended statutory language contemplates that a facility will be either 
wholly successful or unsuccessful in challenging its determination of 
noncompliance during the independent informal dispute resolution 
process, the proposed regulation reflects an understanding that there 
are times when a facility is partly successful. In such instances, the 
facility may be able to argue successfully for change to only some of 
its cited noncompliance. If such change as a result of the independent 
informal dispute resolution were to affect the civil money penalty 
amounts owed, (for example, through deletion of a germane deficiency), 
then the amount initially imposed would need to be adjusted accordingly 
before being collected and placed in the escrow account.
2. When a Facility Is Successful in a Formal Administrative Appeal
    Sections 6111(a) and (b) of the Affordable Care Act amend sections 
1819(h)(2)(B)(ii) and 1919(h)(3)(C)(ii) of the Act by adding new 
section (IV)(dd) which provides that collected civil money penalties 
will be kept in an escrow account pending the resolution of any 
subsequent formal appeals (as distinct from an informal dispute 
resolution process). Sections 6111(a) and (b) of the Affordable Care 
Act also adds new section (IV)(ee) to revise sections 1819(h)(2)(B)(ii) 
and 1919(h)(3)(C)(ii) of the Act, to require that when a final 
administrative decision results in the successful appeal of a 
facility's cited determination of noncompliance that led to the 
imposition of the civil money penalty, that civil money penalty amount 
being held in escrow will then be returned to the facility, with 
interest. We are proposing at Sec.  488.431(d)(2) that if the 
administrative law judge (ALJ) reverses the civil money penalty 
determination in whole or in part, the escrowed amount continues to be 
held pending expiration of the time for CMS to appeal the ALJ decision 
or, where CMS does appeal, a Departmental Appeals Board decision 
affirming the ALJ's reversal of the civil money penalty. We are 
proposing to implement these new requirements at proposed Sec.  
488.431(d). We believe these new statutory provisions contemplate not 
only an absolute situation where the facility is either wholly 
successful or unsuccessful in its administrative appeal of a 
determination which led to a civil money penalty imposition, but that 
they also include situations in which a facility is only partially 
successful in its appeal. Thus, the proposed regulation recognizes this 
possibility and provides that CMS will return collected civil money 
penalty amounts commensurate with the final administrative appeal 
results.
    We do not plan to include specifics in this proposed rule about how 
these requirements would be operationalized because we believe that 
such guidance is more appropriately suited for inclusion in our State 
Operations Manual after collaboration with interested stakeholders. 
However, we do expect that the collection of a per day civil money 
penalty under this proposed rule may be a two-step process. In proposed 
Sec.  488.431(b)(2),we expect that in instances when a facility has not 
achieved substantial compliance at the time a per day civil money 
penalty can be collected and placed in an escrow account, that 
collection would consist of the penalty amount that has accrued from 
the effective date of the penalty through the date of collection. 
Another collection would need to occur later in the process for any 
final balance determined to be due and payable once the facility 
achieves substantial compliance or is terminated from the program.

B. Proposed Reduction of a Civil Money Penalty by 50 Percent for Self-
Reporting and Prompt Correction of Noncompliance

    Sections 6111(a) and (b) of the Affordable Care Act add new 
sections 1819(h)(2)(B)(ii)(II)and (III) and

[[Page 39645]]

1919(h)(3)(C)(ii)(II) and (III) of the Act. These sections establish 
new authorities for CMS to reduce a civil money penalty it imposes by 
up to 50 percent when CMS determines that a facility has self-reported 
and promptly corrected its noncompliance. This new provision explicitly 
provides that such reduction is not applicable for noncompliance that 
constitutes immediate jeopardy to resident health and safety, or that 
constitutes either a pattern of harm or widespread harm to facility 
residents, or that resulted in a resident's death. Additionally, the 
new provisions clearly specify that this reduction does not apply to a 
civil money penalty that was imposed for a repeated deficiency that 
resulted in a civil money penalty reduction under this section in the 
previous year.
    This proposed rule would permit CMS to reduce a civil money penalty 
if a facility self-reports and promptly corrects quality problems. The 
new reduction authority works in harmony with section 6102 of the 
Affordable Care Act that requires nursing homes to implement an 
effective ethics and compliance program as well as an internal quality 
assurance and performance improvement program. The requirements in both 
sections 6111 and 6102 of the Affordable Care Act emphasize the value 
of systems within a nursing home that can continuously stream 
performance information back to its facility management with the 
expectation that problems with the provision of quality care would be 
identified and promptly remedied, and that system improvements would be 
put in place to prevent recurrence. New sections 1819(h)(2)(B)(ii)(II) 
and (III) and 1919(h)(3)(C)(ii)(II) and (III) of the Act, as amended by 
sections 6111(a) and (b) of the Affordable Care Act, support section 
6102 of the Affordable Care Act, promoting quality assurance and 
improvement by adding a financial incentive through the 50 percent 
reduction of a civil money penalty following self-reporting and prompt 
correction of such problems. We are proposing to implement these new 
requirements at Sec.  488.438(c).
    The language of the new statutory provision permissively states 
that the Secretary may reduce an imposed civil money penalty by up to 
50 percent ``where a facility self-reports and promptly corrects a 
deficiency for which a penalty was imposed under this clause not later 
than 10 calendar days after the date of such imposition.'' We propose 
that the 50 percent reduction would be applied only where a number of 
conditions are met. First, the facility must have self-reported the 
noncompliance to CMS or the State before it was identified by CMS or 
the State and before it was reported to CMS or the State by means of a 
complaint lodged by a person other than an official representative of 
the nursing home. Second, correction of the noncompliance must have 
occurred within ten calendar days of the date that the facility 
identified the deficient practice. For a number of reasons stated 
below, we propose not to permit a 50 percent reduction when the self-
reporting or the correction occurred at any later point in time. To 
credit a facility with ``self-reporting'' only after a facility has 
been surveyed and noncompliance has been discovered by CMS would not 
meet the common sense meaning of ``self-reporting.'' We have proposed 
to give meaning to this provision in a manner that can best encourage 
facilities to self-report their noncompliance so that they can take the 
necessary corrective action as quickly as possible, without waiting for 
the State or CMS to identify or to cite the noncompliance, and thus be 
rewarded for their efforts. Therefore, under the discretion provided to 
us in this provision, we are declining to reduce a civil money penalty 
by 50 percent when a facility attempts to self-report noncompliance 
after it has already been identified by CMS. Rather, we propose at 
Sec.  488.438(c)(2)(i) and (ii) that, among other criteria, in order 
for a facility to receive this 50 percent reduction, CMS must determine 
that the facility self-reported and corrected the noncompliance within 
10 days of identifying it, and before it was identified by CMS or the 
State. In addition we specify that any attempted self-reporting of 
noncompliance by a facility that occurs after it was already identified 
by CMS will not be considered for any reduction under this proposed 
provision.
    In accordance with sections 6111(a) and (b) of the Affordable Care 
Act, which adds new subsections (III)(bb) to sections 1819(h)(2)(B)(ii) 
and 1919(h)(3)(C)(ii) of the Act, noncompliance constituting immediate 
jeopardy, a pattern of harm, widespread harm, or resulting in a 
resident's death is not eligible for the civil money penalty reduction 
that might otherwise be available in the case of self-reporting and 
prompt correction. Therefore, we are proposing to add this limitation 
at Sec.  488.438(c)(2)(iv). Noncompliance at these scope and severity 
levels indicates a significant breakdown in facility performance and 
systems to the extent that, even if self-reported, warrants an equally 
significant consequence without the benefit of a considerable 
reduction. Furthermore, new sections 1819(h)(2)(B)(ii)(III)(aa) and 
1919(h)(3)(C)(ii)(III)(aa) of the Act, as amended by sections 6111(a) 
and (b) of the Affordable Care Act, also specify that the reduction 
under these provisions would not apply for facilities that have 
repeated noncompliance for which a penalty reduction under this 
provision was received during the previous year. We are proposing to 
add this limitation at Sec.  488.438(c)(2)(v). We believe, and Congress 
clearly indicated, that facilities unwilling or unable to maintain and 
sustain compliance with the same participation requirements over this 
period of time should not be rewarded with a reduced civil money 
penalty. This is consistent with current regulations at Sec.  
488.438(d)(2) which require that the State and CMS must increase the 
civil money penalty amount for any repeated deficiencies for which a 
lower level penalty amount was previously imposed. Current regulations 
at Sec.  488.438(d)(3) define repeat deficiencies as ``deficiencies in 
the same regulatory grouping of requirements found at the last survey, 
subsequently corrected, and found again at the next survey.''
    We are also proposing at Sec.  488.438(c)(2)(iii) to specify that a 
facility must waive its right to a hearing in order to receive this 50 
percent reduction. This is because, by the facility's own admission 
through its self-reporting and correction, it has acknowledged its 
noncompliance, thereby substantially eliminating the basis for any 
formal appeal. Should a facility elect to expend its resources on an 
administrative appeal, we believe it should choose between the 50 
percent reduction otherwise available or pursuing the appeal. We also 
reinforce the incentive of a facility to invest in its program 
improvement by making it clear that the civil money penalty reduction 
for self-reporting and prompt correction will be at the maximum 50 
percent level rather than any other permissible lower percentage 
amount.
    The Secretary's authority for such a civil money penalty reduction 
under Section 6111 of the Affordable Care Act is discretionary and 
states that the reduction may be ``up to 50 percent.'' To maximize the 
incentives for quality improvement, and to remove uncertainty for 
nursing homes, we propose in this regulation to set the percentage 
reduction at the highest permissible level of 50 percent in these 
circumstances.
    In proposed Sec.  488.436(b)(1) and Sec.  488.438(c)(3), we are 
proposing to amend these sections to specify that a

[[Page 39646]]

facility may receive only one and not both of the available civil money 
penalty reductions. Under existing regulations at Sec.  488.436(b), a 
facility may receive a 35 percent reduction in its civil money penalty 
liability if it timely waives its right to appeal the determination of 
noncompliance that led to the imposition of the penalty. No other 
criterion needs to be met in order for a facility to get this 35 
percent reduction. However, in order to receive the higher 50 percent 
reduction in penalty, a facility must not only waive its right to a 
hearing, but it must also meet the specific criteria at proposed Sec.  
488.438(c)(2). A qualifying facility may receive either the 35 percent 
reduction for waiving its right to a hearing or the 50 percent 
reduction for self-reporting and promptly correcting, but in no case 
will the facility receive both reductions at the same time.

C. Proposed Opportunity for an Independent Informal Dispute Resolution 
Process

    Sections 6111(a) and (b) of the Affordable Care Act adds new 
section (IV)(aa) to sections 1819(h)(2)(B)(ii) and 1919(h)(3)(C)(ii) of 
the Act, which provides a facility with the opportunity to participate 
in an independent informal dispute resolution process if civil money 
penalties have been imposed against the facility. This process is to be 
offered to a facility not later than 30 days after the imposition of 
the civil money penalty and must generate a written record prior to the 
collection of the penalty. Additionally, the independent informal 
dispute resolution process is not automatic but, consistent with the 
existing informal dispute resolution process under Sec.  488.331, is 
available only upon the facility's request.
    Language included in the House Ways and Means Committee Report H.R. 
3200, while not enacted, is similar to the language used in the 
Affordable Care Act and offers some insight into what prompted the 
inclusion of this new independent review process and what was 
envisioned as ``independent.'' The language in H.R. 3200 provided that 
any such process ``shall allow independent informal dispute resolution 
to be conducted by an independent State agency (including an umbrella 
agency, such as the Health and Human Services Commission), a Quality 
Improvement Organization, or the state survey agency, so long as the 
participants in independent informal dispute resolution are not 
involved in the initial decision to cite the deficiency (ies) and 
impose the remedy (ies). Whoever is authorized to conduct independent 
informal dispute must not have any conflicts of interest * * * .'' We 
also note that during debate on the House floor on March 21, 2010, U.S. 
House of Representatives Energy and Commerce Committee Chairman Henry 
Waxman stated that over 40 percent of nursing home surveyors in four 
States told the Government Accountability Office (GAO) that their 
existing States' processes for informal dispute resolution favored 
nursing home operators over resident welfare. Representative Waxman 
further stated that the independent informal dispute resolution process 
``should be conducted by an independent State agency or entity with 
healthcare experience, or by the State survey agency, so long as no 
entity or individual who conducts independent informal dispute 
resolution has a conflict of interest,'' and that anyone should have 
the right to participate in the process.
    While operational details of this independent review process are 
more appropriate for inclusion as guidance in our State Operations 
Manual, we are proposing specific core elements be included so that we 
can ensure the fairness and efficiency of the independent informal 
dispute resolution process. (CMS will notify the facility of the 
opportunity for this process as specified in proposed Sec.  488.431.)
    We are proposing at Sec.  488.431(a) that CMS continues to retain 
ultimate authority for the survey findings and imposition of civil 
money penalties, and also provide that an independent informal dispute 
resolution must be requested by the facility within 30 days of notice 
of imposition of a civil money penalty. In an effort to ensure that the 
independent informal dispute resolution process is completed timely, we 
are proposing at Sec.  488.431(a)(1) that it be completed within 60 
days of the imposition of the civil money penalty. We are proposing at 
Sec.  488.431(a)(2) that this process will generate a written record 
prior to the collection of any penalty. At proposed Sec.  
488.431(a)(3), we are requiring that the independent informal dispute 
resolution process include notification to an involved resident or a 
resident representative, as well as the state ombudsman, with respect 
to the opportunity to provide written comment.
    We propose that the new independent informal dispute resolution 
process be an additional option for nursing homes and that nursing 
homes would retain the option to use the existing informal dispute 
resolution process under Sec.  488.331. We believe that the current 
informal dispute resolution process can be expeditious and that it 
addresses a greater range of noncompliance issues that would affect 
other enforcement remedies than the new independent informal dispute 
resolution process is required to cover. The Affordable Care Act 
requires that the independent process be available only in cases of 
noncompliance for which a civil money penalty was imposed. Although 
States may elect to make the independent process applicable to a wider 
array of situations, continued maintenance of the existing informal 
dispute resolution process will ensure the availability of a system to 
address facility challenges of cited deficiencies regardless of whether 
other non-civil money penalty remedies are imposed.
    We also propose at Sec.  488.431(a)(4) that the new independent 
informal dispute resolution process be conducted at the requesting 
facility's expense, and expect that a system of user fees designed to 
cover expenses of this process will be put in place in each State. We 
ask for comments on alternative user fee systems. We believe this 
arrangement is advisable for a number of reasons. First, the current 
informal dispute resolution process will continue to be available to 
nursing homes at no charge. Second, without a user fee, the costs of 
the new process would be borne by the Medicare Trust Fund or other 
public sources that are already subject to serious fiduciary challenge. 
Third, in electing to use the new independent process, a nursing home 
must believe that there is added value to the new process as compared 
with either using the current (and still available) process that does 
not involve a user fee or requesting a formal appeal under Sec.  
498.40.
    A few States have had long-standing independent informal dispute 
resolution programs. To gather information on the range of potential 
user fees, we examined the fee structure used by a contractor that has 
contracts with a number of such States. The purpose of our examination 
was to provide insight into how the user fee aspect of a national 
independent informal dispute resolution process might operate. In the 
most useful example we found, the fee structure is built on a base fee 
of $160 per deficiency. Upon this foundation certain variable costs are 
added so that the total fee amount can be responsive to the complexity 
of the case and the skill sets most useful in the dispute resolution 
process. For example, the involvement of nurses are based on an add-on 
hourly nurse rate (currently $145) and the involvement of a physician 
in some cases results in an add-on of a different

[[Page 39647]]

physician reviewer rate (currently $300/hour). The total fees range 
from $550 for a less complex case (1 to 1\1/2\ half hours of review); 
$800-$1,000 for a more complicated case (2-3 hours of review) and 
$1,000-$3,000 (3-4 hours) for the most complex cases involving 
immediate jeopardy or substandard quality of care. The complexity of 
the case is based on both the number of deficiencies that are in 
dispute and the amount of time it takes the nurse or physician reviewer 
to assess an individual deficiency. Generally, a lower scope and 
severity deficiency (no actual harm deficiencies) would require less 
review time whereas more significant deficiencies (such as immediate 
jeopardy or substandard quality of care) would require more time to 
review. The fees apply to a record review and typically do not include 
any telephonic or in-person conferences.
    In electing to use the new process, a nursing home is free to make 
a marketplace decision as to whether the user fee will be worth the 
cost compared to the option of using the current informal dispute 
resolution process that involves no user fee for the facility. In 
electing to use the new process, we expect that the nursing home will 
generally consider the user fee to be less costly than filing a formal 
appeal. Those lesser costs may derive from both lower preparation, 
legal, and filing fees, together with the 35 percent reduction in the 
civil monetary penalty that is available under Sec.  488.436 in 
situations where a nursing home elects not to request a formal hearing. 
We invite comments on the user fee and whether there should be 
distinctions made in the user fees depending on certain factors, such 
as whether CMS or the State changed the scope, severity, or quantity of 
deficiency citations as a result of information obtained through the 
independent informal dispute resolution process. We are also soliciting 
comments on whether the fee should be returned to the facility in the 
event that the applicable civil money penalty is completely eliminated 
as proposed in Sec.  488.431(a)(4). We propose that the system of fees 
must be approved by CMS, be based on expected average costs, and must 
be uniformly applied within the State.
    Finally, in view of the insights and underlying intent of this new 
process, as provided by the House language that is similar to the 
language passed in the Affordable Care Act and statements expressed by 
Chairman Waxman noted above, we are proposing at Sec.  488.431(a)(5) 
that independent informal dispute resolution be conducted by the State 
under section 1864 of the Act, or an entity approved by the State and 
CMS, or by CMS in the case of surveys conducted only by Federal 
surveyors, with no conflicts of interest, such as: (i) A component of 
an umbrella State agency provided that the component is 
organizationally separate from the state survey agency; (ii) an 
independent entity with healthcare experience selected by the State and 
approved by CMS; or (iii) a distinct part of the State survey agency, 
so long as the entity or individual(s) conducting the independent 
informal dispute resolution has no conflict of interest and has not had 
any part in the survey findings under dispute.

D. Proposed Acceptable Uses of Civil Money Penalties Collected by CMS

    Section 6111 of the Affordable Care Act establishes new acceptable 
uses of civil money penalties collected by CMS. Some of these collected 
civil money penalty funds must be applied directly to promote quality 
care and the well-being of nursing home residents. Additionally, the 
Affordable Care Act makes it clear that the specified use of such 
funds, collected from SNFs, SNF/NFs and NF-only facilities as a result 
of civil money penalties imposed by CMS, must be approved by CMS.
    The Affordable Care Act provides flexibility about how civil money 
penalty funds collected by CMS can be used. These new provisions are 
also consistent with section 1919(h)(2)(A)(ii) of the Act regarding how 
civil money penalties may be used when collected by the State. Section 
1919(h)(2)(A)(ii) of the Act provides that civil money penalties that 
are imposed by the State shall be applied to the protection of the 
health or property of nursing facility residents. the whether an 
acceptable use of collected fees would be to offset a portion of the 
cost of the independent informal dispute resolution process. The 
provisions of section 1128A of the Act continue to be applied to civil 
money penalties under sections 1819(h) and 1919(h) of the Act and 
specify that funds collected from Medicare facilities attributable to 
Title XVIII be deposited into the United States Treasury. However, the 
specific authorities provided by sections 6111(a) and (b) of the 
Affordable Care Act, which adds new subsections (IV)(ff) to sections 
1819(h)(2)(B)(ii) and 1919(h)(3)(C)(ii) of the Act, expressly provide 
that now ``a portion'' of these collected funds may be used to benefit 
residents. Giving weight and meaning to both provisions, we are 
proposing that while some portion of the collected civil money penalty 
funds from Medicare facilities will continue to be deposited with the 
Treasury, another portion of those funds may be directed back into the 
program to be invested in activities that benefit residents. 
Specifically, we are proposing at Sec.  488.433 that 50 percent of the 
Title XVIII portion of collected civil money penalty amounts would be 
used for activities that would benefit nursing home residents and that 
the remaining 50 percent of collected funds applicable to Title XVIII 
would continue to be deposited to the Department of the Treasury. This 
proposed division of funds reflects the focus and importance the 
Affordable Care Act provisions give to improving and promoting the 
health and well-being of nursing home residents. Furthermore, to 
protect against any actual or potential conflicts of interest, we 
specify at proposed Sec.  488.433 that collected civil money penalty 
funds cannot be used for survey and certification operations and 
functions performed under section 1864 of the Act, but must entirely be 
used for activities that benefit nursing home residents and that any 
such activity must be approved by CMS.
    With regard to distinguishing between Medicare and Medicaid 
proportions of civil money penalty collections for dually-participating 
facilities, we retain current regulations at Sec.  488.442(f) (but 
amend them to include reference to proposed Sec.  488.433) that specify 
the formula for determining the proportion of collected civil money 
penalty funds that are to be returned to the State in dually 
participating facilities, that is, ``in proportion commensurate with 
the relative proportions of Medicare and Medicaid beds at the facility 
actually in use by residents covered by the respective programs on the 
date the civil money begins to accrue.'' These funds attributable to 
Title XIX are returned to the State in which the noncompliant facility 
that paid the civil money penalty is located, and this arrangement is 
continued in our proposed rule.
    The Affordable Care Act provides examples of those types of 
activities that would be considered appropriate uses for civil money 
penalty monies, including--
     Assistance to support and protect residents of a facility 
that closes (voluntarily or involuntarily) or is decertified (including 
offsetting costs of relocating residents to home and community-based 
settings or another facility), which is found at proposed Sec.  
488.433(a) and (b);
     Projects that support resident and family councils and 
other consumer involvement in assuring quality care in facilities, 
which is found at proposed Sec.  488.433(c);

[[Page 39648]]

     Facility improvement initiatives approved by CMS 
(including joint training of facility staff and surveyors, technical 
assistance for facilities implementing quality assurance programs, the 
appointment of temporary management firms, and other activities 
approved by CMS), which is found at proposed Sec.  488.433(d).
    At Sec.  488.433(e) we propose the appointment of a temporary 
management firm as one possible use of collected civil money penalties, 
as noted in the new subsections added by section 6111 of the Affordable 
Care Act. Currently existing regulations at Sec.  488.415(c) require 
that the temporary manager's salary is paid directly by the facility. 
Using civil money penalty funds to appoint a temporary management firm 
significantly reduces the deterrent effect of the temporary manager 
enforcement sanction since the costs associated with it would be paid 
for by collected civil money penalty funds instead of by the facility. 
We believe this was not the intent of Section 6111 of the Affordable 
Care Act. Therefore, while the proposed rule does not contemplate using 
civil money penalty funds for payment of the temporary manager's 
salary, it does contemplate using the funds for other expenses related 
to development and maintenance of temporary management or receivership 
capability (for example, recruiting, vetting, or retaining of temporary 
managers, or other related system infrastructure expenses). Use of 
funds in this manner should secure the readiness and availability of 
temporary manager candidates, and therefore, encourage the use of this 
sanction. When considering what initiatives or projects would make good 
use of civil money penalty funds collected from Medicare facilities and 
would best benefit nursing home residents, CMS may conclude that the 
State is in the best position to provide that effort. In this instance, 
CMS is free to use its share of the collected funds to pay the State to 
perform those activities that CMS determines would best benefit nursing 
home residents. This payment to a State to secure the State's 
assistance for a CMS-approved resident benefit activity does not 
constitute an increase in the State's proportion of any civil money 
penalty funds collected from a dually participating facility. Rather, 
these are funds that CMS collected from a Title XVIII facility and 
which CMS subsequently determines can be used in the most beneficial 
way through the State.
    We wish to reiterate that use of funds collected from a SNF, SNF/
NF, or NF-only facility as a result of a CMS-imposed civil money 
penalty must be approved by CMS. We expect that CMS will issue guidance 
that will permit specific categories of civil money penalty use without 
waiting for per-request approval, while other uses not listed in the 
guidance would require case-by-case advance approval.

III. Collection of Information Requirements

    Section 4204(b) and 4214(d) of the Omnibus Budget Reconciliation 
Act of 1987 (OBRA '87), Public Law 100-203, enacted on December 21, 
1987, provides a waiver of Office of Management and Budget review of 
information collection requirements for the purpose of implementing the 
nursing home reform amendments. The provisions of OBRA '87 that exempt 
agency actions to collect information from States or facilities 
relevant to survey and enforcement activities from the Paperwork 
Reduction Act are not time-limited.

IV. Response to Comments

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

V. Regulatory Impact Statement

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 1993), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, section 202 of the Unfunded 
Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), Executive 
Order 13132 on Federalism (August 4, 1999) and the Congressional Review 
Act (5 U.S.C. 804(2)).
    Executive Order 12866 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). This rule 
does not reach the economic threshold and thus is not considered a 
major rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small business. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$7 million to $34.5 million in any one year. Individuals and States are 
not included in the definition of a small entity. We are not preparing 
an analysis for the RFA because we have determined, and the Secretary 
certifies, that this proposed rule would not have a significant impact 
on a substantial number of small entities.
    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 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 Core-Based 
Statistical Area (for Medicaid) and outside of a Metropolitan 
Statistical Area (for Medicare) and has fewer than 100 beds. We are not 
preparing an analysis for section 1102(b) of the Act because we have 
determined, and the Secretary certifies, that this proposed rule would 
not have a significant impact on the operations of a substantial number 
of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2010, that 
threshold level is currently approximately $135 million. These 
regulatory proposals would have no consequential effect on State, 
local, or tribal governments or on the private sector.
    Executive Order 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. Since this regulation would not impose costs on State or 
local governments, the requirements of Executive Order 13132 are not 
applicable.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

[[Page 39649]]

List of Subjects in 42 CFR Part 488

    Administrative practice and procedure, Health facilities, Medicare, 
Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR part 488 as set forth 
below:

PART 488--SURVEY, CERTIFICATION, AND ENFORCEMENT PROCEDURES

    1. The authority citation for part 488 is revised to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act, 
unless otherwise noted (42 U.S.C. 1302 and 1395(hh)); Section 6111 
of the Patient Protection and Affordable Care Act (Pub. L. 111-148)

Subpart E--Survey and Certification of Long-Term Care Facilities

    2. Revise Sec.  488.330(e)(2)(ii) to read as follows:


Sec.  488.330  Certification of compliance or noncompliance.

* * * * *
    (e) * * *
    (2) * * *
    (ii) Except for civil money penalties imposed on NFs-only by the 
State, during any pending hearing that may be requested by the provider 
of services.
* * * * *
    3. Amend Sec.  488.331 by adding a new paragraph (a)(3) to read as 
follows:


Sec.  488.331  Informal dispute resolution.

    (a) * * *
    (3) For SNFs, SNF/NFs, and NF-only facilities that have civil money 
penalties imposed by CMS, CMS offers the facility an opportunity, at 
the facility's request if requested within 30 days of the notice of 
imposition of a civil money penalty, for independent informal dispute 
resolution, as specified in Sec.  488.431(a).
* * * * *

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

    4. Section 488.400 is revised to read as follows:


Sec.  488.400  Statutory basis.

    Sections 1819(h) and 1919(h)of the Act specify remedies that may be 
used by the secretary or the State respectively when a SNF or a NF is 
not in substantial compliance with the requirements for participation 
in the Medicare and Medicaid programs. These sections also provide for 
ensuring prompt compliance and specify that these remedies are in 
addition to any other available under State or Federal law, and, 
except, for civil money penalties imposed on NFs-only by the State, are 
imposed prior to the conduct of a hearing.
    5. Add a new Sec.  488.431 to read as follows:


Sec.  488.431  Civil money penalties imposed by CMS and independent 
informal dispute resolution: for SNFS, SNF/NFs, and NF-only facilities.

    (a) Opportunity for independent review. CMS retains ultimate 
authority for the survey findings and imposition of civil money 
penalties, but provides an opportunity for independent informal dispute 
resolution within 30 days of notice of imposition of a civil money 
penalty that--
    (1) Is completed within 60 days of notice of imposition of civil 
money penalty if an independent informal dispute resolution is timely 
requested by the facility.
    (2) Generates a written record prior to the collection of the 
penalty.
    (3) Includes notification to an involved resident or resident 
representative, as well as state ombudsman, to provide opportunity for 
written comment.
    (4) Is conducted at the facility's expense, consistent with a user 
fee system approved by CMS that is designed to cover only actual 
expenses of the independent informal dispute resolution process based 
on average costs that are uniformly applied but may vary by key 
categories such as time used in the dispute resolution process and the 
average cost for the amount of time used, except that the fee shall be 
returned in the event that the applicable civil money penalty is 
completely eliminated.
    (5) Is conducted by the State under section 1864 of the Social 
Security Act, or by an entity approved by the State and CMS, or by CMS 
in the case of surveys conducted only by federal surveyors, which has 
no conflict of interest, such as:
    (i) A component of an umbrella State agency provided that the 
component is organizationally separate from the State survey agency.
    (ii) An independent entity with healthcare experience selected by 
the State and approved by CMS.
    (iii) A distinct part of the State survey agency, so long as the 
individuals conducting the independent informal dispute resolution have 
no conflict of interest and have not directly participated in the 
survey that is the subject of the dispute resolution process.
    (b) Collection and placement in escrow account.
    (1) For both per day and per instance civil money penalties, CMS 
may collect and place the imposed civil money penalties in an escrow 
account on whichever of the following occurs first:
    (i) The date on which the independent informal dispute resolution 
process is completed under paragraph (a) of this section.
    (ii) The date that is 90 days after the date of the notice of 
imposition of the penalty.
    (2) For collection and placement in escrow accounts of per day 
civil money penalties, CMS may collect the portion of the per day civil 
money penalty that has accrued up to the time of collection as 
specified in paragraph (b)(1) of this section. CMS may make additional 
collections periodically until the full amount is collected, except 
that the full balance must be collected once the facility achieves 
substantial compliance or is terminated from the program and CMS 
determines the final amount of the civil money penalty imposed.
    (c) Maintenance of escrowed funds. CMS will maintain collected 
civil money penalties in an escrow account pending the resolution of an 
administrative appeal. CMS will retain escrow funds on an on-going 
basis and, once a final administrative decision is made, will either 
return applicable funds in accordance with Sec.  488.431(e) or, in the 
case of unsuccessful administrative appeals, will periodically disburse 
the funds to States or other entities in accordance with Sec.  488.433.
    (d) When a facility requests a hearing.
    (1) A facility must request a hearing on the determination of the 
noncompliance that is the basis for imposition of the civil money 
penalty within the time specified in Sec.  498.40 of this chapter.
    (2) If the administrative law judge reverses the civil money 
penalty determination in whole or in part, the escrowed amounts 
continue to be held pending expiration of the time for CMS to appeal 
the decision or, where CMS does appeal, a Departmental Appeals Board 
decision affirming the reversal of the civil money penalty. Any 
collected civil money penalty amount owed to the facility based on a 
final administrative decision will be returned to the facility with 
applicable interest.
    6. Amend Sec.  488.432 by revising the section heading and revising 
paragraphs (a), (b)(1) introductory text, (b)(2),(c)(1) introductory 
text, and (c)(2); and removing paragraph (e) to read as follows:

[[Page 39650]]

Sec.  488.432  Civil money penalties imposed: NF-only when State 
imposes civil money penalty.

    (a) When a facility requests a hearing. (1) When the state imposes 
a civil money penalty against a non-state operated NF that is not 
subject to imposition of remedies by CMS, the NF must request a hearing 
on the determination of noncompliance that is the basis for imposition 
of the civil money penalty within the time specified in Sec.  431.153 
of this chapter.
    (2)(i) If a facility requests a hearing within the time frame 
specified in paragraph (a)(1) of this section, for a civil money 
penalty imposed per day, the State initiates collection of the penalty 
when there is a final administrative decision that upholds the State's 
determination of noncompliance after the facility achieves substantial 
compliance or is terminated.
    (ii) If a facility requests a hearing for a civil money penalty 
imposed per instance of noncompliance within the time specified in 
paragraph (a)(1) of this section, the State initiates collection of the 
penalty when there is a final administrative decision that upholds the 
State's determination of noncompliance.
    (b) When a facility does not request a hearing for a civil money 
penalty imposed per day. (1) If a facility does not request a hearing 
in accordance with paragraph (a) of this section, the State initiates 
collection of the penalty when the facility--
* * * * *
    (2) When a facility does not request a hearing for a civil money 
penalty imposed per instance of noncompliance. If a facility does not 
request a hearing in accordance with paragraph (a) of this section, the 
State initiates collection of the penalty when the time frame for 
requesting a hearing expires.
    (c) When a facility waives a hearing. (1) If a facility waives, in 
writing, its right to a hearing as specified in Sec.  488.436, for a 
civil money penalty imposed per day, the State initiates collection of 
the penalty when the facility--
* * * * *
    (2) If a facility waives, in writing, its right to a hearing as 
specified in Sec.  488.436, for a civil money penalty imposed per 
instance of noncompliance, the State initiates collection of the 
penalty upon receipt of the facility's notification.
* * * * *
    7. Add a new Sec.  488.433 to read as follows:


Sec.  488.433  Civil money penalties: Uses and approval of civil money 
penalties imposed by CMS.

    Fifty percent of the collected civil money penalty applicable to 
Title XVIII will be deposited with the Department of Treasury in 
accordance with Sec.  488.442(f). The remaining collected civil money 
penalty funds may not be used for survey and certification operations 
but must be used entirely for activities that protect or improve the 
quality of care for residents. These activities must be approved by CMS 
and include, but are not limited to:
    (a) Support and protection of residents of a facility that closes 
(voluntarily or involuntarily).
    (b) Time-limited expenses incurred in the relocation of residents 
to home and community-based settings or another facility when a 
facility is closed (voluntarily or involuntarily) or downsized pursuant 
to an agreement with the state Medicaid agency.
    (c) Projects that support resident and family councils and other 
consumer involvement in assuring quality care in facilities.
    (d) Facility improvement initiatives approved by CMS, such as joint 
training of facility staff and surveyors or technical assistance for 
facilities implementing quality assurance and performance improvement 
program.
    (e) Development and maintenance of temporary management or 
receivership capability such as but not limited to, recruitment, 
training, retention or other system infrastructure expenses. However, 
as specified in Sec.  488.415(c), a temporary manager's salary must be 
paid by the facility.
    8. Section 488.436 is amended by revising paragraph (b)(1) to read 
as follows:


Sec.  488.436  Civil money penalties: Waiver of hearing, reduction of 
penalty amount.

* * * * *
    (b) * * *
    (1) If the facility waives its right to a hearing in accordance 
with the procedures specified in paragraph (a) of this section, CMS or 
the State reduces the civil money penalty by 35 percent, as long as the 
civil money penalty has not also been reduced by 50 percent under Sec.  
488.438.
* * * * *
    9. Section 488.438 is amended by revising paragraphs (c) and (d)(1) 
to read as follows:


Sec.  488.438  Civil money penalties: Amount of penalty.

* * * * *
    (c) Decreased penalty amounts.
    (1) Except as specified in paragraph (d)(2) of this section, if 
immediate jeopardy is removed, but the noncompliance continues, the 
State or CMS will shift the penalty amount imposed per day to the lower 
range.
    (2) When CMS determines that a SNF, SNF/NF, or NF-only facility 
subject to a civil money penalty imposed by CMS self-reports and 
promptly corrects the noncompliance for which the civil money penalty 
was imposed, CMS will reduce the amount of the penalty imposed by 50 
percent, provided that all of the following apply--
    (i) The facility self-reported the noncompliance to the State or 
CMS before it was identified by the State or CMS and before it was 
reported to the State or CMS by means of a complaint lodged by a person 
other than an official representative of the nursing home;
    (ii) Correction of the self-reported noncompliance occurred within 
10 calendar days of the date that the facility identified the 
noncompliance;
    (iii) The facility waives its right to a hearing under Sec.  
488.436;
    (iv) The noncompliance that was self-reported and corrected did not 
constitute a pattern of harm, widespread harm, immediate jeopardy, or 
result in the death of a resident; and,
    (v) The civil money penalty was not imposed for a repeated 
deficiency that received a civil money penalty reduction under this 
section within the previous year. ``Repeat deficiency'' is defined in 
Sec.  488.438(d)(3).
    (3) Under no circumstances will a facility receive both the 50 
percent civil money penalty reduction for self-reporting and correcting 
under this section and the 35 percent civil money penalty reduction for 
waiving its right to a hearing under Sec.  488.436.
    (d) Increased penalty amounts. (1) Before a hearing requested in 
accordance with Sec.  488.431(d) or Sec.  488.432(a), CMS or the State 
may propose to increase the per day penalty amount for facility 
noncompliance which, after imposition of a lower level penalty amount, 
becomes sufficiently serious to pose immediate jeopardy.
* * * * *
    10. Section 488.440 is amended by revising paragraphs (b) and (c) 
to read as follows:


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

* * * * *
    (b) The per day civil money penalty is computed and collectible, as 
specified in Sec.  488.431 and Sec.  488.432, for the number of days of 
noncompliance until the date the facility achieves substantial 
compliance, or, if applicable, the date of termination.

[[Page 39651]]

    (c)(1) For NFs-only subject to civil money penalties imposed by the 
State, the entire penalty, whether imposed on a per day or per instance 
basis, is due and collectible as specified in the notice sent to the 
provider under paragraphs (d) and (e) of this section.
    (2) For SNFs, SNF/NFs, or NFs subject to civil money penalties 
imposed by CMS, collection would be in accordance with Sec.  
488.431(b).
* * * * *
    11. Section 488.442 is amended to remove and reserve paragraph (b) 
and revise paragraphs (a), (e)(1), and (f) to read as follows:


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

    (a) When payments are due for a civil money penalty imposed. (1) A 
civil money penalty payment is due in accordance with Sec.  488.431 of 
this chapter for CMS-imposed penalties and is due 15 days after the 
State initiates collection pursuant to Sec.  488.432 of this chapter 
for State-imposed penalties, except as provided in paragraphs (a)(2) 
and (3) of this section.
    (2) After a request to waive a hearing. A civil money penalty is 
due 15 days after receipt of the written request to waive a hearing in 
accordance with Sec.  488.436.
    (3) After the effective date of termination. A civil money penalty 
payment is due 15 days after the effective date of termination, if that 
is earlier than the date contained in subsection (a)(1).
* * * * *
    (b) [Reserved]
* * * * *
    (e) * * *
    (1) Medicare-participating facilities are deposited and disbursed 
in accordance with Sec.  488.433; and
* * * * *
    (f) Collection from dually participating facilities. Civil money 
penalties collected from dually participating facilities are deposited 
and disbursed in accordance with Sec.  488.433 and returned to the 
State in proportion commensurate with the relative proportions of 
Medicare and Medicaid beds at the facility actually in use by residents 
covered by the respective programs on the date the civil money penalty 
begins to accrue.
* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

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

    Dated: May 27, 2010.
Marilyn Tavenner,
Acting Administrator and Chief Operating Officer, Centers for Medicare 
& Medicaid Services.
    Approved: June 29, 2010.
Kathleen Sebelius,
Secretary.
[FR Doc. 2010-16927 Filed 7-9-10; 8:45 am]
BILLING CODE 4120-01-P