Medicare Program; Uniform Electronic Cost Reporting System for Hospitals

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 413

[BPD-689-F]

RIN 0938-AE80

Medicare Program; Uniform Electronic Cost Reporting System for

Hospitals

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

ACTION: Final rule.

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SUMMARY: This final rule responds to comments on the May 25, 1994,

final rule with comment period that implemented a standardized

electronic cost reporting system for all hospitals under the Medicare

program. In that rule, we solicited comments on the requirement that

cost reporting software be able to detect changes made to the

electronic file after the provider has submitted it to the fiscal

intermediary. This final rule responds to comments on that requirement

and clarifies that although changes to the ``as-filed'' electronic cost

report are prohibited, an intermediary makes a working copy of the as-

filed electronic cost report for use in the settlement process.

EFFECTIVE DATE: These regulations are effective on July 27, 1995.

FOR FURTHER INFORMATION CONTACT: Thomas Talbott (410) 966-4592.

SUPPLEMENTARY INFORMATION:

I. Background

A. General

Under Medicare, hospitals are paid for inpatient hospital services

that they furnish to beneficiaries under Part A (Hospital Insurance).

Currently, most hospitals are paid for their inpatient hospital

services under the prospective payment systems for operating and

capital costs in accordance with sections 1886(d) and (g) of the Social

Security Act (the Act) and 42 CFR Part 412. Under these systems,

Medicare payment is made at a predetermined, specific rate for each

hospital discharge based on the information contained on actual bills

submitted.

Section 1886(f)(1)(A) of the Act provides that the Secretary will

maintain a system for reporting costs of hospitals paid under the

prospective payment systems. Section 412.52 requires all hospitals

participating in the prospective payment systems to meet the

recordkeeping and cost reporting requirements of Secs. 413.20 and

413.24, which include submitting a cost report for each 12-month

period.

The hospitals and hospital units that are excluded from the

prospective payment systems are generally paid an amount based on the

reasonable cost of services furnished to beneficiaries. The inpatient

operating costs of these hospitals and hospital units are subject to

the ceiling on the rate of hospital cost increases in accordance with

section 1886(b) of the Act and Sec. 413.40.

Sections 1815(a) and 1833(e) of the Act provide that no payments

will be made to a hospital unless it has furnished the information,

requested by the Secretary, needed to determine the amount of payments

due the hospital under the Medicare program. In general, hospitals

submit this information through cost reports that cover a 12-month

period.

All hospitals participating in the Medicare program, whether they

are paid on a reasonable cost basis or under the prospective payment

systems, are required under Sec. 413.20(a) to ``maintain sufficient

financial records and statistical data for proper determination of

costs payable under the program.'' In addition, hospitals must use

standardized definitions and follow accepted accounting, statistical,

and reporting practices. Under the provisions of Secs. 413.20(b) and

413.24(f), hospitals are required to submit cost reports annually, with

the reporting period based on the hospital's accounting year.

Section 1886(f)(1)(B)(i) of the Act provides that the Secretary

will place into effect a standardized electronic cost reporting format

for hospitals under Medicare. This standardized electronic cost

reporting format does not require any additional data from hospitals.

Section 1886(f)(1)(B)(ii) of the Act provides that the Secretary may

delay or waive the implementation of the electronic format in instances

where such implementation would result in financial hardship for a

hospital (for example, a hospital with a small percentage of inpatients

entitled to Medicare benefits). These provisions apply to hospital cost

reporting periods beginning on or after October 1, 1989.

B. Provisions of the August 19, 1991 Proposed Rule

On August 19, 1991, we published a proposed rule (56 FR 41110) to

implement sections 1886(f)(1)(B)(i) and (ii) of the Act. We proposed

that cost reports be submitted in a standardized electronic format. We

proposed that the hospital's cost report software must be able to

produce a standardized output file in American Standard Code for

Information Interchange (ASCII) format. We proposed that all

intermediaries have the ability to read this standardized file and

produce an accurate cost report. We proposed rules for suspension of

Medicare payment if a hospital refuses to submit the cost report

electronically. We also specified that if a hospital believes that

implementation of the electronic submission requirement would cause a

financial hardship, the hospital should submit a written request for a

waiver or a delay of these requirements, with supporting documentation,

to the hospital's intermediary. See section III of the proposed rule

(56 FR 41111 through 41112).

C. Provisions of the May 25, 1994 Final Rule With Comment Period

On May 25, 1994, we published a final rule with comment period to

confirm the proposed regulations and respond to public comments on the

proposed rule (59 FR 26960). As a result of public comments on the

proposed rule, we eliminated the requirement that providers file a hard

copy cost report in addition to the electronic file. Instead, we

required that, in addition to the electronic file, a hospital must

submit hard copies of a settlement summary, a statement of certain

worksheet totals found in the electronic file, and a signed statement

certifying the accuracy of the [[Page 33124]] electronic file or the

manually prepared cost report.

The purpose of these changes was to reduce the burden on providers

and ensure the accuracy of the data contained in the electronic file.

However, we also needed to ensure the electronic cost report is not

altered once it leaves the provider. Thus, in conjunction with the

changes made based on public comments, we implemented several changes

designed to preserve the integrity of the electronic cost report once

the provider files it with the intermediary. We required in

Sec. 413.24(f)(4)(ii) that the provider's software must be capable of

disclosing that changes have been made to the cost report file after

the provider has submitted it to the intermediary. We stated that

electronic cost reporting software will be modified so that the cost

report will calculate a ``hash total,'' that is, a number representing

the sum of the worksheet totals contained in the provider's as-filed

cost report. If any data in the electronic file are changed after the

hash total is calculated, the electronic file will disclose that a

change has been made. We also required that an intermediary may not

alter a cost report once it has been filed by a hospital and must

reject any cost report that does not pass all specified edits and

return it to the provider for correction.

Because providers may not have anticipated the changes needed to

preserve the integrity of the cost report, we solicited comments on the

requirement in Sec. 413.24(f)(4)(ii) that all cost reporting software

must be able to disclose changes made to the electronic file after the

provider has submitted its cost report to the intermediary.

II. Discussion of Public Comments

In response to the May 25, 1994 final rule with comment period, we

received three timely items of correspondence related to the

requirement that cost reporting software be able to detect changes to

the electronic cost report after the provider has submitted it to the

intermediary.

Comment: One commenter pointed out that a strict interpretation of

the requirement in Sec. 413.24(f)(4)(ii) that the ``intermediary may

not alter the cost report once it has been filed by the hospital''

would mean that the intermediary could not make audit adjustments to

the provider's as-filed electronic cost report. Another commenter asked

whether the intermediary can adjust the cost report for additional

information not required for acceptability but needed in such cases as

Hospital Cost Report Information System (HCRIS) preparation.

Response: We did not intend to imply that the intermediary may not

make audit adjustments to a provider's cost report. To clarify this

point, we are revising Sec. 413.24(f)(4)(ii) to state that the as-filed

cost report may not be altered, but the intermediary must make a

working copy of the as-filed cost report to be used for the settlement

process.

Specifically, we are revising Sec. 413.24(f)(4)(ii) to require

that--

The fiscal intermediary store the hospital's as-filed

electronic cost report and not alter that file for any reason.

The fiscal intermediary make a working copy of the as-

filed electronic cost report to be used, as necessary, throughout the

settlement process (that is, desk review, processing audit adjustments,

final settlement, etc).

The fiscal intermediary may also employ a working copy of the as-

filed electronic cost report for making any adjustments needed for

HCRIS purposes.

Comment: Two commenters suggested that, to maintain the integrity

of the provider's electronic file, HCFA should require the

establishment of a print file submitted on diskette as a substitute for

the hard copy cost report. Another commenter supported the use of

``hash totals'' in the electronic cost report (ECR) if the vendors are

able to create ECR files that cannot be edited without detection. The

commenter suggested that the ``hash totals'' in the ECR be printed in

cost report text and on the hard copy certification page. The commenter

also indicated that time and date stamps on the ECR file and printed

cost report are not useful.

Response: As stated in the final rule with comment period,

hospitals are no longer required to submit hard copies of the cost

report in addition to the electronic file. We agree with the

commenters' suggestion that an electronic file containing the complete

printed text of the provider's cost report should be submitted in place

of the hard copy. Since the ASCII file contains input data only, the

print file will be helpful in settling discrepancies between the fiscal

intermediary's settlement amounts and the provider's settlement

amounts. Therefore, we intend to publish in the Provider Reimbursement

Manual (HCFA Pub. 15-II) the requirement that providers submit an

electronic file containing the entire printed text and an encryption

file (hash totals) of the provider's cost report in addition to the

ASCII file used for electronic cost reporting.

We disagree that the time and date stamps on the electronic cost

report are not useful. The time and date stamps on the electronic cost

report file must agree with the certification page that accompanies the

electronic cost report file. This requirement assures us that the cost

report has been reviewed and accepted and has not been altered after

certification by the signing officer. This requirement coupled with the

encryption file will ensure that the integrity of the file has been

maintained.

Comment: One commenter suggested that the regulation mention what

the responsibility of each of the 11 vendors will be to maintain

consistency between software programs, particularly in the

implementation of edits. The commenter indicated that if the ADR vendor

establishes additional edits not specified by HCFA, the electronic cost

report file created by the provider's software vendor system may result

in rejection by the intermediary. This possibility places an undue

burden on the provider who filed under the assumption that all errors

were detected and corrected before submission.

Response: All vendors will be responsible for providing their

clients with the software to create a print file, an encryption file,

and the electronic cost report file. In addition, the three Automated

Desk Review (ADR) vendors are responsible for developing a software

program that will accept the filing of all three files, as mentioned

above, with the intermediary. All of the software programs will

maintain consistent edits that, when specified edits are failed, will

result in the intermediary rejecting the cost report. These edits are

established by HCFA and published in section 130 of the Provider

Reimbursement Manual (HCFA Pub. 15-II). An ADR vendor may establish

additional edits, but failure to meet such edits may not result in

rejection of the cost report by the intermediary.

III. Technical Changes

We received several inquiries implying that it is unclear in the

regulations when an electronic cost report is considered timely filed.

Therefore, in Sec. 413.24(f)(4)(ii), we are clarifying that, for

purposes of the due date requirements specified in Sec. 413.24(f)(2),

an electronic cost report is not considered to be filed until it is

accepted by the intermediary.

In the May 25, 1994 final rule with comment period, we eliminated

the requirement that providers file a hard copy of the cost report. We

stated that effective for cost reporting periods ending on or after

October 1, 1994, this requirement is replaced with the submittal of a

hard copy of a settlement [[Page 33125]] summary, a statement of

certain worksheet totals found within the electronic file, and a

certification statement. After publication, we realized that making

this requirement effective for cost reporting periods ending on or

after October 1, 1994, did not make sense since cost reporting periods

generally end on the last day of a month. To eliminate any confusion

associated with this requirement, we are making a technical correction

to Sec. 413.24(f)(4)(iii) to specify that the replacement of the

submission of a hard copy of the cost report with the revised

documentation is effective for cost reporting periods ending on or

after September 30, 1994, rather than for periods ending on or after

October 1, 1994.

IV. Collection of Information Requirements

As discussed in our May 25, 1994 final rule with comment period (59

FR 26963), Sec. 413.24 contains information collection and

recordkeeping requirements related to cost reporting that are subject

to review by the Office of Management and Budget (OMB) under the

Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). The overall

recordkeeping and information collection burden associated with filing

the hospital cost report has been approved by OMB through August 31,

1996 under OMB No. 0938-0050.

In the May 25, 1994 final rule with comment period, we revised

Sec. 413.24 to implement the statutory requirement that hospitals

submit their cost reports in a uniform electronic format. As we stated

in the May 25, 1994 document, approximately 90 percent of hospitals

participating in Medicare already file their cost reports

electronically and thus are essentially unaffected by the requirement

that hospitals submit cost reports in an electronic format. For the

remaining hospitals, we stated that it was possible they would

initially experience a small additional reporting burden. However, once

these hospitals become familiar with electronic reporting, there will

no longer be an additional burden and there may be a decrease in burden

since the time needed to compute the cost report will no longer be

required.

This final rule responds to comments on the May 25, 1994 document

and makes only minor technical changes to Sec. 413.24. We received no

comments relating to the discussion in the May 25, 1994 document of the

information collection and recordkeeping burden. The technical changes

contained in this final rule have no effect for information collection

and recordkeeping purposes. However, as stated in the May 25, 1994

final rule with comment period, the information collection and

recordkeeping requirements contained in Sec. 413.24 are not effective

until they have been approved by OMB. A notice will be published in the

Federal Register when approval is obtained. Organizations and

individuals desiring to submit comments on the information collection

and recordkeeping requirements set forth in Sec. 413.24 should direct

them to the Office of Information and Regulatory Affairs, Office of

Management and Budget, Human Resources and Housing Branch, Room 10235,

New Executive Office Building, Washington, D.C. 20503, Attention:

Allison Herron Eydt, HCFA Desk Officer.

V. Impact Statement

Unless we certify that a final rule will not have a significant

economic impact on a substantial number of small entities, we generally

prepare a regulatory flexibility analysis that is consistent with the

Regulatory Flexibility Act (RFA) (5 U.S.C. 601 through 612). For

purposes of the RFA, all hospitals and small businesses that distribute

cost-report software to hospitals are considered to be small entities.

Intermediaries are not included in the definition of a small entity.

Section 1102(b) of the Act requires us to prepare a regulatory

impact analysis if a final rule may have a significant impact on the

operations of a substantial number of small rural hospitals. Such an

analysis must conform to the provisions of section 604 of the RFA. For

purposes of section 1102(b) of the Act, we define a small rural

hospital as a hospital that has fewer than 50 beds and is located

outside of a Metropolitan Statistical Area.

This final rule is merely making clarifying and technical changes

to the regulations and will not have a significant effect on Medicare-

participating hospitals or software suppliers. Therefore, a regulatory

flexibility analysis is not required. We are not preparing a rural

impact statement since we certify that this final rule will not have a

significant economic impact on the operation of a substantial number of

small rural hospitals.

In accordance with the provisions of Executive Order 12866, this

regulation was not reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 413

Health facilities, Kidney diseases, Medicare, Puerto Rico,

Reporting and recordkeeping requirements.

42 CFR part 413 is amended as follows:

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR

END-STAGE RENAL DISEASE SERVICES

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

follows:

Authority: Secs. 1102, 1122, 1814(b), 1815, 1833(a), (i), and

(n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act

(42 U.S.C. 1302, 1302a-1, 1395f(b), 1395g, 13951(a), (i), and (n),

1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww).

Subpart B--Accounting Records and Reports

2. In Sec. 413.24, the headings for paragraphs (f) and (f)(4) are

republished, paragraph (f)(4)(ii) and the first sentence of paragraph

(f)(4)(iii) are revised to read as follows:

Sec. 413.24 Adequate cost data and cost finding.

* * * * *

(f) Cost reports. * * *

(4) Electronic submission of cost reports. * * *

(ii) The fiscal intermediary stores the hospital's as-filed

electronic cost report and may not alter that file for any reason. The

fiscal intermediary makes a ``working copy'' of the as-filed electronic

cost report to be used, as necessary, throughout the settlement process

(that is, desk review, processing audit adjustments, final settlement,

etc). The hospital's electronic program must be able to disclose if any

changes have been made to the as-filed electronic cost report after

acceptance by the intermediary. If the as-filed electronic cost report

does not pass all specified edits, the fiscal intermediary rejects the

cost report and returns it to the hospital for correction. For purposes

of the requirements in paragraph (f)(2) of this section concerning due

dates, an electronic cost report is not considered to be filed until it

is accepted by the intermediary.

(iii) Effective for cost reporting periods ending on or after

September 30, 1994, a hospital must submit a hard copy of a settlement

summary, a statement of certain worksheet totals found within the

electronic file, and a statement signed by its administrator or chief

financial officer certifying the accuracy of the electronic file or the

manually prepared cost report. * * *

* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.773,

Medicare--Hospital Insurance)

[[Page 33126]] Dated: May 22, 1995.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

[FR Doc. 95-14782 Filed 6-26-95; 8:45 am]

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