Medicare Program; Uniform Electronic Cost Reporting for Skilled Nursing Facilities and Home Health Agencies

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 413

[BPD-788-P]

RIN 0938-AH12

Medicare Program; Uniform Electronic Cost Reporting for Skilled

Nursing Facilities and Home Health Agencies

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would add the requirement that, for cost

reporting periods beginning on or after October 1, 1995, all skilled

nursing facilities and home health agencies must submit cost reports

currently required under the Medicare regulations in a standardized

electronic format. This proposed rule would also allow a delay or

waiver of this requirement where implementation would result in

financial hardship for a provider. The proposed provisions would allow

for more accurate preparation and more efficient processing of cost

reports.

DATES: Comments will be considered if we receive them at the

appropriate address, as provided below, no later than 5 p.m. on

February 5, 1996.

ADDRESSES: Mail written comments (one original and three copies) to the

following address: Health Care Financing Administration, Department of

Health and Human Services, Attention: BPD-788-P, P.O. Box 7517,

Baltimore, MD 21207-0517.

If you prefer, you may deliver your written comments (one original

and three copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW,

Washington, DC 20201, or

Room C5-11-17, 7500 Security Boulevard, Baltimore, MD 21244-1850.

Because of staffing and resource limitations, we cannot accept

comments by facsimile (FAX) transmission. In commenting, please refer

to file code BPD-788-P. Comments received timely will be available for

public inspection as they are received, generally beginning

approximately 3 weeks after publication of a document, in Room 309-G of

the Department's offices at 200 Independence Avenue, SW, Washington,

DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m.

(phone: (202) 690-7890).

For comments that relate to information collection requirements,

mail a copy of comments to: Office of Information and Regulatory

Affairs, Office of Management and Budget, Room 10235, New Executive

Office Building, Washington, DC 20503, Attn: Allison Herron Eydt, HCFA

Desk Officer.

FOR FURTHER INFORMATION CONTACT: Tom Talbott, (410) 786-4592.

SUPPLEMENTARY INFORMATION:

I. Background

Generally, under the Medicare program, skilled nursing facilities

(SNFs) and home health agencies (HHAs) are paid for the reasonable

costs of the covered items and services they furnish to Medicare

beneficiaries. Sections 1815(a) and 1833(e) of the Social Security Act

(the Act) provide that no payments will be made to a provider unless it

has furnished the information, requested by the Secretary, needed to

determine the amount of payments due the provider. In general,

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

month period. Rules governing the submission of cost reports are set

forth at 42 CFR 413.20 and 42 CFR 413.24.

Under Sec. 413.20(a), all providers participating in the Medicare

program are required to maintain sufficient financial records and

statistical data for proper determination of costs payable under the

program. In addition, providers must use standardized definitions and

follow accounting, statistical, and reporting practices that are widely

accepted in the health care industry and related fields. Under

Secs. 413.20(b) and 413.24(f), providers are required to submit cost

reports annually, with the reporting period based on the provider's

accounting year. Additionally, under Sec. 412.52, all hospitals

participating in the prospective payment system must meet cost

reporting requirements set forth at Secs. 413.20 and 413.24.

Section 1886(f)(1)(B)(I) of the Act required the Secretary to place

into effect a standardized electronic cost reporting system for all

hospitals participating in the Medicare program. This provision was

effective for hospital cost reporting periods beginning on or after

October 1, 1989. On May 25, 1994, we published a final rule with

comment period implementing the electronic cost reporting requirement

for hospitals (59 FR 26960). On June 27, 1995, we published a final

rule that responded to comments on the May 25, 1994 final rule with

comment period (60 FR 33123).

II. Provisions of the Proposed Regulations

Currently, Sec. 413.24(f)(4) provides that for cost reporting

periods beginning on or after October 1, 1989, all hospitals must

submit cost reports in a standardized electronic format. While the

existing regulations do not require any other provider types to file

their cost reports electronically, more than 75 percent of SNFs and

HHAs currently submit a hard copy of an electronically prepared cost

report rather than a manually prepared cost report. HCFA's fiscal

intermediaries then review the information from these cost reports for

completeness and manually enter the data into their automated data

reporting systems. This process takes substantially longer than

processing cost reports submitted in a standardized electronic format

that allows data to be automatically entered into the intermediary's

system.

This proposed rule would revise existing Sec. 413.24(f)(4) to

require SNFs and HHAs to submit cost reports in a standardized

electronic format for cost reporting periods beginning on or after

October 1, 1995. We note that the electronic cost reports would not be

due until 5 months after the end of the provider's cost reporting

period. Thus, for a provider with a 12-month cost reporting period

beginning October 1,

[[Page 62238]]

1995, the first electronic cost report would be due February 28, 1997.

The use of electronically prepared cost reports would be beneficial

for SNFs and HHAs because the cost reporting software for these reports

would virtually eliminate computational errors and substantially reduce

preparation time. Preparation time would be decreased because providers

would no longer have to perform mathematical computations to complete

the cost report. Instead, the provider would only need to enter the

correct costs and statistics, and the software would determine the

appropriate amount of Medicare payment due the provider based on these

figures. We note that the costs and statistics that would be entered

into the electronic software are the same as those that are currently

required for Medicare cost reports. This proposed rule would not

require the reporting of any additional information.

The use of cost reporting software would also save time when the

provider discovers that it needs to change individual entries in the

cost report. Rather than recalculating the entire cost report, the

provider would merely enter the new figures, and the software would

generate a new cost report that would reflect all necessary

recalculations. The use of cost reporting software would also eliminate

the need for several administrative tasks associated with filing a cost

report. Specifically, the provider would no longer be required to

photocopy, collate, and mail a hard copy of the cost report, which is a

relatively large, cumbersome document. Instead, the completed cost

report would be electronically filed with the fiscal intermediary. That

is, the provider would submit a disk containing the required cost

report data to the fiscal intermediary.

In all, we estimate that the use of electronically prepared cost

reports would result in an average of 4 to 5 hours less preparation

time for an HHA and 8 to 10 hours less time for an SNF. We recognize

that, initially, the preparation time saved may not be as great as we

have estimated for providers that need time to become familiar with the

cost reporting software. However, we believe that once providers

overcome this small ``learning curve,'' the accuracy of cost reports

would increase and the preparation time would decrease in line with

this estimate. We welcome comments on our estimate of time savings as

well as on other advantages or disadvantages of electronic cost

reporting.

We propose that the provider's software must be able to produce a

standardized output file in American Standard Code for Information

Interchange (ASCII) format. All intermediaries have the ability to read

this standardized file and produce an accurate cost report. SNFs and

HHAs would be required to use HCFA-approved software to submit cost

reports to the intermediary. HCFA's approval process requires each

vendor to submit for review a hard copy cost report produced from their

software. The purpose of this review process is to establish that the

commercial vendor's software can produce a completed cost report in

accordance with the Medicare rules and instructions.

There are approximately 17 commercial software vendors servicing

HHAs and SNFs that have developed HCFA-approved software programs

capable of producing an electronic cost report. In addition, HCFA has

developed a software package that will enable SNFs and HHAs to file an

electronic data set to the fiscal intermediary in order to generate an

electronic cost report. Providers would be able to use either these

existing commercial software packages or HCFA's free software to comply

with the requirements in this proposed rule. To receive the free

software, providers may contact their intermediaries or send a written

request to the following address: Health Care Financing Administration,

Division of Cost Principles and Reporting, Room C5-02-23, Central

Building, 7500 Security Blvd., Baltimore, Maryland 21244-1850.

We also propose that if a SNF or HHA believes that implementation

of the electronic submission requirement would cause a financial

hardship, it may submit a written request for a waiver or a delay of

these requirements. This request, including supporting documentation,

would have to be submitted to a provider's intermediary at least 120

days before the end of the provider's cost reporting period. The

intermediary would review the request and forward it, with a

recommendation for approval or denial, to the HCFA central office

within 30 days of such request. HCFA central office would either

approve or deny the request by response to the intermediary within 60

days of receipt of the request. Each delay or waiver would be

considered on a case-by-case basis.

We considered proposing set criteria (possibly based on a

provider's bed size or capacity, for example) under which a SNF or HHA

could be exempted automatically from the electronic cost reporting

requirement. However, we have not done so because we do not believe

that a characteristic such as a provider's size is necessarily a

reliable indicator that electronic cost reporting would impose a

financial hardship, since even the smallest SNFs and HHAs are quite

likely to already be using computer equipment. We welcome comments on

the process for obtaining a waiver, whether set criteria for obtaining

a waiver would be beneficial, as well as on the number of providers

that may request a waiver.

We note that the electronic cost reporting provision would only

apply to those providers that are required to file a full Medicare cost

report. Those providers that are not required to file a full cost

report (for example, a SNF that furnishes fewer than 1500 Medicare

covered days in a cost reporting period) would not be subject to the

electronic cost reporting requirement, and therefore would not have to

request a waiver.

If a SNF or HHA (not granted a hardship exemption) does not submit

its cost report electronically, Medicare payments to that provider may

be suspended under the provisions of sections 1815(a) and 1833(e) of

the Act. These sections of the Act provide that no Medicare payments

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

requested by the Secretary, that is needed to determine the amount of

payments due the provider under the Medicare program. Section

405.371(d) provides for suspension of Medicare payments to a provider

by the intermediary if the provider fails to submit information

requested by the intermediary that is needed to determine the amount

due the provider under the Medicare program.

The general procedures that are followed when Medicare payment to a

provider is suspended for failure to submit information needed by the

intermediary to determine Medicare payment are located in section 2231

of the Medicare Intermediary Manual (HCFA Pub. 13). Those procedures

include timeframes for ``demand letters'' to providers. Demand letters

remind providers to file timely and complete cost reports and explain

possible adjustments of Medicare payments to a provider and the right

to request a 30-day extension of the due date.

Under this proposed rule, we essentially would apply the current

hospital reporting requirements to SNFs and HHAs. In our final rule

with comment period published May 25, 1994, we required that, in

accordance with section 1886(f)(1)(B)(I) of the Act, all hospitals must

submit cost reports in a uniform electronic format for cost reporting

periods beginning on or after October 1, 1989 (59 FR 26960). All

[[Page 62239]]

hospital cost reports must be electronically transmitted to the

intermediary in ASCII format. In addition to the electronic file,

existing Sec. 413.24(f)(4)(iii) requires hospitals to submit a hard

copy of a settlement summary, a statement of certain worksheet totals

found in the electronic file, and a statement signed by the hospital's

administrator or chief financial officer certifying the accuracy of the

electronic file.

Further, to preserve the integrity of the electronic file, we

implemented provisions regarding the processing of the electronic cost

report once submitted to the intermediary. Specifically, existing

Sec. 413.24(f)(4)(ii) provides that the intermediary may not alter the

cost report once it has been filed by the provider. That is, the

intermediary must maintain an unaltered copy of the provider's

electronic cost report. This provision is not intended to prohibit the

intermediary from making audit adjustments to the provider's cost

report. Additionally, this section provides that the intermediary must

reject a cost report that does not pass all specified edits. Finally,

the provider's electronic program must be able to disclose that changes

have been made to the provider's filed cost report. Again, we would

apply these same provisions to SNFs and HHAs.

As stated above, the electronic cost reporting requirement for

hospitals has been a statutory requirement for over 5 years. Our

experience with the process of hospitals submitting cost reports to the

intermediary in ASCII format has been uniformly positive. These cost

reports are processed more expeditiously and efficiently than manually

prepared cost reports or hard copies of electronically prepared cost

reports. In fact, based on comments from hospitals, we amended

Sec. 413.24(f)(4) in our June 27, 1995 final rule to eliminate the

requirement that hospitals submit a hard copy of the cost report in

addition to the electronic file (60 FR 33123). In conclusion, based on

our experience with the submission of electronic cost reports by

hospitals, we believe that electronic filing would reduce the

administrative burden on most SNFs and HHAs, with a waiver available in

financial hardship cases. Therefore, we propose to amend Sec. 413.24

accordingly:

Add a new paragraph (f)(4)(i) to define the word

``provider'' as a hospital, SNF, or HHA;

Redesignate existing paragraphs (f)(4)(i) through

(f)(4)(iv) as (f)(4)(ii) through (f)(4)(v);

Revise redesignated paragraph (f)(4)(ii) to state that

SNFs and HHAs must submit cost reports in a standardized electronic

format for cost reporting periods beginning on or after October 1,

1995; and

In redesignated paragraphs (f)(4)(iii) through (f)(4)(v),

replace the word ``hospital'' wherever it appears with the word

``provider.''

III. Impact Statement

We generally prepare a regulatory flexibility analysis that is

consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601

through 612) unless we certify that a proposed rule such as this would

not have a significant economic impact on a substantial number of small

entities. For purposes of the RFA, all providers and small businesses

that distribute cost-report software to providers are considered small

entities. HCFA's intermediaries are not considered small entities for

purposes of the RFA.

In addition, section 1102(b) of the Social Security Act requires us

to prepare a regulatory impact analysis for any proposed rule that may

have a significant impact on the operation 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 is located outside

of a Metropolitan Statistical Area and has fewer than 50 beds. We are

not preparing a rural impact statement since we have determined, and

certify, that this proposed rule would not have a significant impact on

the operations of a substantial number of small rural hospitals.

As stated above, under Secs. 413.20(b) and 413.24(f), providers are

required to submit cost reports annually, with reporting periods based

on the provider's accounting year. This proposed rule would require

SNFs and HHAs, like hospitals, to submit their Medicare cost reports in

a standardized electronic format. We anticipate that this requirement

would take effect for cost reporting periods beginning on or after

October 1, 1995, meaning that the first electronic cost reports would

be due February 28, 1997.

Currently, approximately 75 percent of all SNFs and HHAs submit a

hard copy of an electronically prepared cost report to the

intermediary. We believe that the provisions of this proposed rule

would have little or no effect on these providers, except to reduce the

time involved in copying and collating a hard copy of the report for

intermediaries. In addition to the 75 percent of providers that

currently use electronic cost reporting, this rule would not affect

those providers that do not file a full cost report and, as stated

above, would not be required to submit cost reports electronically.

This proposed rule may have an impact on those providers who do not

prepare electronic cost reports, some of whom may have to purchase

computer equipment, obtain the necessary software, and train staff to

use the software. However, as discussed below, we believe that the

potential impact of this proposed rule on those providers who do not

prepare electronic cost reports would be insignificant.

First, a small number of providers that do not submit electronic

cost reports may have to purchase computer equipment to comply with the

provisions of this proposed rule. However, even among the 25 percent of

SNFs and HHAs that do not submit electronically prepared cost reports,

we believe that most providers already have access to computer

equipment, which they are now using for internal recordkeeping

purposes, as well as for submitting electronically generated bills to

their fiscal intermediaries, for example. Thus, we do not believe that

obtaining computer equipment would be a major obstacle to electronic

cost reporting for most providers. For those providers that would have

to purchase computer equipment, we note that, in accordance with

current regulations governing payment of provider costs, Medicare would

pay for the cost of the equipment as an overhead cost.

We recognize that a potential cost for providers that do not submit

electronic cost reports would be that of training staff to use the

software. Since most SNFs and HHAs currently use computers, we do not

believe that training staff to use the new software would impose a

large burden on providers. An additional cost would be the cost of the

software offered by commercial vendors. However, providers could

eliminate this cost by obtaining the free software from HCFA.

The requirement that hospitals submit cost reports in a

standardized electronic format has been in place since October, 1989.

Since that time, the accuracy of cost reports has increased and we have

received very few requests for waivers. Additionally, we have not

received any comments from the hospital industry indicating that the

use of electronic cost reporting is overly burdensome. We believe that

electronic cost reporting would be equally effective for SNFs and HHAs,

with the benefits (such as increased accuracy and decreased

[[Page 62240]]

preparation time) outweighing the costs of implementation for most

providers.

In conclusion, we have determined that this proposed rule would not

have a significant effect on SNF and HHA costs because these providers

would not be required to collect any additional data beyond that which

the regulations currently specify; cost reporting software is available

at no cost from HCFA to any provider that requests it; most SNFs and

HHAs have some type of computer equipment through which they currently

prepare electronic cost reports; and a waiver of the electronic cost

reporting requirement would be available to providers for whom the

requirement would impose a financial hardship. SNFs and HHAs would only

be affected to the extent that, absent a waiver, all would be required

to submit cost reports in a standardized electronic format to their

intermediary. A provider that does not comply with the provisions of

this rule, as specified in the preamble, would be subject to sections

1815(a) and 1833(e) of the Act, which provide that no payments will be

made to a provider unless it has furnished the information requested by

the Secretary that is needed to determine the amount of payments due

the provider under Medicare.

We welcome comments on the effect of the electronic cost reporting

requirement, its benefits or disadvantages, the proposed implementation

date, and issues related to the waiver process.

In accordance with the provisions of Executive Order 12866, this

regulation was reviewed by the Office of Management and Budget (OMB).

IV. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, agencies are required to

provide 60-day notice in the Federal Register and solicit public

comment before a collection of information requirement is submitted to

the Office of Management and Budget (OMB) for review and approval. In

order to fairly evaluate whether an information collection should be

approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act

of 1995 requires that we solicit comment on the following issues:

Whether the information collection is necessary and useful

to carry out the proper functions of the agency;

The accuracy of the agency's estimate of the information

collection burden;

The quality, utility, and clarity of the information to be

collected; and

Recommendations to minimize the information collection

burden on the affected public, including automated collection

techniques.

Therefore, we are soliciting public comment on each of these issues

for the information collection requirements discussed below.

As discussed in detail above, this proposed rule would require that

SNFs and HHAs submit cost reports in a standardized electronic format

for cost reporting periods beginning on or after October 1, 1995. That

is, providers would be required to file a diskette containing the

required cost report data in a standardized electronic format. We

believe that this requirement would reduce the paperwork and

information collection burden for those SNFs and HHAs that currently do

not submit electronically prepared cost reports. Specifically, we

estimate that the number of hours each provider would save by

submitting an electronically prepared cost report instead of manually

preparing, and photocopying, the cost report would be an average of 9

hours for each affected SNF and 4.5 hours for each affected HHA.

Assuming that approximately 25 percent of all SNFs and HHAs would be

affected, that is roughly 3,000 SNFs and 2,000 HHAs, we estimate that

SNFs would save approximately 27,000 hours per year completing cost

reports, and HHAs would save about 9,000 hours per year.

We note that the overall information collection and recordkeeping

burden associated with filing SNF costs reports has been approved by

OMB through January 1998 (OMB approval number 0938-0463). Additionally,

OMB has approved the information collection burden for HHA cost reports

through October 1997 (approval number 0938-0022). We would not require

SNFs and HHAs to report any information on the electronic cost report

that is not already required in the Medicare cost reports currently

submitted by these providers.

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 that wish to submit comments on

the information and recordkeeping requirements set forth in Sec. 413.24

should direct them to the OMB official whose name appears in the

ADDRESSES section of this preamble.

V. Response to Comments

Because of the large number of items of correspondence we normally

receive on Federal Register documents published for comment, 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, if we proceed with a subsequent

document, we will respond to the comments in the preamble to that

document.

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 set forth below:

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, 1861(v)(1)(A), and 1871 of the Social

Security Act (42 U.S.C. 1302, 1395x(v)(1)(A), and 1395hh).

2. Section 413.24 is amended by redesignating existing paragraphs

(f)(4)(i) through (f)(4)(iv) as paragraphs (f)(4)(ii) through

(f)(4)(v); adding a new paragraph (f)(4)(i); and revising redesignated

paragraphs (f)(4)(ii) through (f)(4)(v) to read as follows:

Sec. 413.24 Adequate cost data and cost finding.

* * * * *

(f) Cost reports. * * *

(4) Electronic submission of cost reports. (i) As used in this

paragraph, provider means a hospital, skilled nursing facility, or home

health agency.

(ii) Effective for cost reporting periods beginning on or after

October 1, 1989, for hospitals and cost reporting periods beginning on

or after October 1, 1995, for skilled nursing facilities and home

health agencies, a provider is required to submit cost reports in a

standardized electronic format. The provider's electronic program must

be capable of producing the HCFA standardized output file in a form

that can be read by the fiscal intermediary's automated system. This

electronic file, which must contain the input data required to complete

the cost report and the data required to pass specified edits, is

forwarded to the fiscal intermediary for processing through its system.

(iii) The fiscal intermediary stores the provider'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 provider's electronic program must

[[Page 62241]]

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

provider 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.

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

September 30, 1994, for hospitals and cost reporting periods beginning

on or after October 1, 1995, for skilled nursing facilities and home

health agencies, a provider 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. The following statement must immediately

precede the dated signature of the provider's administrator or chief

financial officer:

I hereby certify that I have read the above certification

statement and that I have examined the accompanying electronically

filed or manually submitted cost report and the Balance Sheet

Statement of Revenue and Expenses prepared by ____________________

(Provider Name(s) and Number(s)) for the cost reporting period

beginning ________________ and ending ________________ and that to

the best of my knowledge and belief, this report and statement are

true, correct, complete and prepared from the books and records of

the provider in accordance with applicable instructions, except as

noted. I further certify that I am familiar with the laws and

regulations regarding the provision of health care services, and

that the services identified in this cost report were provided in

compliance with such laws and regulations.

(v) A provider may request a delay or waiver of the electronic

submission requirement in paragraph (f)(4)(ii) of this section if this

requirement would cause a financial hardship. The provider must submit

a written request for delay or waiver with necessary supporting

documentation to its intermediary at least 120 days prior to the end of

its cost reporting period. The intermediary reviews the request and

forwards it with a recommendation for approval or denial, to HCFA

central office within 30 days of receipt of the request. HCFA central

office either approves or denies the request and notifies the

intermediary within 60 days of receipt of the request.

* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.773,

Medicare--Hospital Insurance; and Program No. 93.774, Medicare--

Supplementary Medical Insurance Program)

Dated: June 21, 1995.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

[FR Doc. 95-29542 Filed 12-4-95; 8:45 am]

BILLING CODE 4120-01-P