Medical Facility Construction and Modernization; Requirements for Provision of Services to Persons Unable to Pay

SUMMARY: This document revises the rules currently governing how

certain health care facilities, assisted under Titles VI and XVI of the

Public Health Service Act, fulfill the assurance, given in their

applications for assistance, that they would provide a reasonable

volume of services to persons unable to pay. Public comment on the

current rules and operational experience with them indicated the need

to revise the current requirements with respect to nursing homes, many

of which are unable under current requirements to meet their obligation

to provide such services. The rules below should permit qualified

facilities to satisfy their uncompensated services assurance.

DATES: These rules are effective on May 1, 1995.

Applicability For facilities certified under 42 CFR 124.516(b)(1),

these rules are applicable on the later of May 1, 1995 or the beginning

of the facility's next fiscal year. For all other facilities, these

rules are applicable on May 1, 1995.

FOR FURTHER INFORMATION CONTACT: Mr. Eulas Dortch, 301-443-5656.

SUPPLEMENTARY INFORMATION: On April 4, 1994, the Secretary of Health

and Human Services proposed amending the rules governing what is

popularly known as the Hill-Burton uncompensated services program. 59

FR 15693. As explained more fully below, the Notice of Proposed

Rulemaking (NPRM) proposed to expand the income eligibility limits

applicable to patients served by obligated nursing homes, to help such

facilities meet their existing uncompensated services obligations.

The Public Health Service strongly encourages all grant recipients

to provide a smoke-free workplace and promote the non-use of all

tobacco products. This is consistent with the PHS mission to protect

and advance the physical and mental health of the American people.

Regulatory Background

Health care facilities covered by the program received construction

assistance under two titles of the Public Health Service Act, Title VI

(the ``Hill-Burton Act'', 42 U.S.C. 291, et seq.) and Title XVI (42

U.S.C. 300q, et seq.). Under both titles, facilities receiving such

construction assistance have been required, as a condition of receiving

the construction assistance, to provide an assurance that ``there will

be available in the facility or portion thereof to be constructed or

modernized a reasonable volume of services to persons unable to pay

therefor * * *.'' 42 U.S.C. 291c(e). See also 42 U.S.C. 300s-

1(b)(1)(K)(ii). This assurance is known as the ``uncompensated services

assurance.''

Regulations governing compliance with the uncompensated services

assurance were first issued in 1947, and have been revised several

times. On May 18, 1979, comprehensive regulations governing compliance

with the assurance were issued at 44 FR 29372. Among other things, the

1979 regulations: established a minimum level of uncompensated services

facilities were required to provide; set an annual compliance level of

uncompensated services to be provided and required facilities to make

up any deficit in meeting the annual compliance level through provision

of more uncompensated services in later years; required facilities to

allocate their uncompensated services either under a plan meeting

certain requirements or on a first-request, first-served basis;

required facilities to notify the public of the existence of their

uncompensated services programs through public notice and provision of

personal notice to individuals served by the facilities; and required

facilities to keep records documenting compliance and to periodically

report concerning compliance. The 1979 regulations also for the first

time established national eligibility criteria, based on income:

Individuals whose annual income was at or below the poverty level

(known as ``Category A individuals'') were automatically eligible for

uncompensated services; individuals whose annual income was at or below

two times the poverty level (known as ``Category B individuals'') were

also eligible for uncompensated services, unless the facility decided

to limit its services to Category A individuals only. However, the 1979

regulations also provided that amounts to which an individual was

entitled under a third-party insurance or governmental program could

not be credited towards a facility's uncompensated services quota.

On December 3, 1987, the Secretary revised the 1979 regulations at

52 FR 46022. As pertinent here, the 1987 regulations effected a

technical revision of the 1979 regulations, making explicit what had

formerly been implicit in those regulations; i.e., that coverage of an

indigent under a third-party insurance or governmental program

precludes eligibility for uncompensated services. 42 CFR 124.505(a)(1)

(1988). This policy simply reflects the long-standing agency view of

the uncompensated services program as a program of last resort,

designed to serve persons who have no source of payment, such as

Medicaid or private insurance, for medical care.

This policy has created major compliance problems for many Hill-

Burton-obligated nursing homes. HHS determined that, of the 287 nursing

homes with outstanding uncompensated services obligations under the

general compliance standards of the regulations, 243 have deficits; the

majority of these have received no uncompensated services credit. These

deficits persist despite many attempts by HHS to provide technical

assistance to nursing homes to bring them into compliance. The

fundamental problem is that, in most of these nursing homes, the only

individuals who meet the income-eligibility requirements for receipt of

uncompensated services are also covered by their state's Medicaid

program; hence, they are by definition ineligible for uncompensated

services under Sec. 124.505(a)(1). Thus, in states in which the

Medicaid eligibility limits exceed the Hill-Burton eligibility limits

and which cover most or all medical services, nursing homes are

chronically unable to fulfill their uncompensated services obligations.

Proposed Rules

HHS established a task force to analyze nursing home compliance

issues and develop strategies for dealing with compliance problems.

Based on the task force findings and its own survey of regional offices

of the Health Care Financing Administration, which administers the

Medicaid program, HHS proposed to triple the income eligibility limit

for individuals in nursing homes, to create a broader pool of eligible

individuals for such facilities. The NPRM accordingly proposed to

establish a third income eligibility level (Category C) for nursing

home services only. See, proposed Sec. 124.505(a)(2)(iii). A Category C

individual would be an individual whose annual income is greater than

two times, but does not [[Page 16755]] exceed three times, the poverty

level. The regulations already define which facilities are ``nursing

homes'' within the scope of the regulation. See, Sec. 124.502(h). In

addition, the NPRM proposed certain technical and conforming amendments

to other sections of the regulations. The principal one was the

proposed change to Sec. 124.506(a)(1)(v), to provide that if a nursing

home provides services on a reduced charge basis to both Category B and

Category C individuals, it may not employ a discount method that gives

Category C individuals greater discounts than those given to Category B

individuals.

Public Comment and Department's Response

The Department received seven comments on the NPRM, two from

nursing home associations and five from representatives of individual

nursing homes. While most of the commentors applauded the proposed

revisions as a step in the right direction, they made a number of

suggestions for other policies that would, in their view, better

address the chronic deficit problem faced by so many nursing homes.

These comments and the Department's responses thereto are set out

below.

1. The most common criticism was that the proposed remedy fails to

address what the commentors in general see as the chief problem: The

inadequacy of Medicaid reimbursements. The commentors generally noted

that their facilities run large losses attributable to the differential

between Medicaid reimbursement and actual costs, and suggested that

facilities be permitted to write off this differential as uncompensated

services. An Ohio facility that advocated this approach noted that, in

Ohio, all persons with incomes up to the cost of nursing home services

qualify for Medicaid, so that there are no non-Medicaid eligible

patients who would qualify for uncompensated services. A variation of

this approach was the suggestion that a compliance alternative be

created for facilities with a Medicaid patient census of at least 70%.

The Department does not agree that it should treat as uncompensated

services amounts in excess of ``reasonable costs'' (the amount

reimbursed by Medicaid). To do so would result in facility credit for

unreasonable charges and a reduction in the amount of uncompensated

services to persons unable to pay. Rather, it wishes to look at the

effect of the rules below, together with the recently adopted

charitable facility alternative, on reducing the incidence of

intractable deficits. For the same reasons, it is not prepared to craft

a compliance alternative for majority-Medicaid facilities along the

lines suggested. These facilities, by virtue of their high volume

Medicaid levels, have an inherently smaller compliance level under the

3 percent compliance option. However, the Department intends to

continue to study this issue.

With respect to the Ohio situation, it is likely that such

facilities will qualify under the recently published charitable

facility alternative. See, 59 FR 44634 (Aug. 30, 1994). Such facilities

may be able to satisfy their obligations and make up their deficits

under that alternative, as long as they collect no monies (other than

those required to be collected under governmental programs) from Hill-

Burton eligible patients.

2. One provider association, while supportive of the proposed

rules, suggested that the Department adopt additional compliance

alternatives for facilities in states which have medically needy

programs and which, accordingly, are likely to be unable to benefit

from the proposed increase in the income eligibility level. The

association suggested that (1) services uncovered by Medicaid be

identified and considered eligible for inclusion as uncompensated

services, such as additional hours of nursing care, therapies, or other

activities; (2) health-related services provided to eligible non-

residents on the nursing facility premises be counted as uncompensated

services; and (3) services provided by nursing homes off-premises under

Medicaid home and community-based waivers be counted as uncompensated

services.

Generally, the Department agrees that health services provided by a

Hill-Burton facility that are not covered by Medicaid should count as

uncompensated services, and it has traditionally accepted them as such.

However, since Medicaid patients are not liable for additional hours of

care provided which exceed established Medicaid standards, such costs

are not considered to be uncompensated services. With respect to the

second proposal, there is no problem under the present regulations with

counting, toward a facility's uncompensated services quota, health

services provided on-premises to eligible nonresidents of the facility.

Thus, facilities may include such services in their allocation plans.

However, the association's third proposal is not one that the

Department can accept, since services which are reimbursed by Medicaid

are, by definition, ineligible for Hill-Burton credit.

3. A couple of facilities objected to the proposed rules on the

grounds that expanding the income eligibility limits would create a

larger pool of eligibles and thus be devastating to facilities that are

already in financial straits. One facility asked in particular that it

be allowed to write off necessary building maintenance and improvement

expenses as uncompensated services, as it is unable to afford to serve

more persons below cost than it already does.

These facilities appear to misapprehend the requirements of the

current uncompensated services regulations. Under the current

regulations, facilities that are financially unable to meet their

uncompensated services obligation may apply to have it deferred until

they are financially able to make it up. See 42 CFR 124.503(b)(1)(i)

and 124.511(c). However, except to the extent building maintenance and

improvement expenses are factored into a facility's indirect cost rate

that forms part of the basis for its charges for services, such

expenses are not creditable as ``uncompensated services,'' because they

are not ``services'' within the meaning of the statute.

4. A couple of commenters stated that the proposed increase in

income eligibility limits would be problemmatic for other reasons: (1)

Because such individuals would be covered under the proposed Health

Security Act; and (2) because the proposed limit exceeds the costs of

nursing home services in certain states. The Department, however, does

not share the commenters' concerns in this regard. Should health care

reform become law, this program (like others) will have to be reviewed

for consistency with the operation of the reform statute enacted, but

this is not an issue that can productively be addressed before

enactment of such a statute. With respect to the second comment, the

Department thinks that the income limit will not be a problem in such

states, as a facility cannot, in any event, receive credit for more

than it charges.

5. No comments were received concerning the conforming and

technical amendments proposed. However, the recent adoption of the

charitable facility compliance alternative has necessitated a

conforming amendment to that section (see Sec. 124.516 below).

Otherwise, however, no changes to the proposed technical and conforming

amendments have been made.

6. Dates. Note that, with respect to facilities certified under the

alternative in the newly adopted Sec. 124.516(b)(1), this amendment is

applicable on May 1, 1995 or the beginning of the facility's

[[Page 16756]] next fiscal year, whichever is later. Thus, it is the

Department's intention that the three-year base in Sec. 124.516 will

operate prospectively only with respect to the amendment to the

charging restriction of Sec. 124.516(b)(1). For example, a nursing home

applying for certification under Sec. 124.516(b)(1) in 1996 would only

have to demonstrate that it had not charged persons with incomes up to

three times the poverty level for that part of the three-year period in

which the amendment below applied to it, not for the entire three-year

period.

It should be noted that the changes adopted below will not have the

same automatic effect for other nursing homes. Rather, unless a nursing

home has failed to adopt an allocation plan, it will generally not be

required to provide uncompensated services to Category C individuals

unless it takes an affirmative action to do so, through publication of

a revised allocation plan covering Category C individuals. See,

Sec. 124.506(a)(1)(v) below. However, to facilitate prompt coverage of

such individuals, a facility need not wait until the effective date of

these amendments to publish a revised allocation plan under

Sec. 124.506(c), but may do so any time after publication of these

amendments, with the effective date of the revised allocation plan

being at least 60 days following publication.

Regulatory Flexibility Act and Executive Order 12866

The rules below do not change the existing procedural and reporting

requirements for obligated facilities. The Department has determined

that the impact will not approach the annual $100 million threshhold

for major economic consequences as defined in Executive Order 12866.

Therefore, a regulatory impact analysis is not required.

Consistent with the provisions of the Regulatory Flexibility Act (5

U.S.C. 605(b)), the Secretary certifies that this rule will not have a

significant economic impact on a substantial number of small entities.

Paperwork Reduction Act of 1980

The rules below contain no information collection or reporting

requirements which are subject to review by the Office of Management

and Budget (OMB) under the Paperwork Reduction Act of 1980.

List of Subjects in 42 CFR Part 124

Grant programs--health, Health facilities, Loan programs--health,

Low income persons.

Dated: January 12, 1995.

Philip R. Lee,

Assistant Secretary for Health.

Approved: March 24, 1995.

Donna E. Shalala,

Secretary.

For reasons set out in the preamble, subpart F of 42 CFR part 124

is hereby amended to read as follows:

Subpart F--Reasonable Volume of Uncompensated Services to Persons

Unable to Pay

1. The authority citation for 42 CFR part 124, subpart F, continues

to read as follows:

Authority: 42 U.S.C. 216; 42 U.S.C. 300s(3).

2. The first two sentences of Sec. 124.503(b)(4) are revised to

read as follows:

Sec. 124.503 Compliance level.

(a) * * *

(b) * * *

(4) Affirmative action plan for precluding future deficits. Except

where a facility reports to the Secretary in accordance with

Sec. 124.509(a)(2)(iii) that it was financially unable to provide

uncompensated services at the annual compliance level, a facility that

fails to meet its annual compliance level in any fiscal year shall, in

the following year, develop and implement a plan of action that can

reasonably be expected to enable the facility to meet its annual

compliance level. Such actions may include special notice to the

community through newspaper, radio, and television, or expansion of

service to Category B, or, with respect to nursing homes, Category C,

persons. * * *

* * * * *

3. Section 124.505 is amended by revising paragraph (a)(2)(ii) and

adding (a)(2)(iii) to read as follows:

Sec. 124.505 Eligibility criteria.

(a) * * *

(2) * * *

(ii) Category B--A person whose annual individual or family income,

as applicable, is greater than but not more than twice the poverty line

issued by the Secretary pursuant to 42 U.S.C. 9902 that applies to the

individual or family. If persons in Category B are included in the

allocation plan, the facility shall provide uncompensated services to

these persons without charge, or in accordance with a schedule of

charges as specified in the allocation plan.

(iii) Category C--With respect only to persons seeking or receiving

nursing home services, a person whose annual or family income, as

applicable, is more than twice but not greater than three times the

poverty line issued by the Secretary pursuant to 42 U.S.C. 9902 that

applies to the individual or family. If persons in Category C are

included in the allocation plan, the facility shall provide

uncompensated services to these persons without charge, or in

accordance with a schedule of charges as specified in the allocation

plan; and

* * * * *

4. Section 124.506 is amended by revising paragraph (a)(1)(iii)

through (a)(1)(v), the first sentence of paragraph (b)(2), and by

adding paragraph (a)(1)(vi), to read as follows:

Sec. 124.506 Allocation of services; plan requirement.

(a)(1) * * *

(iii) State whether Category B or, in the case of nursing homes

only, Category C persons will be provided uncompensated services, and

if so, whether the services will be available without charge or at a

reduced charge;

(iv) If services will be made available to Category B persons at a

reduced charge, specify the method used for reducing charges, and

provide that the method is applicable to all persons in Category B;

(v) With respect to nursing homes only, if services will be made

available to Category C persons at a reduced charge, specify the method

used for reducing charges, provided that such method may not result in

greater reductions than those afforded to Category B persons, and

provide that this method is applicable to all persons in Category C;

and

(vi) Provide that the facility provides uncompensated services to

all persons eligible under the plan who request uncompensated services.

(b)(1) * * *

(2) If no plan was previously published in accordance with

paragraph (a)(2) of this section, the facility must provide

uncompensated services without charge to all applicants in Category A

and Category B, and, with respect to nursing homes, Category C, who

request service in the facility.* * *

* * * * *

5. Section 124.516 is amended by revising paragraph (b)(1) to read

as follows:

Sec. 124.516 Charitable facility compliance alternative.

(a) * * *

(b) * * *

(1)(i) For facilities that are nursing homes: It received, for the

three most recent fiscal years, no monies directly from patients with

incomes up to triple the current poverty line issued by the

[[Page 16757]] Secretary pursuant to 42 U.S.C. 9902, exclusive of

amounts charged or received for purposes of claiming reimbursement

under third party insurance or governmental programs, such as Medicaid

or Medicare deductible or coinsurance amounts;

(ii) For all other facilities. It received, for the three most

recent fiscal years, no monies directly from patients with incomes up

to double the current poverty line issued by the Secretary pursuant to

42 U.S.C. 9902, exclusive of amounts charged or received for purposes

of claiming reimbursement under third party insurance or governmental

programs, such as Medicaid or Medicare deductible or coinsurance

amounts; or

* * * * *

[FR Doc. 95-7846 Filed 3-30-95; 8:45 am]

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