Medicare Program; Revision of the Procedures for Requesting Exceptions to Cost Limits for Skilled Nursing Facilities and Elimination of Reclassifications

Federal RegisterAug 11, 1998

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 413

[HCFA-1883-P]

RIN 0938-AI80

Medicare Program; Revision of the Procedures for Requesting

Exceptions to Cost Limits for Skilled Nursing Facilities and

Elimination of Reclassifications

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise the procedures for granting

exceptions to the cost limits for skilled nursing facilities (SNFs) and

retain the current procedures for exceptions to the cost limits for

home health agencies (HHAs). It also would remove the provision

allowing reclassifications for all providers.

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

appropriate address, as provided below, no later than 5:00 p.m. on

October 13, 1998.

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

following address:

Health Care Financing Administration, Department of Health and Human

Services, Attention: HCFA-1883-P, P.O. Box 31850, Baltimore, MD 21144-

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, S.W.,

Washington, DC 20201, or Room C5-09-26, 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 HCFA-1883-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 FURTHER INFORMATION CONTACT: Steve Raitzyk, (410) 786-4599.

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required).

I. Background

Cost Limits

Section 223 of the Social Security Amendments of 1972 (Pub Law 92-

603) amended section 1861(v)(1)(A) of the Social Security Act (the Act)

to authorize the Secretary to establish ``* * * limits on the direct

and indirect overall incurred costs or incurred costs of specific items

or services or groups of items or services * * *'' as a presumptive

estimate of reasonable costs. Under section 1861(v)(1)(A), a provider's

cost in excess of its Medicare cost limit is deemed to be unreasonable

for the efficient delivery of needed health care services under the

Medicare program. The Congress, however, in the House Committee report

``H.R. Rep. No. 92-231, 92nd Congress, 1st Session 5071 (1971),''

stated that ``Providers would, of course, have the right to * * *

obtain relief from the effect of the cost limits on the basis of

evidence of the need for such an exception.''

On June 1, 1979, we published a final rule in the Federal Register

at 44 FR 31802, revising 42 CFR 405.460 to implement more effectively

and equitably section 223 of the Social Security Amendments of 1972.

Section 405.460, which was subsequently redesignated as Sec. 413.30,

describes the general principles and procedures for establishing cost

limits and the process by which providers may appeal the applicability

of these cost limits. Under Sec. 413.30(c), a provider may obtain

relief from the effects of applying cost limits, either by requesting

an exemption from its limit as a new provider of inpatient services, by

requesting a reclassification, or by requesting an exception to the

cost limit.

In the preamble of the June 1, 1979 final rule (44 FR 31806), we

clarified the difference between an exemption and an exception. If a

provider receives an exemption, it is not affected at all by the cost

limits and it is paid under the standard rules for reasonable cost or

customary charges. If a provider receives an exception, it is paid on

the basis of the cost limit, plus an incremental sum for the reasonable

costs warranted by the circumstances that justified the exception.

The cost limit is a presumptive estimate of reasonable costs, which

excludes costs found to be unnecessary for the efficient delivery of

needed health care services. We may establish limits for direct or

indirect costs, for costs of specific services, or for groups of

services. Medicare payable provider costs may not exceed the amounts,

estimated by us, to be necessary for the efficient delivery of needed

health care services furnished by a provider.

We imposed these limits prospectively and they may be calculated on

a per admission, per discharge, per diem, per visit, or other basis.

All SNFs and HHAs that are paid under the cost payment methodology are

subject to these cost limits.

The routine service cost per diem limits are based on the average

cost of furnishing services and are determined by the SNF's or HHA's

geographical location classification (urban or rural) and type of

facility classification (hospital-based or freestanding). We publish in

the Federal Register, the schedule of limits that apply to the cost

reporting periods beginning during the fiscal year indicated in the

notice. This published ``Schedule of Limits'' outlines the methodology

and data we use to determine the average cost of providing the routine

services on which we base the cost limits.

The servicing intermediary notifies each SNF or HHA of its cost

limit at

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least 30 days before the start of a cost reporting period to which the

cost limit applies. If there is a delay, we advise the intermediary of

any alternate process to compute an interim cost limit. Each

intermediary ``cost limit notification'' must contain the following:

The provider's classification and calculation of the

applicable limit.

A statement that, if the provider believes it has been

incorrectly classified, it is the provider's responsibility to furnish

to the intermediary evidence that demonstrates the classification is

incorrect.

A statement that the provider may be entitled to an

exemption from, or an exception to, the cost limits under the

provisions of Sec. 413.30.

This proposed rule focuses on two provisions of Sec. 413.30

established in the June 1, 1979 final rule. First, we propose to change

the approval process for granting exceptions to the cost limits for

SNFs; second, we propose to delete the provision for obtaining a

reclassification for all providers.

II. Skilled Nursing Facility and Home Health Agency Requests

Regarding Applicability of Cost Limits

A. Current Regulations Regarding SNF and HHA Exceptions to Cost Limits

The current regulation at Sec. 413.30(f) allows a provider that is

subject to cost limits to request an exception to the cost limits if

its costs exceed, or are expected to exceed, the limits as a result of

one of the following unusual situations:

Atypical services.

Extraordinary circumstances.

Providers in areas with fluctuating populations.

Medical and paramedical education costs.

Unusual labor costs.

An adjustment is made only to the extent that the costs are

reasonable, attributable to the circumstance specified, separately

identified by the provider, and verified by the intermediary.

The provider must file a request for an exception to the cost

limits no later than 180 days from the date of the intermediary's

notice of program reimbursement. The intermediary reviews the request

with all supporting documentation. The intermediary also makes and

submits to us a recommendation on the provider's request. We make a

final determination and respond to the intermediary within 180 days

from the date of the intermediary's recommendation. If we do not

respond within 180 days, it is considered good cause for the granting

of an extension of the time limit to apply for a Provider Reimbursement

Review Board review.

In the past, Providers and intermediaries had raised many questions

about the documentation needed to properly file SNF exception requests.

In addition, we received many complaints from the SNFs about the length

of time that it took to get a response to their exception requests,

mainly because the regulation did not require a time limit for the

intermediary's recommendation to us.

In order to address this situation and to clarify the exceptions

process, we published, in July, 1994, section 2530 of HCFA Pub. 15-1

(Transmittal No. 378), which gives SNFs detailed instructions for

requesting exceptions to the SNF cost limits. Under transmittal No.

378, intermediaries process SNF exceptions in a more expeditious

manner. Section 2531.1 of Transmittal 378 requires intermediaries to

submit to us their recommendations on a SNF's exception request within

90 days of the receipt of the request from the SNF. Also, under section

2531.1 of Transmittal 378, we notify the intermediary of our final

determination on the exception within 90 days of the date that the

request is received (the current regulation (Sec. 413.30(c)) allows us

180 days to make our final determination).

B. Provisions of this Rule Regarding Exceptions to the Cost Limits for

SNFs and HHAs

After reviewing SNF exception requests submitted by intermediaries

under the rules in Transmittal 378, we identified six intermediaries

that were proficiently adjudicating SNF exceptions within 90 days of

reviewing the SNF's requests. We gave the six intermediaries the

additional responsibility in making the determination on SNF exception

requests subject to our oversight and review. This has resulted in a

substantial decrease in processing time and effort. The resulting

increase in administrative efficiency has benefitted SNFs, fiscal

intermediaries, and the Medicare program.

We propose to revise Sec. 413.30(c) to give all intermediaries the

authority to make final determinations on SNF exception requests. This

would result in an increase in administrative efficiency that would

benefit all SNFs that file SNF exception requests and fiscal

intermediaries that process those exception requests.

In order to assure that all intermediaries will be able to

adjudicate exception requests proficiently, we would work with the Blue

Cross Association to perform additional training for all fiscal

intermediaries. In addition, we would designate a single contact person

to handle all inquiries from fiscal intermediaries regarding exception

requests.

Under proposed Sec. 413.30(c), if the intermediary determines that

the SNF did not provide adequate documentation from which a proper

determination can be made, the intermediary would notify the SNF that

the request is denied. The intermediary would also notify the SNF that

it has 45 days from the date on the intermediary's denial letter to

submit a new exception request with the complete documentation, that we

continue to allow the SNF to request a review by the Provider

Reimbursement Review Board, and that the time we need to review the

request (through the intermediary) is considered good cause for

extending the time limit for the SNF to apply for the review.

Otherwise, the denial is our final determination.

Section 4432 of the Balanced Budget Act of 1997, (Public Law 105-

33) enacted August 5, 1997, mandates that a prospective payment system

for SNFs be implemented effective for cost reporting periods beginning

on or after July 1, 1998. This prospective payment system will replace

the retrospective reasonable cost based system currently used by

Medicare for payment of SNF services. Accordingly, exceptions will no

longer be available to SNFs with cost reporting periods beginning on or

after July 1, 1998. Fiscal intermediaries will continue to process,

beyond July 1, 1998, SNF exception requests for cost reporting periods

beginning before July 1, 1998.

Effective with cost reporting periods beginning on or after July 1,

1998, there will be a 3-year transition period to the prospective

payment system. During the transition period, SNFs will be reimbursed a

blended payment that is based partially on a facility-specific rate and

a prospective payment rate. The base period for the facility-specific

rate will be cost reporting periods beginning during the period October

1, 1994 and September 30, 1995. We recognize that providers might have

questions about the relationship between the exceptions process and the

calculation of the facility-specific rate under section 1888(e) of the

Social Security Act, as added by the BBA. We are currently developing

the regulation to implement the SNF prospective payment system enacted

by the BBA and we will address those issues in that document.

The procedures for HHA exception requests would remain unchanged

but would be set forth at Sec. 413.30(c)(1).

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III. Reclassification of Providers

A. Current Regulations Regarding Reclassifications

Section 413.30(d) states that a provider may obtain a

reclassification if the provider can show that its classification is at

variance with the criteria specified in promulgating the limits.

When cost limits were first developed, we manually arrayed the data

collected from the providers' cost reports and classified them by type

(hospital-based or freestanding) and location (metropolitan area or

nonmetropolitan area). There were instances when providers were

misclassified. Accordingly, we allowed providers to file

reclassification requests under Sec. 413.30(d) if they could show that

the data we used for the classification were incorrect.

B. Provisions of this Rule To Remove the Regulation Allowing

Reclassifications

We propose to remove Sec. 413.30(d) to discontinue the use of

reclassifications. HHAs and SNFs are now filing specific cost reports,

and metropolitan and nonmetropolitan area designations have become

linked, through automation, to the county and State where each provider

is located. As a result, there is no chance that a SNF or HHA can be

misclassified.

Hospitals now file for reclassifications with the Medicare

Geographic Review Board. These reclassifications are specific to

hospitals and are governed under subpart L of part 412. Hospitals no

longer apply for reclassifications under Sec. 413.30.

IV. Technical Changes

A. We would remove paragraph (h), pertaining to hospital cost

report adjustments, as it is obsolete.

B. We would make minor editorial changes to Sec. 413.30.

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 that 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.

VI. Regulatory Impact Statement

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

through 612), we prepare a regulatory flexibility analysis unless we

certify that a rule would not have a significant economic impact on a

substantial number of small entities. For purposes of the RFA, all SNFs

and HHAs are considered to be small entities. Individuals and States

are not included in the definition of a small entity.

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. Such

an 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 Metropolitan

Statistical Area and has fewer than 50 beds. The proposed rule to

eliminate reclassifications for HHAs and SNFs would have no effect,

since they no longer need reclassifications. Hospitals can obtain any

needed reclassifications and exceptions under subpart L of part 412.

The proposed rule to change the method of processing requests for

exceptions to cost limits would have no economic impact on either the

providers or the Medicare program.

For these reasons, we are not preparing an analyses for either the

RFA or section 1102(b) of the Act because we have determined, and we

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

a substantial number of small entities or a significant impact on the

operations of a substantial number of small rural hospitals.

In accordance with the provisions of Executive Order 12866, this

regulation was reviewed by the Office of Management and Budget.

VII. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we 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:

The need for the information collection and its usefulness

in carrying out the proper functions of our agency.

The accuracy of our estimate of the information collection

burden.

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

collected.

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.

Sec. 413.30 Limitations on Payable Costs

(e) Exceptions. Limits established under this section may be

adjusted upward for a SNF or HHA under the circumstances specified in

paragraphs (e)(1) through (e)(5) of this section. An adjustment is made

only to the extent that the costs are reasonable, attributable to the

circumstances specified, separately identified by the SNF or HHA, and

verified by the intermediary.