1. INTRODUCTION

   On March 18, 1999, the Health Care Financing Administration ("HCFA") issued a final rule with comment period significantly expanding current Medicare and Medicaid regulations regarding the imposition of civil money penalties ("CMP") on nursing homes that are not in compliance with program requirements. 64 Fed. Reg. 13354. Most significantly, the rule allows HCFA or a state to impose a single CMP of up to $10,000 for each instance of a nursing home’s noncompliance -- i.e., for each F Tag deficiency -- as an alternative to the existing CMP for each day of a facility’s noncompliance. The final rule is effective May 17, 1999, and HCFA is accepting comments on the rule until that date.

   In addition to the new rule, on March 16, 1999 the Clinton Administration announced a series of initiatives aimed at improving nursing facility care and expanding consumer information. Among other things, the Administration is instructing states to investigate nursing home resident complaints more quickly, launching a national campaign to prevent neglect and abuse of nursing home residents, and promoting a website with comparative information about nursing homes.

   This Memorandum summarizes the final rule with comment period and the related Clinton Administration initiatives. Please let us know if you need additional information about any of these issues.

2. HCFA NURSING HOME ENFORCEMENT RULE
   1. Background

      In order to participate in the Medicare and/or Medicaid programs, long-term care facilities must be certified as meeting federal participation requirements established at sections 1819 and 1919 of the Social Security Act (the "Act"), respectively, and in implementing regulations at 42 CFR Part 483, Subpart B.

      The statute establishes a range of remedies to address facility noncompliance with these federal requirements, including CMPs of up to $10,000 per day. By regulation, actual CMP amounts vary by the scope and severity of the noncompliance; penalties range from $3,050 per day up to $10,000 per day for noncompliance that constitutes immediate jeopardy to patient health and safety, while penalties of $50 to $3,000 per day may be imposed where immediate jeopardy does not exist. The statute permits the Secretary of the Department of Health and Human Services ("HHS") (the "Secretary") and the states to impose CMPs for past instances of noncompliance even if a facility is in compliance at the time of a current survey. The enforcement rules are set forth at 42 CFR Part 488, Subpart F, and the provisions directly affecting CMPs are at 42 CFR 488.430 to 488.444.

      In addition, current regulations require multiple notices prior to imposition of remedies. One of the notification requirements contained at 42 CFR 488.402(f)(5) establishes a maximum timeframe of 20 calendar days for HCFA or the state, as appropriate, to (1) notify a provider that remedies will be imposed, and (2) actually impose the remedies. If remedies are not imposed within this time frame, HCFA or the state must issue another notice.

   2. Provisions Of The Final Rule With Comment Period
      1. Per-Instance CMPs
         1. Problems With Current System

            When HCFA issued the CMP provisions of the enforcement regulations in 1994, (fn1) HCFA interpreted the statute to require HCFA and the states to make a determination of both the beginning and ending dates of identified deficiencies. HCFA has identified a number of practical problems in the implementation of this enforcement system. In particular, while HCFA has been able to determine the beginning date of a deficiency, or deem the survey date as the beginning date for CMP liability purposes, determining the ending date of the noncompliance can be more troublesome because it usually requires a revisit to the facility to document that the noncompliance has been corrected.

            Some providers argue that under the current system, survey teams have not returned to facilities as quickly as they would like to establish that noncompliance no longer exists, and they argue that CMP liability sometimes continues even where the originally identified deficiencies have been corrected, but new ones have arisen. At the same time, some in the consumer community believe that CMPs have been a less than fully-effective enforcement tool.

            Moreover, in the preamble to the rule, HCFA repudiates its own "date certain" concept as set forth in the State Operations Manual (HCFA-Pub. 7) ("SOM"). While not even mentioning the "date certain" provision or HCFA’s own SOM, HCFA asserts that under the current enforcement scheme, CMPs generally have not been imposed where facilities have been able to correct deficiencies before a predetermined date, except where immediate jeopardy has been involved or the provider has been found to be a poor performing facility. As a result, HCFA believes that many facilities have avoided the imposition of CMPs, even though these same facilities subsequently have failed to maintain substantial compliance.

         2. Additional Option For Per Instance CMPs

            In an expansive interpretation of the nursing facility remedy provisions of the Act, HCFA has concluded that the statute offers greater flexibility than it has exercised up to now. Specifically, it believes the statute permits the Secretary and the states to focus on individual instances of noncompliance without having to track the duration of time that the facility remains out of compliance.

            Thus, HCFA believes that if a survey team identifies a particular instance of noncompliance during a survey, such as the presence of an avoidable pressure sore in a facility resident, the statute authorizes HCFA or a state to impose an immediate CMP for that one instance of noncompliance. In other words, unlike per day CMPs, HCFA does not envision a period to correct deficiencies prior to imposition of a per instance CMP. There is no "date certain" opportunity to correct prior to the CMP being issued. While providers may still request a hearing on the CMP, and payment is not due until all administrative appeals have been exhausted or the facility decides not to appeal the CMP, the CMP is effective as of the date HCFA or the state establishes in its notice to the facility.

            The only statutory limitation on the per instance CMP, according to HCFA, is that the CMP liability cannot be more than $10,000 for the day during which the noncompliance was identified. If HCFA or a state identified several instances of noncompliance, such as in the areas of hydration, diet, resident assessment, and resident rights, a different CMP could be imposed for each instance of noncompliance as long as the total facility liability did not exceed $10,000 per day.

            In the preamble, HCFA defines an "instance" as "a single deficiency identified by the tag number used as a reference on the statement of deficiencies." Presumably, this means that CMPs could be levied by F Tag, regardless of the scope and severity assigned to that deficiency. Further, as noted above, there can be more than one instance of noncompliance identified during a survey. For example, during a survey, HCFA or a state may identify several instances of noncompliance in distinct regulatory areas such as resident rights and quality of care. If the noncompliance in the former area involves a violation of a resident’s right to privacy, that instance of noncompliance might trigger a CMP of $1,000. If noncompliance with the latter requirement relates to an avoidable pressure sore, that instance of noncompliance might trigger a CMP of $4,000. The sum of these penalties, $5,000, would be within the $10,000 limitation specified by the statute for a facility’s liability for any given day of noncompliance.

            Under the new regulation, HCFA is permitting the imposition of CMPs for each instance of noncompliance in addition to the existing option to assess a CMP for each day of noncompliance as long as the facility fails to achieve substantial compliance with all requirements. Thus, when compliance with federal requirements is evaluated by the survey agency and a decision is reached to impose a CMP, the survey agency must decide whether the CMP will be based on a determination of per instance or per day. According to HCFA, the regulation does not authorize the use of both penalties for a single violation.

         3. Determination Of Per Instance Penalty Amounts

Since a per instance CMP is not cumulative, HCFA believes that a different calculus needs to be applied to formulate CMP amounts under this regulation. First, HCFA is establishing a minimum of $1,000 for a per instance CMP. Additionally, HCFA is not limiting penalty amounts (as it did in the existing rule) depending on whether immediate jeopardy is present. This means that a deficiency that is not immediate and serious jeopardy could result in up to a $10,000 CMP.

HCFA maintains that, as under current regulations, determination of the actual amount per instance will be based on the following:

• Use of scope and severity to assist in determining the magnitude of the noncompliance, including whether actual harm has occurred;
• The facility’s degree of culpability; and
• The facility’s history of prior offenses, including repeat deficiencies.

HCFA also asserts that the seriousness of the infraction should be apparent in the decision. For instance, HCFA observes that "an unnecessary death of a resident as a result of no active supervision presents a far different problem than does the infraction of finding that a confused person has been inappropriately attired or that a resident has not been given the proper privacy while receiving personal care from a caregiver." The actual penalty amount, when compared to the problem, and whether the CMP provides a long term remedy "will have to withstand the test of reasonableness," HCFA states. This is a highly subjective standard, since there is no guidance in the preamble or the rule as to what would be deemed a "reasonable" CMP. Providers and HCFA are likely to have different views on whether a CMP is "reasonable" in any given instance.

HCFA goes on to explain that it does not expect CMP determinations "to be made with mathematical precision," since decisions concerning an appropriate enforcement response involve some degree of judgment. As a whole, HCFA expects that penalties will be more severe as deficiencies pose greater harm or risks to residents’ well-being. HCFA also expects to provide additional guidance and training to surveyors and others who will apply the regulation.

1. Payment Of Penalties

   Payments for per instance CMPs are due 15 days after one of the following dates:

   (1) A final administrative decision is made that upholds HCFA’s or the state’s determination of noncompliance;

   (2) The time for requesting a hearing has expired and the facility did not request a hearing; or

   (3) The facility waived its rights to a hearing.

   This process parallels the appeals and payment procedures for CMPs imposed on a per day basis.

2. Additional Proposed "Limited Per Day" CMP Methodology

HCFA also is seeking public comment on a third CMP methodology under consideration. If comment is favorable, HCFA would implement this option when the agency finalizes this interim regulation.

Under this additional option, a survey agency could recommend a per day penalty of not more than $3,000 for non-immediate jeopardy violations (or not more than $10,000 in cases of immediate jeopardy) for any documented period of noncompliance without having to determine the entire period of time that the noncompliance may be present. In other words, the surveyors would not have to resurvey to determine whether the facility is back in substantial compliance.

For example, if a survey team enters a facility on June 1 and observes that it is not in substantial compliance, and returns July 1 and determines that the initial noncompliance has continued unabated, the survey agency could recommend a penalty of up to $3,000 per day (or $10,000 in the case of immediate jeopardy ) for each of the 30 days of noncompliance between June 1 and July 1. This would apply even if the noncompliance might yet extend for additional days or weeks.

In another hypothetical situation, a survey team that enters a facility on June 1 may determine from facility records or other evidence that the facility has been out of compliance since May 15. The survey agency could then determine that there have been 15 days of noncompliance for this past period and recommend a penalty up to the maximum amounts for each of those days of noncompliance regardless of how much longer the noncompliance may be present.

The new option would be in addition to the current CMP authority and the new per instance CMP described above. According to HCFA, the potential advantage of this new option over the current CMP authority is that a penalty can be imposed for documented violations without requiring multiple revisits by the survey team.

HCFA is soliciting comments from states, consumer groups, and providers as to whether this additional type of penalty authority would be useful and likely to enhance the objective of seeing nursing homes achieve substantial compliance on a sustained basis. HCFA also wants to receive comments on whether this proposal would be administratively practical. Lastly, HCFA encourages comments on whether there should be a different maximum daily penalty amount established for this option.

1. State Authorization To Initiate Notice

   Current regulations (42 C.F.R. § 488.402(f)(1)) permit states, as authorized by HCFA, to send notice of adverse actions to facilities that would otherwise be notified directly by HCFA. In the preamble to the September 28, 1995 Federal Register rule that set forth this specific regulation (60 Fed. Reg. 50115) HCFA discussed its intent to permit states to give notice of remedies, on behalf of HCFA, only in cases of minimal noncompliance.

   HCFA believes that this current interpretation impedes its ability to respond quickly in instances of facility noncompliance because of the extra time that HCFA’s direct involvement requires. Thus, under the new interpretation HCFA is adopting, states are authorized to impose any remedy which HCFA has the authority to impose, but only as directed by HCFA.

2. Latest Date Of Enforcement Action

   According to HCFA, the current requirement that HCFA provide notice and impose remedies within 20 calendar days "has proven to be problematic as well as unnecessarily restrictive for HCFA and the State." In particular, the current rules "artificially delay enforcement actions when providers have already been well apprised of the grounds for the action," such as through the required two days’ notice in immediate jeopardy cases and 15 days’ notice in all other cases.

   HCFA argues that "[b]y eliminating the maximum notice period, providers will receive no less prior notice than has traditionally been the case and, as importantly, would receive no less information than were the maximum notice period requirement to stay in effect." HCFA therefore is amending its regulation to provide that HCFA or the state need only provide two-day notice for all remedies in cases of immediate jeopardy and 15-day notice for all remedies where there is no immediate jeopardy.

3. Waiver Of Proposed Rulemaking

HCFA is waiving publication in the Federal Register of a notice of proposed rulemaking and proceeding directly with a final rule with comment period because it "is in the public interest," HCFA asserts. Among the reasons cited by HCFA to waive the notice of proposed rulemaking are the following:

• Nursing home residents are among the most vulnerable members of society, and they rely significantly on federal and state government to protect their interests through the Medicare and Medicaid enforcement mechanisms.
• The more diligent the government is in its enforcement efforts, the greater the likelihood that facilities will comply with its requirements, and the greater the likelihood that facility residents will receive the kind of quality care that the statute envisions.
• The U.S. General Accounting Office ("GAO") has found the continuing presence of unacceptable care in many facilities, including problems with hydration, nutrition, weight maintenance, and the avoidance of pressure sores.
• Were HCFA to subject these rules to the full course of proposed rulemaking, it would lose opportunities to respond to cases of noncompliance where the more rapid imposition of penalties would likely reduce the exposure of nursing home residents to substandard or dangerous levels of care.
• The rule is so reflective of the aim of the statute that there is particular urgency to make it available quickly.
• Elimination of the maximum time frame provision would prevent enforcement actions from being artificially delayed, since providers have already been apprised of the grounds for the action in previous correspondence from HCFA or the state.
• The provisions related to state authorization to initiate notice do not change regulation text and do not reduce notice of impending adverse actions.

HCFA is, however, providing a 60-day comment period (until May 17, 1999) and will respond to comments it receives in any subsequent Federal Register document.

1. Regulatory Impact Statement

HCFA examined the impacts of the final rule as required under Executive Order 12866 and the Regulatory Flexibility Act ("RFA") (Public Law 96-354). (fn2) HCFA expects the rule to be beneficial to nursing home residents, since a per instance CMP will allow it to more specifically tailor the response to facility noncompliance in a way that ensures appropriate resident care.

Nevertheless, HCFA recognizes that the rule "could be controversial and may be responded to unfavorably by some interested parties." In addition, HCFA notes that not all of the potential effects of this rule can be definitely anticipated, particularly in light of HCFA’s other concurrent efforts to improve the survey and enforcement activities. HCFA also is unable to project the frequency with which facilities will be found to be out of compliance and subject to the imposition of a CMP. HCFA asserts, however, that it "must consider the facility’s financial condition in determining the amount of penalty if a CMP is selected."

HCFA notes that there should be no additional cost to the facility under this rule -- provided that the facility is in compliance with long-standing program requirements. Should the provider be determined to be out of compliance, however, and a decision is reached to impose a per instance CMP, it is difficult for HCFA to project the number of times that may occur.

Based upon HCFA experience with the 1994 rule since it became effective in July 1995, the average number of facilities per year that have had CMPs imposed is between one and 1.5 and 3 percent. The yearly average amount of the CMP per facility has been $15,672 to $21,280. HCFA points out that a facility’s management has the ability to control operation of the business and also has the ability and legal responsibility to maintain compliance with requirements. Since the majority of the businesses have annual operating budgets in excess of $1 million dollars, according to HCFA, the impact of the per instance CMP for non-compliant facilities does not appear particularly onerous.

In further outlining the uncertainties of the impact of this rule, HCFA adds that should an enforcement remedy be indicated for a facility, a number of alternative remedies may be considered in addition to a CMP. It would not be accurate to assume, according to HCFA, that a CMP would be the remedy of choice or the one most frequently used. While it may be argued that the per instance CMP will be more heavily utilized than the per day CMP, HCFA has no data to support that perspective. Of course, HCFA also has no data to indicate that CMPs will not be more heavily utilized, and certainly the new rule is designed to make CMPs easier to impose.

HCFA also has considered the potential impact of the "limited per day" CMP methodology, but was unable to project the frequency of noncompliance or increases or decreases in the number of facilities that will be found to be out of compliance and subject to imposition of a CMP. Again, a reasonable assumption is that states and HCFA will take advantage of this broader remedy to assess CMPs.

Finally, the rule has been reviewed in accordance with the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1501 et seq.), which requires agencies to assess anticipated costs and benefits before issuing any rule that may result in an annual expenditure by state, local, or tribal governments, in the aggregate, or by the private sector, of $100 million. While the rule will affect all nursing facilities participating in the Medicare and Medicaid programs, HCFA anticipates this effect to be less than $100 million in the aggregate.

1. CLINTON ADMINISTRATION NURSING HOME INITIATIVES

   On March 16, 1999, HCFA Administrator Nancy-Ann DeParle announced a series of initiatives designed to ensure high quality nursing home care and make better consumer information available to residents and their families.

   These initiatives follow steps the Administration took in July 1998, many of which are ongoing, to enhance protections and target specific improvement in nursing home care. Among other things, the 1998 initiative requires states to conduct more frequent inspections of nursing homes with repeated serious violations and to impose sanctions without a grace period against poor performers. HCFA also has instructed states to consider the performance of other facilities in a chain when determining sanctions against a facility in the same chain, and it is developing further guidelines to establish standards for sanctioning facilities within a chain. This so-called "Poor Performing Chain" policy has sparked considerable controversy both because of HCFA’s lack of statutory authority to make enforcement decisions on other than a facility-specific basis and because of its underlying premise of "guilt by association."

   Under the 1998 initiative, states also must stagger surveys and conduct many on nights and weekends, when safety and staffing problems often occur. In addition, HCFA implemented a new federal monitoring system to ensure that states conduct effective surveys and fulfill their enforcement responsibilities.

   1. Quicker State Investigations Of Complaints

      According to a March 16, 1999 HCFA press release, HCFA intends to strengthen complaint-investigation requirements because some state investigations of allegations have lagged. Currently, states are required to investigate complaints alleging immediate jeopardy to residents within two days and all other complaints in a timely manner. Under the new policy, HCFA will require states to investigate within 10 working days whenever a complaint alleges harm to a resident. States also must add substantiated violations to HCFA’s database that tracks compliance in nursing homes. HCFA also will develop minimum federal standards for states to conduct complaint investigations and will identify ways to better oversee states’ performance.

   2. Campaign To Detect And Prevent Neglect And Abuse

      HCFA will launch a national education campaign this spring on how to identify, report, and stop neglect and abuse, according to the HCFA press release. By teaching residents, their families, nursing home workers, and other caregivers to watch for signs of neglect and abuse and to act quickly to remedy it, the Administration expects the campaign to help residents stay safer and healthier.

      The campaign will include a new publication, "Living in a Nursing Home;" a video with tips on selecting a nursing home; posters that tell residents and their families where to report abuse; and a new version of HCFA’s "Guide to Choosing a Nursing Home."

   3. Nursing Home Comparison Information On The Internet

      A new website, Nursing Home Compare at http://www.medicare.gov/nursing/home.asp, is designed to enable Americans to more easily obtain and review comparative information about nursing homes. The new web site has the most recent information from state inspections of every Medicare- and Medicaid-certified nursing home in a consumer-friendly format, as well as location, size, and ownership. Users can search nursing homes by name, city, county, or ZIP code, and compare data from two or more homes. The information comes from HCFA’s Online Survey, Certification, and Reporting ("OSCAR") database. HCFA will continue to refine Nursing Home Compare, such as by adding information about staffing and the condition of residents. Providers should check their listing to make sure the information is correct, and report any inaccuracies for correction.

   4. Additional Budget And Legislative Proposals

   The Clinton Administration is seeking additional funds and legislation to carry out its initiative to enhance the quality of nursing home care. To implement fully the initiative announced in July 1998, the Administration’s fiscal year 2000 budget proposes an additional $60.1 million in funding. The Administration has legislative proposals to require nursing homes to conduct criminal background checks of employees, to establish a national registry of workers who have been convicted of abusing residents, and to allow more types of nursing home workers with proper training to help residents eat and drink during mealtimes.

   In addition, on March 25, 1999 the President signed into law legislation (H.R. 540) recently approved by the House and Senate that prohibits nursing homes that decide to withdraw from the Medicaid program from expelling or transferring current residents who are enrolled in Medicaid. The new law applies to residents who presently are receiving Medicaid benefits in nursing homes, as well as those patients who already are residents but not yet dependent on Medicaid. Under this provision, the facility would continue to receive Medicaid payments for residents who were in its care at the time of withdrawal until the legal discharge or transfer of those residents. For those individuals who take up residence in a nursing home after the effective date of the facility’s withdrawal from the Medicaid program, the law provides that they must be informed orally and in writing that the nursing home may transfer or discharge the resident once the resident is unable to pay the charges of the facility through non-Medicaid sources.

2. CONCLUSION

Over the last several years, quality of care issues in nursing homes has taken on a higher priority for the Clinton Administration and the U.S. Congress. Regulatory and administrative actions undertaken by HCFA, critical HHS Office of Inspector General reports, and high-profile hearings conducted by the Senate Select Committee on Aging, indicate broad concerns regarding nursing home quality. Federal initiatives in this area can be expected to continue.

In addition, federal prosecutors are attempting to address nursing home quality of care issues through enforcement of the Federal False Claims Act. In several cases, the government has pursued False Claims Act claims solely on the basis of allegations of inadequate quality of care, without otherwise suggesting any billing irregularities.

Please do not hesitate to contact Carol Loepere (202/414-9216), or any other member of the Reed Smith health care group with whom you work if you would like additional information or if you have any questions.