[Federal Register: February 10, 2003 (Volume 68, Number 27)]
[Proposed Rules]
[Page 6682-6687]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10fe03-33]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 413
[CMS-1126-P]
RIN 0938-AK02
Medicare Program; Provider Bad Debt Payment
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would remove the cap on allowable Medicare
bad debt for end-stage renal disease (ESRD) facilities and expand the
application of a 30 percent reduction in bad debt reimbursement for
hospitals to other Medicare providers or entities currently eligible to
receive bad debt reimbursement. In addition, this proposed rule would
clarify that bad debts are not allowable for entities paid under
reasonable-charge or fee schedule methodologies. The goal of this
proposal, with respect to bad debt payment, is to achieve a consistent
bad debt reimbursement policy for hospitals and other providers or
entities currently eligible to receive payments from Medicare for bad
debt.
DATES: We will consider comments if we receive them at the appropriate
address, as provided below, no later than 5 p.m. on April 11, 2003.
ADDRESSES: In commenting, please refer to file code CMS-1126-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission. Mail written comments (one original and
three copies) to the following address ONLY: Centers for Medicare &
Medicaid Services, Department of Health and Human Services,Attention:
CMS-1126-P, PO Box 8017, Baltimore, MD 21244-8017.
Please allow sufficient time for mailed comments to be timely
received in the event of delivery delays.
If you prefer, you may deliver (by hand or courier) your written
comments (one original and three copies) to one of the following
addresses: Room 443-G, Hubert H. Humphrey Building, 200 Independence
Avenue, SW., Washington, DC 20201, or Room C5-14-03, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and could be considered late.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Katie Walker, (410) 786-7278.
SUPPLEMENTARY INFORMATION: Inspection of Public Comments: Comments
received timely will be available for public inspection as they are
received, generally beginning approximately 3 weeks after publication
of a document, at the headquarters of the Centers for Medicare &
Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244,
Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule
an appointment to view public comments, phone (410) 786-7195 or (410)
786-7201. We must be contacted at least 72 hours in advance.
Copies: To order copies of the Federal Register containing this
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of the issue requested and enclose a check or money order
[[Page 6683]]
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.
I. Background
A. Bad Debt Reimbursement
In 1966, the Health Insurance Benefits Advisory Committee (HIBAC)
(authorized by section 1867 of the Social Security Act, repealed 1984)
recommended that Medicare cover the unpaid deductible and coinsurance
amounts that arose in connection with the provision of covered services
to beneficiaries (herein referred to as Medicare bad debt). This
recommendation was meant to avoid cross-subsidization that might occur
if hospitals or other entities tried to recoup Medicare bad debt from
other payers. The HIBAC believed that under the statute, the Congress
had intended to avoid cross-subsidization by meeting the cost of the
bad debts that accrued to a provider where these amounts were otherwise
uncollectible. The reasoning behind this view flowed from section
1861(v)(1)(A)(i) of the Act, which states that the costs for
individuals covered by the Medicare program must not be borne by
individuals not covered by the program, and the costs for individuals
not covered by the program must not be borne by Medicare. We refer to
this statutory provision as the prohibition on cross-subsidization. The
Secretary agreed with the HIBAC recommendation and the bad debt policy
was adopted in 1966. This anti-cross subsidization principle is now
part of the definition of ``reasonable cost'' as defined in section
1861(v) of the Act.
Under section 2145 of the Omnibus Budget Reconciliation Act (OBRA)
of 1981 (Pub. L. 97-35), the Congress mandated a prospective payment
system (PPS) for paying providers of various services covered by
Medicare. Hospitals became the first provider-type to receive Medicare
reimbursement under this law with the establishment of a PPS for
inpatient hospital services in 1983. PPS replaced the retrospective
cost-based reimbursement methodology previously in effect. Under this
reimbursement system, Medicare payment for Part A inpatient operating
costs is made on the basis of a prospectively determined rate per type
of discharge, as determined by the classification of each patient case
into a diagnosis-related group (DRG).
Shortly after implementation of PPS, in a Priority Audit Memorandum
dated July 9, 1985, the Office of Inspector General (OIG) recommended
that, in light of this new payment system, we should discontinue the
reimbursement of inpatient hospital bad debts. After a thorough
evaluation, we rejected the OIG's recommendation to discontinue paying
bad debt for hospitals, concluding that the payments continued to be
appropriate for the reasons discussed below. We also evaluated and
rejected a second option suggested by the OIG to include a bad debt
component in the DRG rates. We decided that this proposal would limit a
hospital's incentive to collect the deductible and coinsurance amounts
from the beneficiary and would address only the inpatient side. We also
felt that because every facility incurred varying amounts of bad debt,
the inclusion of bad debt in the DRG rates would be inequitable.
Therefore, in accordance with our regulations, we have continued to
recognize bad debt for entities receiving payment under a PPS, such as
for inpatient hospital services (42 CFR 412.115(a)), where Medicare
payment policy, before PPS, recognized payment of those bad debts and
where the prospective payments were derived from costs that did not
reflect base period Medicare bad debts. That is, the prospective rates
used to reimburse entities for services furnished to Medicare patients
have basis in cost and are calculated using cost data reported by the
entities on a base year cost report. They are then updated for
inflation to the year in which payments are to be made. However, the
bad debts incurred during that base period were not included in the
calculation of the prospective rates. The bad debts for these entities
are claimed at the end of each fiscal year, and allowable amounts are
reimbursed separately.
Entities currently eligible to receive bad debt payments include
hospitals, skilled nursing facilities (SNFs), critical access
hospitals, rural health clinics, end-stage renal disease (ESRD)
facilities, federally qualified health clinics, community mental health
clinics, health maintenance organizations (HMOs) reimbursed on a cost
basis, competitive medical plans (CMPs) and health care pre-payment
plans.
The general bad debt policy is set forth in regulations at Sec.
413.80 and the Provider Reimbursement Manual (PRM) (CMS Pub. 1501),
Part 1, Chapter 3). Bad debt policy for ESRD Facilities is set forth in
a separate regulation at Sec. 413.178 and is further discussed below.
B. Reasonable Charge/Fee Schedules
The concept of Medicare bad debt payments applies only to services
reimbursed on the basis of reasonable cost. Medicare has never made
payments to account for bad debts for services paid under a fee
schedule or reasonable charge methodology, such as services of
physicians or suppliers. Under a fee schedule or reasonable charge
methodology, Medicare reimbursement is not based on costs and,
therefore, the concept of unrecovered costs is not relevant. Fee
schedules, which are either charge-based or resource-based, relate
payments to the price the entity charges. Historically, these prices
have reflected the entities cost of doing business, including expenses
such as bad debt.
C. End-Stage Renal Disease Bad Debt Reimbursement
Medicare pays ESRD facilities a prospectively determined composite
rate. Under the payment rules authorized by sections 1881(b)(2) and
(b)(7) of the Act as amended by OBRA of 1981, we pay 80 percent of a
prospectively set rate for outpatient dialysis services. The Medicare
beneficiary is responsible for the remaining 20 percent as a copayment,
as well as any applicable deductible amounts set forth in Sec.
413.176. If the ESRD facility makes reasonable collection efforts, as
described in the PRM (CMS, pub. 15-1) Part I, (Section 310) but is
unable to collect the coinsurance or deductible, we consider the
uncollected amount to be a ``bad debt'' as described in Sec. Sec.
413.178(b) and 413.80(b)(1) and (e).
At the end of the year, Medicare recognizes a facility's Medicare
bad debts. However, under our current regulations, bad debt payments
are capped so that total Medicare reimbursement (composite rate plus
bad debt payments) does not exceed the total cost to serve Medicare
patients.
Although section 1881 of the Act does not require Medicare to pay
for an ESRD facility's Medicare bad debt, Medicare for many years
(before the composite payment rate system) paid hospital-based ESRD
facilities for their Medicare
[[Page 6684]]
bad debts, as it has long paid Medicare bad debts of other types of
providers or entities that were paid on a reasonable-cost basis. By
contrast, ``free-standing'' or independent ESRD facilities were paid on
a reasonable charge basis and were expected to absorb any Medicare bad
debt as part of that charge. When we developed the composite payment
rate system, which is used to pay both hospital-based and free-standing
ESRD facilities, we based payment on the results of audits of ESRD
facilities' reported costs, exclusive of Medicare bad debts. For this
reason, we decided it was appropriate to separately recognize these bad
debts at the end of the facility's fiscal year. Under the authority
granted us in section 1881(b)(7) of the Act, we considered two options
for paying these bad debts. One option was to include the bad debt
allowance in the calculation of the composite rate. The other option
was to reimburse an ESRD facility's bad debts in a special payment at
the end of the facility's cost accounting period. We decided that this
latter option was preferable because it would allow us to pay each
facility the exact amount of its allowable bad debts. We concluded
that, under the statute, we could pay an ESRD facility for its bad
debts incurred from providing services to Medicare beneficiaries, and
thereby avoid indirectly passing on these bad debts to individuals not
covered by Medicare. Similarly, we determined that it would be
appropriate to cap the total bad debt payment at a facility's
unrecovered costs. In this way, the combination of the composite rate
payments and our payment, if any, for Medicare bad debts would not
exceed the facility's total allowable cost of providing services to
Medicare beneficiaries.
In 1994, a group of providers of outpatient renal dialysis services
challenged our regulation at Sec. 413.178(a), which caps reimbursement
for an ESRD facility's bad debt at costs. The plaintiffs argued, among
other things, that we had provided inadequate justification for the
reimbursement cap and were unable to demonstrate that the cap was
consistent with the statute, as required by the Administrative
Procedure Act (APA) (5 U.S.C., 706(2)(A)). The U.S. District Court for
the District of Columbia upheld our regulation as an acceptable
exercise of our discretion under the APA. On appeal, however, the D.C.
Circuit Court overturned the District Court's ruling and found that our
explanation, relying on the statutory provisions relating to cross-
subsidization discussed above, was inadequate justification for the
rule and inconsistent with a prospective rate scheme (Kidney Center of
Hollywood et al. v. Shalala, 133 F.3d 78,88 (D.C. Circuit 1998)). The
Circuit Court ordered that the final rule be vacated and remanded the
case to us with the instruction that we either more adequately justify
the rule or jettison it altogether.
D. Legislation Affecting Bad Debt Reimbursement for Hospitals
1. Omnibus Reconciliation Act of 1987
In 1987, the Congress enacted section 4008(c) of the OBRA of 1987
and later amended it in sections 8402 of the Technical and
Miscellaneous Revenue Act of 1988 and section 6023 of OBRA of 1989. The
provision, as amended, prohibits us from making ``any change in the
policy in effect on August 1, 1987, regarding reimbursement to
hospitals for Medicare bad debts.'' This legislation is collectively
referred to as the moratorium on changes to the Medicare bad debt
policy for hospitals. Since its enactment, the moratorium has precluded
us from making any changes to bad debt policy for hospitals, although
the Congress has authorized subsequent changes through legislation. The
moratorium does not apply to entities other than hospitals. Since the
inception of the Medicare program, bad debt reimbursement for entities
other than hospitals has been and continues to be at our discretion.
According to Kidney Center of Hollywood, et al. v. Shalala, the
Secretary's discretion on this matter is broad as long as it is
authorized by statute and is rationally justified. Therefore, we
believe any changes made to bad debt policy for these other entities
can be implemented by regulation.
2. Balanced Budget Act of 1997
From 1989 to 1996, provider and entity cost report data showed an
alarming growth in bad debt payments in the Medicare program. For
hospitals alone, from 1990 to 1994, total Medicare bad debt payments
grew 165 percent, from $415 million to $1.1 billion. During this
period, the inpatient bad debts grew 140 percent, from $270 to $650
million, and Part B (primarily outpatient) bad debts tripled, from $140
to $430 million. In 1997, with increasing concern over the rapidly
expanding payout for bad debts under Medicare, the Congress responded
with section 4451 of the Balanced Budget Act (BBA) of 1997 (Pub. L.
105-33). Section 4451 of the BBA amended section 1861(v)(1) of the Act
by adding section 1861(v)(1)(T). The legislation required that, in
determining reasonable costs for hospitals, the amount of bad debts
otherwise treated as allowable costs (attributable to deductibles and
coinsurance amounts) should be reduced by 25 percent for fiscal year
(FY) 1998, by 40 percent for FY 1999, and by 45 percent for subsequent
years.
3. The Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000
As a response to concerns from Medicare hospitals that the fiscal
impact of this provision of the BBA was too harsh, the Congress enacted
section 541 of the Medicare, Medicaid, and SCHIP Benefits Improvement
and Protection Act of 2000 (Pub. L. 106-554) (BIPA). This eased the
reduction in hospital bad debt reimbursement from 45 percent to 30
percent. Although the Congress decreased the reduction of bad debt
reimbursement for hospitals, the BIPA did not address the issue for
other providers.
E. Impact Using Prospective Payment Systems on the Role of Bad Debt in
Medicare Payment Systems
The introduction of the PPS has changed the context for Medicare's
bad debt policy. The PPS for inpatient hospital services was introduced
in 1983 out of a notion that cost reimbursement systems provided an
incentive for providers to incur costs. The costs were passed along to
Medicare automatically and provided no incentive for prudent and
efficient management of hospital resources. This methodology provided
no opportunity for hospitals to earn profit through efficiency. The DRG
payments were intended to provide a context in which the hospitals that
achieved savings through efficiency and innovative practices could
profit from their efforts. In fact, the result of this change in
payment system was that hospital Medicare margins (a rough measure of
the extent to which payments exceeded actual costs) rose immediately
and have continued to exceed pre-PPS levels.
In this context, making separate payments for uncollected Medicare
deductible and coinsurance amounts is no longer an appropriate
expression of Medicare's responsibility for reimbursement, especially
in a marketplace where commercial insurers do not make similar
adjustments in their payments. In fact, the availability of additional
payment when debts are not collected provides an incentive to the
provider to forego effective collection efforts in return for the
certainty of Medicare payments. If Medicare did not recognize these
payments, there would be a greater incentive for the hospitals
[[Page 6685]]
to attempt to collect from the beneficiary. We believe that the
percentage reduction in bad debt reimbursement would be a step toward
fostering this incentive for nonhospital entities.
Fiscal responsibility to the Medicare program is an important
factor in implementing this rule. We believe that reducing the amount
of Medicare bad debt reimbursement by 30 percent will encourage
accountability and foster an incentive to be more efficient in bad debt
collection efforts. We also believe strongly that Medicare bad debt
policy should be applied consistently and fairly among all providers
eligible to receive bad debt reimbursement. Currently, hospitals are
the only entities experiencing a reduction in bad debt reimbursement.
Furthermore, ESRD facilities are the only entities whose bad debt
claims are capped at the facilities costs.
After considering the action of the Congress in setting the
reduction in bad debt reimbursement at 30 percent for hospitals, we
decided that the number used by the Congress in this action was an
equitable and reasonable policy choice with respect to entities other
than hospitals. Subsequently, we decided to draft a regulation that
would advance a consistent bad debt reimbursement policy for all
Medicare entities. To implement this rule, we propose to remove the cap
on allowable bad debt for ESRD facilities and apply the 30 percent
reduction in bad debt reimbursement that was legislated for hospitals
to all Medicare providers or entities eligible to receive payments in
recognition of Medicare bad debts. We propose to implement the
reduction in bad debt incrementally (as the Congress chose to do to
implement the BBA reduction for hospitals) over a 3-year period to
mitigate the impact on entities. Again, as discussed above, we believe
that the percentage reduction in bad debt reimbursement would be a step
toward fostering an incentive for nonhospital entities to make
conscientious, effective collection efforts on their unpaid Medicare
patient accounts.
II. Provisions of the Proposed Rule
A. Removal of Cap on End-Stage Renal Disease Bad Debt Reimbursement
In accordance with the DC Circuit Court ruling discussed above and
in order to be consistent with other entities as mandated in the
President's 2003 budget, the cap on ESRD bad debt reimbursement should
be removed.
This proposed rule would, therefore, remove the cap on ESRD bad
debts and allow ESRD facilities to claim bad debts at an amount
exceeding unrecovered costs.
B. Adjustment in Allowable Bad Debt Reimbursement to Hospital Levels
As discussed above, we propose to reduce the amount of allowable
bad debt for entities other than hospitals by 10 percent for cost
reporting periods beginning October 1, 2003, by 20 percent for cost
reporting periods beginning October 1, 2004, and by 30 percent for cost
reporting periods beginning October 1, 2005 and thereafter. The
entities currently included in this proposal are SNFs, ESRD facilities,
rural health clinics, critical access hospitals, community mental
health clinics, and federally qualified health clinics. Cost HMOs/CMPs
and health care pre-payment plans are excluded from the proposed 30
percent reduction as the bad debt reimbursement for these entities is
already limited according to Sec. 417.536. The unpaid deductible and
coinsurance amounts for services rendered by these entities is limited
to no more than 3 months of the premium (portion related to deductible
and coinsurance) for any one individual. To be reimbursable, the
deductible and coinsurance must relate to what is covered under
Medicare and under our contract with the HMO/CMP. As discussed above,
the incremental reduction over a 3-year period is intended to mitigate
the impact on entities.
C. Confirmation of Bad Debt Policy for Services Paid Under a Charge-
Based Methodology or Fee Schedule
This proposed rule would amend language in the existing bad debt
regulations to clarify that bad debts are not recognized or reimbursed
for any services paid under a reasonable charge-based methodology or a
fee schedule. This clarification is not a change in policy.
III. Collection of Information Requirements
This document does not impose information collection and
recordkeeping requirements. Consequently, it need not be reviewed by
the Office of Management and Budget under the authority of the
Paperwork Reduction Act of 1995 (44 U.S.C.A. section 3506(c)(2)(A)).
IV. 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 major comments in the preamble to that
document.
V. Regulatory Impact Statement
We have examined the impacts of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-354),
section 1102(b) of the Act, the Unfunded Mandates Reform Act of 1995
(Pub. L. 104-4), and Executive Order 13132. We believe that this
regulation would qualify as a major rule.
Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). A regulatory impact
analysis (RIA must be prepared for major rules with economically
significant effects ($100 million or more in any 1 year). We believe
that this regulation would qualify as a major rule and that the impact
would be economically significant.
Most ESRD facilities would benefit from this proposed rule, as they
would be allowed to claim and receive reimbursement for more of their
Medicare bad debts, allowing them to claim bad debts over their
unrecovered costs.
Some entities, such as SNFs and rural health clinics, may
experience a reduction in their bad debt reimbursement as a result of
this rule. Data from SNF cost reports show bad debt totals of
$8,244,192 for FYE 1996, $13,070,786 for FYE 1997 and $12,501,755 for
1998 (only settled cost report data was used and fewer cost reports
were settled for 1998). Bad debt data for independent rural health
clinics, federally qualified health centers and community mental health
clinics is not captured because the independent facilities, which make
up the majority of these entities, do not file electronic cost reports.
The reduction in reimbursement would also affect critical access
hospitals, which are defined under section 1820 of the Act and were not
subject to the reduction in bad debt reimbursement imposed by the BBA
on hospitals defined in section 1861(v)(1). Cost report data for
critical access hospitals was badly skewed because of systems problems
after November 1,
[[Page 6686]]
1997. Lab and outpatient services (which one Intermediary reports
accounts for 30 to 40 percent of the revenue for critical access
hospitals) for some of these entities were reimbursed on a cost basis
with applicable coinsurance and deductible amounts, while some of these
entities were paid under a fee schedule with no reimbursement for bad
debts. As of November 29, 1999, coinsurance and deductibles were
eliminated from lab services for critical access hospitals. We expect
that this action will significantly reduce the amount of bad debt
incurred by these facilities.
The following is the individual estimate of the economic impact of
this rule between provider types (in $millions):
------------------------------------------------------------------------
Net
Fiscal year SNF ESRD impact
------------------------------------------------------------------------
2003................................... -20 20 0
2004................................... -30 20 10
2005................................... -70 20 50
2006................................... -90 20 70
2007................................... -100 20 80
------------------------------------------------------------------------
The impact on all other provider types would round to $0. For both SNF
and ESRD facilities, these savings or costs represent only a small
portion (about 0.5%) of the total Medicare payments for those
facilities.
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis (RIA) if a rule may have a significant impact on the
operations of a substantial number of small rural hospitals. This
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 100 beds. Although this rule would
impact some small rural hospitals, including critical access hospitals,
most hospitals have already been subject to the 30 percent reduction
implemented by statute. We believe this rule would not have a
significant impact on the operations of a substantial number of small
rural hospitals and the impact would be mitigated by implementing the
rule gradually over a 3-year period.
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and governmental agencies.
Most hospitals and most other providers and suppliers are small
entities, either by nonprofit status or by having revenues of $6
million to $29 million annually. Intermediaries and carriers are not
considered to be small entities.
Small rural hospitals of fewer than 100 beds, rural health clinics,
community mental health centers, free-standing ESRD facilities, and
hospital-based ESRD facilities would be affected by this rule. There
are approximately 352 critical access hospitals, and all of these
facilities would be small rural hospitals. To the extent that they
incur bad debts, they would be affected. It is very difficult to assess
the impact on these facilities because the impact, if any, on a
facility would be influenced by the amount of bad debts the facility
incurs. However, the elimination of coinsurance and deductible amounts
for lab services rendered by critical access hospitals should
substantially reduce the amount of bad debt that these small hospitals
incur. Any Medicare participants that are currently receiving full
(that is, uncapped) reimbursement for their bad debts would see a
reduction in payment.
Based on current data, there are approximately 3,528 freestanding
and 787 hospital-based ESRD facilities. Although we are not certain how
many of these facilities are small rural hospital-based, most ESRD
facilities would benefit from this rule as they would be allowed to
claim and receive reimbursement for more of their Medicare bad debts,
allowing them to claim bad debts over their unrecovered costs. Costs
are difficult to estimate because, as discussed above, not all uncapped
ESRD bad debts were reported. We welcome all comments that would assist
us in determining the possible impact of this rule on any of the above-
mentioned entities.
Specific provisions of this proposed rule have already been applied
in part to those ESRD facilities affected by the above-mentioned Kidney
Center court settlement. These provisions, whether implemented as a
result of the court settlement or the rule, were achieved through
modifications made to the bad debt settlement portion of the cost
report.
We do not believe that the changes made in a final rule will affect
beneficiary access to care, as affected providers will continue to be
reimbursed for services provided to Medicare beneficiaries, including,
where allowable, for Medicare bad debt. By reducing the amount of bad
debt reimbursement from 100 percent to 70 percent, this rule will
fairly compensate providers, while providing an incentive for them to
make reasonable efforts to collect unpaid deductibles and coinsurance.
The analysis indicates that some small, rural providers may
experience an additional burden in the form of reduced payments for bad
debts. However, our analysis points out that a number of factors will
mitigate the impact on small rural hospitals and that payments to ESRD
facilities will increase because of the removal of the cap on allowable
bad debts claimed. It is impossible to determine the significance of
the impact or the number of entities that may be adversely affected. We
invite comments on our analysis.
The Unfunded Mandates Reform Act of 1995 also requires (in section
202) that agencies perform an assessment of anticipated costs and
benefits before proposing any rule that may result in an annual
expenditure in any 1 year by State, local, or Tribal governments, in
the aggregate, or by the private sector, of $110 million. This rule
does not impose any mandates on State, local or Tribal governments, or
on the private sector, as defined by section 202. Entities such as
hospitals, SNFs and ESRD facilities will continue to receive Medicare
reimbursement for services provided to beneficiaries, including, where
allowable, bad debt reimbursement.
For purpose of analysis, we considered two alternatives to this
policy, (1) maintaining the existing Medicare bad debt policy, or (2)
eliminating bad debt reimbursement, where we had authority to do so.
However, we believe that the Medicare bad debt policy proposed in this
rule is equitable across provider types and ensures that providers have
the incentive to make reasonable efforts to collect bad debts without
affecting beneficiary access to care. In addition, the removal of the
cap on bad debt reimbursement for ESRD facilities is also in accordance
with the ruling in The Kidney Center of Hollywood, et al. v. Shalala.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications. This rule would not have a substantial effect on State or
local governments.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.
List of Subjects in 42 CFR Part 413
Health facilities, Kidney diseases, Medicare, Puerto Rico,
Reporting and record-keeping requirements.
For the reasons set forth in the preamble, CMS proposes to amend 42
[[Page 6687]]
CFR chapter IV part 413 as set forth below:
PART 413--PRINCIPLE OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE SERVICES; PROSPECTIVELY DETERMINED PAYMENT
RATES FOR SKILLED NURSING FACILITIES
Subpart F--Specific Categories of Cost
1. The authority citation for part 413 continues to read as
follows:
Authority: Sections 1102, 1812(d), 1814(b), 1815, 1833(a), (i),
and (n), 1871, 1881, 1883, and 1886 of the Social Security Act (42
U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n),
1395hh, 1395rr, 1395tt, and 1395ww).
2. In Sec. 413.80, paragraphs (h) and (i) are revised to read as
follows:
Sec. 413.80 Bad debts, charity, and courtesy allowances.
* * * * *
(h)(1) Limitations on bad debts for hospitals. The amount of bad
debts otherwise treated as allowable costs (as defined in paragraph (e)
of this section) is reduced as follows for cost reporting periods
beginning during:
(i) Fiscal year 1998, by 25 percent.
(ii) Fiscal year 1999, by 40 percent.
(iii) Fiscal year 2000, by 45 percent.
(iv) All subsequent fiscal years, by 30 percent.
(2) Limitations on bad debts for other entities. Except as provided
in Sec. 417.536 of this title, the amount of bad debts otherwise
treated as allowable costs (as defined in paragraph (e) of this
section) is reduced as follows for cost reporting periods beginning on
or after:
(i) October 1, 2003, by 10 percent.
(ii) October 1, 2004, by 20 percent.
(iii) October 1, 2005 and all subsequent years, by 30 percent.
(i) Exception. Bad debts arising from services paid under a
reasonable charge-based methodology or a fee schedule are not
reimbursable under the program.
Subpart H--Payment for End-Stage Renal Disease (ESRD) Services and
Organ Procurement Costs
3. In Sec. 413.178, paragraph (a) is revised to read as follows:
Sec. 413.178 Bad debts.
(a) CMS will reimburse each facility its allowable Medicare bad
debts, as defined in Sec. 413.80(b)(1), as determined under Medicare
principles, in a single lump sum payment at the end of the facility's
cost reporting period. The amount of allowable bad debt is reduced in
accordance with Sec. 413.80(h)(2).
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.774,
Medicare--Supplementary Medical Insurance Program)
Dated: September 3, 2002.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
Approved: January 2, 2003.
Tommy G. Thompson,
Secretary.
[FR Doc. 03-2974 Filed 2-3-03; 4:31 pm]
BILLING CODE 4120-01-P