[Code of Federal Regulations]
[Title 42, Volume 3]
[Revised as of October 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 42CFR489.28]

[Page 948-949]
 
                         TITLE 42--PUBLIC HEALTH
 
  CHAPTER IV--CENTERS FOR MEDICARE & MEDICAID SERVICES, DEPARTMENT OF 
                  HEALTH AND HUMAN SERVICES (CONTINUED)
 
PART 489_PROVIDER AGREEMENTS AND SUPPLIER APPROVAL--Table of Contents
 
               Subpart B_Essentials of Provider Agreements
 
Sec. 489.28  Special capitalization requirements for HHAs.

    (a) Basic rule. An HHA entering the Medicare program on or after 
January 1, 1998, including a new HHA as a result of a change of 
ownership, if the change of ownership results in a new provider number 
being issued, must have available sufficient funds, which we term 
``initial reserve operating funds,'' to operate the HHA for the three 
month period after its Medicare provider agreement becomes effective, 
exclusive of actual or projected accounts receivable from Medicare or 
other health care insurers.
    (b) Standard. Initial reserve operating funds are sufficient to meet 
the requirement of this section if the total amount of such funds is 
equal to or greater than the product of the actual average cost per 
visit of three or more similarly situated HHAs in their first year of 
operation (selected by CMS for comparative purposes) multiplied by the 
number of visits projected by the HHA for its first three months of 
operation--or 22.5 percent (one fourth of 90 percent) of the average 
number of visits reported by the comparison HHAs--whichever is greater.
    (c) Method. CMS, through the intermediary, will determine the amount 
of the initial reserve operating funds using reported cost and visit 
data from submitted cost reports for the first full year of operation 
from at least three HHAs that the intermediary serves that are 
comparable to the HHA that is seeking to enter the Medicare program, 
considering such factors as geographic location and urban/rural status, 
number of visits, provider-based versus free-standing, and proprietary 
versus non-proprietary status. The determination of the adequacy of the 
required initial reserve operating funds is based on the average cost 
per visit of the comparable HHAs, by dividing the sum of total reported 
costs of the HHAs in their first year of operation by the sum of the 
HHAs' total reported visits. The resulting average cost per visit is 
then multiplied by the projected visits for the first three months of 
operation of the HHA seeking to enter the program, but not less than 90 
percent of average visits for a three month period for the HHAs used in 
determining the average cost per visit.
    (d) Required proof of availability of initial reserve operating 
funds. The HHA must provide CMS with adequate proof of the availability 
of initial reserve operating funds. Such proof, at a minimum, will 
include a copy of the statement(s) of the HHA's savings, checking, or 
other account(s) that contains the funds, accompanied by an attestation 
from an officer of the bank or other financial institution that the 
funds are in the account(s) and that the funds are immediately available 
to

[[Page 949]]

the HHA. In some cases, an HHA may have all or part of the initial 
reserve operating funds in cash equivalents. For the purpose of this 
section, cash equivalents are short-term, highly liquid investments that 
are readily convertible to known amounts of cash and that present 
insignificant risk of changes in value. A cash equivalent that is not 
readily convertible to a known amount of cash as needed during the 
initial three month period for which the initial reserve operating funds 
are required does not qualify in meeting the initial reserve operating 
funds requirement. Examples of cash equivalents for the purpose of this 
section are Treasury bills, commercial paper, and money market funds. As 
with funds in a checking, savings, or other account, the HHA also must 
be able to document the availability of any cash equivalents. CMS later 
may require the HHA to furnish another attestation from the financial 
institution that the funds remain available, or, if applicable, 
documentation from the HHA that any cash equivalents remain available, 
until a date when the HHA will have been surveyed by the State agency or 
by an approved accrediting organization. The officer of the HHA who will 
be certifying the accuracy of the information on the HHA's cost report 
must certify what portion of the required initial reserve operating 
funds is non-borrowed funds, including funds invested in the business by 
the owner. That amount must be at least 50 percent of the required 
initial reserve operating funds. The remainder of the reserve operating 
funds may be secured through borrowing or line of credit from an 
unrelated lender.
    (e) Borrowed funds. If borrowed funds are not in the same account(s) 
as the HHA's own non-borrowed funds, the HHA also must provide proof 
that the borrowed funds are available for use in operating the HHA, by 
providing, at a minimum, a copy of the statement(s) of the HHA's 
savings, checking, or other account(s) containing the borrowed funds, 
accompanied by an attestation from an officer of the bank or other 
financial institution that the funds are in the account(s) and are 
immediately available to the HHA. As with the HHA's own (that is, non-
borrowed) funds, CMS later may require the HHA to establish the current 
availability of such borrowed funds, including furnishing an attestation 
from a financial institution or other source, as may be appropriate, and 
to establish that such funds will remain available until a date when the 
HHA will have been surveyed by the State agency or by an approved 
accrediting organization.
    (f) Line of credit. If the HHA chooses to support the availability 
of a portion of the initial reserve operating funds with a line of 
credit, it must provide CMS with a letter of credit from the lender. CMS 
later may require the HHA to furnish an attestation from the lender that 
the HHA, upon its certification into the Medicare program, continues to 
be approved to borrow the amount specified in the letter of credit.
    (g) Provider agreement. CMS does not enter into a provider agreement 
with an HHA unless the HHA meets the initial reserve operating funds 
requirement of this section.

[63 FR 312, Jan. 5, 1998]