[Code of Federal Regulations]

[Title 42, Volume 3]

[Revised as of October 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 42CFR489.28]



[Page 949-950]

 

                         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 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



[[Page 950]]



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]