15106 Federal Register / Vol. 76, No. 53 / Friday, March 18, 2011 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare and Medicaid 

Services 

42 CFR Part 488 

[CMS–2435–F] 

Medicare and Medicaid Programs; Civil 

Money Penalties for Nursing Homes 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule will revise and 

expand current Medicare and Medicaid 

regulations regarding the imposition 

and collection of civil money penalties 

by CMS when nursing homes are not in 

compliance with Federal participation 

requirements in accordance with section 

6111 of the Affordable Care Act of 2010. 

DATES: These regulations are effective 

on January 1, 2012. 

FOR FURTHER INFORMATION CONTACT: Lori 

Chapman, (410) 786–9254. 

SUPPLEMENTARY INFORMATION: 

I. Background 

To participate in the Medicare 

program or the Medicaid program, or 

both, long-term care facilities must be 

certified as meeting Federal 

participation requirements. Section 

1864(a) of the Social Security Act (the 

Act) authorizes the Secretary to enter 

into agreements with State survey 

agencies to determine whether facilities 

meet the Federal participation 

requirements for Medicare. Section 

1902(a)(33)(B) of the Act provides for 

State survey agencies to perform the 

same survey tasks for facilities 

participating or seeking to participate in 

the Medicaid program. The results of 

Medicare and Medicaid related surveys 

are used by CMS and the State Medicaid 

agency, respectively, as the basis for a 

decision to enter into or deny a provider 

agreement, recertify facility 

participation in one or both programs, 

or terminate the facility from the 

program. They are also used to 

determine whether one or more 

enforcement remedies should be 

imposed where noncompliance with 

Federal requirements is identified. 

To assess compliance with Federal 

participation requirements, surveyors 

conduct onsite inspections (surveys) of 

facilities. In the survey process, 

surveyors directly observe the actual 

provision of care and services to 

residents and the effect or possible 

effects of that care to assess whether the 

care provided meets the assessed needs 

of individual residents. 

Among the statutory enforcement 

remedies available to the Secretary and 

the States to address facility 

noncompliance are civil money 

penalties. Authorized by sections 

1819(h) and 1919(h) of the Act, civil 

money penalties may be imposed for 

each day or each instance of facility 

noncompliance, as well as for past 

instances of noncompliance even if a 

facility is in compliance at the time of 

the current survey. The regulations that 

govern the imposition of civil money 

penalties, as well as other enforcement 

remedies authorized by the statute, were 

published in the Federal Register on 

November 10, 1994 (59 FR 56116), and 

on March 18, 1999 (64 FR 13354). These 

rules are set forth at Part 488, Subpart 

F, and the provisions directly affecting 

civil money penalties are set forth at 

§ 488.430 through § 488.444. In the 

proposed rule, published on July 12, 

2010, preceding this final regulation, we 

discussed in more detail civil money 

penalties for facility’s noncompliance, a 

facility’s option to dispute cited 

deficiencies and the facility’s right to 

waive a hearing within specified 

timeframes and procedures (75 FR 

39641). 

As specified in section 1128A(f) of the 

Act, which is incorporated in sections 

1819(h) and 1919(h) of the Act, and 

consistent with the way other civil 

money penalties are recovered, monies 

collected by CMS are returned to the 

State in proportion commensurate with 

the relative proportion of Medicare and 

Medicaid beds at the facility in use by 

residents of the respective programs on 

the date the civil money penalty begins 

to accrue, and remaining funds are 

deposited as miscellaneous receipts of 

the United States Department of the 

Treasury. Section 1919(h)(2)(A)(ii) of 

the Act specifies that civil money 

penalties collected by the State must be 

applied to the protection of the health 

or property of residents of any nursing 

facility that the State or CMS finds 

deficient, including payment for the 

cost of relocating residents to other 

facilities, maintenance of operation of a 

facility pending correction of 

deficiencies or closure, and 

reimbursement of residents for personal 

funds lost. 

II. Summary of the Proposed Provisions 

and Responses to Comments on the 

Proposed Rule 

A. Overview 

In the July 12, 2010 Federal Register 

(75 FR 39641), we published a proposed 

rule to revise and expand current 

Medicare and Medicaid regulations 

regarding the imposition and collection 

of civil money penalties by CMS when 

nursing homes are not in compliance 

with Federal participation requirements. 

In response to the proposed rule, we 

received approximately 213 public 

comments. We received comments from 

various States, health care associations, 

nursing homes, individuals, provider 

advocacy organizations and consumer 

advocacy organizations. The comments 

for this proposal ranged from general 

support of or general opposition to the 

proposal to more specific comments 

regarding the proposed rule. 

In this final rule we provide a 

summary of each proposed provision, a 

summary of the public comments 

received, our responses to them, and 

any changes we are implementing in 

this final rule as a result of comments 

received. 

Section 6111 of the Patient Protection 

and Affordable Care Act (the Affordable 

Care Act) (Pub. L. 111–148), enacted on 

March 23, 2010, amended sections 

1819(h) and 1919(h) of the Social 

Security Act (the Act) to incorporate 

specific provisions pertaining to the 

imposition and collection of civil 

money penalties when facilities do not 

meet Medicare and Medicaid 

participation requirements. 

We believe that through these new 

statutory provisions, Congress has 

expressed its intent to improve 

efficiency and effectiveness of the 

nursing home enforcement process, 

particularly as it relates to civil money 

penalties imposed by CMS. 

These provisions in section 6111 of 

the Affordable Care Act seek to reduce 

the delay which results between the 

identification of problems with 

noncompliance and the effect of certain 

penalties that are intended to motivate 

a nursing home to maintain continuous 

compliance with basic expectations 

regarding the provision of quality care. 

They also seek to eliminate a facility’s 

ability to significantly defer the direct 

financial effect of an applicable civil 

monetary penalty until after an often 

long litigation process. 

To implement these new statutory 

provisions, we proposed to revise Part 

488 by adding new § 488.431 and 

§ 488.433. We also proposed revisions to 

existing regulations throughout Part 488 

to further incorporate the new statutory 

provisions. The proposed changes 

would be consistent with section 6111 

of the Affordable Care Act. We noted 

that the proposed rule would provide 

for the establishment of an escrow 

account where civil money penalties 

may be placed until any applicable 

administrative appeal processes have 

been completed; allow for civil money 

penalty reductions when facilities selfVerDate Mar<15>2010 17:56 Mar 17, 2011 Jkt 223001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\18MRR2.SGM 18MRR2

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report and promptly correct their 

noncompliance; in cases where civil 

money penalties are imposed, offer an 

independent informal dispute 

resolution process where the interests of 

both facilities and residents are 

represented and balanced; and, improve 

the extent to which civil money 

penalties collected from Medicare 

facilities can benefit nursing home 

residents. Through the proposed 

revisions, we intended to directly 

promote and improve the health, safety, 

and overall well-being of residents. 

B. Analysis of and Response to Public 

Comments 

1. Establishment of an Escrow Account 

for Civil Money Penalties 

Under the existing process, facilities 

are able to avoid paying a civil money 

penalty for years because it can often 

take a long time for administrative 

appeals to be completed. Concerns 

about the delays in payment of a civil 

money penalty have been raised in 

independent reports issued by both the 

United States Government 

Accountability Office (GAO) and the 

Office of the Inspector General of the 

Department of Health and Human 

Services (OIG). 

Sections 6111(a) and (b) of the 

Affordable Care Act expand sections 

1819(h)(2)(B)(ii) and 1919(h)(3)(C)(ii) of 

the Act by adding a new subsection 

(IV)(bb) which states that, in the case of 

civil money penalties imposed for each 

day of noncompliance, the penalty will 

not be collected until after the 

independent informal dispute 

resolution process under new section 

(IV)(aa) is completed, by which the 

facility may informally challenge the 

noncompliance on which the penalty 

was based. (The added provisions 

regarding the new independent informal 

dispute resolution process are discussed 

later in section II.B.3. of this preamble.) 

In the proposed rule, we interpreted 

the language of this new section (IV)(bb) 

to mean that any per day civil money 

penalty would be effective and continue 

to accrue but would not be collected 

during the time that the determination 

of noncompliance which led to the 

imposition of a civil money penalty is 

subject to the independent informal 

dispute resolution process. This is 

consistent with other provisions of 

section 6111 of the Affordable Care Act 

and when viewed in the context of the 

purpose of the enforcement process of 

the Social Security Act. First, new 

subsection (IV)(cc) of sections 

1819(h)(2)(B)(ii) and 1919(h)(3)(C)(ii), as 

amended by section 6111 of the 

Affordable Care Act, permits the 

collection of the civil money penalty 

upon completion of an independent 

informal dispute resolution process. If 

the per day civil money penalty did not 

apply and accrue during the period of 

an independent informal dispute 

resolution process, there would not be 

any civil money penalty funds to collect 

upon completion of the process in those 

cases where the independent informal 

dispute resolution does not result in any 

change to the findings. In those cases 

where this independent informal 

dispute resolution process does result in 

a change to the findings that would 

lower the civil money penalty amounts, 

then the accrual would be immaterial 

because the civil money penalties 

would be appropriately adjusted (i.e. 

were reduced or rescinded) back to the 

effective date of the civil money 

penalty. Second, it has been CMS’s 

longstanding position that sections 

1819(h) and 1919(h) of the Act provide 

that a per day civil money penalty can 

begin to accrue as early as the date that 

a facility was first determined to be out 

of compliance and continues to accrue, 

without interruption, until a facility has 

achieved substantial compliance or is 

terminated from the program. 

Additionally, the Act provides that the 

effective date of a civil money penalty 

can be retroactive to the date of an 

adverse event that was documented 

through the survey process to have 

occurred prior to the issuance of a 

formal written notice informing the 

facility that a per day civil money 

penalty has been applied. Section 6111 

of the Affordable Care Act does not 

change the existing nursing home 

enforcement process; rather it adds an 

additional process to be available to 

facilities as a result of the Secretary’s 

new authority to collect a civil money 

penalty before exhaustion of 

administrative remedies. Third, since a 

facility may continue to be out of 

substantial compliance for a period of 

time until it is terminated from the 

program, an interruption in the civil 

money penalty accrual would be 

contrary to the intended effect of 

creating financial incentives for 

facilities to maintain compliance and 

promptly correct any noncompliance. 

Since we believe Congress intended to 

speed and strengthen the motivational 

and deterrent effects of civil money 

penalties, we believe that suspending 

the accrual of a civil money penalty 

while the underlying noncompliance 

was being informally challenged would 

undermine such motivational effects. 

We therefore proposed that CMS will 

not collect applicable civil money 

penalty funds until either an 

independent informal dispute 

resolution process is completed or 90 

days has passed since the notice of civil 

money penalty imposition has been 

issued, whichever is earlier. The 90 day 

period is the maximum combined time 

period permitted from the date of the 

notice of civil money penalty 

imposition (when a facility has the 

opportunity to request an independent 

informal dispute resolution) to the date 

for completion of the independent 

informal dispute resolution process 

itself. This combined maximum time 

period is consistent with the provisions 

of new sections 1819(h)(2)(B)(ii)(IV)(cc) 

and 1919(h)(3)(C)(ii)(IV)(cc) of the Act, 

as amended by section 6111 of the 

Affordable Care Act (which is discussed 

in more detail below). 

i. Collection and Placement in Escrow 

Account 

Sections 6111(a) and (b) of the 

Affordable Care Act add new sections 

1819(h)(2)(B)(ii)(IV)(cc) and 

1919(h)(3)(C)(ii)(IV)(cc) of the Act 

which provide the authority for CMS to 

collect and place civil money penalties 

into escrow accounts pending the 

resolution of an appeal. This may be 

done on the earlier of (1) the date when 

a requested independent informal 

dispute resolution process is completed, 

or (2) 90 days after imposition of the 

civil money penalty. We have proposed 

implementing these requirements at 

§ 488.431(b)(1)(i) and § 488.431(b)(1)(ii). 

While the amended statutory language 

contemplates that a facility will be 

either wholly successful or unsuccessful 

in challenging its determination of 

noncompliance during the independent 

informal dispute resolution process, the 

proposed regulation reflects an 

understanding that there are times when 

a facility is partly successful. In such 

instances, the facility may be able to 

argue successfully for change to only 

some of its cited noncompliance. 

If such change as a result of the 

independent informal dispute 

resolution were to affect the civil money 

penalty amounts owed, (for example, 

through deletion of a germane 

deficiency), then the amount initially 

imposed would need to be adjusted 

accordingly before being collected and 

placed in the escrow account. 

ii. When a Facility Is Successful in a 

Formal Administrative Appeal 

Sections 6111(a) and (b) of the 

Affordable Care Act amend sections 

1819(h)(2)(B)(ii) and 1919(h)(3)(C)(ii) of 

the Act by adding new section (IV)(dd) 

which provides that collected civil 

money penalties may be kept in an 

escrow account pending the resolution 


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of any subsequent appeals. Sections 

6111(a) and (b) of the Affordable Care 

Act also adds new section (IV)(ee) to 

revise sections 1819(h)(2)(B)(ii) and 

1919(h)(3)(C)(ii) of the Act, to require 

that when a final administrative 

decision results in the successful appeal 

of a facility’s cited determination of 

noncompliance that led to the 

imposition of the civil money penalty, 

that civil money penalty amount being 

held in escrow will then be returned to 

the facility, with interest. We have 

proposed at § 488.431(d)(2) that if the 

administrative law judge (ALJ) reverses 

the civil money penalty amount in 

whole or in part, the escrowed amount 

continues to be held pending expiration 

of the time for CMS to appeal the ALJ 

decision or, where CMS does appeal, a 

Departmental Appeals Board decision 

affirming the ALJ’s reversal of the civil 

money penalty. We believe these new 

statutory provisions contemplate not 

only a situation where the facility is 

either wholly successful or unsuccessful 

in its administrative appeal of a 

determination which led to a civil 

money penalty imposition, but that they 

also include situations in which a 

facility is partially successful in its 

appeal. Thus, the proposed regulation 

recognizes this possibility and provides 

that CMS will return collected civil 

money penalty amounts commensurate 

with the final administrative appeal 

results. We do not plan to include 

specifics in this regulation about how 

these requirements would be 

operationalized because we believe that 

such guidance is more appropriately 

suited for inclusion in our State 

Operations Manual after dialogue with 

interested stakeholders. However, we do 

expect that the collection of a per day 

civil money penalty under this final rule 

may be a two-step process. In proposed 

§ 488.431(b)(2), we expect that in 

instances when a facility has not 

achieved substantial compliance at the 

time a per day civil money penalty can 

be collected and placed in an escrow 

account, that collection would consist of 

the penalty amount that has accrued 

from the effective date of the penalty 

through the date of collection. Another 

collection would need to occur later in 

the process for any final balance 

determined to be due and payable once 

the facility achieves substantial 

compliance or is terminated from the 

program. 

The comments we received and our 

responses are set forth below. 

Comment: A few commenters wanted 

to know who will be responsible for the 

collected amounts and how will it be 

processed and tracked. 

Response: CMS will be responsible 

through its accounting component to 

oversee the collection process and the 

maintenance of the escrow account, 

while a CMS data component will 

maintain the system that will record and 

track any possible administrative 

appeals associated with the collected 

civil money penalty. 

Comment: Several commenters 

expressed concern that the early 

collections and escrowing of civil 

money penalty amounts has the 

potential for disrupting the cash flow 

that nursing homes need to successfully 

operate especially in smaller facilities. 

Other commenters felt CMS may impose 

significant civil money penalties on a 

SNF that may not have the available 

resources to put the total civil money 

penalty amount into escrow and to pay 

the costs associated with a formal 

appeal. If the resources are unavailable 

and there are no alternatives to posting 

the full amount of the civil money 

penalties, the commenters argued that 

CMS will have effectively denied 

participating SNFs any meaningful 

opportunity to contest survey findings. 

Such a result would operate to deprive 

SNFs of their due process rights under 

the 5th Amendment to the U.S 

Constitution based upon their 

recognized property and liberty interest. 

CMS should therefore permit SNFs to 

enter into payment plans, to post bonds 

or to use other alternative approaches to 

secure payment and allow SNFs to 

freely access these options. 

Response: We understand that there 

may be rare cases where a particular 

provider could have limited funds due 

to the financial viability of their entity. 

In fact, our existing regulations at 

§ 488.438 provide that a facility’s 

financial condition is one factor that is 

considered in determining the amount 

of the civil money penalty to be 

imposed. However, the commenter 

raises the prospect that the problem for 

the facility may not be so much the 

eventual sum total amount of civil 

monetary payments due, but rather the 

more immediate timetable for the 

placement of funds in escrow. 

Therefore, in response to the comments 

received, we have revised § 488.431(b) 

by adding a new subsection (3) that 

states ‘‘CMS may provide for an escrow 

payment schedule that differs from the 

collection times of paragraph (1) of this 

subsection in any case in which CMS 

determines that more time is necessary 

for deposit of the total civil money 

penalty into an escrow account, not to 

exceed 12 months if CMS finds that 

immediate payment would create 

substantial and undue financial 

hardship on the facility.’’ 

In addition, at § 488.431(b)(4), we 

state that ‘‘If the full civil money penalty 

is not placed in an escrow account 

within 30 calendar days from the date 

the provider receives notice of 

collection, or within 30 calendar days of 

any due date established pursuant to a 

hardship finding under paragraph (b)(3), 

CMS may deduct the amount of the civil 

money penalty from any sum then or 

later owed by CMS or the State to the 

facility in accordance with 

§ 488.442(c).’’ 

While we appreciate the practical 

financial challenges for some nursing 

homes in rare circumstances, we do not 

agree that under this rule facilities 

would be denied any due process. The 

new independent informal dispute 

resolution process is an option available 

for facilities to contest survey findings 

prior to the collection of civil money 

penalties to be placed in escrow and 

should reduce the chances of erroneous 

deprivation. This is followed by postcollection full formal hearing before the 

Departmental Appeals Board that has 

always been available for contesting the 

findings that led to the imposition of a 

civil money penalty. We believe that 

these two processes address any due 

process concerns. Furthermore, we 

believe that there are additional 

safeguards and protections available to 

facilities to challenge the accuracy of 

survey findings at various points during 

the survey, including interviews during 

the survey and the exit conference. 

Comment: One commenter 

recommended changing ‘‘may’’ to ‘‘shall’’ 

in proposed § 488.431(b)(1) so that the 

civil money penalty is always placed in 

escrow when a facility requests 

independent informal dispute 

resolution. Conversely, we received 

several comments indicating that the 

statutory language appeared to be 

discretionary and allowed the Secretary 

to require that not all civil money 

penalties be placed in escrow. 

Response: Section 6111 of the 

Affordable Care Act amends sections 

1819(h) and 1919(h) of the Act that 

provide the Secretary with the broad 

discretion to collect and place civil 

money penalties into an escrow account 

pending resolution of any subsequent 

appeal. The opportunity to participate 

in an independent informal dispute 

resolution is triggered when a civil 

money penalty imposed against the 

facility is subject to being collected and 

placed in an escrow account prior to the 

resolution of an appeal. In order to 

phase in the new collection and escrow 

provisions, CMS intends to initially 

focus only on civil money penalties 

imposed as a result of the most serious 

deficiencies. These would be the civil 


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Federal Register / Vol. 76, No. 53 / Friday, March 18, 2011 / Rules and Regulations 15109 

money penalties that would be subject 

to being placed into escrow and, 

subsequently, an independent informal 

dispute resolution process. Thus, we are 

revising proposed § 488.431(a) to clarify 

that the opportunity for independent 

informal dispute resolution will be 

offered within 30 days of the notice of 

the imposition of a civil money penalty 

that will be collected and placed into 

escrow. We are also revising 

§ 488.431(b) and § 488.442 to clarify that 

the collection process and due date for 

less serious civil money penalties will 

be the same for civil money penalties 

imposed by the state; in other words, 

CMS will use the process that is used by 

the states for collecting those penalties 

that are not placed into escrow until 

CMS completely phases in the new 

collection process. CMS will issue 

further guidance at a later date regarding 

the collection and escrow provision as 

well as the companion independent 

informal dispute resolution process. 

Comment: One commenter wanted 

clarification on CMS’s proposed 

establishment of an escrow account for 

civil money penalties. One commenter 

pointed out that in the case of per day 

penalty, subsection (a)(1)(B)(IV)(bb) of 

section 6111 is explicit that ‘‘a penalty 

may not be imposed for any day during 

the period beginning on the initial day 

of imposition of the penalty and ending 

on the day on which the informal 

dispute process under item (aa) is 

completed.’’ The NPRM states that CMS 

interprets this to mean that ‘‘any per day 

civil money penalty would be effective 

and continue to accrue but not be 

collected.’’ A commenter asked if this 

means the civil money penalty is not 

formally imposed in the first notice to 

the facility. Another commenter argued 

that CMS ignores the quoted language, 

interpreting the legislation to mean that 

a per day penalty cannot be collected 

during the period between imposition of 

the penalty and the conclusion of the 

dispute resolution process, but it can 

continue to accrue and be collected 

thereafter. The commenter argued that 

none of the reasons CMS offers for its 

interpretation are compelling or 

supported in law, and that the goal of 

the survey and certification process is to 

verify or secure substantial compliance 

with federal requirements, not generate 

revenue. Secondly, the commenter 

stated that long standing positions must 

yield to changes in the law, that CMS 

has no authority to render this minimal 

incentive smaller still, and that if 

anything, the interruption in penalty 

accrual is incentive for CMS to provide 

for speedy independent review 

processes. 

Response: The notice of the 

opportunity for the independent 

informal dispute resolution process is 

included in the notice of the imposition 

of civil money penalties, as specified in 

proposed § 488.431. The Affordable 

Care Act specifies that the right to 

participate in an independent informal 

dispute resolution process applies when 

a civil money penalty is imposed and 

collected to be placed into an escrow 

account pending the resolution of any 

subsequent appeals. To consider the 

civil money penalty as not being 

imposed until after the independent 

informal dispute resolution occurs 

would result in circular logic that could 

result in a facility not being able to 

choose to participate in the independent 

informal dispute resolution since it 

could not contend that a civil money 

penalty had been imposed. 

Consequently, we believe that the 

statute intends that the penalty will not 

be collected until after a facility has had 

an opportunity for an independent 

informal dispute resolution process by 

which the facility may informally 

challenge the noncompliance on which 

the penalty was based. 

In addition, if a per day civil money 

penalty did not apply and accrue during 

the period of an independent informal 

dispute resolution process, there would 

not be any civil money penalty funds to 

collect upon completion of the process 

in those cases where the dispute 

resolution does not result in any change 

to the findings. This would create 

incentives to request an independent 

informal dispute resolution in every 

case, even when the facts or findings 

were not truly in dispute, simply to 

reduce the immediate and intended 

financial impact of a civil monetary 

penalty, a result we view as inconsistent 

with the purpose of strengthening the 

deterrent effect of such a penalty. In 

those cases where this independent 

informal dispute resolution process 

does result in a change to the findings 

that would lower the civil money 

penalty amounts, then the accrual 

would be immaterial because the civil 

money penalties will be reduced or 

rescinded back to the effective date of 

the civil money penalty. Furthermore, 

Section 6111 of the Affordable Care Act 

does not change the existing nursing 

home enforcement process; rather, it 

adds an additional process to protect 

facilities from early collection of a civil 

money penalty based on possibly 

erroneous deficiency findings before 

exhaustion of administrative remedies. 

Finally, since a facility could continue 

to be out of substantial compliance for 

a period of time until it is terminated 

from the program, an interruption in the 

civil money penalty accrual would be 

contrary to the intended remedial effect 

of creating financial incentives for 

facilities to promptly correct and 

maintain compliance with program 

requirements. Since Congress intended 

to enhance and strengthen the 

motivational and deterrent effects of 

civil money penalties, we believe that 

suspending the accrual of a civil money 

penalty while the underlying 

noncompliance was being informally 

challenged would undermine such 

motivational effects. 

Comment: Several commenters 

questioned the meaning of ‘‘applicable 

interest’’ in the proposed rule at 

§ 488.431(d)(2). One commenter 

suggested that the rate should be 

defined as the current rate of judgment 

interest. Other commenters noted that a 

successful appeal will lead to a refund 

of the escrowed amount with interest, 

but the way such interest is to be 

calculated is not described and the 

disposition of interest in a failed appeal 

is not addressed. 

Response: We propose to use the same 

rate of interest for escrowed civil money 

penalty funds as the rate the Medicare 

statute applies in civil actions over 

reimbursement disputes. Section 

1878(f)(2) of the Act governs the 

payment of interest for providers who 

seek judicial review of Medicare 

reimbursement cases and win. This 

section specifies that the interest rate is 

equal to the rate of interest on 

obligations issued for purchase by the 

Federal Hospital Insurance Trust Fund 

for the month in which the civil action 

is filed. We propose to use the same 

interest rate formula here, and to use the 

rate in effect for the month that the civil 

money penalty is required to be placed 

in escrow. The rates for particular 

months are published at: http:// 

www.cms.gov/ 

MedicareProgramRatesStats/, (click 

‘‘Trust Fund Interest Rates’’). A 

Departmental Appeals Board decision 

affirming an administrative law judge’s 

(ALJ’s) reduction or reversal of a civil 

money penalty amount will result in a 

return of appropriate funds already 

placed in escrow, plus applicable 

interest. The disposition of interest in 

an unsuccessful appeal is addressed at 

proposed § 488.431(d)(2). If the ALJ 

reverses a civil money penalty in whole 

or in part, the escrowed amounts for 

civil money penalties levied on the 

basis of those deficiencies will continue 

to be held pending expiration of the 

time for CMS to appeal the decision. 

Where CMS does appeal and a 

Departmental Appeals Board decision 

affirms the reversal of the applicable 


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15110 Federal Register / Vol. 76, No. 53 / Friday, March 18, 2011 / Rules and Regulations 

deficiency, any collected civil money 

penalty amount owed to the facility 

based on a final administrative decision 

will be returned to the facility with 

applicable interest. 

Comment: One commenter wanted to 

know what the time frame is for 

returning collected amounts to the 

facility, when applicable. 

Response: Any collected civil money 

penalty amount later determined as 

being owed to the facility will be 

returned to the facility with applicable 

interest after a final administrative 

decision. The final administrative 

decision is either a decision of the ALJ 

or the Departmental Appeal Boards 

(DAB) Appellate Division, or when the 

time to appeal has passed. We expect 

that funds will be returned within 90 

days of any final administrative 

decision, which is the same timeframe 

given to facilities to pay a civil money 

penalty into an escrow account. 

Comment: One commenter pointed 

out that the proposed regulatory text at 

§ 488.431(c) refers to § 488.431(e) which 

does not exist. 

Response: We appreciate this 

technical comment and are revising the 

regulatory text in this final rule at 

§ 488.431(c) to refer to the appropriate 

section, which is § 488.431(d)(2). 

2. Reduction of a Civil Money Penalty 

by 50 percent for Self-Reporting and 

Prompt Correction of Noncompliance. 

Sections 6111(a) and (b) of the 

Affordable Care Act add new sections 

1819(h)(2)(B)(ii)(II) and (III) and 

1919(h)(3)(C)(ii)(II) and (III) of the Act. 

These sections establish new authorities 

for CMS to reduce a civil money penalty 

it imposes by up to 50 percent when 

CMS determines that a facility has selfreported and promptly corrected its 

noncompliance. This new provision 

explicitly provides that such reduction 

is not applicable for noncompliance that 

constitutes immediate jeopardy to 

resident health and safety as defined at 

§ 489.3, or that constitutes either a 

pattern of harm or widespread harm to 

facility residents, or that resulted in a 

resident’s death. Additionally, the new 

provisions clearly specify that this 

reduction does not apply to a civil 

money penalty that was imposed for a 

repeated deficiency that resulted in a 

civil money penalty reduction under 

this section in the previous year. 

The proposed rule would permit CMS 

to reduce a civil money penalty if a 

facility self-reports and promptly 

corrects quality problems. The new 

reduction authority works in harmony 

with section 6102 of the Affordable Care 

Act that requires nursing homes to 

implement an effective ethics and 

compliance program as well as an 

internal quality assurance and 

performance improvement program. The 

requirements in both sections 6111 and 

6102 of the Affordable Care Act 

emphasize the value of systems within 

a nursing home that can continuously 

stream performance information back to 

its facility management with the 

expectation that problems with the 

provision of quality care would be 

identified and promptly remedied, and 

that system improvements would be put 

in place to prevent recurrence. New 

sections 1819(h)(2)(B)(ii)(II) and (III) and 

1919(h)(3)(C)(ii)(II) and (III) of the Act, 

as amended by sections 6111(a) and (b) 

of the Affordable Care Act, support 

section 6102 of the Affordable Care Act, 

promoting quality assurance and 

improvement by adding a financial 

incentive through the 50 percent 

reduction of a civil money penalty 

following self-reporting and prompt 

correction of such problems. We have 

proposed implementing these new 

requirements at § 488.438(c). 

The language of the new statutory 

provision permissively states that the 

Secretary may reduce an imposed civil 

money penalty by up to 50 percent 

‘‘where a facility self-reports and 

promptly corrects a deficiency for 

which a penalty was imposed under this 

clause not later than 10 calendar days 

after the date of such imposition.’’ We 

proposed that the 50 percent reduction 

would be applied only where a number 

of conditions are met. First, the facility 

must have self-reported the 

noncompliance to CMS or the State 

before it was identified by CMS or the 

State and before it was reported to CMS 

or the State by means of a complaint 

lodged by a person other than an official 

representative of the nursing home. 

Second, correction of the 

noncompliance must have occurred 

within ten calendar days of the date that 

the facility identified the deficient 

practice. For a number of reasons stated 

below, we proposed not to permit a 50 

percent reduction when the selfreporting or the correction occurred at 

any later point in time. To credit a 

facility with ‘‘self-reporting’’ only after a 

facility has been surveyed and 

noncompliance has been discovered by 

CMS would not meet the common sense 

meaning of ‘‘self-reporting.’’ We 

therefore proposed to give meaning to 

this provision in a manner that can best 

encourage facilities to self-report their 

noncompliance so that they can take the 

necessary corrective action as quickly as 

possible, without waiting for the State 

or CMS to identify or to cite the 

noncompliance, and thus be rewarded 

for their efforts. Therefore, under the 

discretion provided to us in this 

provision, we have declined to reduce a 

civil money penalty by 50 percent when 

a facility attempts to self-report 

noncompliance after it has already been 

identified by CMS. Rather, we proposed 

at § 488.438(c)(2)(i) and (ii) that, among 

other criteria, in order for a facility to 

receive this 50 percent reduction, CMS 

must determine that the facility selfreported and corrected the 

noncompliance within 10 days of 

identifying it, and before it was 

identified by CMS or the State. In 

addition we specified that any 

attempted self-reporting of 

noncompliance by a facility that occurs 

after it was already identified by CMS 

will not be considered for any reduction 

under this proposed provision. 

In accordance with sections 6111(a) 

and (b) of the Affordable Care Act, 

which adds new subsections (III)(bb) to 

sections 1819(h)(2)(B)(ii) and 

1919(h)(3)(C)(ii) of the Act, 

noncompliance constituting immediate 

jeopardy, a pattern of harm, widespread 

harm, or resulting in a resident’s death 

is not eligible for the civil money 

penalty reduction that might otherwise 

be available in the case of self-reporting 

and prompt correction. Therefore, we 

proposed adding this limitation at 

§ 488.438(c)(2)(iv). Noncompliance at 

these scope and severity levels indicates 

a significant breakdown in facility 

performance and systems to the extent 

that, even if self-reported, warrants an 

equally significant consequence without 

the benefit of a considerable reduction. 

Furthermore, new sections 

1819(h)(2)(B)(ii)(III)(aa) and 

1919(h)(3)(C)(ii)(III)(aa) of the Act, as 

amended by sections 6111(a) and (b) of 

the Affordable Care Act, also specify 

that the reduction under these 

provisions would not apply for facilities 

that have repeated noncompliance for 

which a penalty reduction under this 

provision was received during the 

previous year. We proposed to add this 

limitation at § 488.438(c)(2)(v). We 

believe, and Congress clearly indicated, 

that facilities unwilling or unable to 

maintain and sustain compliance with 

the same participation requirements 

over this period of time should not be 

rewarded with a reduced civil money 

penalty. This is consistent with current 

regulations at § 488.438(d)(2) which 

require that the State and CMS must 

increase the civil money penalty 

amount for any repeated deficiencies for 

which a lower level penalty amount was 

previously imposed. Current regulations 

at § 488.438(d)(3) define repeated 

deficiencies as ‘‘deficiencies in the same 

regulatory grouping of requirements 


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found at the last survey, subsequently 

corrected, and found again at the next 

survey.’’ 

We also proposed at 

§ 488.438(c)(2)(iii) to specify that a 

facility must waive its right to a hearing 

in order to receive this 50 percent 

reduction. This is because, by the 

facility’s own admission through its 

self-reporting and correction, it has 

acknowledged its noncompliance, 

thereby substantially eliminating the 

basis for any formal appeal. Should a 

facility elect to expend its resources on 

an administrative appeal, we believe it 

should choose between the 50 percent 

reduction otherwise available or 

pursuing the appeal. We also reinforced 

the incentive of a facility to invest in its 

program improvement by making it 

clear that the civil money penalty 

reduction for self-reporting and prompt 

correction will be at the maximum 50 

percent level rather than any other 

permissible lower percentage amount. 

The Secretary’s authority for such a civil 

money penalty reduction under Section 

6111 of the Affordable Care Act is 

discretionary and states that the 

reduction may be ‘‘up to 50 percent.’’ To 

maximize the incentives for quality 

improvement, and to remove 

uncertainty for nursing homes, we 

proposed to set the percentage reduction 

at the highest permissible level of 50 

percent in these circumstances. 

In proposed § 488.436(b)(1) and 

§ 488.438(c)(3), we proposed to amend 

these sections to specify that a facility 

may receive only one and not both of 

the available civil money penalty 

reductions. Under existing regulations 

at § 488.436(b), a facility may receive a 

35 percent reduction in its civil money 

penalty liability if it timely waives its 

right to appeal the determination of 

noncompliance that led to the 

imposition of the penalty. No other 

criterion needs to be met in order for a 

facility to get this 35 percent reduction. 

However, in order to receive the higher 

50 percent reduction in penalty, a 

facility must not only waive its right to 

a hearing, but it must also meet the 

specific criteria at proposed 

§ 488.438(c)(2). A qualifying facility 

may receive either the 35 percent 

reduction for waiving its right to a 

hearing or the 50 percent reduction for 

self-reporting and promptly correcting, 

but in no case will the facility receive 

both reductions at the same time. 

The comments we received and our 

responses are set forth below. 

Comment: Several commenters were 

concerned with CMS’s interpretation of 

the provisions governing the ability of 

CMS to reduce civil money penalties up 

to 50 percent when SNFs and certain 

NFs self-report and timely correct 

deficiencies. A main concern was that 

ten days from the facility’s 

identification of its noncompliance may 

not be an adequate amount of time to 

correct a deficiency and that CMS 

should instead conform to the 

timeframe that commenters believe was 

mandated by Congress, i.e. ten days 

from the date of imposition of a civil 

money penalty. In addition, many 

commenters felt that CMS had exceeded 

its authority when interpreting the 

statutory language. 

Response: The new statutory language 

at 1819(h)(2)(b)(ii)(II) provides the 

Secretary with the discretion that she 

‘‘may’’ reduce a civil money penalty by 

up to 50 percent in the case where a 

facility self-reports and promptly 

corrects a deficiency for which a penalty 

was imposed ‘‘not later than ten 

calendar days after the date of such 

imposition’’. We agree that the statutory 

language provides the Secretary with 

the discretion to permit a longer time 

frame for correction than the period in 

our proposed regulation. We also agree 

that correction of self-identified 

problems may often require more than 

the proposed ten days, particularly in 

order to effectuate systemic changes that 

can prevent recurrence of the 

problem(s). We have therefore revised 

§ 488.438(c)(2)(ii) to reflect that we have 

adjusted the timeframe for correcting a 

self-reported deficiency or deficiencies 

to be the earlier of: (a) 15 calendar days 

from the date of the self-reported 

circumstance or incident that later 

resulted in a finding of noncompliance, 

or (b) ten calendar days from the date a 

civil money penalty was imposed. 

Current regulation at 42 CFR 483.13 

requires a facility to thoroughly 

investigate certain alleged violations 

and report the findings of its 

investigation within five working days 

of the incident. Using this requirement 

as a guideline, we believe that the 15 

calendar day timeframe will provide a 

facility with about 7–10 calendar days 

to make necessary corrections after the 

five working day period in which 

facility must have completed its 

investigation of certain alleged 

violations currently specified in the 

regulations. 

To the extent that systemic changes 

are required to prevent reoccurrence, 

the 15 day timeframe will permit more 

time for facilities to design and 

implement such systemic reform. To the 

extent that a facility has an effectively 

functioning quality assurance and 

performance improvement system, then 

15 days is more likely to be a feasible 

timeframe within which to take 

remedial action. At this time we have 

elected not to use the discretion 

afforded in the statute to permit an even 

longer time period for correction 

because we believe that prompt action 

should always be taken to resolve 

deficiencies. For the same reason we 

chose to apply the maximum reduction 

permitted under the statute for a civil 

money penalty reduction when prompt 

action is indeed taken, so that the final 

rule provides that CMS will reduce a 

civil money penalty (if one were 

imposed) by the full 50 percent, as long 

as the requirements specified in 

§ 488.438(c)(2) are met. 

Comment: Several commenters 

expressed concern that offering a 50 

percent reduction for self-reporting and 

prompt correction would result in an 

increase of facilities over-reporting to 

‘‘head off’’ civil money penalties. This 

would result in an increase to an 

already overburdened State workload. 

Response: We note that the 

regulations at § 483.13 already require a 

facility to report specific actions and 

violations involving mistreatment, 

neglect or abuse, and misappropriation 

of resident property. While we 

acknowledge that offering a 50 percent 

reduction for self-reporting and prompt 

correction may result in an increase of 

facilities over-reporting, we expect that 

as facilities gain experience and 

knowledge regarding self-reporting any 

increase to the State workload will be 

mitigated. We also hope that any other 

increased reporting may be balanced by 

more timely and assertive corrective 

action by facilities, as well as improved 

care for residents. 

Comment: Several commenters asked 

that we define ‘‘previous year’’ in the 

requirement that a 50 percent reduction 

is not allowable if the civil money 

penalty is being imposed for a repeated 

deficiency that received a civil money 

penalty reduction in the previous year. 

Another suggestion was made to 

eliminate ‘‘previous year’’ altogether and 

apply CMS’s current definition of 

‘‘repeat deficiency.’’ 

Response: We accept the comment to 

eliminate ‘‘previous year’’ and to apply 

CMS’s definition of ‘‘repeated 

deficiencies’’ and have revised 

§ 488.438(c)(2)(v) accordingly. Current 

regulations at § 488.438(d)(3) define 

repeated deficiencies as ‘‘deficiencies in 

the same regulatory grouping of 

requirements found at the last survey, 

subsequently corrected, and again found 

at the next survey.’’ The State 

Operations Manual (SOM) at section 

7516.3 provides further clarification that 

repeated deficiencies are those 

deficiencies in the same regulatory 

grouping that are found at the last 

standard or abbreviated standard 


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survey, corrected, and then found again 

at the next standard or abbreviated 

standard survey. Using this definition is 

consistent with both existing regulation 

and the Affordable Care Act time frame. 

Comment: One commenter asked 

what role the State would have outside 

of its existing functions with regards to 

the self-reported deficiencies. 

Response: The State’s role with 

regards to receiving and processing selfreported incidents will not change. 

However, CMS does intend to 

implement system changes to CMS’s 

Automated Survey Processing 

Environment (ASPEN) that will allow 

States to indicate when a survey is the 

result of self-reporting. The planned 

ASPEN changes will also allow a 

notation to be included about whether 

or not a 50 percent reduction was 

applied to a civil money penalty. 

Comment: A commenter asked that 

when multiple per instance civil money 

penalties result from self-reporting, does 

the 50 percent reduction apply to the 

total, cumulative civil money penalty 

amount or to each individual civil 

money penalty instance? 

Response: The 50 percent reduction 

will apply only to civil money penalties 

that meet the requirements as defined 

by § 488.438(c). Sections 

488.438(c)(2)(iv) and (v) specify that the 

noncompliance that was self-reported 

and corrected did not constitute a 

pattern of harm, widespread harm, 

immediate jeopardy, or result in the 

death of a resident; and, the civil money 

penalty was not imposed for a repeated 

deficiency that previously received a 

civil money penalty reduction under 

this section. Each per instance civil 

money penalty would be evaluated 

individually based on the above criteria. 

All civil money penalties meeting all 

the requirements, whether one or 

multiple per instance civil money 

penalties, would receive the 50 percent 

reduction. 

Comment: Several commenters 

expressed the opinion that the 50 

percent reduction would never go into 

effect as the corrected noncompliance at 

scope and severity levels of D, E and G 

would be considered past 

noncompliance which are rarely, if ever, 

subject to civil money penalty 

imposition. 

Response: We agree that civil money 

penalties would rarely be imposed for 

deficiencies cited as past 

noncompliance at the scope and 

severity levels of D, E and G. In the case 

of deficiencies cited at the ‘‘E’’ level, this 

is considered to be a ‘‘pattern’’ of harm 

and would not be eligible for the 

reduction in any case. If the 

noncompliance is serious, although a 

scope and severity level has not been 

determined, we want to reinforce the 

need for timely correction, hence the 15 

day timeframe for correction of the 

noncompliance. 

Comment: One commenter suggested 

that we add language indicating that, in 

order to be eligible for a 50 percent 

reduction, an additional requirement 

should be that ‘‘the facility must have 

met mandatory reporting requirements 

as set forth by Federal law or regulation 

and any pertinent State law.’’ 

Response: We concur with the 

commenter. We believe that a facility 

must have met mandatory reporting 

requirements as set forth by Federal and 

State law in order to be eligible for a 50 

percent reduction and therefore, we 

have revised § 488.438(c)(2) by adding 

the following new subsection: 

(vi) The facility has met mandatory 

reporting requirements for the incident or 

circumstance upon which the civil money 

penalty is based as required by Federal law 

and State laws. 

Comment: One commenter expressed 

concern about the imposition of any 

civil money penalty when a facility has 

self-reported noncompliance. They 

further stated that the proper incentive 

to self-report should be that no punitive 

action will be taken (i.e., no deficiency 

should be cited and no civil money 

penalty imposed) so that the facility can 

openly review systems, policies and 

procedures, and educational needs with 

the goal of improving care and quality 

of life for and with residents. 

Response: We do not agree with the 

commenter. To participate in the 

Medicare and Medicaid programs, long 

term care facilities must be certified as 

meeting Federal participation 

requirements. There is an expectation 

that providers remain in compliance 

with all participation requirements. The 

regulations emphasize the need for 

continual, rather than cyclical, 

compliance and the enforcement 

process mandates that policies and 

procedures be established to promptly 

remedy deficient practices and to ensure 

that correction is lasting. Specifically, 

facilities must take the initiative and 

responsibility for continually 

monitoring their own performance to 

sustain compliance. When, through a 

survey, it is determined that a facility is 

not meeting these minimum 

requirements for participation in one or 

both programs, enforcement remedies 

may be imposed in order to encourage 

prompt compliance with participation 

requirements as well as to promote the 

continued rendering of quality health 

care in a safe environment. This is 

regardless of whether noncompliance is 

self-reported or not. It is important to 

note that the participation requirements 

are the minimum health and safety 

standards that providers are required to 

meet and failure to meet these 

requirements may lead to the imposition 

of an enforcement remedy, such as a 

civil money penalty. CMS and the States 

have a statutory responsibility to 

identify all noncompliance, regardless 

of whether or not the noncompliance 

was self-reported. Additionally, it is 

important to note that imposition of a 

civil money penalty for current or past 

noncompliance, whether or not selfreported, is not a new remedy option, 

but rather was established by the 

nursing home reform changes of the 

Omnibus Budget Reconciliation Act of 

1987 (OBRA ’87) (Pub. L. 100–203) and 

is a less severe alternative to 

termination from participation in 

Medicare, Medicaid or both programs. 

Comment: One commenter expressed 

concern that the new self-reporting 

provision would require States to 

inspect a facility twice within a ten day 

period; once to determine 

noncompliance and again to determine 

correction. This would increase 

pressure on State time and resources, 

significantly affecting the State’s survey 

and certification operations. 

Response: In very limited 

circumstances, some complaints or 

reported incidents of noncompliance 

would not warrant an on-site survey, 

especially if an alternative method of 

determining the facility’s compliance 

will suffice. For example, a facility 

providing verifiable, written evidence of 

facility repairs being completed could 

possibly be considered by a surveyor to 

be sufficient to determine that a facility 

indeed made the required repairs. In the 

proposed rule we specified that 

correction of a deficiency must occur 

within ten days of identification of the 

noncompliance. However, as we noted 

above, in this final rule we have 

extended this timeframe for facilities to 

correct self-reported noncompliance at 

§ 488.438(c)(2)(ii) but we do not always 

require the State to verify correction 

within this same timeframe. 

Comment: A few commenters argue 

that many States require self-reporting 

of events well before a facility has the 

opportunity to self-investigate and 

determine, if in fact, noncompliance has 

occurred. 

Response: A State’s own self-reporting 

requirements are enforced by the State 

and fall outside the scope of this 

regulation. 

Comment: One commenter questioned 

whether the 50 percent reduction 

applied to State-operated facilities. They 

further requested that CMS consider the 


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possibility of adding a provision that 

allows for a similar reduction for 

facilities where the civil money penalty 

is State-imposed. 

Response: The proposed regulation 

states that ‘‘When CMS determines that 

a SNF, SNF/NF or NF-only facility 

subject to a civil money penalty 

imposed by CMS * * *’’ State operated 

facilities are eligible for this reduction 

only when they are subject to a civil 

money penalty imposed by CMS. While 

we appreciate the suggestion that this 

provision also apply when the civil 

money penalty is State-imposed, there is 

currently no statutory authority for such 

application. 

Comment: One commenter asked for 

CMS to clarify whether facilities must 

self-report to the State survey agency or 

to CMS. They also asked how the 

Regional Offices would be notified of 

the self-report. 

Response: As currently provided in 

§ 483.13(c)(2), the facility would selfreport to the State survey agency. The 

State survey agency would be 

responsible for notifying the appropriate 

CMS regional office of this self-report 

using currently existing procedures. 

Comment: We received a few 

comments asking for examples of 

specific self-reporting case scenarios. 

Response: Any specific scenarios 

would be fact-driven and dealt with on 

a case by case basis. However, 

additional guidance regarding selfreporting will be provided in the State 

Operations Manual. 

Comment: A few commenters ask that 

we define ‘‘promptly’’. 

Response: As noted above, the revised 

proposed regulation at § 488.438(c)(2)(ii) 

specifies that correction of the selfreported noncompliance is considered 

to be prompt if it is corrected either 

within 15 calendar days from the date 

that the circumstance or incident 

occurred or ten calendar days from the 

date that the civil money penalty was 

imposed, whichever occurs first. 

Comment: One commenter asked 

what safeguards would be in place to 

prevent facilities from misrepresenting 

their prompt compliance. 

Response: The State survey agency 

will follow existing procedures and 

guidance for determining that a facility 

meets all federal participation 

requirements. Surveyors are trained and 

qualified to determine a facility’s 

compliance with the participation 

requirements and they will continue to 

do so. The surveyors will survey/verify 

whether or not a provider that selfreported a deficient practice was able to 

correct the practice within the specified 

timeframe and the State agency will 

inform the CMS regional office of its 

findings, who will then make the 

decision as to whether or not an 

imposed civil money penalty should be 

reduced by 50 percent. 

Comment: One commenter asked if 

‘‘promptly corrected’’ include immediate 

jeopardy deficiencies that have been 

removed during the survey. 

Response: No. If the civil money 

penalty is imposed for deficiencies 

which meet the criteria established in 

proposed § 488.438(c)(2), the civil 

money penalty will be eligible for a 50 

percent reduction. If the civil money 

penalty was imposed for a deficiency 

cited at the scope and severity level of 

immediate jeopardy, section 6111 of the 

Affordable Care Act will not permit that 

penalty amount to be reduced by 50 

percent. Section 488.438(c)(2)(iv) 

specifies that the noncompliance that 

was self-reported and corrected cannot 

constitute a scope and severity level of 

immediate jeopardy. 

Comment: One commenter suggested 

that CMS clarify when the requirements 

for self-reporting trigger an 

investigation, that facility culpability is 

not automatically presumed, and that all 

self-reported occurrences do not result 

in a deficiency and imposition of a 

remedy. 

Response: As we noted in a response 

above, in limited circumstances some 

self-reporting may not trigger a survey 

and/or the imposition of a remedy. 

Determinations about whether or not a 

deficiency exists will continue to be 

made as they are now, on a case-by-case 

basis. 

Comment: One commenter suggested 

that the proposed rule did not give 

facilities a meaningful incentive to selfreport and that it gives CMS a road map 

to impose penalties that CMS does not 

presently have. 

Response: The purpose of the 

regulation is to give nursing homes an 

incentive to self-report and promptly 

correct suspected deficient practices. 

While it is true that when a nursing 

home self-reports there is a greater 

likelihood that CMS will be on notice of 

the possibility of deficient practices, 

however the determination of 

noncompliance and the citation of 

deficiencies relies on evidence and 

documentation. CMS must maintain the 

balance between its resources to address 

noncompliance resulting from selfreported circumstances and the ability 

to manage the statutorily mandated 

survey, certification and enforcement 

process. 

Comment: Several commenters 

disagreed with the proposed rule’s 

assertion that a facility could not receive 

both a 50 percent reduction for selfreporting and prompt correction and a 

35 percent reduction for waiving the 

right to appeal an enforcement action. 

They note that there is nothing in the 

statute that would preclude a facility 

from receiving both. 

Response: The current 35 percent 

reduction for waiving the right to a 

hearing found at § 488.436(b) was 

implemented under CMS’s general 

rulemaking authority under § 1102 of 

the Act, and not as a result of a specific 

statutory directive. There is no evidence 

that Congress intended these new 

provisions under the Affordable Care 

Act to be cumulative such that a facility 

could possibly receive up to an 85 

percent total reduction of an imposed 

penalty (i.e., 35 percent for waiving an 

appeal and 50 percent for self-reporting 

and prompt correction). Indeed, 

Congress established a specific ceiling 

on the penalty amount that can be 

reduced by the Secretary, which is ‘‘not 

more than 50 percent.’’ To interpret this 

provision as the commenters suggested 

would render the enforcement remedy 

of imposing a civil money penalty 

meaningless. The purpose of a civil 

money penalty, indeed of all available 

enforcement remedies, is to protect 

residents from inadequate care and to 

motivate providers to promptly comply 

with the participation requirements and 

provide quality services. 

The new authority established under 

section 6111 of the Affordable Care Act 

provides that the reduction for selfreporting and prompt correction of 

noncompliance could be less than 50 

percent. However, rather than utilize a 

lower percentage, we have exercised the 

full discretion permitted under the law 

to specify that a civil money penalty 

reduction will be at the full 50 percent, 

rather than a lesser amount, so as to 

provide the maximum incentive to a 

facility to promptly correct problems it 

has identified. By allowing the full 50 

percent reduction, we are reinforcing 

the incentive for a facility to continually 

invest in its program evaluation and 

improvement. While providers are still 

able to choose to receive the 35 percent 

reduction for waiving their hearing 

rights under the specified procedures, 

this can only be done if they have not 

already received the 50 percent 

reduction provided under this rule. 

Therefore, at proposed § 488.436(b)(1) 

we specify that in order to receive the 

35 percent reduction under § 488.436, a 

provider shall not have received the 50 

percent reduction specified by 

§ 488.438. 

Comment: One commenter suggested 

that CMS define ‘‘self-report’’ to mean a 

voluntary written report to the State 

survey agency that the facility has 

identified and corrected potential 


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noncompliance with a requirement for 

participation. 

Response: While we appreciate the 

comment, the State survey agency will 

use its discretion to determine if and/or 

when information self-reported by a 

facility should trigger an on-site survey 

for determining if noncompliance exists. 

There may be limited circumstances 

where a written report may be sufficient 

for the State survey agency, but this 

does not apply to all. Self-reported 

incidents would be processed similar to 

complaints received by the State survey 

agency. For complaints that are not at a 

level of immediate jeopardy or actual 

harm, the state survey agency decides, 

based on information received about the 

complaint, whether to investigate the 

complaint on-site (i.e., conduct a 

survey), perform a desk review of the 

complaint, or refer it to a more 

appropriate agency. 

Comment: One commenter requested 

that we define ‘‘repeat deficiency’’ to 

mean a repeated instance of the 

violation of the same regulation which 

formed the basis of the civil money 

penalty. 

Response: Repeated deficiencies are 

defined in the regulations at 

§ 488.438(d)(3) as ‘‘deficiencies in the 

same regulatory grouping of 

requirements found at the last survey, 

subsequently corrected, and found again 

at the next survey.’’ We have concluded 

that applying this definition to the 50 

percent reduction provision would 

maintain maximum consistency with 

current Federal regulations. Facilities 

unwilling or unable to maintain and 

sustain compliance with the same 

participation requirements over this 

period of time should not be benefited 

by a reduced civil money penalty 

amount. 

Comment: One commenter suggested 

that any civil money penalty reduction 

be conditioned on the facility fully 

cooperating with any survey and other 

follow-up to the self-reporting. In other 

words, for a facility to receive a 

reduction in a civil money penalty, the 

facility would have to promptly provide 

any related documentation, access to 

staff, and the facility staff could not 

misrepresent to surveyors any issue 

raised by the self-reporting. 

Response: While we appreciate the 

comment, we would expect that 

participating facilities would be fully 

cooperative with the survey process 

whether it was triggered by self-reported 

information or for any other reason. 

Absence of evidence that prompt 

correction occurred and that the facility 

is in compliance with the applicable 

requirements upon which the civil 

monetary penalty was based would, in 

and of itself, preclude CMS from 

granting the penalty reduction. The lack 

of facility cooperation in the survey 

process would rebound to the 

disadvantage of the facility itself to the 

extent that it impaired a positive finding 

of prompt self-correction and present 

compliance. 

3. Opportunity for an Independent 

Informal Dispute Resolution Process. 

Sections 6111(a) and (b) of the 

Affordable Care Act add new section 

(IV)(aa) to sections 1819(h)(2)(B)(ii) and 

1919(h)(3)(C)(ii) of the Act, which 

provides a facility with the opportunity 

to participate in an independent 

informal dispute resolution process if 

civil money penalties have been 

imposed against the facility, subject to 

(IV)(cc). When an independent informal 

dispute resolution is offered, such offer 

will be provided to a facility not later 

than 30 days after the imposition of the 

civil money penalty and must generate 

a written record prior to the collection 

of the penalty. Additionally, the 

independent informal dispute 

resolution process is not automatic. It is 

available only upon the facility’s 

request. 

Language included in the House Ways 

and Means Committee Report H.R. 3200, 

while not enacted, is similar to the 

language used in the Affordable Care 

Act and offers some insight into what 

prompted the inclusion of this new 

independent review process and what 

was envisioned as ‘‘independent.’’ The 

language in H.R. 3200 provided that any 

such process ‘‘shall allow independent 

informal dispute resolution to be 

conducted by an independent State 

agency (including an umbrella agency, 

such as the Health and Human Services 

Commission), a Quality Improvement 

Organization, or the State survey 

agency, so long as the participants in 

independent informal dispute 

resolution are not involved in the initial 

decision to cite the deficiency(ies) and 

impose the remedy(ies). Whoever is 

authorized to conduct independent 

informal dispute resolution must not 

have any conflicts of interest * * *.’’ 

We also note that during debate on the 

House floor on March 21, 2010, U.S. 

House of Representatives Energy and 

Commerce Committee Chairman Henry 

Waxman stated that over 40 percent of 

nursing home surveyors in four States 

told the Government Accountability 

Office (GAO) that their existing States’ 

processes for informal dispute 

resolution favored nursing home 

operators over resident welfare. 

Representative Waxman further stated 

that the independent informal dispute 

resolution process ‘‘should be conducted 

by an independent State agency or 

entity with healthcare experience, or by 

the State survey agency, so long as no 

entity or individual who conducts 

independent informal dispute 

resolution has a conflict of interest,’’ and 

that anyone should have the right to 

participate in the process. 

While operational details of this 

independent review process are more 

appropriate for inclusion as guidance in 

our State Operations Manual, we have 

proposed that specific core elements be 

included so that we can ensure the 

fairness and efficiency of the 

independent informal dispute 

resolution process. (CMS will notify the 

facility of the opportunity for this 

process as specified in proposed 

§ 488.431.) 

We proposed at § 488.431(a) that CMS 

continues to retain ultimate authority 

for the survey findings and imposition 

of civil money penalties, and also 

provide that an independent informal 

dispute resolution must be requested by 

the facility within 30 days of notice of 

imposition of a civil money penalty. In 

an effort to ensure that the independent 

informal dispute resolution process is 

completed timely, we proposed at 

§ 488.431(a)(1) that it be completed 

within 60 days of the imposition of a 

civil money penalty if it is timely 

requested by the facility. We proposed 

at § 488.431(a)(2) that an independent 

informal dispute resolution will 

generate a written record prior to 

collection. At proposed § 488.431(a)(3), 

we are requiring that the independent 

informal dispute resolution process 

include notification to an involved 

resident or a resident representative, as 

well as the State ombudsman. 

We proposed that the new 

independent informal dispute 

resolution process be an additional 

option for nursing homes, and that 

nursing homes would retain the option 

to use the existing informal dispute 

resolution process under § 488.331. We 

believe that the current informal dispute 

resolution process can be expeditious 

and that it addresses a greater range of 

noncompliance issues that would affect 

other enforcement remedies than the 

new independent informal dispute 

resolution process is required to cover. 

The Affordable Care Act requires that 

the independent process be available 

only in cases of noncompliance for 

which a civil money penalty was 

imposed when civil money penalty 

funds are to be placed in an escrow 

account. Although States may elect to 

make the independent process 

applicable to a wider array of situations, 

continued maintenance of the existing 

informal dispute resolution process will 

ensure the availability of a system to 


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address facility challenges of cited 

deficiencies regardless of whether other 

non-civil money penalty remedies are 

imposed. We also proposed at 

§ 488.431(a)(4) that the new 

independent informal dispute 

resolution process be conducted at the 

requesting facility’s expense, and expect 

that a system of user fees designed to 

cover expenses of this process will be 

put in place in each State. We asked for 

comments on alternative user fee 

systems. We believed this arrangement 

was advisable for a number of reasons. 

First, the current informal dispute 

resolution process will continue to be 

available to nursing homes at no charge. 

Second, without a user fee, the costs of 

the new process would be borne by the 

Medicare Trust Fund or other public 

sources that are already subject to 

serious fiduciary challenge. Third, in 

electing to use the new independent 

process, a nursing home must believe 

that there is added value to the new 

process as compared with either using 

the current (and still available) process 

that does not involve a user fee or 

requesting a formal appeal under 

§ 498.40. 

We invited comments on the user fee 

and whether there should be 

distinctions made in the user fees 

depending on certain factors, such as 

whether CMS or the State changed the 

scope, severity, or quantity of deficiency 

citations as a result of information 

obtained through the independent 

informal dispute resolution process. We 

also solicited comments on whether the 

fee should be returned to the facility in 

the event that the applicable civil 

money penalty is completely eliminated 

as proposed in § 488.431(a)(4). We 

proposed that the system of fees must be 

approved by CMS, be based on expected 

average costs, and must be uniformly 

applied within the State. 

Finally, in view of the insights and 

underlying intent of this new process, as 

provided by the House language that is 

similar to the language passed in the 

Affordable Care Act and statements 

expressed by Chairman Waxman noted 

above, we proposed at § 488.431(a)(5) 

that independent informal dispute 

resolution be conducted by the State 

under section 1864 of the Act, or an 

entity approved by the State and CMS, 

or by CMS in the case of surveys 

conducted only by Federal surveyors, 

with no conflicts of interest, such as: (i) 

A component of an umbrella State 

agency provided that the component is 

organizationally separate from the State 

survey agency; (ii) an independent 

entity with healthcare experience 

selected by the State and approved by 

CMS; or (iii) a distinct part of the State 

survey agency, so long as the entity or 

individual(s) conducting the 

independent informal dispute 

resolution has no conflict of interest and 

has not had any part in the survey 

findings under dispute. 

The comments we received and our 

responses are set forth below. 

Comment: We received comments 

which reiterated that all States are 

currently required to provide Medicare 

and/or Medicaid-certified nursing 

homes an opportunity to participate in 

an informal dispute resolution process 

and that the criteria for this process are 

described in Chapter 7 of the State 

Operations Manual (CMS Pub. 100–07). 

One commenter maintains that the 

regulations regarding independent 

informal dispute resolution should 

generally mirror those of informal 

dispute resolution. Another commenter 

urged CMS to provide in the final 

regulations a requirement that facilities 

must elect either the existing informal 

dispute resolution process or the 

proposed independent informal dispute 

resolution process. Facilities should 

have only one opportunity for dispute 

resolution as this is already an 

alternative to the formal appeal 

procedure. The commenter suggested 

that the regulations should clarify that 

only evidence that would be permissible 

in a traditional informal dispute 

resolution may be utilized in an 

independent informal dispute 

resolution. Some commenters wrote that 

a facility should have one chance to 

elect which informal dispute resolution 

process it wishes to pursue and should 

not be allowed to switch from one to the 

other. Other commenters wrote that 

nursing homes should be allowed to 

choose to participate in both processes. 

Response: The new independent 

informal dispute resolution process is 

an additional option available to 

nursing homes. This final rule does not 

remove or alter the existing informal 

process at § 488.331(a) which remains as 

an option for nursing homes to use to 

dispute cited deficiencies. We believe 

that the existing informal dispute 

resolution process is expeditious and it 

addresses all noncompliance issues that 

would affect the imposition of other 

enforcement remedies. Section 6111 of 

the Affordable Care Act requires that a 

new independent process be available 

in cases of noncompliance for which a 

civil money penalty was imposed and 

the penalty is collected and deposited in 

an escrow account. 

Although States may elect to make the 

independent process applicable to a 

wider array of situations, continued 

maintenance of the existing informal 

dispute resolution process will ensure 

the availability of a system to address 

facility challenges of cited deficiencies 

regardless of whether other non-civil 

money penalty remedies are imposed. 

The current informal dispute resolution 

process will continue to be available to 

nursing homes. 

To assure efficiency and effectiveness 

in the current nursing home survey and 

certification process, we expect that the 

general procedures outlined in the State 

Operations Manual for the current 

informal dispute resolution process 

would be applicable to the new 

independent informal dispute 

resolution process. Thus, we agree that 

nursing homes may request dispute 

resolution for each survey that cites 

deficiencies (State Operations Manual, 

Ch. 7, section 7212). We agree with the 

commenter that facilities should have 

only one opportunity for dispute 

resolution for the same set of survey 

findings, as both the current informal 

process and the new independent 

informal processes are both intended to 

be an additional process to the formal 

appeal procedure. If the government 

were to allow nursing homes to request 

both informal dispute resolution and 

independent informal dispute 

resolution on the same set of survey 

findings, this would serve no 

meaningful purpose worthy of the 

added expense. We have therefore 

clarified the nature of this choice by 

revising § 488.331(a)(3) and adding new 

§ 488.431(a)(5) to make clear that 

facilities may not have two 

opportunities at an informal dispute 

resolution process, except in cases 

where the informal dispute resolution 

has already been completed before a 

facility has received notice of a civil 

money imposition that will be collected 

and placed in an escrow account. 

Analogous to the current informal 

dispute resolution process, the new 

independent informal dispute 

resolution process would provide the 

nursing home the opportunity to 

dispute the deficiencies that led to the 

imposition of a civil money penalty and 

not challenge any other aspect of the 

survey process, including severity and 

scope classification (with the exception 

of a finding of substandard quality of 

care or immediate jeopardy), remedies 

imposed by the enforcing agency, 

alleged failure of the survey team to 

comply with a requirement of the 

survey process, alleged inconsistency of 

the survey team in citing deficiencies 

among facilities, or alleged inadequacy 

or inaccuracy of the process. 

Comment: We received several 

comments regarding the time frames for 

requesting and completion of the 

independent informal dispute 


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resolution process. One commenter 

wrote that the 60-day time period from 

the notice of imposition of the civil 

money penalty to completion of the 

independent informal dispute 

resolution process may be too restrictive 

because the facility has up to 30 days to 

request the independent dispute 

resolution process, leaving little time for 

the process to be completed. The 

commenter asked if CMS will consider 

the 60-day completion window to begin 

from of the date that the independent 

informal dispute resolution was 

requested by the facility. Another 

commenter asked if the 30 days 

included the 10-day time frame in 

which the facility has to request an 

informal dispute resolution under the 

current process. One commenter wrote 

that the independent informal dispute 

resolution should be completed within 

the same 60-day time frame that the 

provider has to request a hearing. 

Finally, another commenter wrote that 

the independent informal dispute 

resolution should be requested within 

the same 10-day time frame that the 

provider has to submit a plan of 

correction. 

Response: Sections 6111(a) and (b) of 

the Affordable Care Act adds new 

section (IV)(aa) to sections 

1819(h)(2)(B)(ii) and 1919(h)(3)(C)(ii) of 

the Act, which provides a facility with 

the opportunity to participate in an 

independent informal dispute 

resolution process if civil money 

penalties have been imposed against the 

facility and, consistent with new section 

(IV)(cc), the civil money penalties are 

subject to being placed in an escrow 

account. This new independent process 

must be offered to a facility not later 

than 30 days after the imposition of the 

civil money penalty that will be 

collected and placed in an escrow 

account. We understand the 

commenters’ confusion with these new 

provisions as providers have been using 

the current informal dispute resolution 

process since its implementation in 

1995. In order to reduce confusion 

between the two processes, and to 

promote consistency and efficiency 

within the enforcement system, we will 

require that the nursing home has the 

same 10-day time frame to request 

independent informal dispute 

resolution as that which exists for the 

current informal dispute resolution 

process. In addition, we have revised 

§ 488.431(a)(1) to clarify that the 

independent informal dispute 

resolution process will be completed 

within 60 days of a facility request so 

long as the request is made timely by 

the facility. 

Nursing homes will be notified of the 

availability of the independent informal 

dispute resolution in either the CMS 

letter transmitting the Form CMS–2567 

if this letter communicates the CMS 

notice of imposition of a civil money 

penalty, or in the CMS formal notice of 

imposition of the civil money penalty 

that may occur after a subsequent 

revisit. If a nursing home elects 

independent informal dispute 

resolution at the first opportunity to 

request independent informal dispute 

resolution, the requirement to provide 

independent informal dispute 

resolution would be met even if a civil 

money penalty based on the same set of 

survey findings were imposed at a later 

point in time on the nursing home. 

Comment: One commenter stated that 

there is nothing in the independent 

informal dispute resolution regulation 

specifying that the facility must make a 

choice between informal dispute 

resolution and independent informal 

dispute resolution and the timing of the 

two processes seems to allow for 

facilities to use both of them. Absent a 

provision requiring facilities to make a 

choice, the incentive would be to 

always request an informal dispute 

resolution in the hope the deficiency is 

removed or reduced in severity prior to 

having to request independent informal 

dispute resolution. Several commenters 

were confused and asked how would 

the process work if an independent 

informal dispute resolution upholds a 

deficiency but that same deficiency is 

removed during the informal dispute 

resolution process while the 

independent informal dispute 

resolution process is ongoing, or even 

after it is completed. One commenter 

suggested that the final regulation 

provide that a nursing home that 

requests an informal dispute resolution 

on a specific deficiency waives its right 

to subsequently request an independent 

informal dispute resolution on that 

same deficiency. 

Response: We agree that facilities 

should have only one opportunity for 

dispute resolution for the same set of 

survey findings, as both the current 

informal process and the new 

independent informal processes are 

both intended to be in addition to the 

formal appeal procedure. If the 

government were to allow nursing 

homes to request both informal dispute 

resolution and independent informal 

dispute resolution on the same set of 

survey findings, this would serve no 

meaningful purpose worthy of the 

added expense. As we noted above, we 

have revised proposed § 488.331(a)(3) 

and added a new section at 

§ 488.431(a)(5). In the development of 

our operational procedures, we will also 

provide guidance to clarify the interplay 

between the two distinct processes. 

Comment: One commenter asked that 

the regulation be separated into two 

parts: Independent informal dispute 

resolution conducted by State surveyors 

and independent informal dispute 

resolution conducted by Federal 

surveyors. 

Response: We do not concur that the 

regulation regarding independent 

informal dispute resolution be divided 

into two parts based on which 

surveyors, State survey agency 

surveyors or CMS regional office 

surveyors, conducted the survey. To 

require that two separate independent 

informal dispute resolution processes be 

available would be an inefficient use of 

limited resources. If a nursing home is 

provided an opportunity to request 

independent informal dispute 

resolution as a result of a survey 

conducted only by federal surveyors, 

the independent informal dispute 

resolution would be conducted by an 

entity approved by the State and CMS, 

or by CMS or its agent if the State’s 

independent dispute resolution process 

is not used. 

Comment: One comment noted that it 

is unclear whether the rule requires that 

States offer independent informal 

dispute resolution services or if it only 

encourages States to do so. Without a 

requirement, many nursing facilities 

will likely not be afforded the 

opportunity for independent informal 

dispute resolution services. 

Response: The rule at § 488.331(a)(3) 

establishes a requirement for 

independent informal dispute 

resolution for nursing homes that have 

civil money penalties imposed by CMS 

where such a penalty is subject to being 

placed in an escrow account. Section 

488.431(a)(5) in the proposed rule 

clearly establishes that States must 

conduct or arrange for independent 

informal dispute resolution to be 

conducted. 

Comment: One commenter asked if 

this rule is exempting nursing homes 

from the right to a free hearing. 

Response: We assume that by ‘‘free 

hearing’’ the commenter is referring to 

the existing informal dispute resolution 

provided at § 488.331. The existing 

informal dispute resolution process 

provided at § 488.331 is not altered by 

the new regulations to provide a nursing 

home an opportunity for independent 

informal dispute resolution when a civil 

money penalty that will be collected 

and escrowed is imposed. 

Comment: We received many 

comments noting that proposed 

§ 488.431(a) establishes CMS’s intent to 


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retain ultimate authority for survey and 

findings and imposition of civil money 

penalties, but that the rule does not 

address or specify the criteria or 

standards for penalty assessment that 

will be applied by CMS when it decides 

to accept or reject the dispute resolution 

results. One commenter recommended 

that CMS amend proposed § 488.431 

and/or provide guidance to specify the 

criteria and/or standards that will be 

applied to the review and compliance 

determination resulting from the 

independent informal dispute 

resolution process. The commenter 

recommended that proposed § 488.431 

should require notification to the 

provider that includes a full explanation 

of CMS’s final determination in cases 

where CMS disagrees with and/or 

overturns dispute resolution outcomes 

where the provider has prevailed. 

Another commenter asked that CMS 

clarify the contents of the written 

record, i.e., would it be a minimal 

statement of the final outcome or a full 

narrative record including key issues of 

the citation, primary rebuttal of the 

facility, rationale and supporting 

references for the outcome. Another 

commenter asked if a letter from CMS 

to the facility is intended to be the 

written record. 

Response: We appreciate the 

commenters’ concerns regarding 

operational aspects of the independent 

informal dispute resolution process that 

were not included in the proposed rule. 

In order to give States sufficient time to 

develop and operationalize the 

provisions in this rule, we will be 

phasing in the provision implementing 

the availability of an independent 

informal dispute resolution process. In 

addition, we understand that States and 

CMS will need time to develop protocol 

and training not only for the new 

independent informal dispute 

resolution process but for all the 

provisions in this final rule. 

Therefore, the effective date for this 

rule is January 1, 2012. To support 

consistency and efficiency within the 

nursing home enforcement process, 

CMS will strengthen this final rule by 

including a requirement that States 

submit their plan for conducting 

independent informal dispute 

resolution to CMS for approval by CMS. 

By doing this, CMS will be able to 

assure consistency among the States 

regarding elements of the independent 

informal dispute resolution process that 

are better suited for inclusion in the 

State Operations Manual than in 

regulations. To support States in 

developing an independent informal 

dispute resolution process that is 

responsive to the comments requesting 

clarification, CMS will engage a 

workgroup of State survey agency and 

CMS regional office representatives to 

develop a template of key elements that 

an independent informal dispute 

resolution process would include. Key 

elements would include a process to 

assure timely completion of 

independent informal dispute 

resolution, methodology for notification, 

and components of the independent 

informal dispute resolution written 

record. We believe that this approach 

recognizes that States vary in their 

organizational structure, their size, their 

resources, and their ability to comply 

with the regulations through a variety of 

operations and procedures. Therefore, 

we have revised proposed 

§ 488.431(a)(5) and renumbered it in 

this final rule at § 488.431(a)(4) to 

require that all State independent 

informal dispute resolution processes be 

approved by CMS. 

CMS reviews the results of the 

dispute resolution processes and retains 

the right to be the final arbiter of 

accuracy and appropriateness. The exact 

operational procedures for doing so will 

be provided in the State Operations 

Manual and other CMS public 

communications. 

Comment: One commenter described 

a current state informal dispute 

resolution process which is conducted 

by an umbrella State agency that is 

organizationally separate from the State 

survey agency and meets all major 

criteria in the proposed rules for 

independent informal dispute 

resolution. The commenter continues to 

note that this existing state process 

would require minor and few 

procedural changes to meet every 

criterion of the proposed rule. The 

commenter suggested adding a 

provision to the rule that, if a State 

already has an independent informal 

dispute resolution process that meets 

the requirements, the State is not 

required to implement a new or second 

informal dispute resolution process or 

to charge providers for the State’s 

existing independent informal dispute 

resolution process. 

Response: As discussed previously, 

we are adding a requirement to this rule 

that CMS will approve each State’s 

independent informal dispute 

resolution process. States that already 

have a process in place which meets the 

requirements of this rule will be able to 

submit its process to CMS for approval. 

It is not our intention to require new 

processes if a State has an existing 

process in place that meets the 

requirements of this final rule. 

Comment: One commenter wrote that 

during an independent review, a 

recommendation is based strictly on the 

material provided by the facility. When 

a State survey agency disagrees with the 

recommendation, it is usually due to 

additional information found in the 

surveyor notes or copies of facility 

forms made at the time of the survey. 

An independent reviewer would not 

have access to these documents. 

Response: We do not agree with the 

comment that the entity conducting the 

independent informal dispute 

resolution would not have access to the 

documentation necessary to make an 

informed decision regarding the survey 

findings being disputed by a nursing 

home. Any information relevant to the 

survey findings being disputed, 

including surveyor’s notes and/or 

copies of facility forms, is typically 

discussed within the CMS Form–2567 

Statement of Deficiencies. Specifics 

regarding the operational aspects of the 

independent informal dispute 

resolution process will be provided in 

the State Operations Manual. 

Comment: The proposed rule at 

§ 488.431(a)(3) includes notification to 

an involved resident or resident 

representative, as well as State 

ombudsman, to provide written 

comment. Some commenters noted that 

this provision of the proposed rule is 

not related to Section 6111 and appears 

to be outside the focus of the process, 

which is to determine whether a 

deficiency is valid. One comment 

recommended that CMS limit access to 

the new process to only the nursing 

homes and the applicable reviewers to 

ensure that nursing homes are provided 

with a minimum level of due process. 

Response: We do not accept the 

comments that would exclude a 

resident, resident representative and/or 

State ombudsman from the independent 

informal dispute resolution process 

because we believe this provision is 

consistent with ensuring independence 

and accountability. In addition, the 

fundamental purpose of the survey and 

certification process is to protect 

beneficiaries of the program. Residents, 

resident representatives, and State 

ombudsman (who represent them) add 

value to the process and provide input 

regarding the survey findings under 

review during the independent informal 

dispute resolution process. Finally, as 

discussed in the Preamble of the 

proposed rule, during debate on the 

House floor on March 21, 2010, U.S. 

House of Representatives Energy and 

Commerce Committee Chairman Henry 

Waxman stated that over 40 percent of 

nursing home surveyors in four States 

told the Government Accountability 

Office (GAO) that their existing States’ 

processes for informal dispute 


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resolution favored nursing home 

operators over resident welfare. 

Representative Waxman further stated 

that the independent informal dispute 

resolution process ‘‘should be conducted 

by an independent State agency or 

entity with healthcare experience, or by 

the State survey agency, so long as no 

entity or individual who conducts 

independent informal dispute 

resolution has a conflict of interest,’’ and 

that anyone should have the right to 

participate in the process. We consider 

the nursing home resident to be 

especially important to the process, 

particularly since the resident may have 

initiated a complaint that gave rise to a 

complaint investigation that resulted in 

the finding of a deficiency. Furthermore, 

nothing in section 6111 or the existing 

regulations expressly limits such 

participation by affected parties. We 

therefore conclude that this provision of 

the rule is consistent with congressional 

intent. 

Comment: Commenters asked for 

specific clarification regarding the 

provision at § 488.431(a)(3) including 

providing a definition of ‘‘resident 

representative’’ as someone who has 

legal representation; providing 

anonymity for residents who may fear 

retaliation; and defining the written 

process, and the notification process. 

Some commenters suggested that the 

notification process be done by the 

facility, the governing body of the 

nursing home, or the State survey 

agency since that is the agency having 

knowledge of and contact with the 

involved resident. One commenter 

wrote that all individuals, who are 

impacted or could potentially be 

impacted, should have the opportunity 

to provide written comment, as should 

the resident and family councils of the 

facility. A commenter suggested that the 

regulations should specify that 

residents, families and advocates should 

have the right to attend and actively 

participate in the independent informal 

dispute resolution process. A 

commenter suggested that a face to face 

opportunity be provided. Other 

commenters offered suggestions, such as 

requiring nursing homes to post the 

independent informal dispute 

resolution decisions in a public place 

without identification of a specific 

resident so that all facility residents can 

familiarize themselves with the outcome 

without sacrificing anonymity; or, have 

the State ombudsman provide the 

results of the dispute resolution to 

residents. 

Response: We appreciate the variety 

of comments and suggestions. We will 

give these comments thoughtful 

consideration as we develop the 

operational procedures to implement 

the independent informal dispute 

resolution process and publish the 

process in our State Operations Manual. 

In the final rule itself, we seek to strike 

a balance between affording 

opportunities to nursing home residents 

that are consistent with the new law and 

the feasibility of a process that remains 

informal and can reasonably be 

completed in a timely manner. 

Comment: One commenter noted that 

some States have more than one State 

ombudsman and that it would be 

helpful to have a definition of the roles 

and responsibilities CMS intended for 

‘‘the State ombudsman’’ who will have 

the opportunity for written comment in 

the independent informal dispute 

resolution process. In line with this 

comment, another commenter suggested 

that we revise the wording of the rule 

to state the ‘‘State Long-Term Care 

Ombudsman.’’ One comment suggested 

that the regulations be amended to 

require that resident’s and State 

ombudsman’s comments be given equal 

consideration as the facility’s comments 

in independent informal dispute 

resolution. One commenter noted that 

there were not enough safeguards to 

ensure that the process is fair and 

impartial. One commenter asked if 

lawyers of family members and facilities 

could be included in the process. 

Response: We believe that the 

provisions of this rule ensure that the 

independent informal dispute 

resolution process is fair and impartial 

and takes into account evidence 

provided not only by the facility, but by 

residents and/or their representatives. 

Both the current informal dispute 

resolution and the new independent 

informal dispute resolution processes 

are ‘‘informal.’’ Although we would not 

expect that lawyers of either residents or 

their family members would have a role 

in providing written comments, the 

regulation does not prohibit this. For 

more inclusive participation, including 

representation by lawyers, there are the 

formal appeal processes that remain 

undiminished by this new and added 

opportunity for timely independent 

informal processes. We concur with the 

recommendation and have revised the 

final rule at § 488.431(a)(3) by changing 

‘‘state ombudsman’’ to ‘‘State’s long-term 

care ombudsman’’ so that it is consistent 

with § 488.325 Disclosure of results of 

surveys and activities. 

Comment: In response to our request 

for comments on alternative user fee 

systems in the proposed rule, we 

received many varied comments 

regarding the provision at proposed 

§ 488.431(a)(4) that the independent 

informal dispute resolution be 

conducted at the facility’s expense. 

Commenters noted that charging a 

nursing home for the costs of 

independent informal dispute 

resolution, but not the current informal 

dispute resolution, discourages 

independent review in favor of the 

usual informal dispute resolution and a 

fee arrangement that requires a nursing 

home to pay for any part of the State 

survey agency’s error is simply unfair. 

Some commenters maintain that CMS 

exceeded its authority, as a user fee is 

not included in the statutory language, 

while others considered a user fee to be 

appropriate and desirable. Some 

commenters questioned how the fees 

would be structured, as there are many 

variables that come into play in the 

review process. Commenters asked for 

clarification regarding what is 

considered actual expenses of the 

process. Some commenters offered very 

detailed suggestions based on their 

experience. These suggestions include 

that each State survey agency contract 

with an independent review entity and 

develop a fee system based on the Statespecific requirements. One commenter 

suggested that the fee structure and 

amounts should be negotiated between 

the State agency and the independent 

informal dispute resolution entity. The 

commenter further suggested that the 

individual State base fee per deficiency 

would be consistent in all reviews, 

while the actual cost per hours of 

review and/or type of review would 

reflect the severity, volume of material 

for review, and complexity of the case 

file which can vary widely. Reasonable 

fees should take into consideration the 

State-specific requirements in the 

independent informal dispute 

resolution process, including costs of: 

management and administrative staff, 

database development and utilization, 

State-specific report development, 

consistency and reliability monitoring, 

and training and continuing education 

of staff. Some commenters strongly 

recommend leaving the billing and 

receipt of payment to the independent 

informal dispute resolution entity. Some 

commenters agreed that facilities should 

pay while others maintained that the 

costs should be restored to facility 

operations. Commenters questioned the 

provision that a ‘‘Fee shall be returned 

in the event that the applicable civil 

money penalty is completely 

eliminated’’ and asked that CMS clarify 

how an entity that conducts 

independent informal dispute 

resolution would be paid and by whom, 

in the event that any fee charged to the 

nursing home, is returned to the nursing 

home. A commenter recommended a 


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consistent user fee system to control 

costs. Other commenters suggested that 

involving the State agency in the fees 

would add unnecessary costs to the 

State agency and could be an incentive 

to not cite deficiencies. One comment 

stated that the user fee is for the service 

of dispute resolution, and should in no 

way be based on the result or finding of 

the resolution process. 

Response: We received many valuable 

comments and we appreciate the 

commenters’ suggestions and concerns. 

While we do not concur with all of the 

comments regarding a user fee, we have 

determined that we must research this 

issue further and take into consideration 

all the comments we received. 

Therefore, we will not be requiring a 

mandatory user fee system at this time. 

After due consideration of the 

comments, we have removed references 

to the user fee that was originally 

proposed as § 488.431(a)(4). Some States 

currently offer an independent process 

and charge a user fee; such processes 

and such user fees are not affected by 

this rule unless an imposed civil money 

penalty is subject to being placed in 

escrow. Upon the effective date of this 

rule, States may no longer charge a user 

fee for an independent informal dispute 

resolution process which is initiated 

under this rule due to CMS’s imposition 

of a civil money penalty that is subject 

to collection and being placed in escrow 

pursuant to § 488.431(b). 

Comment: One commenter stated that 

paying for the costs of this new 

independent informal dispute 

resolution process would place a burden 

on the Medicare Trust Fund or other 

public sources and that currently no 

funds are expended from the Federal 

Medicare Trust funds that directly or 

indirectly relate to enforcement 

processes or otherwise for nursing 

homes. The commenter stated that 

much inefficiency currently exists 

within and among the State’s overall 

survey processes well beyond the 

informal dispute resolution processes 

that might be better controlled through 

enhanced oversight of the States by 

CMS Central and regional offices. The 

commenter continued that while they 

understand the political nature of this 

effort, more oversight of the current 

practices and processes at the State and 

regional CMS office level might help to 

alleviate financial burdens and 

inconsistent practices on the program 

overall. The commenter recommends 

that CMS review the average length of 

time and the number of surveyors 

involved in conducting surveys based 

on the purpose of the survey and 

outcome of the survey findings, i.e., 

standard health survey versus complaint 

survey as data analysis of this type 

might help to identify efficient activities 

and best practices between States. 

Response: We appreciate the 

commenters concerns regarding the 

need for oversight of the survey and 

certification process. CMS 

acknowledges the potential impact on 

the Medicare Trust Fund or other public 

sources. However, by taking steps to 

improve the quality of care, the benefits 

to the residents outweigh the financial 

burden. In addition, we will take the 

commenters suggestions into 

consideration as we anticipate future 

revisions to the State Operations 

Manual. 

Comment: We received several 

comments related to proposed 

§ 488.431(a)(5). Commenters wrote that 

in order for the proposed independent 

informal dispute resolution process to 

be independent and objective and to 

provide a minimum level of due 

process, it must be managed and 

conducted by qualified individuals 

wholly outside of the State survey 

agency. The commenters stated that two 

of the examples of entities appropriate 

for conducting an independent informal 

dispute resolution proposed in 

§§ 488.431(a)(5)(i) (a component of the 

umbrella State agency) and (a)(5)(iii) (a 

distinct part of the State survey agency) 

do not meet the definition of 

‘‘independent’’, since both are parts of 

and/or are directly connected to the 

State agency that cited the 

noncompliance. They further noted that 

the unique aspects involved in 

examining and evaluating outcomes in 

nursing home residents and a specific 

understanding and/or healthcare 

experience in the field of long term care 

would be particularly helpful in 

reviewing the evidence surrounding 

determinations of noncompliance. 

Commenters suggested that the final 

rule elaborate further on the 

qualifications of the independent third 

party and suggested that the final 

regulations establish the specific 

training and skill set necessary for the 

entity to ensure that the individual 

conducting the process is in fact 

‘‘independent’’ and has no conflicts of 

interest, yet fully understands the 

survey process and the permissible 

parameters of the independent informal 

dispute resolution process. One 

commenter urged CMS to add an 

Administrative Law Judge to the list of 

entities that could conduct independent 

informal dispute resolution. If CMS 

decides to provide additional guidance 

through the State Operations Manual, 

the commenter urges CMS to seek 

stakeholder input, including input from 

consumers. One commenter wrote that 

having this process run by an 

organization that is subject to approval 

by the State agency or that is a distinct 

part of State government does not lend 

itself to the development of a truly 

independent review process. The 

commenter urges CMS to look at models 

of dispute resolution that are in use in 

other venues and to consider whether 

the Quality Improvement Organizations 

are equipped or could be equipped to 

serve in this capacity. Commenters 

recommended that CMS establish a 

process to monitor the independent 

informal dispute resolution entities and 

conduct an assessment of the impact. 

Response: We have considered the 

commenters recommendations and 

suggestions and conclude that many of 

the comments will assist us in preparing 

guidance to States through the State 

Operations Manual. We disagree with 

the commenters that the entity 

described at proposed § 488.421(a)(5)(i) 

is not ‘‘independent’’ and maintain that 

a component of an umbrella State 

agency that is organizationally separate 

from the State survey agency would 

thus meet the requirement to be 

independent. For example, if the survey 

agency is located in the Department of 

Health and Mental Hygiene (DHMH) 

within a State agency and the 

Department of Labor, Licensing and 

Regulation (DLLR) is located in another 

part of the same State agency, we would 

agree that qualified persons from DLLR 

could be part of an independent 

informal dispute resolution entity. We 

concur with the comment that a distinct 

part of the State survey agency would 

not meet the new level of independence 

that we find desirable. We have 

therefore revised proposed 

§ 488.431(a)(5) by renumbering it as 

(a)(4), by adding ‘‘Be approved by CMS 

and conducted by the State under 

section 1864 of the Act * * *,’’ by 

removing subsection (iii), and by 

revising subsection (ii) to state: 

‘‘(ii) an independent entity with a specific 

understanding of Medicare and Medicaid 

program requirements selected by the State 

and approved by CMS.’’ 

Comment: We received a comment 

suggesting that rather than focus on a 

costly and time consuming 

‘‘independent’’ appeal process, facilities 

should be required to go directly to the 

existing formal appeal process on all 

matters they wish to contest. The 

commenter notes that under the existing 

process, facilities are able to proceed 

with informal dispute resolution, spend 

State survey agency (and sometimes 

CMS) time and resources on this 

informal appeal, and then take 

advantage of the automatic 35 percent 


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Federal penalty reduction if they waive 

their right to formally appeal the 

determination. The commenter notes 

that, instead, facilities should be 

afforded due process through a formal 

appeal, or be permitted to choose the 

benefit of the 35 percent penalty 

reduction by not appealing. Since 

‘‘independent’’ informal dispute 

resolutions still leaves CMS in control 

of the final appeal determination, the 

commenter believes that there is great 

benefit and little lost by eliminating 

informal dispute resolution entirely. 

Response: We appreciate the 

comment. However, a nursing home is 

not required to participate in either 

informal dispute resolution or 

independent informal dispute 

resolution to dispute survey findings. 

The regulations at § 488.331 provide 

that a state must offer a facility the 

opportunity to dispute the survey 

findings upon receipt of the official 

statement of deficiencies, but that a 

facility must request to partake in this 

opportunity. Similarly, the Secretary 

must provide a participating nursing 

home with the opportunity of an 

independent informal dispute 

resolution process when a civil money 

penalty is imposed and collected in 

advance of exhausting formal appeals. 

The nursing home must make a choice 

about whether or not to participate in 

these processes and if it does choose to 

participate, it must request these 

processes. Further, the nursing home 

enforcement regulations at § 488.408 

provide that a facility may appeal the 

certification of noncompliance leading 

to an enforcement remedy. Here again, 

the facility may choose to forego a 

formal appeal and accept the findings 

and determinations from a survey. We 

will monitor results of the informal 

dispute resolution process and examine 

whether the process serves as a costeffective alternative to the more 

expensive formal appeals process. 

Comment: One commenter questioned 

the statement in the preamble to the 

proposed rule on page 39646 that the 

‘‘* * * Affordable Care Act requires that 

the independent process be available 

only in cases of noncompliance for 

which a civil money penalty was 

imposed.’’ Sections 6111 (a) and (b) of 

the Affordable Care Act provide the 

opportunity for facilities to participate 

in an independent informal dispute 

resolution process if civil money 

penalties have been imposed. However, 

nothing in statements quoting 

Representative Waxman indicate or 

confirm the intent or necessity of an 

additional independent informal 

dispute resolution process specific to 

the imposition of civil money penalties. 

The commenter notes that the informal 

dispute resolution process already 

required at § 488.331 and the new 

process triggered by the imposition of 

civil money penalties are equally 

discretionary. Both afford the 

opportunity for providers and surveyors 

to debate and resolve citations that may 

be questionable prior to the expenditure 

of time and costs associated with a 

formal appeal. The rationale for two 

distinct entities that share the same 

objective, but retain separate criteria 

and procedures, appears paradoxical. 

The commenter concludes that the 

potential result is an unfairly weighted 

two-tiered system that is both 

cumbersome and administratively overburdensome. 

Response: We understand the concern 

of the commenter. We intend to work 

very closely with a workgroup of State 

survey agency personnel and CMS 

regional office representatives to assure 

to the degree possible that the informal 

dispute resolution and the independent 

informal dispute resolution provisions 

are in harmony with one another. The 

commenter’s concern about the 

potential for duplicate processes also 

reinforces our understanding and 

interpretation of the law. Section 6111 

adds new subsection (IV)(aa) to sections 

1819(h)(2)(B)(ii) and 1919(h)(3)(C)(ii) of 

the Act which provides for an 

independent informal dispute 

resolution process and makes the 

provision ‘‘subject to (cc).’’ New 

subsection ‘‘(cc)’’ provides for the 

placement of the penalty in escrow. As 

a result, the law requires that the 

independent process is offered to 

facilities whenever civil money penalty 

funds are collected and placed in an 

escrow account. For penalty amounts 

collected under the existing process 

(i.e., after a final administrative 

decision), the new independent 

informal dispute resolution process is 

not required. 

Comment: One commenter inquired 

whether States will receive additional 

funding to implement the independent 

informal dispute resolution process? 

Response: State implementation of the 

independent informal dispute 

resolution process will be addressed 

through the routine survey and 

certification budget process. 

4. Acceptable Uses of Civil Money 

Penalties Collected by CMS 

Section 6111 of the Affordable Care 

Act establishes new acceptable uses of 

civil money penalties collected by CMS. 

Some of these collected civil money 

penalty funds must be applied directly 

to promote quality care and the wellbeing of nursing home residents. 

Additionally, the Affordable Care Act 

makes it clear that the specified use of 

such funds, collected from SNFs, SNF/ 

NFs and NF-only facilities as a result of 

civil money penalties imposed by CMS, 

must be approved by CMS. 

The Affordable Care Act provides 

flexibility about how civil money 

penalty funds collected by CMS can be 

used. These new provisions are also 

consistent with section 1919(h)(2)(A)(ii) 

of the Act regarding how civil money 

penalties may be used when collected 

by the State. Section 1919(h)(2)(A)(ii) of 

the Act provides that civil money 

penalties that are imposed by the State 

shall be applied to the protection of the 

health or property of nursing facility 

residents. We solicited comments on 

whether an acceptable use of collected 

fees would be to offset a portion of the 

cost of independent reviews. 

The provisions of section 1128A of 

the Act continue to be applied to civil 

money penalties under sections 1819(h) 

and 1919(h) of the Act and specify that 

funds collected from Medicare facilities 

attributable to Title XVIII be deposited 

into the United States Treasury. 

However, the specific authorities 

provided by sections 6111(a) and (b) of 

the Affordable Care Act, which adds 

new subsections (IV)(ff) to sections 

1819(h)(2)(B)(ii) and 1919(h)(3)(C)(ii) of 

the Act, expressly provide that now ‘‘a 

portion’’ of these collected funds may be 

used to benefit residents. Giving weight 

and meaning to both provisions, we 

proposed that while some portion of the 

collected civil money penalty funds 

from Medicare facilities will continue to 

be deposited with the Treasury, another 

portion of those funds may be directed 

back into the program to be invested in 

activities that benefit residents. 

Specifically, we proposed at § 488.433 

that 50 percent of the Title XVIII portion 

of collected civil money penalty 

amounts would be used for activities 

that would benefit nursing home 

residents and that the remaining 50 

percent of collected funds applicable to 

Title XVIII would continue to be 

deposited to the Department of the 

Treasury. This proposed division of 

funds reflects the focus and importance 

the Affordable Care Act provisions give 

to improving and promoting the health 

and well-being of nursing home 

residents. Furthermore, to protect 

against any actual or potential conflicts 

of interest, we specified at § 488.433 

that collected civil money penalty funds 

cannot be used for survey and 

certification operations and functions 

performed under section 1864 of the 

Act, but must entirely be used for 

activities that benefit nursing home 


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residents, and that any such activity 

must be approved by CMS. 

With regard to distinguishing between 

Medicare and Medicaid proportions of 

civil money penalty collections for 

dually-participating facilities, we 

retained current regulations at 

§ 488.442(f) (but proposed to amend 

them to include reference to § 488.433) 

that specify the formula for determining 

the proportion of collected civil money 

penalty funds that are to be returned to 

the State in dually participating 

facilities, that is, ‘‘in proportion 

commensurate with the relative 

proportions of Medicare and Medicaid 

beds at the facility actually in use by 

residents covered by the respective 

programs on the date the civil money 

begins to accrue.’’ These funds 

attributable to Title XIX are returned to 

the State in which the noncompliant 

facility that paid the civil money 

penalty is located, and this arrangement 

is continued in our proposed rule. 

The Affordable Care Act provides 

examples of those types of activities that 

would be considered appropriate uses 

for civil money penalty monies, 

including— 

• Assistance to support and protect 

residents of a facility that closes 

(voluntarily or involuntarily) or is 

decertified (including offsetting costs of 

relocating residents to home and 

community-based settings or another 

facility), which is found at proposed 

§ 488.433(a) and (b); 

• Projects that support resident and 

family councils and other consumer 

involvement in assuring quality care in 

facilities, which is found at proposed 

§ 488.433(c); 

• Facility improvement initiatives 

approved by CMS (including joint 

training of facility staff and surveyors, 

technical assistance for facilities 

implementing quality assurance 

programs, the appointment of temporary 

management firms, and other activities 

approved by CMS), which is found at 

proposed § 488.433(d). 

At § 488.433(e) we proposed the 

appointment of a temporary 

management firm as one possible use of 

collected civil money penalties, as 

noted in the new subsections added by 

section 6111 of the Affordable Care Act. 

Currently existing regulations at 

§ 488.415(c) require that the temporary 

manager’s salary is paid directly by the 

facility. Using civil money penalty 

funds to appoint a temporary 

management firm significantly reduces 

the deterrent effect of the temporary 

manager enforcement sanction since the 

costs associated with it would be paid 

for by collected civil money penalty 

funds instead of by the facility. We 

believe this was not the intent of 

Section 6111 of the Affordable Care Act. 

Therefore, while the proposed rule does 

not contemplate using civil money 

penalty funds for payment of the 

temporary manager’s salary, it does 

contemplate using the funds for other 

expenses related to development and 

maintenance of temporary management 

or receivership capability (for example, 

recruiting, vetting, or retaining of 

temporary managers, or other related 

system infrastructure expenses). Use of 

funds in this manner should secure the 

readiness and availability of temporary 

manager candidates, and therefore, 

encourage the use of this sanction. 

When considering the types of 

initiatives or projects that would make 

good use of civil money penalty funds 

collected from Medicare facilities and 

that would best benefit nursing home 

residents, CMS may conclude that the 

State is in the best position to provide 

that judgment. In this instance, CMS is 

free to use its share of the collected 

funds to pay the State to perform those 

activities that CMS determines would 

best benefit nursing home residents. 

This payment to a State to secure the 

State’s assistance for a CMS-approved 

resident benefit activity does not 

constitute an increase in the State’s 

proportion of any civil money penalty 

funds collected from a dually 

participating facility. Rather, these are 

funds that CMS collected from a Title 

XVIII facility and which CMS 

subsequently determines can be used in 

the most beneficial way through the 

State. 

We wish to reiterate that use of funds 

collected from a SNF, SNF/NF, or NFonly facility as a result of a CMSimposed civil money penalty must be 

approved by CMS. We expect that CMS 

will issue guidance that will permit 

specific categories of civil money 

penalty use without waiting for perrequest approval, while other uses not 

listed in the guidance would require 

case-by-case advance approval. 

The comments we received and our 

responses are set forth below. 

Comment: Several commenters 

suggested using civil money penalty 

funds to support the frontline direct 

care workforce enhancement projects 

such as facilitating the education and 

credentials, tracking of the State’s direct 

care workforce, creating a direct care 

worker registry, and providing 

improvements in the competency, 

education, and training standards for 

direct care workers, as these front line 

workers are responsible for the care of 

our elders. One commenter suggested 

that workforce enhancement should not 

require pre-approval. One commenter 

supports initiatives pertaining to 

workplace culture change, dependent 

adult abuse prevention and 

intervention, and ombudsman and other 

resident advocate functions. 

Response: CMS concurs with the 

importance of the frontline direct care 

workforce, such as certified nurse 

assistants (CNAs), in the care of our 

vulnerable beneficiaries and the value 

that workforce enhancements could 

contribute in improving care of the 

nursing home residents. We appreciate 

the thoughtful and detailed suggestions 

provided. At this time we will not be 

able to provide an exhaustive list or 

address each suggested or potential use 

in its entirety. We will use workgroups 

to develop and publish State Operations 

Manual guidance, so that CMS can 

provide further clarification on 

acceptable uses of civil money penalty 

funds. 

Comment: Many commenters 

representing multiple disability groups 

and independent living centers support 

using civil money penalty funds to 

transition residents from nursing homes 

to community living and asked for civil 

money penalty funding to be directed to 

Nursing Home Transition to Community 

programs. 

Response: Nursing home residents are 

those individuals who receive facilitybased care. When such residents wish to 

relocate to another nursing home or to 

a community setting, it may be 

appropriate for civil monetary penalty 

funds to be used in the process of 

relocation, such as helping residents 

visit prospective care settings (including 

a prospective apartment of their own), 

and even short-term trial visits to assess 

the suitability of a community 

arrangement in advance of a final 

decision. However, we do not consider 

it appropriate for such funds to be used 

beyond the transition process itself or to 

pay for expenses for which Congress has 

established separate funding sources, 

such as section 1915(c) of the Social 

Security Act. Appropriate transition 

funds for nursing home residents will 

need to be evaluated on a case by case 

basis. The offsetting of costs for nursing 

home residents in the event of closure 

or decertification is already permitted as 

a time-limited allowable cost for 

transition to the community. We caution 

that civil money penalty funds are 

variable and collected strictly as 

necessary in order to ensure a facility’s 

prompt compliance with participation 

requirements and conditions and are not 

used as a source to generate revenue. 

Therefore these funds should not be 

relied upon as a steady funding source 

or to sustain a particular program over 

an extended time period. 


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Comment: Several commenters asked 

for clarification of the proportion/ 

division of civil money penalty funds 

and about the requirement for CMS 

approval of fund usage. Commenters 

expressed a concern that existing civil 

money penalty funds are not being used 

appropriately. A question was posed for 

clarification of the Medicaid (State) 

portion of civil money penalties. One 

commenter requests that language be 

revised to clarify whether State-operated 

facilities are included or excluded. One 

commenter requests that language be 

revised to clarify whether the 

‘‘remaining collected funds’’ is limited to 

the other 50 percent of applicable Title 

XVII funds or whether it includes those 

funds applicable to Title XIX. If the 

intent is to include Title XIX funds, the 

commenter disputes the appropriateness 

of requiring CMS approval for use of 

those funds beyond existing limitations 

on allowable uses. 

Response: We proposed at § 488.433 

that 50 percent of the Title XVIII portion 

of collected civil money penalty 

amounts be used for activities that 

would benefit nursing home residents 

and that the remaining 50 percent of 

collected funds applicable to Title XVIII 

continue to be deposited to the United 

States Department of the Treasury 

(Treasury). With regard to 

distinguishing between the portion of 

civil money penalty collections for 

dually-participating facilities that would 

go to the State and the portion to be 

conveyed to the Treasury, the current 

regulations at § 488.442(f) remain intact 

except that we are amending the section 

to include reference to proposed 

§ 488.433. Proposed section 488.442(f) 

specifies the formula for determining 

the proportion of collected civil money 

penalty funds that are to be returned to 

the State in dually participating 

facilities, which is, ’’in proportion 

commensurate with the relative 

proportions of Medicare and Medicaid 

beds at the facility actually in use by 

residents covered by the respective 

programs on the date the civil money 

penalty begins to accrue.’’ Civil money 

penalty amounts collected from duallyparticipating facilities will continue to 

be returned to the State (in which the 

facility that paid the civil money 

penalty is located) in the same 

proportion under this rule. 

Civil money penalty funds returned to 

a State under proposed section 

488.442(f) may be used by the State for 

any project that directly benefits facility 

residents, in accordance with section 

1919(h)(2)(A)(ii) of the Act. CMS will 

have the approval authority for the use 

of all civil money penalty funds 

effective March 23, 2011. If there is 

reason to believe that a State is not 

spending collected civil money 

penalties in accordance with the law or 

not at all, this matter should be referred 

to the appropriate CMS Regional Office 

account representative so that he or she 

may review this matter with the State. 

CMS is not accepting the comment to 

specify whether State-operated facilities 

are excluded. The use of funds from any 

civil money penalty imposed by CMS 

would be subject to § 488.433. 

Comment: A few commenters 

expressed a strong concern about the 

potential for the inappropriate use of 

civil money penalty funds being 

directed back to the deficient facility. 

Several commenters expressed concern 

that civil money penalties will be used 

under state programs to address areas or 

issues that should be addressed by the 

nursing home under its administrative 

responsibility to maintain adequate 

standards of care, and that some 

provisions of care are often short cuts 

implemented to improve facility 

profitability. One commenter noted that 

facilities are not providing safety 

equipment or sufficient staffing to 

support basic care requirements, such as 

feeding, turning and repositioning, and 

dealing with high risk populations. One 

commenter stated ‘‘the permitted use of 

civil money penalty funds should also 

assure that these funds cannot be used, 

directly or indirectly, to increase the 

industry’s bottom line’’. A few 

commenters mentioned that funds 

should be used for recruitment and 

retention efforts. 

Response: CMS intends that civil 

money penalty funds will be used to 

implement programs and services that 

go beyond meeting minimum statutory 

requirements at the facility level. It is 

not appropriate for States to return civil 

money penalty funds directly to a 

deficient facility, since a civil money 

penalty used by the facility to correct 

the noncompliance that led to its 

imposition would generally not 

represent a sanction as it would not 

have any remedial effect. Further, the 

statute provides that the funds must 

benefit facility residents and not the 

nursing home. Hiring practices 

including salary, turnover, recruitment 

and retention are within the 

responsibility of the facility and are the 

cost of doing business. While we 

anticipate establishing a typology of set 

approved uses that will not require 

States to wait for CMS approval before 

initiating a program or enterprise, we 

anticipate that there will be many other 

proposals which will need to be 

evaluated on a case by case basis and 

will require CMS advance approval. 

Comment: A few commenters felt 

strongly that providing ‘‘joint trainings’’ 

between provider and regulator would 

blur the line of distinction between the 

two and would not be conducive to 

promote correct identification of 

deficiencies and imposition of remedies. 

Another organization felt strongly that it 

would be beneficial for the joint training 

to be ‘‘standardized’’ for both, and yet 

another commenter felt that this effort 

should be open to a variety of 

stakeholders. One commenter also 

thought that including the Long Term 

Care Ombudsmen in the training would 

be beneficial. 

Response: We believe that there are 

benefits for joint training between State 

survey agencies and nursing home 

providers to improve understanding of 

Federal requirements and to 

communicate specific policies and 

procedures. In fact, CMS has sponsored 

such joint trainings on a national basis 

dating back to the implementation of 

OBRA ‘87 to train both States and 

providers in the new health and safety 

requirements and enforcement rules. We 

appreciate the required distinction 

between a State surveyor and a facility 

and expect that joint trainings are 

designed so the line between provider 

and regulator would not be blurred. To 

give the optimum flexibility of such 

training, we do not propose 

standardizing the joint trainings nor do 

we propose to limit or to require other 

stakeholders in joint trainings. 

Comment: More than half of the 

commenters propose that 90 percent of 

the civil money penalty funds be used 

to benefit facility residents with 10 

percent being returned to Treasury. A 

couple of commenters thought that a 75/ 

25 split would be more appropriate 

while several supported the 50/50 split 

as described. One commenter felt all 

100 percent of the funds should be 

directed to the nursing home residents. 

This was one of the most frequentlyraised topics, and all of the commenters 

who raised this issue suggested that a 

much higher percentage of the collected 

funds should be reinvested back into 

projects designed to directly benefit 

residents. 

Response: The Affordable Care Act 

created a new permissive authority that 

allows the Secretary to use a portion of 

collected civil money penalties to 

benefit facility residents. This authority 

applies only to funds that CMS requires 

to be placed in escrow, and that remain 

after all administrative appeals have 

been exhausted and where the facility is 

unsuccessful in its appeals. In response 

to the overwhelming amount of 

comments received supporting a 90/10 

split and given the new opportunity to 


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use Medicare civil money penalty funds 

to benefit and protect nursing home 

residents, we have revised § 488.433 to 

specify that for funds subject to being 

placed in escrow, pursuant to § 488.431, 

after all administrative appeals have 

been exhausted and where the facility is 

unsuccessful in its appeals, 90 percent 

of the collected civil money will be used 

for activities that benefit nursing home 

residents and meet the requirements as 

specified at § 488.433. The remaining 10 

percent of the collected civil money 

penalty for funds subject to being placed 

in escrow, after all administrative 

appeals have been exhausted and where 

the facility is unsuccessful in its 

appeals, will be deposited with the 

Department of Treasury in accordance 

with § 488.442(f). This new provision 

does not apply to civil monetary 

penalties that are not subject to being 

placed in escrow in accordance with 

§ 488.431. 

Comment: Most individuals that 

submitted comments offered the 

following suggested uses for collected 

civil money penalties: 

• Supplement the state Ombudsman 

program funding; 

• Fund recruitment of more 

specialized nursing home evaluators; 

• Support initiatives pertaining to 

workplace culture change, dependent 

adult abuse prevention and 

intervention, and ombudsman and other 

resident advocate functions; 

• Support person centered care and 

culture change similar to Eden Grants; 

• Transportation funding for all 

residents when a facility closes; 

• Consider the full array of quality 

improvement initiatives; 

• Use of palliative/end of life care; 

and 

• Resident Advocate Functions and 

Resident and Family Councils. 

Response: At this time CMS will not 

be able to provide an exhaustive list or 

to address each suggested or potential 

use in its entirety, but rather we will 

issue subsequent guidance and publish 

it in the State Operations Manual. This 

guidance will provide further 

clarification on specific types of uses 

that are pre-approved and those uses 

that will be evaluated on a case by case 

basis as well as the criteria for such 

evaluation. Part of the evaluation 

criteria will include an examination of 

the degree to which the intended use 

protects residents or pertains to other 

uses of civil money penalty funds 

provided by section 6111 of the 

Affordable Care Act. We will also 

evaluate whether the potential use of 

civil money penalty funds is already 

funded under the current Survey and 

Certification program or whether the 

potential use of a civil money penalty 

requires a sustainable funding source. 

Promising programs and state practices 

have already been identified in several 

States under the existing requirements 

for use of civil money penalty funds, as 

described in CMS Survey & Certification 

(S&C) Memo 09–44 (June 19, 2009). 

However, we do not plan to approve 

uses that lock in civil monetary penalty 

funding to very long term programs that 

would create the reality or the 

appearance of an on-going revenue 

demand so strong that it could affect the 

judgment of the State or CMS in 

imposing civil monetary penalties, or to 

fund programs for which Congress has 

provided another on-going funding 

source. 

Comment: While § 488.433(e) 

addresses the appropriate use of civil 

money penalties for the infrastructure of 

the temporary management remedy, one 

commenter does not feel this provision 

will help as facilities cannot afford the 

temporary manager salary. 

Response: Although it may be true 

that not every nursing home provider 

may be able to afford to hire and 

institute a temporary manager, we 

continue to believe that the ability of a 

State to develop the capacity to recruit 

potential temporary managers can 

advance the overall effectiveness of the 

nursing home enforcement process. 

Thus, a State can request the use of civil 

money penalties to build this 

infrastructure. 

Comment: One commenter suggested 

that funds be used for the State Long 

Term Care Ombudsmen program. 

Response: Enhancement to the Long 

Term Care Ombudsmen program to 

support Resident Advocate Functions 

and Resident and Family Councils 

could be discussed in the planning 

stages for State Operations Manual 

guidance. However, we reiterate that we 

do not intend to approve civil money 

penalty uses that may create the reality 

or the appearance of an on-going 

revenue demand so strong that it could 

affect the judgment of the State or CMS 

in imposing civil money penalties, or to 

fund activities for which a nursing 

home is already responsible under State 

or Federal regulations or laws, or to 

fund program responsibilities for which 

Congress has specifically provided 

another on-going funding source. This is 

not to say that CMS would necessarily 

deny approval of a State’s use of civil 

monetary penalties by its Long Term 

Care Ombudsman program for activities 

that are designed to benefit nursing 

home residents. We intend to develop 

further guidance to assist States in 

determining the kinds of activities that 

would be approved by CMS. 

Comment: A commenter asked about 

whether or not CMS intends to publicly 

report the amount of civil money 

penalties collected and asked that it be 

included in the final regulation. 

Response: Public reporting of 

particular information related to 

enforcement actions is addressed 

specifically in Section 6103 of the 

Affordable Care Act and directs CMS to 

publish relevant enforcement 

information. 

Comment: One commenter proposed 

that a structured and streamlined 

process be created to disburse civil 

money penalty funds in a timely 

manner, to be used within 3 years, and 

suggested that CMS convene a 

workgroup to address this topic. 

Response: Stakeholder input into 

CMS’s State Operations Manual updates 

will be invaluable as we tackle 

implementation of the final rule, and we 

will seek such input. 

Comment: One commenter suggested 

that CMS examine deficiency citation 

data to determine pockets of deficient 

practice when allocating civil money 

penalty funds. 

Response: As part of program 

oversight, CMS already does examine 

the national and State enforcement data, 

including civil money penalties. 

5. Additional Comments on Policy 

Issues 

CMS received several comments that 

did not fall into the specific areas 

addressed above. The comments we 

received and our responses are set forth 

below. 

Comment: One commenter suggested 

that no further intervention is needed 

for nursing homes and that insurance 

companies, pharmaceuticals, HMOs and 

CEOs be examined. 

Response: OBRA ’87 (Pub. L. 100– 

203) established requirements of 

Medicare and Medicaid survey and 

certification of nursing homes as well as 

the enforcement process. This law 

established a menu of mandatory and 

discretionary enforcement responses 

when nursing homes fail to meet 

participation requirements. The 

provisions regarding civil money 

penalties in the affordable Care Act 

augments and further enhances the 

existing enforcement processes and does 

not provide authority for the 

examination of other industries and 

areas raised by the commenter. 

Therefore we cannot accept this 

comment. 

Comment: We received two comments 

with respect to enforcing Quality 

Assurance and Performance 

Improvement Programs in SNFs and 

NFs. 


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Response: While these comments fall 

outside the scope of this rule, we note 

that Quality Assurance and Performance 

Improvement Programs are specifically 

addressed in Section 6102 of the 

Affordable Care Act. Under Section 

6102, the Centers for Medicare & 

Medicaid Services are required to 

promulgate regulations to carry out the 

provisions of section 6102. We will do 

so separately from this current 

regulation. 

Comment: One commenter 

recommended that § 488.431(a) be 

revised to include the State Survey 

Agency and the State Medicaid Agency 

as entities that retain the ultimate 

authority to determine a facility’s 

compliance or noncompliance with the 

federal nursing home requirements. 

Further the commenter suggested that 

we specifically provide that an 

independent informal dispute 

resolution (or a non-independent 

informal dispute resolution) does not 

ultimately determine compliance or 

noncompliance. 

Response: CMS disagrees with the 

commenter’s suggested changes, as CMS 

retains the ultimate authority on 

determining compliance and/or 

noncompliance with program 

conditions and requirements. 

Comment: Regarding proposed 

§ 488.431(a)(1), one commenter asked 

whether it is correct to assume and 

interpret that the notice of imposition of 

a civil money penalty will come directly 

from CMS, since CMS retains the 

ultimate authority for determining 

compliance and imposing enforcement 

remedies, and not the State agency, 

which only recommends a civil money 

penalty to CMS? 

Response: As we noted in our 

responses to the comments above, the 

opportunity for independent informal 

dispute resolution is only available 

when CMS imposes the civil money 

penalty remedy and collects the penalty 

amount to be placed in an escrow 

account. The notice of imposition of a 

civil money penalty will come directly 

from CMS. 

Comment: One commenter expressed 

concern that the proposed rule will 

complicate enforcement for States 

which have their own statutory fining 

authority. 

Response: The proposed rule does not 

change any current remedy imposition 

provisions. The proposed independent 

informal dispute resolution process 

provides an opportunity for providers to 

dispute survey findings which lead to 

the imposition of a civil money penalty 

by CMS that may be collected and 

placed in an escrow account. 

Comment: One commenter cited 

inconsistencies between CMS’s Regional 

Offices when offering guidance to State 

Survey Agencies and indicated that 

guidance provided by one Regional 

Office can be contrary to the advice 

provided by a different Regional Office. 

The commenter exhorted CMS Central 

Office to provide greater oversight of the 

Regional Offices to ensure consistency 

among the State Survey Agencies, 

especially the circumstances under 

which civil money penalties may be 

imposed, or reduced. One example of 

inconsistency among Regional Offices is 

evidenced by the imposition of daily 

versus per instance civil money 

penalties. The commenter stated that 

their State has been the subject of 

misinformation promulgated by 

industry associations asserting that their 

State Survey Agency’s penalties are 

harsher than those imposed by Survey 

Agencies in surrounding States. 

Additionally, there is no assurance that 

the Regional Office will impose 

sanctions based upon the State Survey 

Agency’s recommendations. Fragmented 

authority of the State Survey Agencies 

and CMS can be a persistent challenge 

to be addressed. 

Response: We appreciate the 

comment that greater oversight of the 

CMS Regional Offices by the Central 

Office will help ensure consistency 

among State survey agencies. We also 

agree that there should be consistency 

among CMS Regional Offices when 

offering guidance to State survey 

agencies. In an effort to ensure 

consistency, operational details of the 

independent informal dispute 

resolution process will be included as 

guidance in the State Operations 

Manual, and we will convene a CMS 

workgroup to explore additional actions 

that may improve consistency. 

Comment: One commenter asked if 

there is a standard timeframe that CMS 

has to appeal an ALJ decision. 

Response: This comment falls outside 

the scope of this rule which deals with 

informal dispute resolution and not the 

formal hearing process which involves 

an administrative law judge. However, 

requirements regarding the appeals and 

hearing procedures are located at 42 

CFR Part 498. 

Comment: Some commenters asked 

whether new model letters would be 

prepared, standardized and revised, and 

be consistent nationwide. 

Response: While we are proposing 

that core elements for the independent 

informal dispute resolution process be 

included in the new regulations, the 

specific operational details including 

model letters are more appropriate for 

inclusion in the State Operations 

Manual. 

III. Provisions of the Final Regulations 

In this final rule we are adopting the 

provisions as set forth in the July 12, 

2010 proposed rule with the following 

revisions based on the comments 

received— 

1. Informal Dispute Resolution 

• Revised § 488.331(a)(3) to clarify a 

facility’s choice in electing either the 

current informal dispute resolution 

process or the new independent 

informal dispute resolution process. 

2. Civil Money Penalties Imposed by 

CMS and Independent Informal Dispute 

Resolution: for SNFS, SNF/NFs, and NFonly Facilities (§ 488.431) 

• Revised § 488.431(a) by making 

technical changes to make language 

more consistent, inserting clarification 

of when the independent informal 

dispute resolution would be offered, 

and revising the language at 

§ 488.431(a)(1). 

• Revised § 488.431(a)(3) so that it is 

consistent with the requirements at 

§ 488.325 ‘‘Disclosure of results of 

surveys and activities’’. 

• Removed proposed § 488.431(4), 

eliminating language regarding a user 

fee system. 

• Revised § 488.431(a)(5) and 

renumbered it as new (a)(4) to 

strengthen the requirements of States for 

an independent informal dispute 

resolution. Also, based on comments 

received, revised subparagraph (ii) to 

specify necessity for understanding 

Medicare/Medicaid program 

requirements and removed 

subparagraph (iii). 

• Added new § 488.431(a)(5). 

• Revised § 488.431(b) by adding 

paragraph (3) that provides the ability 

for CMS, at its discretion, to adjust the 

timing of civil money penalty payments 

in limited circumstances to account for 

cases of financial hardship. 

• Revised § 488.431(b) by adding new 

paragraphs (3) regarding an escrow 

payment schedule, (4) that provides 

CMS recourse when a facility does not 

pay applicable civil money penalty 

funds to be placed into an escrow 

account within 30 calendar days from 

notice of assessment, and (5) which 

clarifies that for any civil money 

penalties that are not collected and 

placed into escrow, the collection 

process to be used will be the same 

process for state-imposed civil money 

penalties under § 488.432. 

• Revised § 488.431(c) to provide 

additional minor clarification and to 

make a technical edit to reference the 


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appropriate section which is 

§ 488.431(d)(2). 

• Revised § 488.431(d)(2) to provide 

additional minor clarification and to 

define applicable interest by referencing 

section 1878(f)(2) of the Act. 

3. Civil Money Penalties Imposed by the 

State: NF-Only (§ 488.432) 

• Amend § 488.432 by revising the 

section heading. 

4. Civil Money Penalties: Uses and 

Approval of Civil Money Penalties 

Imposed by CMS (§ 488.433) 

• Revised introductory phrase to 

reflect the change in division of civil 

money penalty funds based on public 

comments and to clarify when funds 

will be deposited. 

• Revised 488.433(d) to clarify 

circumstances for this use of civil 

money penalty funds. 

5. Civil Money Penalties: Amount of 

Penalty (§ 488.438) 

• Revised § 488.438(c)(2)(ii) and 

adding subparagraphs (A) and (B) to 

clarify the self reporting and correction 

timeframe. 

• Revised § 488.438(c)(2)(v) by 

adding the cross-reference for the 

definition of ‘‘repeated deficiency’’. 

• Revised § 488.438(c)(2) by adding 

new paragraph (vi) to further clarify 

eligibility for a 50 percent reduction. 

6. Civil Money Penalties: Effective Date 

and Duration of Penalty (§ 488.440) 

• Revised § 488.440(b) to include 

appropriate cross reference to § 488.442 

and include language that clarifies the 

effective date and duration of civil 

money penalties imposed by the state 

for NFs-only. 

• Modified § 488.440(c) for clarity by 

adding reference to civil money 

penalties imposed by CMS that may not 

be collected and placed into an escrow 

account. 

7. Civil Money Penalties: Due Date for 

Payment of Penalty (§ 488.442) 

• Revised § 488.442(a)(2) to include 

reference to § 488.431 and to add 

language that clarifies the process to 

follow when no hearing was requested, 

which was inadvertently omitted in the 

proposed rule. 

IV. Collection of Information 

Requirements 

Sections 4204(b) and 4214(d) of the 

Omnibus Budget Reconciliation Act of 

1987 (OBRA ’87), Public Law 100–203, 

enacted on December 21, 1987, provide 

waivers of Office of Management and 

Budget review of information collection 

requirements for the purpose of 

implementing the nursing home reform 

amendments. The provisions of OBRA 

’87 that exempt agency actions to collect 

information from States or facilities 

relevant to survey and enforcement 

activities from the Paperwork Reduction 

Act are not time-limited. 

V. Regulatory Impact Statement 

We have examined the impact of this 

rule as required by Executive Order 

13563 on Improving Regulation and 

Regulatory Review (January 18, 2011), 

Executive Order 12866 on Regulatory 

Planning and Review (September 1993), 

the Regulatory Flexibility Act (RFA) 

(September 19, 1980, Pub. L. 96–354), 

section 1102(b) of the Social Security 

Act, section 202 of the Unfunded 

Mandates Reform Act of 1995 (March 

22, 1995; Pub. L. 104–4), Executive 

Order 13132 on Federalism (August 4, 

1999) and the Congressional Review Act 

(5 U.S.C. 804(2)). 

Executive Orders 13563 and 12866 

direct 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). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. A 

regulatory impact analysis (RIA) must 

be prepared for major rules with 

economically significant effects ($100 

million or more in any 1 year). We 

estimate that this provision will cost 

between $6 and $15 million dollars per 

year to implement. Of this total cost, we 

estimate that this provision will result 

in $5.4 million in fixed costs per year 

and between $1.6 million and $10 

million in variable costs per year. This 

estimate assumes, based on historical 

data, that there will be about 2,600 civil 

money penalties imposed each year. 

Historically, nursing homes request 

informal dispute resolutions for about 

15% of civil money penalties. Each IDR 

reviews 2.5 deficiencies on average. The 

upper bound of this cost estimate 

assumes that 100% of all civil money 

penalty impositions will result in an 

independent informal dispute 

resolution request. This rule has been 

designated a ‘‘significant regulatory 

action’’ although not economically 

significant, under section 3(f) of 

Executive Order 12866. Accordingly, 

the rule has been reviewed by the Office 

of Management and Budget. This rule 

does not reach the $100 million 

economic threshold and thus is not 

considered a major rule under the 

Congressional Review Act. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

business, if a rule has a significant 

impact on a substantial number of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $7 million to $34.5 million in any one 

year. Individuals and States are not 

included in the definition of a small 

entity. We are not preparing an analysis 

for the RFA because the Secretary has 

determined that this final rule will not 

have a significant impact on a 

substantial number of small entities. 

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. This analysis must conform to 

the provisions of section 604 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 Core-Based Statistical Area (for 

Medicaid) and outside of a Metropolitan 

Statistical Area (for Medicare) and has 

fewer than 100 beds. We are not 

preparing an analysis for section 1102(b) 

of the Act because the Secretary has 

determined that this final rule will not 

have a significant impact on the 

operations of a substantial number of 

small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

In 2010, that threshold level is currently 

approximately $135 million and will 

have no consequential effect on State, 

local, or tribal governments, in the 

aggregate, or on the private sector. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a final 

rule (and subsequent final rule) that 

imposes substantial direct requirement 

costs on State and local governments, 

preempts State law, or otherwise has 

Federalism implications. Since this 

regulation would not impose costs on 

State or local governments, the 

requirements of Executive Order 13132 

are not applicable. 

List of Subjects in 42 CFR Part 488 

Administrative practice and 

procedure, Health facilities, Medicare, 


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Reporting and recordkeeping 

requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR part 

488 as set forth below: 

PART 488—SURVEY, CERTIFICATION, 

AND ENFORCEMENT PROCEDURES 

■ 1. The authority citation for part 488 

is revised to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act, unless otherwise noted 

(42 U.S.C. 1302 and 1395(hh)); Section 6111 

of the Patient Protection and Affordable Care 

Act (Pub. L. 111–148) 

Subpart E—Survey and Certification of 

Long-Term Care Facilities 

■ 2. Revise § 488.330(e)(2)(ii) to read as 

follows: 

§ 488.330 Certification of compliance or 

noncompliance. 

* * * * * 

(e) * * * 

(2) * * * 

(ii) Except for civil money penalties 

imposed on NFs-only by the State, 

during any pending hearing that may be 

requested by the provider of services. 

* * * * * 

■ 3. Amend § 488.331 by adding a new 

paragraph (a)(3) to read as follows: 

§ 488.331 Informal dispute resolution. 

(a) * * * 

(3) For SNFs, dually-participating 

SNF/NFs, and NF-only facilities that 

have civil money penalties imposed by 

CMS that will be placed in a CMS 

escrow account, CMS also offers the 

facility an opportunity for independent 

informal dispute resolution, subject to 

the terms of paragraphs (b), (c), and (d) 

of this section and of § 488.431. The 

facility must request independent 

informal dispute resolution in writing 

within 10 days of receipt of CMS’s offer. 

However, a facility may not use the 

dispute resolution processes at both 

§ 488.331 and § 488.431 for the same 

deficiency citation arising from the 

same survey unless the informal dispute 

resolution process at § 488.331 was 

completed prior to the imposition of the 

civil money penalty. 

* * * * * 

Subpart F—Enforcement of 

Compliance for Long-Term Care 

Facilities With Deficiencies 

■ 4. Section 488.400 is revised to read 

as follows: 

§ 488.400 Statutory basis. 

Sections 1819(h) and 1919(h) of the 

Act specify remedies that may be used 

by the Secretary or the State 

respectively when a SNF or a NF is not 

in substantial compliance with the 

requirements for participation in the 

Medicare and Medicaid programs. 

These sections also provide for ensuring 

prompt compliance and specify that 

these remedies are in addition to any 

other available under State or Federal 

law, and, except, for civil money 

penalties imposed on NFs-only by the 

State, are imposed prior to the conduct 

of a hearing. 

■ 5. Add a new § 488.431 to read as 

follows: 

§ 488.431 Civil money penalties imposed 

by CMS and independent informal dispute 

resolution: for SNFS, dually-participating 

SNF/NFs, and NF-only facilities. 

(a) Opportunity for independent 

review. CMS retains ultimate authority 

for the survey findings and imposition 

of civil money penalties, but provides 

an opportunity for independent 

informal dispute resolution within 30 

days of notice of imposition of a civil 

money penalty that will be placed in 

escrow in accordance with paragraph (b) 

of this section. An independent 

informal dispute resolution will— 

(1) Be completed within 60 days of 

facility’s request if an independent 

informal dispute resolution is timely 

requested by the facility. 

(2) Generate a written record prior to 

the collection of the penalty. 

(3) Include notification to an involved 

resident or resident representative, as 

well as the State’s long term care 

ombudsman, to provide opportunity for 

written comment. 

(4) Be approved by CMS and 

conducted by the State under section 

1864 of the Act, or by an entity 

approved by the State and CMS, or by 

CMS or its agent in the case of surveys 

conducted only by federal surveyors 

where the State independent dispute 

resolution process is not used, and 

which has no conflict of interest, such 

as: 

(i) A component of an umbrella State 

agency provided that the component is 

organizationally separate from the State 

survey agency. 

(ii) An independent entity with a 

specific understanding of Medicare and 

Medicaid program requirements 

selected by the State and approved by 

CMS. 

(5) Not include the survey findings 

that have already been the subject of an 

informal dispute resolution under 

§ 488.331 for the particular deficiency 

citations at issue in the independent 

process under § 488.431, unless the 

informal dispute resolution under 

§ 488.331 was completed prior to the 

imposition of the civil money penalty. 

(b) Collection and placement in 

escrow account. 

(1) For both per day and per instance 

civil money penalties, CMS may collect 

and place the imposed civil money 

penalties in an escrow account on 

whichever of the following occurs first: 

(i) The date on which the 

independent informal dispute 

resolution process is completed under 

paragraph (a) of this section. 

(ii) The date that is 90 days after the 

date of the notice of imposition of the 

penalty. 

(2) For collection and placement in 

escrow accounts of per day civil money 

penalties, CMS may collect the portion 

of the per day civil money penalty that 

has accrued up to the time of collection 

as specified in paragraph (b)(1) of this 

section. CMS may make additional 

collections periodically until the full 

amount is collected, except that the full 

balance must be collected once the 

facility achieves substantial compliance 

or is terminated from the program and 

CMS determines the final amount of the 

civil money penalty imposed. 

(3) CMS may provide for an escrow 

payment schedule that differs from the 

collection times of paragraph (1) of this 

subsection in any case in which CMS 

determines that more time is necessary 

for deposit of the total civil money 

penalty into an escrow account, not to 

exceed 12 months, if CMS finds that 

immediate payment would create 

substantial and undue financial 

hardship on the facility. 

(4) If the full civil money penalty is 

not placed in an escrow account within 

30 calendar days from the date the 

provider receives notice of collection, or 

within 30 calendar days of any due date 

established pursuant to a hardship 

finding under paragraph (b)(3), CMS 

may deduct the amount of the civil 

money penalty from any sum then or 

later owed by CMS or the State to the 

facility in accordance with § 488.442(c). 

(5) For any civil money penalties that 

are not collected and placed into an 

escrow account under this section, CMS 

will collect such civil money penalties 

in the same manner as the State in 

accordance with § 488.432. 

(c) Maintenance of escrowed funds. 

CMS will maintain collected civil 

money penalties in an escrow account 

pending the resolution of any 

administrative appeal of the deficiency 

findings that comprise the basis for the 

civil monetary penalty imposition. CMS 

will retain the escrowed funds on an ongoing basis and, upon a final 


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administrative decision, will either 

return applicable funds in accordance 

with paragraph (d)(2) of this section or, 

in the case of an unsuccessful 

administrative appeal, will periodically 

disburse the funds to States or other 

entities in accordance with § 488.433. 

(d) When a facility requests a hearing. 

(1) A facility must request a hearing on 

the determination of the noncompliance 

that is the basis for imposition of the 

civil money penalty as specified in 

§ 498.40 of this chapter. 

(2) If the administrative law judge 

reverses deficiency findings that 

comprise the basis of a civil money 

penalty in whole or in part, the 

escrowed amounts continue to be held 

pending expiration of the time for CMS 

to appeal the decision or, where CMS 

does appeal, a Departmental Appeals 

Board decision affirming the reversal of 

the pertinent deficiency findings. Any 

collected civil money penalty amount 

owed to the facility based on a final 

administrative decision will be returned 

to the facility with applicable interest as 

specified in section 1878(f)(2) of the 

Act. 

■ 6. Amend § 488.432 by revising the 

section heading and revising paragraphs 

(a), (b)(1) introductory text, (b)(2), (c)(1) 

introductory text, and (c)(2); and 

removing paragraph (e) to read as 

follows: 

§ 488.432 Civil money penalties imposed 

by the State: NF-only. 

(a) When a facility requests a hearing. 

(1) When the State imposes a civil 

money penalty against a non-State 

operated NF that is not subject to 

imposition of remedies by CMS, the 

facility must request a hearing on the 

determination of noncompliance that is 

the basis for imposition of the civil 

money penalty within the time specified 

in § 431.153 of this chapter. 

(2)(i) If a facility requests a hearing 

within the time frame specified in 

paragraph (a)(1) of this section, for a 

civil money penalty imposed per day, 

the State initiates collection of the 

penalty when there is a final 

administrative decision that upholds the 

State’s determination of noncompliance 

after the facility achieves substantial 

compliance or is terminated. 

(ii) If a facility requests a hearing for 

a civil money penalty imposed per 

instance of noncompliance within the 

time specified in paragraph (a)(1) of this 

section, the State initiates collection of 

the penalty when there is a final 

administrative decision that upholds the 

State’s determination of noncompliance. 

(b) * * * 

(1) If a facility does not request a 

hearing in accordance with paragraph 

(a) of this section, the State initiates 

collection of the penalty when the 

facility— 

* * * * * 

(2) When a facility does not request a 

hearing for a civil money penalty 

imposed per instance of 

noncompliance. If a facility does not 

request a hearing in accordance with 

paragraph (a) of this section, the State 

initiates collection of the penalty when 

the time frame for requesting a hearing 

expires. 

(c) * * * 

(1) If a facility waives, in writing, its 

right to a hearing as specified in 

§ 488.436, for a civil money penalty 

imposed per day, the State initiates 

collection of the penalty when the 

facility— 

* * * * * 

(2) If a facility waives, in writing, its 

right to a hearing as specified in 

§ 488.436, the State initiates collection 

of civil money penalty imposed per 

instance of noncompliance upon receipt 

of the facility’s notification. 

* * * * * 

■ 7. Add a new § 488.433 to read as 

follows: 

§ 488.433 Civil money penalties: Uses and 

approval of civil money penalties imposed 

by CMS. 

Ten percent of the collected civil 

money penalty funds that are required 

to be held in escrow pursuant to 

§ 488.431 and that remain after a final 

administrative decision will be 

deposited with the Department of the 

Treasury in accordance with 

§ 488.442(f). The remaining ninety 

percent of the collected civil money 

penalty funds that are required to be 

held in escrow and that remain after a 

final administrative decision may not be 

used for survey and certification 

operations but must be used entirely for 

activities that protect or improve the 

quality of care for residents. These 

activities must be approved by CMS and 

may include, but are not limited to: 

(a) Support and protection of 

residents of a facility that closes 

(voluntarily or involuntarily). 

(b) Time-limited expenses incurred in 

the process of relocating residents to 

home and community-based settings or 

another facility when a facility is closed 

(voluntarily or involuntarily) or 

downsized pursuant to an agreement 

with the State Medicaid agency. 

(c) Projects that support resident and 

family councils and other consumer 

involvement in assuring quality care in 

facilities. 

(d) Facility improvement initiatives 

approved by CMS, such as joint training 

of facility staff and surveyors or 

technical assistance for facilities 

implementing quality assurance and 

performance improvement program, 

when such facilities have been cited by 

CMS for deficiencies in the applicable 

requirements. 

(e) Development and maintenance of 

temporary management or receivership 

capability such as but not limited to, 

recruitment, training, retention or other 

system infrastructure expenses. 

However, as specified in § 488.415(c), a 

temporary manager’s salary must be 

paid by the facility. 

■ 8. Section 488.436 is amended by 

revising paragraph (b)(1) to read as 

follows: 

§ 488.436 Civil money penalties: Waiver of 

hearing, reduction of penalty amount. 

* * * * * 

(b) * * * 

(1) If the facility waives its right to a 

hearing in accordance with the 

procedures specified in paragraph (a) of 

this section, CMS or the State reduces 

the civil money penalty by 35 percent, 

as long as the civil money penalty has 

not also been reduced by 50 percent 

under § 488.438. 

* * * * * 

■ 9. Section 488.438 is amended by 

revising paragraphs (c) and (d)(1) to read 

as follows: 

§ 488.438 Civil money penalties: Amount 

of penalty. 

* * * * * 

(c) Decreased penalty amounts. (1) 

Except as specified in paragraph (d)(2) 

of this section, if immediate jeopardy is 

removed, but the noncompliance 

continues, CMS or the State will shift 

the penalty amount imposed per day to 

the lower range. 

(2) When CMS determines that a SNF, 

dually-participating SNF/NF, or NFonly facility subject to a civil money 

penalty imposed by CMS self-reports 

and promptly corrects the 

noncompliance for which the civil 

money penalty was imposed, CMS will 

reduce the amount of the penalty by 50 

percent, provided that all of the 

following apply — 

(i) The facility self-reported the 

noncompliance to CMS or the State 

before it was identified by CMS or the 

State and before it was reported to CMS 

or the State by means of a complaint 

lodged by a person other than an official 

representative of the nursing home; 

(ii) Correction of the self-reported 

noncompliance occurred on whichever 

of the following occurs first: 

(A) 15 calendar days from the date of 

the circumstance or incident that later 


srobinson on DSKHWCL6B1PROD with RULES2
15128 Federal Register / Vol. 76, No. 53 / Friday, March 18, 2011 / Rules and Regulations 

resulted in a finding of noncompliance; 

or 

(B) 10 calendar days from the date the 

civil money penalty was imposed; 

(iii) The facility waives its right to a 

hearing under § 488.436; 

(iv) The noncompliance that was selfreported and corrected did not 

constitute a pattern of harm, widespread 

harm, immediate jeopardy, or result in 

the death of a resident; 

(v) The civil money penalty was not 

imposed for a repeated deficiency, as 

defined in paragraph (d)(3) of this 

section, that was the basis of a civil 

money penalty that previously received 

a reduction under this section; and 

(vi) The facility has met mandatory 

reporting requirements for the incident 

or circumstance upon which the civil 

money penalty is based, as required by 

Federal and State law. 

(3) Under no circumstances will a 

facility receive both the 50 percent civil 

money penalty reduction for selfreporting and correcting under this 

section and the 35 percent civil money 

penalty reduction for waiving its right to 

a hearing under § 488.436. 

(d) * * * 

(1) Before a hearing requested in 

accordance with § 488.431(d) or 

§ 488.432(a), CMS or the State may 

propose to increase the per day penalty 

amount for facility noncompliance 

which, after imposition of a lower level 

penalty amount, becomes sufficiently 

serious to pose immediate jeopardy. 

* * * * * 

■ 10. Section 488.440 is amended by 

revising paragraphs (b) and (c) to read 

as follows: 

§ 488.440 Civil money penalties: Effective 

date and duration of penalty. 

* * * * * 

(b) The per day civil money penalty 

is computed and collectible, as specified 

in § 488.431, § 488.432, and § 488.442 

for the number of days of 

noncompliance until the date the 

facility achieves substantial compliance, 

or, if applicable, the date of termination 

when — 

(1) The determination of 

noncompliance is upheld after a final 

administrative decision for NFs-only 

subject to civil money penalties 

imposed by the state or for civil money 

penalties imposed by CMS that are not 

collected and placed into an escrow 

account; 

(2) The facility waives its right to a 

hearing in accordance with § 488.436; or 

(3) The time for requesting a hearing 

has expired and CMS or the State has 

not received a hearing request from the 

facility. 

(c)(1) For NFs-only subject to civil 

money penalties imposed by the State 

and for civil money penalties imposed 

by CMS that may not be placed in an 

escrow account, the entire penalty, 

whether imposed on a per day or per 

instance basis, is due and collectible as 

specified in the notice sent to the 

provider under paragraphs (d) and (e) of 

this section. 

(2) For SNFs, dually-participating 

SNF/NFs, or NFs subject to civil money 

penalties imposed by CMS, collection is 

made in accordance with § 488.431. 

* * * * * 

■ 11. Section 488.442 is amended to 

remove and reserve paragraph (b) and 

revise paragraphs (a), (e)(1), and (f) to 

read as follows: 

§ 488.442 Civil money penalties: Due date 

for payment of penalty. 

(a) When payments are due for a civil 

money penalty. (1) Payment for a civil 

money penalty is due in accordance 

with § 488.431 of this chapter for CMSimposed penalties and 15 days after the 

State initiates collection pursuant to 

§ 488.432 of this chapter for Stateimposed penalties, except as provided 

in paragraphs (a)(2) and (3) of this 

section. 

(2) After a request to waive a hearing 

or when a hearing was not requested. 

Except as provided for in § 488.431, a 

civil money penalty is due 15 days after 

receipt of a written request to waive a 

hearing in accordance with § 488.436 or 

15 days after the time period for 

requesting a hearing has expired and a 

hearing request was not received when: 

(i) The facility achieved substantial 

compliance before the hearing request 

was due; or 

(ii) The effective date of termination 

occurs before the hearing request was 

due. 

(3) After the effective date of 

termination. A civil money penalty 

payment is due 15 days after the 

effective date of termination, if that date 

is earlier than the date specified in 

paragraph (a)(1)of this section. 

(b) [Reserved] 

* * * * * 

(e) * * * 

(1) Medicare-participating facilities 

are deposited and disbursed in 

accordance with § 488.433; and 

* * * * * 

(f) Collection from dually 

participating facilities. Civil money 

penalties collected from dually 

participating facilities are deposited and 

disbursed in accordance with § 488.433 

and returned to the State in proportion 

commensurate with the relative 

proportions of Medicare and Medicaid 

beds at the facility actually in use by 

residents covered by the respective 

programs on the date the civil money 

penalty begins to accrue. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.778, Medical Assistance 

Program) 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, Medicare 

Supplementary Medical Insurance Program) 

Dated: December 22, 2010. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: February 17, 2011. 

Kathleen Sebelius, 

Secretary. 

[FR Doc. 2011–6144 Filed 3–17–11; 8:45 am] 

BILLING CODE 4120–01–P 


srobinson on DSKHWCL6B1PROD with RULES2