§ 124.707 Waiver of recovery where facility is sold or transferred to a proprietary entity. ( a ) *Conditions of the waiver.* The Secretary may waive the recovery rights of the United States arising under § 124.703(a) if the entity to which the facility was sold or transferred: ( 1 ) Has filed a written request for the waiver within the time limits prescribed by this section;
( 2 ) Has established an irrevocable trust in accordance with this section, in an amount equal to the greater of the amount that would otherwise have been recovered pursuant to § 124.705 (including accrued interest as calculated under § 124.706) or twice the cost of the remaining uncompensated services obligation of the facility as of the date of the change of status, that will be used by the entity only to provide services to those unable to pay in accordance with the requirements of subpart F of this part; and
( 3 ) Has agreed to comply with the community service regulations set out in subpart G of this part.
( b ) *Procedures for obtaining waiver.* ( 1 ) Within 30 days after the date of receipt of the information described in § 124.704(b), the Secretary will send a letter to the new owner of the facility advising of the United States' right of recovery and the opportunity to obtain a waiver. For the purpose of advising the new owner of the amount to be placed in the irrevocable trust should the owner wish to obtain a waiver, the letter will also state the dollar amount of the remaining uncompensated care obligation and the amount that would be due under § 124.705, computed as follows: ( i ) *Computation of uncompensated care obligation.* ( A ) For a facility which changes status before the date that subpart F of this part is effective for the facility, the remaining uncompensated services obligation is zero.
( B ) For a facility which changes status after the date that subpart F of this part is effective for the facility, the Secretary will multiply the annual compliance level, computed under the 10% method specified in 42 CFR 124.503(a)(1)(ii), for the fiscal year in which the change of status occurs times the number of years remaining in the facility's uncompensated services obligation. From this amount, the Secretary will subtract amounts of excess or add amounts of deficit for each fiscal year prior to the change of status for which the Secretary has previously conducted an audit of uncompensated services accounts. Excess and deficits will be adjusted by the percent change in the National Consumer Price Index for Medical Care between the year in which the excess or deficit occurred and the year in which the status change occurred. For each fiscal year prior to the change of status which the Secretary has not audited, the Secretary will add to the remaining obligation an amount equal to the annual compliance level in each such year adjusted by the percent change in the National Consumer Price Index for Medical Care between that year and the year of the status change. The amount computed as the total remaining obligation will then be multiplied by two. If the transferee chooses to accept the Secretary's calculation, no further assessments will be made of uncompensated care provided prior to the change of status date. If the transferee does not accept the calculation, the transferor or transferee may hire, and may charge against the irrevocable trust established under this section, an independent auditor to certify the compliance level and any excess or deficit for the period from May 18, 1979, up to and including the date of the change of status, using standard Departmental procedures supplemented with instructions provided by the Secretary, and submit the results in accordance with paragraph (b)(2)(ii) of this section. The audit may be conducted for any years *not* included in a previous site assessment conducted by the Department. If the Secretary agrees that a change is appropriate, the Secretary will use this information to adjust the calculation as set out in paragraph (b)(3) of this section. If the independent auditor certifies that qualified care was rendered either at the facility or at a replacement facility operated by the transferee between the date of the change of status and the date of establishment of the trust, and the Secretary agrees, the post transfer level of care shall not affect the calculation of the total remaining uncompensated care obligation to be doubled, but instead shall be recognized as a credit to be drawn from the trust as provided in paragraph (c)(1)(ii) of this section. In the case of a facility with respect to which a grant was made under title XVI of the Act, the remaining period of obligation will be the remainder of the expected useful life of the facility, as follows: 40 years for buildings, 30 years for additions, 20 years for building renovations, 20 years for fixed equipment and 12 years for major movable equipment.
( ii ) *Computation of recovery amount.* The Secretary will determine the recovery amount as provided in § 124.705.
( 2 ) Within 60 days following the date of the Secretary's letter provided pursuant to paragraph (b)(1) of this section, the owner of the facility shall notify the Secretary in writing that it either: ( i ) Accepts the trust fund amount for the waiver as offered by the Secretary;
( ii ) Provides a detailed statement of an alternative determination of the recovery amount or an independent audit of the remaining uncompensated services obligation as described in paragraph (b)(1)(i) of this section; or
( iii ) Does not seek a waiver under § 124.707. Failure to provide a timely response to the Secretary under this subparagraph will be considered an election not to seek the waiver.
( 3 ) Within 30 days following the receipt of the owner's views concerning the calculation, and after considering those views, the Secretary will send a final letter providing the Secretary's determination of twice the remaining uncompensated care obligation and the recovery amount under § 124.705. The amount to be placed in the irrevocable trust will be the higher of those two figures. (See paragraph (a)(2) of this section.)
( 4 ) Within 30 days of the date of the final letter, the owner of the facility shall notify the Secretary in writing whether or not it accepts the terms of the waiver. Failure to provide timely notice to the Secretary under this subparagraph will be considered an election not to accept the waiver.
( c ) *Establishment of the trust.* ( 1 ) Within 60 days of the date of its acceptance of a waiver under paragraph (b)(2) or (b)(4) of this section, the owner shall begin delivering services to those unable to pay in accordance with subpart F of this part under an irrevocable trust established in the amount calculated pursuant to paragraph (b) of this section. *Provided,* That ( i ) The owner shall provide a copy of the trust documents to the Secretary and no trust shall be considered established until the trust documents have been approved by the Secretary; and
( ii ) The owner may credit against the trust any uncompensated services provided in accordance with subpart F of this part between the date of the change of status of the facility and the establishment of the trust. For an owner to receive the credit before the establishment of the trust and deposit of funds therein, the auditor's report covering the post-transfer period shall be submitted with the notification of acceptance of the waiver, and in any event, not later than 30 days from the date of the Secretary's final letter described in paragraph (b)(3) of this section. Within 30 days following the receipt of the auditor's report, the Secretary will notify the owner of the allowable credit, if any. If the auditor's report is not timely submitted, the trust must be established and fully funded, in accordance with the time limits imposed by paragraph (c)(1) of this section, and the Secretary will notify the owner of the allowable credit, if any, within 30 days of the date of the establishment of the trust or within 30 days of the receipt of the report, whichever is later.
( 2 ) The trust shall be administered by a Trustee who is neither an employee of the transferee nor an employee of a subsidiary or of the parent institution of the transferee.
( 3 ) The trust shall provide that the trust corpus and income may be invested only in U.S. Government or U.S. Government insured securities.
( d ) *Use of the trust.* The corpus and income of the irrevocable trust shall be used to pay for the costs of uncompensated services, which may include reasonable costs of establishing and administering the trust and the cost of the independent audit described in paragraph (b)(1)(i) of this section, until the trust is exhausted.
(Approved by the Office of Management and Budget under control number 0915-0099)