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[Federal Register Volume 76, Number 53 (Friday, March 18, 2011)]
[Rules and Regulations]
[Pages 15106-15128]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-6144]

[[Page 15105]]

Vol. 76

Friday,

No. 53

March 18, 2011

Part III

Department of Health and Human Services

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Centers for Medicare and Medicaid Services

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42 CFR Part 488

Medicare and Medicaid Programs; Civil Money Penalties for Nursing 
Homes; Final Rule

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

[[Page 15106]]

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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.

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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 Sec.  488.430 through Sec.  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 Sec.  488.431 and Sec.  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 self-

[[Page 15107]]

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 Sec.  488.431(b)(1)(i) and 
Sec.  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

[[Page 15108]]

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 Sec.  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 Sec.  
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 Sec.  
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 Sec.  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 Sec.  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 Sec.  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 post-collection 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 Sec.  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

[[Page 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 Sec.  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 
Sec.  488.431(b) and Sec.  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 Sec.  
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 Sec.  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 Sec.  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

[[Page 15110]]

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 Sec.  488.431(c) refers to Sec.  488.431(e) which does not 
exist.
    Response: We appreciate this technical comment and are revising the 
regulatory text in this final rule at Sec.  488.431(c) to refer to the 
appropriate section, which is Sec.  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 self-reported 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 Sec.  
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 Sec.  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 self-
reporting 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 Sec.  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 self-reported 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 
Sec.  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 Sec.  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 Sec.  
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 Sec.  488.438(d)(3) define repeated deficiencies as ``deficiencies 
in the same regulatory grouping of requirements

[[Page 15111]]

found at the last survey, subsequently corrected, and found again at 
the next survey.''
    We also proposed at Sec.  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 Sec.  488.436(b)(1) and Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 
Sec.  488.438(c)(2)(v) accordingly. Current regulations at Sec.  
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

[[Page 15112]]

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 
self-reported 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 Sec.  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 Sec.  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 self-
reported, 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 Sec.  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

[[Page 15113]]

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 Sec.  483.13(c)(2), the facility 
would self-report 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 
self-reporting 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 Sec.  
488.438(c)(2)(ii) specifies that correction of the self-reported 
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 self-reported 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 Sec.  
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 self-report 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 self-reported 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 self-reporting 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 Sec.  488.436(b) was implemented under CMS's general 
rulemaking authority under Sec.  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 self-reporting 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 Sec.  488.436(b)(1) we specify that in order 
to receive the 35 percent reduction under Sec.  488.436, a provider 
shall not have received the 50 percent reduction specified by Sec.  
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

[[Page 15114]]

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 
Sec.  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 Sec.  
488.431.)
    We proposed at Sec.  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 Sec.  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 Sec.  488.431(a)(2) that an independent 
informal dispute resolution will generate a written record prior to 
collection. At proposed Sec.  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 Sec.  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

[[Page 15115]]

address facility challenges of cited deficiencies regardless of whether 
other non-civil money penalty remedies are imposed. We also proposed at 
Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  
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 Sec.  488.331(a)(3) and adding new Sec.  
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

[[Page 15116]]

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 Sec.  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 Sec.  
488.331(a)(3) and added a new section at Sec.  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 Sec.  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 Sec.  
488.331. The existing informal dispute resolution process provided at 
Sec.  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 Sec.  
488.431(a) establishes CMS's intent to

[[Page 15117]]

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 Sec.  
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 Sec.  
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 Sec.  488.431(a)(5) and renumbered it in this final rule at 
Sec.  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 Sec.  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

[[Page 15118]]

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 Sec.  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 Sec.  488.431(a)(3) by changing ``state 
ombudsman'' to ``State's long-term care ombudsman'' so that it is 
consistent with Sec.  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 Sec.  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 State-specific 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

[[Page 15119]]

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 Sec.  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 Sec.  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 Sec.  
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 Sec. Sec.  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 
Sec.  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 Sec.  
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

[[Page 15120]]

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 Sec.  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 
Sec.  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 cost-effective 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 Sec.  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 over-burdensome.
    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 well-being 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 Sec.  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 Sec.  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

[[Page 15121]]

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 Sec.  488.442(f) (but 
proposed to amend them to include reference to Sec.  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 Sec.  
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 Sec.  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 Sec.  488.433(d).
    At Sec.  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 Sec.  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 NF-only facility as a result of a CMS-imposed 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 per-request 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 
facility-based 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.

[[Page 15122]]

    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 Sec.  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 Sec.  488.442(f) remain intact 
except that we are amending the section to include reference to 
proposed Sec.  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 dually-participating 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 Sec.  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 frequently-raised 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

[[Page 15123]]

use Medicare civil money penalty funds to benefit and protect nursing 
home residents, we have revised Sec.  488.433 to specify that for funds 
subject to being placed in escrow, pursuant to Sec.  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 Sec.  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 Sec.  
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 Sec.  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 Sec.  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.

[[Page 15124]]

    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 Sec.  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 Sec.  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 Sec.  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 NF-only Facilities (Sec.  
488.431)

     Revised Sec.  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 Sec.  488.431(a)(1).
     Revised Sec.  488.431(a)(3) so that it is consistent with 
the requirements at Sec.  488.325 ``Disclosure of results of surveys 
and activities''.
     Removed proposed Sec.  488.431(4), eliminating language 
regarding a user fee system.
     Revised Sec.  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 Sec.  488.431(a)(5).
     Revised Sec.  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 Sec.  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 Sec.  488.432.
     Revised Sec.  488.431(c) to provide additional minor 
clarification and to make a technical edit to reference the

[[Page 15125]]

appropriate section which is Sec.  488.431(d)(2).
     Revised Sec.  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 (Sec.  488.432)

     Amend Sec.  488.432 by revising the section heading.

4. Civil Money Penalties: Uses and Approval of Civil Money Penalties 
Imposed by CMS (Sec.  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 (Sec.  488.438)

     Revised Sec.  488.438(c)(2)(ii) and adding subparagraphs 
(A) and (B) to clarify the self reporting and correction timeframe.
     Revised Sec.  488.438(c)(2)(v) by adding the cross-
reference for the definition of ``repeated deficiency''.
     Revised Sec.  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 (Sec.  
488.440)

     Revised Sec.  488.440(b) to include appropriate cross 
reference to Sec.  488.442 and include language that clarifies the 
effective date and duration of civil money penalties imposed by the 
state for NFs-only.
     Modified Sec.  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 (Sec.  
488.442)

     Revised Sec.  488.442(a)(2) to include reference to Sec.  
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,

[[Page 15126]]

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

0
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

0
2. Revise Sec.  488.330(e)(2)(ii) to read as follows:

Sec.  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.
* * * * *

0
3. Amend Sec.  488.331 by adding a new paragraph (a)(3) to read as 
follows:

Sec.  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 Sec.  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 Sec.  488.331 and 
Sec.  488.431 for the same deficiency citation arising from the same 
survey unless the informal dispute resolution process at Sec.  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

0
4. Section 488.400 is revised to read as follows:

Sec.  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.

0
5. Add a new Sec.  488.431 to read as follows:

Sec.  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 Sec.  488.331 for the 
particular deficiency citations at issue in the independent process 
under Sec.  488.431, unless the informal dispute resolution under Sec.  
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 Sec.  
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 
Sec.  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 on-going basis and, upon a final

[[Page 15127]]

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 Sec.  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 Sec.  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.
0
6. Amend Sec.  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:

Sec.  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 
Sec.  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 Sec.  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 Sec.  488.436, the State initiates collection of civil 
money penalty imposed per instance of noncompliance upon receipt of the 
facility's notification.
* * * * *

0
7. Add a new Sec.  488.433 to read as follows:

Sec.  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 Sec.  488.431 and that remain 
after a final administrative decision will be deposited with the 
Department of the Treasury in accordance with Sec.  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 Sec.  488.415(c), a temporary manager's salary must be 
paid by the facility.

0
8. Section 488.436 is amended by revising paragraph (b)(1) to read as 
follows:

Sec.  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 Sec.  
488.438.
* * * * *

0
9. Section 488.438 is amended by revising paragraphs (c) and (d)(1) to 
read as follows:

Sec.  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 
NF-only 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

[[Page 15128]]

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 Sec.  
488.436;
    (iv) 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;
    (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 self-reporting and correcting 
under this section and the 35 percent civil money penalty reduction for 
waiving its right to a hearing under Sec.  488.436.
    (d) * * *
    (1) Before a hearing requested in accordance with Sec.  488.431(d) 
or Sec.  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.
* * * * *

0
10. Section 488.440 is amended by revising paragraphs (b) and (c) to 
read as follows:

Sec.  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 Sec.  488.431, Sec.  488.432, and Sec.  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 
Sec.  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 
Sec.  488.431.
* * * * *

0
11. Section 488.442 is amended to remove and reserve paragraph (b) and 
revise paragraphs (a), (e)(1), and (f) to read as follows:

Sec.  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 Sec.  488.431 of 
this chapter for CMS-imposed penalties and 15 days after the State 
initiates collection pursuant to Sec.  488.432 of this chapter for 
State-imposed 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 Sec.  488.431, a civil money 
penalty is due 15 days after receipt of a written request to waive a 
hearing in accordance with Sec.  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 Sec.  488.433; and
* * * * *
    (f) Collection from dually participating facilities. Civil money 
penalties collected from dually participating facilities are deposited 
and disbursed in accordance with Sec.  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
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