This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

39641 

Vol. 75, No. 132 

Monday, July 12, 2010 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare and Medicaid 

Services 

42 CFR Part 488 

[CMS–2435–P] 

Medicare and Medicaid Programs; Civil 

Money Penalties for Nursing Homes 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

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 the Patient Protection 

and Affordable Care Act of 2010. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. EST on August 11, 2010. 

ADDRESSES: In commenting, please refer 

to file code CMS–2435–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the instructions under the ‘‘More Search 

Options’’ tab. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–2435–P, P.O. Box 8012, Baltimore, 

MD 21244–8012. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address ONLY: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–2435–P, Mail 

Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments before the close 

of the comment period to either of the 

following addresses: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

9994 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: Lori 

Chapman, (410) 786–9254. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http:// 

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. Comments received 

timely will also be available for public 

inspection as they are received, 

generally beginning approximately 3 

weeks after publication of a document, 

at the headquarters of the Centers for 

Medicare & Medicaid Services, 7500 

Security Boulevard, Baltimore, 

Maryland 21244, Monday through 

Friday of each week from 8:30 a.m. to 

4 p.m. To schedule an appointment to 

view public comments, phone 

1–800–743–3951. 

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. Long-term 

care facilities include skilled nursing 

facilities (SNFs) for Medicare and 

nursing facilities (NFs) for Medicaid. 

The Federal participation requirements 

for these facilities, generally referred to 

as ‘‘nursing home(s),’’ ‘‘facility’’ or 

‘‘facilities’’ in this proposed rule, are 

specified in regulations at 42 CFR part 

483, subpart B. 

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. 


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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 42 CFR Part 488, 

Subpart F, and the provisions directly 

affecting civil money penalties are set 

forth at § 488.430 through § 488.444. 

A per day civil money penalty may be 

imposed from $50 up to $10,000 for 

each day of noncompliance. An upper 

civil money penalty range of $3,050 up 

to $10,000 per day may be imposed for 

noncompliance that constitutes 

immediate jeopardy, meaning the 

noncompliance has caused or is likely 

to cause serious injury, harm, 

impairment or death to a resident, and 

as specified in § 488.438(d)(2) for repeat 

deficiencies. A lower range of $50 up to 

$3,000 per day may be imposed for 

noncompliance that does not constitute 

immediate jeopardy. The current 

regulations at § 488.438(a)(2) also 

specify that a civil money penalty may 

be imposed per instance of facility 

noncompliance in the range of $1,000 to 

$10,000 per instance. Current 

regulations at § 488.438(f)(2) also 

provide that, among other factors, a 

facility’s financial condition will be 

considered when determining the 

amount of a civil money penalty. 

Facilities that are dissatisfied with a 

certification of noncompliance have an 

informal opportunity, if they request it, 

to dispute cited deficiencies upon 

receipt of the official statement of 

deficiencies. For surveys conducted 

pursuant to section 1864 of the Act, this 

informal dispute resolution process is 

provided by the State. The requirement 

for informal dispute resolution is 

currently specified at § 488.331. Policy 

guidance in section 7212C of CMS’s 

State Operations Manual (Pub. L. 100– 

07) specifies the mandatory elements 

that must be included in each State’s 

informal dispute resolution process. 

While States have the option to involve 

outside persons or entities that they 

believe to be qualified to participate in 

the informal dispute resolution process, 

it is the States, not the outside 

individuals or entities that are 

responsible and accountable for the 

informal dispute resolution decisions. 

Further, when a facility is successful 

during the informal dispute resolution 

process at demonstrating that 

deficiencies should not have been cited, 

and CMS accepts these informal dispute 

resolution findings, the deficiency is or 

deficiencies are removed from the 

Statement of Deficiencies. Any 

enforcement sanctions, not only a civil 

money penalty, that were imposed as a 

result of those removed deficiencies are 

rescinded and adjusted accordingly. 

When civil money penalties are 

imposed by the State and CMS for a 

determination of noncompliance with 

nursing home participation 

requirements and the facility requests a 

hearing on that determination, a civil 

money penalty is not currently due and 

collectible under § 488.432 until after 

the facility has had an opportunity for 

an administrative hearing and received 

a final agency decision about the 

noncompliance upon which the penalty 

was imposed. Only with respect to civil 

money penalties does the Act specify 

that a nursing home provider would be 

entitled to a hearing before an adverse 

action is taken against it. Aside from 

this one exception for civil money 

penalties, as provided in section 1128A 

of the Act, appeal procedures for both 

the Medicare and Medicaid programs 

provide the opportunity for formal relief 

only after enforcement sanctions have 

taken effect. Indeed, sections 1819(h)(5) 

and 1919(h)(8) of the Act specifically 

state that the remedies permitted under 

the statute may be imposed during the 

pending of any hearing. This is 

consistent with the intent of the 

enforcement provisions which is to 

impose remedies as soon as possible in 

order to protect the residents. 

Regulations at § 488.436 provide that 

a facility may waive its right to a 

hearing within specified timeframes and 

procedures and, as a result, will have 

the civil money penalty reduced by 35 

percent. This reduction is intended to 

encourage facilities to carefully consider 

their position in terms of substantial 

compliance, as well as the costs they 

will incur in litigating the matter, before 

engaging the hearing process. Reducing 

a civil money penalty by 35 percent is 

based on the recognition that a legal 

challenge is costly to both the provider 

and to CMS. 

Current regulations at § 488.432 

specify when the civil money penalty is 

collected, based on whether or not a 

hearing is requested: 

• When a facility appropriately 

requests a hearing, in accordance with 

specified procedures, on the 

determination of noncompliance that is 

the basis for a per day civil money 

penalty, the penalty is collected when 

there is a final administrative decision 

that upholds the State’s or CMS’s 

determination after the facility achieves 

substantial compliance or is terminated. 

• When a facility does not request a 

hearing, in accordance with specified 

procedures, on the determination of 

noncompliance that is the basis for a per 

day civil money penalty, the penalty is 

collected when the facility achieves 

substantial compliance or is terminated. 

• When a facility waives its right to 

a hearing, in accordance with specified 

procedures, on the determination of 

noncompliance that is the basis for a per 

day civil money penalty, the penalty is 

collected when the facility achieves 

substantial compliance or is terminated. 

• When a facility appropriately 

requests a hearing, in accordance with 

specified procedures, on the 

determination of noncompliance that is 

the basis for a per instance civil money 

penalty, the penalty is collected when 

there is a final administrative decision 

that upholds the State’s or CMS’s 

determination of noncompliance. 

• When a facility does not request a 

hearing, in accordance with specified 

procedures, on the determination of 

noncompliance that is the basis for a per 

instance civil money penalty, the 

penalty is collected when the time 

frame for requesting a hearing expires. 

• When a facility waives its right to 

a hearing, in accordance with specified 

procedures, on the noncompliance that 

is the basis for a per instance civil 

money penalty, the penalty is collected 

upon receipt of the facility’s 

notification. 

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 


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reimbursement of residents for personal 

funds lost. 

II. Provisions of the Proposed 

Regulations 

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 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. 

Section 6111 of the Affordable Care 

Act provides the Secretary discretion to 

reduce the amount of a civil money 

penalty by not more than 50 percent in 

cases where a facility self-reports and 

promptly corrects a deficiency for 

which a penalty was imposed within 

ten calendar days of the date of 

imposition. However, the Secretary may 

not reduce the civil money penalty if 

either of the following is true: (1) The 

Secretary has reduced a civil money 

penalty imposed in the preceding year 

under this provision with respect to a 

repeat deficiency; or (2) the penalty is 

imposed on the facility for a deficiency 

that is found to result in a pattern of 

harm or widespread harm, immediately 

jeopardizes the health or safety of a 

resident or residents, or results in the 

death of a resident of the facility. 

Section 6111 of the Affordable Care Act 

also requires the Secretary to issue 

regulations that provide facilities an 

opportunity to participate in an 

independent informal dispute 

resolution process prior to the collection 

of a civil money penalty, allows for the 

collection and deposit of a civil money 

penalty in an escrow account prior to 

the resolution of any formal appeals, 

provides for return of escrowed civil 

money penalty funds in cases where a 

nursing home is successful in a formal 

appeal, and allows for a portion of the 

retained penalty funds pertinent to 

Medicare to support activities that 

benefit residents. 

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 

and 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 are proposing to revise 

42 CFR part 488 by adding new 

§ 488.431 and § 488.433. We are also 

proposing revisions to existing 

regulations throughout part 488 to 

further incorporate the new statutory 

provisions. These proposed changes 

would be consistent with Section 6111 

of the Affordable Care Act. Specifically, 

this proposed rule would allow for civil 

money penalty reductions when 

facilities self-report and promptly 

correct their noncompliance; offer in 

cases where civil money penalties are 

imposed an independent informal 

dispute resolution process where 

interests of both facilities and residents 

are represented and balanced; provide 

for the establishment of an escrow 

account where civil money penalties 

may be placed until any applicable 

administrative appeal processes have 

been completed; and, improve the 

extent to which civil money penalties 

collected from Medicare facilities can 

benefit nursing home residents. 

Through the proposed revisions, we 

intend to directly promote and improve 

the health, safety, and overall well-being 

of residents. 

A. Proposed 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). These referenced reports 

are identified as GAO–07–241, ‘‘Efforts 

to Strengthen Federal Enforcement Have 

Not Deterred Some Homes from 

Repeatedly Harming Residents,’’ (March 

2007), and OEI–06–02–00720, ‘‘Nursing 

Home Enforcement: The Use of Civil 

Money Penalties,’’ (April 2005). Both 

GAO and OIG studied the civil money 

penalty collection process for nursing 

homes. Each concluded that the 

significant time that can elapse between 

identification of noncompliance and the 

facility’s payment of an imposed civil 

money penalty diminishes the 

immediacy of the enforcement response, 

insulates the facility from the 

repercussions of enforcement, and may 

undermine the sanction’s deterrent 

effect. For example, the OIG reported 

that, in the cases they reviewed, 

collection of civil money penalties in 

appealed cases took an average of 420 

days. As a result of its own independent 

study, GAO recommended that CMS 

seek a legislative change that would 

allow for the collection of civil money 

penalties before exhaustion of appeals. 

Sections 6111(a) and (b) of the 

Affordable Care Act created new 

authorities at sections 1819(h) and 

1919(h) of the Act that now permit the 

Secretary to collect and place civil 

money penalties into an escrow account 

pending the resolution of any formal 

appeal. We believe that through the 

passage of this specific provision and 

the creation of an exception to current 

collection timeframe for civil money 

penalties imposed by CMS, the Congress 

expressed its intent to address the 

current delay in collection of civil 

money penalties and mitigate the 

deleterious effect of such delays that the 

GAO and OIG identified in their reports. 

Specifically, 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 per day civil money 

penalties, the penalty will not be 

imposed 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. (The added 

provisions regarding the new 

independent informal dispute 

resolution process are discussed later in 

section II–C. of this preamble.) 

In the proposed rule, we interpret 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, provide for 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 


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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. 

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 were reduced or 

rescinded back to the effective date of 

the civil money penalty. Second, it has 

been CMS’ 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 also 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 propose 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). 

1. 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 into escrow accounts 

civil money penalties. 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 are proposing to 

implement these requirements at 

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

While the amended statutory language 

contemplates that a facility will be 

either wholly successful or unsuccessful 

in challenging its determination of 

noncompliance during the independent 

informal dispute resolution process, the 

proposed regulation reflects an 

understanding that there are times when 

a facility is partly successful. In such 

instances, the facility may be able to 

argue successfully for change to only 

some of its cited noncompliance. If such 

change as a result of the independent 

informal dispute resolution were to 

affect the civil money penalty amounts 

owed, (for example, through deletion of 

a germane deficiency), then the amount 

initially imposed would need to be 

adjusted accordingly before being 

collected and placed in the escrow 

account. 

2. 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 will be kept in an 

escrow account pending the resolution 

of any subsequent formal appeals (as 

distinct from an informal dispute 

resolution process). 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 are 

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

administrative law judge (ALJ) reverses 

the civil money penalty determination 

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 are 

proposing to implement these new 

requirements at proposed § 488.431(d). 

We believe these new statutory 

provisions contemplate not only an 

absolute 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 only 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 proposed rule 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 collaboration with 

interested stakeholders. However, we do 

expect that the collection of a per day 

civil money penalty under this 

proposed rule may be a two-step 

process. In proposed § 488.431(b)(2),we 

expect that in instances when a facility 

has not achieved substantial compliance 

at the time a per day civil money 

penalty can be collected and placed in 

an escrow account, that collection 

would consist of the penalty amount 

that has accrued from the effective date 

of the penalty through the date of 

collection. Another collection would 

need to occur later in the process for 

any final balance determined to be due 

and payable once the facility achieves 

substantial compliance or is terminated 

from the program. 

B. Proposed 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 


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

These sections establish new authorities 

for CMS to reduce a civil money penalty 

it imposes by up to 50 percent when 

CMS determines that a facility has selfreported and promptly corrected its 

noncompliance. This new provision 

explicitly provides that such reduction 

is not applicable for noncompliance that 

constitutes immediate jeopardy to 

resident health and safety, 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. 

This 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 are 

proposing to implement these new 

requirements at § 488.438(c). 

The language of the new statutory 

provision permissively states that the 

Secretary may reduce an imposed civil 

money penalty by up to 50 percent 

‘‘where a facility self-reports and 

promptly corrects a deficiency for 

which a penalty was imposed under this 

clause not later than 10 calendar days 

after the date of such imposition.’’ We 

propose 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 propose not to permit a 50 

percent reduction when the selfreporting or the correction occurred at 

any later point in time. To credit a 

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

facility has been surveyed and 

noncompliance has been discovered by 

CMS would not meet the common sense 

meaning of ‘‘self-reporting.’’ We have 

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 are declining 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 propose 

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

other criteria, in order for a facility to 

receive this 50 percent reduction, CMS 

must determine that the facility selfreported and corrected the 

noncompliance within 10 days of 

identifying it, and before it was 

identified by CMS or the State. In 

addition we specify 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 

are proposing to add this limitation at 

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

these scope and severity levels indicates 

a significant breakdown in facility 

performance and systems to the extent 

that, even if self-reported, warrants an 

equally significant consequence without 

the benefit of a considerable reduction. 

Furthermore, new sections 

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

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

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

the Affordable Care Act, also specify 

that the reduction under these 

provisions would not apply for facilities 

that have repeated noncompliance for 

which a penalty reduction under this 

provision was received during the 

previous year. We are proposing to add 

this limitation at § 488.438(c)(2)(v). We 

believe, and Congress clearly indicated, 

that facilities unwilling or unable to 

maintain and sustain compliance with 

the same participation requirements 

over this period of time should not be 

rewarded with a reduced civil money 

penalty. This is consistent with current 

regulations at § 488.438(d)(2) which 

require that the State and CMS must 

increase the civil money penalty 

amount for any repeated deficiencies for 

which a lower level penalty amount was 

previously imposed. Current regulations 

at § 488.438(d)(3) define repeat 

deficiencies as ‘‘deficiencies in the same 

regulatory grouping of requirements 

found at the last survey, subsequently 

corrected, and found again at the next 

survey.’’ 

We are also proposing at 

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

facility must waive its right to a hearing 

in order to receive this 50 percent 

reduction. This is because, by the 

facility’s own admission through its 

self-reporting and correction, it has 

acknowledged its noncompliance, 

thereby substantially eliminating the 

basis for any formal appeal. Should a 

facility elect to expend its resources on 

an administrative appeal, we believe it 

should choose between the 50 percent 

reduction otherwise available or 

pursuing the appeal. We also reinforce 

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 

propose in this regulation to set the 

percentage reduction at the highest 

permissible level of 50 percent in these 

circumstances. 

In proposed § 488.436(b)(1) and 

§ 488.438(c)(3), we are proposing to 

amend these sections to specify that a 


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facility may receive only one and not 

both of the available civil money 

penalty reductions. Under existing 

regulations at § 488.436(b), a facility 

may receive a 35 percent reduction in 

its civil money penalty liability if it 

timely waives its right to appeal the 

determination of noncompliance that 

led to the imposition of the penalty. No 

other criterion needs to be met in order 

for a facility to get this 35 percent 

reduction. However, in order to receive 

the higher 50 percent reduction in 

penalty, a facility must not only waive 

its right to a hearing, but it must also 

meet the specific criteria at proposed 

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

may receive either the 35 percent 

reduction for waiving its right to a 

hearing or the 50 percent reduction for 

self-reporting and promptly correcting, 

but in no case will the facility receive 

both reductions at the same time. 

C. Proposed Opportunity for an 

Independent Informal Dispute 

Resolution Process 

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. This 

process is to be offered 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 but, 

consistent with the existing informal 

dispute resolution process under 

§ 488.331, 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 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 are 

proposing specific core elements be 

included so that we can ensure the 

fairness and efficiency of the 

independent informal dispute 

resolution process. (CMS will notify the 

facility of the opportunity for this 

process as specified in proposed 

§ 488.431.) 

We are proposing at § 488.431(a) that 

CMS continues to retain ultimate 

authority for the survey findings and 

imposition of civil money penalties, and 

also provide that an independent 

informal dispute resolution must be 

requested by the facility within 30 days 

of notice of imposition of a civil money 

penalty. In an effort to ensure that the 

independent informal dispute 

resolution process is completed timely, 

we are proposing at § 488.431(a)(1) that 

it be completed within 60 days of the 

imposition of the civil money penalty. 

We are proposing at § 488.431(a)(2) that 

this process will generate a written 

record prior to the collection of any 

penalty. At proposed § 488.431(a)(3), we 

are requiring that the independent 

informal dispute resolution process 

include notification to an involved 

resident or a resident representative, as 

well as the state ombudsman, with 

respect to the opportunity to provide 

written comment. 

We propose that the new independent 

informal dispute resolution process be 

an additional option for nursing homes 

and that nursing homes would retain 

the option to use the existing informal 

dispute resolution process under 

§ 488.331. We believe that the current 

informal dispute resolution process can 

be expeditious and that it addresses a 

greater range of noncompliance issues 

that would affect other enforcement 

remedies than the new independent 

informal dispute resolution process is 

required to cover. The Affordable Care 

Act requires that the independent 

process be available only in cases of 

noncompliance for which a civil money 

penalty was imposed. 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. 

We also propose at § 488.431(a)(4) 

that the new independent informal 

dispute resolution process be conducted 

at the requesting facility’s expense, and 

expect that a system of user fees 

designed to cover expenses of this 

process will be put in place in each 

State. We ask for comments on 

alternative user fee systems. We believe 

this arrangement is advisable for a 

number of reasons. First, the current 

informal dispute resolution process will 

continue to be available to nursing 

homes at no charge. Second, without a 

user fee, the costs of the new process 

would be borne by the Medicare Trust 

Fund or other public sources that are 

already subject to serious fiduciary 

challenge. Third, in electing to use the 

new independent process, a nursing 

home must believe that there is added 

value to the new process as compared 

with either using the current (and still 

available) process that does not involve 

a user fee or requesting a formal appeal 

under § 498.40. 

A few States have had long-standing 

independent informal dispute 

resolution programs. To gather 

information on the range of potential 

user fees, we examined the fee structure 

used by a contractor that has contracts 

with a number of such States. The 

purpose of our examination was to 

provide insight into how the user fee 

aspect of a national independent 

informal dispute resolution process 

might operate. In the most useful 

example we found, the fee structure is 

built on a base fee of $160 per 

deficiency. Upon this foundation certain 

variable costs are added so that the total 

fee amount can be responsive to the 

complexity of the case and the skill sets 

most useful in the dispute resolution 

process. For example, the involvement 

of nurses are based on an add-on hourly 

nurse rate (currently $145) and the 

involvement of a physician in some 

cases results in an add-on of a different 


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physician reviewer rate (currently $300/ 

hour). The total fees range from $550 for 

a less complex case (1 to 11⁄2 half hours 

of review); $800–$1,000 for a more 

complicated case (2–3 hours of review) 

and $1,000–$3,000 (3–4 hours) for the 

most complex cases involving 

immediate jeopardy or substandard 

quality of care. The complexity of the 

case is based on both the number of 

deficiencies that are in dispute and the 

amount of time it takes the nurse or 

physician reviewer to assess an 

individual deficiency. Generally, a 

lower scope and severity deficiency (no 

actual harm deficiencies) would require 

less review time whereas more 

significant deficiencies (such as 

immediate jeopardy or substandard 

quality of care) would require more time 

to review. The fees apply to a record 

review and typically do not include any 

telephonic or in-person conferences. 

In electing to use the new process, a 

nursing home is free to make a 

marketplace decision as to whether the 

user fee will be worth the cost compared 

to the option of using the current 

informal dispute resolution process that 

involves no user fee for the facility. In 

electing to use the new process, we 

expect that the nursing home will 

generally consider the user fee to be less 

costly than filing a formal appeal. Those 

lesser costs may derive from both lower 

preparation, legal, and filing fees, 

together with the 35 percent reduction 

in the civil monetary penalty that is 

available under § 488.436 in situations 

where a nursing home elects not to 

request a formal hearing. We invite 

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 are also 

soliciting comments on whether the fee 

should be returned to the facility in the 

event that the applicable civil money 

penalty is completely eliminated as 

proposed in § 488.431(a)(4). We propose 

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 are proposing at 

§ 488.431(a)(5) that independent 

informal dispute resolution be 

conducted by the State under section 

1864 of the Act, or an entity approved 

by the State and CMS, or by CMS in the 

case of surveys conducted only by 

Federal surveyors, with no conflicts of 

interest, such as: (i) A component of an 

umbrella State agency provided that the 

component is organizationally separate 

from the state survey agency; (ii) an 

independent entity with healthcare 

experience selected by the State and 

approved by CMS; or (iii) a distinct part 

of the State survey agency, so long as 

the entity or individual(s) conducting 

the independent informal dispute 

resolution has no conflict of interest and 

has not had any part in the survey 

findings under dispute. 

D. Proposed Acceptable Uses of Civil 

Money Penalties Collected by CMS 

Section 6111 of the Affordable Care 

Act establishes new acceptable uses of 

civil money penalties collected by CMS. 

Some of these collected civil money 

penalty funds must be applied directly 

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

Additionally, the Affordable Care Act 

makes it clear that the specified use of 

such funds, collected from SNFs, SNF/ 

NFs and NF-only facilities as a result of 

civil money penalties imposed by CMS, 

must be approved by CMS. 

The Affordable Care Act provides 

flexibility about how civil money 

penalty funds collected by CMS can be 

used. These new provisions are also 

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

of the Act regarding how civil money 

penalties may be used when collected 

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

the Act provides that civil money 

penalties that are imposed by the State 

shall be applied to the protection of the 

health or property of nursing facility 

residents. the whether an acceptable use 

of collected fees would be to offset a 

portion of the cost of the independent 

informal dispute resolution process. 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 are 

proposing 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 are proposing at 

§ 488.433 that 50 percent of the Title 

XVIII portion of collected civil money 

penalty amounts would be used for 

activities that would benefit nursing 

home residents and that the remaining 

50 percent of collected funds applicable 

to Title XVIII would continue to be 

deposited to the Department of the 

Treasury. This proposed division of 

funds reflects the focus and importance 

the Affordable Care Act provisions give 

to improving and promoting the health 

and well-being of nursing home 

residents. Furthermore, to protect 

against any actual or potential conflicts 

of interest, we specify at proposed 

§ 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 

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 retain 

current regulations at § 488.442(f) (but 

amend them to include reference to 

proposed § 488.433) that specify the 

formula for determining the proportion 

of collected civil money penalty funds 

that are to be returned to the State in 

dually participating facilities, that is, ‘‘in 

proportion commensurate with the 

relative proportions of Medicare and 

Medicaid beds at the facility actually in 

use by residents covered by the 

respective programs on the date the civil 

money begins to accrue.’’ These funds 

attributable to Title XIX are returned to 

the State in which the noncompliant 

facility that paid the civil money 

penalty is located, and this arrangement 

is continued in our proposed rule. 

The Affordable Care Act provides 

examples of those types of activities that 

would be considered appropriate uses 

for civil money penalty monies, 

including— 

• Assistance to support and protect 

residents of a facility that closes 

(voluntarily or involuntarily) or is 

decertified (including offsetting costs of 

relocating residents to home and 

community-based settings or another 

facility), which is found at proposed 

§ 488.433(a) and (b); 

• Projects that support resident and 

family councils and other consumer 

involvement in assuring quality care in 

facilities, which is found at proposed 

§ 488.433(c); 


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• Facility improvement initiatives 

approved by CMS (including joint 

training of facility staff and surveyors, 

technical assistance for facilities 

implementing quality assurance 

programs, the appointment of temporary 

management firms, and other activities 

approved by CMS), which is found at 

proposed § 488.433(d). 

At § 488.433(e) we propose the 

appointment of a temporary 

management firm as one possible use of 

collected civil money penalties, as 

noted in the new subsections added by 

section 6111 of the Affordable Care Act. 

Currently existing regulations at 

§ 488.415(c) require that the temporary 

manager’s salary is paid directly by the 

facility. Using civil money penalty 

funds to appoint a temporary 

management firm significantly reduces 

the deterrent effect of the temporary 

manager enforcement sanction since the 

costs associated with it would be paid 

for by collected civil money penalty 

funds instead of by the facility. We 

believe this was not the intent of 

Section 6111 of the Affordable Care Act. 

Therefore, while the proposed rule does 

not contemplate using civil money 

penalty funds for payment of the 

temporary manager’s salary, it does 

contemplate using the funds for other 

expenses related to development and 

maintenance of temporary management 

or receivership capability (for example, 

recruiting, vetting, or retaining of 

temporary managers, or other related 

system infrastructure expenses). Use of 

funds in this manner should secure the 

readiness and availability of temporary 

manager candidates, and therefore, 

encourage the use of this sanction. 

When considering what initiatives or 

projects would make good use of civil 

money penalty funds collected from 

Medicare facilities and would best 

benefit nursing home residents, CMS 

may conclude that the State is in the 

best position to provide that effort. In 

this instance, CMS is free to use its 

share of the collected funds to pay the 

State to perform those activities that 

CMS determines would best benefit 

nursing home residents. This payment 

to a State to secure the State’s assistance 

for a CMS-approved resident benefit 

activity does not constitute an increase 

in the State’s proportion of any civil 

money penalty funds collected from a 

dually participating facility. Rather, 

these are funds that CMS collected from 

a Title XVIII facility and which CMS 

subsequently determines can be used in 

the most beneficial way through the 

State. 

We wish to reiterate that use of funds 

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

approved by CMS. We expect that CMS 

will issue guidance that will permit 

specific categories of civil money 

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

listed in the guidance would require 

case-by-case advance approval. 

III. Collection of Information 

Requirements 

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

Omnibus Budget Reconciliation Act of 

1987 (OBRA ’87), Public Law 100–203, 

enacted on December 21, 1987, provides 

a waiver 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. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that draft. 

V. Regulatory Impact Statement 

We have examined the impact of this 

rule as required by 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 Order 12866 directs 

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). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). This rule does not reach 

the economic threshold and thus is not 

considered a major rule. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

business. 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 we have 

determined, and the Secretary certifies, 

that this proposed rule would 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 603 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 we have determined, 

and the Secretary certifies, that this 

proposed rule would 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. These 

regulatory proposals would have no 

consequential effect on State, local, or 

tribal governments or on the private 

sector. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed 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. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 


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List of Subjects in 42 CFR Part 488 

Administrative practice and 

procedure, Health facilities, Medicare, 

Reporting and recordkeeping 

requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR part 488 as set forth below: 

PART 488—SURVEY, CERTIFICATION, 

AND ENFORCEMENT PROCEDURES 

1. The authority citation for part 488 

is revised to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act, unless otherwise noted 

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

of the Patient Protection and Affordable Care 

Act (Pub. L. 111–148) 

Subpart E—Survey and Certification of 

Long-Term Care Facilities 

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

follows: 

§ 488.330 Certification of compliance or 

noncompliance. 

* * * * * 

(e) * * * 

(2) * * * 

(ii) Except for civil money penalties 

imposed on NFs-only by the State, 

during any pending hearing that may be 

requested by the provider of services. 

* * * * * 

3. Amend § 488.331 by adding a new 

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

§ 488.331 Informal dispute resolution. 

(a) * * * 

(3) For SNFs, SNF/NFs, and NF-only 

facilities that have civil money penalties 

imposed by CMS, CMS offers the facility 

an opportunity, at the facility’s request 

if requested within 30 days of the notice 

of imposition of a civil money penalty, 

for independent informal dispute 

resolution, as specified in § 488.431(a). 

* * * * * 

Subpart F—Enforcement of 

Compliance for Long-Term Care 

Facilities With Deficiencies 

4. Section 488.400 is revised to read 

as follows: 

§ 488.400 Statutory basis. 

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

Act specify remedies that may be used 

by the secretary or the State respectively 

when a SNF or a NF is not in substantial 

compliance with the requirements for 

participation in the Medicare and 

Medicaid programs. These sections also 

provide for ensuring prompt compliance 

and specify that these remedies are in 

addition to any other available under 

State or Federal law, and, except, for 

civil money penalties imposed on NFsonly by the State, are imposed prior to 

the conduct of a hearing. 

5. Add a new § 488.431 to read as 

follows: 

§ 488.431 Civil money penalties imposed 

by CMS and independent informal dispute 

resolution: for SNFS, 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— 

(1) Is completed within 60 days of 

notice of imposition of civil money 

penalty if an independent informal 

dispute resolution is timely requested 

by the facility. 

(2) Generates a written record prior to 

the collection of the penalty. 

(3) Includes notification to an 

involved resident or resident 

representative, as well as state 

ombudsman, to provide opportunity for 

written comment. 

(4) Is conducted at the facility’s 

expense, consistent with a user fee 

system approved by CMS that is 

designed to cover only actual expenses 

of the independent informal dispute 

resolution process based on average 

costs that are uniformly applied but may 

vary by key categories such as time used 

in the dispute resolution process and 

the average cost for the amount of time 

used, except that the fee shall be 

returned in the event that the applicable 

civil money penalty is completely 

eliminated. 

(5) Is conducted by the State under 

section 1864 of the Social Security Act, 

or by an entity approved by the State 

and CMS, or by CMS in the case of 

surveys conducted only by federal 

surveyors, 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 

healthcare experience selected by the 

State and approved by CMS. 

(iii) A distinct part of the State survey 

agency, so long as the individuals 

conducting the independent informal 

dispute resolution have no conflict of 

interest and have not directly 

participated in the survey that is the 

subject of the dispute resolution 

process. 

(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. 

(c) Maintenance of escrowed funds. 

CMS will maintain collected civil 

money penalties in an escrow account 

pending the resolution of an 

administrative appeal. CMS will retain 

escrow funds on an on-going basis and, 

once a final administrative decision is 

made, will either return applicable 

funds in accordance with § 488.431(e) 

or, in the case of unsuccessful 

administrative appeals, will periodically 

disburse the funds to States or other 

entities in accordance with § 488.433. 

(d) When a facility requests a hearing. 

(1) A facility must request a hearing 

on the determination of the 

noncompliance that is the basis for 

imposition of the civil money penalty 

within the time specified in § 498.40 of 

this chapter. 

(2) If the administrative law judge 

reverses the civil money penalty 

determination 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 civil money penalty. 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. 

6. Amend § 488.432 by revising the 

section heading and revising paragraphs 

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

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

removing paragraph (e) to read as 

follows: 


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§ 488.432 Civil money penalties imposed: 

NF-only when State imposes civil money 

penalty. 

(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 NF 

must request a hearing on the 

determination of noncompliance that is 

the basis for imposition of the civil 

money penalty within the time specified 

in § 431.153 of this chapter. 

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

within the time frame specified in 

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

civil money penalty imposed per day, 

the State initiates collection of the 

penalty when there is a final 

administrative decision that upholds the 

State’s determination of noncompliance 

after the facility achieves substantial 

compliance or is terminated. 

(ii) If a facility requests a hearing for 

a civil money penalty imposed per 

instance of noncompliance within the 

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

section, the State initiates collection of 

the penalty when there is a final 

administrative decision that upholds the 

State’s determination of noncompliance. 

(b) When a facility does not request a 

hearing for a civil money penalty 

imposed per day. (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) When a facility waives a hearing. 

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

right to a hearing as specified in 

§ 488.436, for a civil money penalty 

imposed per day, the State initiates 

collection of the penalty when the 

facility— 

* * * * * 

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

right to a hearing as specified in 

§ 488.436, for a civil money penalty 

imposed per instance of noncompliance, 

the State initiates collection of the 

penalty upon receipt of the facility’s 

notification. 

* * * * * 

7. Add a new § 488.433 to read as 

follows: 

§ 488.433 Civil money penalties: Uses and 

approval of civil money penalties imposed 

by CMS. 

Fifty percent of the collected civil 

money penalty applicable to Title XVIII 

will be deposited with the Department 

of Treasury in accordance with 

§ 488.442(f). The remaining collected 

civil money penalty funds 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 

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 relocation of 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. 

(e) Development and maintenance of 

temporary management or receivership 

capability such as but not limited to, 

recruitment, training, retention or other 

system infrastructure expenses. 

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

temporary manager’s salary must be 

paid by the facility. 

8. Section 488.436 is amended by 

revising paragraph (b)(1) to read as 

follows: 

§ 488.436 Civil money penalties: Waiver of 

hearing, reduction of penalty amount. 

* * * * * 

(b) * * * 

(1) If the facility waives its right to a 

hearing in accordance with the 

procedures specified in paragraph (a) of 

this section, CMS or the State reduces 

the civil money penalty by 35 percent, 

as long as the civil money penalty has 

not also been reduced by 50 percent 

under § 488.438. 

* * * * * 

9. Section 488.438 is amended by 

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

as follows: 

§ 488.438 Civil money penalties: Amount 

of penalty. 

* * * * * 

(c) Decreased penalty amounts. 

(1) Except as specified in paragraph 

(d)(2) of this section, if immediate 

jeopardy is removed, but the 

noncompliance continues, the State or 

CMS will shift the penalty amount 

imposed per day to the lower range. 

(2) When CMS determines that a SNF, 

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 

imposed by 50 percent, provided that all 

of the following apply— 

(i) The facility self-reported the 

noncompliance to the State or CMS 

before it was identified by the State or 

CMS and before it was reported to the 

State or CMS 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 within 10 

calendar days of the date that the 

facility identified the noncompliance; 

(iii) The facility waives its right to a 

hearing under § 488.436; 

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

constitute a pattern of harm, widespread 

harm, immediate jeopardy, or result in 

the death of a resident; and, 

(v) The civil money penalty was not 

imposed for a repeated deficiency that 

received a civil money penalty 

reduction under this section within the 

previous year. ‘‘Repeat deficiency’’ is 

defined in § 488.438(d)(3). 

(3) Under no circumstances will a 

facility receive both the 50 percent civil 

money penalty reduction for selfreporting and correcting under this 

section and the 35 percent civil money 

penalty reduction for waiving its right to 

a hearing under § 488.436. 

(d) Increased penalty amounts. (1) 

Before a hearing requested in 

accordance with § 488.431(d) or 

§ 488.432(a), CMS or the State may 

propose to increase the per day penalty 

amount for facility noncompliance 

which, after imposition of a lower level 

penalty amount, becomes sufficiently 

serious to pose immediate jeopardy. 

* * * * * 

10. Section 488.440 is amended by 

revising paragraphs (b) and (c) to read 

as follows: 

§ 488.440 Civil money penalties: Effective 

date and duration of penalty. 

* * * * * 

(b) The per day civil money penalty 

is computed and collectible, as specified 

in § 488.431 and § 488.432, for the 

number of days of noncompliance until 

the date the facility achieves substantial 

compliance, or, if applicable, the date of 

termination. 


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Federal Register / Vol. 75, No. 132 / Monday, July 12, 2010 / Proposed Rules 39651 

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

money penalties imposed by the State, 

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, SNF/NFs, or NFs subject 

to civil money penalties imposed by 

CMS, collection would be in accordance 

with § 488.431(b). 

* * * * * 

11. Section 488.442 is amended to 

remove and reserve paragraph (b) and 

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

read as follows: 

§ 488.442 Civil money penalties: Due date 

for payment of penalty. 

(a) When payments are due for a civil 

money penalty imposed. (1) A civil 

money penalty payment is due in 

accordance with § 488.431 of this 

chapter for CMS-imposed penalties and 

is due 15 days after the State initiates 

collection pursuant to § 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. 

A civil money penalty is due 15 days 

after receipt of the written request to 

waive a hearing in accordance with 

§ 488.436. 

(3) After the effective date of 

termination. A civil money penalty 

payment is due 15 days after the 

effective date of termination, if that is 

earlier than the date contained in 

subsection (a)(1). 

* * * * * 

(b) [Reserved] 

* * * * * 

(e) * * * 

(1) Medicare-participating facilities 

are deposited and disbursed in 

accordance with § 488.433; and 

* * * * * 

(f) Collection from dually 

participating facilities. Civil money 

penalties collected from dually 

participating facilities are deposited and 

disbursed in accordance with § 488.433 

and returned to the State in proportion 

commensurate with the relative 

proportions of Medicare and Medicaid 

beds at the facility actually in use by 

residents covered by the respective 

programs on the date the civil money 

penalty begins to accrue. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.778, Medical Assistance 

Program) 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, Medicare 

Supplementary Medical Insurance Program) 

Dated: May 27, 2010. 

Marilyn Tavenner, 

Acting Administrator and Chief Operating 

Officer, Centers for Medicare & Medicaid 

Services. 

Approved: June 29, 2010. 

Kathleen Sebelius, 

Secretary. 

[FR Doc. 2010–16927 Filed 7–9–10; 8:45 am] 

BILLING CODE 4120–01–P 


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