May 13, 1999
Honorable Nancy-Ann Min DeParle
Administrator
Health Care Financing Administration
Dept. of Health & Human Services
Washington, DC 20201
Dear Administrator DeParle:
On March 18, 1999, the Health Care Financing Administration (HCFA) published a direct final rule with comment period to expand current Medicare/Medicaid regulations regarding the imposition of civil money penalties imposed on nursing homes that are not in compliance with program requirements. Current regulations provide for such penalties in a specific amount for each day of noncompliance and provide that the penalties stay in place until the facility comes into substantial compliance with all requirements. The proposed rule will allow HCFA or a state to impose a single civil money penalty amount for one instance of noncompliance.(1) The rationale behind the proposal is to 1) save surveyors from the administrative hassles associated with determining when noncompliance has ended, and 2) discourage facilities from fixing problems before HCFA has an opportunity to impose a penalty, and later slipping back into noncompliance. The proposed rule will also remove the requirement of a maximum notification period for imposition of a remedy.
The Small Business Administration Office of Advocacy, represented by the Chief Counsel, serves as the independent voice for small business within the federal government. As such, the Office of Advocacy wishes to submit these comments that outline general concerns about the proposed regulation and suggestions on how to reduce the economic impact of the regulation on small skilled nursing facilities (SNFs).
With regard to the per-instance proposal, it is the agency’s intention to establish a minimum of $1,000 for a per-instance civil money penalty. A lesser amount, the agency believes, would be an insufficient incentive to reach substantial compliance. Moreover, the amount will no longer be limited based on whether immediate jeopardy is present. Instead, determination of the actual amount will be based on three criteria: 1) scope and severity (including whether actual harm has occurred); 2) the facility’s degree of culpability; and 3) the facility’s history of prior offenses (including repeat deficiencies).
It is appropriate to consider the criteria outlined above in assessing penalties. In fact, these criteria are somewhat analogous to the requirements of the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA). SBREFA requires agencies (subject to the requirements or limitations of other statutes, policies or programs) to formulate penalty policy programs that contain waivers of civil penalties for violations of a statutory or regulatory requirement by a small entity---unless the violations were willful or criminal, noncompliance was an act of bad faith, the small entity has been subject to multiple enforcement actions by the agency, the violation is fixed within a reasonable amount of time, etc.(2) The ability of a small entity to pay the civil penalty is a factor agencies may consider in determining whether to waive the penalty under SBREFA.
The appropriateness of the criteria notwithstanding, there is still some question as to whether a minimum $1,000 fine would be overly burdensome and whether a less burdensome fine would accomplish the agency’s objectives. Current regulations allow for a fine as low as $50. The imposition of a mandatory minimum fine seems to ignore the fact that a particular violation may be very small in scope and severity. If the particular violation is minor or a one-time mistake, a $1,000 fine might not pass the "reasonableness" test established by HCFA.(3) Moreover, a violation may only be the result of insufficient education. In such a case, the resources that would be used to pay fines might be better used for staff education. Fixing the problem to avoid a penalty is not always a bad result.(4)
There is an additional matter of a technical nature that requires clarification by HCFA. In defining small government-owned facilities, HCFA states, "Government-owned facilities are not considered small entities because they are not independently owned and operated even though they are not-for-profit."(5) This is an incorrect interpretation of a "small entity" under the Regulatory Flexibility Act (RFA).(6) Under section 601 of the RFA, a small entity is defined as a small business, small not-for-profit organization or small governmental jurisdiction.
Whether or not an entity is independently owned and operated goes to the issue of size as well. In other words, a small business can still be independently owned and operated while affiliated with a larger entity, as long as the total size of both entities does not exceed the definition of a small business as outlined in the RFA and in SBA’s regulations (13 CFR § 121.201). Whether or not a government is small, goes to the size of its population—50,000 or less. Therefore, some government-owned facilities, if owned by a small government, could be small under the RFA. The American Health Care Association, representing 50 affiliated associations of more than 11,000 assisted living residences, nursing facilities and sub-acute care centers, indicates that seven percent of SNFs are owned by government entities. Again, some of these may be small governmental jurisdictions.
The foregoing then brings into play all the provisions of the Regulatory Flexibility Act. If it is HCFA’s intent to certify the rule, namely, that the rule does not have a significant economic on a substantial number of small entities, including small government entities, then it must provide factual justification for the certification, which HCFA needs to understand is judicially reviewable.
Also on the issue of size standards, HCFA has chosen to use a size standard of 120 beds as a proxy for SBA’s size standard of $5 million in annual receipts. HCFA indicated that it assumed that facilities with 120 beds or more would have annual receipts of $5 million or more. This assumption may be well founded, however, 120 beds is not a SBA size standard. There are specific rules for adjusting size standards located in section 601 or the RFA and in SBA’s regulations.(7) HCFA may be required to obtain the approval of SBA’s Administrator prior to adopting a new size standard.
Finally, it has not gone without notice that HCFA has again issued a direct final rule with no proposed rule and no opportunity for prior public notice and comment. As you know, the Office of Advocacy has stated its concerns about this practice in previous communications to your office.(8) GAO and Congress have also identified this practice as a potential violation of the Administrative Procedure Act. Advocacy will not rehash its previous arguments, but will state once more that the "good cause" exceptions to notice and comment should be used judiciously. Repeated use of the exceptions will draw undue scrutiny to the agency.
Thank you for the opportunity to comment on this proposed regulation. The Office of Advocacy believes that greater flexibility in assessing reduced fines would reduce the burden on small SNFs. Our office looks forward to working with you further on this regulation. Please do not hesitate to contact us directly at 202-205-6533.
Sincerely,
Jere W. Glover
Chief Counsel for Advocacy
Shawne Carter McGibbon
Asst. Chief Counsel for Advocacy
Endnotes
1. The proposed per-instance civil money penalties reflect a new HCFA interpretation of enforcement regulations that were published four years ago. HCFA indicated that, "we have concluded that the statute offers greater flexibility than we have exercised up to now." 64 Fed. Reg. at 13,356.
2. 5 U.S.C. § 611(a)(3)(A).
3. HCFA states, "the amount of money assigned to a per instance issue of noncompliance when compared to the problem, and whether the civil money penalty proves sufficient to provide a long term remedy, will have to withstand the test of reasonableness." 64 Fed. Reg. at 13,357.
4. The basis for the portions of SBREFA on civil money penalties was an April 21, 1995 Executive Memorandum to the heads of executive agencies, Regulatory Reform—Waiver of Penalties and Reduction of Reports. In that memorandum, President Clinton authorized agencies to waive up to 100% of the financial penalties (in certain circumstances) if the amounts waived are used to bring the entity into compliance. The President’s goal was for the federal government to move toward a more flexible, compliance focussed rather than a punitive approach to regulation.
5. Id. at 13,359.
6. 5 U.S.C. § 601 et seq.
7. 13 CFR § 121.902.
8. See Letter from Jere W. Glover and Shawne Carter McGibbon to Nancy-Ann Min DeParle (Nov. 2, 1998) (Implementation of 1997 Balanced Budge Act Requirements Relating to Home Medical Equipment Suppliers: Inherent Reasonableness and Competitive Bidding Demonstration Projects); Letter from Jere W. Glover and Shawne Carter McGibbon to HCFA Docket Management Clerk, File Code HCFA-1152-FC (April 15, 1998) (Regulatory Flexibility Act Requirements; Petition for Amendment of the Final Rule on Surety Bond and Capitalization Requirements for Home Health Care Agencies); Letter from Jere W. Glover and Shawne Carter McGibbon to Nancy-Ann Min DeParle (June 15, 1998) (Petition for Amendment of the Final Rule for the Schedule of Per-Beneficiary Limitation on Home Health Agency Costs).