CMS Issues Final Rule Imposing Civil Money Penalties

March 30, 2011

On March 18, 2011, the Centers for Medicare and Medicaid Services (CMS) issued a final rule (Final Rule) to revise and expand current Medicare and Medicaid regulations allowing CMS to impose civil monetary penalties (CMPs) against nursing homes that fail to comply with new requirements created by Section 6111 of the Patient Protection and Affordable Care Act of 2010 (Affordable Care Act). Section 6111 amended Sections 1819(h) and 1919(h) of the Social Security Act to incorporate specific provisions pertaining to the imposition and collection of CMPs when nursing facilities fail to meet Medicare and Medicaid participation requirements. According to CMS, these new provisions “are intended to improve efficiency and effectiveness of the nursing home enforcement process, particularly as it relates to civil money penalties imposed by CMS.” Four significant changes to existing nursing home regulations will occur as a result of this Final Rule.

First, in cases where CMPs are imposed, CMS must offer an independent informal dispute resolution process where the interests of both a facility and its residents are fairly represented. The Final Rule does not change the existing informal dispute resolution process under 42 CFR ยง 488.331. Instead, it adds an additional process to protect facilities from early collection of CMPs based on possibly erroneous deficiency findings before exhaustion of all available administrative remedies.

Second, CMS is given the discretion to reduce CMPs up to 50% when facilities self-report an instance of noncompliance to CMS or the applicable state survey agency (SA) before the instance was identified by CMS or the SA and before it was reported to CMS or the SA by means of a complaint lodged by a person other than an official representative of the facility. The facility must also promptly correct the cause of the noncompliance to qualify for a CMP reduction. This provision, however, does not apply to any occurrence that constitutes immediate jeopardy to resident health and safety, acts that are found to create either a pattern of harm or widespread harm to facility residents or violations that resulted in a resident’s death.

Third, the Final Rule grants CMS discretion to establish escrow accounts into which CMP amounts can be placed pending a final administrative decision addressing the alleged impropriety. Current practice allows nursing facilities to defer payment of CMPs until all administrative appeals have been resolved. Under the new policy included in the Final Rule, CMS may collect and place CMPs in an escrow account upon the earlier of (1) the date on which the newly created independent informal dispute resolution process is completed or (2) the date that is 90 days after the date of the notice of imposition of the CMPs. The Final Rule also grants CMS the power to defer full payment of CMP amounts into an escrow account if it determines that more time is necessary for the deposit of the total amount by finding that immediate payment would create substantial and undue hardship on the facility. A facility must request a hearing on the determination of noncompliance that is the basis for the imposition of the CMPs.

Finally, the Final Rule clarifies how CMS may use the CMP amounts remaining in an escrow account. The Final Rule provides that 10% of the collected CMP amounts remaining in escrow after a final administrative decision is rendered must be deposited with the U.S. Department of Treasury. CMS may not use the remaining 90% for survey and certification operations, rather, these funds must be used entirely for activities that protect or improve the quality of care for facility residents. The Final Rule includes a non-exhaustive list of activities that satisfy this mandate.

According to CMS, the provisions added by Section 6111 are intended 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] 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.”

The new regulations will become effective on January 1, 2012.

Please contact one of the authors if you have any questions regarding the Final Rule or to identify the steps your facility must take to achieve compliance with these new regulatory requirements.

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