§ 405.353 Certification of amount that will be adjusted against individual title II or railroad retirement benefits.

As soon as practicable after any adjustment is determined to be necessary, the Secretary, for purposes of this subpart, shall certify the amount of the overpayment or payment (see § 405.350) with respect to which the adjustment is to be made. If the adjustment is to be made by decreasing subsequent payments under the Railroad Retirement Act of 1937, such certification shall be made to the Railroad Retirement Board.

§ 405.354 Procedures for adjustment or recovery-title II beneficiary.

The procedures applied in making an adjustment or recovery in the case of a title II beneficiary are the applicable procedures of 20 CFR 404.502.

[31 FR 13534, Oct. 20, 1966, as amended at 32 FR 18027, Dec. 16, 1967. Redesignated at 42 FR 52826, Sept. 30, 1977]

§ 405.355 Waiver of adjustment or recov

ery.

(a) The provisions of § 405.352 may not be applied and there may be no adjustment or recovery of an incorrect payment (i.e., a payment made under § 405.350(a) or § 405.350(b)) in any case where such incorrect payment has been made with respect to an individual who is without fault, or where such adjustment or recovery would be made by decreasing payments to which another person who is without fault is entitled as provided in section 1870(b) of the Act where such adjustment or recovery would defeat the purpose of title II or title XVIII of the Act or would be against equity and good conscience. (See 20 CFR 404.509 and 404.512.)

(b) Adjustment or recovery of an incorrect payment (or only such part of an incorrect payment as may be determined to be inconsistent with the purposes of title XVIII of the Act) against an individual who is without fault shall be deemed to be against equity and good conscience if the determination that such payment was incorrect was made subsequent to the third year following the year in which notice of such payment was sent to such indi

vidual. (See §§ 405.330-405.332 for conditions under which payment may be made for items or services furnished after October 30, 1972 which are noncovered by reasons of § 405.310 (g) and (k).)

[41 FR 1493, Jan. 8, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977]

§ 405.356 Principles applied in waiver of adjustment or recovery.

The principles applied in determining waiver of adjustment or recovery (§ 405.355) are the applicable principles of 20 CFR 404.510a, and 404.512.

404.506-404.509,

[35 FR 6321, Apr. 18, 1970. Redesignated at 42 FR 52826, Sept. 30, 1977]

§ 405.359 Liability of certifying or disbursing officer.

No certifying or disbursing officer shall be held liable for any amount certified or paid by him to any provider of services or other person:

(a) Where the adjustment or recovery of such amount is waived (see § 405.355) or

(b) Where adjustment (see § 405.352) or recovery is not completed prior to the death of all persons against whose benefits such adjustment is authorized.

§ 405.370 Suspension of payments to providers of services and other suppliers of services.

(a) Payments otherwise authorized to be made to providers of services and other suppliers of services in accordance with Subpart A or Subpart B of this Part 405 (but excluding payments to entitled individuals and payments under § 405.251(a)) may be suspended, in whole or in part, by an intermediary or a carrier when:

(1) The intermediary or carrier has determined that the provider or other supplier to whom such payments are to be made has been overpaid under title XVIII of the Social Security Act,

or

(2) The intermediary or carrier has reliable evidence, although additional evidence may be needed for a determination, that such overpayment exists or that the payments to be made may not be correct.

(b) A suspension shall be put into effect only after the provisions in §§ 405.371 and 405.372 have been complied with and the intermediary or carrier has determined that the suspension of payments, in whole or in part, is needed to protect the program against financial loss. The provisions of this section and §§ 405.371-405.373 shall be effective on May 27, 1972.

[37 FR 10723, May 27, 1972. Redesignated at 42 FR 52826, Sept. 30, 1977]

§ 405.371 Proceeding for suspension.

(a) General. Whenever the intermediary or carrier has determined that a suspension of payments under $405.370 should be put into effect with respect to a provider of services or other supplier of services, the intermediary or carrier shall notify the provider or other supplier of its intention to suspend payments, in whole or in part, and the reasons for making such suspension. The provider or other supplier will be given the opportunity to submit any statement (including any pertinent evidence) as to why the suspension shall not be put into effect and shall have 15 days following the date of notification to submit such statement, unless the intermediary or carrier for good cause imposes a shorter period. The intermediary or carrier may, for good cause shown, extend the time within which the statement may be submitted. If no statement is received within the 15day period or such other period as specified in the notice, the suspension shall go into effect.

(b) Fraud or misrepresentation. The provisions of paragraph (a) of this section shall not apply where the intermediary or carrier has reliable evidence that the circumstances giving rise to the need for a suspension of payments involves fraud or willful misrepresentation. Instead, the intermediary or carrier may suspend payments without first notifying the provider or other supplier of an intention to suspend payments. The provider or other supplier will be notified of such suspension and the reasons for taking such action.

(c) Notice of amount of program reimbursement. The provisions of paragraph (a) of this section shall not

apply where the intermediary, after furnishing a provider a written notice of the amount of program reimbursement pursuant to § 405.1803, suspends payment under paragraph (b) of such § 405.1803.

(d) Failure to furnish information requested. The provisions of paragraph (a) of this section shall not apply where the intermediary or carrier suspends payments to a provider or other supplier of services because such provider or supplier of services has failed to submit evidence requested by such intermediary or carrier which is needed to determine the amounts due such provider or supplier under the program (sections 1815 and 1833(e) of the Act).

[37 FR 10723, May 27, 1972, as amended at 41 FR 52050, Nov. 26, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977]

§ 405.372 Submission of evidence and notification of administrative determination to suspend.

When pursuant to § 405.371(a) the provider or other supplier submits a statement, the intermediary or carrier shall consider such statement (including any pertinent evidence submitted), together with any other material bearing upon the case, and make a determination as to whether the facts justify a suspension authorized by § 405.373. If the intermediary or carrier determines that a suspension should go into effect, written notice of such determination will be sent to the provider or other supplier. Such notice will contain specific findings on the conditions upon which the suspension was based, and an explanatory statement for the final decision.

[37 FR 10723, May 27, 1972. Redesignated at 42 FR 52826, Sept. 30, 1977]

§ 405.373 Subsequent action by intermediary or carrier.

(a) Where a suspension is put into effect by reason of § 405.370(a)(1), such suspension shall remain in effect until whichever of the following first occurs: (1) The overpayment is liquidated, (2) the intermediary or carrier enters into an agreement with the provider or other supplier for liquidation of the overpayment, or (3) the inter

mediary or carrier, on the basis of subsequently acquired evidence or otherwise, determines that there is no overpayment; except that the intermediary or carrier may at any time adjust such suspension for an appropriate period if it determines that continuation of the suspension would cause irreparable harm to the provider or other supplier.

(b) Where the suspension is put into effect by reason of § 405.370(a)(2), the intermediary or carrier will take timely action after such suspension to obtain such additional evidence it may need to make a determination as to whether an overpayment exists or the payments may be made (i.e., evidence from the records of the provider or other supplier of services). All reasonable efforts will be made by the intermediary or carrier to expedite such determinations. As soon as such determination is made, the provider or other supplier will be informed and, where appropriate such suspension will be rescinded or adjusted to take into account such determination. If such suspension is not rescinded, it shall remain in effect as specified in paragraph (a) of this section.

(c) The provisions of this section shall not apply where the intermediary or carrier, in suspending payments pursuant to § 405.370, has reliable evidence that the circumstances giving rise to such suspension involve fraud or serious misrepresentation.

[37 FR 10723, May 27, 1972. Redesignated at 42 FR 52826, Sept. 30, 1977]

and section 1833(a)(2) of the Act to be the reasonable cost of such services subject to the provisions of §§ 405.455 and 405.460.

(b) These principles of reimbursement and the related policies described in this subpart establish the guidelines and procedures to be used by institutional providers, fiscal intermediaries, and the Health Care Financing Administration in determining reasonable cost.

(c) The principles of reimbursement are to be applied on behalf of the program by public and private organizations and agencies acting as fiscal intermediaries in the payment of claims. These organizations and agencies are selected after nomination by groups or associations of hospitals. Skilled nursing facilities and home health agencies may similarly nominate such intermediaries. The fiscal intermediaries are responsible for paying the bills of beneficiaries for covered services received in participating hospitals and other institutions under the medicare program. A provider may deal directly with the Health Care Financing Administration, in which case the same principles are to be used in making payment for services.

(d) In consideration of the wide variations in size and scope of services of providers and regional differences that exist, the principles are flexible on many points. They offer certain alternatives and options designed to fit individual circumstances and to allow time for those providers who do not already collect the statistical and financial data necessary for the reporting of costs to develop the necessary records.

(e) An important role of the fiscal intermediary, in addition to claims processing and payment, and other assigned responsibilities, is to furnish consultative services to providers in the development of accounting and cost-finding procedures which will assure them equitable payment under the program.

[31 FR 14808, Nov. 22, 1966, as amended at 39 FR 20164, June 6, 1974. Redesignated at 42 FR 52826, Sept. 30, 1977]

§ 405.402 Cost reimbursement; general.

(a) In formulating methods for making fair and equitable reimburse

ment for services rendered beneficiaries of the program, payment is to be made on the basis of current costs of the individual provider, rather than costs of a past period or a fixed negotiated rate. All necessary and proper expenses of an institution in the production of services, including normal standby costs, are recognized. Furthermore, the share of the total institutional cost that is borne by the program is related to the care furnished beneficiaries so that no part of their cost would need to be borne by other patients. Conversely, costs attributable to other patients of the institution are not to be borne by the program. Thus, the application of this approach, with appropriate accounting support, will result in meeting actual costs of services to beneficiaries as such costs vary from institution to institution. However, payments to providers of services for services rendered health insurance program beneficiaries are subject to the provisions of §§ 405.455 and 405.460.

(b) Putting these several points together, certain tests have been evolved for the principles of reimbursement and certain goals have been established that they should be designed to accomplish. In general terms, these are the tests or objectives:

(1) That the methods of reimbursement should result in current payment so that institutions will not be disadvantaged, as they sometimes are under other arrangements, by having to put up money for the purchase of goods and services well before they receive reimbursement.

(2) That, in addition to current payment, there should be retroactive adjustment so that increases in costs are taken fully into account as they actually occurred, not just prospectively.

(3) That there be a division of the allowable costs between the beneficiaries of this program and the other patients of the provider that takes account of the actual use of services by the beneficiaries of this program and that is fair to each provider individually.

(4) That there be sufficient flexibility in the methods of reimbursement to be used, particularly at the beginning of the program, to take account

of the great differences in the present state of development of recordkeeping.

(5) That the principles should result in the equitable treatment of both nonprofit organizations and profitmaking organizations.

(6) That there should be a recognition of the need of hospitals and other providers to keep pace with growing needs and to make improvements.

(c) As formulated herein, the principles give recognition to such factors as depreciation, interest, bad debts, educational costs, compensation of owners, and an allowance for a reasonable return on equity capital of proprietary facilities. However, costs such as depreciation, interest on borrowed funds, a return on equity capital (in the case of proprietary providers), and other costs related to certain capital expenditures are subject to the provisions of § 405.435, "Nonallowable costs related to certain capital expenditures." With respect to allowable costs some items of inclusion and exclusion are:

(1) An appropriate part of the net cost of approved educational activities will be included.

(2) Costs incurred for research purposes, over and above usual patient care, will not be included.

(3) Grants, gifts, and income from endowments will not be deducted from operating costs unless they are designated by the donor for the payment of specific operating costs.

(4) The value of services provided by nonpaid workers, as members of an organization (including services of members of religious orders) having an agreement with the provider to furnish such services, is includable in the amount that would be paid others for similar work.

(5) Discounts and allowances received on the purchase of goods or services are reductions of the cost to which they relate.

(6) Bad debts growing out of the failure of a beneficiary to pay the deductible, or the coinsurance, will be reimbursed (after bona fide efforts at collection).

(7) Charity and courtesy allowances are not includable, although "fringe benefit" allowances for employees

under a formal plan will be includable as part of their compensation.

(8) A reasonable allowance of compensation for the services of owners in profitmaking organizations will be allowed providing their services are actually performed in a necessary function.

(9) Reasonable cost of physicians' direct medical and surgical services (including supervision of interns and residents in the care of individual patients) rendered in a teaching hospital may be reimbursed as a provider cost (see 8405.465) where elected as provided for in § 405.521 of this Part.

(d) In developing these principles of reimbursement for the health insurance program, all of the considerations inherent in allowances for depreciation were studied. The principles, as presented, provide options to meet varied situations. Depreciation will essentially be on an historical cost basis but since many institutions do not have adequate records of old assets, the principles provide an optional allowance in lieu of such depreciation for assets acquired before 1966. For assets acquired after 1965, the historical cost basis must be used. All assets actually in use for production of services for title XVIII beneficiaries will be recognized even though they may have been fully or partially depreciated for other purposes. Assets financed with public funds may be depreciated. Although funding of depreciation is not required, there is an incentive for it since income from funded depreciation is not considered as an offset which must be taken to reduce the interest expense that is allowable as a program cost.

(e) [Reserved]

(f) A return on the equity capital of proprietary facilities is an allowable cost in profit-making organizations. The rate of return may not exceed one and one-half times the average longterm rate of interest on obligations issued for purchase by the Federal Hospital Insurance Trust Fund.

(g) The Health Care Financing Administration is authorized to issue temporary instructions modifying the provisions of this subpart to the extent it finds appropriate for cost reporting periods ending after June 30,

1973, in order to implement sections 201 (Coverage for Disability Beneficiaries Under Medicare) and 2991 (Chronic Renal Disease Considered to Constitute Disability) of Pub. L. 92–603. In so doing, rules may be developed for establishing limits on costs and services above which reimbursement shall be made only upon appropriate justification. For special rules concerning health maintenance organizations (HMO's) and providers of services and other health care facilities that are owned or operated by an HMO, or related to an HMO by common ownership or control, see §§ 405.2042(b)(14) and 405.2050(c).

[31 FR 14808, Nov. 22, 1966, as amended at 35 FR 12330, Aug. 1, 1970; 39 FR 20165, June 6, 1974; 40 FR 32743, Aug. 4, 1975; 40 FR 33440, Aug. 8, 1975; 41 FR 49594, Nov. 9, 1976. Redesignated at 42 FR 52826, Sept. 30, 1977]

§ 405.403 Apportionment of allowable

costs.

(a) Consistent with prevailing practice where third-party organizations pay for health care on a cost basis, reimbursement under the title XVIII health insurance program involves a determination of (1) each provider's allowable costs for producing services, and (2) the share of these costs which is to be borne by title XVIII. The provider's costs are to be determined in accordance with the principles reviewed in the preceding discussion relating to allowable costs; the share to be borne by title XVIII is to be determined in accordance with principles relating to apportionment of cost.

(b) In the study and consideration devoted to the method of apportioning costs, the objective has been to adopt methods for use under title XVIII of the Act that would, to the extent reasonably possible, result in the program's share of a provider's total allowable costs being the same as the program's share of the provider's total services. This result is essential for carrying out the statutory directive that the program's payments to providers should be such that the costs of covered services for beneficiaries would not be passed on to nonbeneficiaries, nor would the cost of services