Budget Act of 2015 Increases Penalties for Programs under the Social Security Act, Including Nursing Facilities

For the first time in 20 years, there will be an increase in the amounts of federal fines that nursing facilities may be required to pay for violating the Nursing Home Reform Law.  A little-noticed provision of the Bipartisan Budget Act of 2015, Pub.L. 114-74 (signed by President Obama on November 2, 2015), amends the Federal Civil Penalties Inflation Adjustment Act of 1990 to eliminate the exemption of programs under the Social Security Act (including Medicare and Medicaid).[1]

Section 701 of the Budget Act, entitled “The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015,” requires the heads of federal agencies to adjust civil monetary penalties through interim final rulemaking – a so-called “catch up adjustment” – with the increased penalties effective no later than August 1, 2016, and thereafter, to make cost-of-living adjustments to federal penalties.  The amount of an increase must not exceed 150% of the amount of the penalty, as of the date of the law’s enactment.  In addition, the law authorizes the head of each agency to increase the penalty by a smaller amount if increasing the penalty by the required amount would “have a negative economic impact” or if the “social costs” of increasing the penalty would “outweigh the benefits.” 

Civil Money Penalties Under the Nursing Home Reform Law

The Nursing Home Reform Law, enacted in 1987, amended the Medicare and Medicaid statutes, and established federal civil money penalties (CMPs) of up to $10,000 per day.[2]  Federal regulations published in 1994 established two ranges of per-day CMPs – $50-$3000, for noncompliance; $3050-$10,000, for noncompliance at the immediate jeopardy level (the highest level).[3]  In 1999, the Health Care Financing Administration (predecessor agency to the Centers for Medicare & Medicaid Services) established per-instance CMPs, up to $10,000 per day.[4]  The amounts of the CMPs have never been increased.  If adjusted for inflation, a $10,000 fine would today be $20,626.[5]

Federal CMPs are reduced by 35% if the facility does not appeal[6] and by 50% if the facility self-reports, immediately corrects the deficiency, and does not appeal.[7]  In other situations, CMPs are often reduced or not collected at all.[8]  In addition, the underciting and undercoding of deficiencies means that deficiencies are identified as less serious and widespread than they actually are, leading to lower CMPs than are justified.

Civil Money Penalties Imposed Against Nursing Facilities Are Low

Under the current system of CMPs, fines are low.  Two recent decisions by Administrative Law Judges who decide facility appeals of deficiencies and CMPs illustrate the point.

A penalty of $8750 was imposed against a Texas nursing facility that failed to refer a resident who had a hip fracture (as diagnosed by an x-ray) to an orthopedic surgeon, as ordered by the resident’s physician.  More than 30 days later, a nurse at the resident’s dialysis center made an appointment for the resident.  The orthopedic surgeon who reviewed the x-rays ordered the immediate hospitalization of the resident for treatment.[9]

A penalty of $400 per-day (totaling $9,600) was imposed against an Iowa nursing facility, based on a facility’s failure to take all reasonable measures to protect a resident who fell numerous times during her 24-day stay and died after her last fall, with the fall listed as a cause of death.[10] 

Legislative History of the Nursing Home Reform Law

The Institute of Medicine’s Nursing Home Committee, whose 1986 report Improving the Quality of Care in Nursing Homes is the legislative history of the Reform Law, described factors that make a civil fining system effective:

For a fining system to be effective, it is essential that the administrative and legal delays be avoided by prompt, short hearings, that the fines be graduated according to seriousness, duration, and repetition of the violations, and that fines be used to deter further violations.  All fines should be large enough to be more costly than the money saved by the violation.  Fining systems should be versatile enough to allow correction of less-serious violations, but immediately punish life-threatening violations.[11]

These standards for civil penalties were certainly not followed in the two recent examples described above.

Fines Are Not Reimbursable Under Medicaid

The Nursing Home Reform Law explicitly provided that CMPs are not reimbursable under the Medicaid program.  42 U.S.C. §1396b(i)(8) provides:

(i) Payment under the preceding provisions of this section shall not be made—

(8) with respect to any amount expended for medical assistance (A) for nursing facility services to reimburse (or otherwise compensate) a nursing facility for payment of a civil money penalty imposed under section 1396r(h) of this title or (B) for home and community care to reimburse (or otherwise compensate) a provider of such care for payment of a civil money penalty imposed under this subchapter or subchapter XI of this chapter or for legal expenses in defense of an exclusion or civil money penalty under this subchapter or subchapter XI of this chapter if there is no reasonable legal ground for the provider’s case [bold font supplied]

This language, enacted in 1987, means that nursing facilities cannot use their Medicaid reimbursement to pay civil penalties.  Resident care should not be affected when a penalty is imposed against a facility.

Nursing Home Industry Response to CMP Provision in the Budget Act

McKnight’s Long-Term Care News & Assisted Living reports that the American Health Care Association’s (AHCA’s) President and CEO Mark Parkinson called the CMP provision in the Bipartisan Budget Act of 2015 “‘outrageous,’” saying, “‘It’s unnecessary, and places an excessive burden on the providers striving to do the right thing, every day.’”[12]

AHCA’s senior director of regulatory services Lyn Bentley said, “‘Any time I see a 100% increase in an upper level of CMPs, the ability to impose that and the impact that can have on a provider who is caring for primarily a Medicaid population, that’s a devastating thought.’”

AHCA is reviewing legislative options.

Conclusion

Increasing the amount of civil money penalties is long overdue.  Penalties that are too small become the cost of doing business, rather than an effective sanction for noncompliance and an incentive to improve quickly and to remain in compliance.  Advocates need to counter the inflated rhetoric of the nursing home industry and to protest any effort either to repeal the new law or to allow the Department of Health and Human Services to reduce the appropriate amounts of CMP increases for nursing facilities.

November 18, 2015 – T. Edelman