oversight

Health Care Financing Administration: Medicare Program--Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1998 Rates

Published by the Government Accountability Office on 1997-09-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Office of the General Counsel


      B-277944



      September 17, 1997

      The Honorable William V. Roth, Jr.
      Chairman
      The Honorable Daniel Patrick Moynihan
      Ranking Minority Member
      Committee on Finance
      United States Senate

      The Honorable Bill Archer
      Chairman
      The Honorable Charles B. Rangel
      Ranking Minority Member
      Committee on Ways and Means
      House of Representatives

      Subject:   Health Care Financing Administration, Department of Health and Human
                 Services: Medicare Program; Changes to the Hospital Inpatient
                 Prospective Payment Systems and Fiscal Year 1998 Rates; Final Rule

      Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on
      a major rule promulgated by the Health Care Financing Administration (HCFA),
      Department of Health and Human Services, entitled "Medicare Program; Changes to
      the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1998 Rates;
      Final Rule" (RIN: 0938-AH55). We received the rule on September 3, 1997. It was
      published in the Federal Register as a final rule on August 29, 1997. 62 Fed. Reg.
      45966.

      The final rule revises the Medicare hospital inpatient prospective payment systems
      for operating costs and capital-related costs to implement necessary changes
      resulting from the Balanced Budget Act of 1997, Pub. L. 105-33, and changes arising
      from HCFA's continuing experience with the system.

      Because of the recent enactment of the Balanced Budget Act of 1997 on August 5,
      1997, the changes mandated by the act were not included in the notice of proposed
      rulemaking and, therefore, were not available for public comment. HCFA has



                                                                          GAO/OGC-97-62
issued this final rule with a comment period on those changes so the public may
submit comments until October 28, 1997.

The Balanced Budget Act also included, at section 4644, a provision changing for
this rule the 60-day delay in the effective date of major rules required by 5 U.S.C.
§ 801. For this rule, for fiscal year 1998, the term "60 days" in sections 801(a)(3)(A)
and 802(a) is deemed to be a reference to "30 days."

Enclosed is our assessment of HCFA's compliance with the procedural steps
required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule.
Our review indicates that HCFA complied with the applicable requirements.

If you have any questions about this report, please contact James Vickers, Assistant
General Counsel, at (202) 512-8210. The official responsible for GAO evaluation
work relating to the Health Care Financing Administration, Department of Health
and Human Services, is William Scanlon, Director, Health Financing and Systems
Issues. Mr. Scanlon can be reached at (202) 512-7114.




Robert P. Murphy
General Counsel

Enclosure

cc: The Honorable Donna E. Shalala
    The Secretary of Health and
     Human Services




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                                                                          ENCLOSURE

      ANALYSIS UNDER 5 U.S.C. § 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE
                               ISSUED BY
             THE HEALTH CARE FINANCING ADMINISTRATION,
             DEPARTMENT OF HEALTH AND HUMAN SERVICES
                               ENTITLED
       "MEDICARE PROGRAM; CHANGES TO THE HOSPITAL INPATIENT
      PROSPECTIVE PAYMENT SYSTEMS AND FISCAL YEAR 1998 RATES"
                           (RIN: 0938-AH55)

(i) Cost-benefit analysis & agency actions relevant to the Regulatory Flexibility Act,
5 U.S.C. §§ 603-605, 607 and 609

Section 1102(b) of the Social Security Act, 42 U.S.C. § 1302(b), requires the
Secretary of Health and Human Services to prepare regulatory impact analyses for
any rule that may have a significant impact on the operations of a substantial
number of small, rural hospitals. An initial analysis, to be prepared for a proposed
rule, is to describe the impact of the proposed rule on such hospitals and include
the matters required under 5 U.S.C. § 603. The final analysis, to be prepared for a
final rule, must include, with respect to small, rural hospitals, the matters required
under 5 U.S.C. § 604. The Health Care Financing Administration (HCFA)
determined that the proposed rule would affect a substantial number of small, rural
hospitals, and that the effects on some could be significant. HCFA also determined
that the rule could have significant impact on other classes of hospitals as well.1
Therefore, HCFA prepared combined regulatory impact/regulatory flexibility
analyses in connection with the rule.

HCFA estimates that the impact of the final rule will be to decrease payments to
hospitals by approximately $6 billion in FY 1998 compared to the payments that
would have been made in FY 1998 if the Balanced Budget Act had not been
enacted. The overall operating payment change from FY 1998 to FY 1997 for all
hospitals is a 0.9 percent decrease. It is estimated that the aggregate Medicare
capital payments will decrease by 6.74 percent in FY 1998.

HCFA published the full text of the initial analysis as an appendix to the June 2,
1997, proposed rule and the full text of the final analysis is included with the final
rule as Appendix A (62 Fed. Reg. 46115).

The final analysis, with the summary in the preamble, explains the reasons and
objectives, as well as the legal bases, for the final rule. Section 1886(d) of the

1
HCFA considers most hospitals to be small entities for purposes of the Regulatory
Flexibility Act.

                                                                      GAO/OGC-97-62
Social Security Act, 42 U.S.C. § 1395ww(d), generally provides for a system of
payment for the operating costs of hospital inpatient services under Medicare
Part A based on prospectively set rates. In addition, under section 1886(g) of the
Social Security Act, 42 U.S.C. § 1395ww(g), capital-related costs for those hospitals
whose operating costs are paid under a prospective payment system are also to be
paid based on prospectively set rates. In response to directives contained in these
sections, HCFA's experience and the Balanced Budget Act, the final rule adjusts
various elements associated with hospital costs.

The analysis describes, and estimates the number of, small entities to which the
rule will apply as required by section 604(a)(3). The analysis indicates that the
rule's prospective payment system will apply to 5,088 general, short-term, acute care
hospitals or 82 percent of hospitals. The remaining 18 percent of hospitals are
specialty hospitals (psychiatric, rehabilitation, long-term care, children's, and cancer
hospitals) that are excluded from the prospective payment system and continue to
be paid on the basis of reasonable costs.

Section 607 permits agencies, in complying with sections 603 and 604, to provide
either a quantifiable or numerical description of the effects of a rule or more
general descriptive statements if quantification is not practicable or reliable. The
analysis issued with the final rule provides quantifiable descriptions of the rule's
impact on covered entities. For example, at 62 Fed. Reg. 46116-46122, HCFA
describes the percent changes in payments per case due to changes in the
prospective payment system for operating costs.

Finally, section 609(a) requires that agencies ensure that small entities are given an
opportunity to participate in a rulemaking through the reasonable use of techniques
such as those enumerated. As noted, HCFA published the full text of the initial
analysis and invited comments from small entities. HCFA also maintains an
appropriate ongoing working relationship with industry officials in carrying out its
responsibilities under the Medicare program.

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform
Act of 1995, 2 U.S.C. §§ 1532-1535

Since the rule does not impose a federal intergovernmental or private sector
mandate, as defined in the Unfunded Mandates Reform Act of 1995, sections 202,
204, and 205 of the act are inapplicable. Similarly, section 203 of the act is
inapplicable because the rule will not significantly affect small governments.




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(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.

With the exception of the provisions mandated by the Balanced Budget Act of 1997,
HCFA promulgated the changes to the Medicare prospective payment systems under
the notice and comment procedures of 5 U.S.C. § 553 and section 1871(b) of the
Social Security Act, 42 U.S.C. § 1395hh(b).2

HCFA published a Notice of Proposed Rulemaking on June 2, 1997, 62 Fed. Reg.
29902, and invited public comments. HCFA has received 341 comments on the
proposed rule and discusses the comments and any action it took as a result in the
preamble to the final rule.

The August 5, 1997, enactment of the Balanced Budget Act of 1997 has required
HCFA to change and make additions to the proposed rule which was available for
public comment. To obtain comments relating to the changes and additions caused
by the act, HCFA has issued this final rule with a comment period ending on
October 28, 1997.

Paperwork Reduction Act, 44 U.S.C. §§ 3501-3520

The final rule contains no new information collection requirements which are
subject to review by the Office of Management and Budget under the Paperwork
Reduction Act.

Statutory authorization for the rule

The final rule was issued under the Secretary's broad authority to promulgate
regulations necessary for the efficient administration of the Medicare program,
contained primarily in section 1102 and 1871 of the Social Security Act, 42 U.S.C.
§§ 1302 and 1395hh. In addition, many of the final rule provisions were mandated
by Title 4 of the Balanced Budget Act of 1997 (Pub. L. 105-33, August 5, 1997).

Executive Order No. 12866

The final rule was determined to be an "economically significant regulatory action"
under Executive Order No. 12866 and was reviewed by the Office of Management
and Budget.



2
 With exceptions not pertinent here, section 1871(b) states that before issuing any
final rule, the Secretary shall provide for notice of the proposed regulation in the
Federal Register and a comment period of at least 60 days.

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