[Federal Register Volume 64, Number 186 (Monday, September 27, 1999)]
[Rules and Regulations]
[Pages 51908-51910]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24995]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Part 413
[HCFA-1876-F]
RIN 0938-AH61
Medicare Program; Revision to Accrual Basis of Accounting Policy
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Final rule.
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SUMMARY: Medicare policy provides that payroll taxes that a provider
becomes obligated to remit to governmental agencies are included in
allowable costs only in the cost reporting period in which payment
(upon which the payroll taxes are based) is actually made to an
employee. Therefore, for payroll accrued in 1 year but not paid until
the next year, the associated payroll taxes are not an allowable cost
until the next year. This final rule provides for an exception when
payment would be made to the employee in the current year but for the
fact the regularly scheduled payment date is after the end of the year.
In that case, the rule requires allowance in the current year of
accrued taxes on payroll that is accrued through the end of the year
but not paid until the beginning of the next year, thus allowing
accrued taxes on end-of-the year payroll in the same year that the
accrual of the payroll itself is allowed. The effect of this rule is
not on the allowability of cost but rather only on the timing of
payment; that is, the cost of payroll taxes on end-of-the-year payroll
is allowable in the current period rather than in the following period.
DATES: These regulations are effective November 26, 1999.
FOR FURTHER INFORMATION CONTACT: John Eppinger, (410) 786-4518.
SUPPLEMENTARY INFORMATION:
I. Background
Generally, under the Medicare program, health care providers who
are not subject to a prospective payment or other non cost based
payment system are paid for the reasonable costs of covered services
furnished to Medicare beneficiaries. Notable exceptions to payment on a
reasonable cost basis are for inpatient hospital services furnished in
acute care hospitals (section 1886(d) of the Social Security Act (the
Act)) and for inpatient services furnished by skilled nursing
facilities for cost reporting periods beginning on or after July 1,
1998 (section 1888(e) of the Act). Additionally, there are other
limited services not paid on a reasonable cost basis, to which Medicare
policy concerning accrued costs, including the revision in this final
rule, does not apply.
Section 1861(v)(1)(A) of the Act defines reasonable cost and
provides that reasonable cost shall be determined in accordance with
implementing regulations. Section 413.24 establishes the methods to be
used and the adequacy of data needed to determine reasonable costs for
various types or classes of institutions, agencies, and services.
Section 413.24(a) requires providers receiving payment on the basis of
reasonable cost to maintain financial records and statistical data
sufficient for the proper determination of costs payable under the
program and for verification of costs by qualified auditors. The cost
data are required to be based on an approved method of cost finding and
on the accrual basis of accounting. Section 413.24(b)(2) provides that
under the accrual basis of accounting, revenue is reported in the
period in which it is earned, regardless of when it is collected, and
expenses are reported in the period in which they are incurred,
regardless of when they are paid.
Section 413.100 provides for special treatment of certain accrued
costs, including Federal Insurance Contribution Act (FICA) and other
payroll taxes claimed by providers on their cost reports. Before this
final rule, Sec. 413.100(c)(2)(vi) provided, without exception, that a
provider's share of FICA and other payroll taxes that the provider
becomes obligated to remit to governmental agencies is included in
allowable costs only during the cost reporting period in which payment
(upon which the payroll taxes are based) is actually made to the
employee. When an employee is paid by a provider as part of a provider
payroll, whether the payment is for time worked during the payroll
period or for benefits (for example, vacation benefits) earned in an
earlier period, the provider's share of FICA and other payroll taxes is
an allowable cost during the cost reporting period in which payment is
made to the employee. The policy is based on the fact that a provider
becomes obligated to governmental agencies for payroll taxes only at
the time that the salary or benefits, upon which the payroll taxes are
based, are actually paid to the provider's employee. Further, until the
salary or benefits are actually paid, it cannot be known for certain
whether there will be a payroll tax or taxes, what the amount of the
tax(es) will be, or whether a particular employee will be liable for
the tax(es).
II. Provisions of the Proposed Rule
On May 18, 1998, we published in the Federal Register (63 FR 27251)
a proposed rule that would revise regulations governing the FICA and
other payroll taxes. We proposed to revise Sec. 413.100(c)(2)(vi) to
make one exception to the general rule. We proposed to provide that if
payment would be made to an employee during a cost reporting period but
for the fact that the regularly scheduled payment date is after the end
of the period, costs of accrued payroll taxes related to the portion of
payroll accrued through the end of the period, but paid to the employee
after the beginning of the new period, are allowable costs in the year
of accrual, subject to the liquidation requirements specified in the
regulations (Sec. 413.100(c)(2)(i)). Under the proposed rule, accrued
taxes on end-of-the-year payroll would be allowed in the same year that
the accrual of the payroll itself is allowed, just as Medicare, in
other than end-of-the-year
[[Page 51909]]
payroll situations, allows accrued taxes on payroll in the same year
that the accrual of the payroll is allowed. The proposal was based on
the notion that the insignificant amount of time passing between the
accrual of the end-of-the-year payroll and the payment of the payroll
in the following year does not give rise to the same concerns described
in section I. above.
We also proposed to change the example in Sec. 413.100(c)(2)(vi) to
emphasize, as discussed above, that payroll taxes applicable to
benefits accrued, such as vacation benefits, are not allowable until
the period in which the employee uses the benefits, that is, takes the
vacation. Finally, we proposed to change payroll tax from singular to
plural throughout the section to clarify that there can be more than
one payroll tax.
III. Comments on the Proposed Rule
We received one letter of comment that favored the proposed rule.
The commenter supported the proposal noting that the proposed policy
matched revenues and expenses consistent with generally accepted
accounting principles and normal business practice.
IV. Provision of the Final Rule
Based on our position that the proposed rule published May 18, 1998
would implement an appropriate exception to the current policy in
Sec. 413.100(c)(2)(vi), and in the light of the fact that the comment
received supported our proposal, we are adopting the proposed rule as
final.
V. Regulatory Impact Analysis
We have examined the impact of this rule as required by Executive
Order 12866. Executive Order 12866 directs agencies to assess all costs
and benefits of available regulatory alternatives and, when regulation
is necessary, to select regulatory approaches that maximize net
benefits (including potential economic, environmental, public health
and safety effects; distributive impacts; and equity). This final rule,
which permits allowance of accrued taxes on end-of-the-year payroll in
the same year that the accrual of the payroll itself is allowed, does
not make any significant changes in program payments. The final rule is
limited in nature, as it affects only accrued payroll taxes for payroll
accrued at the end of one cost reporting period that is not actually
paid to employees until the beginning of the next period. Furthermore,
in this situation, the effect of the final rule is only on the timing
of payment; that is, it does not allow an additional cost of payroll
taxes but rather allows the cost in the current period instead of in
the following period. The final rule should not involve changes in
provider accounting systems and, in fact, will free providers or
intermediaries from making cost report adjustments, under the current
policy, to postpone reimbursement of the cost on the current cost
report to the subsequent cost report. We do not expect any significant
costs or savings due to this change.
We have also examined the impact of the final rule as required by
the Regulatory Flexibility Act (RFA) (Public Law No. 96-354), and by
section 1102(b) of the Act. The RFA requires agencies to analyze
options for regulatory relief for small businesses. For purposes of the
RFA, most hospitals, and most other providers, physicians, and health
care suppliers are small entities, either by nonprofit status or by
having revenues of $5 million or less annually. In addition, section
1102(b) of the Act requires us to prepare a regulatory impact analysis
if a rule may have a significant impact on the operations of a
substantial number of small rural hospitals. Such an analysis must
conform to the provisions of section 604 of the RFA. For purposes of
section 1102(b) of the Act, we define a small rural hospital as a
hospital that is located outside of a Metropolitan Statistical Area and
has fewer than 50 beds.
We are not preparing analyses for either the RFA or section 1102(b)
of the Act since we have determined, and we certify, that this final
rule will not result in a significant economic impact on a substantial
number of small entities and will not have a significant impact on the
operations of a substantial number of small rural hospitals.
In accordance with the provisions of Executive Order 12866, this
final rule was reviewed by the Office of Management and Budget.
We have reviewed this final rule under the threshold criteria of
Executive Order 13132, Federalism, published in the Federal Register on
August 10, 1999 (64 FR 43255). We have determined that it does not
significantly affect the rights, roles, and responsibilities of States.
VI. Paperwork Reduction Act
This document does not impose information collection and
recordkeeping requirements. Consequently, it will not be reviewed by
the Office of Management and Budget under the authority of the
Paperwork Reduction Act of 1995.
List of Subjects in 42 CFR Part 413
Health facilities, Kidney disease, Medicare, Puerto Rico, Reporting
and recordkeeping requirements.
42 CFR part 413 is amended as follows:
PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED NURSING FACILITIES
A. The authority citation for part 413 continues to read as
follows:
Authority: Secs. 1102, 1861(v)(1)(A), and 1871 of the Social
Security Act (42 U.S.C. 1302, 1395x(v)(1)(A), and 1395hh).
Subpart F--Specific Categories of Costs
B. In 413.100, paragraph (c)(2)(vi) is revised to read as follows:
Sec. 413.100 Special treatment of certain accrued costs.
* * * * *
(c) Recognition of accrued costs.* * *
(2) Requirements for liquidation of liabilities.* * *
(vi) FICA and other payroll taxes.
(A) General rule. The provider's share of FICA and other payroll
taxes that the provider becomes obligated to remit to governmental
agencies is included in allowable costs only during the cost reporting
period in which payment (upon which the payroll taxes are based) is
actually made to the employee. For example, payroll taxes applicable to
vacation benefits are not to be accrued in the period in which the
vacation benefits themselves are accrued but rather are allowable only
in the period in which the employee takes the vacation.
(B) Exception. If payment would be made to an employee during a
cost reporting period but for the fact the regularly scheduled payment
date is after the end of the period, costs of accrued payroll taxes
related to the portion of payroll accrued through the end of the
period, but paid to the employee after the beginning of the new period,
are allowable costs in the year of accrual, subject to the liquidation
requirements specified in paragraph (c)(2)(i) of this section.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance)
[[Page 51910]]
Dated: March 24, 1999.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
Dated: June 8, 1999.
Donna E. Shalala,
Secretary.
[FR Doc. 99-24995 Filed 9-24-99; 8:45 am]
BILLING CODE 4120-01-P
