2010-30066. Medicaid Program; Cost Limit for Providers Operated by Units of Government and Provisions To Ensure the Integrity of Federal-State Financial Partnership

AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Final rule; implementation of court orders.

SUMMARY:

This final rule amends Medicaid regulations to conform with the decision by the United States District Court for the District of Columbia on May 23, 2008 in Alameda County Medical Center, et al. v. Michael O. Leavitt, Secretary, U.S. Department of Health and Human Services, et al., 559 F. Supp. 2d (2008) that vacated a final rule with comment period published in the Federal Register in May 29, 2007. This regulatory action takes ministerial steps to remove the vacated provisions from the Code of Federal Regulations and reinstate the prior regulatory language impacted by the May 29, 2007 final rule with comment period.

DATES:

Effective Date: This regulation is effective immediately on date of publication November 30, 2010.

FOR FURTHER INFORMATION CONTACT:

Rob Weaver, [phone].

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

Title XIX of the Social Security Act (the Act) authorizes Federal grants to States for Medicaid programs that provide medical assistance to low-income families, the elderly and persons with disabilities. Each State administers the Medicaid program in accordance with an approved Medicaid State plan. States have considerable flexibility in designing their programs, but must comply with Federal requirements specified in the Medicaid statute, regulations, and program guidance. Sections 1902(a)(2), 1903(a), and 1905(b) of the Act set forth requirements that describe how the responsibility to fund the Medicaid program will be shared between the Federal and State governments. Section 1905(b) of the Act delineates a percentage referred to as the Federal medical assistance percentage (FMAP) that determines on a State-by-State basis the Federal and non-Federal share of program expenditures. Section 1903(a) of the Act requires Federal reimbursement to the State of the Federal share. Section 1902(a)(2) of the Act and implementing regulations at 42 CFR 433.50(a)(1) permit a State to delegate some responsibility for the non-Federal share of medical assistance expenditures to local units of government sources under some circumstances.

The U.S. Troop Readiness, Veterans Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007 prohibited the Secretary of Health and Human Services from finalizing or otherwise implement the provisions contained in a proposed rule published on January 18, 2007, titled “Medicaid Program; Cost Limit for Providers Operated by Units of Government and Provisions To Ensure the Integrity of Federal-State Financial Partnership” (72 FR 2236 through 2248).

B. Final Rule With Comment Period Published May 29, 2007

On May 29, 2007, the Department of Human and Human Services (DHHS) published a final rule with comment period titled, “Medicaid Program; Cost Limit for Providers Operated by Units of Government and Provisions To Ensure the Integrity of Federal-State Financial Partnership” in the Federal Register (72 FR 29747 through 29836).

That final rule eliminated, modified, or implemented regulatory requirements pertaining to the financial relationship between the Federal and State governments. Specifically, this rule consisted of the following:

• Clarified that entities involved in the financing of the non-Federal share of Medicaid payments must be a unit of government.
• Clarified the documentation necessary to support a Medicaid certified public expenditure.
• Limited Medicaid reimbursement for health care providers that are operated by units of government to an amount that does not exceed the health care provider's cost of providing services to Medicaid individuals.
• Required all health care providers to receive and retain the full amount of total computable payments for services furnished under the approved Medicaid State plan.
• Made conforming changes to provisions governing the Child Health Insurance Program (CHIP) to make the same requirements applicable, with the exception of the cost limit on reimbursement.

On May 23, 2008, the United States District Court for the District of Columbia, in Alameda County Medical Center, et al. v. Michael O. Leavitt, Secretary, U.S. Department of Health and Human Services, et al., 559 F. Supp. 2d, found that DHHS had improperly promulgated these regulations. The court stated that DHHS violated the Congressional moratorium on finalization of this regulation in the Troop Readiness, Veteran's Care, Katrina Recovery and Iraq Accountability Appropriation Act of 2007 (UTRA), (Pub. L. 110-28) and vacated the rule and remanded the matter to DHHS. Accordingly, DHHS is removing the vacated rule from the Code of Federal Regulations.

Section 7001 of the Supplemental Appropriations Act of 2008 Public Law 110-252 extended the moratorium on finalizing the Cost rule to April 1, 2009. The Congress considered this matter again in the passage of the American Recovery and Reinvestment Act (ARRA) of 2009. Section 5003(d) of ARRA expressed the sense of Congress that the Cost rule should not be adopted as a final rule.

II. Provisions of the Final Regulations

In this final rule, DHHS is removing all of the provisions that were issued in the May 29, 2007 final rule with comment period. Concurrently, DHHS is restoring regulation text so that the regulatory language impacted by the May 2007 final rule will appear in the Code of Federal Regulations as it did prior to issuance of that rule.

Part 433—State Fiscal Administration

(Sec. 433.50) Basis, Scope, and Applicability

In § 433.50(a)(1), DHHS is removing the language that states “and section 1903(w)(7)(G).” DHHS is also removing “units of.” DHHS is also adding “s” to the word “government” and adding the word “both” before the words “State and local governments.” In addition, DHHS is removing paragraphs (a)(1)(i) and (a)(1)(ii) of this regulation.

(Sec. 433.51) Funds From Units of Government as the State Share of Financial Participation

In § 433.51, DHHS is revising the section heading to read “§ 433.51 Public funds as the State share of financial participation.”

In § 433.51(a), DHHS is adding the word “Public” before the word “funds.” DHHS is also removing the words “from units of government” of this regulation.

In § 433.51(b), DHHS is revising the paragraph to read “The public funds are appropriated directly to the State or local Medicaid agency, or are transferred from other public agencies (including Indian tribes) to the State or local agency and under its administrative control, or certified by the contributing public agency as representing expenditures eligible for FFP under this section.”

In § 433.51(c), DHHS is adding the word “Public” before the word “funds.” DHHS is also removing the words “from units of government” of this regulation.

Part 447—Payments For Services

(Sec. 447.206) Cost Limit for Providers Operated by Units of Government

In part 447, DHHS is removing the entire provisions of § 447.206 of this regulation. (§ 447.207) Retention of payments.

In part 447, DHHS is removing the entire provisions of § 447.207 of this regulation.

(Sec. 447.271) Upper Limits Based on Customary Charges

In § 447.271(a), DHHS is adding an introductory phrase to read “Except as provided in paragraph (b) of this section,”.

In § 447.271(b), DHHS is removing the word “Reserved” and replacing it with “The agency may pay a public provider that provides services free or at a nominal charge at the same rate that would be used if the provider charges were equal to or greater than its costs.”

(Sec. 447.272) Inpatient Services: Application of Upper Payment Limits

In § 447.272(a), DHHS is removing the word “nursing facilities” replacing it with “NFs.”

In § 447.272(a)(1), DHHS is revising the paragraph to read “State government-owned or operated facilities (that is, all facilities that are either owned or operated by the State).”

In § 447.272(a)(2), DHHS is revising the paragraph to read “Non-State government-owned or operated facilities (that is, all government facilities that are neither owned nor operated by the State).”

In § 447.272(a)(3), DHHS is revising the paragraph to read “Privately-owned and operated facilities.”

In § 447.272(b)(1), DHHS is removing the words “For privately operated facilities.”

In § 447.272(b)(2), DHHS is revising the paragraph to read “Except as provided for in paragraph (c) of this section, aggregate Medicaid payments to a group of facilities within one of the categories described in paragraph (a) of this section may not exceed the upper payment limit described in paragraph (b)(1) of this section.”

In § 447.272(b)(3), DHHS is removing entire provision of this regulation.

In § 447.272(b)(4), DHHS is removing entire provision of this regulation.

In § 447.272(c), DHHS is removing symbol “—” and replacing it with “.”.

In § 447.272, DHHS is removing paragraph (c)(3) of this regulation.

In § 447.272(d)(1), DHHS is revising the paragraph to read “For non-State government owned or operated hospitals—March 19, 2002.”

(Sec. 447.321) Outpatient Hospital and Clinic Services: Application of Upper Payment Limits

In § 447.321(a)(1), DHHS is revising the paragraph to read “State government-owned or operated facilities (that is, all facilities that are owned or operated by the State).”

In § 447.321(a)(2), DHHS is revising the paragraph to read “Non-State government owned or operated facilities (that is, all government operated facilities that are neither owned nor operated by the State).”

In § 447.321(a)(3), DHHS is revising the paragraph to read “Privately-owned and operated facilities.”

In § 447.321(b)(1), DHHS is removing the words “For privately operated facilities,”.

In § 447.321(b)(2), DHHS is revising the provision to read “Except as provided for in paragraph (c) of this section, aggregate Medicaid payments to a group of facilities within one of the categories described in paragraph (a) of this section may not exceed the upper payment limit described in paragraph (b)(1) of this section.”

In § 447.321, DHHS is removing paragraph (b)(3) of this regulation.

In § 447.321, DHHS is removing pargraph (b)(4) of this regulation.

In § 447.321(c)(1), DHHS is removing the designated number “(1)” of this regulation.

In § 447.321, DHHS is removing paragraph (c)(2) of this regulation.

In § 447.321, DHHS is removing paragraph (c)(3) of this regulation.

In § 447.321(d), DHHS is removing reference to paragraph “(b)” and replacing it with a reference to paragraph “(b)(1).”

In § 447.321(d)(1), DHHS is revising the paragraph to read “For non-State government-owned or operated hospitals—March 19, 2002.”

In § 447.321, DHHS is removing paragraph (d)(2) and redesignating paragraph (d)(3) as paragraph (d)(2) of this regulation.

Sec. 457.220 Funds From Units of Government as the State Share of Financial Participation

In § 457.220(a), DHHS is adding the word “Public” before the word “Funds.” DHHS is also removing the words “from units of government.”

In § 457.220(b), DHHS is revising the paragraph to read “The public funds are appropriated directly to the State or local SCHIP agency, or are transferred from other public agencies (including Indian tribes) to the State or local agency and are under its administrative control, or are certified by the contributing public agency as representing expenditures eligible for FFP under this section.”

In § 457.220(c), DHHS is adding the word “public” after the word “The” before the word “funds.” DHHS is also removing the words “from units of government.”

Sec. 457.628 Other Applicable Federal Regulations

In § 457.628(a), DHHS is removing the parenthesis “(” before the word “sources” and removing the parenthesis “)” after the word “Donations” and adding a semicolon and the word “Donations.” In addition, DHHS is removing the words “and § 447.207 of this chapter (Retention of payments).”

III. Collection of Information

This document does not impose information collection and recordkeeping requirements. Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995.

IV. Waiver of Proposed Rulemaking and Delayed Effective Date

DHHS ordinarily publish a notice of proposed rulemaking in the Federal Register and invite public comment on the proposed rule. The notice of proposed rulemaking includes a reference to the legal authority under which the rule is proposed, and the terms and substances of the proposed rule or a description of the subjects and issues involved. This procedure can be waived, however, if an agency finds good cause that a notice-and-comment procedure is impractical, unnecessary, or contrary to the public interest and incorporates a statement of the finding and its reasons in the rule issued. DHHS has determined that providing prior notice and opportunity for comment on the amending regulations is unnecessary. This final rule merely removes regulatory language relating to CMS-2258-FC, which was vacated by the United States District Court for the District of Columbia. As a result of this decision, the regulatory language related to CMS-2258-FC has no force or effect, and public comment would not affect that status. The presence of that language in the Code of Federal Regulations can be confusing, and thus the public interest would be served by removal of that language. Furthermore, removing this language from the Code of Federal Regulations and reinstating the prior regulatory language has no legal impact but simply reflects this final judicial determination.

For the same reasons, DHHS believes there is good cause for waiving any delay in the effective date, making the reinstated regulatory provisions immediately effective. See 5 U.S.C. 553(d).

V. Regulatory Impact Statement

DHHS has examined the impact of this rule as required by Executive Order 12866 on Regulatory Planning and Review (September 30, 1993), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999) and the Congressional Review Act (5 U.S.C. 804(2)).

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). This regulatory action only removes those regulations vacated by the United States District Court for the District of Columbia. Therefore, this action is not a “significant” regulatory action as defined by E.O. 12866. This rule also does not reach the economic threshold and thus is not considered a major rule.

The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $7 million to $34.5 million in any one year. Individuals and States are not included in the definition of a small entity. DHHS is not preparing an analysis for the RFA because DHHS has determined, and the Secretary certifies, that this final rule will not have a significant economic impact on a substantial number of small entities.

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. This 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 Core-Based Statistical Area (for Medicaid) and outside a Metropolitan Statistical Area for Medicare) and has fewer than 100 beds. DHHS is not preparing an analysis for section 1102(b) of the Act because we have determined, and the Secretary certifies, that this final rule will not have a significant impact on the operations of a substantial number of small rural hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2010, that threshold is approximately $135 million. This rule will have no consequential effect on State, local, or tribal governments or on the private sector.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates regulations that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. Since this regulation does not impose any costs on State or local governments, the requirements of Executive Order 13132 are not applicable.

In accordance with the provisions of Executive Order 12866, this regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 433

• Administrative practice and procedure
• Child support
• Claims
• Grant programs—health
• Medicaid
• Reporting and recordkeeping requirements

42 CFR Part 447

• Accounting
• Administrative practice and procedure
• Drugs
• Grant programs—health
• Health facilities
• Health professions
• Medicaid
• Reporting and recordkeeping requirements
• Rural areas

42 CFR Part 457

• Administrative practice and procedure
• Grant programs—health
• Health insurance
• Reporting and recordkeeping requirements

For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 433—STATE FISCAL ADMINISTRATION

1. The authority citation for part 433 continues to read as follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302).

Subpart B—General Administrative Requirements State Financial Participation

2. Section § 433.50 is amended by revising paragraph (a)(1) to read as follows:

§ 433.50

Basis, scope, and applicability.

(a) * * *

(1) Section 1902(a)(2) of the Act which requires States to share in the cost of medical assistance expenditures and permit both State and local governments to participate in the financing of the non-Federal portion of medical assistance expenditures.

* * * * *

3. Section 433.51 is revised to read as follows:

§ 433.51

Public Funds as the State share of financial participation.

(a) Public Funds may be considered as the State's share in claiming FFP if they meet the conditions specified in paragraphs (b) and (c) of this section.

(b) The public funds are appropriated directly to the State or local Medicaid agency, or are transferred from other public agencies (including Indian tribes) to the State or local agency and under its administrative control, or certified by the contributing public agency as representing expenditures eligible for FFP under this section.

(c) The public funds are not Federal funds, or are Federal funds authorized by Federal law to be used to match other Federal funds.

PART 447—PAYMENTS FOR SERVICES

4. The authority citation for part 447 continues to read as follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302).

Subpart B—Payment Methods: General Provisions

§ 447.206

[Removed]

5. Section 447.206 is removed.

§ 447.207

[Removed]

6. Section 447.207 is removed.

Subpart C—Payment for Inpatient Hospital and Long-Term Care Facility Services

Upper Limits

7. Section § 447.271 is revised to read as follows:

§ 447.271

Upper limits based on customary charges.

(a) Except as provided in paragraph (b) of this section, the agency may not pay a provider more for inpatient hospital services under Medicaid than the provider's customary charges to the general public for the services.

(b) The agency may pay a public provider that provides services free or at a nominal charge at the same rate that would be used if the provider charges were equal to or greater than its costs.

8. Section 447.272 is amended by—

A. Revising paragraphs (a), (b), and (d)(1).

B. Revising the heading for paragraph (c).

C. Removing paragraph (c)(3).

The revisions read as follows:

§ 447.272

Inpatient services: Application of upper payment limits.

(a) Scope. This section applies to rates set by the agency to pay for inpatient services furnished by hospitals, NFs, and ICFs/MR within one of the following categories:

(1) State government-owned or operated facilities (that is, all facilities that are either owned or operated by the State).

(2) Non-State government-owned or operated facilities (that is, all government facilities that are neither owned nor operated by the State).

(3) Privately-owned and operated facilities.

(b) General rules.

(1) Upper payment limit refers to a reasonable estimate of the amount that would be paid for the services furnished by the group of facilities under Medicare payment principles in subchapter B of this chapter.

(2) Except as provided for in paragraph (c) of this section, aggregate Medicaid payments to a group of facilities within one of the categories described in paragraph (a) of this section may not exceed the upper payment limit described in paragraph (b)(1) of this section.

(c) Exceptions.

* * * * *

(d) * * *

(1) For non-State government owned or operated hospitals,—March 19, 2002.

* * * * *

Subpart F—Payment Methods for Other Institutional and Noninstitutional Services

Outpatient Hospital and Clinic Services

9. Section 447.321 is amended by—

A. Revising paragraphs (a), (b), (c) and (d)(1).

B. Revising introductory text of paragraph (d) by removing the phrase “paragraph (b)” and adding in its place the phrase “paragraph (b)(1).”

C. Removing paragraphs (d)(2).

D. Redesignating paragraph (d)(3)as paragraph (d)(2).

The revisions read as follows:

§ 447.321

Outpatient hospital and clinic services: Application of upper payment limits.

(a) Scope. This section applies to rates set by the agency to pay for outpatient services furnished by hospitals and clinics within one of the following categories:

(1) State government-owned or operated facilities (that is, all facilities that are owned or operated by the State.)

(2) Non-State government owned or operated facilities (that is, all government operated facilities that are neither owned nor operated by the State).

(3) Privately-owned and operated facilities.

(b) General rules. (1) Upper payment limit refers to a reasonable estimate of the amount that would be paid for the services furnished by the group of facilities under Medicare payment principles in subchapter B of this chapter.

(2) Except as provided in paragraph (c) of this section, aggregate Medicaid payments to a group of facilities within one of the categories described in paragraph (a) of this section may not exceed the upper payment limit described in paragraph (b)(1) of this section.

(c) Exceptions. Indian Health Services and tribal facilities. The limitation in paragraph (b) of this section does not apply to Indian Health Services facilities and tribal facilities that are funded through the Indian Self-Determination and Education Assistance Act (Pub. L. 93-638).

(d) * * *

(1) For non-State government-owned or operated hospitals—March 19, 2002.

* * * * *

PART 457—ALLOTMENTS AND GRANTS TO STATES

10. The authority for part 457 continues to read as follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302).

Subpart B—General Administration—Reviews and Audits; Withholding for Failure To Comply; Deferral and Disallowance of Claims; Reduction of Federal Medical Payments

11. Section 457.220 is revised to read as follows:

§ 457.220

Funds from units of government as the State share of financial participation.

(a) Public funds may be considered as the State's share in claiming FFP if they meet the conditions specified in paragraphs (b) and (c) of this section.

(b) The public funds are appropriated directly to the State or local SCHIP agency, or are transferred from other public agencies (including Indian tribes) to the State or local agency and are under its administrative control, or are certified by the contributing public agency as representing expenditures eligible for FFP under this section.

(c) The public funds are not Federal funds, or are Federal funds authorized by Federal law to be used to match other Federal funds.

Subpart F—Payments to States

12. Section 457.628 is amended by revising the introductory text and paragraph (a) to read as follows:

§ 457.628

Other applicable Federal regulations.

Other regulations applicable to SCHIP programs include the following:

(a) HHS regulations in 42 Subpart B—433.51-433.74 sources of non-Federal share and Health Care-Related Taxes and Provider-Related Donations; apply to States' SCHIP programs in the same manner as they apply to States' Medicaid programs.

* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical Assistance Program)

Dated: July 28, 2010.

Donald M. Berwick,

Administrator, Centers for Medicare & Medicaid Services.

Approved: August 20, 2010.

Kathleen Sebelius

Secretary.