[Federal Register: January 18, 2007 (Volume 72, Number 11)]
[Proposed Rules]
[Page 2236-2248]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18ja07-27]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 433, 447, and 457
[CMS-2258-P]
RIN 0938-A057
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: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This proposed rule would: Clarify that entities involved in
the financing of the non-Federal share of Medicaid payments must be a
unit of government; clarify the documentation required to support a
certified public expenditure; limit reimbursement for health care
providers that are operated by units of government to an amount that
does not exceed the provider's cost; require providers to receive and
retain the full amount of total computable payments for services
furnished under the approved State plan; and make conforming changes to
provisions governing the State Child Health Insurance Program (SCHIP).
The provisions of this regulation apply to all providers of Medicaid
and SCHIP services, except that Medicaid managed care organizations and
SCHIP providers are not subject to the cost limit provision of this
regulation. Except as noted above, all Medicaid payments (including
disproportionate share hospital payments) made under the authority of
the State plan and under Medicaid waiver and demonstration authorities
are subject to all provisions of this regulation.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on March 19, 2007.
ADDRESSES: In commenting, please refer to file code CMS-2258-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (no duplicates,
please):
1. Electronically. You may submit electronic comments on specific
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click
on the link ``Submit electronic comments on CMS regulations with an
open comment period.'' (Attachments
[[Page 2237]]
should be in Microsoft Word, WordPerfect, or Excel; however, we prefer
Microsoft Word.)
2. By regular mail. You may mail written comments (one original and
two copies) to the following address ONLY: Centers for Medicare &
Medicaid Services, Department of Health and Human Services, Attention:
CMS-2258-P, P.O. Box 8017, Baltimore, MD 21244-8017.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-2258-P, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to one of the following addresses. If you
intend to deliver your comments to the Baltimore address, please call
telephone number (410) 786-7195 in advance to schedule your arrival
with one of our staff members.
Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue,
SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD
21244-1850.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by mailing your
comments to the addresses provided at the end of the ``Collection of
Information Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Aaron Blight, (410) 786-9560.
SUPPLEMENTARY INFORMATION:
Submitting Comments: We welcome comments from the public on all
issues set forth in this rule to assist us in fully considering issues
and developing policies. You can assist us by referencing the file code
CMS-2258-P and the specific ``issue identifier'' that precedes the
section on which you choose to comment.
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking.
Click on the link ``Electronic Comments on
CMS Regulations'' on that Web site to view public comments.
Comments received timely will be also available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.
I. Background
The Medicaid program is a cooperative Federal-State program
established in 1965 for the purpose of providing Federal financial
participation (FFP) to States that choose to reimburse certain costs of
medical treatment for needy persons. It is authorized under title XIX
of the Social Security Act (the Act), and is administered by each State
in accordance with an approved 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.
FFP is provided only when there is a corresponding State
expenditure for a covered Medicaid service to a Medicaid recipient.
Federal payment is based on statutorily-defined percentages of total
computable State expenditures for medical assistance provided to
recipients under the approved State plan, and of State expenditures
related to the cost of administering the State plan.
Since the summer of 2003, we have reviewed and processed over 1,000
State plan amendments related to State payments to providers. Of these,
approximately 10 percent have been disapproved by the Centers for
Medicare & Medicaid Services (CMS) or withdrawn by the States. Through
examination of these State plan amendments and their associated funding
arrangements, we have developed a greater understanding of how to
ensure that payment and financing arrangements comply with statutory
intent. As recently articulated by the U.S. Court of Appeals for the
Ninth Circuit, ``[t]he statutory text makes clear that the Secretary
has the authority--indeed, the obligation--to ensure that each of the
statutory prerequisites is satisfied before approving a Medicaid State
plan amendment.'' We believe that this proposed rule strengthens
accountability to ensure that statutory requirements within the
Medicaid program are met in accordance with sections 1902, 1903, and
1905 of the Act.
Sections 1902(a)(2), 1903(a) and 1905(b) of the Act require States
to share in the cost of medical assistance and in the cost of
administering the State plan. Under section 1905(b) of the Act, the
Federal medical assistance percentage (FMAP) is defined as ``100 per
centum less the State percentage,'' and section 1903(a) of the Act
requires Federal reimbursement to the State of the FMAP of expenditures
for medical assistance under the plan (and 50 percent of expenditures
necessary for the proper and efficient administration of the plan).
Section 1902(a)(2) of the Act and implementing regulations at 42 CFR
433.50(a)(1) require States to share in the cost of medical assistance
expenditures but permit the State to delegate some responsibility for
the non-Federal share of medical assistance expenditures to units of
local government under some circumstances.
Under Pub. L. 102-234, which inserted significant restrictions on
States' use of provider related taxes and donations at section 1903(w)
of the Act, the Congress again recognized the ability of units of
government to participate in the funding of the non-Federal share of
Medicaid payments through an exemption at section 1903(w)(6)(A) of the
Act that reads:
Notwithstanding the provisions of this subsection, the Secretary
may not restrict States' use of funds where such funds are derived
from State or local taxes (or funds appropriated to State university
teaching hospitals) transferred from or certified by units of
government within a State as the non-Federal share of expenditures
under this title, regardless of whether the unit of government is
also a health care provider, except as provided in section
1902(a)(2), unless the transferred funds are derived by the unit of
government from donations or
[[Page 2238]]
taxes that would not otherwise be recognized as the non-Federal
share under this section.
Subsequent regulations implementing Pub. L. 102-234 give effect to
this statutory language. Amendments made to the regulations at 42 CFR.
part 433, at 47 FR 55119 (November 24, 1992) explained:
Funds transferred from another unit of State or local government
which are not restricted by the statute are not considered a
provider-related donation or health care-related tax. Consequently,
until the Secretary adopts regulations changing the treatment of
intergovernmental transfer, States may continue to use, as the State
share of medical assistance expenditures, transferred or certified
funds derived from any governmental source (other than impermissible
taxes or donations derived at various parts of the State government
or at the local level).
The above statutory and regulatory authorities clearly specify
that in order for an intergovernmental transfer (IGT) or certified
public expenditure (CPE) from a health care provider or other entity
to be exempt from analysis as a provider-related tax or donation, it
must be from a unit of State or local government. Section
1903(w)(7)(G) of the Act identifies the four types of local entities
that, in addition to the State itself, are considered a unit of
government: A city, a county, a special purpose district, or other
governmental units in the State. The provisions of this proposed
rule conform our regulations to the aforementioned statutory
language and further define the characteristics of a unit of
government for purposes of Medicaid financing.
Intergovernmental Transfer (IGT)
The Medicaid statute does not define an IGT, but the plain meaning
in the Medicaid context is a transfer of funding from a local
governmental entity to the State. As we discuss below, this meaning
would not include a transaction that does not in fact transfer funding
but simply refunds Medicaid payments. IGTs from units of government
that meet the conditions for protection under section 1903(w)(6)(A) of
the Act, as described above, are a permissible source of State funding
of Medicaid costs. Section 1903(w)(6)(A) of the Act is an exception to
the very restrictive requirements governing provider-related donations.
The IGT provision was meant to continue to allow units of local
government, including government health care providers, to share in the
cost of the State Medicaid program.
At section 1903(w)(6)(A) of the Act, the Medicaid statute provides
that units of government within a State may transfer State and/or local
tax revenue to the Medicaid agency for use as the non-Federal share of
Medicaid payments. Because this provision does not override the
definition of an expenditure as a net outlay, as discussed below,
claimed expenditures must be net of any redirection or assignment from
a health care provider to any State or local governmental entity that
makes IGTs to the Medicaid agency. Generally, for the State to receive
Federal matching on a claimed Medicaid payment where a governmentally
operated health care provider has transferred the non-Federal share,
the State must be able to demonstrate: (1) That the source of the
transferred funds is State or local tax revenue (which must be
supported by consistent treatment on the provider's financial records);
and (2) that the provider retains the full Medicaid payment and is not
required to repay, or in fact does not repay, all or any portion of the
Medicaid payment to the State or local tax revenue account.
Under section 1903(a)(1) of the Act, the Federal government pays a
share of State expenditures for medical assistance. Consistent with
Office of Management and Budget (OMB) Circular A-87, an expenditure
must be net of all ``applicable credits'' which include discounts,
rebates, and refunds. Since the summer of 2003, we have examined
Medicaid State financing arrangements across the country, and we have
identified numerous instances in which health care providers did not
retain the full amount of their Medicaid payments but were required to
refund or return a portion of the payments received, either directly or
indirectly. Failure by the provider to retain the full amount of
reimbursement is inappropriate and inconsistent with statutory
construction that the Federal government pay only its proportional cost
for the delivery of Medicaid services. When a State claims Federal
reimbursement in excess of net payments to providers, the FMAP rate has
effectively been increased. To the extent that these State practices
have come to light through the State plan amendment process, we have
systematically required the States to eliminate these financing
arrangements.
Therefore, we have concluded that requirements that a
governmentally-operated health care provider transfer to the State more
than the non-Federal share of a Medicaid payment creates an arrangement
in which the net payment to the provider is necessarily reduced; the
provider cannot retain the full Medicaid payment claimed by the State.
This practice is not consistent with section 1902(a)(30)(A) of the Act.
We have found instances in which the State or local government has
used the funds returned by the health care provider for costs outside
the Medicaid program or to help draw additional Federal dollars for
other Medicaid program costs. The Government Accountability Office
(GAO) and the Department of Health and Human Services Office of
Inspector General (OIG) have reviewed these practices and shared our
concerns that they are not consistent with Medicaid financing
requirements. The net effect of this re-direction of Medicaid payments
is that the Federal government incurs a greater level of Medicaid
program costs, which is inconsistent with the FMAP. This is because the
claimed expenditure, which is matched by the Federal government
according to the FMAP rate, is actually greater than the net
expenditure, effectively producing an increase in the FMAP rate.
Some States and providers have defended the practices in question
as means for financing the cost of providing services to non-Medicaid
populations or financing public health activities or even justifying
what they consider to be ``unfair'' FMAPs. Whether the Federal Medicaid
program should participate in a general way in that financing, however,
is an important decision that the Congress has not expressly addressed.
As we discuss below, the Congress has expressly provided for certain
kinds of limited Federal participation in the costs of providing
services to non-Medicaid populations and public health activities.
Examples of limited congressional authorization of Federal
financing for non-Medicaid populations and public health activities
include the following. The Congress authorized disproportionate share
hospital (DSH) payments to assist hospitals that serve a
disproportionate share of low income patients which may include
hospitals that furnish significant amounts of inpatient hospital
services and outpatient hospital services to individuals with no source
of third party coverage (that is, the uninsured). Under section 4723 of
the Balanced Budget Act of 1997, the Congress also provided direct
funding to the States to offset expenditures on behalf of aliens.
Additional funding for payments to eligible providers for emergency
health services to undocumented aliens was also provided by Congress
under section 1011 of the Medicare Modernization Act. The Congress has
periodically, and as recently as the Deficit Reduction Act of 2005
(DRA, Pub. L. 109-171, enacted on February 8, 2006), adjusted FMAPs for
certain States and certain activities such as an enhanced FMAP to
create incentives for States to assist individuals in institutions
return to their homes. These examples are
[[Page 2239]]
provided to illustrate that the Congress has previously authorized
limited Federal financing of non-Medicaid populations and public health
activities, but has not to date authorized wider use of Federal
Medicaid funding for these purposes.
Indeed, the Congress indicated that Medicaid funding was not to be
used for non-Medicaid purposes when in the Balanced Budget Act of 1997
(BBA, Pub.L.105-33, enacted on August 5, 1997), it added section
1903(i)(17) to the Act to prohibit the use of FFP ``with respect to any
amount expended for roads, bridges, stadiums, or any other item or
service not covered under a State plan under this title.'' Non-Medicaid
populations and non-Medicaid services simply are not eligible for
Federal reimbursements except where expressly provided for by the
Congress.
We believe the lack of transparency and accountability undermine
public confidence in the integrity of the Medicaid program as it is
extremely difficult to track the flow of taxpayer dollars. These
arrangements, regardless of the merits, are hidden in archaic, nearly
indecipherable language that may be further re-interpreted over time,
placing Federal and State dollars at risk as well as creating tensions
and conflicts among the States.
Certified Public Expenditure (CPE)
As we have worked with States to promote appropriate Medicaid
financing, it has become apparent that an increasing number of States
are choosing to use CPEs as a method of financing the non-Federal
share. Therefore, we are taking this opportunity to review key
provisions governing the use of CPEs.
A discussion about CPEs begins with the concept of an expenditure.
The term ``expenditure'' is defined in timing rules at 45 CFR 95.13.
According to 45 CFR 95.13(b), for expenditures for services under the
Medicaid program, an expenditure is made ``in the quarter in which any
State agency made a payment to the service provider.'' There is an
alternate rule for administration or training expenditures at 45 CFR
95.13(d), under which the expenditure is made in the quarter to which
the costs were allocated or, for non-cash expenditures, in the quarter
in which ``the expenditure was recorded in the accounting records of
any State agency in accordance with generally accepted accounting
principles.'' In the State Medicaid Manual, at section 2560.4.G.1.a(1),
we indicated that ``the expenditure is made when it is paid or
recorded, whichever is earlier, by any State agency.'' In either case,
there must be a record of an actual expenditure, either through cash or
a transfer of funds in accounting records. It is clear from these
authorities that an expenditure must involve a shift of funds (either
by an actual transfer or a debit in the accounting records of the
contributing unit of government and a credit in the records of a
provider of medical care and services) and cannot merely be a refund or
reduction in accounts receivable.
Furthermore, provisions at Sec. 433.51 clearly state that the CPE
must, itself, be ``eligible for FFP.'' In keeping with this language,
there must be a provision in the State plan that would authorize the
State to make the expenditure itself if the certifying governmental
unit had not done so. In other words, a CPE must be an expenditure by
another unit of government on behalf of the single State Medicaid
agency.
A CPE equals 100 percent of a total computable Medicaid
expenditure, and the Federal share of the expenditure is paid in
accordance with the appropriate FMAP rate. In a State with a 60 percent
FMAP rate, the CPE would be equal to $100 in order to draw down $60 in
FFP.
The approach a unit of government can permissibly take to a CPE
depends on whether or not the unit of government is the provider of the
service. A governmental non-provider that pays for a covered Medicaid
service furnished by a provider (whether governmental or not) can
certify its actual expenditure, in an amount equal to the State plan
rate (or the approved provisions of a waiver or demonstration, if
applicable) for the service. In this case, the CPE would represent the
expenditure by the governmental unit to the service provider (and would
not necessarily be related to the actual cost to the provider for
providing the service).
If the unit of government is the health care provider, then it may
generate a CPE from its own costs if the State plan (or the approved
provisions of a waiver or demonstration, if applicable) contains an
actual cost reimbursement methodology. If this is the case, the
governmental provider may certify the costs that it actually incurred
that would be paid under the State plan. If the State plan does not
contain an actual cost reimbursement methodology, then the governmental
provider may not use a CPE because it would not be able to establish an
expenditure under the plan, consistent with the requirements of 45 CFR
95.13, where there was no cost incurred that would be recognized under
the State plan. A provider cannot establish an expenditure under the
plan by asserting that it would pay itself.
As part of the review of proposed State plan amendments and focused
financial reviews, we have examined CPE arrangements in many States
that include various service categories within the Medicaid program. We
note that currently there are a variety of practices used by State and
local governments in submitting a CPE as the basis of matching FFP for
the provision of Medicaid services. Different practices often make it
difficult to (1) Align claimed expenditures with specific services
covered under the State plan or identifiable administrative activities;
(2) properly identify the actual cost to the governmental entity of
providing services to Medicaid recipients or performing administrative
activities; and (3) audit and review Medicaid claims to ensure that
Medicaid payments are appropriately made. Further, we find that in many
instances State Medicaid agencies do not currently review the CPE
submitted by another unit of government to confirm that the CPE
properly reflects the actual expenditure by the unit of government for
providing Medicaid services or performing administrative activities.
These circumstances do not serve to advance or promote the fiscal
integrity of the Medicaid program. By establishing minimum standards
for the documentation supporting CPEs, we anticipate that this proposed
rule would serve to enhance the fiscal integrity of CPE practices
within the Medicaid program.
State and Local Tax Revenue
As explained previously, the Medicaid statute recognizes State and/
or local tax revenue as a permissible source of the non-Federal share
of Medicaid expenditures. In order for State and/or local tax dollars
to be eligible as the non-Federal share of Medicaid expenditures, that
tax revenue cannot be committed or earmarked for non-Medicaid
activities. Tax revenue that is contractually obligated between a unit
of State or local government and health care providers to provide
indigent care is not considered a permissible source of non-Federal
share funding for purposes of Medicaid payments. Health care providers
that forego generally applicable tax revenue that has been
contractually obligated for the provision of health care services to
the indigent or for any other non-Medicaid activity, which is then used
by the State or local government as the non-Federal share of Medicaid
payments, are making provider-related donations. Any Medicaid payment
[[Page 2240]]
linked to a provider-related donation renders that provider-related
donation non-bona fide.
State Child Health Insurance Program (SCHIP)
Section 2107(e)(1)(C) of the Act stipulates that section 1903(w)
applies to the SCHIP program as well as Medicaid. Accordingly, SCHIP
regulations at 42 CFR 457.628 incorporate by reference the provisions
at 42 CFR 433.51 through 433.74 concerning the source of the non-
Federal share and donations and taxes. Moreover, SCHIP rules at 42 CFR
457.220 mirror the language in 42 CFR 433.51.
II. Provisions of the Proposed Rule
The background section conveys critical information about the
statutory and regulatory context of this proposed rule. We are
proposing this rule specifically to (1) Clarify that only units of
government are able to participate in the financing of the non-Federal
share; (2) establish minimum requirements for documenting cost when
using a CPE; (3) limit providers operated by units of government to
reimbursement that does not exceed the cost of providing covered
services to eligible Medicaid recipients; (4) establish a new
regulatory provision explicitly requiring that providers receive and
retain the total computable amount of their Medicaid payments; and (5)
make conforming changes to the SCHIP regulations.
The provisions of this regulation apply to all providers of
Medicaid and SCHIP services, except that Medicaid managed care
organizations and SCHIP providers are not subject to the cost limit
provision of this regulation. Except as noted above, all Medicaid
payments (including disproportionate share hospital payments) made
under the authority of the State plan and under Medicaid waiver and
demonstration authorities are subject to all provisions of this
regulation.
Defining a Unit of Government (Sec. 433.50)
We are proposing to add new language to Sec. 433.50 to define a
unit of government to conform to the provisions of section
1903(w)(7)(G) of the Act. As discussed earlier, section 1903(w)(7)(G)
of the Act identifies the five types of units of government that may
participate in the non-Federal share of Medicaid payments: A State, a
city, a county, a special purpose district, or other governmental units
within the State. The proposed provisions at Sec. 433.50 are modified
to be consistent with this statutory reference. The newly proposed
regulatory definition of unit of government includes:
Any State or local government entity (including Indian
tribes) that can demonstrate it has generally applicable taxing
authority, and
Any State-operated, city-operated, county-operated, or
tribally-operated health care provider.
Under the proposed rule, health care providers that assert status
to make IGTs or CPEs as a ``special purpose district'' or some form of
``other'' local government must demonstrate they are operated by a unit
of government by showing that:
The health care provider has generally applicable taxing
authority; or
The health care provider is able to access funding as an
integral part of a governmental unit with taxing authority (that is
legally obligated to fund the governmental health care provider's
expenses, liabilities, and deficits), so that
A contractual arrangement with the State or local
government is not the primary or sole basis for the health care
provider to receive tax revenues.
In some cases, evidence that a health care provider is operated by
a unit of government must be assessed by examining the relationship of
the unit of government to the health care provider. If the unit of
government appropriates funding derived from taxes it collected to
finance the health care providers general operating budget (which would
not include special purpose grants, construction loans, or other
similar funding arrangements), the provider would be considered
governmentally operated. The inclusion of a health care provider as a
component unit on the government's consolidated annual financial report
indicates the governmentally operated status of the health care
provider. If the unit of government merely uses its funds to reimburse
the health care provider for the provision of Medicaid or other
services, that alone is not sufficient to demonstrate that the entity
is a unit of government. The unit of government must have a greater
role in funding the entity's operations, including its expenses,
liabilities, and deficits.
In recent reviews, we have found that health care providers
asserting status as a ``special purpose district'' or ``other'' local
government unit often do not meet this definition. Although the special
purpose district or a unit of government with taxing authority may be
required, either by law or contract, to provide limited support to the
health care provider, the health care provider is an independent entity
and not an integral part of the unit of government. Typically, the
independent entity will have liability for the operation of the health
care provider and will not have access to the unit of government's tax
revenue without the express permission of the unit of government. Some
of these types of health care providers are organized and operated
under a not-for-profit status. Under these circumstances, the
independently operated health care provider cannot participate in the
financing of the non-Federal share of Medicaid payments, whether by IGT
or CPE, because such arrangements would be considered provider-related
donations.
The rule also includes language in Sec. 433.50 referencing that
units of government may participate in the financing of the non-Federal
share of Medicaid expenditures.
Sources of State Share and Documentation of Certified Public
Expenditures. (Sec. 433.51(b))
This rule proposes to amend the provisions of Sec. 433.51 to
conform the language to the provisions of sections 1903(w)(6)(A) and
1903(w)(7)(G) of the Act that are discussed above, and thus to clarify
that the State share of Medicaid expenditures may be contributed only
by units of government. This rule also proposes to include provisions
requiring documentation of CPEs that are used as part of the State
share of claimed expenditures.
The regulatory provisions of Sec. 433.51 predate the statutory
amendments found in section 1903(w) of the Act, which established a
broad prohibition against provider-related donations and included
provisions specifically identifying permissible IGTs and CPEs from
units of government. Recently, some have expressed the view that the
term ``public agency'' in Sec. 433.51(b) suggests that an entity which
is not governmental in nature but has a public-oriented mission (such
as a not-for-profit hospital, for example) may participate in the
financing of the non-Federal share by CPEs. This view is inconsistent
with the plain meaning of the Act; however, to avoid any further
confusion, we are proposing to amend the regulation to conform the
regulatory language to the current statutory language in section
1903(w) of the Act. This amendment also makes clear that a broader
reading would be inconsistent with section 1902(a)(2) of the Act and
Sec. 433.50(a)(1), which have historically stipulated that State and
local governments are the entities eligible to finance the non-Federal
share.
As discussed previously, the donations and taxes amendments
[[Page 2241]]
specifically allowed units of government to continue providing funding
by IGT or CPE because of explicit statutory and regulatory provisions
that allow units of government to share in the burden of financing the
non-Federal share of Medicaid payments. To make regulatory language
consistent with the statute and avoid confusion about whether there is
a different regulatory standard, this rule proposes to modify Sec.
433.51 by removing the terms ``public'' and ``public agency'' from
Sec. 433.51 and replacing these with references to units of
government.
This rule also proposes to clarify that appropriate documentation
is required whenever a CPE is used to fund the non-Federal share of
expenditures in the Medicaid program. The governmental entity using a
CPE must submit a certification statement to the State Medicaid agency
attesting that the total computable amount of its claimed expenditures
are eligible for FFP, in accordance with the Medicaid State plan and
the revised provisions of Sec. 433.51. That certification must be
submitted and used as the basis for a State claim for FFP within 2
years from the date of the expenditure.
In this regard, the rule proposes to modify Sec. 433.51(b) to
require that a CPE must be supported by auditable documentation in a
form approved by the Secretary that will minimally: (1) Identify the
relevant category of expenditure under the State plan; (2) explain
whether the contributing unit of government is within the scope of the
exception to the statutory limitations on provider-related taxes and
donations; (3) demonstrate the actual expenditures incurred by the
contributing unit of government in providing services to Medicaid
recipients or in administration of the State plan; and (4) be subject
to periodic State audit and review.
To implement this rule, the Secretary would issue a form (or forms)
that would be required for governments using a CPE for certain types of
Medicaid services where we have found improper claims (for example,
school-based services). These forms will be published in the Federal
Register using procedures consistent with the Paperwork Reduction Act
requirements. In preparing the way for these forms, this rule would
serve to enhance fiscal integrity and improve accountability with
respect to CPE practices in the Medicaid program.
Costs that are certified by units of government for purposes of CPE
cannot include the costs of providing services to the non-Medicaid
population or costs of services that are not covered by Medicaid,
except that a hospital may certify costs for inpatient and outpatient
hospital services that are not covered under the State plan but are the
basis for a disproportionate share hospital payment consistent with the
requirements of section 1923 of the Act.
It is important to note that the following conditions do not
constitute compliance with the Federal statute and regulation governing
CPEs:
1. A certification that funds are available at a State or local
level. This certification is irrelevant to whether or not State or
local dollars have actually been expended to provide health care
services to Medicaid individuals.
2. An estimate of Medicaid costs derived from surveys of health
care providers.
3. A certification that is higher than the actual cost or
expenditure of the governmental unit that has generated the CPE based
on its provision of services to Medicaid recipients.
4. A certification that presents costs as anything less than 100
percent of the total computable expenditure. Federal match is available
only as a percentage of the total computable Medicaid expenditure
documented through a CPE. A certification equal to the amount of the
State share only is not acceptable.
The above list is not all-inclusive of arrangements that do not
constitute compliance.
Cost Limit for Providers Operated by Units of Government (Sec.
447.206)
As we have examined Medicaid financing arrangements across the
country, we have found that many States make supplemental payments to
governmentally operated providers that are in excess of cost. These
providers, in turn, use the excess of Medicaid revenue over cost to
subsidize health care operations that are unrelated to Medicaid, or
they may return a portion of the supplemental payments to the State as
a source of revenue. In either case, we do not find that Medicaid
payments in excess of cost to governmentally operated health care
providers are consistent with the statutory principles of economy and
efficiency as required by section 1902(a)(30)(A) of the Act.
Consequently, this rule proposes to limit reimbursement for
governmentally operated providers to amounts consistent with economy
and efficiency by establishing a limit of reimbursement not to exceed
cost.
The cost limit in Sec. 447.206 specifies that the Secretary will
determine a reasonable method for identifying allowable Medicaid costs
that incorporates not only OMB Circular A-87 cost principles but also
Medicare cost principles, as appropriate, and the statutory
requirements of sections 1902, 1903, and 1905 of the Act. While OMB
Circular A-87 provides a framework for cost analysis, not all cost
principles under OMB Circular A-87 are consistent with Medicare cost
principles or requirements found in the Act for economy and efficiency
and the proper and efficient administration of the Medicaid State plan.
Developing cost finding methodologies more directly to the Medicaid
program will provide for a more accurate allocation of allowable costs
to the Medicaid program.
For hospital and nursing facility services, we find that Medicaid
costs are best documented when based upon a standard, auditable,
nationally recognized cost report (for example, Medicare 2552-96
hospital cost report). Any hospital and nursing facility services that
are not documented based on a standardized, nationally recognized cost
report are generally not reimbursable Medicaid costs. We will address
any exceptions to this on a case-by-case basis.
For non-hospital and non-nursing facility services in Medicaid, we
note that a nationally recognized, standard cost report does not
presently exist. Therefore, the proposed rule stipulates that Medicaid
costs must be supported by auditable documentation in a form approved
by the Secretary that, at a minimum, will: (1) Identify the relevant
category of expenditure under the State plan; (2) explain whether the
contributing unit of government is within the scope of the exception to
the statutory limitations on provider-related taxes and donations; (3)
demonstrate the actual expenditures incurred by the contributing unit
of government in providing services to Medicaid recipients or in
administration of the State plan; and (4) be subject to periodic State
audit and review.
Each governmentally operated health care provider that is subject
to cost reimbursement and using CPEs must file a cost report with the
State Medicaid agency annually and retain records in accordance with 42
CFR 431.17 and 45 CFR 92.42.
Under a Medicaid cost reimbursement payment system funded by CPEs,
States may utilize most recently filed cost reports to develop interim
Medicaid payment rates and may trend these interim rates by an
applicable health care-related index. Interim reconciliations must be
performed by reconciling the interim Medicaid payment rates to the
filed cost report for the spending year in which interim payment rates
were made. Final
[[Page 2242]]
reconciliation must also be performed by reconciling the interim
payments and interim adjustments to the finalized cost report for the
spending year in which interim payment rates were made.
When States do not use CPEs to pay providers operated by units of
government, the new provisions would require the State Medicaid agency
to review annual cost reports to verify that actual payments to each
governmentally operated provider did not exceed the provider's cost.
Under this provision, if it is determined that a governmentally-
operated health care provider received an overpayment, amounts related
to the overpayment would be properly credited to the Federal
government, in accordance with part 433, subpart F.
Retention of Payments (Sec. 447.207)
In order to strengthen efforts to remove any potential for abuse
involving the re-direction of Medicaid payments by IGTs in the future,
this rule proposes a new regulatory provision at Sec. 447.207
requiring that providers receive and retain the full amount of the
total computable payment provided to them for services furnished under
the approved State plan (or the approved provisions of a waiver or
demonstration, if applicable). Compliance with this provision will be
determined by examining any transactions that are associated with the
provider's Medicaid payments to ensure that expenditures have been
appropriately claimed and the non-Federal share has been satisfied.
Compliance may be demonstrated by showing that the funding source
of an IGT is clearly separated from the Medicaid payment that a health
care provider received. Generally, an IGT that takes place before the
Medicaid payment, which originates from an account funded by taxes that
is separate from the account in which the health care provider receives
Medicaid payments, is usually acceptable.
Elimination of Payment Flexibility To Pay Public Providers in Excess of
Cost (Sec. 447.271(b))
We are proposing to eliminate Sec. 447.271(b), as this provision
is no longer relevant due to the new cost limit for units of government
proposed in this rule.
Conforming Changes To Reflect Upper Payment Limits for Governmental
Providers (Sec. 447.272 and Sec. 447.321)
We are proposing a corresponding modification to the Medicaid upper
payment limit (UPL) rules found at Sec. 447.272 for inpatient hospital
and nursing facility services, as well as the UPL rules at Sec.
447.321 for outpatient hospital and clinic services, to incorporate by
reference the new cost limit for providers operated by units of
government and to make the defined UPL facility groups consistent with
the new provisions of Sec. 433.50.
With respect to the UPL regulations at Sec. 447.272 and Sec.
447.321, this rule proposes to limit Medicaid reimbursement for State
government operated and non-State government operated facilities to the
individual provider's cost, whereas the current UPL regulations provide
an aggregate limit based on the UPL facility group. Formerly
established UPL transition periods remain unchanged; therefore, any
States that are still in transition periods under Sec. 447.272(e) or
Sec. 447.321(e) when this rule becomes effective will be permitted to
make additional payments above the cost UPL to governmentally operated
providers throughout the duration of their transition periods. The UPL
rules at Sec. 447.272 and Sec. 447.321 for privately operated
facilities and Indian Health Service and tribal facilities remain
unchanged.
It is important to note that the provisions of this proposed rule
are consistent with the regulatory provisions concerning Medicaid DSH
payments. Medicaid DSH payments are limited to the uncompensated care
costs of providing inpatient hospital and outpatient hospital services
to Medicaid beneficiaries and individuals with no source of third party
coverage for the services they receive. To the extent any
governmentally operated hospital is reimbursed by Medicaid at the level
of cost, there will be no Medicaid shortfall factored into the
facility's calculation of uncompensated care for purposes of DSH. This
is true whether the Medicaid cost reimbursement is funded by CPEs or
any other means.
Conforming Changes to Public Funds as the State Share of Financial
Participation (Sec. 457.220)
Current provisions on the financing of the SCHIP at Sec. 457.220
mirror the provisions at Sec. 433.51. Because the changes we are
making to Sec. 433.51 apply equally to SCHIP programs, we are
proposing to make conforming changes to Sec. 457.220 so that this
provision continues to mirror Sec. 433.51.
Conforming Changes to Other Applicable Federal Regulations (Sec.
457.628)
Current provisions on the financing of the SCHIP at Sec. 457.628
incorporate by reference the provisions at Sec. 433.51 through Sec.
433.74. Because the changes we are making to Sec. 433.50, which
implement section 1903(w) of the Act, apply equally to SCHIP programs,
we propose to make conforming changes to Sec. 457.628 to incorporate
Sec. 433.50. In addition, the new provision at Sec. 447.207 requiring
retention of payments is also incorporated by reference in Sec.
457.628 because this provision applies to SCHIP providers as well as
Medicaid providers.
Tool To Evaluate the Governmental Status of Providers
With the issuance of this proposed rule, we recognize the need to
evaluate individual health care providers to determine whether or not
they are units of government as prescribed by the rule. States will
need to identify each health care provider purportedly operated by a
unit of government to CMS and provide information needed for CMS to
make a determination as to whether or not the provider is a unit of
government. We have developed a form questionnaire to collect
information necessary to make that determination. The questionnaire
will be published in connection with this proposed rule. For new State
plan amendments that will reimburse governmentally operated providers
or rely on the participation of health care providers for the financing
of the non-Federal share, States will be required to complete this
questionnaire regarding each provider that is said to be governmentally
operated. For any existing arrangement that involves payment to
governmentally operated providers or relies on the participation of
health care providers for the non-Federal share, States will be
required to provide the information requested on this form
questionnaire relative to each applicable provider within three (3)
months of the effective date of the final rule following this proposed
rule.
III. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
[[Page 2243]]
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We are soliciting public comment on each of these issues for the
following sections of this document that contain information collection
requirements (ICRs):
Public Funds as the State Share of Financial Participation (Sec.
433.51)
Section 433.51 requires that a certified public expenditure (CPE)
be supported by auditable documentation in a form(s) approved by the
Secretary that, at a minimum, identifies the relevant category of
expenditures under the Medicaid State Plan, demonstrates the cost of
providing services to Medicaid recipients, and is subject to periodic
State audit and review.
The burden associated with this requirement is the time and effort
put forth by a provider to complete the approved form(s) to be
submitted with a CPE. Depending upon provider size, we believe that it
could take approximately 10-60 hours to fill out the form(s) that would
be required for an annual certified public expenditure. We estimate
that providers in 50 States will be affected by this requirement, but
we are unable to identify the total number of providers affected or the
estimated total aggregate hours of paperwork burden for all providers,
as such figures will be a direct result of the number of providers that
are determined to be governmentally operated.
Cost Limit for Providers Operated by Units of Government (Sec.
447.206)
Section 447.206(e) states that each provider must submit annually a
cost report to the Medicaid agency which reflects the individual
providers cost of serving Medicaid recipients during the year. The
Medicaid Agency must review the cost report to determine that costs on
the report were properly allocated to Medicaid and verify that Medicaid
payments to the provider during the year did not exceed the providers
cost.
The burden associated with this requirement is the time and effort
for the provider to report the cost information annually to the
Medicaid Agency and the time and effort involved in the review and
verification of the report by the Medicaid Agency. We estimate that it
will take a provider 10 to 60 hours to prepare and submit the report
annually to the Medicaid Agency. We estimate it will take the Medicaid
Agency 1 to 10 hours to review and verify the information provided. We
are unable to identify the total number of providers affected or the
estimated total aggregate hours of paperwork burden for all providers,
as such figures will be a direct result of the number of providers that
are determined to be governmentally operated.
In the preamble of this proposed regulation, under the section
titled ``Tool to Evaluate Governmental Status of Providers'', we
discuss a form questionnaire that we have developed to assist us in
making a determination as to whether or not the provider is a unit of
government. We have submitted this proposed information collection to
OMB for its review and approval. To view the ``Governmental Status of
Health Care Provider'' form and obtain additional supporting
information, please access CMS' Web Site address at http://www.cms.hhs.gov/PaperworkReductionActof1995
or e-mail your request and include CMS-10176 as the document identifier to Paperwork@cms.hhs.gov.
As required by section 3504(h) of the Paperwork Reduction Act of
1995, we have submitted a copy of this document to the Office of
Management and Budget (OMB) for its review of these information
collection requirements.
If you comment on these information collection and record keeping
requirements, please mail copies directly to the following:
Centers for Medicare & Medicaid Services, Office of Strategic
Operations and Regulatory Affairs, Division of Regulations Development,
Attn.: Melissa Musotto, CMS-2258-P, Room C5-14-03, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn: Katherine T. Astrich, CMS Desk Officer, CMS-2258-P,
Katherine_T._Astrich@omb.eop.gov. Fax (202) 395-6974.
IV. Response to Comments
Because of the large number of public comments we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all comments we receive
by the date and time specified in the DATES section of this preamble,
and, when we proceed with a subsequent document, we will respond to the
comments in the preamble to that document.
V. Regulatory Impact Analysis
A. Introduction
We have examined the impacts of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354),
section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
Executive Order 12866 (as amended by Executive Order 13258, which
merely reassigns responsibility of duties) 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).
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
$6 million to $29 million in any 1 year. Individuals and States are not
included in the definition of a small entity.
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 603 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 100 beds. For the reasons cited
below, we have determined that this rule may have a significant impact
on 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. That threshold
level is currently approximately $120 million. We have determined that
the rule will have an effect on State and local governments in an
amount greater than $120 million. We have explained this assessment in
[[Page 2244]]
the section entitled ``Anticipated Effects'' below.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications. For purposes of Executive Order 13132, we also find that
this rule will have a substantial effect on State or local governments.
B. Costs and Benefits
This rule is a major rule because it is estimated to result in $120
million in savings during the first year and $3.87 billion in savings
over five years.
As CMS has examined Medicaid State financing arrangements across
the country, we have identified numerous instances in which State
financing practices do not comport with the Medicaid statute. As
explained in the preamble, Section 1903(w) of the Act permits units of
government to participate in the financing of the non-Federal share;
however, in some instances States rely on funding from non-governmental
entities for the non-Federal share. Because such practices are
expressly prohibited by the donations and taxes amendments at Section
1903(w), we are issuing this rule to clarify the requirements of
entities and health care providers that are able to finance the non-
Federal share.
Furthermore, CMS has found several arrangements in which providers
did not retain the full amount of their Medicaid payments but were
required to refund or return a portion of the payments received, either
directly or indirectly. Failure by the provider to retain the full
amount of reimbursement is inappropriate and inconsistent with
statutory construction that the Federal government pays only its
proportional cost for the delivery of Medicaid services. When a State
claims Federal reimbursement in excess of net payments to providers,
the FMAP rate has effectively been increased, and federal Medicaid
funds are redirected toward non-Medicaid services. When a State chooses
to recycle FFP in this manner, the Federal taxpayers in other States
disproportionately finance the Medicaid program in the State that is
recycling FFP. This rule is designed to eliminate such practices.
The rule should also have a beneficial distributive impact on
governmental providers because in many States there are a few selected
governmental providers receiving payments in excess of cost, while
other governmental providers receive a lower rate of reimbursement.
This rule will reduce inflated payments to those few governmental
providers and promote a more even distribution of funds among all
governmental providers. This is because all governmental providers will
be limited to a level of reimbursement that does not exceed the
individual provider's cost.
We have observed that there are a variety of practices used by
State and local governments in identifying costs and submitting a CPE
as the basis of matching FFP for the provision of Medicaid services.
These different cost methods and CPE practices make it difficult to (1)
Align claimed expenditures with specific services covered under the
State plan or identifiable administrative activities; (2) properly
identify the actual cost to the governmental entity of providing
services to Medicaid recipients or performing administrative
activities; and (3) audit and review Medicaid claims to ensure that
Medicaid payments are appropriately made. Such circumstances present
risks of inflationary costs being certified and excessive claims of
FFP. This rule will facilitate a more consistent methodology in
Medicaid cost identification and allocation across the country, thereby
improving the fiscal integrity of the program.
Because the RFA includes small governmental jurisdictions in its
definition of small entities, we expect this rule to have a significant
economic impact on a substantial number of small entities, specifically
health care providers that are operated by units of government,
including governmentally operated small rural hospitals, as they will
be subject to the new cost limit imposed by this rule. We have reviewed
CMS's Online Survey and Certification and Reporting System (OSCAR) data
for information about select provider types that may be impacted by
this rule. According to the OSCAR data, there are:
1,153 hospitals that have identified themselves as
operated by local governments or hospital districts/authorities;
822 nursing facilities that have identified themselves as
operated by counties, cities, or governmental hospital districts;
113 intermediate care facilities for the mentally retarded
(ICF/MR) that have identified themselves as operated by cities, towns,
or counties.
We have not counted State operated facilities in the above numbers
because for purposes of the RFA, States are not included in the
definition of a small entity. Note further that OSCAR data is self-
reported, so the figures provided above do not necessarily reflect the
number of providers CMS recognizes as governmentally operated according
to the provisions of this rule.
Some of the governmental providers identified as small entities for
RFA purposes may have been receiving Medicaid payments in excess of
cost, but as a result of this rule, payments will not be permitted to
exceed cost. Governmentally operated providers will also be required
under this rule to receive and retain the full amount of their Medicaid
payments, which would result in a net increase in revenue to the extent
such providers were returning a portion of their Medicaid payments to
the State and payment rates remain the same following the effective
date of this rule. On the other hand, if States reduce payment rates to
such providers after this rule is effective, these providers may
experience a decrease in net revenue. Finally, there are health care
providers that are considered under the RFA as small entities
(including small rural hospitals) but are not governmentally operated;
to the extent these providers have been involved in financing the non-
Federal share of Medicaid payments, this rule will clarify whether or
not such practices may continue. However, for the most part, private
health care providers are not affected by this rule. As stated earlier,
for purposes of the RFA, the small entities principally affected by
this rule are governmentally operated health care providers. In light
of the specific universe of small entities impacted by the rule, the
fact that this rule requires States to allow governmentally operated
health care providers to receive and retain their Medicaid payments,
and the allowance for governmentally operated health care providers to
receive a Medicaid rate up to cost, we have not identified a need for
regulatory relief under the RFA.
Ultimately, this rule is designed to ensure that Medicaid payments
to governmentally operated health care providers are based on actual
costs and that the financing arrangements supporting those payments are
consistent with the statute. While some health care providers may lose
revenues in light of this rule, those revenues were likely in excess of
cost or may have been financed using methods that did not permit the
provider to retain payments received. Other health care providers that
were adversely affected by questionable reimbursement and financing
arrangements may now, under this rule, benefit from a more equitable
distribution of funds. Private providers
[[Page 2245]]
are generally unaffected by this rule, except for limited situations
where the clarification provided by the rule may require a change to
current financing arrangements.
With respect to clinical care, we anticipate that this rule's
effect on actual patient services to be minimal. The rule presents no
changes to coverage or eligibility requirements under Medicaid. The
rule clarifies statutory financing requirements and allows
governmentally operated providers to be reimbursed at levels up to
cost. Federal matching funds will continue to be made available based
on expenditures for appropriately covered and financed services. While
States may need to change reimbursement or financing methods, we do not
anticipate that services delivered by governmentally operated providers
or private providers will change.
C. Anticipated Effects
The following chart summarizes our estimate of the anticipated
effects of this rule.
Estimated Reduction in Federal Medicaid Outlays Resulting From the Provider Payment Reform Proposal Being
Implemented by CMS-2258-P
[amounts in millions]
----------------------------------------------------------------------------------------------------------------
Fiscal Year
-----------------------------------------------------------
2007 2008 2009 2010 2011
----------------------------------------------------------------------------------------------------------------
Payment Reform...................................... -120 -530 -840 -1,170 -1,210
----------------------------------------------------------------------------------------------------------------
These estimates are based on recent reviews of state Medicaid
spending. Payment reform addresses both spending through
intergovernmental transfers (IGT) and limiting payments to government
providers to cost. For IGT spending, recent reports on spending on
Disproportionate Share Hospitals (DSH) and Upper Payment Limit (UPL)
spending were reviewed. From these reports, an estimate of the total
spending that would be subject to the net expenditure policy was
developed and then projected forward using assumptions consistent with
the most recent President's Budget projections. The estimate of the
savings in federal Medicaid spending as a result of this policy factors
in the current authority and efforts of CMS and the impact of recent
waivers; the estimate also accounts for the potential effectiveness of
future efforts. There is uncertainty in this estimate to the extent
that the projections of IGT spending may not match actual future
spending and to the extent that the effectiveness of this policy is
greater than or less than assumed.
Reports on UPL spending following the most recent legislation
concerning UPL were reviewed to develop a projection for total enhanced
payments in Medicaid spending. The estimate of savings from this policy
reflects both estimates of the amount of UPL spending that exceeds cost
and the effectiveness of this policy in limiting payments to cost. The
estimate also accounts for transitional UPL payments, which are
unchanged under this policy, and for the impact of recent waivers.
There is uncertainty in this estimate to the extent that the
projections of UPL spending may not match actual future spending, to
the extent that the amount of UPL spending above cost differs from the
estimated amount, and to the extent that the effectiveness of this
policy is greater than or less than assumed.
D. Alternatives Considered
There is an option to implement policies surrounding retention of
payments, certain elements of certified public expenditures, and the
definition of a unit of government under existing statutory and
regulatory authority. However, the proposed rule is a more effective
method of implementation because it promotes statutory intent,
strengthens accountability for financing the non-Federal share of
Medicaid payments, and clarifies existing regulations based on issues
we have identified. Similarly, an option exists to continue to allow
governmental providers to be reimbursed at current rates; however,
given the information CMS has gathered regarding the use of Medicaid
payments to governmental providers, we find that the proposal to limit
governmental providers to cost offers a way to reasonably reimburse
providers while ensuring that Federal matching funds are used for their
intended purpose, which is to pay for a covered Medicaid service to a
Medicaid beneficiary and not something else.
E. Accounting Statement
As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf
), in the table below, we
have prepared an accounting statement showing the classification of the
expenditures associated with the provisions of this proposed rule. This
table provides our best estimate of the proposed decrease in Federal
Medicaid outlays resulting from the provider payment reform proposal
being implemented by CMS-2258-P (Cost Limit for Providers Operated by
Units of Government and Provisions to Ensure the Integrity of Federal-
State Financial Partnerships). The sum total of these expenditures is
classified as savings in Federal Medicaid spending.
Accounting Statement: Classification of Estimated Expenditures, from
Fiscal Year 2007 to Fiscal Year 2011
[In Millions]
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers......... Negative Transfer--Estimated
decrease in expenditures:
$774.
From Whom To Whom?..................... Federal Government to States.
------------------------------------------------------------------------
[[Page 2246]]
F. Conclusion
We expect that this rule will promote the fiscal integrity of the
Medicaid program. The proposed rule will enhance accountability for
States to properly finance the non-Federal share of Medicaid
expenditures and allow them to pay reasonable rates to governmental
providers. To the extent prior payments to governmentally operated
providers were inflated, the rule will reduce such payments to levels
that more accurately reflect the actual cost of Medicaid services and
ensure that the non-Federal share of Medicaid payments has been
satisfied in a manner consistent with the statute. Private providers
are predominately unaffected by the rule, and the effect on actual
patient services should be minimal.
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 proposes to amend 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).
2. Amend Sec. 433.50 by revising paragraph (a)(1) to read as
follows:
Sec. 433.50 Basis, scope, and applicability.
(a) * * *
(1) Section 1902(a)(2) and section 1903(w)(7)(G) of the Act, which
require States to share in the cost of medical assistance expenditures
and permits State and local units of government to participate in the
financing of the non-Federal portion of medical assistance
expenditures.
(i) A unit of government is a State, a city, a county, a special
purpose district, or other governmental unit in the State (including
Indian tribes) that has generally applicable taxing authority.
(ii) A health care provider may be considered a unit of government
only when it is operated by a unit of government as demonstrated by a
showing of the following:
(A) The health care provider has generally applicable taxing
authority; or
(B) The health care provider is able to access funding as an
integral part of a unit of government with taxing authority which is
legally obligated to fund the health care provider's expenses,
liabilities, and deficits, so that a contractual arrangement with the
State or local government is not the primary or sole basis for the
health care provider to receive tax revenues.
* * * * *
3. Section 433.51 is revised to read as follows:
Sec. 433.51 Funds from units of government as the State share of
financial participation.
(a) Funds from units of government 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 funds from units of government are appropriated directly to
the State or local Medicaid agency, or are transferred from other units
of government (including Indian tribes) to the State or local agency
and are under its administrative control, or are certified by the
contributing unit of government as representing expenditures eligible
for FFP under this section. Certified public expenditures must be
expenditures within the meaning of 45 CFR 95.13 that are supported by
auditable documentation in a form approved by the Secretary that, at a
minimum --
(1) Identifies the relevant category of expenditures under the
State plan;
(2) Explains whether the contributing unit of government is within
the scope of the exception to limitations on provider-related taxes and
donations;
(3) Demonstrates the actual expenditures incurred by the
contributing unit of government in providing services to eligible
individuals receiving medical assistance or in administration of the
State plan; and
(4) Is subject to periodic State audit and review.
(c) The funds from units of government 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
1. The authority citation for part 447 continues to read as
follows:
Authority: Sec. 1102 of the Social Security Act (42 U.S.C.
1302).
2. Section 447.206 is added to read as follows:
Sec. 447.206 Cost limit for providers operated by units of
government.
(a) Scope. This section applies to payments made to health care
providers that are operated by units of government as defined in Sec.
433.50(a)(1) of this chapter.
(b) Exceptions. Indian Health Services and tribal facilities. The
limitation in paragraph (c) 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).
(c) General rules. (1) All health care providers that are operated
by units of government are limited to reimbursement not in excess of
the individual provider's cost of providing covered Medicaid services
to eligible Medicaid recipients.
(2) Reasonable methods of identifying and allocating costs to
Medicaid will be determined by the Secretary in accordance with
sections 1902, 1903, and 1905 of the Act, as well as 45 CFR 92.22 and
Medicare cost principles when applicable.
(3) For hospital and nursing facility services, Medicaid costs must
be supported using information based on the Medicare cost report for
hospitals or nursing homes, as applicable.
(4) For non-hospital and non-nursing facility services, Medicaid
costs must be supported by auditable documentation in a form approved
by the Secretary that is consistent with Sec. 433.51(b)(1) through
(b)(4) of this chapter.
(d) Use of certified public expenditures. This paragraph applies
when States use a cost reimbursement methodology funded by certified
public expenditures.
(1) In accordance with paragraph (c) of this section, each provider
must submit annually a cost report to the Medicaid agency that reflects
the individual provider's cost of serving Medicaid recipients during
the year.
(2) States may utilize most recently filed cost reports to develop
interim rates and may trend those interim rates by an applicable health
care-related index. Interim reconciliations must be
[[Page 2247]]
performed by reconciling the interim Medicaid payment rates to the
filed cost report for the spending year in which interim payment rates
were made.
(3) Final reconciliation must be performed annually by reconciling
any interim payments to the finalized cost report for the spending year
in which any interim payment rates were made.
(e) Payments not funded by certified public expenditures. This
paragraph applies to payments made to providers operated by units of
government that are not funded by certified public expenditures. In
accordance with paragraph (c) of this section, each provider must
submit annually a cost report to the Medicaid agency that reflects the
individual provider's cost of serving Medicaid recipients during the
year. The Medicaid agency must review the cost report to determine that
costs on the report were properly allocated to Medicaid and verify that
Medicaid payments to the provider during the year did not exceed the
provider's cost.
(f) Overpayments. If, under paragraph (d) or (e) of this section,
it is determined that a governmentally-operated health care provider
received an overpayment, amounts related to the overpayment will be
properly credited to the Federal government, in accordance with part
433, subpart F of this chapter.
(g) Compliance dates. A State must comply with the cost limit
described in paragraph (c) of this section for services furnished after
September 1, 2007.
3. Section 447.207 is added to read as follows:
Sec. 447.207 Retention of payments.
(a) All providers are required to receive and retain the full
amount of the total computable payment provided to them for services
furnished under the approved State plan (or the approved provisions of
a waiver or demonstration, if applicable). The Secretary will determine
compliance with this provision by examining any associated transactions
that are related to the provider's total computable payment to ensure
that the State's claimed expenditure, which serves as the basis for
Federal Financial Participation, is equal to the State's net
expenditure, and that the full amount of the non-Federal share of the
payment has been satisfied.
(b) [Reserved]
4. Section Sec. 447.271 is revised to read as follows:
Sec. 447.271 Upper limits based on customary charges.
(a) 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) [Reserved]
5. Section 447.272 is amended by revising paragraphs (a) through
(d) to read as follows:
Sec. 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 operated facilities (that is, all facilities
that are operated by the State) as defined at Sec. 433.50(a) of this
chapter.
(2) Non-State government operated facilities (that is, all
governmentally operated facilities that are not operated by the State)
as defined at Sec. 433.50(a) of this chapter.
(3) Privately operated facilities (that is, all facilities that are
not operated by a unit of government) as defined at Sec. 433.50(a) of
this chapter.
(b) General rules. (1) For privately operated facilities, 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) For State government operated facilities and for non-State
government operated facilities, upper payment limit refers to the
individual provider's cost as defined at Sec. 447.206.
(3) Except as provided in paragraph (c) of this section, aggregate
Medicaid payments to the group of privately operated facilities
described in paragraph (a) of this section may not exceed the upper
payment limit described in paragraph (b)(1) of this section.
(4) Except as provided in paragraph (c) of this section, Medicaid
payments to State government operated facilities and non-State
government operated facilities must not exceed the individual
provider's cost as documented in accordance with Sec. 447.206.
(c) Exceptions. (1) 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).
(2) Disproportionate share hospitals. The limitation in paragraph
(b) of this section does not apply to payment adjustments made under
section 1923 of the Act that are made under a State plan to hospitals
found to serve a disproportionate number of low-income patients with
special needs as provided in section 1902(a)(13)(A)(iv) of the Act.
Disproportionate share hospital (DSH) payments are subject to the
following limits:
(i) The aggregate DSH limit using the Federal share of the DSH
limit under section 1923(f) of the Act.
(ii) The hospital-specific DSH limit in section 1923(g) of the Act.
(iii) The aggregate DSH limit for institutions for mental disease
(IMDs) under section 1923(h) of the Act.
(d) Compliance dates. Except as permitted under paragraph (e) of
this section, a State must comply with the upper payment limit
described in paragraph (b) of this section by one of the following
dates:
(1) For State government operated and non-State government operated
hospitals--September 1, 2007.
(2) For all other facilities--March 13, 2001.
* * * * *
Section 447.321 is amended by revising paragraphs (a) through (d)
to read as follows:
Sec. 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 operated facilities (that is, all facilities
that are operated by the State) as defined at Sec. 433.50(a) of this
chapter.
(2) Non-State government operated facilities (that is, all
governmentally operated facilities that are not operated by the State)
as defined at Sec. 433.50(a) of this chapter.
(3) Privately operated facilities that is, all facilities that are
not operated by a unit of government as defined at Sec. 433.50(a) of
this chapter.
(b) General rules. (1) For privately operated facilities, 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) For State government operated facilities and for non-State
government operated facilities, upper payment limit refers to the
individual provider's cost as defined at Sec. 447.206.
(3) Except as provided in paragraph (c) of this section, aggregate
Medicaid payments to the group of privately operated 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.
[[Page 2248]]
(4) Except as provided in paragraph (c) of this section, Medicaid
payments to State government operated facilities and non-State
government operated facilities must not exceed the individual
provider's cost as documented in accordance with Sec. 447.206.
(c) Exception. 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) Compliance dates. Except as permitted under paragraph (e) of
this section, a State must comply with the upper payment limit
described in paragraph (b) of this section by one of the following
dates:
(1) For State government operated and non-State government operated
hospitals--September 1, 2007.
(2) For all other facilities--March 13, 2001.
* * * * *
PART 457--ALLOTMENTS AND GRANTS TO STATES
1. The authority for part 457 continues to read as follows:
Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302)
2. Section 457.220 is revised to read as follows:
Sec. 457.220 Funds from units of government as the State share of
financial participation.
(a) Funds from units of government 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 funds from units of government are appropriated directly to
the State or local Medicaid agency, or are transferred from other units
of government (including Indian tribes) to the State or local agency
and are under its administrative control, or are certified by the
contributing unit of government as representing expenditures eligible
for FFP under this section. Certified public expenditures must be
expenditures within the meaning of 45 CFR 95.13 that are supported by
auditable documentation in a form approved by the Secretary that, at a
minimum--
(1) Identifies the relevant category of expenditures under the
State plan;
(2) Explains whether the contributing unit of government is within
the scope of the exception to limitations on provider-related taxes and
donations;
(3) Demonstrates the actual expenditures incurred by the
contributing unit of government in providing services to eligible
individuals receiving medical assistance or in administration of the
State plan; and
(4) Is subject to periodic State audit and review.
(c) The funds from units of government are not Federal funds, or
are Federal funds authorized by Federal law to be used to match other
Federal funds.
3. Amend Sec. 457.628 by--
A. Republishing the introductory text to the section.
B. Revising paragraph (a).
The republication and revision read as follows:
Sec. 457.628 Other applicable Federal regulations.
Other regulations applicable to SCHIP programs include the
following:
(a) HHS regulations in Sec. 433.50 through Sec. 433.74 of this
chapter (sources of non-Federal share and Health Care-Related Taxes and
Provider-Related Donations) and Sec. 447.207 of this chapter
(Retention of payments) apply to States' SCHIPs in the same manner as
they apply to States' Medicaid programs.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical
Assistance Program)
Dated: June 16, 2006.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Approved: December 12, 2006.
Michael O. Leavitt,
Secretary.
[FR Doc. 07-195 Filed 1-12-07; 4:21 pm]
BILLING CODE 4120-01-P