DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
 
Center for Medicaid, CHIP and Survey & Certification 
 
                    SMD #: 10-026 
                    ACA#: 13 
      
December 30, 2010 
 
Re:  Prohibition on Payments to Institutions or 
Entities Located Outside of the United States 
 
Dear State Medicaid Director: 
 
This letter provides information as part of a series of guidance on the implementation of the 
Affordable Care Act of 2010.  Specifically, this letter provides guidance on a Medicaid payment 
provision -- Section 6505  entitled, Prohibition on Payments to Institutions or Entities Located 
Outside of the United States.   
 
Section 6505 of the Affordable Care Act amends section 1902(a) of the Social Security Act (the 
Act), and requires that a State shall not provide any payments for items or services provided 
under the State plan or under a waiver to any financial institution or entity located outside of the 
United States (U.S.).  This section of the Affordable Care Act is effective January 1, 2011, unless 
the Secretary determines that implementation requires State legislation, other than legislation 
appropriating funds, in order for the plan to comply with this provision.   
 
For purposes of implementing this provision, section 1101(a)(2) of the Act defines the term 
United States when used in a geographical sense, to mean the States.  Section 1101(a)(1) of 
the Act defines the term State to include the District of Columbia, Puerto Rico, the Virgin 
Islands, Guam, the Northern Mariana Islands, and American Samoa, when used under Title XIX. 
 
The phrase, items or services provided under the State plan or under a waiver refers to medical 
assistance for which the State claims Federal funding under section 1903(a) of the Act.  Tasks 
that support the administration of the Medicaid State plan that may require payments to financial 
institutions or entities located outside of the U.S. are not prohibited under this statute.  For 
example, payments for outsourcing information processing related to plan administration or 
outsourcing call centers related to enrollment or claims adjudication are not prohibited under this 
statute.   
 
However, payments for items or services provided under the State plan to financial institutions or 
entities such as provider bank accounts or business agents located outside of the U.S., Puerto 
Rico, the Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa are 
prohibited by this provision.  Further, this provision prohibits payments to telemedicine 
providers located outside of the U.S., Puerto Rico, the Virgin Islands, Guam, the Northern 
Mariana Islands, and American Samoa.  Additionally, payments to pharmacies located outside of 
the U.S., Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands, and American 
Samoa are not permitted.    Page 2  State Medicaid Director 
 
 
The Centers for Medicare & Medicaid Services (CMS) will require that, in the case of providers 
that have provided medical assistance or covered items and/or services to Medicaid beneficiaries 
under the State plan or under a waiver program, and are requesting reimbursement from the State 
Medicaid program, such reimbursement must be provided to financial institutions or entities 
located within the U.S.  If it is found that payments have been made to financial institutions or 
entities outside of the U.S., States must recover these payments and must forward any Federal 
match for such payments to CMS consistent with the guidelines specified in Federal regulations 
at 42 CFR Part 433.  
 
Any audits of claims by CMS to assure compliance with this provision will begin no earlier than 
June 1, 2011 and will only review claims submitted on or after June 1, 2011 for compliance with 
this section.  Beginning on that date, all claims for payments to any financial institution or entity 
located outside of the U.S., Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands, 
and American Samoa must be denied, unless the Secretary determines that implementation 
requires State legislation.  If a State is able to implement this provision earlier than June 1, 2011, 
however, CMS encourages them to do so.   
 
States Medicaid Management Information Systems (MMIS) and the Advanced Planning 
Document (APD) Process 
 
This provision may require States to implement functional changes to the Medicaid Management 
Information System (MMIS). Changes may include an edit or flag on provider claims so that 
provider claims for reimbursement that have been directed to be paid to financial institutions or 
entities located outside of the U.S. will be denied, and therefore, not paid by the State Medicaid 
program.  If functional changes are needed to a States MMIS, States must submit Advanced 
Planning Documents (APDs) to request funding for such changes.  Funding is available for 
system design, development, and installation expenditures at a 90 percent Federal matching rate 
and, for system maintenance and operations expenditures, at a 75 percent Federal matching rate.  
APDs must be submitted in compliance with the Federal requirements specified in 45 CFR Part 
95.  CMS will accept the submission of APDs simultaneously with the submission of SPAs.  
Your CMS Regional Office contacts are available to provide additional guidance on the APD 
process. 
 
 Submission of State Plan Amendments 
 
States will need to submit a State plan amendment (SPAs) to provide a statement of compliance 
with this prohibition on payments to any financial institution or entity located outside of the U.S. 
for any items or services provided under the State plan or under a waiver.  If a State already has 
State plan language related to payments to financial institutions or entities located outside of the 
U.S., the State must update that language to comply with this law.  Enclosure A is a draft 
Medicaid State Plan Preprint which States may use to assure compliance with and 
implementation of section 6505.  States must submit the Transmittal and Notice of Approval of 
State Plan Material, form CMS -179, with the draft template for the SPA, to CMS for review and 
approval.  Unless the Secretary determines that State legislation is required in order to comply 
with this provision, States shall submit a SPA no later than June 30, 2011, with an effective date 
of June 1, 2011. 
 
  Page 3  State Medicaid Director 
 
 
In accordance with section 6508, General Effective Date, under Title VI, Subtitle F of the 
Affordable Care Act, a State plan for medical assistance under Title XIX of the Act determined 
to require legislation, other than legislation appropriating funds, shall not be regarded as failing 
to comply before the first day of the first calendar quarter beginning after the close of the first 
regular session of the State legislature that begins after the date of the enactment of the 
Affordable Care Act.  For example, if the next regular legislative session beginning after 
March 23, 2010, is January 1, 2011, through May 31, 2011, then the State would have to submit 
a SPA to ensure compliance by July 1, 2011.  In the case of a State that has a two-year legislative 
session, each year of such session shall be deemed to be a separate regular session of the State 
legislature.  For example, if a State legislature is in session from January 1, 2011 through 
December 31, 2012, then the State must submit a SPA to ensure compliance by January 1, 2012.  
Please contact your CMS Regional Office (RO) as soon as possible if you believe that State 
legislation is required to implement this provision. 
 
Please contact Mr. Rick Friedman, Director, Division of State Systems, of my staff, at 410-786-
4451, or Richard.Friedman@cms.hhs.gov if you have any questions.  We look forward to 
continuing our work together as we implement this important provision of the Affordable Care 
Act.   
 
            Sincerely, 
 
            /s/ 
 
            Cindy Mann 
             Director 
 
Enclosure 
cc:             
CMS Regional Administrators 
 
CMS Associate Regional Administrators 
Division of Medicaid and Childrens Health 
 
Andrew Allison  
President 
National Association of Medicaid Directors 
 
Alan R. Weil, J.D., M.P.P. 
Executive Director 
National Academy for State Health Policy 
 
Matt Salo 
Director of Health Legislation 
National Governors Association 
 
 
 
  Page 4  State Medicaid Director 
 
Rick Fenton 
Acting Director 
Health Services Division 
American Public Human Services Association 
 
 
Christine Evans, M.P.H. 
Director, Government Relations 
Association of State and Territorial Health Officials 
 
Debra Miller 
Director for Health Policy 
Council of State Governments 
 
Joy Wilson 
Director, Health Committee 
National Conference of State Legislatures 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Page 5  State Medicaid Director 
 
 
                    ENCLOSURE A 
 
 
DRAFT  Medicaid State Plan Preprint  DRAFT 
 
State/ Territory: _______________________ 
 
 
PROPOSED SECTION 4  GENERAL PROGRAM ADMINISTRATION 
 
4.44    Medicaid Prohibition on Payments to Institutions or Entities Located Outside of the 
United States 
_____________________________________________________________________________ 
Citation 
 
Section 1902(a)(80) of the Social Security Act, P.L. 111-148 (Section 6505) 
 
 
______ The State shall not provide any payments for items or services provided under the State 
plan or under a waiver to any financial institution or entity located outside of the United States. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TN No._________ 
Supersedes 
TN No._________  Approval Date: _____________  Effective Date: _____________