DEPARTMENT OF HEALTH & HUMAN SERVICES 
Health Care Financing Administration  
 Center for Medicaid and State Operations 
7500 Security Boulevard 
Baltimore, MD 21244-1850 
December 10, 1997  
Dear State Medicaid Director:  
This letter is one of a series that provides guidance on the implementation of the Balanced Budget Act of 1997 (BBA). Section 4711 of 
BBA repeals Sections 1902(a)(13)(A), (B), and (C) of the Social Security Act (the Act), requires states to implement a public process 
when changes in payment rates or payment methodologies are proposed, and applies to payments for items and services furnished on or 
after October 1, 1997. ( See Enclosure 1 for background on Section 4711 .)  
Section 4711 of BBA replaced the Boren requirements with a new Section 1902(a)(13)(A) of the Act, which requires states to (a) use 
a public process for determining rates, (b) publish proposed and final rates, the methodologies underlying the rates, and justifications 
for the rates, and (c) give interested parties a reasonable opportunity for review and comment on the proposed rates, methodologies, 
and justifications. In the case of hospitals, such rates must take into account the situation of hospitals which serve a disproportionate 
number of low-income patients with special needs.  
The intent of Section 4711 is to provide states with maximum possible flexibility, as well as to minimize HCFAs role in reviewing 
inpatient hospital and long-term care state plan amendments involving payment rate changes. HCFA would consider the state to be in 
compliance with this provision if it elected to use a general administrative process similar to the Federal Administrative Procedures 
Act that satisfies the requirements for a public process in developing and inviting comment in Section 4711. This will allow states the 
flexibility to follow current state public procedures. If a states public process is not currently being applied to rate setting, or does not 
currently include a comment period, then the state would need to modify the process. ( See Enclosure 2 for public process options .)  
The repeal of the Boren amendment cannot be interpreted to be retroactively effective; the Boren amendment still applies to payment 
for items and services furnished before October 1, 1997. Thus, inpatient hospital and long-term care state plan amendments that are 
currently pending approval by HCFA, including those where Boren requirement questions are the only outstanding issues, need to 
have these issues resolved before the amendments can be approved. However, we recognize that the intent in repealing the Boren 
amendment was to reduce HCFAs role in the institutional payment rate setting process and to increase state latitude in this area. In 
light of the less restrictive requirements now in place, HCFA is committed to working with states to expedite the resolution of 
outstanding Boren issues in existing pending amendments.  
States that are not proposing changes in their payment methods and standards, or changes in rates for items and services furnished on 
or after October 1, 1997, need not immediately implement a BBA public process. States need only publish proposed rates, 
methodologies, and justifications prior to the proposed effective date of any changes in payment rates or payment methodologies. In 
other words, states are not required to subject their existing rates to a public process to the extent that those existing rates were validly 
determined in accordance with legal standards in effect prior to October 1, 1997. In the event changes are already underway, states are 
to submit the preprint page (or comparable language inserted elsewhere in the hospital and long-term care payment sections of the 
plan) with the next proposed amendment. ( See Enclosures 3 and 4 for preprint pages .) We envision a streamlined Federal review 
process due to the fact that state plan amendments previously submitted under the Boren requirements were subjected to a more 
rigorous statutory standard both in terms of Federal review of their substance and the review process itself.  
Comments or questions regarding this letter may be directed to Marge Lee via e-mail at mlee1@hcfa.gov, or by phone at 410-786-
4361. You may also submit them directly to your HCFA regional office contacts. We will all strive to provide you answers in a timely 
manner.  
Sincerely,  
/s/  
Sally K. Richardson   
Director   
Center for Medicaid and State Operations  
 
Enclosures  
cc:  Jennifer Baxendell  National Governors Association  
Joy Wilson  National Conference of State Legislatures  
Lee Partridge  American Public Welfare Association  
All HCFA Regional Administrators  
All HCFA Associate Regional Administrators for Medicaid and State Operations  
     
Enclosure 1  
Background on Section 4711  
Under prior law, the Boren amendment required states to pay hospitals and long-term care providers (nursing facilities and 
intermediate care facilities for the mentally retarded) rates that were "...reasonable and adequate to meet the costs which must be 
incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable State 
and Federal laws, regulations, and quality and safety standards ...." States were required to find and make assurances satisfactory to 
the Secretary that their rates met those requirements and that individuals eligible for medical assistance had reasonable access to 
inpatient services of adequate quality. Additional assurances were also required.  
As a result of the repeal of the Boren amendment, many of the Federal requirements related to the state plan amendment process for 
institutional reimbursement state plan amendments have been eliminated, with the intent of allowing greater state flexibility in setting 
payment rates. States no longer need to make annual findings that their payment rates are reasonable and adequate to meet the costs 
that must be incurred by efficiently and economically operated providers. In addition, for institutional reimbursement state plan 
amendments with proposed effective dates of October 1, 1997 and beyond, states are not required to submit assurances and related rate 
information to HCFA.  
However, while the Boren-related requirements have been eliminated, a number of existing statutory and regulatory requirements 
which were the subject of assurances remain, even though the applicable assurances themselves are not required. These are:  
(cid:131)  The plan needs to specify comprehensively the methods and standards used by the state agency to set payment rates (42 CFR 
430.10 and 447.252),   
(cid:131)  A state must provide that aggregate payments to each group of health care facilities do not exceed the amount that can 
reasonably be estimated would have been paid for those services under Medicare payment principles (42 CFR 447.272), and   
(cid:131)  In establishing payment rates, states must still take into account the situation of hospitals which serve a disproportionate 
number of low-income patients with special needs, as this requirement was incorporated in the new law (1902(a)(13)(A)(iv)).   
The Omnibus Budget Reconciliation Act of 1987 (OBRA 87) comprehensively revised the statutory authority that applies to nursing 
homes participating in Medicaid. This revision, often referred to as nursing home reform, responded to general concern about the 
quality of nursing home care paid for by the Medicaid and Medicare programs, as well as findings and recommendations of a 1986 
Institute of Medicine report. The repeal of the Boren amendment eliminated the requirement that states provide an assurance that, 
effective October 1, 1990, their rates:  
"take into account the costs of complying with subsections (b) (other than paragraph (3)(F) thereof), (c) and (d) of section 1919 and 
provide, in the case of a nursing facility with a waiver under section 1919(b)(4)(C)(ii) for an appropriate reduction to take into account 
the lower costs (if any) of the facility for nursing care."  
However, states are still required to comply with all of the subsections of Section 1919 of the Act. The repeal of the Boren amendment 
has not relieved states of the responsibility of promoting quality of care for their beneficiaries served in nursing homes.  
 
Enclosure 2  
Public Process Options  
States that do not use their existing administrative procedures to satisfy the public process requirements may use, at their option, one 
of the public processes established in the Federal Register for Section 1115 waiver demonstrations (see 59 FR 49250, September 27, 
1994). This allows states the flexibility to design their public process based on examples of what we find acceptable. Options which 
HCFA considers acceptable and which states may elect to follow include:  
(cid:131)  Hold one or more public hearings, at which the proposed rates, methodologies, and justifications are described and made 
available to the public, and time is provided during which comments can be received. Hold one or more additional public 
hearings, at which the final rates, methodologies, and justifications are described and made available to the public.   
(cid:131)  Use a commission or similar process, where meetings are open to members of the public, in the development of proposed and 
final rates, methodologies, and justifications.   
(cid:131)  Include notice of the intent to submit a state plan amendment in newspapers of general circulation, and provide a mechanism 
for members of the public to receive a copy of the proposed and final rates, methodologies, and justifications underlying the 
amendment, and an opportunity, which shall not be less than 30 days prior to the proposed effective date, to comment on the 
proposed rates, methodologies, and justifications.   
(cid:131)  Include any other similar process for public input that would afford an interested party a reasonable opportunity to learn 
about the proposed and final rates, methodologies, and justifications, and to comment on the proposed rates, methodologies, 
and justifications.    Clarification of Public Process Requirements In Relation to Existing Public Notice Regulation Although we believe that Sections 
1902(a)(4)(A) and 1902(a)(30) of the Act may authorize a separate Federal requirement for public notice, it would be unduly 
burdensome to continue to hold states to a separate Federal requirement for institutional services when all states are required to 
establish their own public process for determination of rates under BBA. HCFA believes that whatever public process states elect to 
implement which meets the requirements of the new 1902(a)(13)(A) will satisfy HCFAs general requirements on public notice at 42 
CFR 447.205, provided that states publish their proposed rates, methodologies underlying the establishment of such rates, and 
justifications for the proposed rates prior to the effective date of new amendments.  
Insofar as states are required to publish their proposed and final rates, methodologies, and justifications, HCFA interprets "published" 
to mean "made public," rather than a more narrow definition that would require states to issue an actual written publication to meet the 
new public process requirements. Therefore, states that elect to implement one of the first two options for a public process need not 
also publish a written public notice.  
State Plan Preprints Since Federal law requires a public process for determining rates, and it is HCFAs intent to provide the 
maximum flexibility to states in developing that public process, the least burdensome way to accomplish that end is for states to 
submit a preprint page which becomes a part of the state plan and indicates that the state has in place a public process which meets the 
requirements of Section 4711 of BBA. Accordingly, we have attached two preprint pages, one each to be included in the inpatient 
hospital (4.19 A) and long-term care (4.19 D) sections of the Medicaid state plan.  
  
Enclosure 3  
Attachment 4.19 A  
The State has in place a public process which complies with the requirements of Section 1902(a)(13)(A) of the Social Security Act.  
Approval Date ____________ Plan # ____________  
Effective Date ____________ Supersedes Plan # ____________  
  
Enclosure 4  
Attachment 4.19 D  
The State has in place a public process which complies with the requirements of Section 1902(a)(13)(A) of the Social Security Act  
Approval Date ____________ Plan # ____________  
Effective Date ____________ Supersedes Plan # ____________