January 14, 2000 
 Dear State Medicaid Director: 
 I am writing to inform you of an interim final regulation (HCFA-1124-IFC, copy
enclosed) that went on display today at the Federal Register which sets forth
additional criteria fiscal intermediaries will use in calculating the Medicare
Disproportionate Share Hospital (DSH) payment adjustments for hospitals. 
 Specifically, this rule clarifies that the definition of allowable Medicaid
days in the Medicare DSH adjustment formula includes patient days of all
populations eligible for Title XIX matching payments under a State's section
1115 waiver demonstration. These regulations are effective for discharges
occurring on or after the date the regulation is published. Please review these
criteria carefully to assure that the information you report to the hospitals or
the fiscal intermediaries complies with this rule. Also, please send this rule
to any managed care organizations with which you contract so that they may also
report this information correctly. 
 Thank you for your cooperation in this matter. If you have any questions
regarding this letter, please contact Larry Reed on (410) 786-3325. 
 Sincerely, 
 /s/ 
 Timothy M. Westmoreland
 Director 
 Enclosure 
 cc:
 All HCFA Regional Administrators
 All HCFA Associate Regional Administrators for Medicaid and State Operations
 Lee Partridge - Director, Health Policy Unit, American Public Human Services
Association
 Joy Wilson - Director, Health Committee, National Conference of State
Legislatures
 Matt Salo - Director, Health Legislation, National Governors' Association 
 
 
[Federal Register: January 20, 2000 (Volume 65, Number 13)]
[Rules and Regulations]
[Page 3136-3139]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20ja00-7]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Part 412
[HCFA-1124-IFC]
RIN 0938-AJ92
Medicare Program; Medicare Inpatient Disproportionate Share
Hospital (DSH) Adjustment Calculation: Change in the Treatment of Certain Medicaid Patient Days in States With 1115 Expansion Waivers
AGENCY:  Health Care Financing Administration (HCFA), HHS.
ACTION:  Interim final rule with comment period.
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SUMMARY:  This interim final rule with comment period implements a
change to the Medicare DSH adjustment calculation policy in reference
to section 1115 expansion waiver days. This rule sets forth the
criteria to use in calculating the Medicare DSH adjustment for
hospitals for purposes of payment under the prospective payment system.
DATES:  Effective date: January 20, 2000.
    Applicability Date: These regulations are applicable to discharges
occurring on or after January 20, 2000.
    Comment date: Comments will be considered if we receive them at the
appropriate address, as provided below, no later than 5 p.m. on March
20, 2000.
ADDRESSES:  Mail an original and 3 copies of written comments to the
following address: Health Care Financing Administration, Department of
Health and Human Services, Attention: HCFA-1124-IFC, P.O. Box 8010,
Baltimore, MD 21244-8010.
    If you prefer, you may deliver an original and 3 copies of your
written comments to one of the following addresses:
Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW,
Washington, DC 20201, or
Room C5-16-03, 7500 Security Boulevard, Baltimore, Maryland 21244-1850.
FOR FURTHER INFORMATION CONTACT:  Kathleen Buto, Deputy Director,
Center for Health Plans and Providers, (202) 205-2505.
SUPPLEMENTARY INFORMATION:
I. Background
A. Summary
    The Medicare disproportionate share hospital (DSH) adjustment
provision under section 1886(d)(5)(F) of the Social Security Act (the
Act) was enacted by section 9105 of the Consolidated Omnibus Budget
Reconciliation Act (COBRA) of 1985 and became effective for discharges
occurring on or after May 1, 1986, as set forth in the May 6, 1986
final rule with comment period (51 FR 16772).
    The size of a hospital's Medicare DSH adjustment, which is applied
to the hospital inpatient prospective payment system (PPS) payment, is
based on the sum of the percentage of patient days attributable to
patients eligible for both Medicare Part A and Supplemental Security
Income (SSI), and the percentage of patient days attributable to
patients eligible for Medicaid but not Medicare Part A. The first
computation includes days for patients who, during a given month, were
entitled to both Medicare Part A and SSI (excluding State
supplementation). This number is divided by the number of covered
patient days utilized by patients under Medicare Part A for that same
period. The second computation includes patient days associated with
beneficiaries who were eligible for medical assistance (Medicaid) under
a State plan approved under Title XIX but who were not entitled to
Medicare Part A. (See 42 CFR 412.106(b)(4).) This number is divided by the total number of patient days for that same period.
    Currently, hospitals whose disproportionate patient percentage
exceeds a certain threshold (which varies for urban and rural areas)
receive either a fixed adjustment or, in the case of large urban
hospitals (100 or more beds) or large rural hospitals (500 or more
beds), a variable adjustment based on a statutory formula. As of April
1, 1990, variable adjustments were made for large urban hospitals and
rural referral centers. Facilities that qualify as rural referral
centers as well as sole community hospitals receive the greater of a
fixed adjustment or a variable adjustment based on a statutory formula.
Qualifying large rural hospitals and sole community hospitals receive a
fixed adjustment. Urban hospitals with 100 or more beds that receive
funds from State and local governments for indigent care in excess of
30 percent of net inpatient revenues are treated separately (42 CFR
412.106(c)).
B. Section 1115 Expansion Waivers
    Some States provide medical assistance under a demonstration
project (also referred to as a section 1115 waiver). In some section
1115 waivers, a given population that otherwise could have been made
eligible for Medicaid under section 1902(r)(2) or 1931(b) in a State
plan amendment is made eligible under the waiver. These populations are
referred to as hypothetical eligibles, and are specific, finite
populations identifiable in the budget neutrality agreements found in
the Special Terms and Conditions for the demonstrations; the patient
days utilized by that population are to be recognized for purposes of
calculating the Medicare DSH adjustment. In addition, the section 1115
waiver may provide for medical assistance to expanded eligibility
populations that could not otherwise be made eligible for Medicaid.
    Under current policy, hospitals were to include in the Medicare DSH
calculation only those days for populations under the section 1115
waiver who were or could have been made eligible under a State plan.
Patient days of the expanded eligibility groups, however, were not to
be included in the Medicare DSH calculation.
II. Provisions of the Interim Final Rule With Comment Period
    In this interim final rule with comment period, we are revising the
policy, effective with discharges occurring on or after January 20,
2000, to allow hospitals to include the patient days of all populations
eligible for Title XIX matching payments in a State's
[[Page 3137]]
section 1115 waiver in calculating the hospital's Medicare DSH
adjustment.
    One purpose of a section 1115 expansion waiver is to extend Title
XIX matching payments to services furnished to populations that
otherwise could not have been made eligible for Medicaid. The costs
associated with these populations are matched based on section 1115
authority. In fact, section 1115(a)(2)(A) of the Act states that the
``costs of such project which would not otherwise be included as
expenditures under section * * * 1903 * * * shall, to the extent and
for the period prescribed by the Secretary, be regarded as expenditures
* * * approved under (Title XIX).'' Thus, the statute allows for the
expansion populations to be treated as Medicaid beneficiaries.
    In addition, at the time that the Congress enacted the Medicare DSH
adjustment, there were no approved section 1115 expansion waivers.
Nonetheless, we believe allowing hospitals to include the section 1115 expanded waiver population in the Medicare DSH calculation is fully
consistent with the Congressional goals of the Medicare DSH adjustment
to recognize the higher costs to hospitals of treating low income
individuals covered under Medicaid. Therefore, inpatient hospital days
for these individuals eligible for Title XIX matching payments under a
section 1115 waiver are to be included as Medicaid days for purposes of
the Medicare DSH adjustment calculation.
    In order to provide consistency in both components of the
calculation, any days that are added to the Medicaid day count must
also be added to the total day count, to the extent that they have not
been previously so added.
    Regardless of the type of allowable Medicaid day, the hospital
bears the burden of proof and must verify with the State that the
patient was eligible under one of the allowable categories during each
day of the patient's stay. The hospital is responsible for and must
provide adequate documentation to substantiate the number of Medicaid
days claimed. Days for patients that cannot be verified by State
records to have fallen within a period wherein the patient was eligible
for Medicaid as described in this rule cannot be counted.
III. Response to Comments
    Because of the large number of items of correspondence we normally
receive on Federal Register documents published for comment, 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.
IV. Waiver of Proposed Rulemaking and 30-Day Delay in the Effective
Date
    We ordinarily publish a notice of proposed rulemaking in the
Federal Register and invite public comment on the proposed rule. The
notice of proposed rulemaking includes a reference to the legal
authority under which the rule is proposed, and the terms and
substances of the proposed rule or a description of the subjects and
issues involved. This procedure can be waived, however, if an agency
finds good cause that a notice-and-comment procedure is impracticable,
unnecessary, or contrary to the public interest and incorporates a
statement of the finding and its reasons in the rule issued.
    We find that it would be contrary to the public interest to
undertake prior notice and comment procedures before implementing this
interim final rule with comment period. States that have approved
section 1115 waivers are continually involved in critical efforts to
implement, refine, and operate their Medicaid programs. For example,
the States, managed care organizations, and hospitals are always
considering their financial positions and the adequacy of rates paid
between these critical partners. We believe this policy change impacts
their financial positions. Therefore, we believe the extended period of
uncertainty for hospitals and others that would result if this policy
change were to go through proposed and final rulemaking could adversely
affect the course of these critical efforts and thereby disrupt
services to Medicaid beneficiaries and other low-income patients who
are served by hospitals, especially safety net hospitals.
    Moreover, because our prior guidance on certain aspects of our
Medicare DSH policy was insufficiently clear, many hospitals in States
with approved section 1115 expansion waivers have been receiving
Medicare DSH payments reflecting the inclusion of expansion population patient days. But for an immediate effective date of this rule, these
Medicare DSH payments will cease until completion of the notice and
comment rulemaking process, and, as a result, many of these hospitals
may experience financial difficulties that may adversely affect access
to services by the low-income patients served by these safety net
hospitals.
    Therefore, we find good cause to waive the notice of proposed
rulemaking and to issue this final rule on an interim basis. We are
providing a 60-day comment period for public comment.
    Also, we normally provide a delay of 30 days in the effective date
of a regulation. However, if adherence to this procedure would be
impracticable, unnecessary, or contrary to the public interest, we may
waive the delay in the effective date. For the reasons discussed above,
it is important that the provisions of this final rule with comment
period have immediate effect in order to avoid a potential hardship for
hospitals and a potential disruption of services for their patients.
V. Collection of Information Requirements
    Under the Paperwork Reduction Act of 1995 (PRA), 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.
     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:
    Section 412.106(b)(4) (ii) and (iii) contain information collection
requirements that are subject to the PRA. The requirements are as
follows:
    In paragraph (b)(4)(ii), effective with discharges occurring on or
after January 20, 2000, for purposes of counting days under paragraph
(b)(4)(i) of this section, hospitals may include all days attributable
to populations eligible for Title XIX matching payments through a
waiver approved under section 1115 of the Social Security Act.
    In paragraph (b)(4)(iii), the hospital has the burden of furnishing
data adequate to prove eligibility for each Medicaid patient day
claimed under paragraph (b)(4) and of verifying with the State that a
patient was eligible for Medicaid during each claimed Medicaid day. We
solicit comments on the burden
[[Page 3138]]
associated with these requirements. Based upon the burden estimates
received from the public, HCFA will add these new requirements and
associated burden to the existing information collections entitled;
``Medicaid Disproportionate Share Adjustment Procedure and Criteria''
(OMB #0938-0691, HCFA-R-194, current expiration date 9/30/2002; and/or
``Medicaid Disproportionate Share Hospital Payments--Institutions for Mental Disease'' (OMB #0938-0746, HCFA-R-0266, current expiration date
6/30/2002.
    If you comment on these information collection and recordkeeping
requirements, please mail copies directly to the following:
Health Care Financing Administration, Office of Information Services,
Information Technology Investment Management Group, Attn: Julie Brown,
Room N2-14-26, 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: Allison Herron Eydt, HCFA Desk Officer.
VI. Regulatory Impact Analysis
A. Introduction
    Section 804(2) of title 5, United States Code (as added by section
251 of Public Law 104-121), specifies that a ``major rule'' is any rule
that the Office of Management and Budget finds is likely to result in--
     An annual effect on the economy of $100 million or more.
     A major increase in costs or prices for consumers,
individual industries, Federal, State, or local government agencies, or
geographic regions; or
     Significant adverse effects on competition, employment,
investment productivity, innovation, or on the ability of United States
based enterprises to compete with foreign based enterprises in domestic
and export markets.
    We estimate that the impact of this interim final rule with comment
period will exceed $100 million. Therefore, this rule is a major rule
as defined in Title 5, United States Code, section 804(2).
    We have examined the impacts of this interim final rule with
comment period as required by Executive Order 12866, the Regulatory
Flexibility Act (RFA) (Public Law 96-354), and the Unfunded Mandates
Reform Act of 1995 (Public Law 104-4). Executive Order 12866 directs
agencies to assess all costs and benefits of available regulatory
alternatives and, when regulation is necessary, to select regulatory
approaches that maximize net benefits (including potential economic,
environmental, public health and safety effects, distributive impacts,
and equity). The RFA requires agencies to analyze options for
regulatory relief of small businesses. For purposes of the RFA, small
entities include small businesses, non-profit organizations and
government agencies. Most hospitals and most other providers and
suppliers are small entities, either by non-profit status or by having
revenues of $5 million or less annually. Individuals and States are not
included in the definition of a small entity.
    We generally prepare a regulatory flexibility analysis that is
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601
through 612), unless we certify that a final rule will not have a
significant economic impact on a substantial number of small entities.
For purposes of the RFA, we consider all hospitals to be small
entities.
    Also, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis for any rule that may have a significant
impact on the operations of a substantial number of small rural
hospitals. Such an analysis must conform to the provisions of section
604 of the RFA. With the exception of hospitals located in certain New
England counties, for purposes of section 1102(b) of the Act, we define
a small rural hospital as a hospital with fewer than 100 beds that is
located outside of a Metropolitan Statistical Area (MSA) or New England
County Metropolitan Area (NECMA). Section 601(g) of the Social Security Amendments of 1983 (Public Law 98-21) designated hospitals in certain
New England counties as belonging to the adjacent NECMA. Thus, for
purposes of the hospital inpatient prospective payment system, we
classify these hospitals as urban hospitals.
    It is clear that the changes being made in this rule would affect a
number of hospitals, and the effects on some may be significant.
Therefore, the discussion below constitutes a combined regulatory
impact analysis and regulatory flexibility analysis.
    Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies prepare an assessment of anticipated costs and benefits
before issuing any rule that may result in an expenditure in any one
year by State, local and tribal governments, in the aggregate, or by
the private sector, of $100 million or more (adjusted annually for
inflation). We have concluded that this rule does not impose any
mandates on State, local, or tribal governments, or the private sector
that will result in an annual expenditure of $100 million or more.
B. Impact of This Interim Final Rule With Comment Period
    There are currently eight States with section 1115 expansion
waivers (Delaware, Hawaii, Massachusetts, Missouri, New York, Oregon,
Tennessee, and Vermont). Under this interim final rule with comment
period, hospitals in these eight States would be allowed to include in
the Medicaid percentage portion of their Medicare DSH calculation the
inpatient hospital days attributable to patients who are eligible under
the State's section 1115 expansion waiver. Because our policy was that
these days were not allowable prior to the effective date of this
interim final rule with comment period, by allowing hospitals to begin
to include these days in their Medicare DSH calculation the impact will
be to increase the DSH payments these hospitals will receive compared
to what they would receive absent this change.
    Based on data available for the numbers of individuals covered by
the expansion waiver in each of the eight States compared to the total
number of individuals covered by Medicaid in each State (adjusted for
utilization), we have estimated the impact of this change to be $270
million in higher FY 2000 PPS payments, (total FY 2000 DSH payments are
projected to be $4.6 billion), and $370 million in FY 2001 payments.
Thus the total impact of this change for the period from FY 2001
through FY 2005 is estimated to be $2.14 billion.
    In accordance with the provisions of Executive Order 12866, this
interim final rule with comment period was reviewed by the Office of
Management and Budget.
VII. Federalism
    We have reviewed this interim final rule with comment period under
the threshold criteria of Executive Order 13132, Federalism. In
considering this policy change, we have evaluated any potential
Federalism impacts. States are already responsible as needed for
providing information to hospitals and fiscal agents under current
regulations. In addition, there are existing requirements for
maintaining and reporting these data under the Terms and Conditions of
their section 1115 demonstration agreement. Therefore, States already
possess the information necessary to implement this change, and no new
standards or requirements are
[[Page 3139]]
established as a result of this change. Indeed there may be a reduction
in State responsibilities since section 1115 demonstration populations will no longer have to be treated differently from other Medicaid
eligibles.
    In order to assist the States in making this information available
to the Medicare fiscal intermediaries so they can accurately count days
related to patients eligible under an 1115 waiver, we are issuing
clarifying instructions to the States specifying exactly what data are
to be included in the Medicare DSH calculation, and the States' role in
providing this information. In addition, we are in ongoing contact with
States that have waivers in order to assist and monitor the development
and implementation of their waivers.
    We believe this regulation meets Federalism requirements as it does
not increase the burden on States and is responsive to requests from
hospitals who partner with States in providing health services to needy
populations.
List of Subjects in 42 CFR Part 412
    Administrative practice and procedure, Health facilities, Medicare,
Puerto Rico, Reporting and recordkeeping requirements.
    For reasons set forth in the preamble, 42 CFR chapter IV, part 412
is amended as follows:
PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL
SERVICES
    1. The authority citation for part 412 continues to read as
follows:
    Authority:  Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
    2. In Sec. 412.106, republish the headings of paragraphs (b) and
(b)(4), redesignate paragraph (b)(4)(ii) as paragraph (b)(4)(iii), and
add a new paragraph (b)(4)(ii) to read as follows:
Sec. 412.106  Special treatment: Hospitals that serve a
disproportionate share of low-income patients.
* * * * *
    (b) Determination of a hospital's disproportionate patient
percentage. * * *
    (4) Second computation. * * *
    (ii) Effective with discharges occurring on or after January 20,
2000, for purposes of counting days under paragraph (b)(4)(i) of this
section, hospitals may include all days attributable to populations
eligible for Title XIX matching payments through a waiver approved
under section 1115 of the Social Security Act.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
    Dated: December 22, 1999.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
    Approved: December 22, 1999.
Donna E. Shalala,
Secretary.
[FR Doc. 00-1357 Filed 1-14-00; 3:09 pm] BILLING CODE 4120-01-P