2500 Federal Register / Vol. 77, No. 11 / Wednesday, January 18, 2012 / Proposed Rules 

H. Executive Order 13211: Actions That 

Significantly Affect Energy Supply, 

Distribution, or Use 

This action is not subject to Executive 

Order 13211 (66 FR 28355, May 22, 

2001), because it is not a significant 

regulatory action under Executive Order 

12866. 

I. National Technology Transfer 

Advancement Act 

Section 12(d) of the National 

Technology Transfer and Advancement 

Act of 1995 (‘‘NTTAA’’), Public Law 

104–113, 12(d) (15 U.S.C. 272 note) 

directs EPA to use voluntary consensus 

standards in its regulatory activities 

unless to do so would be inconsistent 

with applicable law or otherwise 

impractical. Voluntary consensus 

standards are technical standards (e.g., 

materials specifications, test methods, 

sampling procedures, and business 

practices) that are developed or adopted 

by voluntary consensus standards 

bodies. NTTAA directs EPA to provide 

Congress, through OMB, explanations 

when the Agency decides not to use 

available and applicable voluntary 

consensus standards. 

This action does not involved 

technical standards. Therefore, EPA did 

not consider the use of any voluntary 

consensus standards. 

J. Executive Order 12898: Federal 

Actions To Address Environmental 

Justice in Minority Populations and 

Low-Income Populations 

Executive Order 12898 (59 FR 7629, 

Feb. 16, 1994) establishes federal 

executive policy on environmental 

justice. Its main provision directs 

federal agencies, to the greatest extent 

practicable and permitted by law, to 

make environmental justice part of their 

mission by identifying and addressing, 

as appropriate, disproportionately high 

and adverse human health or 

environmental effects of their programs, 

policies, and activities on minority 

populations and low-income 

populations in the United States. 

EPA has determined that this 

proposed rule would not have 

disproportionately high and adverse 

human health or environmental effects 

on minority or low-income populations 

because it increases the level of 

environmental protection for all affected 

populations without having any 

disproportionately high and adverse 

human health or environmental effects 

on any population, including any 

minority or low-income population. 

This proposed rule would merely add 

an automatic waiver provision to 

encourage Great Lakes steamship 

owners to repower their vessels with 

cleaner marine diesel engines. To the 

extent Great Lakes steamship owners 

take advantage of this incentive 

program, their action would provide 

immediate air quality and energy 

benefits, due to the improved fuel 

efficiency of the diesel engines, and 

even larger benefits in the long term, 

when the repowered ship would use 

fuel that complies with the 1,000 ppm 

sulfur limit on the Great Lakes. These 

emission reductions would improve air 

quality for all people who live in the 

Great Lakes region, including minority 

and low-income populations. 

K. Statutory Authority 

The statutory authority for this action 

comes from section 1903 of the Act to 

Prevent Pollution from Ships (33 U.S.C. 

1901 et seq.). The Act to Prevent 

Pollution from Ships implements Annex 

VI to the International Convention for 

the Prevention of Pollution from Ships 

(MARPOL) and makes those 

requirements enforceable domestically. 

Section 1903 gives the Administrator 

the authority to prescribe any necessary 

or desired regulations to carry out the 

provisions of Regulations 12 through 19 

of MARPOL Annex VI. 

List of Subjects in 40 CFR Part 1043 

Environmental protection, 

Administrative practice and procedure, 

Air pollution control, Confidential 

business information, Economic 

hardship waiver, Great Lakes, North 

American Emission Control Area, 

Reporting and recordkeeping 

requirements, Steamships. 

Dated: January 11, 2012. 

Lisa P. Jackson, 

Administrator. 

[FR Doc. 2012–820 Filed 1–17–12; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 447 

[CMS–2315–P] 

RIN 0938–AQ37 

Medicaid Program; Disproportionate 

Share Hospital Payments—Uninsured 

Definition 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule addresses 

the hospital-specific limitation on 

Medicaid disproportionate share 

hospital (DSH) payments under the 

Social Security Act. Under this 

limitation, DSH payments to a hospital 

cannot exceed the uncompensated costs 

of furnishing hospital services by the 

hospital to individuals who are 

Medicaid-eligible or ‘‘have no health 

insurance (or other source of third party 

coverage) for the services furnished 

during the year.’’ This rule would 

provide that the quoted phrase would 

refer in context to a lack of coverage on 

a service-specific basis, so that the 

calculation of uncompensated care for 

purposes of the hospital-specific DSH 

limit would include the cost of each 

service furnished to an individual who 

had no health insurance or other source 

of third party coverage for that service. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on February 17, 2012. 

ADDRESSES: In commenting, please refer 

to file code CMS–2315–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (Fax) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the ‘‘Submit a comment’’ instructions. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–2315–P, P.O. Box 8016, Baltimore, 

MD 21244–8016. 

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 to the 

following address ONLY: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–2315–P, Mail 

Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. Alternatively, 

you may deliver (by hand or courier) 

your written comments ONLY to the 

following addresses prior to the close of 

the comment period: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue SW., 

Washington, DC 20201. 


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(Because access to the interior of the 

Hubert H. Humphrey 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.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, call 

telephone number (410) 786–9994 in 

advance to schedule your arrival with 

one of our staff members. 

Comments erroneously mailed to the 

addresses indicated as appropriate for 

hand or courier delivery may be delayed 

and received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: Rory 

Howe (410) 786–4878. 

SUPPLEMENTARY INFORMATION: 

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.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be 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 

A. Introduction 

On December 19, 2008, we published 

a final rule in the Federal Register (73 

FR 77904) entitled ‘‘Medicaid 

Disproportionate Share Hospital 

Payments’’ (herein referred to as the 

2008 DSH final rule) that implemented 

section 1001 of the Medicare 

Prescription Drug, Improvement and 

Modernization Act of 2003 (MMA), 

requiring State reports and audits to 

ensure the appropriate use of Medicaid 

Disproportionate Share Hospital (DSH) 

payments and compliance with the DSH 

limit imposed at section 1923(g) of the 

Social Security Act (the Act). The limit 

at section 1923(g) of the Act is 

commonly referred to as the hospitalspecific DSH limit and specifies that 

only the uncompensated costs of 

providing inpatient hospital and 

outpatient hospital services to Medicaid 

eligible individuals and uninsured 

individuals as described in section 

1923(g)(1)(A) of the Act are included in 

the calculation of the hospital-specific 

DSH limit. The statute describes 

uninsured individuals as those ‘‘who 

have no health insurance (or other 

source of third party coverage) for the 

services furnished during the year.’’ 

Citing an effort to adhere to an 

accurate representation of the broad 

statutory references to insurance or 

other coverage and to delineate more 

definitively the meaning of the term 

uninsured, we defined the phrase ‘‘who 

have health insurance (or other third 

party coverage)’’ to refer broadly to 

individuals who have creditable 

coverage consistent with the definitions 

under 45 CFR Part 144 and 45 CFR Part 

146, as well as individuals who have 

coverage based upon a legally liable 

third party payer. This regulatory 

definition was not the same as the 

preliminary guidance previously issued 

to States and providers in 1994. 

In an August 17, 1994 letter to State 

Medicaid Directors (SMD), CMS 

included a summary of the DSH 

provisions in the Omnibus Budget 

Reconciliation Act of 1993 (OBRA 93) 

(Pub. L. 103–66), as a preliminary 

interpretation. In that letter, we 

endorsed a service-specific approach in 

which individuals were considered 

‘‘uninsured’’ for purposes of DSH to the 

extent that they did not have third party 

coverage for the specific hospital service 

that they received. A January 10, 1995, 

letter to the Chair of the State Medicaid 

Director’s Association affirmed the 

service-specific interpretation of the 

definition of uninsured by clarifying 

that: ‘‘It would be permissible for States 

to include in their determination of 

uninsured patients those individuals 

who do not possess health insurance 

which would apply to the service which 

the individual sought’’. 

The regulatory definition published in 

the 2008 DSH final rule was more 

restrictive than the service-specific 

definition and is applied on an 

individual-specific basis rather than a 

service-specific basis. This 

interpretation of the definition of 

‘‘uninsured’’ superseded all prior 

interpretive issuances. 

After publication of the 2008 DSH 

final rule, numerous States, members of 

Congress, and related stakeholders 

expressed their concern that the 2008 

DSH final rule definition of the 

uninsured deviated from prior guidance 

and would have a significant financial 

impact on States and hospitals. This 

proposed rule is designed to mitigate 

some of the unintended consequences of 

the uninsured definition put forth in the 

2008 DSH final rule and to provide 

additional clarity on which costs can be 

considered uninsured costs for purposes 

of determining the hospital-specific 

limit. 

B. Legislative History 

Title XIX of the Act authorizes 

Federal grants to States for Medicaid 

programs that provide medical 

assistance to low-income families, the 

elderly, and persons with disabilities. 

Section 1902(a)(13)(A)(iv) of the Act 

requires that States make Medicaid 

payment adjustments for hospitals that 

serve a disproportionate share of lowincome patients with special needs. 

Section 1923 of the Act contains more 

specific requirements related to the DSH 

payments. 

The OBRA 93 was signed into law on 

August 10, 1993. Section 13621 of 

OBRA 93 added section 1923(g) of the 

Act, limiting Medicaid DSH payments 

to a qualifying hospital to the amount of 

eligible uncompensated costs incurred. 

This hospital-specific limit requires that 

Medicaid DSH payments to a qualifying 

hospital not exceed the costs incurred 

by that hospital for providing inpatient 

and outpatient hospital services 

furnished during the year to Medicaid 

patients and individuals who have no 

health insurance or other source of third 

party coverage for the services provided 

during the year, less applicable 

revenues for those services. 

C. Hospital-Specific DSH Limit 

Section 1923(g)(1) of the Act defines 

a hospital-specific limit on Federal 

financial participation (FFP) for DSH 

payments. Each State must develop a 

methodology to compute this hospitalspecific limit for each DSH hospital in 

the State. As defined in section 

1923(g)(1) of the Act, the State’s 

methodology must calculate for each 

hospital, for each fiscal year, the 

difference between the costs incurred by 

that hospital for furnishing inpatient 

hospital and outpatient hospital services 

during the applicable State fiscal year to 

Medicaid individuals and individuals 

who have no health insurance or other 

source of third party coverage for the 


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inpatient hospital and outpatient 

hospital services they receive, less all 

applicable revenues for these hospital 

services. This difference, if any, 

between incurred inpatient hospital and 

outpatient hospital costs and associated 

revenues is considered a hospital’s 

uncompensated care cost (UCC) limit, or 

hospital-specific DSH limit. FFP is not 

available for DSH payments that exceed 

a hospital’s UCC for furnishing inpatient 

hospital and outpatient hospital services 

to Medicaid eligible individuals and 

individuals who have no health 

insurance or other source of third party 

coverage for the services they receive in 

any given State plan rate year. 

To be considered as an inpatient or 

outpatient hospital service for purposes 

of Medicaid DSH, a service must meet 

the Federal and State definitions of an 

inpatient hospital service or outpatient 

hospital service and must be included 

in the State’s definition of an inpatient 

hospital service or outpatient hospital 

service under the approved State plan. 

While States may have some flexibility 

to define the scope of inpatient or 

outpatient hospital services, States must 

use consistent definitions. Hospitals 

may engage in any number of activities, 

or may furnish practitioner, nursing 

facility, or other services to patients that 

are not within the scope of inpatient 

hospital services or outpatient hospital 

services. These services are not 

considered inpatient or outpatient 

hospital services. 

Section 1923(a) and section 1923(c) of 

the Act provide States some latitude in 

determining the level of DSH payment 

under the Medicaid State plan. Section 

1923(g) of the Act simply creates 

hospital-specific limitations on FFP for 

DSH payments to individual hospitals. 

These limits are comprised of specific 

net costs. The first component of the net 

costs is described in statute as 

attributable to hospital costs incurred by 

individuals eligible for medical 

assistance under the State plan and net 

of payments made under title XIX of the 

Act. We currently implement this 

provision by allowing all medically 

necessary inpatient and outpatient costs 

associated with Medicaid eligible 

individuals authorized under section 

1905 of the Act and covered under the 

approved Medicaid State plan 

regardless of whether those beneficiaries 

or hospitals were entitled to payment as 

part of the Medicaid benefit package 

under the State plan. To arrive at 

uncompensated Medicaid costs, all 

Medicaid payments received from the 

State for Medicaid hospital services, 

including supplemental payments, must 

be netted against those costs. 

The second type of costs allowable as 

part of the Medicaid DSH limit are 

described in statute as attributable to 

hospital costs incurred by individuals 

who have no health insurance or other 

source of third party coverage for 

services provided during the year. The 

statutory language uses the term 

‘‘services provided’’ when discussing 

allowable uninsured costs. The use of 

this term provides a clear link to third 

party coverage of specific services 

provided by the hospital. 

D. CMS Guidance Regarding the 

Definition of Uninsured 

Following the passage of the OBRA 

93, we did not issue a rule 

implementing section 1923(g) of the 

Act. However, we did receive questions 

concerning the implementation of 

section 1923(g) of the Act from States, 

including many regarding the criteria 

used to determine which of a hospital’s 

patients ‘‘have no health insurance or 

other source of third party coverage for 

the services provided.’’ In response to 

these questions, we issued a letter on 

August 17, 1994 to all SMD’s 

delineating the Agency’s interpretation 

of statutory provisions of section 13621 

of OBRA 93. 

The SMD letter specifically 

established our interpretation of the 

term ‘‘uninsured’’ patients for purposes 

of the calculating OBRA 93 DSH limits. 

We developed a definition of 

‘‘individuals who have no health 

insurance or other source of third party 

coverage for the services provided’’ 

based on the statutory language linking 

coverage and the provision of services 

throughout the year in which the service 

was provided. The August 17, 1994 

SMD letter articulated this policy 

interpretation by stating that individuals 

who have no health insurance (or other 

source of third party coverage) for the 

services provided during the year 

include those ‘‘who do not possess 

health insurance which would apply to 

the service for which the individual 

sought treatment.’’ We affirmed this 

guidance in a January 10, 1995, letter to 

the Chair of the SMD’s Association. This 

interpretation remained in effect until 

the January 19, 2009 effective date of the 

2008 DSH final rule implementing the 

DSH auditing and reporting 

requirements. 

E. MMA and the 2008 DSH Final Rule 

Based on several U.S. Department of 

Health & Human Services Office of 

Inspector General (OIG) audits and U.S. 

Government Accountability Office 

(GAO) reports detailing violations in the 

DSH program, there was concern that 

CMS did not have the authority to 

appropriately monitor State compliance 

with section 1923 of the Act. In 

particular, concerns were expressed that 

States were not enforcing the OBRA 93 

limits within their DSH programs. 

Section 1001(d) of MMA added new 

audit and reporting requirements. 

Specifically, section 1923(j)(1) of the 

Act requires States to submit an annual 

report and audit to ensure the 

appropriate compliance with DSH limits 

imposed at section 1923(g) of the Act. 

In promulgating the 2008 DSH final 

rule, we defined the phrase ‘‘who have 

health insurance (or other third party 

coverage)’’ by referencing individuals 

who have a legally liable third party 

payer for the services provided by a 

hospital and by referencing regulations 

that define creditable coverage under 45 

CFR Part 144 and 45 CFR Part 146. The 

regulatory definition of creditable 

coverage at 45 CFR Part 144 and 45 CFR 

Part 146 was developed to implement, 

in part, the Health Insurance Portability 

and Accountability Act (HIPAA) of 1996 

and was designed to offer protection to 

the broadest number of individuals. 

This definition of creditable coverage, 

which did not exist in 1994 when we 

issued initial guidance on the Medicaid 

DSH definition of uninsured, is applied 

on an individual-specific basis (that is, 

does an individual have coverage) rather 

than on the existing service-specific 

interpretation (that is, does an 

individual have coverage for a service). 

Creditable coverage includes coverage of 

an individual under a group health 

plan, Medicare, Medicaid, a medical 

care program of the Indian Health 

Service (IHS) or tribal organization, and 

other examples as outlined in the rules 

relating to creditable coverage at 45 CFR 

146.113. 

The new interpretation of the 

definition of ‘‘individuals who have no 

health insurance or other source of third 

party coverage for the services 

provided’’ articulated in the 2008 DSH 

final rule, which relied on the existing 

regulatory definition of creditable 

coverage, superseded all prior 

interpretive issuances. 

F. Concerns Raised 

Numerous States, members of the 

Congress, hospitals and related 

stakeholders expressed concerns 

following the publication of the 2008 

DSH final rule that the rule’s definition 

of uninsured individuals would have a 

significant negative financial impact on 

States and hospitals. As States and 

hospitals began to complete the initial 

audits as defined in the final rule, they 

identified specific issues relating to the 

regulatory definition of uninsured 

adopted under the rule. Specific 


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consequences regarding the practical 

application of the creditable coverage 

definition were identified and some 

stakeholders questioned the impact of 

the new definition of uninsured as it 

relates to individuals who had IHS and 

tribal health coverage for services and 

individuals who had exhausted their 

insurance benefits or who had reached 

their lifetime insurance limits. 

Uncompensated costs to hospitals for 

these services were no longer eligible 

DSH costs under the creditable coverage 

definition. 

The issue involving IHS and tribal 

programs arises because IHS coverage is 

within the scope of ‘‘creditable 

coverage’’ under the regulations at 45 

CFR Part 144 and 45 CFR Part 146, and 

thus individuals with such coverage 

could not be considered ‘‘uninsured’’ 

even if the IHS or tribal health program 

did not provide the service or authorize 

coverage through the contract health 

service program (through a purchase 

order or equivalent document). In that 

circumstance, the hospital is not able to 

count, as costs eligible for Medicaid 

DSH payments, costs of uncompensated 

care associated with the provision of 

inpatient or outpatient hospital services 

to American Indians/Alaska Natives 

with access to IHS and tribal coverage 

(but no other source of third party 

payment). 

The IHS and Tribal health programs 

provide two primary types of services, 

direct health care services and contract 

health services. Direct health care 

services are oftentimes limited to 

primary care services and are limited to 

eligible beneficiaries identified at 42 

CFR 136.12. Many of the beneficiaries 

that receive direct care services have no 

other source of third party coverage. 

Contract health services (CHS) are 

services provided outside of an IHS or 

Tribal facility to an eligible beneficiary 

(§ 136.23). CHS appropriations are 

discretionary; therefore, coverage is 

determined based on a priority system. 

Coverage for CHS services is specifically 

authorized on a case-by-case basis 

through a CHS purchase order or 

equivalent document. IHS and tribal 

health programs can also issue referrals 

that do not authorize CHS coverage of 

a service. 

For Medicaid DSH purposes, we 

propose that American Indians/Alaska 

Natives are considered to have third 

party coverage for inpatient and 

outpatient hospital services received 

directly from IHS or tribal health 

programs (direct health care services) 

and for such services specifically 

authorized under CHS. The servicespecific determination of third party 

coverage status of American Indian/ 

Alaska Natives for services not 

authorized to be within the scope of 

coverage by CHS should be performed 

in the same manner as for services that 

are outside the scope of coverage from 

any other insurer or third party payer. 

The second issue concerns the 

interaction between the creditable 

coverage definition in current regulation 

and hospital services provided to 

individuals with creditable coverage but 

without coverage for specific hospital 

services received. By utilizing the 

existing regulatory creditable coverage 

definition an individual is considered 

either to have coverage, as broadly 

described in regulation, or not to have 

coverage during the period a hospital 

service was provided. If a service was 

provided to an individual with 

creditable coverage at the time of the 

provision of such service, that service 

cannot be considered provided to an 

uninsured individual. In practical 

application, this definition appeared to 

exclude from uncompensated care for 

DSH purposes the costs of many 

services that were provided to 

individuals with creditable coverage but 

were outside the scope of such coverage. 

Costs affected include those associated 

with individuals who have exhausted 

their insurance benefits or who have 

reached lifetime insurance limits for 

certain services, as well as services not 

included in a benefit package as 

covered, but which are identified in 

section 1905 of the Act and covered 

under the approved Medicaid State 

plan. 

For purposes of defining 

uncompensated care costs for the 

Medicaid hospital-specific DSH limit, 

we believe that uncompensated costs of 

providing inpatient and outpatient 

hospital services to individuals who do 

not have coverage for those specific 

services should be considered costs for 

which there is no liable third party 

payer and thus eligible costs for 

Medicaid DSH payments. An example 

of such a situation would involve an 

individual with basic hospitalization 

coverage that has an exclusion for 

transplant services. Should the 

individual need the excluded service, 

the cost of that service could be 

included in the Medicaid hospitalspecific DSH limit. An additional 

example involves an individual with 

excluded benefits or services, or 

exhaustion of coverage or benefits for a 

limited covered service, due to a preexisting condition (for example, cancer 

or diabetes). Though both examples 

involve medically necessary services for 

which an individual is uninsured, 

associated costs would have been 

prohibited from inclusion in calculating 

the hospital-specific DSH limit based on 

the 2008 DSH final rule and related 

guidance. 

If an individual is Medicaid eligible, 

all costs incurred in providing inpatient 

and outpatient hospital services 

identified in section 1905 of the Act and 

covered under the approved Medicaid 

State plan should be included in 

calculating Medicaid hospital costs, not 

uninsured hospital costs, for purposes 

of calculating the hospital-specific DSH 

limit, regardless of whether the 

individual’s benefits have been 

exhausted or whether coverage limits 

have been reached. 

II. Provisions of the Proposed Rule 

A. Definition of Uninsured Under 

Section 1923(g) of the Act 

We are proposing to add a new 

§ 447.295 Hospital-Specific 

Disproportionate Share Hospital 

Payment Limit—Definition of 

Individuals Who Have no Health 

Insurance (or Other Source of Third 

Party Coverage) for the Services 

Furnished During the Year and the 

Determination of an Individual’s Third 

Party Coverage Status. Specifically, 

§ 447.295(a) would describe the scope of 

the new regulatory section and its focus 

on defining the term ‘‘individuals who 

have no health insurance (or other 

source of third party coverage) for the 

services furnished during the year.’’ 

We are proposing at § 447.295(b) to 

define through regulation ‘‘individuals 

who have no health insurance (or other 

source of third party coverage) for the 

services furnished during the year’’ for 

purposes of calculating the hospitalspecific DSH limit as described in 

section 1923(g) of the Act effective for 

2011. Proposed § 447.295(b) would also 

provide specific definitions for the 

terms ‘‘service-specific coverage 

determination’’ and ‘‘lifetime or annual 

health insurance coverage limit.’’ 

In this proposed rule, we are 

proposing to define ‘‘individuals who 

have no health insurance (or other 

source of third party coverage) for the 

services furnished during the year’’ for 

purposes of calculating the hospitalspecific DSH limit on a service-specific 

basis rather than on an individual basis, 

and thus would not make reference to 

the regulatory definition of creditable 

coverage. The proposed definition 

would instead require a determination 

of whether, for each specific service 

furnished during the year, the 

individual has third party coverage. We 

are also proposing a definition of ‘‘no 

source of third party coverage for a 

specific inpatient or outpatient service’’ 

to mean that the service is not within a 


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2504 Federal Register / Vol. 77, No. 11 / Wednesday, January 18, 2012 / Proposed Rules 

covered benefit package under a group 

health plan or health insurance 

coverage, and is not covered by another 

legally liable third party. We would 

specify that services beyond annual or 

lifetime limits on insurance coverage 

would not be considered to be within a 

covered benefit package. 

Because funding limitations for 

services furnished through the IHS or 

tribal health programs are similar in 

nature to benefit limitations, we would 

consider them as such for this purpose. 

We propose to consider services 

furnished to American Indians/Alaska 

Natives to be covered by IHS or tribal 

health programs only to the extent that 

the individuals receive services directly 

from IHS or tribal health programs 

(direct health care services) or when IHS 

or a tribal health program has 

authorized coverage through the 

contract health service program 

(through a purchase order or equivalent 

document). 

We are not including in this proposed 

rule a single test for how a ‘‘service’’ is 

defined for these purposes because of 

the variance in the types of services that 

are at issue. We are, however, proposing 

to include in § 447.295(c)(1) 

‘‘Determination of an Individual’s Third 

Party Coverage Status,’’ the principle 

that a ‘‘service’’ should include the 

same elements that would be included 

for the same or similar services under 

Medicaid generally. The intent is that 

the hospital will generally determine 

that an individual is either insured or 

not insured for a given hospital stay, 

and will not separate out component 

parts of the hospital stay based on the 

level of payment received. 

Thus, we are proposing at § 447.295(c) 

to specify that the determination of an 

individual’s third party coverage status 

is a service-specific measure for 

purposes of calculating the hospitalspecific DSH limit, based on the 

coverage and benefit exclusions of 

health insurers and the availability of 

coverage for that service from other 

third party carriers. The determination 

of an individual’s status as an 

‘‘individual who has no health 

insurance (or other source of third party 

coverage)’’ for purposes of calculating 

the Medicaid hospital-specific DSH 

limit would be based on coverage for the 

particular inpatient or outpatient 

hospital service provided to an 

individual under the terms of an 

insurance or other coverage plan, or 

actual coverage for the service through 

such a plan or another third party. The 

determination is not based on payment. 

B. Lifetime Limits, Limited Coverage 

Plans, and Exhausted Benefits 

This proposed rule would also clarify 

the definition of ‘‘individuals who have 

no health insurance (or other source of 

third party coverage) for the services 

furnished during the year’’ so that 

inpatient and outpatient hospital costs 

associated with individuals who have 

creditable coverage but have reached 

annual or lifetime insurance limits or 

have otherwise exhausted covered 

benefits can be included in calculating 

the hospital-specific DSH limit. 

Additionally, inpatient and outpatient 

hospital costs of services provided to 

individuals whose coverage specifically 

excludes the hospital service provided 

can be included in calculating the 

hospital-specific DSH limit. This 

interpretation and definition of 

‘‘uninsured’’ affords States and 

hospitals maximum flexibility permitted 

by statute in calculating the hospitalspecific DSH limit. This proposed 

clarification would be effective for DSH 

audits and reports submitted following 

the effective date of the rule, thus 

avoiding any unintended, and 

potentially significant, financial impact 

resulting from the 2008 DSH final rule. 

While this proposed rule would 

provide some relief for certain costs by 

allowing their inclusion in the 

calculation of the hospital-specific DSH 

limit, we also believe that it is equally 

important to address those costs that are 

currently prohibited from inclusion and 

for which this rule provides no change 

in treatment under title XIX of the Act. 

For the reasons described below, we 

continue to believe that currently 

prohibited costs are not appropriate for 

purposes of Medicaid DSH and are not 

consistent with statutory language with 

respect to the hospital-specific DSH 

limit. 

C. Bad Debt and Unpaid Coinsurance 

and Deductibles 

We are proposing to clarify the 

definition of ‘‘individuals who have no 

health insurance (or other source of 

third party coverage) for the services 

furnished during the year’’ such that 

costs associated with bad debt, 

including any unpaid coinsurance and 

deductibles, and payer discounts cannot 

be included in calculating the hospitalspecific DSH limit for individuals with 

a source of third party coverage. In these 

instances, the cost of the service in 

question was provided to an individual 

with a source of third party coverage for 

the service, and the amount due 

represents uncollected revenues not 

uninsured costs. This clarification 

ensures that this proposed rule is 

consistent with existing DSH statute, 

regulations, and longstanding CMS 

policy. 

Section 1923(g) of the Act requires 

that costs associated with individuals 

with a source of third party coverage be 

excluded from the calculation of the 

hospital-specific DSH limit. The current 

DSH regulations, as modified by the 

2008 DSH final rule, also expressly 

prohibit the inclusion of costs 

associated with unpaid coinsurance, 

deductibles, bad debt, and payer 

discounts for individuals with a source 

of third party coverage. This proposed 

rule would reiterate that the allowability 

of these costs has not changed under the 

proposed definition. 

D. Prisoners 

This proposed rule would clarify that 

the proposed definition of ‘‘individuals 

who have no health insurance (or other 

source of third party coverage) for the 

services furnished during the year’’ 

maintains the current position that 

individuals who are inmates in a public 

institution or are otherwise 

involuntarily held in secure custody as 

a result of criminal charges are 

considered to have a source of third 

party coverage. These individuals are in 

secure custody pursuant to the authority 

held by Federal, State or local law 

enforcement agencies, and those 

agencies are legally liable for the cost of 

their care (even if that agency has 

contracted with private parties for that 

secure custody). Moreover, the 

exclusion of such costs is consistent 

with the exclusion of such costs from 

the definition of ‘‘Medical assistance’’ in 

the statutory text at paragraph (A) 

following section 1905(a)(28) of the Act. 

Accordingly, the costs associated with 

providing hospital services to these 

individuals cannot be included in 

calculating the hospital-specific DSH 

limit. 

The proposed definition of 

‘‘individuals who have no health 

insurance (or other source of third party 

coverage) for the services furnished 

during the year’’ as it relates to prisoner 

inmate care would be consistent with 

the statute, regulations, and 

longstanding CMS policy regarding the 

treatment of inmates of public 

institutions for purposes of Medicaid 

eligibility and Medicaid DSH. A policy 

clarification regarding prisoner inmate 

care and DSH was provided in a SMD 

letter dated August 16, 2002. This 

proposed rule would serve to define 

more definitively who is considered a 

prisoner inmate for purposes of DSH. 

The policy that inmates have third 

party coverage, based on the assumption 

that their care is the responsibility of the 


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Federal Register / Vol. 77, No. 11 / Wednesday, January 18, 2012 / Proposed Rules 2505 

responsible law enforcement or 

corrections agency, is consistent with 

the statutory framework that focuses on 

the distinction between an ‘‘inmate’’ 

and a ‘‘patient.’’ While the statutory 

provision at section 1905(a)(28)(A) of 

the Act generally excludes FFP for all 

care furnished to inmates of public 

institutions, there is a statutory 

exception for patients in a medical 

institution. We interpret this exception 

to be limited to when the individual is 

no longer in secure custody by law 

enforcement or a corrections agency and 

thus can be admitted as a ‘‘patient’’ 

rather than as an ‘‘inmate’’ to a hospital, 

nursing facility, juvenile psychiatric 

facility, or intermediate care facility. 

This is consistent with the fact that 

hospitals, or other institutional facilities 

cannot, within the scope of their 

conditions of participation, subject 

patients to restraints or seclusion. Thus 

individuals held in secure custody 

would be outside the function of the 

institution as a Medicaid-participating 

hospital and could not be treated as 

‘‘patients.’’ Accordingly, FFP is 

available for Medicaid covered hospital 

services (or other covered institutional 

care) for Medicaid-eligible individuals 

referred from or by law enforcement or 

corrections authorities, or their 

contractors only to the extent that they 

have been released from secure custody, 

and all other requirements under the 

State plan are met. Applying this 

interpretation of the statutory exclusion 

and exception to the hospital-specific 

limits for DSH, costs and revenues 

associated with hospital services for 

individuals (whether Medicaid eligible 

or uninsured) referred from or by law 

enforcement or corrections authorities, 

or their contractors would be included 

in calculating the limit only to the 

extent that the individual has been 

released from secure custody by law 

enforcement or a corrections agency. 

E. Clarification of the Application of the 

Definition of ‘‘Individuals Who Have No 

Health Insurance (or Other Source of 

Third Party Coverage) for the Services 

Furnished During the Year’’ for 

Purposes of Calculating HospitalSpecific DSH Limits 

We are proposing at § 447.295(d) to 

specify that costs considered for 

purposes of calculating the hospitalspecific limit are limited to net costs 

incurred for individuals who have no 

health insurance or source of third party 

coverage for the services furnished 

during the year. This proposed section 

would ensure that the regulatory 

definition of ‘‘individuals who have no 

health insurance (or other source of 

third party coverage) for the services 

furnished during the year’’ is 

appropriately applied for purposes of 

calculating hospital-specific DSH limits. 

IV. Collection of Information 

Requirements 

This document does not impose 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. Chapter 35). 

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 Statement 

A. Overall Impact 

We have examined the impact of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

(RFA) (September 19, 1980, Pub. L. 96– 

354), section 1102(b) of the Social 

Security Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 

(March 22, 1995; Pub. L. 104–4), 

Executive Order 13132 on Federalism 

(August 4, 1999) and the Congressional 

Review Act (5 U.S.C. 804(2). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). 

This rule does not reach the economic 

threshold and thus is not considered a 

major rule. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $7.0 million to $34.5 million in any 

1 year. Individuals and States are not 

included in the definition of a small 

entity. We are not preparing an analysis 

for the RFA because we have 

determined, and the Secretary certifies, 

that this proposed rule would not have 

a significant economic impact on a 

substantial number of small entities. 

In addition, section 1102(b) of the 

Social Security 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 for Medicare payment 

regulations and has fewer than 100 

beds. We are not preparing an analysis 

for section 1102(b) of the Act because 

we have determined, and the Secretary 

certifies, that this proposed rule would 

not have a significant impact on the 

operations of a substantial number of 

small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

In 2011, that threshold is approximately 

$136 million. This rule would have no 

consequential effect on State, local, or 

tribal governments or on the private 

sector. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates 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. 

Since this regulation does not impose 

any costs on State or local governments, 

the requirements of Executive Order 

13132 are not applicable. 

To the extent that this proposed rule 

will have tribal implications, and in 

accordance with E.O. 13175 and the 

HHS Tribal Consultation Policy 

(December 2010), CMS will consult with 

Tribal officials prior to the formal 

promulgation of this regulation. 

B. Anticipated Effects 

1. Effects on State Medicaid Programs 

CMS does not anticipate that the final 

rule will have significant financial 

effects on State Medicaid Programs. 


srobinson on DSK4SPTVN1PROD with PROPOSALS
2506 Federal Register / Vol. 77, No. 11 / Wednesday, January 18, 2012 / Proposed Rules 

Federal share DSH allotments, which 

are published by CMS in an annual 

Federal Register notice, limit the 

amount of Federal financial 

participation (FFP) that can be paid 

annually to a State for aggregate DSH 

payments made to hospitals. This 

proposed rule does not modify the DSH 

allotment amounts and will have no 

effect on a State’s ability to claim FFP 

for DSH payments made up to the 

published DSH allotment amounts. 

This proposed rule, however, may 

affect the calculation of the hospitalspecific DSH limit established at section 

1923(g) of the Act. This hospital-specific 

limit requires that Medicaid DSH 

payments to a qualifying hospital not 

exceed the costs incurred by that 

hospital for providing inpatient and 

outpatient hospital services furnished 

during the year to Medicaid patients 

and individuals who have no health 

insurance or other source of third party 

coverage for the services provided 

during the year, less applicable 

revenues for those services. This 

proposed rule defines ‘‘individuals who 

have no health insurance (or other 

source of third party coverage) for the 

services furnished during the year’’ for 

purposes of calculating the hospitalspecific DSH limit effective for 2011. 

This proposed rule also provides 

additional clarification to States and 

hospitals regarding costs eligible for 

inclusion in the calculation of the 

hospital-specific DSH limit. The 

provisions of this rule may have an 

effect on the calculation of the hospital’s 

specific DSH limit amount for some 

hospitals depending upon the method 

utilized by the hospital or State in 

calculating the limit prior to the 

effective date of the proposed rule. 

States retain considerable flexibility 

in setting DSH State plan payment 

methodologies to the extent that these 

methodologies are consistent with 

section 1923(c) of the Act and all other 

applicable statute and regulations. Some 

States may determine that implementing 

a retrospective DSH payment 

methodology or a DSH reconciliation in 

their State plan is a reasonable way to 

manage its DSH allotment and ensure 

that payments made in excess of 

hospital-specific DSH limits are 

redistributed to hospitals that have not 

exceeded their limits. Although the 

State may have to modify definitions 

provided to hospitals in determining the 

hospital-specific DSH limit, the 

potential effect on the calculation of 

these limits would not result in an 

increase or decrease in the amount of 

FFP available to States for aggregate 

DSH payments made to hospitals. 

2. Effects on Providers 

This proposed rule defines 

‘‘individuals who have no health 

insurance (or other source of third party 

coverage) for the services furnished 

during the year’’ for purposes of 

calculating the hospital-specific DSH 

limit effective for 2011. This proposed 

rule also provides additional 

clarification to States and hospitals 

regarding costs eligible for inclusion in 

the calculation of the hospital-specific 

DSH limit. This proposed rule may 

affect the calculation of the hospitalspecific DSH limit established at section 

1923(g) of the Act. Hospitals, if affected 

by the proposed rule, should have 

higher DSH eligible costs. This increase 

in eligible costs would result in an 

increase in the hospital-specific DSH 

limit of affected hospitals. In particular, 

DSH hospitals that provide a high 

volume of hospital services to American 

Indians/Alaska Natives where CHS 

payment is not authorized, individuals 

with creditable coverage but without 

coverage for the hospital services 

received as it relates to DSH costs, or 

individuals with limited coverage plans, 

lifetime limits, or exhausted benefits, 

may recognize an increase in their 

hospital-specific DSH limit. States are 

not required to increase DSH payments 

to affected hospitals based on increases 

in hospital-specific DSH limits. The 

increased DSH limits, however, may 

mitigate the potential return of DSH 

payments to hospitals that would have 

been considered to exceed the hospitalspecific DSH limit absent the provisions 

of this proposed rule. 

C. Alternatives Considered 

In developing this rule the following 

alternatives were considered. We 

considered not revising the definition of 

uninsured for purposes of determining 

the Medicaid DSH hospital-specific 

limit. However, we believe the 

individual-specific application of the 

definition of ‘‘uninsured’’ under the 

current rule effectively precludes 

recognition of uncompensated care costs 

for many services for which an 

individual is uninsured and has no 

third party coverage. Costs affected also 

include those associated with 

individuals who have reached annual or 

lifetime insurance limits for certain 

services, have limited coverage through 

IHS or tribal health programs, or have 

inadequate insurance benefit packages. 

An alternative approach that we 

considered when developing this rule 

was to broaden even further the 

definition of uninsured to take into 

account costs associated with bad debt 

and prisoners. However, we believe that 

such an approach would not be 

consistent with the intent of both the 

hospital-specific limit and with the 

general exclusion of payment for 

services furnished to prisoners. We 

welcome comments not only on the 

provisions of this rule, in whole or in 

part, but also on alternatives that may 

more constructively address the 

underlying problems and their likely 

impacts on States, hospitals, and 

individuals receiving services in 

disproportionate share hospitals. 

D. Conclusion 

For the reasons discussed above, we 

are not preparing analysis for either the 

RFA or section 1102(b) of the Act 

because we have determined that this 

regulation would not have a direct 

significant economic impact on a 

substantial number of small entities or 

a direct significant impact on the 

operations of a substantial number of 

small rural hospitals. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects in 42 CFR Part 447 

Accounting, Administrative practice 

and procedure, Drugs, Grant programshealth, Health facilities, Health 

professions, Medicaid, Reporting and 

recordkeeping requirements, Rural 

areas. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR part 447 as set forth below: 

Title 42—Public Health 

PART 447—PAYMENTS FOR 

SERVICES 

1. The authority citation for part 447 

continues as follows: 

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302). 

Subpart E—Payment Adjustments for 

Hospitals That Serve a 

Disproportionate Number of LowIncome Patients 

2. Add § 447.295 to read as follows: 

§ 447.295 Hospital-Specific 

Disproportionate Share Hospital Payment 

Limit: Determination of Individuals without 

Health Insurance or Other Third Party 

Coverage. 

(a) Basis and purpose. This section 

sets forth the methodology for 

determining the costs for individuals 

who have no health insurance or other 

source of third party coverage for 

services furnished during the year for 

purposes of calculating the hospitalVerDate Mar<15>2010 17:14 Jan 17, 2012 Jkt 226001 PO 00000 Frm 00026 Fmt 4702 Sfmt 4702 E:\FR\FM\18JAP1.SGM 18JAP1

srobinson on DSK4SPTVN1PROD with PROPOSALS
Federal Register / Vol. 77, No. 11 / Wednesday, January 18, 2012 / Proposed Rules 2507 

specific disproportionate share hospital 

payment limit under section 1923(g) of 

the Act. 

(b) Definitions. 

Individuals who have no health 

insurance (or other source of third party 

coverage) for the services furnished 

during the year means individuals who 

have no source of third party coverage 

for the specific inpatient hospital or 

outpatient hospital service furnished by 

the hospital. 

Lifetime or annual health insurance 

coverage limit means an annual or 

lifetime limit, imposed by a third party 

payer, that establishes a maximum 

dollar value, or maximum number of 

specific services, on a lifetime or annual 

basis, for benefits received by an 

individual. 

No source of third party coverage for 

a specific inpatient hospital or 

outpatient hospital service means that 

the service is not included in an 

individual’s health benefits coverage 

through a group health plan or health 

insurer, and for which there is no other 

legally liable third party. When a 

lifetime or annual coverage limit is 

imposed by a third party payer, specific 

services beyond the limit would not be 

within the individual’s health benefit 

package from that third party payer. For 

American Indians/Alaska Natives, IHS 

and tribal coverage is only considered 

third party coverage when services are 

received directly from IHS or tribal 

health programs (direct health care 

services) or when IHS or a tribal health 

program has authorized coverage 

through the contract health service 

program (through a purchase order or 

equivalent document). Administrative 

denials of payment, or requirements for 

satisfaction of deductible, copayment or 

coinsurance liability, do not affect the 

determination that a specific service is 

included in the health benefits coverage. 

(c) Determination of an individual’s 

third party coverage status. Individuals 

who have no source of third party 

coverage for a specific inpatient hospital 

or outpatient hospital service must be 

considered, for purposes of that service, 

to be uninsured. This determination is 

not dependent on the receipt of 

payment by the hospital from the third 

party. 

(1) The determination of an 

individual’s status as having a source of 

third party coverage must be a servicespecific coverage determination. The 

service-specific coverage determination 

can occur only once per individual per 

service provided and applies to the 

entire service, including all elements as 

that service, or similar services, would 

be defined in Medicaid. 

(2) Individuals who are inmates in a 

public institution or are otherwise 

involuntarily in secure custody as a 

result of criminal charges are considered 

to have a source of third party coverage. 

(d) Hospital-specific DSH limit 

calculation. Only costs incurred in 

providing inpatient hospital and 

outpatient hospital services to Medicaid 

individuals, and revenues received with 

respect to those services, and costs 

incurred in providing inpatient hospital 

and outpatient hospital services, and 

revenues received with respect to those 

services, for which a determination has 

been made in accordance with 

paragraph (c) of this section that the 

services were furnished to individuals 

who have no source of third party 

coverage for the specific inpatient 

hospital or outpatient hospital service 

are included when calculating the costs 

and revenues for Medicaid individuals 

and individuals who have no health 

insurance or other source of third party 

coverage for purposes of section 

1923(g)(1) of the Act. 

(Catalog of Federal Domestic Assistance 

Program No. 93.778, Medical Assistance 

Program). 

Dated: March 30, 2011. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: October 31, 2011. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2012–734 Filed 1–13–12; 11:15 am] 

BILLING CODE 4120–01–P 


srobinson on DSK4SPTVN1PROD with PROPOSALS