[Federal Register Volume 69, Number 237 (Friday, December 10, 2004)]
[Notices]
[Pages 71817-71818]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-27144]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services


Notice of Hearing: Reconsideration of Disapproval of Oklahoma 
State Plan Amendment (SPA) 03-26

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Notice of hearing.

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SUMMARY: This notice announces an administrative hearing on January 14, 
2005, at 10 a.m., 1301 Young Street, Room 1113, Dallas, Texas 75202, to 
reconsider our decision to disapprove Oklahoma's Medicaid State Plan 
Amendment (SPA) 03-26.

DATES: Requests to participate in the hearing as a party must be 
received by the presiding officer by December 27, 2004.

FOR FURTHER INFORMATION CONTACT: Kathleen Scully-Hayes; Presiding 
Officer, CMS, Lord Baltimore Drive; Mail Stop LB-23-20, Baltimore, 
Maryland 21244, Telephone: 410-786-2055.

SUPPLEMENTARY INFORMATION: This notice announces an administrative 
hearing to reconsider CMS' decision to disapprove Oklahoma's Medicaid 
State Plan Amendment (SPA) 03-26.
    Oklahoma submitted SPA 03-26 on January 2, 2004. This SPA would 
modify language regarding the rate-setting process for inpatient and 
outpatient hospital services. Specifically, this SPA would provide for 
supplemental payments to hospitals located in hospital districts 
pursuant to the Oklahoma Hospitals Public Trust and Authority Act.
    The Centers for Medicare & Medicaid Services (CMS) was unable to 
approve SPA 03-26 because the SPA did not comply with sections 1902(a), 
1902 (a)(19), 1903(w), and 1905(b) of the Social Security Act (the 
Act).
    The payments proposed under SPA 03-26 would be funded through 
transfers from the Tulsa Hospital Public Trust Authority (THPTA) that 
CMS has determined are not consistent with the provisions of sections 
1903(w)(1) and 1902(a) of the Act. Although the State has indicated 
that State law recognizes any such entity as a ``government entity * * 
* with powers of government,'' State law specifically withholds the 
governmental powers that are characteristic of a unit of government. 
THPTA is an association of hospitals (formed by the action of hospitals 
and with a board controlled by hospitals) that has no powers of 
taxation, or police or business regulation, and is not a sub-unit of 
the State government or any other local government that exercises such 
powers. While it has the power to impose assessments on member 
hospitals, the State has indicated that Oklahoma law specifically 
indicates that this power is not taxation. THPTA more closely resembles 
a private association that collects dues from its members. As a result, 
CMS has concluded that THPTA is not within the scope of a ``unit of 
government,'' and its assessments are not within the scope of ``state 
or local taxes'' as those terms are used under section 1903(w)(6) of 
the Act. Transfers of funds made by THPTA would thus not qualify for 
protected status under section 1903(w)(6)of the Act. Absent protected 
status, THPTA is within the definition of a provider-related entity 
under section 1903(w)(7) of the Act. As such, the transfers are subject 
to the provider-related donation requirements in section 1903(w)(l) of 
the Act and the implementing regulations in 42 CFR Part 433. Under 
those provisions, because payment of supplemental payments to member 
hospitals (the provider class) is contingent upon the receipt of 
donations from a provider-related entity, there is a hold harmless 
arrangement and the donation is not ``bona fide,'' as set forth in 42 
CFR 433.54. Under section 1903(w)(l) of the Act, a donation that is not 
bona fide cannot be recognized as the non-Federal share of Medicaid 
expenditures that is required under section 1902(a) of the Act.
    Nor is SPA 03-26 consistent with the requirement of section 
1902(a)(19) of the Act that care and services will be provided 
consistent with ``simplicity of administration and the best interests 
of the recipients.'' The best interest of recipients is not served by a 
payment structure that is designed primarily to divert Medicaid 
payments from the providers to the State, and to shift financial 
burdens from the State to the Federal Government. The best interest of 
recipients requires that the full amount of Medicaid payments should be 
available to support access to quality care and services.
    Finally, section 1905(b) of the Act specifies how the Federal 
medical assistance percentage (FMAP) will be calculated for states. 
This section clearly illustrates Congress' intentions as to how the 
financial partnership of the Medicaid program should operate. The 
formula in this cite clearly and explicitly states that the FMAP for 
any state shall be 100 per centum less the state percentage, and then 
further

[[Page 71818]]

defines how the state percentage is to be determined. Any creative 
funding mechanism that effectively increases the FMAP would undermine 
the clear direction of Congress. Since Oklahoma proposes to claim 
Federal matching funds for payments that are funded through 
impermissible donations, CMS must conclude that effective FMAP being 
paid to Oklahoma is not consistent with section 1905(b) of the Act, and 
that the funding of payments under Oklahoma's Attachments 4.19-A and 
4.19-B of its Medicaid State plan does not uphold the basic Federal and 
state financial partnership.
    For these reasons, and after consulting with the Secretary as 
required by 42 CFR 430.15, CMS disapproved this SPA.
    Section 1116 of the Act and 42 CFR Part 430 establish Department 
procedures that provide an administrative hearing for reconsideration 
of a disapproval of a State plan or plan amendment. CMS is required to 
publish a copy of the notice to a State Medicaid agency that informs 
the agency of the time and place of the hearing and the issues to be 
considered. If we subsequently notify the agency of additional issues 
that will be considered at the hearing, we will also publish that 
notice.
    Any individual or group that wants to participate in the hearing as 
a party must petition the presiding officer within 15 days after 
publication of this notice, in accordance with the requirements 
contained at 42 CFR 430.76(b)(2). Any interested person or organization 
that wants to participate as amicus curiae must petition the presiding 
officer before the hearing begins in accordance with the requirements 
contained at 42 CFR 430.76(c). If the hearing is later rescheduled, the 
presiding officer will notify all participants.
    The notice to Oklahoma announcing an administrative hearing to 
reconsider the disapproval of its SPA reads as follows:

Mr. Jim Hancock,
Director, Health Policy Division, Oklahoma Health Care Authority, 
4545 North Lincoln Blvd., Suite 124, Oklahoma City, OK 73105.

    Dear Mr. Hancock: I am responding to your request for 
reconsideration of the decision to disapprove Oklahoma State Plan 
Amendment (SPA) 03-26, which was submitted to the Centers for 
Medicare & Medicaid Services (CMS) on January 2, 2004, with a 
proposed effective date of January 19, 2004. This SPA would modify 
language regarding the rate-setting process for inpatient and 
outpatient hospital services. Specifically, this SPA would provide 
for supplemental payments to hospitals located in hospital districts 
pursuant to the Oklahoma Hospitals Public Trust and Authority Act. 
CMS reviewed this proposal, and for the reasons set forth below, was 
unable to approve SPA 03-26.
    The CMS was unable to approve SPA 03-26 because the SPA did not 
comply with sections 1902(a), 1902(a)(19), 1903(w), and 1905(b) of 
the Social Security Act (the Act).
    The payments proposed under SPA 03-26 would be funded through 
transfers from the Tulsa Hospital Public Trust Authority (THPTA) 
that CMS has determined are not consistent with the provisions of 
sections 1903(w)(1) and 1902(a) of the Act. Although the State has 
indicated that State law recognizes any such entity as a 
``government entity * * * with powers of government,'' State law 
specifically withholds the governmental powers that are 
characteristic of a unit of government. THPTA is an association of 
hospitals (formed by the action of hospitals and with a board 
controlled by hospitals) that has no powers of taxation, or police 
or business regulation, and is not a sub-unit of the State 
government or any other local government that exercises such powers. 
While it has the power to impose assessments on member hospitals, 
the State has indicated that Oklahoma law specifically indicates 
that this power is not taxation. THPTA more closely resembles a 
private association that collects dues from its members.
    As a result, CMS has concluded that THPTA is not within the 
scope of a ``unit of government,'' and its assessments are not 
within the scope of ``state or local taxes'' as those terms are used 
under section 1903(w)(6) of the Act. Transfers of funds made by 
THPTA would thus not qualify for protected status under section 
1903(w)(6) of the Act. Absent protected status, THPTA is within the 
definition of a provider-related entity under section 1903(w)(7) of 
the Act. As such, the transfers are subject to the provider-related 
donation requirements in section 1903(w)(l) of the Act and the 
implementing regulations in 42 CFR Part 433.
    Under those provisions, because payment of supplemental payments 
to member hospitals (the provider class) is contingent upon the 
receipt of donations from a provider-related entity, there is a hold 
harmless arrangement and the donation is not ``bona fide,'' as set 
forth in 42 CFR 433.54. Under section 1903(w)(l) of the Act, a 
donation that is not bona fide cannot be recognized as the non-
Federal share of Medicaid expenditures that is required under 
section 1902(a) of the Act.
    Nor is SPA 03-26 consistent with the requirement of section 
1902(a)(19) of the Act that care and services will be provided 
consistent with ``simplicity of administration and the best 
interests of the recipients.'' The best interest of recipients is 
not served by a payment structure that is designed primarily to 
divert Medicaid payments from the providers to the State, and to 
shift financial burdens from the State to the Federal Government. 
The best interest of recipients requires that the full amount of 
Medicaid payments should be available to support access to quality 
care and services.
    Finally, section 1905(b) of the Act specifies how the Federal 
medical assistance percentage (FMAP) will be calculated for states. 
This section clearly illustrates Congress' intentions as to how the 
financial partnership of the Medicaid program should operate. The 
formula in this cite clearly and explicitly states that the FMAP for 
any state shall be 100 per centum less the state percentage, and 
then further defines how the state percentage is to be determined. 
Any creative funding mechanism that effectively increases the FMAP 
would undermine the clear direction of Congress. Since Oklahoma 
proposes to claim Federal matching funds for payments that are 
funded through impermissible donations, CMS must conclude that 
effective FMAP being paid to Oklahoma is not consistent with section 
1905(b) of the Act, and that the funding of payments under 
Oklahoma's Attachments 4.19-A and 4.19-B of its Medicaid State plan 
does not uphold the basic Federal and state financial partnership. 
For these reasons, and after consulting with the Secretary as 
required by 42 CFR 430.15, CMS disapproved this SPA.
    I am scheduling a hearing to be held on January 14, 2005, at 
10:00 a.m., 1301 Young Street, Room 714, Dallas, Texas 75202, to 
reconsider our decision to disapprove Oklahoma SPA 03-26. If this 
date is not acceptable, we would be glad to set another date that is 
mutually agreeable to the parties. The hearing will be governed by 
the procedures prescribed at 42 CFR, part 430.
    I am designating Ms. Kathleen Scully-Hayes as the presiding 
officer. If these arrangements present any problems, please contact 
the presiding officer. In order to facilitate any communication 
which may be necessary between the parties to the hearing, please 
notify the presiding officer to indicate acceptability of the 
hearing date that has been scheduled and provide names of the 
individuals who will represent the State at the hearing. The 
presiding officer may be reached at (410) 786-2055.

     Sincerely,

Mark B. McClellan, M.D., Ph.D.

Section 1116 of the Social Security Act (42 U.S.C. section 1316); 42 
CFR Section 430.18)

(Catalog of Federal Domestic Assistance Program No. 13.714, Medicaid 
Assistance Program)


    Dated: December 3, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
[FR Doc. 04-27144 Filed 12-9-04; 8:45 am]
BILLING CODE 4120-03-P