DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Part 447 [CMS-2367-P] RIN 0938-AR31 Medicaid Program; State Disproportionate Share Hospital Allotment Reductions AGENCY: Centers for Medicare & Me dicaid Services (CMS), HHS. ACTION: Proposed rule. SUMMARY: The statute, as amended by the Affo rdable Care Act, requires aggregate reductions to state Medicaid Disproportionate Share Hospital (DSH) allotments annually from fiscal year (FY) 2014 through FY 2020. This proposed rule delineates a methodology to implement the annual reduc tions for FY 2014 and FY 2015. The rule also proposes to add additional DSH reporting requirements for use in implementing the DSH health reform methodology. DATES : To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on [ OFR--insert date 60 days after the date of filing for public inspection at OFR ]

. ADDRESSES: In commenting, please refer to file code CMS-2367-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. You may submit comments in one of f our 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 addressCMS-2367-P 2

ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2367-P, P.O. Box 8016, Baltimore, MD 21244-8016. Please allow sufficient time for mailed comme nts 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-2367-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. 4. By hand or courier . Alternatively, you may delive r (by hand or courier) your written comments ONLY to the following a ddresses 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 20201CMS-2367-P 3 (Because access to the interior of the Hube rt 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 fo r persons wishing to re tain 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) 786-7195 in advance to schedul e your arrival with one of our staff members. Comments erroneously mailed to the addr esses indicated as appropriate for hand or courier delivery may be delayed an d received after the comment period. For information on viewing public co mments, see the beginning of the "SUPPLEMENTARY INFORMATION" section. FOR FURTHER INFORMATION CONTACT: Rory Howe, (410) 786-4878 and Richard Strauss, (410) 786-2019. 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 persona lly 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 searchCMS-2367-P 4

instructions on that Web site to view public comments. Comments received timely will also be av ailable for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Cent ers 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 appointm ent to view public comments, phone 1-800-743-
3951. I. Executive Summary A. Purpose The statute as amended by the Afford able Care Act sets forth aggregate reductions to state Medicaid disproportio nate share hospital (DSH) allotments annually from fiscal year (FY) 2014 through FY 2020. This proposed rule delineates the DSH Health Reform Methodology (DHRM) to implement the annual reductions for FY 2014 and FY 2015. B. Summary of the Major Provisions The statute as amended by the Affordable Care Act directs the Secretary to implement the annual DSH allotment reductions using a DHRM. This rule proposes to amend part 447 by establishing the DHRM. The DHRM incorporates five factors identified in the statute. C. Costs and Benefits Taking these five factors into account for each state, the proposed DHRM would generate a state-specific DS H allotment reduction amount for FY 2014 and FY 2015. The total of all DSH allotment reduction amounts would equal the aggreg ate annual reduction amounts identified in the statute for FY 2014 and FY 2015. To determine the effectiveCMS-2367-P 5
annual DSH allotment for each state, the stat e-specific annual DSH allotment reduction amount would be applied to the unreduced DSH allotment amount for it s respective state. II. Background A. Introduction As a result of the Affordable Care Act, millions of Americans will have access to health insurance coverage through qualified he alth plans offered through Health Insurance Exchanges (also called marketplaces) or throug h the Medicaid program. This increase in the number of individuals having access to health insurance is expected to significantly reduce levels of uncompensated care provided by hospitals. On the assumption that the number of uni nsured people will fall sharply beginning in 2014, the statute reforms an existing initia tive under the Medicaid program to address the situation of hospitals which serve a dispr oportionate share of lo w income patients and therefore may have uncompensated care cost s. Under sections 1902(a)(13)(A)(iv) and 1923 of the Social Security Ac t (the Act), states are requi red to make payments to qualifying “disproportionate sh are” hospitals (DSH paymen ts). Section 2551 of the Affordable Care Act amended section 1923(f) of the Act, by adding paragraph (7), to provide for aggregate reductions in federal funding under the Medicaid program for such DSH payments for the 50 states and the Distri ct of Columbia. This reform of the DSH payment authority is consistent with th e reduction of uncompensated care costs (particularly those associated with the uninsured ) expected to result from the expansion of coverage under the statute. Section 1923(f)(7)(A)(i) of the Act requi res that the Secretary of Health and Human Services (the Secretary) implement th e aggregate reductions in federal funding for DSH payments through reductions in annual st ate allotments of federal funding for DSH payments (state DSH allotments), and acco mpanying reductions in payments to eachCMS-2367-P 6
state. Since 1998, the amount of federal f unding for DSH payments for each state has been limited to an annual state DSH allotmen t in accordance with se ction 1923(f) of the Act. Section 1923(f)(7) of the Act requi res the use of a DHRM to determine the percentage reduction in each annual state DSH allotment to achieve the required aggregate annual reduction in federal DSH funding. Section 1923(f)(7)(B) establishes the following five factors that must be considered in the development of the DHRM. The methodology must:

● Impose a smaller percentage reduction on low DSH States;

● Impose larger percentage reductions on states that ha ve the lowest percentages of uninsured individuals during the most recent year for whic h such data are available;

● Impose larger percentage reductions on states that do not target their DSH payments on hospitals with high volumes of Medicaid inpatients;

● Impose larger percentage reductions on states that do not target their DSH payments on hospitals with high levels of uncompensated care; and

● Take into account the extent to wh ich the DSH allotment for a state was included in the budget neutrality calculation for a coverage expansion approved under section 1115 as of July 31, 2009. The statutory provision for each factor c ontains explicit principles, described below, to apply when calculating the a nnual DSH allotment reduction amounts for each state through the DHRM. B. Legislative History and Overview The Omnibus Budget Reconciliation Act of 1981(OBRA’81) (Pub. L. 97-35, enacted on August 31, 1981) amended section 1902( a)(13) of the Act to require that Medicaid payment rates for hosp itals “take into a ccount the situation of hospitals that serve a disproportionate share of low-income pa tients with special needs.” Over the moreCMS-2367-P 7 than 30 years since this requirement was fi rst enacted, the Congress has set forth in section 1923 of the Act payment targets and limits to implement the requirement and to ensure greater oversight, transparency, and targeting of funding to hospitals. To qualify as a DSH under section 1923(b) of the Act, a hospital must meet two minimum qualifying criteria in section 1923(d) of the Act. The first criterion is that the hospital has at least two obste tricians who have staff priv ileges at the hos pital and who have agreed to provide obstetri c services to Medicaid individual s. This criterion does not apply to hospitals in which the inpatients ar e predominantly individua ls under 18 years of age or hospitals that do not offer nonemergency obstetric services to the general public as of the date of the enactment of the Act. The second criterion is that the hospital has a Medicaid inpatient utilization ra te of at least 1 percent. Under section 1923(b) of the Act, a hospital meeting the minimum qualifying criteria in section 1923(d) of the Act is deemed as a DSH if the hospital's Medicaid inpatient utilization rate (MIUR) is at least one standard de viation above the mean MIUR in the state, or if the hospital’s low-income utilization rate exceeds 25 percent. States have the option to define disproportionate share hospitals under the state plan using alternative qualifying criteria as long as the qualifying methodology comports with the deeming requirements of section 1923(b) of th e Act. Subject to ce rtain federal payment limits, states are afforded flexibility in se tting DSH state plan pa yment methodologies to the extent that these methodologies are cons istent with section 1923(c) of the Act. Section 1923(f) of the Act limits federa l financial participat ion (FFP) for total statewide DSH payments made to eligible hospitals in each federal FY to the amount specified in an annual DSH allotment for each state. Although there have been some special rules for calculating DSH allotments for particular years or se ts of years, section 1923(f)(3) establishes a general rule that stat e DSH allotments are calculated on an annualCMS-2367-P 8 basis in an amount equal to the DSH allo tment for the preceding FY increased by the percentage change in the consumer price i ndex for all urban consumers for the previous FY. The annual allotment, after the consumer price index increase, is limited to the greater of the DSH allotment for the previous year or twelve percen t of the total amount of Medicaid expenditures under the state plan during the FY. Allotment amounts were originally established in the Medicaid Vol untary Contribution and Provider Specific Tax Amendments of 1991 based on each state’s historical DSH spending. Section 1923(g) of the Act also lim its FFP for DSH payments by imposing a hospital-specific limit on DSH payments. FFP is not available for DSH payments that exceed the hospital’s uncompensated cost of providing inpatient hospital and outpatient hospital services to Medicaid patients and the uninsured, minus payments received by the hospital by or on the beha lf of those patients. The statute, as amended by the Affordab le Care Act, requires annual aggregate reductions in federal DSH funding from FY 2014 through FY 2020. The aggregate annual reduction amounts are:

● $500,000,000 for FY 2014;

● $600,000,000 for FY 2015;

● $600,000,000 for FY 2016;

● $1,800,000,000 for FY 2017;

● $5,000,000,000 for FY 2018;

● $5,600,000,000 for FY 2019; and

● $4,000,000,000 for FY 2020. To implement these annual reductions, the statute requires that the Secretary reduce annual state DSH allotments, and paym ents to states, based on a DHRM specified in section 1923(f)(7)(B ) of the Act. The proposed DHR M relies on the five statutorilyCMS-2367-P 9

identified factors collectiv ely to determine a state-specific DSH allotment reduction amount to be applied to the allotment that is calculated under sect ion 1923(f) of the Act prior to the reductions under sec tion 1923(f)(7) of the Act. C. The Impact of a State’s Decision to Adopt the New Low-Income Adult Coverage Group The statute provides significant federal financial support for states to extend coverage to low-income adults under secti on 1902(a)(10)(A)(i)(VIII) of the Act. For a state that implements the new adult coverage group, the state and its hospitals will receive full Medicaid reimbursement for many previous ly uninsured patients. So on balance, we believe both hospitals and States stand to benefit greatly from expanding Medicaid. Implementation of the new coverage group is expected to affect the amount of uncompensated care and the percentage of unins ured individuals within states. Generally, we expect that states that do not implement the new coverage group would have relatively higher rates of uninsured, and more uncompensa ted care, than states that adopt the new
coverage group. Because states that implement the new c overage group would have lower rates of uninsurance, the reduction in DSH funding may be greater for such states compared to States that do not implement the new covera ge group. Consequently, hospitals in states implementing the new coverage group that serve Medicaid patients may experience a deeper reduction in DSH payments than they would if all states were to implement the new coverage group. Given the statutory redu ctions in the funding for Medicaid DSH in the Affordable Care Act, we intend to account for the different circumstances among states in the formula in future rulemaking. Currently, we do not have sufficient information on the relative impacts that would result from state decisions to implement the new coverage group, and thus we haveCMS-2367-P 10 determined to propose a DHRM only for th e first two years during which the DSH funding reductions are in effect . The data that the reductio ns are based on for these two years will not reflect differential decisions to implement the new coverage group. Data reflecting the effects of the decision to im plement the new coverage group may not be available to consider the impact of such a decision until 2016. Therefore, we intend to continue evaluating potential implications fo r accounting for coverage expansion in the DHRM. While we are interested in public comment on this issue, we intend to address this issue more completely in separate rulemaking for DSH allotment reductions for FY 2016 and thereafter. Accordingly, we are proposing to estab lish a DHRM that would be in effect for FY 2014 and FY 2015 and we are not includi ng a method to account for differential coverage expansions in Medica id for FY 2014 and FY 2015.
D. DHRM Data Sources The statute establishes parameters regard ing data and/or sugg ested data sources for specific factors in the development of th e DHRM. We are proposing to utilize for the DHRM, wherever possible, data sources and metrics that are transparent and readily available to CMS, states, and the public, such as: United States Census Bureau data, Medicaid DSH data reported as required by section 1923(j) of the Ac t, existing state DSH allotments, and Form CMS-64 Medicaid Budget and Expenditure System (MBES) data. We are proposing to utilize the most recent y ear available for all data sources. For one data source, we intend to collect informati on directly from state Medicaid agencies outside of this rule. Specifically, we intend for states to su bmit the information used to determine which hospitals are deemed disproportionate share under section 1923(b) of the Act. Although we do not currently collect this inform ation because states are required to makeCMS-2367-P 11 DSH payments to hospitals that are DSH eligible, states should have this information readily available. To ensure that all hospita ls are properly deemed disproportionate share, states must determine the mean MIUR for hos pitals receiving Medicaid payments in the state and the value of one standard deviati on above the mean. We are also proposing to rely on data derived from Medi caid DSH audit and reporting data. The data is reported by states as required by sect ion 1923(j) of the Act and th e “Medicaid Disproportionate Share Hospital Payments” final rule published on December 19, 2008 (73 FR 77904) (and herein referred to as the 2008 DSH final rule) requiring state reports and audits to ensure the appropriate use of Medicaid DSH paym ents and compliance with the DSH limit imposed at section 1923(g) of the Act. This is the only comprehensive data source for DSH hospitals that identifies hospital-specific DSH payments, hospital-specific uncompensated care costs, and hospital-sp ecific Medicaid utilization in a manner consistent with Medicaid DSH program requirements. To date, we have received rich, comprehe nsive audit and reporti ng data from each state that makes Medicaid DSH payments. To facilitate the provision of high quality data, we provided explicit parameters in the 2008 DSH final rule and associated policy guidance for calculating and reporting data elem ents. The 2008 DSH final rule included a transition period in which states and auditors could develop and refine audit and reporting techniques. This transition pe riod covered data reported relati ng to state plan rate years 2005 through 2010. We recognize that the DS H audit and reporting data during this transition period may vary in its quality and accuracy from state to state and have considered utilizing alternative uncompensate d cost data and Medica id utilization data from sources such as the Medicare Form CMS-2552. The DSH audit and reporting data, however, remains the only comprehensive reported data available that is consistent with Medicaid program requirements. States are al ready required to report this data by the lastCMS-2367-P 12 day of the federal fiscal year ending three years from the Medicaid State plan rate year under audit as required by the 2008 DSH final ru le. However, state submitted audit and reporting data is subject to detailed CMS revi ew and may require signi ficant resources to ensure that it is compiled and prepared for use in the proposed DHRM. This means that the data used for the methodology may not be the most recently submitted data, but instead the most recent data available to us in usable form. We have been actively engaged in reviewing state audits and reports to ensure quality and accuracy. Consistent with ongoing efforts to ensure that the reporte d data is of the highest quality possible as we move through the transition period, we inte nd to issue additional detailed guidance to states by the end of calendar year (CY) 2013 that would be applicable to audits and reports due to us by the end of CY 2014. As required by the statute, the DHRM must impose the larger percentage DSH allotment reductions on the states that ha ve the lowest percentages of uninsured individuals. Although other s ources of this information could be considered for this purpose, the statute explicitly refers to th e use of data from the Census Bureau for determining the percentage of uninsured for each state. We identifie d and considered two Census Bureau data sources for this purpos e, the American Community Survey (ACS); and the Annual Social and Economic Supplem ent to the Current Population Survey (CPS). In consultation with the Census Burea u, we are proposing to use the data from the ACS for the following reasons. First, the AC S is the largest household survey in the United States; in that regard, the annual sample size for the ACS is over 30 times larger than that for the CPS - about 3 million for the ACS versus 100 thousand for the CPS. The ACS is conducted continuously each month throu ghout the year, with the sample for each month being roughly 1/12th of the annual tota l, while the CPS is conducted in the first four months following the end of the survey year. Finally, although the definition ofCMS-2367-P 13

uninsured and insured status is the same fo r the ACS and the CPS, the CPS considers the respondents as uninsured if they are uninsu red at any time during the year whereas the ACS whether the respondent has coverage at the time of the interview, which are conducted at various times throughout the year. For these re asons, and with the recommendation of the Census Bureau, we de termined that the ACS is the appropriate source for establishing the percentage of uni nsured for each state for purpose of the proposed DHRM. In addition to Census Bureau data, we c onsidered using various alternative data with different population parameters and/or diff erent definitions of uninsured individuals. We are also considering adjust ing the definition of the uninsur ed for reductions applicable for FY 2016 and beyond reductions through separate rulemaking. III. Provisions of the Proposed Rule A. DHRM Overview The statute requires aggregate annual reduction amounts for FY 2014 through FY 2020 to be reduced through a DHRM designed by the Secretary cons istent with the statutorily-established factors. Taking th ese factors into account for each state, the proposed DHRM would generate a state-specif ic DSH allotment redu ction amount for FY 2014 and FY 2015 for all 50 states and DC. Th e total of all DSH allotment reduction amounts would equal the aggreg ate annual reduction amounts id entified in the Affordable Care Act for FY 2014 and FY 2015. To determine the effective annual DSH allotment for each state, the state-specific annual DSH allotment reduction amount would be applied to the unreduced DSH allotment amount for its respective state. We would calculate an unreduced DSH allotment for each state prior to the beginning of each FY, as we do currently. This unreduced allotment is determined by calculating the allotment in se ction 1923(f) of the Act prio r to the application of theCMS-2367-P 14 DHRM under section 1923(f)(7) of the Act. The unreduced allotment would serve as the base amount for each state to which the stat e-specific DSH allotment reduction amount would apply annually. In this proposed rule , we are utilizing estimated unreduced DSH allotments for FY 2014 for illustrative purposes. We propose to apply the DHRM to the unreduced DSH allotment amount on an annual basis for FY 2014 and FY 2015. Under the DHRM, we consider the five factors identified in the statute to determine e ach state’s annual state-specific annual DSH allotment reduction amount. Limitations on the ava ilability of data relating to some of the five factors affect the calc ulation and, therefore, we ar e seeking comment regarding readily available data sources that may be useful. The proposed DHRM utilizes available data and a series of interacting calculations that result in th e identification of st ate-specific reduction amounts that, when summed, equal the aggregate DSH allotment reduction amount iden tified by the statute for each applicable year. The proposed DHRM accomplishes this through the following summarized steps:
1. Separate states into two state groups, non-low DSH states and low-DSH states.
2. Proportionately allocate aggregate DS H funding reductions to each of these two state groups based on each state group’s total unreduced DSH allotment amount.
3. Apply a Low DSH State Percentage Re duction Factor to adjust each state group’s DSH funding reduction amount while ma intaining the combined aggregate DSH funding reduction.
4. Divide each state group’s DSH allotment reduction amount among three statutorily identified factors, the Uninsured Percentage Factor (UPF), the High Level of Uncompensated Care Factor (HUF), and the Hi gh Volume of Medicaid Inpatients Factor (HMF). We are proposing to assign a 33 and 1/3 percent weight to the UPF and a 66 andCMS-2367-P 15 2/3 percent combined weight for the two DS H payment targeting factors (a 33 and 1/3 percent weight for the HUF, and a 33 and 1/3 pe rcent weight for the HMF). This weight assignment provides a higher weight to the DS H payment targeting requirements than the UPF. We considered various alternative weight assignmen ts prior to proposing equal weights. We could have assigned a 50 per cent weight to the U PF, and a 50 percent combined weight for the two DSH payment ta rgeting factors (25 percent for the HUF and 25 percent for the HMF). This weight assi gnment would have provided an equal weight to the requirement at 1923(f)(7)(B)(i)(I ) of the Act and the requirement at 1923(f)(7)(B)(i)(II) of the Act. We also could have a ssigned an even lower weight to the uninsured factor than the payment targeting factors, or lower weights to the payment targeting factors than the uninsured factor. We also could have assi gned no weight to the uninsured factor or no weight to the targeting factors. We are seeking public comment and input regarding alternate assignments. We also seek comments on how these weights would impact specific hospital types.
5. For each state group, determine state-specific DSH allotment reduction amounts relating to the Uninsured Percentage Factor.
6. For each state group, determine state-specific DSH allotment reduction amounts relating to the High Level of Uncompensated Care Factor.
7. For each state group, determine state-specific DSH allotment reduction amounts relating to the High Volume of Medicaid Inpatients Factor.
8. Apply a section 1115 Budget Neutrality Factor for each qualifying state.
9. Identify the state-specific DSH allotment reduction amount.
10. Subtract each state’s state-specific DS H allotment reduction amount from each state’s unreduced DSH allotment. The manner in which each of the five factor s are considered and calculated in theCMS-2367-P 16 proposed DHRM is described in greater detail below. The proposed DHRM recognizes the varia tions in the development of DSH allotments among states and the application of the methodology generates a lesser impact on low DSH states. Further, the proposed DHRM is designed to lessen the impact on states that have targeted DSH payments to hospitals that have high volumes of Medicaid inpatients and to hospitals that have high levels of uncompens ated care. Concurrently, the proposed DHRM is designed to incentivize stat es to target current and future DSH payments to hospitals that have higher volum es of Medicaid inpatients and to hospitals that have higher levels of uncompensated care relative to all DSH eligible hospital in a state. The proposed DHRM also takes in to account the extent to which the DSH allotment for a state was included in part or in whole in the budge t neutrality calculation for a coverage expansion approved under se ction 1115 as of July 31, 2009 by excluding from DSH allotment reduction the amount of DSH that qualifying st ates continue to divert specifically for coverage expansi on in the budget neutrali ty calculation. Any amount of DSH diverted for other purposes unde r the demonstration would still be subject to reduction by automatically a ssigning qualifying states an average percentage reduction amount for factors for which the state does not have complete a nd/or relevant DSH payment data.
B. Factor 1 – Low DSH Adjustment Factor (LDF) The first factor considered in the pr oposed DHRM is the Low DSH Adjustment Factor identified at section 1923(f)(7)(B)(ii) of the Act, which requires that the DHRM impose a smaller percentage reduction on “low DSH states” that meet the criterion described in section 1923(f)(5)(B ) of the Act in 2003. To qualify as a low DSH state, total expenditures under the state plan for DS H payments for FY 2000, as reported to us as of August 31, 2003, had to have been greate r than zero but less th an 3 percent of theCMS-2367-P 17

state’s total Medicaid state plan expenditures during the FY. Histori cally, low DSH states (identified in Table 1) have received lower DSH allotments relative to their total Medicaid expenditures than non-low DSH states. We propose to apply the Low DSH Adju stment Factor (LDF) by imposing a greater proportion of the annual DSH fundi ng reduction on non-low DSH states. The factor is calculated and applied as follows:
1. Separate states into two groups, non- low DSH states and low-DSH states.
2. Divide each state’s unreduced prelimin ary DSH allotment for the year for which the reduction is calculated by estimat ed Medicaid service e xpenditures for that same year. Currently, we create a prelim inary DSH allotment based on the estimates available in August of the prio r year and we issue a final DSH allotment once the federal FY ends.
3. For each state group, calculate the non-wei ghted mean of the value calculated in step 2 for states in the group.
4. Divide the average calculated in st ep 3 for the low DSH state group by the average calculated in step 3 for the non-low DSH state group.
5. Convert this number to a percentage . This percentage is the LDF. 6. Multiply the proportionately allocatedDSH funding reductions for the lowDSH state group by the LDF percentage to determine the aggregate DSH reduction amount that would be distributed ac ross the low DSH state group. 7. Subtract the aggregate DSH reduction amount determined in step 6 from the proportionately allocated DS H funding reduction for the lo w-DSH state group, and add the remainder to the aggregate DSH reduction amount that would be distributed across the non-low DSH state group. We considered using various alternative propor tional relationships to establish the LDF,CMS-2367-P 18 including the proportion of each state group’s annual Medicaid DSH expenditures to total Medicaid expenditures. C. Factor 2 – Uninsured Percentage Factor (UPF) The second factor considered in the pr oposed DHRM is the Uninsured Percentage Factor (UPF) identified at section 1923(f)(7)(B )(i)(I) of the Act, which requires that the DHRM impose larger percentage DSH allotment reductions on states th at have the lowest percentages of uninsured indivi duals. The statute also requ ires that the percentage of uninsured individuals is determined on the basi s of data from the Census Bureau, audited hospital cost reports, and other information lik ely to yield accurate data, during the most recent year for which such data are available. To determine the percentage of uninsured individuals in each state, the proposed DHRM relies on the total populati on and uninsured population as identified in the most recent “1-year estimates” data available from the ACS conducted by the Census Bureau. The Census Bureau generates ACS “1-year es timates” data annually based on a point-intime survey of approximately 3 million i ndividuals. For purposes of the proposed DHRM, we would utilize the most recent ACS da ta available at the time of the calculation of the annual DSH allotment reduction amounts. The UPF, as applied through the propos ed DHRM, has the effect of imposing lower relative DSH allotment reductions on stat es that have the highest percentage of uninsured individuals. The UPF would mitig ate the DSH reduction for states with the highest percentage of uninsured individuals. The proposed UPF is determined separately for each state group (low DSH and non-low DSH) as follows:
1. Uninsured Value – Using Bureau of Census data, calculate each state’s uninsured value by dividing the total state popula tion by the uninsured in the state. (ThisCMS-2367-P 19 is different than the percenta ge rate of uninsurance; the rate of uninsurance can be obtained by dividing 100 by this number)
2. Uninsured Allocation Component – Determine the relative uninsured value for each state compared to other states in the st ate group by dividing the value in step one by the state group total of step one values. The result should be a percen tage, and the total of the percentages for all states in the state group should total 100 percent.
3. Allocation Weighting Factor – To ensure that larger and smaller states are given fair weight in the final UPF, divi de each state’s preliminary unreduced DSH allotment by the sum of all unreduced prelimin ary DSH allotments in the respective state group to obtain allocation weigh ting factor, expressed as a pe rcentage. The sum of all weighting factors should equal 100 percent. Th en, take this percentage for each state and multiply it by the state’s uninsured allocation component determined in step 2. The result is the allocation we ighting factor.
4. For each state group, divide each state’ s allocation weighting factor by the sum of all allocation weighting factors. The resulting percentage is the UPF. We would determine the UPF portion of the final aggregate DSH allotment reduction allocation for each state by multiply ing the state’s UPF by the aggregate DSH allotment reduction allocat ed to the UPF factor for the re spective state group. As with the prior factor, we propose to utilize prelimin ary DSH allotment estimates to develop the DSH reduction factors. D. Factor 3 – High Volume of Medicaid Inpatients Factor (HMF) The third factor considered in the proposed DHRM is the High Volume of Medicaid Inpatients Factor (HMF ) identified at sec tion 1923(f)(7)(B)(i)(II) (aa) of the Act, which requires that the DHRM impose larger percentage DSH allotment reductions on states that do not target DSH payments to hos pitals with the highest volumes of MedicaidCMS-2367-P 20 inpatients. For purposes of the DHRM, the st atute defines hospitals with high volumes of Medicaid patients as those defi ned in section 1923(b)(1)(A) of the Act. These hospitals must meet minimum qualifying requirements at section 1923(d) of the Act and have an MIUR that is at least one standard devi ation above the mean MIUR for hospitals receiving Medicaid payments in the state. Every hospital that meet s that definition is deemed a disproportionate share hospital and is statutorily require d to receive a DSH payment. The HMF, through the proposed DHRM, provides the mitigation of the DSH reduction amount for states that have been ta rgeting and would in the future target DSH payments to these federally deemed hospitals. States that have been, an d continue to, target a larg e percentage of their DSH payments to hospitals that are federally deemed as a DSH based on their MIUR would receive the lowest reduction amount s relative to their to tal spending. States that target the largest amounts of DSH payments to hospitals that are not federally deemed based on MIUR would receive larger reduction amounts under this factor. The current DSH allotment amounts are unrelated to the am ounts of MIUR-deemed hospitals and their DSH-eligible uncompensated care costs. By basing the HMF reduction on the amounts that states do not target to hospitals w ith high volumes of Medicaid inpatients, this proposed methodology incentivizes states to targ et DSH payments to such hospitals. To ensure that all deemed disproportiona te share hospitals receive a required DSH payments, states are already required to dete rmine the mean MIUR for hospitals receiving Medicaid payments in the state and the value of one standard deviat ion above the mean. This rule proposes to rely on MIUR information for use in the DHRM that CMS intends to collect from states on an a nnual basis outside of this rule. When a state does not timely submit this separately required MIUR inform ation, for purposes of this factor, CMS will assume that the state has the highest value of one standard deviation above the meanCMS-2367-P 21 reported among all other states. The calculation of the HMF would rely on extant data that should be readily available to states. The following data elem ents are used in the HMF calculation: the preliminary unreduced DSH allotment for each state, the DSH hospital payment amount reported for each DSH in accordance with §447.299(c)(17), the MIUR for each DSH reported in accordance with §447.299(c)(3), a nd the value of one standard deviation above the mean MIUR for hospitals receiving Medicaid payments in the state reported separately. The proposed HMF is a state-specific percen tage that is calculated separately for each state group (low DSH and non-low DSH) as follows:
1. For each state, classify each dispropor tionate share hospital that has an MIUR at least one standard deviation above the mean MIUR for hospitals receiving Medicaid payments in the state as a High Medicaid Volume hospital.
2. For each state, determine the amount of DSH payments to non-High Medicaid Volume DSH hospitals. This data element s hould come from the most recently submitted and accepted DSH audit template.
3. For each state, determine a percentage by dividing the state’s total DSH payments made to non-High Medicaid Volume hospitals by the aggr egate amount of DSH payments made to non-High Medicaid Volu me hospitals for the entire state group.
4. The result of step 3 is the HMF. We would determine each state’s HMF reduction amount by applying the HMF percentage to the aggregate reduction amount a llocated to this factor for each state group. As a result of this methodology, there are a number of interactions that may occur for states among DSH payment methodologies, DSH allotments, and DSH allotment reductions. Most of these scenarios work in concert with this factor’s establishedCMS-2367-P 22 reduction relationship. For example, if a st ate paid out its entire DSH allotment to hospitals with high volumes of Medicaid inpatients, it would receive no reduction associated with this factor because all DSH payments were made only to hospitals that qualify as high volume. The results of this scenario would be consistent with the methodology because the state is incentivized to target DSH payments to high Medicaid volume hospitals. Another example is a state that makes DS H payments up to the hospital-specific DSH limit to all hospitals with high Medica id volume but also uses its remaining allotment to make DSH payments to hospitals that do not qualify as high volume. In this example, the state would receive a reducti on under this factor based on the amount of DSH payments it made to non-high Medicaid vo lume hospitals. Though the state targeted DSH payments to hospitals with high Medi caid volume, the existing size of its DSH allotment permitted it to make DSH payments to hospitals that did not meet the statutory definition of high Medicaid volume. In th at situation, this allotment reduction would effectively reduce a state’s existing DSH allotment to the extent that the allotment exceeded the maximum amount that the state could pay to hospitals that are high Medicaid volume. The resulting HMF reducti on would be greater for states with DSH allotments large enough to pay significant amounts to non-high Medicaid volume hospitals. This ensures that states targ et DSH payments to high Medicaid volume hospitals and distribute the reductions in such a way as to promote the ability of all states to provide DSH funds to high Me dicaid volume hospitals. We would continue to analyze th e proposed DHRM and comments to the proposed rule to ensure that the DHRM is e ffective in tying the le vel of DSH reductions to the targeting of DSH payments to high Medicaid volume hospitals. E. Factor 4 – High Level of Un compensated Care Factor (HUF)CMS-2367-P 23

The fourth factor considered in the DHRM is the HUF identified at section 1923(f)(7)(B)(i)(II)(bb) of the Act, which requires that the DHRM impose larger percentage DSH allotment reductions on st ates that do not target DSH payments on hospitals with high levels of uncompensated care. We are proposing to rely on the existing statutory definition of uncompensated care cost used in determining the hospitalspecific limit on FFP for DSH payments. Each state must develop a methodology to co mpute this hospital-specific 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 FY, the difference between the costs incurred by that hospital for furnishi ng inpatient hospital a nd outpatient hospital services during the applicable state FY to Me dicaid individuals and individuals who have no health insurance or other source of third party coverage for the inpatient hospital and outpatient hospital services they receive, le ss all applicable revenues for these hospital services. This difference, if any, betweenincurred inpatient hospital and outpatient hospital costs and associated revenues is cons idered a hospital’s uncompensated care cost limit, or hospital-specific DSH limit. For purposes of this rule, we are proposing to rely on this definition of uncompensated cost for the calculation of the HUF, as reported by states on the most recent available DSH audit a nd reporting data. For the proposed DHRM, hospitals with high levels of uncompensated care are defined based on a comparison with other Medicaid DSH hospitals in their state. A ny hospital that exceeds the mean ratio of uncompensated care costs to total Medicai d and uninsured inpatient and outpatient hospital service costs within its state is considered a hospital with a high level of uncompensated care. This data is cons istent with existing Medicaid DSH program definition of uncompensated care and is readily available to states and us.CMS-2367-P 24 The following data elements are used in the HUF calculation:

● The preliminary unreduced DSH allotment for each state;

● DSH hospital payment amounts reporte d for each DSH in accordance with §447.299(c)(17);

● Uncompensated care cost amounts reported for each DSH in accordance with §447.299(c)(16);

● Total Medicaid cost amounts reported for each DSH in accordance with §447.299(c)(10); and

● Total uninsured cost amounts reported for each DSH in accordance with §447.299(c)(14). The statute also requires that uncompensat ed care used in this factor of the DHRM exclude bad debt. The proposed rule relies on the uncompensated care cost data derived from Medicaid DSH audit and reporting re quired by section 1923(f) of the Act and implementing regulations. This uncompensated care data excludes bad debt, including unpaid co-pays and deductibles, associated with individuals with a s ource of third party coverage for the service received during the year. The HUF is a state-specific percentage that is calculated separately for each state group (low DSH and non-lo w DSH) as follows:
1. Determine each disproportionate share hospital’s Uncompensated Care Level by dividing its uncompensated care cost by the sum of its total Medicaid cost and its total uninsured cost. This data element would come from the most recently submitted and accepted DSH audit template.
2. For each state, calculate the weighted mean Uncompensated Care Level.
3. Identify all hospitals that meet or ex ceed the mean Uncompensated Care Level as High Uncompensated Care Level hospitals. We also considered identifying a metricCMS-2367-P 25 higher than the mean for purposes of identi fying hospitals as High Uncompensated Care Level hospitals and are soliciting comments on this alternative.
4. For each state, determine the amount of DSH payments to non-High Uncompensated Care Level hospitals.
5. For each state, determine a percentage by dividing the state’s total DSH payments made to non-High Uncompensated Care Level hospitals by the aggregate amount of DSH payments made to non-High Un compensated Care Level hospitals for the entire state group. Th e result is the HUF. We would determine each state’s HUF reduction amount by applying the HUF percentage to the aggregate reduction amount allo cated to this factor for each state group. Similar to the HMF, this methodology may pr oduce a number of interactions that could occur for states among DSH payment methodologies, DSH allotments, and DSH allotment reductions. Most of these interactions work in concert with the intent of this factor’s established reduction relationship. However, we have identified some potential scenarios where the interactions may be inc onsistent with the methodology. For example, it is possible that a hospital may not be cons idered to have a high level of uncompensated care even though it provides a hi gher percentage of services to Medicaid and uninsured individuals and has a greater total qualif ying uncompensated care costs than another hospital that does qualify as having a high le vel of uncompensated care. Specifically, Hospital A has $20 million in total hospital costs, $11 million in DSH-eligible Medicaid and uninsured costs, and $5 million in uncompe nsated care cost. Hospital B has $50 million in total hospital costs, $2 million in DSH-eligible Medicaid and uninsured costs, and $1 million in uncompensated care cost. Assuming the weighted mean uncompensated care cost level in the state is 50 percent, Ho spital B would be considered to have high level of uncompensated care a nd Hospital A would not. Given that HospitalCMS-2367-P 26 A has 5 times the total uncompensated care of Hospital B and serves a much higher percentage of Medicaid and unins ured individuals, the results of this scenario are counter to the intent of the methodology. This scenario exists because the proposed formula does not take into account total hospital costs due to extant da ta limitations. To address th is concern, we are proposing to modify DSH reporting requirement s to collect total hospital cost from Medicare cost report data for all DSH hospitals. Through se parately issued rulemaking for FY 2016 and thereafter, we intend to substitute total cost for the denominator in step one of the HUF calculation above. Since total co st is unavailable at this ti me, we are seeking comment on alternatives to the use of total uncompensated care cost as the denominator to alleviate this data issue. We would continue to analyze th e proposed DHRM and comments to the proposed rule to ensure that the DHRM is e ffective in tying the le vel of DSH reductions to the targeting of DSH payments to hospita ls with high levels of uncompensated care. We believe that the proposed methodology, in using the mean uncompensated care cost level as the measure to identify hospitals with high levels of uncompensated care, captures the best balance in tying the level of DSH reductions to the targeting of DSH payments to such high level hospitals. Unders tanding potential data limitations and that the proposed methodology does not precisely distinguish how st ates direct DSH payments among hospitals that are identified as at or above the mean uncompensated care, we solicit comments on alternative methodologies re garding state targeting of DSH payments to hospitals with high levels of uncompensated care. F. Factor 5 – Section 1115 B udget Neutrality Factor (BNF) The statute requires that we take into account the exte nt to which a state’s DSH allotment was included in the budget neutrality calculation for a coverage expansion thatCMS-2367-P 27 was approved under section 1115 as of July 31, 2009. Prior to the implementation of this proposed rule, these states possess full annua l DSH allotments as calculated under section 1923(f) of the Act. Under an approved s ection 1115 demonstration, however, the states may have limited authority to make DSH payments under section 1923 of the Act because all or a portion of their DSH allotment was included in the budget ne utrality calculation for a coverage expansion under an approve d section 1115 demonstration or to fund uncompensated care pools and/or safety ne t care pools. For applicable states, DSH payments under section 1923 of the Act are lim ited to the DSH allotment calculated under section 1923(f) of the Act less the allotment amount included in the budget neutrality calculation. If a state’s entire DSH allo tment is included in the budget neutrality calculation, it would have no available DSH f unds with which to make DSH payments under section 1923 of the Act for the period of the demonstration. Consistent with the statute, for stat es that include DSH allotment in budget neutrality calculations for coverage expansion under an approved section 1115 demonstration as of July 31, 2009, we propose to exclude from DSH allotment reduction, for the HMF and the HUF factors, the amount of DSH allotment that each state currently continues to divert specifically for co verage expansion in the budget neutrality calculation. Amounts of DSH allotment include d in budget neutrality calculations for non-coverage expansion purposes under approved demonstrati ons would still be subject to reduction. Uncompensated care pools a nd safety net care pools are considered noncoverage expansion purposes. For section 1115 demonstrations not approved as of July 31, 2009, any DSH allotment amounts included in budget neutrality calculations, whether for coverage expansion or otherwise, under a later approval would also be subject to reduction. We are proposing to determine for each re duction year if any portion of a state’sCMS-2367-P 28 DSH allotment qualifies for consideration under this factor. To qualify annually, CMS and the state would have to have included its DSH allotment in the budget neutrality calculation for a coverage expansion that was approved under section 1115 as of July 31, 2009, and would have to continue to do so at the time that reduction amounts are calculated for each FY. The proposed DHRM would take into acc ount the extent to which the DSH allotment for a state was included in the budget neutrality calculation approved under section 1115 as of July 31, 2009 by excluding amounts diverted specifically for a coverage expansion and automatically assi gning qualifying states an average reduction amount (based on the state group) for any DSH allotment diverted for non-coverage expansion purposes and any amounts diverted for coverage expansi on if the section 1115 demonstration was or is approved after Ju ly 31, 2009. DSH allotment reductions relating to two DHRM factors (the HUF and the HMF) are determined based on how states target DSH payments to certain hospitals. Since states qualifying under the budget neutrality provision would have limited or no relevant da ta for these two factors, we would be unable to evaluate how they sp ent the portion of their DSH allo tment that was diverted for non-coverage expansion. Accordingly, we are proposing to maintain the HUF and HMF formula for DSH payments for which qualifyi ng states would have available data. Because we would not have DSH payment data for DSH allotment amounts diverted for non-coverage expansion, we are proposing to assign average HUF and HMF reduction percentages for the portion of th eir DSH allotment that they were unable to use to target payments to disproportionate share hospitals. Instead of assigning the average percentage reduction to non-qualifying am ounts, we considered using various alternative percentages. Additionally, for qualifying allotment amounts diverted specifically for coverage expansion, we consid ered applying the BNF reducti on exclusion to the UPF inCMS-2367-P 29

addition to the HMF and HUF. We are seeki ng comment regarding the use of different percentages for the reducti ons to non-qualifying divers ion amounts and regarding alternative BNF methodologies that ma y prove preferable alternatives. We recognize that the goal of the expanded coverage and/or payment of uncompensated care is directly addressed by th e statute. The goal is addressed by statute by offering states other, non-DS H funds for such expansions, thus limiting the need for the diverted DSH under demonstrations. Accord ingly, the group of states affected by this factor today may change at a later time, depe nding on how their covera ge continues to be financed. In addition, based on changes in the health coverage landscape, we will reevaluate this policy in future rulemaking. G. Illustration of DSH H ealth Reform Methodology (DHRM) Table 1 and the values contained ther ein are provided only for purposes of illustrating the application of the DHRM a nd the associated DSH reduction factors described in this proposed rule to determin e each states’ DSH allotment reduction for FY
2014. Note that these values do not represen t the final DSH reduction amounts for FY
2014.CMS-2367-P 30TABLE 1:*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGYILLUSTRATIVEDSH Reduction Factor Weighting Allocation*Total Reduction:UninsuredFactor UPFHi Volume FactorHMFHigh Level FactorHUFTOTAL33.3%33.3%33.3%100.0%Total Reg. DSHReduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649LOW DSH Adj. FactorTotal Low DSHReduction:$2,077,784 $2,077,784 $2,077,784 $6,233,35127.97%TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000A B C D E F G HUnreducedReductionBased onReduction BasedonReduction BasedReductionAmountFY 2014STATEFY 2014UPFHMFOn HUFTotalReduction*AsPercentageReducedAllotment*DSH AllotmentUninsuredFactor*High VolumeFactor*High Level Factor*ofUnreduced(Estimate)*DSHAllotment*Col J, UPF WSCol O , HMF WSCol O, HUC WSC + D + EF/BB - FAlabama$327,306,706 $4,450,693 $6,450,832 $5,965,703 $16,867,229 5.15% $310,439,477Arkansas$107,771,720 $1,225,578 $2,320,621 $4,144,131 $7,690,330 7.14% $100,081,389California$1,166,861,709 $12,496,019 $19,339,288 $787,771 $32,623,078 2.80% $1,134,238,632Colorado$98,458,114 $1,227,835 $953,242 $3,262,103 $5,443,181 5.53% $93,014,933Connecticut$212,882,410 $4,646,855 $4,209,148 $4,474,769 $13,330,772 6.26% $199,551,638District of Columbia /1$65,195,237 $1,703,076 $463,119 $844,089 $3,010,283 4.62% $62,184,954Florida$212,882,410 $1,987,539 $2,887,967 $5,215,949 $10,091,455 4.74% $202,790,954Georgia$286,060,738 $2,882,526 $3,130,957 $5,060,927 $11,074,410 3.87% $274,986,328Illinois$228,848,590 $3,298,528 $3,645,082 $3,899,617 $10,843,227 4.74% $218,005,363Indiana$227,518,076 $3,045,530 $3,282,746 $1,280,446 $7,608,722 3.34% $219,909,354Kansas$43,906,997 $627,702 $922,471 $683,318 $2,233,492 5.09% $41,673,505Kentucky$154,339,747 $2,009,128 $2,429,559 $2,068,748 $6,507,436 4.22% $147,832,311Louisiana$731,960,000 $8,157,359 $12,281,637 $4,906,454 $25,345,450 3.46% $706,614,550CMS-2367-P 31*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGYILLUSTRATIVEDSH Reduction Factor Weighting Allocation*Total Reduction:UninsuredFactor UPFHi Volume FactorHMFHigh Level FactorHUFTOTAL33.3%33.3%33.3%100.0%Total Reg. DSHReduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649LOW DSH Adj. FactorTotal Low DSHReduction:$2,077,784 $2,077,784 $2,077,784 $6,233,35127.97%TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000A B C D E F G HUnreducedReductionBased onReduction BasedonReduction BasedReductionAmountFY 2014STATEFY 2014UPFHMFOn HUFTotalReduction*AsPercentageReducedAllotment*DSH AllotmentUninsuredFactor*High VolumeFactor*High Level Factor*ofUnreduced(Estimate)*DSHAllotment*Col J, UPF WSCol O , HMF WSCol O, HUC WSC + D + EF/BB - FMaine /1$111,763,265 $2,189,425 $1,324,174 $2,413,463 $5,927,063 5.30% $105,836,203Maryland$81,161,419 $1,430,089 $1,639,479 $1,726,902 $4,796,470 5.91% $76,364,948Massachusetts /1$324,645,675 $14,612,915 $1,031,865 $1,076,550 $16,721,329 5.15% $307,924,346Michigan$282,069,193 $4,528,369 $3,256,081 $5,661,017 $13,445,466 4.77% $268,623,727Mississippi$162,322,837 $1,771,408 $1,928,694 $715,775 $4,415,876 2.72% $157,906,961Missouri$504,265,209 $7,606,111 $7,179,807 $11,117,502 $25,903,421 5.14% $478,361,788Nevada$49,229,057 $432,077 $226,353 $258,039 $916,469 1.86% $48,312,588New Hampshire$170,410,795 $3,039,010 $2,714,290 $2,903,827 $8,657,127 5.08% $161,753,668New Jersey$685,215,257 $10,273,222 $9,989,871 $9,086,087 $29,349,180 4.28% $655,866,077New York$1,709,711,855 $28,517,869 $17,330,775 $19,682,882 $65,531,526 3.83% $1,644,180,330North Carolina$314,001,555 $3,717,078 $6,628,232 $3,952,052 $14,297,361 4.55% $299,704,194Ohio$432,417,395 $6,970,234 $6,496,637 $9,942,522 $23,409,393 5.41% $409,008,002Pennsylvania$597,401,262 $11,667,972 $9,874,704 $12,323,972 $33,866,647 5.67% $563,534,615Rhode Island$69,186,783 $1,128,516 $1,332,369 $1,002,242 $3,463,128 5.01% $65,723,655South Carolina$348,594,946 $3,947,977 $5,769,094 $3,995,248 $13,712,319 3.93% $334,882,628CMS-2367-P 32*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGYILLUSTRATIVEDSH Reduction Factor Weighting Allocation*Total Reduction:UninsuredFactor UPFHi Volume FactorHMFHigh Level FactorHUFTOTAL33.3%33.3%33.3%100.0%Total Reg. DSHReduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649LOW DSH Adj. FactorTotal Low DSHReduction:$2,077,784 $2,077,784 $2,077,784 $6,233,35127.97%TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000A B C D E F G HUnreducedReductionBased onReduction BasedonReduction BasedReductionAmountFY 2014STATEFY 2014UPFHMFOn HUFTotalReduction*AsPercentageReducedAllotment*DSH AllotmentUninsuredFactor*High VolumeFactor*High Level Factor*ofUnreduced(Estimate)*DSHAllotment*Col J, UPF WSCol O , HMF WSCol O, HUC WSC + D + EF/BB - FTennessee$54,007,000 $746,901 $860,219 $920,288 $2,527,408 4.68% $51,479,592Texas$1,017,844,022 $8,522,124 $18,255,733 $29,359,012 $56,136,869 5.52% $961,707,154Vermont$23,949,271 $590,875 $434,558 $276,383 $1,301,816 5.44% $22,647,455Virginia$93,250,559 $1,416,841 $1,718,425 $1,230,356 $4,365,622 4.68% $88,884,936Washington$196,916,230 $2,744,350 $3,136,466 $3,355,484 $9,236,300 4.69% $187,679,929West Virginia$71,847,813 $977,152 $1,144,386 $995,254 $3,116,792 4.34% $68,731,021Total Regular DSHStates$11,164,203,854 $164,588,883 $164,588,883 $164,588,883 $493,766,649 4.42% $10,670,437,205LOW DSH STATESAlaska$21,681,747 $51,937 $173,996 $87,475 $313,408 1.45% $21,368,340Arizona$45,916,375 $129,368 $129,235 $42,155 $300,758 0.66% $45,615,618Delaware$9,636,331 $47,282 $0 $0 $47,282 0.49% $9,589,049Hawaii$10,393,800 $62,676 $70,765 $104,311 $237,752 2.29% $10,156,048Idaho$17,496,274 $46,880 $111,960 $50,217 $209,057 1.19% $17,287,217CMS-2367-P 33*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGYILLUSTRATIVEDSH Reduction Factor Weighting Allocation*Total Reduction:UninsuredFactor UPFHi Volume FactorHMFHigh Level FactorHUFTOTAL33.3%33.3%33.3%100.0%Total Reg. DSHReduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649LOW DSH Adj. FactorTotal Low DSHReduction:$2,077,784 $2,077,784 $2,077,784 $6,233,35127.97%TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000A B C D E F G HUnreducedReductionBased onReduction BasedonReduction BasedReductionAmountFY 2014STATEFY 2014UPFHMFOn HUFTotalReduction*AsPercentageReducedAllotment*DSH AllotmentUninsuredFactor*High VolumeFactor*High Level Factor*ofUnreduced(Estimate)*DSHAllotment*Col J, UPF WSCol O , HMF WSCol O, HUC WSC + D + EF/BB - FIowa$41,917,760 $214,084 $75,590 $115,863 $405,536 0.97% $41,512,224Minnesota$79,499,739 $416,944 $257,348 $623,061 $1,297,353 1.63% $78,202,386Montana$12,081,903 $33,172 $68,731 $89,562 $191,465 1.58% $11,890,437Nebraska$30,120,968 $124,314 $238,785 $249,312 $612,411 2.03% $29,508,557New Mexico$21,681,747 $52,589 $168,797 $52,617 $274,003 1.26% $21,407,744North Dakota$10,167,243 $49,497 $60,321 $13,300 $123,117 1.21% $10,044,126Oklahoma$38,545,326 $97,193 $110,492 $391,760 $599,445 1.56% $37,945,882Oregon$48,181,658 $133,619 $381,129 $9,220 $523,968 1.09% $47,657,690South Dakota$11,756,055 $45,126 $70,228 $36,545 $151,899 1.29% $11,604,156Utah$20,881,618 $64,735 $159,292 $211,938 $435,965 2.09% $20,445,653Wisconsin /1$100,621,875 $507,599 $0 $0 $507,599 0.50% $100,114,275Wyoming$240,907 $768 $1,115 $448 $2,331 0.97% $238,576Total Low DSH States$520,821,329 $2,077,784 $2,077,784 $2,077,784 $6,233,351 1.20% $514,587,978CMS-2367-P 34*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGYILLUSTRATIVEDSH Reduction Factor Weighting Allocation*Total Reduction:UninsuredFactor UPFHi Volume FactorHMFHigh Level FactorHUFTOTAL33.3%33.3%33.3%100.0%Total Reg. DSHReduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649LOW DSH Adj. FactorTotal Low DSHReduction:$2,077,784 $2,077,784 $2,077,784 $6,233,35127.97%TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000A B C D E F G HUnreducedReductionBased onReduction BasedonReduction BasedReductionAmountFY 2014STATEFY 2014UPFHMFOn HUFTotalReduction*AsPercentageReducedAllotment*DSH AllotmentUninsuredFactor*High VolumeFactor*High Level Factor*ofUnreduced(Estimate)*DSHAllotment*Col J, UPF WSCol O , HMF WSCol O, HUC WSC + D + EF/BB - FNational Total$11,685,025,183 $166,666,667 $166,666,667 $166,666,667 $500,000,000 4.28% $11,185,025,183Notes:*All of the values on this chart are only for purposes of illustrating the DSH HealthReform Methodology (DHRM)/1 Potential DSH Diversion StateCMS-2367-P 35
IV. Collection of Information Requirements Under the Paperwork Reduction Act of 1995, 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 collecti on 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 auto mated collection techniques. To derive average costs, we used data fr om the U.S. Bureau of Labor Statistics for all salary estimates. The salary estimates in clude the cost of fringe benefits, based on the December 2012 Employer Costs for Employ ee Compensation report by the Bureau. We are soliciting public comment on each of the section 3506(c)(2)(A)-required issues for the following informati on collection requirements (ICRs): ICRs Regarding Reporting Requirements (§447.299) Beginning with each state’s Medicaid stat e plan rate year 2005, for each Medicaid state plan rate year, the state must submit to CMS, at the same time as it submits the completed DSH audit required under §455.204, the following information for each DSH hospital to which the state made a DSH payment in order to permit verification of the appropriateness of such payments.CMS-2367-P 36 The ongoing burden associated with th e requirements under §447.299 is the time and effort it would take each of the 50 state Medicaid Programs and the District of Columbia to complete the annual Medicaid DSH reporting requirements. Based on the information proposed in this rule, we estimat e that it would take an additional 4 hours per state (from 38 approved hr to 42 total hr) to complete the DSH reporting spreadsheets. Consequently, we also estimate an additional 204 (4 x 51) annual hours for all states and the District of Columbia (or 2,142 total h r) and an additional cost of $10,404 (or $85,434 total). In deriving these figures, we used the following hourly labor rates and estimated the time to complete each task: $51.00/hr a nd an additional 102 hr (1,071 total hours) for management and professional staff to review and prepare reports, and $28.77/hr and an additional 102 hr (1,071 total hours) for o ffice staff to prepare the reports. The preceding requirements and burden es timates will be added to the existing PRA-related requirements and burden estimates that have been approved by OMB under OCN 0938-0746 (CMS-R-266). The revised total burden estimates amount to: 51 annual respondents, 51 annual responses, and 2,142 annual hours. Submission of PRA-Related Comments We have submitted a copy of this proposed rule to OMB for its review of the rule’s information collection and recordkeep ing requirements. These requirements are not effective until they have been approved by the OMB. To obtain copies of the supporting st atement and any related forms for the proposed paperwork collections refere nced above, access CMS’ Web site at http://www.cms.hhs.gov/Paperwork@cms.hhs.gov , or call the Reports Clearance Office
at 410–786–1326.CMS-2367-P 37 We invite public comments on thes e potential information collection requirements. If you comment on these in formation collection and recordkeeping requirements, please do either of the following: 1. Submit your comments electronically as specified in the ADDRESSES section of this proposed rule; or 2. Submit your comments to the Office of Information and Regulatory Affairs, Office of Management and Budget, Attent ion: CMS Desk Officer, (CMS–2367–P) Fax: (202) 395–6974; or E-mail: OIRA_submission@omb.eop.gov

. V. Response to Comments Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowle dge or respond to them individually. We will consider all comments we receive by th e date and time specified in the "DATES" section of this preamble, and, when we pr oceed with a subsequent document, we will respond to the comments in the preamble to that document. VI. Regulatory Impact Statement A. Statement of Need The Affordable Care Act amended the Ac t by requiring aggregate reductions to state Medicaid DSH allotments annually fr om FY 2014 through FY 2020. This proposed rule delineates the DHRM to implement the annual reductions for FY 2014 and FY 2015. B. Overall Impact We have examined the impact of this rule as required by Executive Order 12866 on Regulatory Planning and Review (Sep tember 30, 1993), Executive Order 13563 on Improving Regulation and Re gulatory Review (January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995;CMS-2367-P 38 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 agenci es to assess all costs and benefits of available regulatory alterna tives and, if regulation is n ecessary, to select regulatory approaches that maximize net benefits (inc luding potential economi c, environmental, public health and safety effects, distributive impacts, and equity). This rule has been designated an “economically significant” rule measured by the $100 million threshold, under section 3(f)(1) of Executive Order 12866. Accordingly, we have prepared a Regulatory Impact Analysis (RIA) that, to the best of our ability, presents the costs and benefits of the rulemaking. In accordance w ith the provisions of Executive Order 12866, this regulation was reviewed by the Office of Management and Budget. Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also requires that agencies assess anticipated costs and benefits before i ssuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2013, that threshol d is approximately $141 million. This final rule would not mandate any requirements for State, local, or tribal governments, nor would it affect private sector costs. Executive Order 13132 establishes certain requ irements that an agency must meet when it promulgates a proposed rule (and subseq uent final rule) that imposes substantial direct requirement costs on State and local gov ernments, preempts State law, or otherwise has Federalism implications. Since this rule does not impose any costs on State or local governments, the requirements of Ex ecutive Order 13132 are not applicable. The RFA requires agencies to analyze options for regulatory relief of small entities. For purposes of the RFA, sma ll entities include small businesses, nonprofit organizations, and small governmental jurisdic tions. Most hospitals and most otherCMS-2367-P 39 providers and suppliers are small entities, e ither by nonprofit status or by having revenues of $7.0 million to $34.5 million in any 1 year. In dividuals and states are not included in the definition of a small entity. We are not preparing an analysis for th e 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 Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the opera tions of a substantial number of small rural hospitals. This analysis mu st conform to the provisions of section 603 of the RFA. For purposes of section 1102(b) of th e Act, we define a small rural hospital as a hospital that is located outside of a Metr opolitan Statistical Ar ea 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 determine d, 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. Executive Order 13132 establishes certain requ irements that an agency must meet when it issues a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on state and local governme nts, preempts state law, or otherwise has Federalism implications. Since this regulati on does not impose any costs on state or local governments, the requirements of Execu tive Order 13132 are not applicable. This proposed rule may be of interest to, and affect, American Indians/Alaska Natives. Therefore, we plan to consult w ith Tribes during the comment period and prior to publishing a final rule. C. Anticipated Effects 1. Effects on State Medicaid ProgramsCMS-2367-P 40 We anticipate, effective for FY 2014, that the proposed DSH allotment reductions would have a direct effect on the ability for some or all states to maintain state-wide Medicaid DSH payments at FY 2013 levels. Federal share DSH a llotments, which are published by CMS in an annual Federal Register notice, limit the amount of federal financial participation (FFP) in the aggreg ate that states can pay annually in DSH payments to hospitals. This proposed ru le would reduce state DSH allotment amounts and would, therefore, limit the states’ abilit y to make DSH payments and claim FFP for DSH payments at FY 2013 levels. By statute, the rule would reduce state DSH allotments by $500,000,000 for FY 2014 and $600,000,000 for FY 2015. We anticipate that the rule would reduce total federal financial particip ation claimed by states by similar amounts, although it may not equal the exact amount of the allotment reductions. Due to the complexity of the interaction among the proposed DHRM methodology, state DSH allotments, DHRM data, future state DSH pa yment levels and methodologies for FY 2014 and FY 2015, we cannot provide a specific estimate of the total federal financial impact for each year. The proposed rule utilizes a DHRM that would mitigate the negative impact on states that continue to have high percen tages of uninsured and are targeting DSH payments on hospitals that have a high vol ume of Medicaid inpa tient and on hospitals with high levels of uncompensated care. 2. Effects on Providers We anticipate that the final rule woul d affect certain providers through the reduction of state DSH payments. We cannot, ho wever, estimate the impact on individual providers or groups of providers . This proposed rule would not affect the considerable flexibility afforded states in setting DSH st ate plan payment methodologies to the extent that these methodologies are c onsistent with section 1923(c) of the Act and all otherCMS-2367-P 41 applicable statute and regulations. States w ould retain the ability to preserve existing DSH payment methodologies or to propose m odified methodologies by submitting state plan amendments to us. Some states ma y determine that implementing a proportional reduction in DSH payments for all qualifying hos pitals is the preferred method to account for the reduced allotment. Alternatively, states could determine that it the best action is to propose a methodology that would direct DSH paym ents reductions to hospitals that do not have high Medicaid volume and do not ha ve high levels of uncompensated care. Regardless, the rule incentivizes states to targ et DSH payments to hos pitals that are most in need of Medicaid DSH funding based on their serving a high volume of Medicaid inpatient and having a high level of uncompensated care. This proposed rule also does not affect the calculation of th e hospital-specific DSH limit established at section 1923(g) of th e Act. This hospital-specific limit requires that Medicaid DSH payments to a qualifyi ng hospital not exceed the costs incurred by that hospital for providing inpatient and outpa tient hospital services furnished during the year to Medicaid patients and i ndividuals who have no health in surance or other source of third party coverage for the services provide d during the year, less ap plicable revenues for those services. Although this rule would reduce state DSH allotments, the management of the reduced allotments still largely remains with th e states. Given that st ates would retain the same flexibility to design DSH payment me thodologies under the state plan and that individual hospital DSH payment limits would not be reduced, we cannot predict whether and how states would exercise their flexibili ty in setting DSH payments to account for their reduced DSH allotment and how this w ould affect individual providers or specific groups of providers. D Alternatives ConsideredCMS-2367-P 42 The Affordable Care Act specifies th e annual DSH allotment reduction amounts for FY 2014 and FY 2015. Therefore, we were unable to consider alternative reduction amounts. Alternatives to the proposed DHRM methodology are discussed through the preceding section of this rule. E. Accounting Statement and Table As required by OMB Circul ar A-4 (available at http://www.whitehouse.gov/omb/circulars_a004_a-4/ ), we have prepared an accounting statement table showing the classification of the impacts associated with implementation of this proposed rule.

TABLE 2: Accounting Statement

Units Category Estimates Year Dollar Discount Rate Period Covered Transfers -548 2013 7% 2014 - 2015 Annualized Reductions in Disproportionate Share Hospital Allotment ( in millions ) -549 2013 3% 2014 - 2015
From Whom to Whom Federal Government to the States due to assumed reduced number of uninsured and uncompensated care.CMS-2367-P 43

List of Subjects in 42 CFR Part 447 Accounting, Administrative practice a nd procedure, Drugs, Grant programshealth, Health facilities, Health profe ssions, Medicaid, Reporting and recordkeeping requirements, Rural areas.CMS-2367-P 44

For the reasons set forth in the preamb le, the Centers for Medicare & Medicaid Services proposes to amend 42 CFR chapter IV as set forth below: PART 447 —PAYMENTS FOR SERVICES 1. The authority citation for part 44 7 continues to read as follows: Authority : Sec. 1102 of the Social Security Act (42 U.S.C. 1302). Subpart E—Payment Adjustment s for Hospitals That Serve a Disproportionate Number of Low-Income Patients 2. Section 447.294 is adde d to read as follows: §447.294 Medicaid disproportionate share hospital (DSH) allotment reductions for Federal fiscal year 2014 and Federal fiscal year 2015. (a) Basis and purpose. This section sets forth the DSH health reform methodology (DHRM) for calculating State-spec ific annual DSH allo tment reductions from Federal fiscal year 2014 and Federal fiscal year 2015 as re quired under section 1923(f) of the Act. (b) Definitions

. For purposes of this section-- Aggregate DSH allotment reductions mean the amounts identified in section 1923(f)(7)(A)(ii) of the Act. Budget neutrality factor (BNF) is a factor incorporated in the DHRM that takes into account the extent to which the DSH allo tment for a State was included in the budget neutrality calculation for a coverage e xpansion approved under section 1115 as of July 31, 2009

. DSH payment means the amount reported in accordance with §447.299(c)(17). Effective DSH allotment means the amount of DSH allotment determined by subtracting the State-specific DSH allotmen t from a State’s unreduced DSH allotment.CMS-2367-P 45 High level of uncompensated care factor (HUF ) is a factor incorporated in the DHRM that results in larger percentage DS H allotment reduction for States that do not target DSH payments on hospitals with high levels of uncompensated care. High Medicaid volume hospital means a disproportionate share hospita l that has an MIUR at least one standa rd deviation above the mean MIUR for hospitals receiving Medicaid payments in the State. High uncompensated care hospital means a hospital that ex ceeds the mean ratio of uncompensated care costs to total Medicai d and uninsured inpatient and outpatient hospital service costs for all disproportiona te share hospitals within a state. High volume of Medicaid inpatients factor (HMF ) is a factor incorporated in the DHRM that results in larger percentage DS H allotment reduction for States that do not target DSH payments on hospitals with high volumes of Medicaid inpatients. Hospital with high volumes of Medicaid inpatients means a disproportionate share hospital that meets the requirements of section 1923(b)(1)(A) of the Act. Low DSH adjustment factor (LDF) is a factor incorporated in the DHRM that results in a smaller percentage DSH a llotment reduction on low DSH States.
Low DSH State means a State that meets the criterion described in section 1923(f)(5)(B) of the Act. Mean HUF reduction percentage is the mean of each State within a State group’s quotient of its HUF reduction dividing by its unreduced DSH allotment. Medicaid inpatient utilization rate ( MIUR) means the rate defined in section 1923(b)(2) of the Act. Non-high Medicaid volume hospital means a disproportionate share hospitals that does not meet the requirements of section 1923(b)(1)(A) of the Act. State group means similarly situated States that are collectively identified byCMS-2367-P 46

DHRM. State-specific DSH allotment reduction means the amount of annual DSH allotment reduction for a particular State as determined by the DHRM. Total Medicaid cost means the amount reported in accordance with §447.299(c)(10). Total population means the 1-year estimates data of the total noninstitutionalized population identified by Un ited States Census Bureau’s American Community Survey. Total uninsured cost means the amount reported for each DSH in accordance with §447.299(c)(14). Uncompensated care cost means the amount reported in accordance with §447.299(c)(16). Uncompensated care level means a hospital’s uncompen sated care cost divided by the sum of its total Medicaid cost and its total uninsured cost. Uninsured percentage factor (UPF) is a factor incorporated in the DHRM that results in larger percentage DSH allotment reductions for States that have the lowest percentages of unins ured individuals. Uninsured population means 1-year estimates data of the number of uninsured identified by United States Census Bureau’s American Community Survey. Unreduced DSH allotment means the DSH allotment calculated under section 1923(f) of the Act prior to annual reductions under this section. (c) Aggregate DSH allotment reduction amounts

. The aggregate DSH allotment reduction amounts are as provided in s ection 1923(f)(7)(A)( ii) of the Act. (d) State data submission requirements . States are required to submit the mean MIUR, determined in accordance with section 1923(b)(1)(A) of the Act, for all hospitalsCMS-2367-P 47 receiving Medicaid payments in the State a nd the value of one sta ndard deviation above such mean. The State must provide this data to CMS by June 30 of each year identified in paragraph (c) of this section. (e) DHRM methodology

. Section 1923(f)(7) of the Ac t requires aggregate annual reduction amounts for FY 2014 and FY 2015 to be reduced through the DHRM. The DHRM is calculated on an annual basis based on the most recent data available to CMS at the time of the calculation. The DHRM is determined as follows: (1) Establishing State groups . For each FY, CMS will separate low-DSH States and non-low DSH states into distinct State groups. (2) Aggregate DSH allotment reduction allocation . CMS will allocate a portion of the aggregate DSH allotment reductions to each State group by the following: (i) Dividing the sum of each State group’ s preliminary unreduced DSH allotments by the sum of both State groups’ prelimin ary unreduced DSH allotment amounts to determine a percentage. (ii) Multiplying the value of paragraph (e)(2)(i) of th is section by the aggregate DSH allotment reduction amount under paragrap h (c) of this section for the applicable fiscal year. (iii) Applying the low DSH adjustment factor under paragr aph (e)(3) of this section. (3) Low DSH adjustment factor (LDF) calculation

. CMS will calculate the LDF by the following: (i) Dividing each State’s preliminary unre duced DSH allotment by their respective total Medicaid service expenditures for the applicable year. (ii) Calculating for each State group the mean of all values determined in paragraph (e)(3)(i) of this section.CMS-2367-P 48 (iii) Dividing the value of paragraph (e )(3)(ii) of this section for the low-DSH State group by the value of paragraph (e )(3)(ii) for the non-low DSH state group. (4) LDF application

. CMS will determine the final aggregate DSH allotment reduction allocation for each State group through application of the LDF by the following: (i) Multiplying the LDF by the aggregate DSH allotment reduction for the low DSH State group. (ii) Utilizing the value of paragraph (e)(4)( i) of this section as the aggregate DSH allotment reduction allocated to the low DSH State group. (iii) Subtracting the value of paragraph (e)(4)(ii) of this section from the value of paragraph (e)(2)(ii) of this section for the lo w DSH State group; and (iii) adding the value of paragraph (e)(4)(iii) of this section to the valu e of paragraph (e)(2)( ii) of this section for the non-low DSH State group. (5) Reduction factor allocation . CMS will allocate the aggregate DSH allotment reduction amount to three core factors by multiply the aggregate DSH allotment reduction amount for each State group by the following: (i) UPF – 33 and 1/3 percent. (ii) HMF – 33 and 1/3 percent. (iii) HUF – 33 and 1/3 percent. (6) Uninsured percentage factor (UPF) calculation

. CMS will calculate the UPF by the following: (i) Dividing the total State population by th e uninsured in State for each State. (ii) Determining the uninsured reduction allocation component for each State as a percentage by dividing each St ate’s value of paragraph (e)(6)( i) of this se ction by the sum of the values of paragraph (e )(6)(i) of this sect ion for the respective State group (the sumCMS-2367-P 49

of the values of all States in th e State group should total 100 percent). (iii) Determine a weighting factor by dividing each State’s unreduced DSH allotment by the sum of all preliminary unreduced DSH allotments for the respective State group. (iv) Multiply the weighting factor calculate d in paragraph (e)(6)(iii) of this section by the value of each State’s uninsured reduc tion allocation component from paragraph (e)(6)(ii) of th is section. (v) Determine the UPF as a percentage by dividing the product of paragraph (e)(6)(iv) of this section for each State by the sum of the valu es of paragraph (e)(6)(iv) of this section for the respective State group (the su m of the values of all States in the State group should total 100 percent). (7) UPF application and reduction amount

. CMS will determine the UPF portion of the final aggregate DSH allotment reduction allocation for each State by multiplying the State’s UPF by the aggregate DSH allotm ent reduction allocated to the UPF factor under paragraph (e)(5) of this sect ion for the respective State group. (8) High volume of Medicaid inpati ents factor (HMF) calculation . CMS will calculate the HMF by determining a percentage for each State by dividing the State’s total DSH payments made to non-high Medicaid volume hospitals by the total of such payments for the entire State group. (9) HMF application and reduction amount . CMS will determine the HMF portion of the final aggregate DSH allotmen t reduction allocation for each State by multiplying the State’s HMF by the aggregate DSH allotment reduction allocated to the HMF factor under paragraph (e)(5) of th is section for the respective State group. (10) High level of uncompensated care factor (HUF) calculation . CMS will calculate the HMF by determining a percentage for each State by dividing the State’s totalCMS-2367-P 50 DSH payments made to non-High Uncompensate d Care Level hospitals by the total of such payments for the entire State group. (11) HUF application and reduction amount . CMS will determine the HUF portion of the final aggregate DSH allotment reduction allocation by multiplying each State’s HUF by the aggregate DSH allotment re duction allocated to the HUF factor under paragraph (e)(5) of this secti on for the respec tive State group. (12) Section 1115 budget neutral ity factor (BNF) calculation . This factor is only calculated for States for which all or a portion of the DSH allotment was included in the calculation of budget neutrality under a section 1115 demonstration for the specific fiscal year subject to reduction pursu ant to an approval on or be fore July 31, 2009. CMS will calculate the BNF for qualifying states by the following: (i) For States whose DSH allotment wa s included in the budget neutrality calculation for a coverage expansion that was approved under section 1115 as of July 31, 2009, (without regard to approved amen dments since that date) determining the amount of the State’s DSH allotment incl uded in the budget neutrality calculation for coverage expansion for the specific fiscal year subject to reduction. This amount is not subject to reductions under the HMF and HUF calculations. (ii) Determining the amount of the Stat e’s DSH allotment included in the budget neutrality calculation for non-coverage expans ion purposes for the specific fiscal year subject to reduction. (iii) Multiplying each qualifying State’s va lue of paragraph (e)(10)(ii) of this section by the mean HMF reduction per centage for the respective State group. (iv) Multiplying each qualifying State’s va lue of paragraph (e)(10)(ii) of this section by the mean HUF reduction percen tage for the respective State group. (v) For each State, calculating the sum of the value of paragraphs (e)(10)(iii) andCMS-2367-P 51 of (e)(10)(iv) of this section. (13) Section 1115 budget neutrality factor (BNF) application . This factor will be applied in the State-specific DSH allotment reduction calculation. (14) State-specific DSH allotment reduction calculation . CMS will calculate the state-specific DSH reduction by the following: (i) Taking the sum of the value of paragra phs (e)(7), (e)(9), and (e)(11) of this section for each State. (ii) For States qualifying under paragraph (e )(12) of this sec tion, adding the value of paragraph (e)(12)(v) of this section. (iii) Reducing the amount of paragraph (e )(14)(i) of this section for each State that does not qualify under paragraph (e)(12 )(v) based on the proportion of each State’s preliminary unreduced DSH allotment compar ed to the national total of preliminary unreduced DSH allotments so that the sum of paragraph (e)(14)(iii) of this section equals the sum of paragraph (e)(12)(v) of this section. (f) Annual DSH allotment reduction application

. For each fiscal year identified in paragraph (c) of this section, CMS will subtr act the State-specific DSH allotment amount determined in paragraph (e)(14) of this se ction from that State’s final unreduced DSH allotment. This amount is the State’s final DSH allotment for the fiscal year. 3. Section 447.299 is amended by adding pa ragraphs (c)(19), (c)(20) and (c)(21) to read as follows: §447.299 Reporting requirements. * * * * * (c)* * * (19) Medicaid provider number

. (20) Medicare provider number.CMS-2367-P 52 (21) Total hospital cost

. The total annual costs incu rred by each hospital for furnishing inpatient hospital and outpatient hospital services.
* * * * *CMS-2367-P
( Catalog of Federal Domestic Assistan ce Program No. 93.778, Me dical Assistance Program)
Dated: April 26, 2013.

________________________________ Marilyn Tavenner, Acting Administrator , Centers for Medicare & Medicaid Services

.

Approved: ______________

_________________________________ Kathleen Sebelius, Secretary, Department of Health and Human Services

.

BILLING CODE 4120-01-PCMS-2367-P 54

[FR Doc. 2013-11550 Filed 05/13/2013 at 11:15 am; Publication Date: 05/15/2013]