[Federal Register Volume 75, Number 229 (Tuesday, November 30, 2010)]
[Rules and Regulations]
[Pages 73972-73976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-30066]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 433, 447, and 457

[CMS-2361-F]
RIN 0938-AQ40


Medicaid Program; Cost Limit for Providers Operated by Units of 
Government and Provisions To Ensure the Integrity of Federal-State 
Financial Partnership

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

ACTION: Final rule; implementation of court orders.

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SUMMARY: This final rule amends Medicaid regulations to conform with 
the decision by the United States District Court for the District of 
Columbia on May 23, 2008 in Alameda County Medical Center, et al. v. 
Michael O. Leavitt, Secretary, U.S. Department of Health and Human 
Services, et al., 559 F. Supp. 2d (2008) that vacated a final rule with 
comment period published in the Federal Register in May 29, 2007. This 
regulatory action takes ministerial steps to remove the vacated 
provisions from the Code of Federal Regulations and reinstate the prior 
regulatory language impacted by the May 29, 2007 final rule with 
comment period.

DATES: Effective Date: This regulation is effective immediately on date 
of publication November 30, 2010.

FOR FURTHER INFORMATION CONTACT: Rob Weaver, (410) 786-5914.

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

    Title XIX of the Social Security Act (the Act) authorizes Federal 
grants to States for Medicaid programs that provide medical assistance 
to low-income families, the elderly and persons with disabilities. Each 
State administers the Medicaid program in accordance with an approved 
Medicaid State plan. States have considerable flexibility in designing 
their programs, but must comply with Federal requirements specified in 
the Medicaid statute, regulations, and program guidance. Sections 
1902(a)(2), 1903(a), and 1905(b) of the Act set forth requirements that 
describe how the responsibility to fund the Medicaid program will be 
shared between the Federal and State governments. Section 1905(b) of 
the Act delineates a percentage referred to as the Federal medical 
assistance percentage (FMAP) that determines on a State-by-State basis 
the Federal and non-Federal share of program expenditures. Section 
1903(a) of the Act requires Federal reimbursement to the State of the 
Federal share. Section 1902(a)(2) of the Act and implementing 
regulations at 42 CFR 433.50(a)(1) permit a State to delegate some 
responsibility for the non-Federal share of medical assistance 
expenditures to local units of government sources under some 
circumstances.
    The U.S. Troop Readiness, Veterans Care, Katrina Recovery and Iraq 
Accountability Appropriations Act of 2007 prohibited the Secretary of 
Health and Human Services from finalizing or otherwise implement the 
provisions contained in a proposed rule published on January 18, 2007, 
titled ``Medicaid Program; Cost Limit for Providers Operated by Units 
of Government and Provisions To Ensure the Integrity of Federal-State 
Financial Partnership'' (72 FR 2236 through 2248).

B. Final Rule With Comment Period Published May 29, 2007

    On May 29, 2007, the Department of Human and Human Services (DHHS) 
published a final rule with comment period titled, ``Medicaid Program; 
Cost Limit for Providers Operated by Units of Government and Provisions 
To Ensure the Integrity of Federal-State Financial Partnership'' in the 
Federal Register (72 FR 29747 through 29836).
    That final rule eliminated, modified, or implemented regulatory 
requirements pertaining to the financial relationship

[[Page 73973]]

between the Federal and State governments. Specifically, this rule 
consisted of the following:
    <bullet> Clarified that entities involved in the financing of the 
non-Federal share of Medicaid payments must be a unit of government.
    <bullet> Clarified the documentation necessary to support a 
Medicaid certified public expenditure.
    <bullet> Limited Medicaid reimbursement for health care providers 
that are operated by units of government to an amount that does not 
exceed the health care provider's cost of providing services to 
Medicaid individuals.
    <bullet> Required all health care providers to receive and retain 
the full amount of total computable payments for services furnished 
under the approved Medicaid State plan.
    <bullet> Made conforming changes to provisions governing the Child 
Health Insurance Program (CHIP) to make the same requirements 
applicable, with the exception of the cost limit on reimbursement.
    On May 23, 2008, the United States District Court for the District 
of Columbia, in Alameda County Medical Center, et al. v. Michael O. 
Leavitt, Secretary, U.S. Department of Health and Human Services, et 
al., 559 F. Supp. 2d, found that DHHS had improperly promulgated these 
regulations. The court stated that DHHS violated the Congressional 
moratorium on finalization of this regulation in the Troop Readiness, 
Veteran's Care, Katrina Recovery and Iraq Accountability Appropriation 
Act of 2007 (UTRA), (Pub. L. 110-28) and vacated the rule and remanded 
the matter to DHHS. Accordingly, DHHS is removing the vacated rule from 
the Code of Federal Regulations.
    Section 7001 of the Supplemental Appropriations Act of 2008 Public 
Law 110-252 extended the moratorium on finalizing the Cost rule to 
April 1, 2009. The Congress considered this matter again in the passage 
of the American Recovery and Reinvestment Act (ARRA) of 2009. Section 
5003(d) of ARRA expressed the sense of Congress that the Cost rule 
should not be adopted as a final rule.

II. Provisions of the Final Regulations

    In this final rule, DHHS is removing all of the provisions that 
were issued in the May 29, 2007 final rule with comment period. 
Concurrently, DHHS is restoring regulation text so that the regulatory 
language impacted by the May 2007 final rule will appear in the Code of 
Federal Regulations as it did prior to issuance of that rule.

Part 433--State Fiscal Administration

(Sec. 433.50) Basis, Scope, and Applicability

    In Sec.  433.50(a)(1), DHHS is removing the language that states 
``and section 1903(w)(7)(G).'' DHHS is also removing ``units of.'' DHHS 
is also adding ``s'' to the word ``government'' and adding the word 
``both'' before the words ``State and local governments.'' In addition, 
DHHS is removing paragraphs (a)(1)(i) and (a)(1)(ii) of this 
regulation.

(Sec. 433.51) Funds From Units of Government as the State Share of 
Financial Participation

    In Sec.  433.51, DHHS is revising the section heading to read 
``Sec.  433.51 Public funds as the State share of financial 
participation.''
    In Sec.  433.51(a), DHHS is adding the word ``Public'' before the 
word ``funds.'' DHHS is also removing the words ``from units of 
government'' of this regulation.
    In Sec.  433.51(b), DHHS is revising the paragraph to read ``The 
public funds are appropriated directly to the State or local Medicaid 
agency, or are transferred from other public agencies (including Indian 
tribes) to the State or local agency and under its administrative 
control, or certified by the contributing public agency as representing 
expenditures eligible for FFP under this section.''
    In Sec.  433.51(c), DHHS is adding the word ``Public'' before the 
word ``funds.'' DHHS is also removing the words ``from units of 
government'' of this regulation.

Part 447--Payments For Services

(Sec. 447.206) Cost Limit for Providers Operated by Units of Government

    In part 447, DHHS is removing the entire provisions of Sec.  
447.206 of this regulation. (Sec.  447.207) Retention of payments.
    In part 447, DHHS is removing the entire provisions of Sec.  
447.207 of this regulation.

(Sec. 447.271) Upper Limits Based on Customary Charges

    In Sec.  447.271(a), DHHS is adding an introductory phrase to read 
``Except as provided in paragraph (b) of this section,''.
    In Sec.  447.271(b), DHHS is removing the word ``Reserved'' and 
replacing it with ``The agency may pay a public provider that provides 
services free or at a nominal charge at the same rate that would be 
used if the provider charges were equal to or greater than its costs.''

(Sec. 447.272) Inpatient Services: Application of Upper Payment Limits

    In Sec.  447.272(a), DHHS is removing the word ``nursing 
facilities'' replacing it with ``NFs.''
    In Sec.  447.272(a)(1), DHHS is revising the paragraph to read 
``State government-owned or operated facilities (that is, all 
facilities that are either owned or operated by the State).''
    In Sec.  447.272(a)(2), DHHS is revising the paragraph to read 
``Non-State government-owned or operated facilities (that is, all 
government facilities that are neither owned nor operated by the 
State).''
    In Sec.  447.272(a)(3), DHHS is revising the paragraph to read 
``Privately-owned and operated facilities.''
    In Sec.  447.272(b)(1), DHHS is removing the words ``For privately 
operated facilities.''
    In Sec.  447.272(b)(2), DHHS is revising the paragraph to read 
``Except as provided for in paragraph (c) of this section, aggregate 
Medicaid payments to a group of facilities within one of the categories 
described in paragraph (a) of this section may not exceed the upper 
payment limit described in paragraph (b)(1) of this section.''
    In Sec.  447.272(b)(3), DHHS is removing entire provision of this 
regulation.
    In Sec.  447.272(b)(4), DHHS is removing entire provision of this 
regulation.
    In Sec.  447.272(c), DHHS is removing symbol ``--'' and replacing 
it with ``.''.
    In Sec.  447.272, DHHS is removing paragraph (c)(3) of this 
regulation.
    In Sec.  447.272(d)(1), DHHS is revising the paragraph to read 
``For non-State government owned or operated hospitals--March 19, 
2002.''

(Sec. 447.321) Outpatient Hospital and Clinic Services: Application of 
Upper Payment Limits

    In Sec.  447.321(a)(1), DHHS is revising the paragraph to read 
``State government-owned or operated facilities (that is, all 
facilities that are owned or operated by the State).''
    In Sec.  447.321(a)(2), DHHS is revising the paragraph to read 
``Non-State government owned or operated facilities (that is, all 
government operated facilities that are neither owned nor operated by 
the State).''
    In Sec.  447.321(a)(3), DHHS is revising the paragraph to read 
``Privately-owned and operated facilities.''
    In Sec.  447.321(b)(1), DHHS is removing the words ``For privately 
operated facilities,''.
    In Sec.  447.321(b)(2), DHHS is revising the provision to read 
``Except as provided for in paragraph (c) of this section, aggregate 
Medicaid payments to

[[Page 73974]]

a group of facilities within one of the categories described in 
paragraph (a) of this section may not exceed the upper payment limit 
described in paragraph (b)(1) of this section.''
    In Sec.  447.321, DHHS is removing paragraph (b)(3) of this 
regulation.
    In Sec.  447.321, DHHS is removing pargraph (b)(4) of this 
regulation.
    In Sec.  447.321(c)(1), DHHS is removing the designated number 
``(1)'' of this regulation.
    In Sec.  447.321, DHHS is removing paragraph (c)(2) of this 
regulation.
    In Sec.  447.321, DHHS is removing paragraph (c)(3) of this 
regulation.
    In Sec.  447.321(d), DHHS is removing reference to paragraph 
``(b)'' and replacing it with a reference to paragraph ``(b)(1).''
    In Sec.  447.321(d)(1), DHHS is revising the paragraph to read 
``For non-State government-owned or operated hospitals--March 19, 
2002.''
    In Sec.  447.321, DHHS is removing paragraph (d)(2) and 
redesignating paragraph (d)(3) as paragraph (d)(2) of this regulation.

Sec. 457.220 Funds From Units of Government as the State Share of 
Financial Participation

    In Sec.  457.220(a), DHHS is adding the word ``Public'' before the 
word ``Funds.'' DHHS is also removing the words ``from units of 
government.''
    In Sec.  457.220(b), DHHS is revising the paragraph to read ``The 
public funds are appropriated directly to the State or local SCHIP 
agency, or are transferred from other public agencies (including Indian 
tribes) to the State or local agency and are under its administrative 
control, or are certified by the contributing public agency as 
representing expenditures eligible for FFP under this section.''
    In Sec.  457.220(c), DHHS is adding the word ``public'' after the 
word ``The'' before the word ``funds.'' DHHS is also removing the words 
``from units of government.''

Sec. 457.628 Other Applicable Federal Regulations

    In Sec.  457.628(a), DHHS is removing the parenthesis ``('' before 
the word ``sources'' and removing the parenthesis ``)'' after the word 
``Donations'' and adding a semicolon and the word ``Donations.'' In 
addition, DHHS is removing the words ``and Sec.  447.207 of this 
chapter (Retention of payments).''

III. Collection of Information

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

IV. Waiver of Proposed Rulemaking and Delayed Effective Date

    DHHS ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived, however, if an agency 
finds good cause that a notice-and-comment procedure is impractical, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued. DHHS has 
determined that providing prior notice and opportunity for comment on 
the amending regulations is unnecessary. This final rule merely removes 
regulatory language relating to CMS-2258-FC, which was vacated by the 
United States District Court for the District of Columbia. As a result 
of this decision, the regulatory language related to CMS-2258-FC has no 
force or effect, and public comment would not affect that status. The 
presence of that language in the Code of Federal Regulations can be 
confusing, and thus the public interest would be served by removal of 
that language. Furthermore, removing this language from the Code of 
Federal Regulations and reinstating the prior regulatory language has 
no legal impact but simply reflects this final judicial determination.
    For the same reasons, DHHS believes there is good cause for waiving 
any delay in the effective date, making the reinstated regulatory 
provisions immediately effective. See 5 U.S.C. 553(d).

V. Regulatory Impact Statement

    DHHS has examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, section 202 of the Unfunded 
Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), Executive 
Order 13132 on Federalism (August 4, 1999) and the Congressional Review 
Act (5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). This 
regulatory action only removes those regulations vacated by the United 
States District Court for the District of Columbia. Therefore, this 
action is not a ``significant'' regulatory action as defined by E.O. 
12866. This rule also does not reach the economic threshold and thus is 
not considered a major rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$7 million to $34.5 million in any one year. Individuals and States are 
not included in the definition of a small entity. DHHS is not preparing 
an analysis for the RFA because DHHS has determined, and the Secretary 
certifies, that this final rule will 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 operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Core-Based 
Statistical Area (for Medicaid) and outside a Metropolitan Statistical 
Area for Medicare) and has fewer than 100 beds. DHHS is not preparing 
an analysis for section 1102(b) of the Act because we have determined, 
and the Secretary certifies, that this final rule will not have a 
significant impact on the operations of a substantial number of small 
rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2010, that 
threshold is approximately $135 million. This rule will have no 
consequential effect on State, local, or tribal governments or on the 
private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates

[[Page 73975]]

regulations that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. Since this regulation does not impose any costs on State 
or local governments, the requirements of Executive Order 13132 are not 
applicable.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 433

    Administrative practice and procedure, Child support, Claims, Grant 
programs--health, Medicaid, Reporting and recordkeeping requirements.

42 CFR Part 447

    Accounting, Administrative practice and procedure, Drugs, Grant 
programs--health, Health facilities, Health professions, Medicaid, 
Reporting and recordkeeping requirements, Rural areas.

42 CFR Part 457

    Administrative practice and procedure, Grant programs--health, 
Health insurance, Reporting and recordkeeping requirements.

0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 433--STATE FISCAL ADMINISTRATION

0
1. The authority citation for part 433 continues to read as follows:

    Authority:  Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

Subpart B--General Administrative Requirements State Financial 
Participation

0
2. Section Sec.  433.50 is amended by revising paragraph (a)(1) to read 
as follows:


Sec.  433.50  Basis, scope, and applicability.

    (a) * * *
    (1) Section 1902(a)(2) of the Act which requires States to share in 
the cost of medical assistance expenditures and permit both State and 
local governments to participate in the financing of the non-Federal 
portion of medical assistance expenditures.
* * * * *

0
3. Section 433.51 is revised to read as follows:


Sec.  433.51  Public Funds as the State share of financial 
participation.

    (a) Public Funds may be considered as the State's share in claiming 
FFP if they meet the conditions specified in paragraphs (b) and (c) of 
this section.
    (b) The public funds are appropriated directly to the State or 
local Medicaid agency, or are transferred from other public agencies 
(including Indian tribes) to the State or local agency and under its 
administrative control, or certified by the contributing public agency 
as representing expenditures eligible for FFP under this section.
    (c) The public funds are not Federal funds, or are Federal funds 
authorized by Federal law to be used to match other Federal funds.

PART 447--PAYMENTS FOR SERVICES

0
4. The authority citation for part 447 continues to read as follows:

    Authority:  Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

Subpart B--Payment Methods: General Provisions


Sec.  447.206  [Removed]

0
5. Section 447.206 is removed.


Sec.  447.207  [Removed]

0
6. Section 447.207 is removed.

Subpart C--Payment for Inpatient Hospital and Long-Term Care 
Facility Services

Upper Limits

0
7. Section Sec.  447.271 is revised to read as follows:


Sec.  447.271  Upper limits based on customary charges.

    (a) Except as provided in paragraph (b) of this section, the agency 
may not pay a provider more for inpatient hospital services under 
Medicaid than the provider's customary charges to the general public 
for the services.
    (b) The agency may pay a public provider that provides services 
free or at a nominal charge at the same rate that would be used if the 
provider charges were equal to or greater than its costs.

0
8. Section 447.272 is amended by--
0
A. Revising paragraphs (a), (b), and (d)(1).
0
B. Revising the heading for paragraph (c).
0
C. Removing paragraph (c)(3).
    The revisions read as follows:


Sec.  447.272  Inpatient services: Application of upper payment limits.

    (a) Scope. This section applies to rates set by the agency to pay 
for inpatient services furnished by hospitals, NFs, and ICFs/MR within 
one of the following categories:
    (1) State government-owned or operated facilities (that is, all 
facilities that are either owned or operated by the State).
    (2) Non-State government-owned or operated facilities (that is, all 
government facilities that are neither owned nor operated by the 
State).
    (3) Privately-owned and operated facilities.
    (b) General rules.
    (1) Upper payment limit refers to a reasonable estimate of the 
amount that would be paid for the services furnished by the group of 
facilities under Medicare payment principles in subchapter B of this 
chapter.
    (2) Except as provided for in paragraph (c) of this section, 
aggregate Medicaid payments to a group of facilities within one of the 
categories described in paragraph (a) of this section may not exceed 
the upper payment limit described in paragraph (b)(1) of this section.
    (c) Exceptions.
* * * * *
    (d) * * *
    (1) For non-State government owned or operated hospitals,--March 
19, 2002.
* * * * *

Subpart F--Payment Methods for Other Institutional and 
Noninstitutional Services

Outpatient Hospital and Clinic Services

0
9. Section 447.321 is amended by--
0
A. Revising paragraphs (a), (b), (c) and (d)(1).
0
B. Revising introductory text of paragraph (d) by removing the phrase 
``paragraph (b)'' and adding in its place the phrase ``paragraph 
(b)(1).''
0
C. Removing paragraphs (d)(2).
0
D. Redesignating paragraph (d)(3)as paragraph (d)(2).
    The revisions read as follows:


Sec.  447.321  Outpatient hospital and clinic services: Application of 
upper payment limits.

    (a) Scope. This section applies to rates set by the agency to pay 
for outpatient services furnished by hospitals and clinics within one 
of the following categories:
    (1) State government-owned or operated facilities (that is, all 
facilities that are owned or operated by the State.)
    (2) Non-State government owned or operated facilities (that is, all 
government operated facilities that are neither owned nor operated by 
the State).
    (3) Privately-owned and operated facilities.

[[Page 73976]]

    (b) General rules. (1) Upper payment limit refers to a reasonable 
estimate of the amount that would be paid for the services furnished by 
the group of facilities under Medicare payment principles in subchapter 
B of this chapter.
    (2) Except as provided in paragraph (c) of this section, aggregate 
Medicaid payments to a group of facilities within one of the categories 
described in paragraph (a) of this section may not exceed the upper 
payment limit described in paragraph (b)(1) of this section.
    (c) Exceptions. Indian Health Services and tribal facilities. The 
limitation in paragraph (b) of this section does not apply to Indian 
Health Services facilities and tribal facilities that are funded 
through the Indian Self-Determination and Education Assistance Act 
(Pub. L. 93-638).
    (d) * * *
    (1) For non-State government-owned or operated hospitals--March 19, 
2002.
* * * * *

PART 457--ALLOTMENTS AND GRANTS TO STATES

0
10. The authority for part 457 continues to read as follows:

    Authority:  Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

Subpart B--General Administration--Reviews and Audits; Withholding 
for Failure To Comply; Deferral and Disallowance of Claims; 
Reduction of Federal Medical Payments

0
11. Section 457.220 is revised to read as follows:


Sec.  457.220  Funds from units of government as the State share of 
financial participation.

    (a) Public funds may be considered as the State's share in claiming 
FFP if they meet the conditions specified in paragraphs (b) and (c) of 
this section.
    (b) The public funds are appropriated directly to the State or 
local SCHIP agency, or are transferred from other public agencies 
(including Indian tribes) to the State or local agency and are under 
its administrative control, or are certified by the contributing public 
agency as representing expenditures eligible for FFP under this 
section.
    (c) The public funds are not Federal funds, or are Federal funds 
authorized by Federal law to be used to match other Federal funds.

Subpart F--Payments to States

0
12. Section 457.628 is amended by revising the introductory text and 
paragraph (a) to read as follows:


Sec.  457.628  Other applicable Federal regulations.

    Other regulations applicable to SCHIP programs include the 
following:
    (a) HHS regulations in 42 Subpart B--433.51-433.74 sources of non-
Federal share and Health Care-Related Taxes and Provider-Related 
Donations; apply to States' SCHIP programs in the same manner as they 
apply to States' Medicaid programs.
* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

    Dated: July 28, 2010.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: August 20, 2010.
Kathleen Sebelius
Secretary.
[FR Doc. 2010-30066 Filed 11-29-10; 8:45 am]
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