[Federal Register Volume 65, Number 13 (Thursday, January 20, 2000)]
[Rules and Regulations]
[Pages 3136-3139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-1357]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 412

[HCFA-1124-IFC]
RIN 0938-AJ92


Medicare Program; Medicare Inpatient Disproportionate Share 
Hospital (DSH) Adjustment Calculation: Change in the Treatment of 
Certain Medicaid Patient Days in States With 1115 Expansion Waivers

AGENCY:  Health Care Financing Administration (HCFA), HHS.

ACTION:  Interim final rule with comment period.

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SUMMARY:  This interim final rule with comment period implements a 
change to the Medicare DSH adjustment calculation policy in reference 
to section 1115 expansion waiver days. This rule sets forth the 
criteria to use in calculating the Medicare DSH adjustment for 
hospitals for purposes of payment under the prospective payment system.

DATES:  Effective date: January 20, 2000.
    Applicability Date: These regulations are applicable to discharges 
occurring on or after January 20, 2000.
    Comment date: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on March 
20, 2000.

ADDRESSES:  Mail an original and 3 copies of written comments to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: HCFA-1124-IFC, P.O. Box 8010, 
Baltimore, MD 21244-8010.
    If you prefer, you may deliver an original and 3 copies of your 
written comments to one of the following addresses:
Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW, 
Washington, DC 20201, or
Room C5-16-03, 7500 Security Boulevard, Baltimore, Maryland 21244-1850.

FOR FURTHER INFORMATION CONTACT:  Kathleen Buto, Deputy Director, 
Center for Health Plans and Providers, (202) 205-2505.

SUPPLEMENTARY INFORMATION:

I. Background

A. Summary

    The Medicare disproportionate share hospital (DSH) adjustment 
provision under section 1886(d)(5)(F) of the Social Security Act (the 
Act) was enacted by section 9105 of the Consolidated Omnibus Budget 
Reconciliation Act (COBRA) of 1985 and became effective for discharges 
occurring on or after May 1, 1986, as set forth in the May 6, 1986 
final rule with comment period (51 FR 16772).
    The size of a hospital's Medicare DSH adjustment, which is applied 
to the hospital inpatient prospective payment system (PPS) payment, is 
based on the sum of the percentage of patient days attributable to 
patients eligible for both Medicare Part A and Supplemental Security 
Income (SSI), and the percentage of patient days attributable to 
patients eligible for Medicaid but not Medicare Part A. The first 
computation includes days for patients who, during a given month, were 
entitled to both Medicare Part A and SSI (excluding State 
supplementation). This number is divided by the number of covered 
patient days utilized by patients under Medicare Part A for that same 
period. The second computation includes patient days associated with 
beneficiaries who were eligible for medical assistance (Medicaid) under 
a State plan approved under Title XIX but who were not entitled to 
Medicare Part A. (See 42 CFR 412.106(b)(4).) This number is divided by 
the total number of patient days for that same period.
    Currently, hospitals whose disproportionate patient percentage 
exceeds a certain threshold (which varies for urban and rural areas) 
receive either a fixed adjustment or, in the case of large urban 
hospitals (100 or more beds) or large rural hospitals (500 or more 
beds), a variable adjustment based on a statutory formula. As of April 
1, 1990, variable adjustments were made for large urban hospitals and 
rural referral centers. Facilities that qualify as rural referral 
centers as well as sole community hospitals receive the greater of a 
fixed adjustment or a variable adjustment based on a statutory formula. 
Qualifying large rural hospitals and sole community hospitals receive a 
fixed adjustment. Urban hospitals with 100 or more beds that receive 
funds from State and local governments for indigent care in excess of 
30 percent of net inpatient revenues are treated separately (42 CFR 
412.106(c)).

B. Section 1115 Expansion Waivers

    Some States provide medical assistance under a demonstration 
project (also referred to as a section 1115 waiver). In some section 
1115 waivers, a given population that otherwise could have been made 
eligible for Medicaid under section 1902(r)(2) or 1931(b) in a State 
plan amendment is made eligible under the waiver. These populations are 
referred to as hypothetical eligibles, and are specific, finite 
populations identifiable in the budget neutrality agreements found in 
the Special Terms and Conditions for the demonstrations; the patient 
days utilized by that population are to be recognized for purposes of 
calculating the Medicare DSH adjustment. In addition, the section 1115 
waiver may provide for medical assistance to expanded eligibility 
populations that could not otherwise be made eligible for Medicaid.
    Under current policy, hospitals were to include in the Medicare DSH 
calculation only those days for populations under the section 1115 
waiver who were or could have been made eligible under a State plan. 
Patient days of the expanded eligibility groups, however, were not to 
be included in the Medicare DSH calculation.

II. Provisions of the Interim Final Rule With Comment Period

    In this interim final rule with comment period, we are revising the 
policy, effective with discharges occurring on or after January 20, 
2000, to allow hospitals to include the patient days of all populations 
eligible for Title XIX matching payments in a State's

[[Page 3137]]

section 1115 waiver in calculating the hospital's Medicare DSH 
adjustment.
    One purpose of a section 1115 expansion waiver is to extend Title 
XIX matching payments to services furnished to populations that 
otherwise could not have been made eligible for Medicaid. The costs 
associated with these populations are matched based on section 1115 
authority. In fact, section 1115(a)(2)(A) of the Act states that the 
``costs of such project which would not otherwise be included as 
expenditures under section * * * 1903 * * * shall, to the extent and 
for the period prescribed by the Secretary, be regarded as expenditures 
* * * approved under (Title XIX).'' Thus, the statute allows for the 
expansion populations to be treated as Medicaid beneficiaries.
    In addition, at the time that the Congress enacted the Medicare DSH 
adjustment, there were no approved section 1115 expansion waivers. 
Nonetheless, we believe allowing hospitals to include the section 1115 
expanded waiver population in the Medicare DSH calculation is fully 
consistent with the Congressional goals of the Medicare DSH adjustment 
to recognize the higher costs to hospitals of treating low income 
individuals covered under Medicaid. Therefore, inpatient hospital days 
for these individuals eligible for Title XIX matching payments under a 
section 1115 waiver are to be included as Medicaid days for purposes of 
the Medicare DSH adjustment calculation.
    In order to provide consistency in both components of the 
calculation, any days that are added to the Medicaid day count must 
also be added to the total day count, to the extent that they have not 
been previously so added.
    Regardless of the type of allowable Medicaid day, the hospital 
bears the burden of proof and must verify with the State that the 
patient was eligible under one of the allowable categories during each 
day of the patient's stay. The hospital is responsible for and must 
provide adequate documentation to substantiate the number of Medicaid 
days claimed. Days for patients that cannot be verified by State 
records to have fallen within a period wherein the patient was eligible 
for Medicaid as described in this rule cannot be counted.

III. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the DATES 
section of this preamble, and, when we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

IV. Waiver of Proposed Rulemaking and 30-Day Delay in the Effective 
Date

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived, however, if an agency 
finds good cause that a notice-and-comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued.
    We find that it would be contrary to the public interest to 
undertake prior notice and comment procedures before implementing this 
interim final rule with comment period. States that have approved 
section 1115 waivers are continually involved in critical efforts to 
implement, refine, and operate their Medicaid programs. For example, 
the States, managed care organizations, and hospitals are always 
considering their financial positions and the adequacy of rates paid 
between these critical partners. We believe this policy change impacts 
their financial positions. Therefore, we believe the extended period of 
uncertainty for hospitals and others that would result if this policy 
change were to go through proposed and final rulemaking could adversely 
affect the course of these critical efforts and thereby disrupt 
services to Medicaid beneficiaries and other low-income patients who 
are served by hospitals, especially safety net hospitals.
    Moreover, because our prior guidance on certain aspects of our 
Medicare DSH policy was insufficiently clear, many hospitals in States 
with approved section 1115 expansion waivers have been receiving 
Medicare DSH payments reflecting the inclusion of expansion population 
patient days. But for an immediate effective date of this rule, these 
Medicare DSH payments will cease until completion of the notice and 
comment rulemaking process, and, as a result, many of these hospitals 
may experience financial difficulties that may adversely affect access 
to services by the low-income patients served by these safety net 
hospitals.
    Therefore, we find good cause to waive the notice of proposed 
rulemaking and to issue this final rule on an interim basis. We are 
providing a 60-day comment period for public comment.
    Also, we normally provide a delay of 30 days in the effective date 
of a regulation. However, if adherence to this procedure would be 
impracticable, unnecessary, or contrary to the public interest, we may 
waive the delay in the effective date. For the reasons discussed above, 
it is important that the provisions of this final rule with comment 
period have immediate effect in order to avoid a potential hardship for 
hospitals and a potential disruption of services for their patients.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements:
    Section 412.106(b)(4) (ii) and (iii) contain information collection 
requirements that are subject to the PRA. The requirements are as 
follows:
    In paragraph (b)(4)(ii), effective with discharges occurring on or 
after January 20, 2000, for purposes of counting days under paragraph 
(b)(4)(i) of this section, hospitals may include all days attributable 
to populations eligible for Title XIX matching payments through a 
waiver approved under section 1115 of the Social Security Act.
    In paragraph (b)(4)(iii), the hospital has the burden of furnishing 
data adequate to prove eligibility for each Medicaid patient day 
claimed under paragraph (b)(4) and of verifying with the State that a 
patient was eligible for Medicaid during each claimed Medicaid day. We 
solicit comments on the burden

[[Page 3138]]

associated with these requirements. Based upon the burden estimates 
received from the public, HCFA will add these new requirements and 
associated burden to the existing information collections entitled; 
``Medicaid Disproportionate Share Adjustment Procedure and Criteria'' 
(OMB #0938-0691, HCFA-R-194, current expiration date 9/30/2002; and/or 
``Medicaid Disproportionate Share Hospital Payments--Institutions for 
Mental Disease'' (OMB #0938-0746, HCFA-R-0266, current expiration date 
6/30/2002.
    If you comment on these information collection and recordkeeping 
requirements, please mail copies directly to the following:

Health Care Financing Administration, Office of Information Services, 
Information Technology Investment Management Group, Attn: Julie Brown, 
Room N2-14-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Allison Herron Eydt, HCFA Desk Officer.

VI. Regulatory Impact Analysis

A. Introduction

    Section 804(2) of title 5, United States Code (as added by section 
251 of Public Law 104-121), specifies that a ``major rule'' is any rule 
that the Office of Management and Budget finds is likely to result in--
    <bullet> An annual effect on the economy of $100 million or more.
    <bullet> A major increase in costs or prices for consumers, 
individual industries, Federal, State, or local government agencies, or 
geographic regions; or
    <bullet> Significant adverse effects on competition, employment, 
investment productivity, innovation, or on the ability of United States 
based enterprises to compete with foreign based enterprises in domestic 
and export markets.
    We estimate that the impact of this interim final rule with comment 
period will exceed $100 million. Therefore, this rule is a major rule 
as defined in Title 5, United States Code, section 804(2).
    We have examined the impacts of this interim final rule with 
comment period as required by Executive Order 12866, the Regulatory 
Flexibility Act (RFA) (Public Law 96-354), and the Unfunded Mandates 
Reform Act of 1995 (Public Law 104-4). Executive Order 12866 directs 
agencies to assess all costs and benefits of available regulatory 
alternatives and, when regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, distributive impacts, 
and equity). The RFA requires agencies to analyze options for 
regulatory relief of small businesses. For purposes of the RFA, small 
entities include small businesses, non-profit organizations and 
government agencies. Most hospitals and most other providers and 
suppliers are small entities, either by non-profit status or by having 
revenues of $5 million or less annually. Individuals and States are not 
included in the definition of a small entity.
    We generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612), unless we certify that a final rule will not have a 
significant economic impact on a substantial number of small entities. 
For purposes of the RFA, we consider all hospitals to be small 
entities.
    Also, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis for any rule that may have a significant 
impact on the operations of a substantial number of small rural 
hospitals. Such an analysis must conform to the provisions of section 
604 of the RFA. With the exception of hospitals located in certain New 
England counties, for purposes of section 1102(b) of the Act, we define 
a small rural hospital as a hospital with fewer than 100 beds that is 
located outside of a Metropolitan Statistical Area (MSA) or New England 
County Metropolitan Area (NECMA). Section 601(g) of the Social Security 
Amendments of 1983 (Public Law 98-21) designated hospitals in certain 
New England counties as belonging to the adjacent NECMA. Thus, for 
purposes of the hospital inpatient prospective payment system, we 
classify these hospitals as urban hospitals.
    It is clear that the changes being made in this rule would affect a 
number of hospitals, and the effects on some may be significant. 
Therefore, the discussion below constitutes a combined regulatory 
impact analysis and regulatory flexibility analysis.
    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies prepare an assessment of anticipated costs and benefits 
before issuing any rule that may result in an expenditure in any one 
year by State, local and tribal governments, in the aggregate, or by 
the private sector, of $100 million or more (adjusted annually for 
inflation). We have concluded that this rule does not impose any 
mandates on State, local, or tribal governments, or the private sector 
that will result in an annual expenditure of $100 million or more.

B. Impact of This Interim Final Rule With Comment Period

    There are currently eight States with section 1115 expansion 
waivers (Delaware, Hawaii, Massachusetts, Missouri, New York, Oregon, 
Tennessee, and Vermont). Under this interim final rule with comment 
period, hospitals in these eight States would be allowed to include in 
the Medicaid percentage portion of their Medicare DSH calculation the 
inpatient hospital days attributable to patients who are eligible under 
the State's section 1115 expansion waiver. Because our policy was that 
these days were not allowable prior to the effective date of this 
interim final rule with comment period, by allowing hospitals to begin 
to include these days in their Medicare DSH calculation the impact will 
be to increase the DSH payments these hospitals will receive compared 
to what they would receive absent this change.
    Based on data available for the numbers of individuals covered by 
the expansion waiver in each of the eight States compared to the total 
number of individuals covered by Medicaid in each State (adjusted for 
utilization), we have estimated the impact of this change to be $270 
million in higher FY 2000 PPS payments, (total FY 2000 DSH payments are 
projected to be $4.6 billion), and $370 million in FY 2001 payments. 
Thus the total impact of this change for the period from FY 2001 
through FY 2005 is estimated to be $2.14 billion.
    In accordance with the provisions of Executive Order 12866, this 
interim final rule with comment period was reviewed by the Office of 
Management and Budget.

VII. Federalism

    We have reviewed this interim final rule with comment period under 
the threshold criteria of Executive Order 13132, Federalism. In 
considering this policy change, we have evaluated any potential 
Federalism impacts. States are already responsible as needed for 
providing information to hospitals and fiscal agents under current 
regulations. In addition, there are existing requirements for 
maintaining and reporting these data under the Terms and Conditions of 
their section 1115 demonstration agreement. Therefore, States already 
possess the information necessary to implement this change, and no new 
standards or requirements are

[[Page 3139]]

established as a result of this change. Indeed there may be a reduction 
in State responsibilities since section 1115 demonstration populations 
will no longer have to be treated differently from other Medicaid 
eligibles.
    In order to assist the States in making this information available 
to the Medicare fiscal intermediaries so they can accurately count days 
related to patients eligible under an 1115 waiver, we are issuing 
clarifying instructions to the States specifying exactly what data are 
to be included in the Medicare DSH calculation, and the States' role in 
providing this information. In addition, we are in ongoing contact with 
States that have waivers in order to assist and monitor the development 
and implementation of their waivers.
    We believe this regulation meets Federalism requirements as it does 
not increase the burden on States and is responsive to requests from 
hospitals who partner with States in providing health services to needy 
populations.

List of Subjects in 42 CFR Part 412

    Administrative practice and procedure, Health facilities, Medicare, 
Puerto Rico, Reporting and recordkeeping requirements.

    For reasons set forth in the preamble, 42 CFR chapter IV, part 412 
is amended as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

    1. The authority citation for part 412 continues to read as 
follows:

    Authority:  Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

    2. In Sec. 412.106, republish the headings of paragraphs (b) and 
(b)(4), redesignate paragraph (b)(4)(ii) as paragraph (b)(4)(iii), and 
add a new paragraph (b)(4)(ii) to read as follows:


Sec. 412.106  Special treatment: Hospitals that serve a 
disproportionate share of low-income patients.

* * * * *
    (b) Determination of a hospital's disproportionate patient 
percentage. * * *
    (4) Second computation. * * *
    (ii) Effective with discharges occurring on or after January 20, 
2000, for purposes of counting days under paragraph (b)(4)(i) of this 
section, hospitals may include all days attributable to populations 
eligible for Title XIX matching payments through a waiver approved 
under section 1115 of the Social Security Act.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)


    Dated: December 22, 1999.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
    Approved: December 22, 1999.
Donna E. Shalala,
Secretary.
[FR Doc. 00-1357 Filed 1-14-00; 3:09 pm]
BILLING CODE 4120-01-P