Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 57293 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

42 CFR Part 7 

[Docket No. CDC–2013–0013] 

RIN 0920–AA52 

Distribution of Reference Biological 

Standards and Biological Preparations 

AGENCY: Centers for Disease Control and 

Prevention (HHS/CDC), Department of 

Health and Human Services (HHS). 

ACTION: Confirmation of effective date of 

direct final rule. 

SUMMARY: The Centers for Disease 

Control and Prevention (CDC) within 

the Department of Health and Human 

Services (HHS) is publishing this 

document to confirm the effective date 

of the Direct Final Rule (DFR), 

published on July 22, 2013 (78 FR 

43817). 

DATES: The Direct Final Rule published 

at 78 FR 43817, July 22, 2013, will 

become effective on September 20, 

2013. 

FOR FURTHER INFORMATION CONTACT: For 

questions concerning this document: Dr. 

Carolyn M. Black, M.D., Division of 

Scientific Resources, Centers for Disease 

Control and Prevention, 1600 Clifton 

Road NE., Mailstop C–17, Atlanta, 

Georgia 30333; telephone 404–639– 

3466. 

SUPPLEMENTARY INFORMATION: On July 

22, 2013, HHS/CDC published a Direct 

Final Rule (DFR) amending 42 CFR part 

7 to update the agency name, address, 

and contact information for that part (78 

FR 43817. In that document, HHS/CDC 

indicated that if we did not receive any 

significant adverse comments on the 

direct final rule by August 21, 2013, we 

would publish a document in the 

Federal Register confirming the 

effective date of the direct final rule 

within 30 days after the end of the 

comment period. HHS/CDC did not 

receive significant adverse comment to 

the DFR. Therefore, consistent with the 

Direct Final Rule, the updated agency 

name and address and contact 

information for 42 CFR part 7 will 

become effective on September 20, 2013 

(78 FR 43817). 

Dated: September 11, 2013. 

Kathleen Sebelius, 

Secretary. 

[FR Doc. 2013–22685 Filed 9–17–13; 8:45 am] 

BILLING CODE 4163–18–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 447 

[CMS–2367–F] 

RIN 0938–AR31 

Medicaid Program; State 

Disproportionate Share Hospital 

Allotment Reductions 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: The statute, as amended by 

the Affordable Care Act, requires 

aggregate reductions to state Medicaid 

Disproportionate Share Hospital (DSH) 

allotments annually from fiscal year 

(FY) 2014 through FY 2020. This final 

rule delineates a methodology to 

implement the annual reductions for FY 

2014 and FY 2015. The rule also 

includes additional DSH reporting 

requirements for use in implementing 

the DSH health reform methodology. 

DATES: Effective Date: These regulations 

are effective on November 18, 2013. 

FOR FURTHER INFORMATION CONTACT: Rory 

Howe, (410) 786–4878; or Richard 

Strauss, (410) 786–2019. 

SUPPLEMENTARY INFORMATION: 

I. Executive Summary 

A. Purpose 

The statute as amended by the 

Affordable Care Act sets forth aggregate 

reductions to state Medicaid 

disproportionate share hospital (DSH) 

allotments annually from fiscal year 

(FY) 2014 through FY 2020. This final 

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 amends 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 DHRM will generate 

a state-specific DSH allotment reduction 

amount for FY 2014 and FY 2015. The 

total of all DSH allotment reduction 

amounts will equal the aggregate annual 

reduction amounts identified in the 

statute for FY 2014 and FY 2015. To 

determine the effective annual DSH 

allotment for each state, the statespecific annual DSH allotment 

reduction amount will be applied to the 

unreduced DSH allotment amount for 

its 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 health plans offered through 

Health Insurance Exchanges (also called 

Marketplaces) or through Medicaid and 

Children’s Health Insurance 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 

uninsured people will fall sharply 

beginning in 2014, the statute reforms 

an existing Medicaid payment program 

for hospitals which serve a 

disproportionate share of low income 

patients, and therefore, may have 

uncompensated care costs. Under 

sections 1902(a)(13)(A)(iv) and 1923 of 

the Social Security Act (the Act), states 

are required to make payments to 

qualifying ‘‘disproportionate share’’ 

hospitals (DSH payments). 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 

District of Columbia. This reform of the 

DSH payment authority is consistent 

with the 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 

requires that the Secretary of Health and 

Human Services (the Secretary) 

implement the aggregate reductions in 

federal funding for DSH payments 

through reductions in annual state 

allotments of federal funding for DSH 

payments (state DSH allotments), and 

accompanying reductions in payments 

to each state. The amount of federal 

funding for DSH payments for each state 

is limited to an annual state DSH 

allotment in accordance with section 

1923(f) of the Act. Section 1923(f)(7) of 

the Act requires 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. 


pmangrum on DSK3VPTVN1PROD with RULES
57294 Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 

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 have the lowest 

percentages of uninsured individuals 

during the most recent year for which 

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. 

• Take into account the extent to 

which 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 

contains explicit principles, described 

below, to apply when calculating the 

annual 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 

hospitals ‘‘take into account the 

situation of hospitals that serve a 

disproportionate share of low-income 

patients with special needs.’’ Over the 

more than 30 years since this 

requirement was first enacted, the 

Congress has set forth in section 1923 of 

the Act policies, payment targets, and 

limits 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 obstetricians who have staff 

privileges at the hospital and who have 

agreed to provide obstetric services to 

Medicaid individuals. This criterion 

does not apply to hospitals in which the 

inpatients are predominantly 

individuals under 18 years of age or 

hospitals that do not offer 

nonemergency obstetric services to the 

general public as of December 22, 1987. 

The second criterion is that the hospital 

has a Medicaid inpatient utilization rate 

(MIUR) 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 MIUR is at least one standard 

deviation 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 the Act. Subject to certain 

federal payment limits, states are 

afforded flexibility in setting DSH state 

plan payment methodologies to the 

extent that these methodologies are 

consistent with section 1923(c) of the 

Act. Section 1923(f) of the Act limits 

federal financial participation (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 sets of years, section 

1923(f)(3) of the Act establishes a 

general rule that state DSH allotments 

are calculated on an annual basis in an 

amount equal to the DSH allotment for 

the preceding FY increased by the 

percentage change in the consumer 

price index 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 12 

percent of the total amount of Medicaid 

expenditures under the state plan 

during the FY. Allotment amounts were 

originally established in the Medicaid 

Voluntary Contribution and Provider 

Specific Tax Amendments of 1991 (Pub. 

L. 102–234 enacted on December 12, 

1991) based on each state’s historical 

DSH spending. 

Section 1923(g) of the Act also limits 

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 eligible 

individuals and the uninsured, minus 

payments received by the hospital by or 

on the behalf of those patients. 

The statute requires annual aggregate 

reductions in federal DSH funding from 

FY 2014 through FY 2020. The aggregate 

annual reduction amounts are as 

follows: 

• $500 million for FY 2014. 

• $600 million for FY 2015. 

• $600 million for FY 2016. 

• $1.8 billion for FY 2017. 

• $5 billion for FY 2018. 

• $5.6 billion for FY 2019. 

• $4 billion for FY 2020. 

To implement these annual 

reductions, the statute requires that the 

Secretary reduce annual state DSH 

allotments, and payments to states, 

based on a DHRM specified in section 

1923(f)(7)(B) of the Act. The proposed 

DHRM relied on the five statutorily 

identified factors collectively to 

determine a state-specific DSH 

allotment reduction amount to be 

applied to the allotment that is 

calculated under section 1923(f) of the 

Act prior to the reductions under 

section 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 section 1902(a)(10)(A)(i)(VIII) of 

the Act. For a state that implements the 

new adult coverage group, the federal 

government will cover 100 percent of 

the cost of coverage for newly eligible 

individuals from 2014 through 2016 and 

no less than 90 percent thereafter. 

Hospitals will also receive full Medicaid 

reimbursement for many previously 

uninsured patients. So on balance, we 

believe both hospitals and states stand 

to benefit greatly from expanding 

Medicaid. In addition, new premium tax 

credits and cost sharing reductions will 

be available to low-income individual in 

all states. 

Implementation of the Affordable 

Care Act’s coverage expansion is 

expected to affect the amount of 

uncompensated care and the percentage 

of uninsured individuals within states. 

Generally, we expect that states that do 

not implement the new coverage group 

would have relatively higher rates of 

uninsurance, and more uncompensated 

care, than states that adopt the new 

coverage group. 

Because states that implement the 

new coverage group would likely have 

reductions in the rates of uninsurance, 

the reduction in DSH funding may be 

greater for such states compared to 

states that do not implement the new 

coverage 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. 

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 proposed a DHRM only for the 

first 2 years during which the DSH 

funding reductions are in effect. We 


pmangrum on DSK3VPTVN1PROD with RULES
Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 57295 

intend to continue evaluating potential 

implications for accounting for coverage 

expansion in the DHRM. Accordingly, 

we proposed to establish a DHRM that 

would be in effect for FY 2014 and FY 

2015 and we did not include a method 

to account for coverage expansion 

decisions in Medicaid for FY 2014 and 

FY 2015. 

D. DHRM Data Sources 

The statute establishes parameters 

regarding data and/or suggested data 

sources for specific factors in the 

development of the DHRM. We 

proposed 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 Act; 

existing state DSH allotments; and Form 

CMS–64 Medicaid Budget and 

Expenditure System (MBES) data. We 

proposed to utilize the most recent year 

available for all data sources. For one 

data source, we intend to collect 

information directly from state 

Medicaid agencies outside of this rule. 

Specifically, we intended for states to 

submit 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 information, 

because states are required to make DSH 

payments to hospitals that are DSH 

eligible, states should have this 

information readily available. To ensure 

that all hospitals are properly deemed 

disproportionate share, states must 

determine the mean MIUR for hospitals 

receiving Medicaid payments in the 

state and the value of one standard 

deviation above the mean. We also 

proposed to rely on data derived from 

Medicaid DSH audit and reporting data. 

The data is reported by states as 

required by section 1923(j) of the Act 

and the ‘‘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 

payments 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 hospitalspecific Medicaid utilization in a 

manner consistent with Medicaid DSH 

program requirements. 

To date, we have received rich, 

comprehensive audit and reporting 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 elements. The 2008 DSH 

final rule included a transition period in 

which states and auditors could develop 

and refine audit and reporting 

techniques. This transition period 

covered data reported relating to state 

plan rate years 2005 through 2010. We 

recognize that the DSH audit and 

reporting data during this transition 

period may vary in its quality and 

accuracy from state to state and have 

considered utilizing alternative 

uncompensated cost data and Medicaid 

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 already required to report this 

data by the last day of the federal fiscal 

year ending 3 years from the Medicaid 

state plan rate year under audit as 

required by the 2008 DSH final rule. 

However, state submitted audit and 

reporting data is subject to detailed CMS 

review and may require significant 

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 

for use in this context. We have been 

actively engaged in reviewing state 

audits and reports to ensure quality and 

accuracy. Consistent with ongoing 

efforts to ensure that the reported data 

is of the highest quality possible as we 

move through the transition period, we 

intend to issue additional detailed 

guidance to states by the end of calendar 

year (CY) 2013 that would be applicable 

to audits and reports due 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 

have the lowest percentages of 

uninsured individuals. Although other 

sources of this information could be 

considered for this purpose, the statute 

explicitly refers to the use of data from 

the Census Bureau for determining the 

percentage of uninsured for each state. 

We identified and considered two 

Census Bureau data sources for this 

purpose, the American Community 

Survey (ACS); and the Annual Social 

and Economic Supplement to the 

Current Population Survey (CPS). In 

consultation with the Census Bureau, 

we proposed to use the data from the 

ACS for the following reasons. First, the 

ACS 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 

throughout the year, with the sample for 

each month being roughly 1/12th of the 

annual total, while the CPS is 

conducted in the first 4 months 

following the end of the survey year. 

Finally, although the definition of 

uninsured and insured status is the 

same for the ACS and the CPS, the CPS 

considers the respondents as uninsured 

if they are uninsured 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 reasons, and with the 

recommendation of the Census Bureau, 

we determined that the ACS is the 

appropriate source for establishing the 

percentage of uninsured for each state 

for purpose of the proposed DHRM. 

In addition to Census Bureau data, we 

considered using various alternative 

data with different population 

parameters and/or different definitions 

of uninsured individuals, but ultimately 

decided to utilize the ACS as the source 

for establishing the percentage of 

uninsured for each state. We are also 

considering adjusting the definition of 

the uninsured for reductions applicable 

for FY 2016 and beyond reductions 

through separate rulemaking. 

III. Provisions of the Proposed 

Regulations and Analysis of and 

Responses to Public Comments 

In response to the publication of the 

State Disproportionate Share Hospital 

Allotment Reductions proposed rule, we 

received 87 public comments from state 

Medicaid agencies, provider 

associations, providers, and other 

interested parties. The following is a 

brief summary of each proposed 

provision, a summary of the public 

comments that we received related to 

that proposal, and our responses to the 

comments. 

A. General Comments on the Proposed 

Rule 

In addition to the comments we 

received on the proposed rule’s 

discussion of specific aspects of the 

State DSH Allotment Reductions (which 

we address later in this final rule), 

commenters also submitted the 

following more general observations on 

the reductions. A discussion of these 


pmangrum on DSK3VPTVN1PROD with RULES
57296 Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 

comments, along with our responses, 

appears below. 

Comment: Many commenters 

expressed appreciation for the overall 

approach of the proposed rule. Some 

commenters expressed support that the 

statutory DSH reductions are 

implemented through reductions to 

DSH allotment instead of reductions to 

the Federal Medical Assistance 

Percentage (FMAP) for states. 

Response: The final rule implements 

annual aggregate reductions in federal 

DSH allotments in accordance with the 

statutory direction and does not modify 

the FMAP for states. 

Comment: Many commenters 

expressed support for delaying the 

implementation of the annual aggregate 

reductions to state DSH allotments 

through Congressional legislation 

adopting the President’s Budget for 

Fiscal Year (FY) 2014 legislative 

proposal or other legislation such as the 

House Bill H.R.1920—DSH Reduction 

Relief Act of 2013. The commenters 

provided various reasons for the 

requested delay including the need for 

sufficient time for the full 

implementation of Affordable Care Act 

and potential implications of significant 

changes to the number of uninsured 

individuals and Medicaid individuals 

after implementation of the Affordable 

Care Act. Additionally, one commenter 

recommended that the DSH allotment 

reductions remain in full effect as 

legislated and proposed. 

Response: We note that the FY 2014 

President’s Budget proposes a legislative 

change to delay the start of the Medicaid 

DSH allotment reductions while 

reallocating the scheduled $500 million 

aggregate reduction to FY 2016 and FY 

2017. In the absence of a legislative 

change, the aggregate reductions in 

federal DSH funding will begin with FY 

2014 as required by current law. HHS 

has no flexibility to institute a delay of 

the DSH allotment reductions without 

congressional action. 

Comment: A few commenters stated 

that states should retain flexibility in 

design of their DSH programs and how 

DSH payments are targeted to hospitals 

as long as funds are spent on patient 

care. 

Response: This final rule will not 

affect the considerable flexibility 

afforded states in setting DSH state plan 

payment methodologies to the extent 

that these methodologies are consistent 

with section 1923(c) of the Act and all 

other applicable statute and regulations. 

States will retain the ability to preserve 

existing DSH payment methodologies or 

to propose modified methodologies by 

submitting state plan amendments. 

Although the final rule implements 

statutory direction to impose larger 

percentage reductions on states that do 

not target their DSH payments on 

hospitals with high volumes of 

Medicaid inpatients and on states that 

do not target their DSH payments on 

hospitals with high levels of 

uncompensated care, states will retain 

the flexibility to make payments that are 

both consistent with section 1923(c) of 

the Act, and within reduced DSH 

allotment amounts. 

Comment: Many commenters 

expressed support for the proposal for 

an initial DHRM that would be 

applicable only for the first 2 years 

during which the DSH funding 

reductions are in effect. 

Response: We have finalized the 

DHRM only for FY 2014 and FY 2015. 

Comment: Some commenters 

expressed general opposition to the 

Medicaid DSH allotment reductions 

required by statute citing, in part, the 

timing and amounts of the reductions. 

Another commenter opposed the 

proposed rule because it would result in 

a reduction of DSH payments. 

Response: Federal statute requires 

annual aggregate reductions in federal 

DSH funding that begin with FY 2014. 

Federal DSH allotments will remain 

available at reduced levels for states to 

continue to make DSH payments to 

hospitals that serve a disproportionate 

share of low-income individuals and 

qualify for DSH payments under federal 

and state requirements. As noted above, 

the FY 2014 President’s Budget 

proposes a legislative change to delay 

the start of the Medicaid DSH allotment 

reductions, but without a change in law, 

these final regulations will implement 

the reductions beginning with FY 2014. 

Comment: Some commenters 

expressed support for the Medicaid DSH 

program and recommended that 

Medicaid DSH payments continue to 

ensure that hospitals are able to provide 

uncompensated care for uninsured 

individuals. 

Response: The proposed rule does not 

eliminate DSH payments or affect state 

flexibility in setting DSH payments. The 

rule implements annual aggregate 

reductions in federal DSH funding for 

FY 2014 and FY 2015. For FY 2014 and 

thereafter, federal DSH allotments will 

remain available at reduced levels for 

states to continue to make DSH 

payments to hospitals that serve a 

disproportionate share of low-income 

individuals and qualify for DSH 

payments under federal and state 

requirements. 

Comment: Some commenters 

recommended that Medicaid DSH 

allotments be restored if expanded 

health care coverage resulting from the 

Affordable Care Act does not occur. 

Response: While the statute specifies 

annual reduction amounts independent 

of the extent to which expanded health 

care coverage resulting from the 

Affordable Care Act occurs, we are 

confident that health insurance coverage 

will increase significantly as a result of 

the Act. The final rule implements 

provisions of the federal statute relating 

to federal DSH funding for FY 2014 and 

2015. 

Comment: A commenter expressed 

concern that CMS would not have 

sufficient time to review, consider, and 

incorporate state feedback based on 

public comments on the proposed rule 

and calculate state DSH allotments for 

FY 2014 in a timely manner. 

Response: We reviewed and 

considered public comment carefully 

and thoroughly, and issued this final 

rule in a timely manner incorporating 

input from public comment. 

Additionally, we anticipate timely 

calculating DSH allotments and statespecific reductions for FY 2014. 

Comment: A few commenters 

questioned our regulatory interpretation 

of the provisions specified in section 

1923(g)(1)(a) of the Act. Regulatory 

policy requires that all revenue received 

by a hospital for providing services to 

Medicaid-eligible individuals with an 

additional source of third-party 

coverage be offset against the cost of 

providing such services when 

calculating the hospital-specific DSH 

limit. These commenters requested that 

we amend these regulations to specify 

that revenues received by a hospital 

from third party coverage for services 

provided to Medicaid-eligible 

individuals must only offset costs of 

providing such services to the extent of 

the Medicaid payment for purposes of 

calculating the hospital-specific limit 

and DSH qualification. 

Response: This regulation does not 

address the calculation of hospitalspecific DSH payment limits under 

section 1923(g) of the Act; it only 

addresses the statutorily-required 

Medicaid DSH allotment reductions. 

Changes to existing DSH calculation 

rules are outside the scope of this rule. 

Comment: One commenter submitted 

a comment regarding the Medicare DSH 

program. 

Response: Comments on the Medicare 

DSH program are outside the scope of 

this rule on Medicaid DSH allotment 

reductions and were addressed in 

separate rulemaking issued by us in 

August of this year. 

Comment: One commenter 

recommended that we analyze state-bystate Medicaid and Medicare payment 


pmangrum on DSK3VPTVN1PROD with RULES
Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 57297 

differentials to lower DSH allotment 

reduction amounts for states with 

payment disparity between the two 

programs. The commenter also 

recommended that we offset Medicaid 

DSH reduction amounts for states that 

have global, risk-based payment 

arrangements. 

Response: The Medicaid and the 

Medicare programs are distinct 

programs authorized by different 

sections of the statute and the Medicare 

and Medicaid DSH rules have somewhat 

different purposes and statutory 

directives. The Affordable Care Act 

directed the manner in which Medicaid 

DSH reductions should be 

implemented. As directed by statute, the 

final DHRM imposes larger percentage 

reductions on states that do not target 

their DSH payments on hospitals with 

high levels of uncompensated care. 

Uncompensated care cost, as defined in 

this final rule, already includes the 

amount Medicaid payments fall short of 

hospital costs (the Medicaid shortfall). 

The final rule’s treatment of Medicaid 

shortfall is consistent with other 

existing statutory and regulatory 

Medicaid DSH definitions of 

uncompensated care cost. 

We are committed to supporting 

innovative care delivery models and 

payment models with potential to 

improve care, improve health, and 

reduce costs, and states can structure 

their DSH funding to help promote 

those goals. We encourage states and 

providers to contact CMS to obtain more 

information regarding opportunities to 

implement innovative care delivery 

models and payment models. 

Comment: Many commenters 

recommended that we finalize the 

provisions of the January 18, 2012 

proposed rule entitled, ‘‘Medicaid 

Disproportionate Share Hospital 

Payments—Uninsured Definition.’’ That 

proposed rule would define 

‘‘individuals who have no health 

insurance (or other source of third party 

coverage) for the services furnished 

during the year’’ for purposes of 

calculating the hospital-specific DSH 

limit on a service-specific basis rather 

than on an individual basis. 

Response: Comments on the January 

18, 2012 proposed rule are outside the 

scope of the proposed rule on Medicaid 

DSH allotment reductions and will be 

finalized in future rulemaking. 

Comment: Several commenters 

requested clarification regarding how 

state-specific DSH allotment reductions 

in the proposed rule would affect the 

determination of the limit on Medicaid 

DSH payments to institutions for mental 

diseases (IMD). Some of the commenters 

recommended that we proportionately 

reduce the IMD DSH limit based on the 

aggregate DSH allotment reduction. One 

commenter expressed support for state 

flexibility in determining the effects of 

the aggregate DSH allotment reductions 

on the IMD DSH limit. 

Response: Effective for FY 2014 and 

FY 2015, we will calculate the IMD DSH 

limit under section 1923(h) of the Act 

based on the DSH allotment after 

reductions implemented by the final 

rule to ensure that the IMD limit 

experiences a corresponding reduction 

consistent with the overall reductions in 

annual state DSH allotments. 

Comment: Some commenters 

requested that we clarify when and how 

we will recoup state-specific DSH 

allotment reduction amounts from 

states. 

Response: The final rule implements 

aggregate reductions in federal funding 

for DSH payments through reductions in 

annual state-specific DSH allotment 

reductions in accordance with section 

1923(f)(7) of the Act. This section 

requires 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; there 

is no ‘‘recoupment’’ process because the 

DSH reductions are prospective, not 

retrospective. 

Comment: One commenter requested 

clarification on how the amount of the 

FY 2014 unreduced DSH allotment for 

Tennessee and for the State of Hawaii 

for FY 2014 as included in the proposed 

rule was determined, and how the lowDSH state status for these state was 

determined. 

Response: The amounts of the states’ 

unreduced DSH allotments and the 

treatment of the states’ low DSH status, 

as reflected in the Table 1 of the 

proposed rule, were only for the 

purpose of illustrating the DSH Health 

Reform Methodology for all states. Such 

amounts were determined in accordance 

with the existing methodology for 

determining the amounts of states’ 

unreduced fiscal year DSH allotments. 

For this purpose, and in accordance 

with the existing methodology for 

determining states’ unreduced 

allotments, the illustrative unreduced 

DSH allotments for FY 2014 in Table 1 

of the proposed rule were based on the 

states’ FY 2013 DSH allotments. Those 

allotments were increased by the 

estimated percentage increase in the 

consumer price index for all urban 

consumers (CPIU) for FY 2013. 

As noted by the commenter, the 

current statute at section 1923(f)(6)(A) of 

the Act does not authorize a FY 2014 

DSH allotment for the State of 

Tennessee. However, for the state of 

Hawaii, the current statute at section 

1923(f)(6)(B)(iii)(II) of the Act does 

authorize a FY 2014 DSH allotment for 

such state. Furthermore, such provision 

explicitly indicates that Hawaii shall be 

treated as a low-DSH state. 

In summary, a FY 2014 DSH 

allotment for the State of Tennessee and 

the State of Hawaii was included in 

Table 1 of the proposed rule for 

illustrative purposes only. However, an 

allotment for the State of Tennessee 

would be available only if the statute 

was amended to provide for a FY 2014 

DSH allotment for the state. In addition, 

a statutory amendment would be 

needed for Tennessee to be considered 

a low-DSH state. 

B. DHRM Overview 

We proposed to apply the DHRM to 

the unreduced DSH allotment amount 

on an annual basis for FY 2014 and FY 

2015. Under the DHRM, we considered 

the five factors identified in the statute 

to determine each state’s annual statespecific annual DSH allotment 

reduction amount. Limitations on the 

availability of data relating to some of 

the five factors affect the calculation, 

and therefore, we solicited comment 

regarding readily available data sources 

that may be useful. 

The proposed DHRM utilized 

available data and a series of interacting 

calculations that result in the 

identification of state-specific reduction 

amounts that, when summed, equal the 

aggregate DSH allotment reduction 

amount identified by the statute for each 

applicable year. The proposed DHRM 

accomplished this through the 

summarized steps discussed in the 

proposed rule (78 FR 28555). In 

addition, we solicited public comment 

and input regarding alternate 

assignments. We also solicited 

comments on how these weights would 

impact specific hospital types. The 

manner in which each of these factors 

were considered and calculated in the 

proposed DHRM was described in 

greater detail in the proposed rule (78 

FR 28555). 

Comment: One commenter 

recommended corrections and 

clarification corrections to multiple 

terms defined in § 447.294(b). 

Response: We addressed the need for 

technical correction and clarification by 

modifying the language of § 447.294(b) 

in this final rule. Specifically, we 

modified the definitions in § 447.294(b) 

for ‘‘Mean high level of uncompensated 

care factor (HUF) reduction percentage,’’ 

‘‘State group,’’ ‘‘Total Medicaid cost,’’ 

and ‘‘Uncompensated care costs’’ by 

correcting a typographical error and 

adding clarifying language. 


pmangrum on DSK3VPTVN1PROD with RULES
57298 Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 

Comment: One commenter 

recommended that CMS clarify for 

which years states are required to 

submit annual MIUR data as proposed 

at § 447.294(d). 

Response: We are finalizing 

§ 447.294(d) to include additional 

clarifying language regarding the 

required state submission of MIUR data. 

We finalized this section to specify that 

states must initially provide the data for 

following Medicaid State Plan Rate 

Years (SPRY) as defined in § 455.301: 

2008, 2009, 2010, 2011 by June 30, 

2014. States must also provide this data 

for each subsequent SPRY to CMS by 

June 30 of each year. To determine 

which SPRY data must be submitted, 

subtract three years from the calendar 

year in which the data is due. This 

means that the SPRY 2012 data must be 

submitted to CMS by June 30, 2015. 

Comment: One commenter requested 

changes to § 447.294(f) to clarify that the 

state-specific DSH allotment reduction 

amounts in the proposed rule only 

applies to FY 2014 and FY 2015 DSH 

allotments. 

Response: We are finalizing 

§ 447.294(f) to specify that the statespecific DSH allotment reduction 

amounts in the proposed rule only 

applies to FY 2014 and FY 2015 DSH 

allotments. 

Comment: One commenter 

recommended corrections to multiple 

instances when § 447.294(e)(10) was 

mistakenly referenced instead of 

§ 447.294(e)(12). The commenter also 

noted that § 447.294(e)(10) mistakenly 

refers to the ‘‘HMF’’ instead of the 

‘‘HUF.’’ 

Response: We are correcting these 

references in this final rule. 

Comment: Many commenters 

expressed support that the proposed 

rule would not reflect state decisions to 

implement the new coverage group, 

would not cause undue harm to states 

that have not implemented or not 

decided to implement the new coverage 

group, and that the DHRM is only for 

the first 2 years during which the DSH 

funding reductions are in effect to allow 

continued evaluation of potential 

implications for accounting for coverage 

expansion in the DHRM. 

Response: We intend to address the 

issue more completely in separate 

rulemaking for DSH allotment 

reductions for FY 2016 and thereafter. 

Comment: Some commenters 

expressed support that the proposed 

DHRM does not reward states that do 

extend coverage to low-income adults 

under section 1902(a)(10)(A)(i)(VIII) of 

the Act. A few of these commenters 

suggested that CMS develop a 

mechanism in the DHRM to ensure that 

states that do not extend coverage to 

low-income adults under section 

1902(a)(10)(A)(i)(VIII) of the Act do not 

receive a lower DSH reduction as a 

result of their decision. 

Response: Currently, we do not have 

data or other information on the relative 

impacts that would result from state 

decisions to implement the new 

coverage group, and thus, we proposed 

a DHRM only for the first 2 years during 

which the DSH funding reductions are 

in effect. The data that the reductions 

are based on for the first two years will 

not reflect state decisions to implement 

the new coverage group. Such data will 

be available in 2016. We intend to 

address this issue more completely in 

separate rulemaking for DSH allotment 

reductions for FY 2016 and thereafter 

including consideration of proposals 

that would take account of the decisions 

of states to expand coverage. 

Comment: A few commenters 

expressed concern that the states that 

implemented various health reforms, 

including expanding Medicaid 

eligibility, prior to enactment of the 

Affordable Care Act would be unfairly 

penalized by the DHRM and would be 

forced to subsidize those states that 

have opted not to expand coverage. One 

of the commenters suggested that CMS 

modify the uninsured data to reflect the 

anticipated decrease in the uninsured 

for states that have indicated their intent 

to, but have not yet begun to, extend 

coverage to low-income adults under 

section 1902(a)(10)(A)(i)(VIII) of the Act. 

Response: The statute provides 

significant federal financial support for 

states to extend coverage to low-income 

adults under section 

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 previously 

uninsured patients. Therefore, we 

believe both hospitals and states stand 

to benefit greatly from expanding 

Medicaid. 

As discussed in the proposed rule, 

implementation of the new coverage 

group is expected to affect the amount 

of uncompensated care and the 

percentage of uninsured 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 

uncompensated care than states that 

adopt the new coverage group. We also 

recognize that are other factors that 

affect state rates of uninsurance, 

including coverage differences among 

states prior to the implementation of the 

Affordable Care Act. Because there is a 

fixed amount of DSH funding, states 

that implement the new coverage group 

would likely experience a reduction in 

DSH funding that would be greater than 

if all states had taken such action. 

Hospitals in those states would 

similarly be disadvantaged. However, 

these effects would not be experienced 

until after FY 2014 and FY 2015 based 

on current data reporting timelines. 

Accordingly, and considering the limits 

on 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 when the relevant data will 

be available. 

For FY 2014 and 2015, we are 

finalizing the proposal to establish a 

DHRM that does not include a method 

to account for differential coverage 

expansions in Medicaid. We intend to 

address this issue more completely in 

separate rulemaking for DSH allotment 

reductions for FY 2016 and thereafter. 

Comment: Many commenters 

expressed support for the uninsured 

percentage factor (UPF) calculation and 

another requested that the DHRM 

incorporate an adjustment into the UPF 

calculation to reduce the number of 

uninsured individuals in states that 

extend coverage to low-income adults 

under section 1902(a)(10)(A)(i)(VIII) of 

the Act so as to not unfairly penalize 

states that do not extend coverage to the 

new adult group. Another commenter 

asked that CMS create a separate DSH 

pool that would allocate funds directly 

to hospitals with high levels of 

uncompensated care in states that do 

not extend coverage to low-income 

adults because the hospitals would not 

benefit from the Medicaid coverage 

expansion. An additional commenter 

requested that CMS consider accounting 

for potential additional Medicaid 

payment shortfall, in additional to 

uninsured-related uncompensated care, 

when determining the relative impacts 

that would result from state decisions to 

implement the new low-income adults 

coverage group. Another commenter 

stated that CMS did not specify the data 

sources that DHRM would rely on to 

determine annual state-specific DSH 

allotment reduction amounts and 

expressed concern that the proposed 

rule states that the data used will reflect 

differential state decisions to implement 

the new low-income adults coverage 

group under section 

1902(a)(10)(A)(i)(VIII) of the Act. 

Response: We disagree that the 

proposed methodology would unfairly 

penalize states that do not extend 

coverage to low-income adults under 

section 1902(a)(10)(A)(i)(VIII) of the Act. 

The data that the reductions are based 

on for these 2 years will not reflect state 


pmangrum on DSK3VPTVN1PROD with RULES
Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 57299 

decisions to implement the new 

coverage group. Data reflecting the 

effects of the decision to implement the 

new coverage group may not be 

available to consider the impact of such 

a decision until 2016. We intend to 

address this issue more completely in 

separate rulemaking for DSH allotment 

reductions for FY 2016 and thereafter. 

Additionally, we intend to publish a 

separate DHRM technical guide that 

provides information regarding the 

DHRM calculation, including the 

additional information regarding data 

sources. 

Comment: Several commenters 

recommended that CMS ensure through 

future rulemaking that states that extend 

coverage to low-income adults under 

section 1902(a)(10)(A)(i)(VIII) of the Act 

do not receive increased DSH allotment 

reductions as a result of anticipated 

reductions in uninsurance rates. A few 

other commenters recommended that 

CMS ensure through future rulemaking 

that states that do not extend coverage 

to low-income adults under section 

1902(a)(10)(A)(i)(VIII) of the Act do not 

receive increased DSH allotment 

reductions as a result of anticipated 

reductions in uninsurance rates. 

Response: We intend to address this 

issue more completely in such separate 

rulemaking for DSH allotment 

reductions for FY 2016 and thereafter. 

Comment: One commenter indicated 

that the proposed rule favors states that 

do not implement the new low-income 

adults coverage group under section 

1902(a)(10)(A)(i)(VIII) of the Act by not 

relying on uninsured data that would be 

available reflecting the differential 

decisions by states to adopt the new 

adult coverage group. The commenter 

indicates that CMS is violating statute 

by not relying on uninsurance data from 

‘‘the most recent year for which the data 

are available.’’ Another commenter 

requested that we specify which year’s 

United States Census Bureau’s 

American Community Survey (ACS) 

data we will use for the DHRM and is 

concerned that the use of recent data 

will adversely affect states 

implementing the new low-income 

adults coverage group. 

Response: We disagree that the 

proposed methodology favors states that 

do not implement the new low-income 

adults coverage group under section 

1902(a)(10)(A)(i)(VIII) of the Act or that 

the proposed methodology would 

violate statutory provisions. The 

uninsured data is derived from the 1- 

year estimates data of the number of 

uninsured identified by the ACS. The 

statute references use of uninsured data 

from the United States Census Bureau 

and the methodology relies on the most 

recent available data. The data from the 

ACS will not be available for the period 

including January 1, 2014, or later until 

after the calculation of the DSH 

allotment reduction amounts for both 

FY 2104 and FY 2015. Therefore, 

because of the lag in the data, this final 

rule will rely on uninsured individual 

data for periods prior to January 1, 2014. 

Comment: One commenter stated that 

the DHRM in the proposed rule would 

violate the statute by separating states 

into state groups based on their status as 

low-DSH states. The commenter’s 

suggested violation is based on not 

following the statutory language 

directing ‘‘smaller’’, not the ‘‘smallest’’ 

reductions for low-DSH states and the 

language that requires the ‘‘largest’’ 

percentage reductions for states that 

have the lowest percentage of uninsured 

individuals and do not target DSH 

payments to hospitals with high levels 

of Medicaid inpatients and high levels 

of uncompensated care. 

Response: We disagree that the 

proposed methodology violates 

statutory provisions. The methodology 

in the proposed rule, which we are 

adopting in this final rule, imposes 

smaller percentage reductions on lowDSH states compared to non-low DSH 

states and, within each state group, 

imposes larger percentage reductions on 

states that have the lowest percentages 

of uninsured individuals and on states 

that do not target their DSH payments 

to hospitals with high volumes of 

Medicaid inpatients and high levels of 

uncompensated care. 

Comment: A commenter 

recommended that CMS implement the 

statutory DSH allotment reductions 

through pro rata reductions based on the 

size of the existing DSH allotment 

instead of relying on the five factors 

identified in the statute. The commenter 

also offers an alternative through use of 

the pro rata method for half of the 

allotment reduction amount and using 

the five statutory factors for the 

remaining amount. The commenter 

believes that the pro rata reductions 

would take into account the current 

DSH funding structure and would be 

less disruptive. 

Response: Section 1923(f)(7)(B) of the 

Act establishes five factors that must be 

considered in the development of the 

DHRM, and in the DHRM which we 

proposed and are making final, we give 

weight to each of those five factors. The 

five factors implicitly take into account 

the size of the existing state DSH 

allotments, and the reduction is applied 

to the existing state DSH allotment. 

Comment: A commenter 

recommended that CMS incentivize 

states to target more DSH payment to 

hospitals with high volumes of 

Medicaid inpatients and high levels of 

uncompensated care. 

Response: The statute requires that 

the DHRM methodology impose larger 

percentage DSH reductions on states 

that do not target their DSH payments 

on hospitals with high volumes of 

Medicaid inpatients and high levels of 

uncompensated care. While states have 

considerable flexibility in determining 

DSH payments, we believe that the 

statutory provision as implemented by 

DHRM will promote state targeting of 

DSH payments to hospitals with high 

volumes of Medicaid inpatients and 

hospitals with high levels of 

uncompensated care. 

Comment: Two commenters 

recommended that the DHRM should 

first reduce unspent DSH allotment 

amounts prior to imposing additional 

reduction amounts to protect states that 

use their full DSH allotment. 

Response: We did not propose to 

reallocate unreduced DSH allotments 

calculated under section 1923(f) of the 

Act. The suggested method could serve 

to penalize unfairly states that do not 

currently expend their entire DSH 

allotment. We are finalizing the 

structure of proposed DHRM that 

considers five factors identified by 

section 1923(f)(7)(B) of the Act when 

determining state-specific allotment 

reduction amounts. 

Comment: A commenter 

recommended that the DHRM should 

avoid imposing retroactive reductions to 

state DSH allotments and instead 

establish prospective DSH allotment 

reductions adjustments that rely on final 

or completed data from previous years. 

Response: The final rule establishes 

prospective DSH allotment reductions 

based on the most recent prior year data 

and does not impose retroactive 

allotment adjustments. 

Comment: A commenter expressed 

concern that the DHRM relies on 

existing unreduced DSH allotments as 

the basis for application of the DHRM 

because the allotments are highly 

inequitable. The commenter 

recommended that CMS reallocate DSH 

allotments based on states’ 

uncompensated care costs prior to 

applying the annual DSH allotment 

reductions. 

Response: The DHRM builds upon the 

existing unreduced DSH allotments 

because the statutory DHRM authority 

does not authorize reallocation of state 

DSH allotments under section 1923(f) of 

the Act. This section of the Act 

establishes the specific methodology 

required for calculating annual state 

DSH allotments. Although there have 

been some special rules for calculating 


pmangrum on DSK3VPTVN1PROD with RULES
57300 Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 

DSH allotments for particular years or 

sets of years, section 1923(f)(3) of the 

Act establishes a general rule that state 

DSH allotments are calculated on an 

annual basis in an amount equal to the 

DSH allotment for the preceding FY 

increased by the percentage change in 

the consumer price index for all urban 

consumers for the previous FY. Neither 

the statute nor this rule affects this 

calculation. 

Uncompensated care costs are a factor 

under the DHRM in determining statespecific allotment reduction amounts 

because the statute directs that the 

DHRM impose larger percentage DSH 

allotment reductions on states that do 

not target DSH payments on hospitals 

with high levels of uncompensated care. 

But this factor does not reallocate 

existing DSH allotments, and this rule 

finalizes the use of existing unreduced 

DSH allotments as proposed. 

Comment: Some commenters 

expressed concern that the application 

of the High Volume of Medicaid 

Inpatients Factor (HMF) and High Level 

of Uncompensated Care Factor (HUF) 

would not be consistent with the stated 

intention of those two factors. The 

commenters recommended that the 

proposed DHRM should consider any 

state DSH payment amount made to a 

hospital with either high Medicaid 

volume or high levels of uncompensated 

care as properly targeted for both the 

HMF and HUF. 

Response: We disagree with the 

commenters that the proposed 

application of the HMF and HUF would 

be inconsistent with the stated intention 

of those two factors, which are 

discussed further in sections E. and F. 

of this rule. The factors are designed 

and implemented to ensure that the 

DHRM imposes larger percentage DSH 

allotment reductions on states that do 

not target DSH payments on hospitals 

with high levels of uncompensated care 

and on states that do not target DSH 

payments on hospitals with high 

volumes of Medicaid inpatients. The 

HMF independently evaluates how 

states target DSH payments to high 

Medicaid volume hospitals and the HUF 

independently evaluates how states 

target DSH payments to hospitals with 

high levels of uncompensated care. The 

allotment reduction amount will be 

mitigated under both the HMF and HUF 

for DSH payment amounts that states 

target to hospitals with both a high 

volume of Medicaid inpatients and a 

high level of uncompensated care. 

Comment: One commenter 

recommended that any overpayment 

amount identified through annual 

independent certified DSH audits 

conducted as required by section 1923(j) 

of the Act that is not redistributed to 

other DSH hospitals in accordance with 

the approved Medicaid state plan count 

toward the aggregate annual DSH 

allotment reductions prior to applying 

the DHRM. Another commenter 

recommended that we account for 

redistributions that would have 

occurred if the data is outside of the 

regulatory transition period and 

requested clarification on how 

redistributions would be accounted for 

after the transition period. 

Response: This rule concerns only the 

DSH allotment reductions under section 

1923(f)(7) of the Act, as added by 

section 2551 of the Affordable Care Act, 

and this comment is outside the scope 

of this rule. We view the treatment of 

the findings of the annual independent 

certified audits and reports required by 

section 1923(j) of the Act and 

implementing regulations as separate 

from the DSH allotment reductions 

directed by the Act. 

Comment: One commenter 

recommended that CMS add an 

additional factor to the DHRM based on 

whether a state is over or under the 

median amount of Medicaid DSH 

allotment per uninsured individual. The 

commenter stated that the proposed 

DHRM does not address the existing 

disparity in the relationship among 

state’s DSH allotment relative to the 

number of uninsured individuals and 

that the DHRM causes this relationship 

to be further out of balance. The 

commenter believes that the inequitable 

relationship is furthered by the 

proposed DHRM, and noted that the 

illustrative example displayed Florida 

as having a 4.74 percent allotment 

reduction while Louisiana had a 3.46 

percent reduction. 

Response: Although the proposed 

DHRM does not alleviate all potential 

differences among states in existing 

unreduced DSH allotments, the DHRM 

does provide potential relief. While the 

statutory provisions implemented by 

this final rule do not direct CMS to 

reallocate unreduced DSH allotments 

calculated in section 1923(f) of the Act, 

each of the five DHRM factors do take 

into account the size of the existing state 

DSH allotments. Most notably, the Low 

DSH Adjustment Factor (LDF) imposes 

smaller percentage reductions on low 

DSH states that historically have 

received lower DSH allotments relative 

to their total Medicaid expenditures 

than non-low DSH states. 

Additionally, we do not believe that 

the commenter’s example demonstrates 

that the proposed DHRM will 

necessarily further the disparity among 

states’ uninsured per capita DSH 

allotment amounts. Although states 

with smaller unreduced allotments may 

receive larger percentage reductions 

than states with larger unreduced 

allotments, the final DHRM does 

account for the size of state allotments 

prior to reduction. 

1. Factor Weighting 

Comment: Many commenters 

expressed support for CMS’s assignment 

of a 33 and 1⁄3 percent weight to the 

Uninsured Percentage Factor (UPF) and 

a 66 and 2⁄3 percent combined weight for 

the two DSH payment targeting factors 

(a 33 and 1⁄3 percent weight for the HUF, 

and a 33 and 1⁄3 percent weight for the 

HMF). The commenters indicated that 

this was the most reasonable approach 

for assigning factor weights. 

Response: We incorporated this 

weighting in the final rule. We intend to 

continue to monitor the impact of the 

weighting methodology for FY 2014 and 

FY 2015 and will reevaluate this 

approach for future rulemaking. 

Comment: A few commenters 

recommended that CMS increase the 

weight of the HUF and reduce the 

weight of the HMF, stating that the 

weighting accounts for the care 

provided to Medicaid hospitals is 

duplicated or unbalanced. One of the 

commenters believes that the alternate 

weighting would compensate for the 

fact that both the HMF and the HUF 

incorporate Medicaid data, whereas 

uninsured care is only reflected in the 

HUF. 

Response: We recognize that 

relationships among the data used in the 

UPF, HMF, and HUF exist; however, we 

view the DHRM factors as distinct and 

non-duplicative. The UPF, HMF, and 

HUF each compare data among states 

using three core measures: percentage of 

uninsured individuals, DSH payments 

targeted to hospitals with high volumes 

of Medicaid inpatients, and DSH 

payments targeted to hospitals with 

high levels of uncompensated care, 

respectively. The interactions among 

these related factors are varied and 

inconsistent. Depending on the cost, 

payment, and volume of Medicaid and 

uninsured patients, a hospital with a 

high volume of Medicaid inpatients may 

have no uncompensated care cost. 

Alternatively, a hospital with low 

Medicaid volume may have high 

uncompensated care costs which may 

be a function, in part, of the high 

percentage of uninsured individuals in 

the state. The fact that the HMF and the 

HUF both rely on Medicaid data is not 

dissimilar to the UPF and HUF relying 

on uninsured data. 

Comment: One commenter 

recommended that CMS increase the 

weight of the UPF, based on the 


pmangrum on DSK3VPTVN1PROD with RULES
Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 57301 

importance of DSH payments to 

hospitals that serve patients regardless 

of their ability to pay. 

Response: We appreciate the 

important role of hospitals that serve 

patients regardless of their ability to 

pay. However, we believe that the 

weighting in the proposed rule is a 

reasonable approach that gives the 

statutory factors equal weight and have 

incorporated this method in the final 

rule. We intend to continue to monitor 

the impact of the weighting 

methodology for FY 2014 and FY 2015 

and will reevaluate this approach for 

future rulemaking. 

Comment: A commenter 

recommended that CMS decrease the 

weight of the UPF to incentivize states 

to extend coverage to low-income adults 

under section 1902(a)(10)(A)(i)(VIII) of 

the Act. 

Response: As noted above, because of 

data lags, we do not have the data to 

support an approach in the first 2 years 

that reflects state decisions to 

implement the new coverage group, and 

thus, we proposed and are finalizing a 

DHRM only for the first 2 years during 

which the DSH funding reductions are 

in effect. We intend to address this issue 

more completely in separate rulemaking 

for DSH allotment reductions for FY 

2016 and thereafter. 

Comment: One commenter 

recommended that CMS decrease the 

weight of the HUF to recognize the 

benefits of DSH payments in certain 

states that are designed to exclusively 

offset uninsured costs and to promote 

access to care. 

Response: We appreciate the 

important role of hospitals that serve 

uninsured patients. The proposed 

DHRM would promote the state 

targeting of DSH payments to hospitals 

with high levels of uncompensated care 

costs, which include the cost incurred 

providing services to the uninsured. A 

state that targets DSH payments to 

hospitals based on the volume of 

uncompensated care costs for the 

uninsured would most likely benefit 

from the proposed methodology. We 

believe that the weighting in the 

proposed rule is a reasonable approach 

that incentivizes states to target their 

DSH payments and have incorporated 

this method in the final rule. We intend 

to continue to monitor the impact of the 

weighting methodology for FY 2014 and 

FY 2015 and will reevaluate this 

approach for future rulemaking. 

Comment: Two commenters 

recommended that CMS decrease the 

weight of the HUF due to the limitations 

of the formula, lack of complete data, 

and the potential for paradoxical 

outcomes when comparing hospital 

levels of uncompensated care. 

Response: Due to data limitations, we 

recognize that the HUF formula may 

produce very limited outcomes due to 

the limited data available at this time. 

However, we expect any impact 

resulting from such outcomes to be 

minimal and we believe that the 

proposed method represents the most 

reasonable method for determining 

hospitals with high levels of 

uncompensated care costs given limited 

data availability. Therefore, we have 

incorporated the proposed weighting 

method in the final rule. We intend to 

continue to monitor the impact of the 

weighting methodology for FYs 2014 

and 2015 and will reevaluate this 

approach for future rulemaking. 

Additionally, by collecting the total 

cost, we are positioned through 

separately issued rulemaking for FY 

2016 to substitute total cost for the 

denominator in step one of the HUF 

calculation to optimize the method for 

determining hospitals with high levels 

of uncompensated care. 

Comment: Some commenters 

recommended that CMS reduce the 

weight of the UPF to zero at least until 

such time as CMS has data to measure 

the impact of state decisions to 

implement the new low-income adults 

coverage group under section 

1902(a)(10)(A)(i)(VIII) of the Act. 

Response: We believe that the 

proposed weighting is the most 

reasonable approach and have finalized 

this method in this final rule. We intend 

to continue to monitor the impact of the 

weighting methodology for FY 2014 and 

FY 2015 and will reevaluate this 

approach for future rulemaking. 

Comment: One commenter expressed 

concern that CMS assigned any weight 

to the HMF because a hospital having 

high Medicaid inpatient days do not 

always indicate large Medicaid shortfalls and uncompensated care costs, 

because some states have relatively 

higher average MIURs than other states, 

and because relying on Medicaid days is 

inconsistent with federal, state, and 

industry efforts to reduce inpatient 

hospital use and lower readmissions. 

The commenter recommends that CMS 

assign zero weight to the HMF and 

instead only consider hospital’s actual 

Medicaid shortfall. 

Response: We have finalized the rule 

to continue to assign weight to the HMF. 

In promoting states to target current and 

future DSH payments to hospitals that 

have higher volumes of Medicaid 

inpatients, we believe that the HMF 

accomplishes its design and is 

consistent with the statutory direction 

that the DHRM impose larger percentage 

reductions on states that do not target 

their DSH payments on hospitals with 

high volumes of Medicaid inpatients. 

Section 1923(f)(7)(B)(i)(II)(aa) of the Act 

defines hospitals with high volumes of 

Medicaid inpatients as those defined in 

section 1923(b)(1)(A) of the Act. 

Comment: A few commenters urged 

CMS to ensure that the two targeting 

factors do not penalize states that align 

DSH qualifying criteria very closely 

with federal deeming criteria at section 

1923(b) of the Act. Specifically, the 

commenters recommended that the 

DHRM account for differences among 

states based on how states established 

their DSH qualifying criteria or target 

payments to hospitals that are deemed 

DSH based on low-income utilization 

rate (LIUR) alone. One commenter 

stated that states that primarily pay 

hospitals that are federally deemed 

hospitals will be negatively affected if 

the substantial payments are made to 

hospitals deemed based on the LIUR 

threshold, not the MIUR threshold. 

Response: We have finalized the 

proposed DHRM that promotes state 

targeting of payments to hospitals that 

would qualify for DSH payments based 

on MIUR deeming requirements defined 

in section 1923(b)(1)(A) of the Act. This 

final rule establishes this targeting factor 

consistent with the statutory direction 

to impose larger percentage reductions 

on states that do not target their DSH 

payments on hospitals with high 

volumes of Medicaid inpatients and do 

not target their DSH payments on 

hospitals with high levels of 

uncompensated care The HMF provides 

mitigation of the state-specific DSH 

reduction amount for states that have 

been targeting and would in the future 

target DSH payments to these federally 

deemed hospitals. Hospitals with high 

LIURs may also high levels of 

uncompensated care costs. If those 

LIUR-deemed hospitals have high levels 

of uncompensated care, the HUF will 

provide mitigation of the state-specific 

DSH reduction amount for states that 

have been targeting and would in the 

future target DSH payments to those 

hospitals. 

Comment: A commenter 

recommended that the DHRM impose a 

sliding scale for HMF and HUF 

reduction amounts based on the amount 

of aggregate state DSH payments 

received by DSH hospitals net of 

provider taxes compared to the 

unreduced DSH allotment. 

Response: Medicaid DSH payment 

amount data sources used in the DHRM 

rely on existing federal statute and 

regulatory definitions of DSH payments. 

Changes to these existing definitions are 

outside the scope of this rule. 


pmangrum on DSK3VPTVN1PROD with RULES
57302 Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 

Comment: A few commenters 

recommended that we finalize our 

proposal to rely on state-specific 

thresholds when ranking hospitals for 

purposes of the HMF and HUF. One 

commenter stated that the method is a 

more accurate gauge of a hospital’s true 

level of Medicaid volume and 

uncompensated care than a national 

comparison. 

Response: We agree that the DHRM, 

including the HMF and HUF, is 

designed to employ the most equitable 

method for comparing how states target 

DSH payments for purposes of 

determining state-specific DSH 

allotment reduction amounts. We have 

finalized the HMF and HUF to rely on 

state-specific thresholds when ranking 

hospitals. However, we intend to 

continue to monitor the impact of the 

DHRM in effect for FY 2014 and FY 

2015 and will reevaluate the DHRM for 

future rulemaking. 

Comment: A commenter expressed 

general support for the DHRM and 

recommended that the final rule include 

a process to allow states to verify the 

calculation of the aggregate DSH 

payments made to non-high Medicaid 

volume hospitals used for the HMF and 

the calculation of the aggregate 

uncompensated care levels used for the 

HUF. 

Response: To determine the aggregate 

DSH payments made to non-high 

Medicaid volume hospitals used for the 

HMF and the calculation of the 

aggregate uncompensated care levels 

used for the HUF, we utilize Medicaid 

DSH annual audit and reporting data 

required by section 1923(j) of the Act 

and implementing regulations. States 

submit this data annually to CMS. We 

appreciate the interest in ensuring that 

accurate data is used to calculate statespecific DSH allotment reductions; 

therefore, we recommend that states 

review this data to verify its accuracy 

prior to their annual submission of the 

data to CMS. 

Comment: Some commenters 

requested clarity on the years of the 

DSH audit and reporting data used in 

the DHRM. One commenter also 

recommended that we clarify the 

meaning of usable form. 

Response: For hospitals that receive 

DSH payments and are included in the 

DSH audit and reporting data, we 

proposed and are finalizing the use of 

the most recent complete DSH audit and 

reporting data for purposes of the 

DHRM. It requires considerable 

resources to review, compile, and 

consolidate DSH audit and reporting 

data. For purposes of this rule, we 

intend to use the most recent DSH audit 

and reporting data available at the time 

of allotment reduction calculation based 

on the existing DSH audit and reporting 

process. Additionally, we intend to 

publish a separate DHRM technical 

guide that provides information 

regarding the DHRM calculation and 

associated data sources. 

Comment: Some commenters 

indicated that a state excluded private 

hospitals from the DSH audit and 

reporting data for all years after SPRY 

2009 and are concerned that this would 

adversely affect the calculation of the 

state-specific DSH allotment reduction 

for that particular state. One commenter 

recommended that we use SPRY 2008 

DSH audit and reporting data and not 

data from other years for the DHRM for 

FY 2014 and FY 2015. Another 

commenter recommended that we 

require states to report DSH payments of 

zero for any hospitals that forfeit their 

DSH payments and are excluded from 

DSH audit and reporting requirements. 

Response: If there are concerns 

regarding the accuracy of the DSH audit 

and reporting data submitted by states, 

including incorrectly excluded 

hospitals, we recommend that the 

interested parties work with the state 

and CMS through the DSH audit and 

reporting process. Federal statute and 

implementing regulations only require 

the reporting of information for 

hospitals receiving DSH payments in a 

particular year. If hospitals do not 

receive DSH payments, including those 

hospitals that have worked with their 

state to forego DSH payments, the state 

should not report information for those 

hospitals as part of the DSH reporting 

requirements. 

Comment: One commenter 

recommended that we require states to 

submit Medicare provider numbers for 

all DSH hospitals. 

Response: We are finalizing the 

proposal to collect Medicare provider 

numbers through the DSH audit and 

reporting process to align DSH hospital 

data from various sources, including 

DSH audit and reporting data and 

Medicare cost report data. 

Comment: Some commenters 

requested that CMS publish all hospitalspecific data used in the DHRM for all 

proposed and final rules relating to 

state-specific DSH allotment reductions 

for transparency, to facilitate data 

review and validation. 

Response: We intend to publish a 

separate DHRM technical guide that 

provides information regarding the 

DHRM calculation and associated data 

sources. 

Comment: Some commenters 

recommended that CMS allow all states 

to supplement and to revise DSH audit 

and reporting data after the state 

submission of the audits and reports to 

CMS. Additionally, the commenter 

recommended the use of the last 

available data that relates to those 

hospitals that no longer participate in 

the DSH audit process. 

Response: The final rule relies on 

DSH audit and reporting data as 

submitted by states in accordance with 

section 1923(j) of the Act and 

implementing regulations. The 

implementing regulations and 

associated policy guidance address 

circumstances in which the state should 

submit a corrected audit and report for 

a particular state plan rate year and 

when a state should include the 

adjustment in more recent years. States 

should follow existing guidance 

regarding when and how to submit 

corrected audits and report. For 

purposes of this rule, we intend to use 

the most recent complete national DSH 

audit and reporting data available at the 

time of allotment reduction calculation 

based on the existing DSH audit and 

reporting process. 

Comment: Several commenters 

expressed concern regarding the use of 

DSH audit and reporting data for the 

DHRM. The commenters cited various 

reasons causing concern regarding data 

quality including the use of out-of-date 

data, the lag between DSH policy 

changes and audit and reporting data, 

the use of data used from a regulatory 

transition period, and the use 

incomplete data. Some commenters 

recommended that CMS use uniform 

data wherever possible among all 

hospitals for use in the DHRM and that 

CMS consider weighting more heavily 

the factors that have the most accurate 

data. Another commenter recommended 

that we consider initiating a separate 

survey to determine uncompensated 

care costs for a more recent year. 

Response: The Medicaid DSH audit 

and reporting data is the only 

comprehensive reported data available 

that is consistent with Medicaid 

program requirements. We have 

finalized reliance on this data in the 

DHRM because it represents the best 

available data that is consistent with 

existing program definitions. To date, 

we have received rich, comprehensive 

audit and reporting 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 elements. The 2008 DSH 

final rule included a transition period in 

which states and auditors could develop 

and refine audit and reporting 

techniques. This transition period 

covered data reported relating to state 


pmangrum on DSK3VPTVN1PROD with RULES
Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 57303 

plan rate years 2005 through 2010. We 

recognize that the DSH audit and 

reporting data during this transition 

period may vary in its quality and 

accuracy from state to state and have 

finalized the collection of additional 

information that will allow us to ensure 

collection of the information necessary 

to best implement state-specific DSH 

allotment reductions beyond FY 2015. 

Consistent with ongoing efforts to 

ensure that the reported data is of the 

highest quality possible as we move 

through the transition period, we intend 

to issue additional detailed guidance to 

states by the end of CY 2013 that would 

be applicable to audits and reports due 

to us by the end of CY 2014. 

Comment: Many commenters 

recommended that CMS use 

uncompensated care costs from 

worksheet S–10 from the CMS–2552–10 

cost report when determining 

uncompensated care costs for purposes 

of the DHRM. The commenters cited 

various reasons for the recommendation 

including, the S–10’s broader definition 

of uncompensated care costs, reduced 

state burden of reporting total cost 

directly to CMS. Many commenters also 

recommended that we modify 

worksheet S–10 to ensure meaningful 

use for purposes of the DHRM in future 

years. Citing quality concerns of 

reported data, some commenters also 

recommended against the worksheet S– 

10 of the CMS–2552–10 to determine 

uncompensated care costs for the 

DHRM. The commenters recommend 

that CMS develop an unspecified 

alternate source to determine 

uncompensated care costs. 

Response: Worksheet S–10 of the 

CMS–2552–10 cost report does not 

define uncompensated care cost in a 

manner consistent with the existing 

Medicaid program definition under 

section 1923(g) of the Act. To ensure 

program consistency, the definition 

under section 1923(g) of the Act is also 

used for purposes of this rule. 

Comment: A few commenters 

recommended that we utilize the 

Healthcare Cost Report Information 

System (HCRIS) to determine total 

hospital cost for the DHRM. 

Response: We recognize that total 

hospital cost information is available 

from HCRIS. Data for all Medicaid DSH 

hospitals, however, is not in this 

database. A misalignment of Medicaid 

DSH audit and reporting data and 

Medicare hospital cost data also exists, 

so we have finalized our proposal for 

states to report provider numbers in 

their annual DSH audit and reporting 

submissions. We will continue to 

evaluate utilizing HCRIS data as a 

potential source of total cost for 

purposes of future rulemaking. 

Comment: Many commenters 

recommend that we rely on existing 

reporting mechanisms instead of 

requesting additional data from states, 

including obtaining total cost 

information directly from the Medicare 

cost reports rather than collecting 

directly from states through Medicaid 

DSH audits and reports. Some 

additional commenters recommended 

that we align the Medicaid and 

Medicare method for calculating and/or 

capturing cost. 

Response: The Medicaid program and 

the Medicare program are separate 

programs authorized by different 

sections of the statute and while we try 

whenever possible to align the rules and 

reporting, it is not always possible to do 

so. To ensure efficient operations and to 

ease administrative burden on states 

and providers, we utilize information 

available to us through existing 

reporting. The DSH audit and reporting 

relies on existing financial and cost 

reporting tools currently used by all 

hospitals participating in the Medicare 

program and available state and hospital 

data. These documents include the 

Medicare 2552 cost report, audited 

hospital financial statements and 

accounting records, and information 

provided by the states’ Medicaid 

Management Information Systems 

(MMIS) and the approved Medicaid 

State plan governing the Medicaid 

payments made during the audit period. 

The final rule requires the collection of 

additional information to facilitate the 

generation of usable data from existing 

mechanisms. The rule requires the 

calculation and collection of total cost 

information through cost report and 

Medicaid DSH audit and reporting 

processes to ensure data uniformity and 

consistency. Additionally, we will use 

provider numbers submitted annually 

by states through Medicaid DSH audits 

and reports to resolve a misalignment of 

Medicaid DSH audit and reporting data 

and Medicare hospital cost data. 

Comment: Two commenters 

recommended that we use alternative 

data sources when determining total 

hospital costs for childrens’ hospitals. 

Response: We recognize that some 

childrens’ hospitals may not file a 

Medicare 2552 cost report or may file a 

partial Medicare 2552 cost report. If a 

hospital does not file or files only a 

partial Medicare 2552 cost report, the 

state remains responsible for reporting 

the information which would have 

otherwise been available on the 

Medicare 2552 from each hospital to 

determine total cost. To meet federal 

DSH audit and reporting requirements, 

states may require such hospitals to 

provide the same data to the state as if 

they were filing the Medicare 2552. 

Comment: One commenter 

recommended that we publish a 

preliminary collection of data that 

would be used for the DHRM and allow 

an opportunity for data correction prior 

to the calculation of state-specific DSH 

allotment reduction amounts. 

Response: To ensure efficient 

operations, to ease administrative 

burden on states and providers, and to 

ensure accurate reporting, the final rule 

utilizes information available to us 

through existing reporting mechanisms. 

The DSH audit and reporting relies on 

existing financial and cost reporting 

tools currently used by all hospitals 

participating in the Medicare program 

and available state and hospital data. 

All of these data sources are subject to 

audit, review, or certification prior to 

submission to CMS. These documents 

include the Medicare 2552 cost report, 

audited hospital financial statements 

and accounting records, and 

information provided by the states’ 

MMIS and the approved Medicaid state 

plan governing the Medicaid payments 

made during the audit period. We 

intend to publish a separate DHRM 

technical guide that provides 

information regarding the DHRM 

calculation and its data sources. 

2. Comments on Future Rulemaking 

Comment: We received many 

comments providing recommendations 

and requested considerations for the 

DHRM after FY 2015. The comments 

included recommendations to modify 

the definition of uncompensated care 

costs, recommendations to conduct 

studies evaluating the impact of DSH 

allotment reduction implementation, 

recommendations on factor weighting, 

recommendations on data sources and 

data collection methods, requests for 

engagement of the provider community 

prior to future rulemaking, 

recommendations regarding state 

decisions to implement the low-income 

adults group, and recommendations to 

finalize future fiscal year’s DHRMs in 

increments. 

Response: We appreciate all 

comments and recommendations 

regarding future rulemaking. The 

Affordable Care Act provides an 

increase in coverage options available 

through the Marketplace and state 

Medicaid programs that will coincide 

with the DSH allotment reductions 

implemented through this rule. We 

intend to consider the valuable input 

from these comments and the 

information that will be available to us 

beginning in 2014 for determining the 


pmangrum on DSK3VPTVN1PROD with RULES
57304 Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 

methods for DSH allotment reductions 

for FY 2016 and thereafter. 

C. Factor 1—Low DSH Adjustment 

Factor (LDF) 

The first factor considered in the 

proposed 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. To qualify as a low DSH state, total 

expenditures under the state plan for 

DSH payments for FY 2000, as reported 

to us as of August 31, 2003, had to have 

been greater than zero but less than 3 

percent of the state’s total Medicaid 

state plan expenditures during the FY. 

Historically, low DSH states have 

received lower DSH allotments relative 

to their total Medicaid expenditures 

than non-low DSH states. 

We proposed to apply the Low DSH 

Adjustment Factor (LDF) by imposing a 

greater proportion of the annual DSH 

funding reduction on non-low DSH 

states. The factor is calculated and 

applied as discussed in greater detail in 

the proposed rule (78 FR 28555 through 

28556). We received a number of public 

comments on the proposed Factor 1— 

LDF. A discussion of these comments, 

with our responses, appears below. 

Comment: One commenter agrees that 

the Commonwealth of Pennsylvania is 

appropriately classified as a non-low 

DSH state, expressed uncertainty 

regarding the future status of 

Pennsylvania as a non-low DSH states, 

and opposed the DSH allotment 

reductions because a greater proportion 

of the funding reduction is imposed on 

non-low DSH states. 

Response: We agree with the 

commenter that Pennsylvania was 

correctly classified as a non-low DSH 

state. The statue establishes the criterion 

in section 1923(f)(5)(B) of the Act to 

classify states as low-DSH. Regarding 

the comments in opposition to imposing 

greater reductions on non-low DSH 

states, the proposed and final rule are 

consistent with the statutory direction 

to impose a smaller percentage DSH 

allotment reduction on low DSH states. 

Comment: One commenter expressed 

support that low DSH states do not 

receive a larger percentage reduction 

than all other states due to the 

interaction with other DHRM factor 

requirements directed by the statute. 

Response: We appreciate the 

commenter’s support but note that 

while the proposed and final LDF is 

consistent with the statutory direction 

to impose a smaller percentage DSH 

allotment reduction on low DSH states, 

it is possible that the overall reduction 

percentage may be higher for a low DSH 

state than a non-low DSH state on the 

basis of other factors identified by the 

statute. 

Comment: One commenter opposed 

the LDF and indicated that the 

methodology used to calculate the LDF 

was flawed and creates substantial 

disparate treatment between low DSH 

states and non-low DSH states. 

Specifically, the commenter stated that 

it is inappropriate to use the mean 

unreduced DSH allotment as a 

percentage of Medicaid service 

expenditures as a measure to compare 

low DSH and non-low DSH state groups. 

The commenter estimated that some low 

DSH states have a higher mean 

unreduced DSH allotment as a 

percentage of Medicaid service 

expenditures than some non-low DSH 

states and that states with the greatest 

such percentages would not necessarily 

receive greater percentage reductions 

than other states. The commenter 

recommends that CMS use a fixed LDF 

of 50 percent. 

Response: This final rule does not 

reallocate unreduced DSH allotments 

calculated in section 1923(f) of the Act 

or alleviate all potential differences 

among states in existing unreduced DSH 

allotments. The DHRM does provide 

potential relief by imposing smaller 

percentage reductions on low DSH 

states which historically have received 

lower DSH allotments relative to their 

total Medicaid expenditures than nonlow DSH states. This historical 

difference serves as the basis for 

assigning the LDF value. Although we 

considered alternate methods for 

determining a value, we believe that the 

LDF best addresses this historical 

difference while adhering to statutory 

direction. 

Comment: A commenter 

recommended that CMS not rely on 

estimated Medicaid services 

expenditures and instead rely on actual 

expenditures as the basis for calculating 

the LDF due to potential inaccuracy, 

particularly given the potential impact 

of states’ decisions to adopt the new 

low-income adult coverage group under 

the Medicaid program. 

Response: We have modified the final 

rule to use actual expenditures instead 

of estimated expenditures. We believe 

that the use of actual expenditures for 

the affected year is a more appropriate 

method for capturing the relationship 

between state groups for the reduction 

year. Additionally, the impact of state 

decisions to adopt the new low-income 

adult coverage group will not be 

captured in the DHRM for FY 2014 or 

FY 2015. 

Comment: One commenter identified 

an error in the proposed rule’s 

illustrative table of DSH allotment 

reductions because it misclassified 

Arkansas and Arizona. 

Response: In the illustrative table in 

the proposed rule, we inadvertently 

transposed Arkansas and Arizona. We 

will ensure that this error does not 

occur when determining final statespecific DSH allotment reduction 

amounts. 

Comment: One commenter requested 

clarification regarding the data sources 

used to calculate the LDF. 

Response: We intend to publish a 

separate DHRM technical guide that 

provides information regarding the 

DHRM calculation, including the 

additional information regarding data 

sources. 

D. Factor 2—Uninsured Percentage 

Factor (UPF) 

The second factor considered in the 

proposed 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 that have the lowest 

percentages of uninsured individuals. 

The statute also requires that the 

percentage of uninsured individuals is 

determined on the basis of data from the 

Census Bureau, audited hospital cost 

reports, and other information likely 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 relied on the total 

population 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 

estimates’’ data annually based on a 

point-in-time survey of approximately 3 

million individuals. For purposes of the 

proposed DHRM, we utilized the most 

recent ACS data available at the time of 

the calculation of the annual DSH 

allotment reduction amounts. 

The UPF, as applied through the 

proposed DHRM, has the effect of 

imposing lower relative DSH allotment 

reductions on states that have the 

highest percentage of uninsured 

individuals. The UPF would mitigate 

the DSH reduction for states with the 

highest percentage of uninsured 

individuals. 

The proposed UPF is determined 

separately for each state group as 

described in greater detail in the 

proposed rule (78 FR 28556). We 

proposed to utilize preliminary DSH 


pmangrum on DSK3VPTVN1PROD with RULES
Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 57305 

allotment estimates to develop the DSH 

reduction factors. We received a number 

of public comments on the proposed 

Factor 2—UPF. A discussion of these 

comments, with our responses, appears 

below. 

Comment: Many commenters support 

the DHRM’s identification of uninsured 

individuals based on 1-year estimates of 

the number of uninsured from the U.S. 

Census Bureau’s American Community 

Survey. 

Response: We are finalizing the use of 

1-year estimates of the number of 

uninsured from the American 

Community Survey. 

Comment: Many commenters 

expressed concern that the uninsured 

individual data used for the UPF may 

undercount the numbers of 

undocumented individuals as reported 

and estimated through the ACS. 

Response: We received information 

from the Census Bureau in response to 

the comments. According to the Census 

Bureau, the foreign-born population 

includes anyone who is not a U.S. 

citizen at birth. This includes two 

groups: (1) Naturalized U.S. citizens; 

and (2) noncitizens. Noncitizens include 

lawful permanent residents 

(immigrants), temporary migrants (such 

as foreign students), humanitarian 

migrants (such as refugees and asylees), 

and persons not lawfully present in the 

United States. 

The Census Bureau collects data from 

all foreign born who participate in its 

censuses and surveys, regardless of legal 

status. Thus, unauthorized migrants are 

included in ACS estimates of the total 

foreign-born population. However, the 

Census Bureau only asks foreign-born 

respondents if they are naturalized U.S. 

citizens or noncitizens, so it is not 

possible to tabulate separate estimates of 

unauthorized migrants using the ACS. 

The Census Bureau believes estimates of 

the foreign-born population in the ACS 

do include unauthorized immigrants. 

Accordingly, we have finalized our 

proposed use of ACS data without an 

adjustment in the uninsured data. 

E. 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 section 

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 hospitals with the highest volumes of 

Medicaid inpatients. For purposes of the 

DHRM, the statute defines hospitals 

with high volumes of Medicaid patients 

as those defined 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 

deviation above the mean MIUR for 

hospitals receiving Medicaid payments 

in the state. Every hospital that meets 

that definition is deemed a 

disproportionate share hospital and is 

statutorily required to receive a DSH 

payment. The HMF, through the 

proposed DHRM, provides the 

mitigation of the DSH reduction amount 

for states that have been targeting and 

would in the future target DSH 

payments to these federally-deemed 

hospitals. 

States that have been and continue to 

target a large percentage of their DSH 

payments to hospitals that are federallydeemed as a DSH based on their MIUR 

would receive the lowest reduction 

amounts relative to their total 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 amounts of 

MIUR-deemed hospitals and their DSHeligible uncompensated care costs. By 

basing the HMF reduction on the 

amounts that states do not target to 

hospitals with high volumes of 

Medicaid inpatients, this proposed 

methodology incentivizes states to target 

DSH payments to such hospitals. 

To ensure that all deemed 

disproportionate share hospitals receive 

a required DSH payments, states are 

already required to determine the mean 

MIUR for hospitals receiving Medicaid 

payments in the state and the value of 

one standard deviation above the mean. 

We proposed to rely on MIUR 

information for use in the DHRM that 

we intend to collect from states on an 

annual basis outside of this rule. When 

a state does not timely submit this 

separately required MIUR information, 

for purposes of this factor, we will 

assume that the state has the highest 

value of one standard deviation above 

the mean reported among all other 

states. 

The calculation of the HMF will rely 

on extant data that should be readily 

available to states. The following data 

elements 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), and 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 

percentage that is calculated separately 

for each state group (low DSH and nonlow DSH) as described in greater detail 

in the proposed rule (78 FR 28556 

through 28557). 

Section 1923(f)(7)(B)(i) of the Act 

specifies that the DHRM impose larger 

percentage reductions on states that do 

not target their DSH payments on 

hospitals with high volumes of 

Medicaid inpatients. Section 

1923(f)(7)(B)(i)(II)(aa) defines hospitals 

with high volumes of Medicaid 

inpatients as those defined in section 

1923(b)(1)(A) of the Act. 

Comment: Many commenters 

expressed support for the HMF, 

including specific components of the 

HMF methodology. 

Response: We appreciate the 

commenter’s support and have finalized 

the HMF as proposed, unless otherwise 

specified. 

Comment: One commenter 

recommended that CMS add additional 

protection for hospitals that have MIURs 

that are significantly in excess of one 

standard deviation above the mean 

MIUR for hospitals receiving Medicaid 

payments in the state because these 

hospitals are key public services 

hospitals. 

Response: We agree that these 

hospitals are key public services 

hospitals. The threshold used in the 

DHRM for the HMF is expressly 

identified by statute. The HMF already 

considers any state DSH payments made 

to hospitals that are in excess of one 

standard deviation above the mean as 

payments that are targeted consistent 

with the statutory MIUR threshold. 

Therefore, we anticipate that DHRM 

will incentivize and promote state 

targeting of DSH payments to any 

hospitals exceeding this threshold, 

including those hospitals that 

significantly exceed it. 

Comment: A few commenters 

recommended modifications to the 

definition used to determine high 

Medicaid volume hospitals. The 

recommendations include allowing 

Medicaid discharges in addition to 

Medicaid days as part of the 

determination process and weighting 

the methodology to include outpatient 

hospital services. 

Response: The threshold used in the 

DHRM for the HMF to designate a high 

volume Medicaid hospital is expressly 

identified by statute. We believe that 

this threshold is appropriate and 

anticipate that the DHRM will 

incentivize and promote state targeting 


pmangrum on DSK3VPTVN1PROD with RULES
57306 Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 

of DSH payments to any hospitals 

exceeding this threshold. 

Comment: One commenter supports 

the proposed HMF, but recommends 

that CMS add additional protection for 

any hospital that has an MIUR that is at 

least three standard deviations above 

the mean MIUR for hospitals receiving 

Medicaid payments in the state by 

mandating that states make DSH 

payments to such hospitals for their 

entire hospital-specific limit. 

Response: We designed the DHRM to 

preserve the considerable flexibility 

afforded states in setting DSH state plan 

payment methodologies to the extent 

that these methodologies are consistent 

with section 1923(c) of the Act and all 

other applicable statute and regulations. 

Therefore, we are not adopting the 

commenter’s recommendation. 

However, we will consider further 

targeting in future rulemaking. 

Comment: One commenter 

recommended that the DHRM rely on 

MIUR data derived from the original 

DSH payment calculation instead of 

actual data derived from the Medicaid 

DSH audits and reports. 

Response: The proposed and final 

rules do not rely on Medicaid DSH audit 

and reporting data for MIUR data. 

Instead, we will rely on MIUR 

information that we will collect from 

states on an annual basis outside of this 

rule. 

Comment: One commenter requested 

clarification regarding which MIUR data 

we will use for the DHRM. 

Response: We will rely on MIUR 

information that we collect from states 

on an annual basis outside of this rule. 

We have already initiated collection for 

applicable Medicaid state plan rate 

years. We also intend to publish a 

separate DHRM technical guide that 

provides information regarding the 

DHRM calculation, including the 

additional information regarding data 

sources. 

F. Factor 4—High Level of 

Uncompensated Care Factor (HUF) 

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 

states that do not target DSH payments 

on hospitals with high levels of 

uncompensated care. We proposed to 

rely on the existing statutory definition 

of uncompensated care cost used in 

determining the hospital-specific limit 

on FFP for DSH payments. 

Each state must develop a 

methodology to compute this hospitalspecific limit for each DSH hospital in 

the state. As defined in section 

1923(g)(1) of the Act, the state’s 

methodology must calculate for each 

hospital, for each FY, the difference 

between the costs incurred by that 

hospital for furnishing inpatient 

hospital and outpatient hospital services 

during the applicable state FY to 

Medicaid eligible 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, less all applicable revenues for 

these hospital services. This difference, 

if any, between incurred inpatient 

hospital and outpatient hospital costs 

and associated revenues is considered a 

hospital’s uncompensated care cost 

limit, or hospital-specific DSH limit. 

For purposes of this rule, we 

proposed 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 and 

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. Any 

hospital that exceeds the mean ratio of 

uncompensated care costs to total 

Medicaid 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 consistent with existing 

Medicaid DSH program definition of 

uncompensated care and is readily 

available to states and us. 

The following data elements are used 

in the HUF calculation: 

• The preliminary unreduced DSH 

allotment for each state; 

• DSH hospital payment amounts 

reported 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 

uncompensated care used in this factor 

of the DHRM exclude bad debt. The 

proposed rule relied on the 

uncompensated care cost data derived 

from Medicaid DSH audit and reporting 

required by section 1923(f) of the Act 

and implementing regulations. This 

uncompensated care data excludes bad 

debt, including unpaid copayments and 

deductibles, associated with individuals 

with a source 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-low DSH) 

as described in greater detail in the 

proposed rule (78 FR 28557). 

We proposed to modify DSH reporting 

requirements to collect total hospital 

cost from Medicare cost report data for 

all DSH hospitals. Through separately 

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 

cost is unavailable at this time, we 

solicited comment on alternatives to the 

use of total uncompensated care cost as 

the denominator to alleviate this data 

issue. 

Understanding potential data 

limitations and that the proposed 

methodology does not precisely 

distinguish how states direct DSH 

payments among hospitals that are 

identified as at or above the mean 

uncompensated care, we solicited 

comments on alternative methodologies 

regarding state targeting of DSH 

payments to hospitals with high levels 

of uncompensated care. 

Comment: Many commenters 

expressed support for the HUF, 

including specific components of the 

HUF methodology. 

Response: We have finalized the HUF 

as proposed, unless otherwise specified. 

Comment: A commenter expresses 

concern that the DHRM would penalize 

states and some of their hospitals if 

states target their DSH payments based 

on indigent care levels alone, instead of 

on Medicaid factors. 

Response: We have finalized the 

proposed DHRM that promotes state 

targeting of payments to hospitals that 

would qualify for DSH payments based 

on MIUR deeming requirements defined 

in section 1923(b)(1)(A) of the Act. The 

final rule establishes this targeting factor 

consistent with the statutory direction 

to impose larger percentage reductions 

on states that do not target their DSH 

payments on hospitals with high 

volumes of Medicaid inpatients and do 

not target their DSH payments on 

hospitals with high levels of 

uncompensated care. The HMF provides 

mitigation of the state-specific DSH 

reduction amount for states that have 

been targeting and would in the future 

target DSH payments to these types of 

hospitals. Hospitals with high levels of 

indigent care levels may also have high 

levels of uncompensated care costs. If 

those hospitals have high levels of 

uncompensated care, the HUF will 

provide mitigation of the state-specific 

DSH reduction amount for states that 

have been targeting and would in the 


pmangrum on DSK3VPTVN1PROD with RULES
Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 57307 

future target DSH payments to those 

hospitals. 

Comment: Some commenters 

recommended that the DHRM remove 

DSH payments made to high volume 

Medicaid hospitals prior to determining 

the amount of DSH payments made to 

hospitals that are not targeted to 

hospitals with high levels of 

uncompensated care. 

Response: We have finalized the 

proposed DHRM that promotes, through 

the HUF, state targeting of payments to 

hospitals with high levels of 

uncompensated care independent of the 

hospitals’ status as a high volume 

Medicaid hospital. This final rule 

establishes this targeting factor 

consistent with the statutory direction 

to impose larger percentage reductions 

on states that do not target their DSH 

payments on hospitals with high levels 

of uncompensated care. 

The DHRM, through the HMF, already 

provides mitigation of the state-specific 

DSH reduction amount for states that 

have been targeting and would in the 

future target DSH payments to high 

volume Medicaid hospitals. If DSH 

payments to those hospitals were also 

excluded for purposes of the HUF, the 

protection would be afforded to states 

even if the hospitals had low levels of 

uncompensated care. This is inherently 

counter to this factor, which is designed 

to promote state targeting of DSH 

payment to hospitals with high levels of 

uncompensated care costs. If the high 

Medicaid volume hospitals also have 

high levels of uncompensated care, the 

HUF will also provide additional 

mitigation of the state-specific DSH 

reduction amount based on state DSH 

payments targeted to these hospitals. 

Comment: A few commenters stated 

that the proposed HUF properly 

accounts for hospital size, but does not 

adequately account for the amount of 

care provided to Medicaid and 

uninsured patients. The commenter 

recommends that we further adjust each 

hospital’s uncompensated care level by 

adding an additional weight to each 

hospital based on each hospital’s total 

Medicaid and uninsured costs when 

calculating the UPF. 

Response: Though total hospital 

volume is accounted for, in part, by 

basing HUF reductions on the total 

payments not targeted to hospitals that 

have high levels of uncompensated care, 

we recognize that the proposed HUF 

does not provide for an ideal accounting 

of the volume of each hospital’s amount 

of care provided to Medicaid and 

uninsured patients when determining 

which hospitals have high levels of 

uncompensated care. Regardless, we are 

concerned that adding an adjustment for 

total Medicaid and uninsured volume 

would unfairly and adversely affect 

smaller hospitals. We have initiated a 

resolution to the identified volume 

concern by finalizing the collection of 

total cost data. We intend to substitute 

total cost for the denominator in step 

one of the HUF calculation to alleviate 

the identified concern for future 

periods. 

Comment: Some commenters 

expressed concern that the HUF does 

not rely on an accurate measure of 

uncompensated care and may 

potentially produce paradoxical 

outcomes when comparing hospital 

levels of uncompensated care. One 

commenter agreed with the proposal 

that total cost would be a better 

denominator in step one of the HUF 

calculation, but recommended that CMS 

utilize Medicare cost report data to 

determine uncompensated care costs for 

FY 2014 and FY 2015. 

Response: We recognize that the HUF 

may produce isolated paradoxical 

outcomes due to the limited data 

available at this time. However, we 

believe the method proposed does 

represent the most reasonable method 

for determining hospitals with high 

levels of uncompensated care costs 

given limited data availability. We 

expect any impact resulting from such 

outcomes to be minimal and we believe 

the method proposed represents the 

most reasonable method for determining 

hospitals with high levels of 

uncompensated care costs given limited 

data availability. Additionally, through 

separately issued rulemaking for FY 

2016 and thereafter, we intend to 

substitute total cost for the denominator 

in step one of the HUF calculation to 

optimize the method for determining 

hospitals with high levels of 

uncompensated care. 

We agree that total cost is a better 

denominator in step one of the HUF 

calculation. To address misalignment of 

Medicaid DSH audit and reporting data 

and Medicare hospital cost data, we 

have finalized our proposal for states to 

report provider numbers in their annual 

DSH audit and reporting submissions. 

Additionally, we have finalized the 

collection of total cost data, which will 

be audited consisted with other DSH 

audit and reporting data used by this 

proposed rule. We intend to utilize this 

information to determine the optimum 

method for calculating uncompensated 

cost for FY 2016 and thereafter. 

Comment: One commenter expressed 

concerns that the HUF does not 

properly address the statutory direction 

to impose larger percentage reductions 

on states that do not target their DSH 

payments on hospitals high levels of 

uncompensated care because Medicaid 

DSH audit and reporting data does not 

include all hospitals in a state. 

Response: We recognize that the DSH 

audit and reporting data does not 

include uncompensated care 

information for all hospitals; however, 

the Medicaid DSH audit and reporting 

data represent the only existing 

uncompensated care cost data 

consistent with the existing statutory 

definition of uncompensated care cost 

used in determining the hospitalspecific limit on FFP for DSH payments. 

We disagree with the commenter that 

the HUF does not address the statutory 

direction to impose larger percentage 

reductions on states that do not target 

their DSH payments on hospitals high 

levels of uncompensated care. The 

proposed and final HUF is designed to 

promote state targeting of DSH 

payments to hospitals with high levels 

of uncompensated care based on 

imposing reductions based on the 

payments to non-high level 

uncompensated care hospitals. 

Comment: Two commenters requested 

clarification regarding the term 

‘‘weighted mean’’ used for purposes of 

the HUF calculation. 

Response: We have removed the term 

‘‘weighted’’ when referencing means in 

the final rule to alleviate potential 

confusion. We intend to publish a 

separate DHRM technical guide that 

provides additional information 

regarding the DHRM calculation. 

Comment: Two commenters 

recommended that we include bad debt, 

including unpaid copayments and 

deductibles, in the definition of 

uncompensated care costs used for 

purposes of the UPF. The commenter 

also recommended that CMS change the 

treatment of bad debt when calculating 

the hospital-specific DSH limit at 

section 1923(g) of the Act. 

Response: The statute requires that 

the uncompensated care definition used 

in the UPF exclude bad debt. We have 

finalized the rule to rely on the 

uncompensated care cost data derived 

from Medicaid DSH audit and reporting 

data. Consistent with statutory 

direction, this uncompensated care data 

excludes bad debt, including unpaid 

copayments and deductibles, associated 

with individuals with a source of third 

party coverage for the service received 

during the year. Additionally, changes 

to calculating the hospital-specific DSH 

limit are outside the scope of the 

proposed rule. We issued policy on 

hospital-specific DSH limits through 

separate rulemaking. The regulation 

does not implement or otherwise 

address the calculation of hospitalVerDate Mar<15>2010 15:23 Sep 17, 2013 Jkt 229001 PO 00000 Frm 00081 Fmt 4700 Sfmt 4700 E:\FR\FM\18SER1.SGM 18SER1

pmangrum on DSK3VPTVN1PROD with RULES
57308 Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 

specific DSH payment limits under 

section 1923(g) of the Act. 

Comment: One commenter 

recommended that we permit the use of 

average hospital cost-center specific 

ratios instead of cost center-specific 

cost-to-charge ratios in the definition of 

uncompensated care costs used for 

purposes of the UPF. Two commenters 

also recommended the inclusion of 

Graduate Medical Education (GME) 

costs in the uncompensated care cost 

definition. 

Response: The Medicaid DSH audit 

and reporting rule data is the only data 

source available to us consistent with 

the statutory definition of 

uncompensated care cost for 

determining hospital-specific DSH 

limits. We are finalizing the reliance on 

this data in the UPF because it 

represents the best available data that is 

consistent with program definitions. 

Further, changes to calculating the 

hospital-specific DSH limit are outside 

the scope of the proposed rule. 

G. Factor 5—Section 1115 Budget 

Neutrality Factor (BNF) 

The statute requires that we take into 

account the extent to which a state’s 

DSH allotment was included in the 

budget neutrality calculation for a 

coverage expansion that was approved 

under section 1115 as of July 31, 2009. 

Prior to the implementation of this 

proposed rule, these states possess full 

annual DSH allotments as calculated 

under section 1923(f) of the Act. Under 

an approved section 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 

neutrality calculation for a coverage 

expansion under an approved section 

1115 demonstration or to fund 

uncompensated care pools and/or safety 

net care pools. For applicable states, 

DSH payments under section 1923 of 

the Act are limited 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 allotment is included 

in the budget neutrality calculation, it 

would have no available DSH funds 

with which to make DSH payments 

under section 1923 of the Act for the 

period of the demonstration. 

Consistent with the statute, for states 

that include their DSH allotment in 

budget neutrality calculations for 

coverage expansion under an approved 

section 1115 demonstration as of July 

31, 2009, we proposed 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 

coverage expansion in the budget 

neutrality calculation. Amounts of DSH 

allotment included in budget neutrality 

calculations for non-coverage expansion 

purposes under approved 

demonstrations would still be subject to 

reduction. Uncompensated care pools 

and safety net care pools are considered 

non-coverage 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 proposed to determine for each 

reduction year if any portion of a state’s 

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 took into 

account 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 assigning 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 expansion if the 

section 1115 demonstration was or is 

approved after July 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 data for 

these two factors, we would be unable 

to evaluate how they spent the portion 

of their DSH allotment that was diverted 

for non-coverage expansion. 

Accordingly, we proposed to maintain 

the HUF and HMF formula for DSH 

payments for which qualifying states 

would have available data. Because we 

would not have DSH payment data for 

DSH allotment amounts diverted for 

non-coverage expansion, we proposed 

to assign average HUF and HMF 

reduction percentages for the portion of 

their 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 

amounts, we considered using various 

alternative percentages. Additionally, 

for qualifying allotment amounts 

diverted specifically for coverage 

expansion, we considered applying the 

BNF reduction exclusion to the UPF in 

addition to the HMF and HUF. We 

solicited comment regarding the use of 

different percentages for the reductions 

to non-qualifying diversion amounts 

and regarding alternative BNF 

methodologies that may prove 

preferable alternatives. 

Through the Affordable Care Act, the 

statute provided states with other, nonDSH funds to finance coverage 

expansions, thus limiting the need for 

the diverted DSH under demonstrations. 

Accordingly, the group of states affected 

by this factor today may change at a 

later time, depending on how and 

whether their coverage continues to be 

financed as part of their demonstrations. 

In addition, based on changes in the 

health coverage landscape, we will 

reevaluate this policy in future 

rulemaking. 

Comment: Some commenters 

requested clarification regarding how 

CMS will determine the amount of the 

DSH allotment included in the 

calculation of budget neutrality that will 

not be considered an amount included 

for coverage expansion. 

Response: For states whose DSH 

allotment was included in the budget 

neutrality calculation for a coverage 

expansion that was approved under 

section 1115 as of July 31, 2009, we will 

determine the amount of the state’s DSH 

allotment included 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. The DSH 

allotment amount included in the 

budget neutrality calculation remaining 

after the identification of the amount for 

coverage expansion is the DSH 

allotment amount that will be 

considered not included for coverage 

expansion. We intend to publish a 

separate DHRM technical guide that 

provides information regarding the 

DHRM calculation, including the 

additional information regarding the 

BNF calculation. 

Comment: One commenter 

recommended that CMS modify the 

BNF to include safety net care pool and 

uncompensated care pool amounts to be 

treated the same as coverage expansion 

initiatives. Another commenter 

expressed support for the exclusion of 

uncompensated care and safety net care 


pmangrum on DSK3VPTVN1PROD with RULES
Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 57309 

pools from consideration as coverage 

expansion for purposes of the BNF. 

Response: The proposed and final 

DHRM takes into account the extent to 

which the DSH allotment for a state was 

included in the budget neutrality 

calculation approved under section 

1115 of the Act as of July 31, 2009, by 

excluding from the HMF and HUF 

amounts diverted specifically for a 

coverage expansion. Uncompensated 

care pools and safety net care pools do 

not result in coverage expansion, so 

they are excluded from consideration as 

coverage expansion for purposes of this 

factor. Accordingly, we finalized this 

provision of the rule as proposed. 

Comment: A few commenters 

recommended that CMS modify the 

BNF date of July 31, 2009, to July 31, 

2010, or to include all approved 

demonstrations regardless of the 

approval date. 

Response: The statute requires that we 

take into account the extent to which a 

state’s DSH allotment was included in 

the budget neutrality calculation for a 

coverage expansion that was approved 

under section 1115 of the Act as of July 

31, 2009, specifically. Subsequent to 

this date, the Affordable Care Act 

provided states with other, non-DSH 

funds for such coverage expansions, 

thus limiting the need for the diverted 

DSH under demonstrations. Therefore, 

we are finalizing the rule as proposed. 

Based on changes in the health coverage 

landscape, we will reevaluate this 

policy in future rulemaking. 

Comment: A commenter asked that 

we ensure that the DHRM gives full 

consideration to the statutory direction 

regarding the BNF and does not unfairly 

penalize states for which their DSH 

allotment was included in the budget 

neutrality calculation for a coverage 

expansion that was approved under 

section 1115 of the Act as of July 31, 

2009. 

Response: We do not believe that the 

BNF unfairly penalizes qualifying states 

under this factor. The proposed and 

final DHRM takes into account the 

extent to which the DSH allotment for 

a state was included in the budget 

neutrality calculation approved under 

section 1115 of the Act as of July 31, 

2009 by excluding from the HMF and 

HUF amounts diverted specifically for a 

coverage expansion and automatically 

assigning qualifying states an average 

HMF and HUF reduction amount (based 

on the state group) for any DSH 

allotment diverted for non-coverage 

expansion purposes and any amounts 

diverted for coverage expansion if the 

demonstration under section 1115 of the 

Act was or is approved after July 31, 

2009. 

IV. Provisions of the Final Regulations 

The final rule is substantively the 

same as the method in the proposed 

rule, but includes some technical 

updates, corrections, and clarifications 

after reviewing the public comments as 

noted in section III of this final rule. 

V. 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. 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 

collection 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 automated 

collection techniques. 

To derive average costs, we used data 

from the U.S. Bureau of Labor Statistics 

for all salary estimates. The salary 

estimates include the cost of fringe 

benefits, based on the December 2012 

Employer Costs for Employee 

Compensation report by the Bureau. 

In our May 15, 2013 (78 FR 28551), 

proposed rule, we solicited public 

comment on each of the section 

3506(c)(2)(A)-required issues for the 

following information collection 

requirements (ICRs). We received the 

following comment: 

Comment: A commenter stated that 

the burden estimate of 4 hours to 

comply with the added DSH reporting 

requirements at § 447.299 is understated 

due to the amount of time required for 

the state to review the requirements, 

modify state rules, consult legal 

counsel, hold public hearings, and 

otherwise implement the new 

requirements. 

Response: We disagree that the 

burden estimate associated with the 

added DSH reporting requirements 

should be increased and believe that our 

initial estimate is accurate. States are 

already required to submit an annual 

DSH audit and associated report to 

CMS. This rule simply adds three 

additional data elements (Medicaid 

provider number, Medicare provider 

number, and total cost) to the existing 

reporting that should be easily 

accessible to states. 

ICRs Regarding Reporting Requirements 

(§ 447.299) 

Beginning with each state’s Medicaid 

state 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 to 

permit verification of the 

appropriateness of such payments. 

The ongoing burden associated with 

the 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 

in this rule, we estimate that it will take 

an additional 4 hours per state (from 38 

approved hours to 42 total hours) to 

complete the DSH reporting 

spreadsheets. Consequently, we also 

estimate an additional 204 (4 hr × 51 

respondents) annual hours for all states 

and the District of Columbia and an 

additional aggregate cost of $8,136.54 

(51 × [$51 × 2 hr] + [$28.77 × 2 hr]). 

In deriving these figures, we used the 

following hourly labor rates and 

estimated the time to complete each 

task: $51 per hour and an additional 102 

hours (204 hr × 0.5) for management and 

professional staff to review and prepare 

reports, and $28.77 per hour and an 

additional 102 hours (204 hr × 0.5) for 

office staff to prepare the reports. 

The preceding requirements and 

burden estimates 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 equal 51 annual 

respondents, 51 annual responses, and 

2,142 annual hours. 

Submission of PRA-Related Comments 

We have submitted a copy of this rule 

to OMB for its review of the rule’s 

information collection and 

recordkeeping requirements. These 

requirements are not effective until they 

have been approved by the OMB. 

To obtain copies of the supporting 

statement and any related forms for the 

proposed paperwork collections 

referenced 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. 

We invite public comments on this 

rule’s information collection 

requirements. If you would like to 


pmangrum on DSK3VPTVN1PROD with RULES
57310 Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 

comment, please submit your comments 

to the Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, Attention: 

CMS Desk Officer, (CMS–2367–F) Fax: 

(202) 395–6974; or Email: OIRA_

submission@omb.eop.gov. 

Comments must be received by 

October 18, 2013. 

VI. Regulatory Impact Analysis 

A. Statement of Need 

The Affordable Care Act amended the 

Act by requiring aggregate reductions to 

state Medicaid DSH allotments annually 

from FY 2014 through FY 2020. This 

final 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 (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

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

354), section 1102(b) of the Act, section 

202 of the Unfunded Mandates Reform 

Act of 1995 (March 22, 1995; Pub. L. 

104–4), Executive Order 13132 on 

Federalism (August 4, 1999) and the 

Congressional Review Act (5 U.S.C. 

804(2). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). 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 with 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 

issuing any rule whose mandates 

require spending in any 1 year of $100 

million in 1995 dollars, updated 

annually for inflation. In 2013, that 

threshold is approximately $141 

million. This final rule contains 

reporting requirements on states which 

would be $8,136.54 annually. 

Executive Order 13132 establishes 

certain requirements 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 governments, 

preempts state law, or otherwise has 

Federalism implications. Since this rule 

does not impose any costs on state or 

local governments, the requirements of 

Executive Order 13132 are not 

applicable. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of less than $7.0 million to $35.5 

million in any 1 year. Individuals and 

states are not included in the definition 

of a small entity. 

As its measure of significant 

economic impact on a substantial 

number of small entities, HHS uses a 

change in revenue of more than 3 to 5 

percent. Since states are responsible in 

the management of the reduced 

allotments, we cannot predict the exact 

impact on individual hospitals. 

However, the aggregate estimated 

reduction of DSH allotment reductions 

at the state level is generally less than 

6 percent of total Medicaid DSH 

allotment amounts. We estimate that the 

reduction in payments resulting from 

the DSH allotment reductions will 

account for significantly less than 3 to 

5 percent of total hospital revenue. 

Therefore, we do not believe that this 

threshold will be reached by the 

requirements in this final rule. 

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 Metropolitan Statistical Area for 

Medicare payment regulations and has 

fewer than 100 beds. As its measure of 

significant economic impact on a 

substantial number of small entities, 

HHS uses a change in revenue of more 

than 3 to 5 percent. We are not 

preparing an analysis for section 1102(b) 

of the Act because we do not believe 

that this threshold will be reached by 

the requirements in this final rule. 

Executive Order 13132 establishes 

certain requirements 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 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. 

C. Anticipated Effects 

1. Effects on State Medicaid Programs 

Effective for FY 2014, the DSH 

allotment reductions will 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 allotments, which are 

published by CMS in an annual Federal 

Register notice, limit the amount of FFP 

in the aggregate that states can pay 

annually in DSH payments to hospitals. 

This final rule will reduce state DSH 

allotment amounts and therefore, will 

limit the states’ ability to make DSH 

payments and claim FFP for DSH 

payments at FY 2013 levels. By statute, 

the rule will reduce state DSH 

allotments by $500,000,000 for FY 2014 

and $600,000,000 for FY 2015. The rule 

will reduce total FFP claimed by states 

by similar amounts, although it may not 

equal the exact amount of the allotment 

reductions. At this time, we cannot 

anticipate how states will change their 

existing DSH methodologies in response 

to the rule, and therefore cannot provide 

a specific estimate of the total federal 

financial impact for FY 2014 and FY 

2015. 

The final rule utilizes a DHRM that 

would mitigate the negative impact on 

states that continue to have high 

percentages of uninsured and are 

targeting DSH payments on hospitals 

that have a high volume of Medicaid 

inpatient and on hospitals with high 

levels of uncompensated care. 

Additionally, the final rule requires 

additional annual DSH reporting 

requirements on states. For more 

information regarding the effects of 

these requirements on states, see section 

V. of this final rule. 

2. Effects on Providers 

The final rule will affect certain 

providers through the reduction of state 

DSH payments. However, we cannot 

estimate the impact on individual 

providers or groups of providers. This 

final rule will not affect the 

considerable flexibility afforded states 

in setting DSH state plan payment 

methodologies to the extent that these 


pmangrum on DSK3VPTVN1PROD with RULES
Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 57311 

methodologies are consistent with 

section 1923(c) of the Act and all other 

applicable statute and regulations. 

States will retain the ability to preserve 

existing DSH payment methodologies or 

to modify methodologies by submitting 

state plan amendments to us. Some 

states may determine that implementing 

a proportional reduction in DSH 

payments for all qualifying hospitals is 

the preferred method to account for the 

reduced allotment. Alternatively, states 

could determine that the best action is 

to propose a methodology that will 

direct DSH payments reductions to 

hospitals that do not have high 

Medicaid volume or do not have high 

levels of uncompensated care. 

Regardless, the rule incentivizes states 

to target DSH payments to hospitals that 

are most in need of Medicaid DSH 

funding based on their serving a high 

volume of Medicaid inpatients and 

having a high level of uncompensated 

care. 

This final rule also does not affect the 

calculation of the hospital-specific DSH 

limit established at section 1923(g) of 

the Act. This hospital-specific limit 

requires that Medicaid DSH payments to 

a qualifying hospital not exceed the 

costs incurred by that hospital for 

providing inpatient and outpatient 

hospital services furnished during the 

year to Medicaid patients and 

individuals who have no health 

insurance or other source of third party 

coverage for the services provided 

during the year, less applicable 

revenues for those services. 

Although this rule would reduce state 

DSH allotments, the management of the 

reduced allotments still largely remains 

with the states. Given that states would 

retain the same flexibility to design DSH 

payment methodologies 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 flexibility in 

setting DSH payments to account for 

their reduced DSH allotment and how 

this would affect individual providers 

or specific groups of providers. 

D. Alternatives Considered 

The Affordable Care Act specifies the 

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 Circular A–4 

(available at http://

www.whitehouse.gov/omb/circulars_

a004_a-4/), we have prepared an 

accounting statement in Table 1 

showing the classification of the 

impacts associated with implementation 

of this final rule. 

TABLE 1—ACCOUNTING STATEMENT

Category Estimates 

Units 

Year dollar Discount rate 

(percent) 

Period 

covered 

Costs: 

Cost of Reporting Requirement (in millions) ............................................ 0.008 2013 7 2014–2015 

0.008 2013 3 2014–2015 

Transfers: 

Reductions in Disproportionate Share Hospital Allotment (in millions) .... ¥548 2013 7 2014–2015 

¥549 2013 3 2014–2015 

From Whom to Whom .............................................................................. Federal Government to the States on behalf of the Beneficiaries 

List of Subjects in 42 CFR Part 447 

Accounting, Administrative practice 

and procedure, Drugs, Grant programs— 

health, Health facilities, Health 

professions, Medicaid, Reporting and 

recordkeeping requirements, Rural 

areas. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

chapter IV as set forth below: 

PART 447 —PAYMENTS FOR 

SERVICES 

■ 1. The authority citation for part 447 

continues as follows: 

Authority: Sec. 1102 of the Social Security 

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

Subpart E—Payment Adjustments for 

Hospitals That Serve a 

Disproportionate Number of LowIncome Patients 

■ 2. Section 447.294 is added 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-specific annual DSH allotment 

reductions from Federal fiscal year 2014 

and Federal fiscal year 2015 as required 

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 allotment for a State was 

included in the budget neutrality 

calculation for a coverage expansion 

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 

allotment reduction from a State’s 

unreduced DSH allotment. 

High level of uncompensated care 

factor (HUF) is a factor incorporated in 

the DHRM that results in larger 

percentage DSH 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 hospital that 

has an MIUR at least one standard 

deviation above the mean MIUR for 

hospitals receiving Medicaid payments 

in the State. 

High uncompensated care hospital 

means a hospital that exceeds the mean 

ratio of uncompensated care costs to 

total Medicaid and uninsured inpatient 

and outpatient hospital service costs for 

all disproportionate share hospitals 

within a state. 

High volume of Medicaid inpatients 

factor (HMF) is a factor incorporated in 


pmangrum on DSK3VPTVN1PROD with RULES
57312 Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 

the DHRM that results in larger 

percentage DSH 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 

allotment 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 

determined by calculating the quotient 

of each state’s HUF reduction amount 

divided by its unreduced DSH 

allotment, then calculating the mean for 

each state group, then converting the 

result to a percentage. 

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 by 

DHRM as defined in § 447.294(e)(1). 

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 for each hospital reported in 

accordance with § 447.299(c)(10). 

Total population means the 1-year 

estimates data of the total noninstitutionalized population identified 

by United 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 for each hospital in 

accordance with § 447.299(c)(16). 

Uncompensated care level means a 

hospital’s uncompensated care cost 

divided by the sum of its total Medicaid 

cost and its total uninsured cost. 

Unreduced DSH allotment means the 

DSH allotment calculated under section 

1923(f) of the Act prior to annual 

reductions under this section. 

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 uninsured 

individuals. 

Uninsured population means 1-year 

estimates data of the number of 

uninsured identified by United States 

Census Bureau’s American Community 

Survey. 

(c) Aggregate DSH allotment 

reduction amounts. The aggregate DSH 

allotment reduction amounts are as 

provided in section 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 hospitals receiving 

Medicaid payments in the State and the 

value of one standard deviation above 

such mean. States must provide the data 

for State Plan Rate Year (SPRY) 2008, 

SPRY 2009, SPRY 2010, and SPRY 2011 

by June 30, 2014. States must provide 

this data for each subsequent SPRY to 

CMS by June 30 of each year. To 

determine which SPRY’s data the state 

must submit, subtract 3 years from the 

calendar year in which the data is due. 

For example, SPRY 2012 data must be 

submitted to CMS by June 30, 2015. 

(e) DHRM methodology. Section 

1923(f)(7) of the Act 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’ preliminary unreduced DSH 

allotment amounts to determine a 

percentage. 

(ii) Multiplying the value of paragraph 

(e)(2)(i) of this section by the aggregate 

DSH allotment reduction amount under 

paragraph (c) of this section for the 

applicable fiscal year. 

(iii) Applying the low DSH 

adjustment factor under paragraph (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 

unreduced DSH allotment by their 

respective total Medicaid service 

expenditures. 

(ii) Calculating for each State group 

the mean of all values determined in 

paragraph (e)(3)(i) of this section. 

(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 low DSH State group; 

and 

(iv) Adding the value of paragraph 

(e)(4)(iii) of this section to the value 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 the uninsured in State for each State. 

(ii) Determining the uninsured 

reduction allocation component for each 

State as a percentage by dividing each 

State’s value of paragraph (e)(6)(i) of this 

section by the sum of the values of 

paragraph (e)(6)(i) of this section for the 

respective State group (the sum of the 

values of all States in the 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 

calculated in (e)(6)(iii) of this section by 

the value of each State’s uninsured 

reduction allocation component from 

paragraph (e)(6)(ii) of this 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 values of paragraph 

(e)(6)(iv) of this section for the 

respective State group (the sum 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 


pmangrum on DSK3VPTVN1PROD with RULES
Federal Register / Vol. 78, No. 181 / Wednesday, September 18, 2013 / Rules and Regulations 57313 

portion of the final aggregate DSH 

allotment reduction allocation for each 

State by multiplying the State’s UPF by 

the aggregate DSH allotment reduction 

allocated to the UPF factor under 

paragraph (e)(5) of this section for the 

respective State group. 

(8) High volume of Medicaid 

inpatients 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 

allotment 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 this section for the 

respective State group. 

(10) High level of uncompensated care 

factor (HUF) calculation. CMS will 

calculate the HUF by determining a 

percentage for each State by dividing 

the State’s total DSH payments made to 

non-High Uncompensated 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 reduction 

allocated to the HUF factor under 

paragraph (e)(5) of this section for the 

respective State group. 

(12) Section 1115 budget neutrality 

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 pursuant to an 

approval on or before July 31, 2009. 

CMS will calculate the BNF for 

qualifying states by the following: 

(i) For States whose DSH allotment 

was 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 amendments since that date) 

determining the amount of the State’s 

DSH allotment included 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 

State’s DSH allotment included in the 

budget neutrality calculation for noncoverage expansion purposes for the 

specific fiscal year subject to reduction. 

(iii) Multiplying each qualifying 

State’s value of paragraph (e)(12)(ii) of 

this section by the mean HMF reduction 

percentage for the respective State 

group. 

(iv) Multiplying each qualifying 

State’s value of paragraph (e)(12)(ii) of 

this section by the mean HUF reduction 

percentage for the respective State 

group. 

(v) For each State, calculating the sum 

of the value of paragraphs (e)(12)(iii) 

and of (e)(12)(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 

paragraphs (e)(7), (e)(9), and (e)(11) of 

this section for each State. 

(ii) For States qualifying under 

paragraph (e)(12) of this section, 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) of this section based 

on the proportion of each State’s 

preliminary unreduced DSH allotment 

compared 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 2014 

and fiscal year 2015, CMS will subtract 

the State-specific DSH allotment 

amount determined in paragraph (e)(14) 

of this section 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: 

■ A. Redesignating paragraph (c)(18) as 

(c)(21). 

■ B. Adding paragraphs (c)(18), (c)(19) 

and (c)(20). 

■ C. Revising newly redesignated 

paragraph (c)(21). 

The additions and revisions read as 

follows: 

§ 447.299 Reporting Requirements. 

* * * * * 

(c) * * * 

(18) Medicaid provider number. The 

provider identification number assigned 

by the Medicaid program. 

(19) Medicare provider number. The 

provider identification number assigned 

by the Medicare program. 

(20) Total hospital cost. The total 

annual costs incurred by each hospital 

for furnishing inpatient hospital and 

outpatient hospital services. 

(21) Reporting. States must report 

DSH payments made to all hospitals 

under the authority of the approved 

Medicaid State plan. This includes both 

in-State and out-of-State hospitals. For 

out-of-State hospitals, States must 

report, at a minimum, the information 

identified in § 447.299(c)(1) through 

(c)(6), (c)(8), (c)(9), (c)(17), (c)(18), and 

(c)(19). 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.778, Medical Assistance 

Program) 

Dated: August 29, 2013. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: September 9, 2013. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2013–22686 Filed 9–13–13; 4:15 pm] 

BILLING CODE 4120–01–P 

DEPARTMENT OF COMMERCE 

National Oceanic and Atmospheric 

Administration 

50 CFR Part 622 

[Docket No. 130627573–3796–02] 

RIN 0648–BD39 

Fisheries of the Caribbean, Gulf of 

Mexico, and South Atlantic; Reef Fish 

Fishery of the Gulf of Mexico; Red 

Snapper Management Measures 

AGENCY: National Marine Fisheries 

Service (NMFS), National Oceanic and 

Atmospheric Administration (NOAA), 

Commerce. 

ACTION: Final rule. 

SUMMARY: NMFS issues this final rule to 

implement management measures 

described in a framework action to the 

Fishery Management Plan for the Reef 

Fish Resources of the Gulf of Mexico 

(FMP), as prepared by the Gulf of 

Mexico Fishery Management Council 

(Council). This rule increases the 2013 

commercial and recreational quotas for 

red snapper in the Gulf of Mexico (Gulf) 

reef fish fishery and re-opens the red 

snapper recreational season for 2013. 

This final rule is intended to allow 

increased harvest of Gulf red snapper 

without increasing the risk of red 

snapper experiencing overfishing or 

jeopardizing the rebuilding plan. 


pmangrum on DSK3VPTVN1PROD with RULES