[Federal Register Volume 71, Number 191 (Tuesday, October 3, 2006)]
[Notices]
[Pages 58398-58415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-8421]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-2243-N]
RIN 0938-AO75


Medicaid Program; Fiscal Year Disproportionate Share Hospital 
Allotments and Disproportionate Share Hospital Institutions for Mental 
Disease Limits

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

ACTION: Notice.

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SUMMARY: Consistent with the provisions of section 1923 of the Social 
Security Act, as amended by section 1001(a) of the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 and 
section 6054 of the Deficit Reduction Act of 2005, this notice 
announces the final Federal share disproportionate share hospital (DSH) 
allotments for Federal fiscal year (FFY) 2005, the preliminary Federal 
share DSH allotments for FFY 2006, and the preliminary Federal share 
DSH allotments for FFY 2007. This notice also announces the final FFY 
2005, the preliminary FFY 2006, and the preliminary FFY 2007 
limitations on aggregate DSH payments that States may make to 
institutions for mental disease and other mental health facilities. In 
addition, this notice includes background information describing the

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methodology for determining the amounts of States' FFY DSH allotments.

FOR FURTHER INFORMATION CONTACT: Richard Strauss, (410) 786-2019.

SUPPLEMENTARY INFORMATION:

I. Background

A. Disproportionate Share Hospital Allotments for Federal Fiscal Year 
2003

    Under section 1923(f)(3) of the Social Security Act (the Act), 
States' Federal fiscal year (FFY) 2003 disproportionate share hospital 
(DSH) allotments are calculated by increasing the amounts of the FFY 
2002 allotments for each State (as specified in the chart, entitled 
``DSH Allotment (in millions of dollars),'' contained in section 
1923(f)(2) of the Act) by the percentage change in the Consumer Price 
Index for all Urban Consumers (CPI-U) for the prior fiscal year. The 
allotment, determined in this way, is subject to the limitation that an 
increase to a State's DSH allotment for a fiscal year cannot result in 
the DSH allotment exceeding the greater of the State's DSH allotment 
for the previous fiscal year or 12 percent of the State's total medical 
assistance expenditures for the allotment year (this is referred to as 
the 12 percent limit).
    Because the actual FFY 2002 DSH allotments were determined in 
accordance with section 1923(f)(4) of the Act rather than the amount 
specified in the chart in section 1923(f)(2) of the Act, for most 
States the calculation of States' FFY 2003 allotments was not based on 
the States' actual FFY 2002 DSH allotments. The exception to this is 
the calculation of the FFY 2003 DSH allotments for certain ``Low-DSH 
States'' (defined in section 1923(f)(5) of the Act). Under the Low-DSH 
State provision, there is a special calculation methodology for the 
Low-DSH States only. Under this methodology, the FFY 2003 allotments 
were determined by using (that is, increasing) such States' actual FFY 
2002 DSH allotments (not their FFY 2002 allotments specified in the 
chart in section 1923(f)(2) of the Act) by the percentage change in the 
CPI-U for the previous fiscal year.

B. DSH Allotments for FFY 2004

    Section 1001(a) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173, enacted on December 
8, 2003) amended section 1923(f)(3) of the Act to provide for a 
``Special, Temporary Increase In Allotments On A One-Time, Non-
Cumulative Basis.'' Under this provision, States' FFY 2004 DSH 
allotments were determined by increasing their FFY 2003 allotments by 
16 percent, and the fiscal year DSH allotment amounts so determined 
were not subject to the 12 percent limit.

C. DSH Allotments for Non-Low DSH States for FFY 2005, and Fiscal Years 
Thereafter

    Under the methodology contained in section 1923(f)(3)(C) of the 
Act, as amended by section 1001(a)(2) of the MMA, the non-Low-DSH 
States' DSH allotments for FFY 2005 and subsequent fiscal years 
continue at the same level as the States' DSH allotments for FFY 2004 
until a ``fiscal year specified'' occurs. The ``fiscal year specified'' 
is the first fiscal year for which the Secretary estimates that a 
State's DSH allotment equals (or no longer exceeds) the DSH allotment 
as would have been determined under the statute in effect before the 
enactment of the MMA. We determine whether the fiscal year specified 
has occurred under a special parallel process. Specifically, under this 
process, a DSH allotment is determined for FFYs after 2003 by 
increasing the State's DSH allotment for the previous fiscal year by 
the percentage change in the CPI-U for the prior fiscal year, subject 
to the 12 percent limit. The fiscal year specified will be the fiscal 
year when the DSH allotment calculated under this special parallel 
process finally equals or exceeds the FY 2004 DSH allotment, as 
determined under the MMA provisions. Once the fiscal year specified 
occurs for a State, that State's fiscal year DSH allotment will be 
calculated by increasing the State's previous actual fiscal year DSH 
allotment (which would be equal to the FY 2004 DSH allotment) by the 
percentage change in the CPI-U for the previous fiscal year, subject to 
the 12 percent limit. The following example illustrates how the fiscal 
year DSH allotment would be calculated for fiscal years after FFY 2004.

    Example. A State's FFY 2003 DSH allotment is $100 million. Under 
the MMA, the State's FFY 2004 DSH allotment would be $116 million 
($100 million increased by 16 percent). The State's DSH allotment 
for FFY 2005 and subsequent fiscal years would continue at the $116 
million FFY 2004 DSH allotment for fiscal years following FFY 2004 
until the ``fiscal year specified'' occurs. In the separate parallel 
process, we determine whether the fiscal year specified has occurred 
by calculating the State's DSH allotments in accordance with the 
statute in effect before the enactment of the MMA. Under this 
special process, we determine the State's DSH allotment each fiscal 
year by increasing the State's DSH allotment for the previous fiscal 
year (as also determined under the special parallel process) by the 
percentage change in the CPI-U for the previous fiscal year, and 
subject to the 12 percent limit. Assume for purposes of this example 
that, in accordance with this special process, the State's FFY 2007 
DSH allotment was determined to be $115 million and the percentage 
change in the CPI-U for FFY 2007 (the previous fiscal year) relevant 
for the calculation of the FFY 2008 DSH allotment was 2 percent. 
That is, the percentage change for the CPI-U for FFY 2007, the year 
before FFY 2008, was 2 percent. Therefore, the State's special 
parallel process FFY 2008 DSH allotment amount would be calculated 
by increasing the special parallel process FFY 2007 DSH allotment 
amount of $115 million by 2 percent; this results in a special DSH 
allotment process amount for FFY 2008 of $117.3 million. Since 
$117.3 million is greater than $116 million (the FFY 2004 DSH 
allotment calculated under the MMA), we would determine that FFY 
2008 is the ``fiscal year specified'' (the first year that the FFY 
2004 allotment equals or no longer exceeds the parallel process 
allotment). We would then determine the State's FFY 2008 allotment 
as the State's actual FFY 2007 DSH allotment ($116 million) 
increased by the percentage change in the CPI-U for FFY 2007 (2 
percent). Therefore, the State's FFY 2008 DSH allotment would be 
$118.32 million ($116 million increased by 2 percent); for purposes 
of this example, the application of the 12 percent limit has no 
effect. For FFY 2009 and thereafter, the State's DSH allotment would 
be calculated by increasing the State's previous fiscal year's DSH 
allotment by the percentage change in the CPI-U for the previous 
fiscal year, subject to the 12 percent limit.

    However, as amended by section 1001(b)(4) of the MMA, section 
1923(f)(5)(B) of the Act also contains new criteria for determining 
whether a State is a Low-DSH State, beginning with FFY 2004. This 
provision is described in section I.D.
    Finally, this notice implements the provisions of section 6054 of 
the Deficit Reduction Act (DRA) of 2006 Public Law 109-171, enacted 
February 8, 2006) with respect to the determination of the DSH 
allotment for the District of Columbia. Under section 6054 of the DRA, 
for purposes of determining only the FFY 2006 and subsequent fiscal 
year DSH allotments for the District of Columbia, the table in section 
1923(f)(2) of the Act is amended by increasing the FFY DSH allotment 
amounts indicated in that table for the District of Columbia for FFYs 
2000, 2001, and 2002 to $49 million for each of those fiscal years. 
Before the DRA amendment, the amount in the chart in section 1923(f)(2) 
of the Act for the District of Columbia for each of those fiscal years 
was $32 million. This DRA provision increases the fiscal year DSH 
allotment for the District of Columbia effective with the FFY 2006 DSH 
allotment. This change is because the DSH allotments for FFY 2003 are 
based on the amounts of States' DSH allotments for FFY 2002 as 
contained in the chart in section 1923(f)(2) of the Act. Since (for 
purposes of ultimately

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determining the FFY 2006 allotment) the DRA provision increases the FFY 
2002 allotment for the District of Columbia, as indicated above, the 
FFY 2003 allotment was increased. Furthermore, for this purpose, the 
FFY 2004 allotment for the District of Columbia would then be 
determined by increasing the FFY 2003 allotment (as so determined) by 
16 percent. For fiscal years subsequent to FFY 2006, the DSH allotments 
are determined as described above. The preliminary FFY 2006 DSH 
allotment for the District of Columbia contained in this notice 
reflects the provision of section 6054 of the DRA.
    As described below, in accordance with section 6054 of the DRA, the 
FFY 2006 DSH allotment for the District of Columbia is $57,692,600. As 
amended by section 6054 of the DRA, the FFY 2002 DSH allotment amount 
for the District of Columbia contained in the chart in section 
1923(f)(2) of the Act was increased to $49,000,000. In accordance with 
section 1923(f)(3)(A) of the Act, the FFY 2003 DSH allotment is 
determined by increasing the $49,000,000 DSH Allotment for FFY 2002 (as 
referenced in section 1923(f)(2) of the Act) by the percentage change 
in the CPI-U for 2002 (in this case, 1.5 percent) to $49,735,000. In 
accordance with section 1923(f)(3)(C)(i) of the Act, the FFY 2004 DSH 
allotment is determined by increasing the $49,735,000 FFY 2003 DSH 
allotment amount by 16 percent to $57,692,600. In accordance with the 
provisions of section 1923(f)(3)(C) of the Act, the District of 
Columbia's DSH allotments for FFYs 2005, 2006, and 2007 are also 
$57,692,600. Finally, in accordance with section 6054 of the DRA, the 
District of Columbia's DSH allotment is increased as described above, 
effective beginning with FFY 2006.

D. DSH Allotments for Low-DSH States for FFYs 2004, and Fiscal Years 
Thereafter

    Section 1001(b)(1) of the MMA amended section 1923(f)(5) of the Act 
regarding the calculation of the fiscal year DSH allotments for ``Low-
DSH'' States for FFY 2004 and subsequent fiscal years. Specifically, 
under section 1923(f)(5)(B) of the Act, as amended by section 
1001(b)(4) of the MMA, a State is considered a Low-DSH State for FFY 
2004 if its total DSH payments under its State plan for FFY 2000 
(including Federal and State shares) as reported to us as of August 31, 
2003, are greater than 0 percent and less than 3 percent of the State's 
total FFY 2000 expenditures under its State plan for medical 
assistance. For States that meet the new Low-DSH criteria, their FFY 
2004 DSH allotments are calculated by increasing their FFY 2003 DSH 
allotments by 16 percent. Therefore, for FFY 2004, Low-DSH States' 
fiscal year DSH allotments are calculated in the same way as the DSH 
allotments for regular States, which under section 1923(f)(3) of the 
Act get the special temporary increase for FFY 2004.
    Furthermore, for States meeting the new MMA's Low-DSH definition, 
the DSH allotments for FFYs 2005 through 2008 will continue to be 
determined by increasing the previous fiscal year's DSH allotment by 16 
percent. The Low-DSH States' DSH allotments for FFYs 2004 through 2008 
are not subject to the 12 percent limit. The Low-DSH States' DSH 
allotments for FFYs 2009 and subsequent fiscal years are calculated by 
increasing those States' DSH allotments for the prior fiscal year by 
the percentage change in the CPI-U for that prior fiscal year. For FFYs 
2009 and thereafter, the DSH allotments so determined would be subject 
to the 12-percent limit.

E. Institutions for Mental Diseases DSH Limits for FFYs 1998 and 
Thereafter

    Under section 1923(h) to the Act, Federal financial participation 
(FFP) is not available for DSH payments to institutions for mental 
diseases (IMDs) and other mental health facilities that are in excess 
of State-specific aggregate limits. Under this provision, this 
aggregate limit for DSH payments to IMDs and other mental health 
facilities is the lesser of a State's FFY 1995 total computable (State 
and Federal share) IMD and other mental health facility DSH 
expenditures applicable to the State's FFY 1995 DSH allotment (as 
reported on the Form CMS-64 as of January 1, 1997), or the amount equal 
to the product of the State's current year total computable DSH 
allotment and the applicable percentage.
    Each State's IMD limit on DSH payments to IMDs and other mental 
health facilities was calculated by first determining the State's total 
computable DSH expenditures attributable to the FFY 1995 DSH allotment 
for mental health facilities and inpatient hospitals. This calculation 
was based on the total computable DSH expenditures reported by the 
State on the Form CMS-64 as mental health DSH and inpatient hospital as 
of January 1, 1997. We then calculate an ``applicable percentage.'' The 
applicable percentage for FFY 1998 through FFY 2000 (1995 IMD DSH 
percentage) is calculated by dividing the total computable amount of 
IMD and mental health DSH expenditures applicable to the State's FFY 
1995 DSH allotment by the total computable amount of all DSH 
expenditures (mental health facility plus inpatient hospital) 
applicable to the FFY 1995 DSH allotment. For FFY 2001 and thereafter, 
the applicable percentage is defined as the lesser of the applicable 
percentage as calculated above (for FFYs 1998 through 2001) or 50 
percent for FFY 2001; 40 percent for FFY 2002; and 33 percent for each 
subsequent FFY.
    The applicable percentage is then applied to each State's total 
computable FFY DSH allotment for the current FFY. The State's total 
computable FFY DSH allotment is calculated by dividing the State's 
Federal share DSH allotment for the FFY by the State's Federal medical 
assistance percentage (FMAP) for that FFY.
    In the final step of the calculation of the IMD DSH Limit, the 
State's total computable IMD DSH limit for the FFY is set at the lesser 
of the product of a State's current fiscal year total computable DSH 
allotment and the applicable percentage for that fiscal year, or the 
State's FFY 1995 total computable IMD and other mental health facility 
DSH expenditures applicable to the State's FFY 1995 DSH allotment as 
reported on the Form CMS-64.
    The MMA legislation did not amend the Medicaid statute with respect 
to the calculation of the IMD DSH limit.

F. DSH Allotments and IMD DSH Limits Published in the Federal Register 
on August 26, 2005

    On August 26, 2005, we published a notice (70 FR 50358) in the 
Federal Register that announced the final Federal share DSH allotments 
for Federal fiscal years (FFYs) 2003 and 2004, and the preliminary 
Federal share DSH allotments for FFY 2005. It also announced the final 
FFYs 2003 and 2004, and the preliminary FFY 2005, limitations on 
aggregate DSH payments that States may make to institutions for mental 
disease (IMDs) and other mental health facilities.

G. Publication in the Federal Register of Preliminary and Final Notice 
for DSH Allotments and IMD DSH Limits

    In general, we initially determine States' DSH allotments and IMD 
DSH limits for a fiscal year using estimates of medical assistance 
expenditures, including DSH expenditures in their Medicaid programs. 
These estimates are provided by States each year on the August 
quarterly Medicaid budget reports (Form CMS-37) before the Federal 
fiscal year for which the DSH allotments and IMD DSH limits are being 
determined. The DSH allotments and IMD DSH limits determined using

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these estimates are referred to as ``preliminary.'' Only after we 
receive States'' reports of the actual related medical assistance 
expenditures through the quarterly expenditure report (Form CMS-64), 
which occurs after the end of the fiscal year, are the ``final'' DSH 
Allotments and IMD DSH limits determined.
    As indicated in the section I.F. of this notice, the notice 
published in the Federal Register on August 26, 2005 announced the 
final FFYs 2003 and 2004 DSH allotments and the final FFYs 2003 and 
2004 IMD DSH limits (since they were based on the actual expenditures 
related to those years), the preliminary FFY 2005 DSH allotments (based 
on estimates), and the preliminary IMD DSH limits (since they were 
based on the preliminary DSH allotments for FFY 2005).
    This notice announces the final FFY 2005 DSH allotments and the 
final FFY 2005 IMD DSH limits (since these are now based on the actual 
expenditures for those fiscal years), the preliminary FFY 2006 and FFY 
2007 DSH allotments (based on estimates), and the preliminary IMD DSH 
limits for FFY 2006 and FFY 2007 (since they are based on the 
preliminary DSH allotments for FFY 2006 and FFY 2007, respectively).

II. Calculation of the Final FFY 2005 Federal Share State DSH 
Allotments, the Preliminary FFY 2006 Federal Share State DSH 
Allotments, and the Preliminary FFY 2007 Federal Share State DSH 
Allotments

    Chart 1 of the Addendum to this notice provides the States' 
``final'' FFY 2005 DSH allotments. The final FFY 2005 DSH allotments 
for each State were computed in accordance with the provisions of the 
Medicaid statute as amended by the MMA. As required by the provisions 
of the MMA, the final FFY 2004 DSH allotments for the ``Low-DSH'' 
States and all the other States were calculated by increasing the FFY 
2003 DSH allotments by 16 percent. In the notice published on March 26, 
2004 in the Federal Register, we explained the definition and 
determination of the ``Low-DSH'' States under the MMA provisions. 
However, for following fiscal years, the DSH allotments are determined 
under a process which incorporates a parallel process described in 
section I.C. of this notice. Under that parallel process, States final 
FFY 2005 DSH allotments were determined using the States' expenditure 
reports (Form CMS-64) for FFY 2005.
    Chart 3 of the Addendum to this notice provides the States' 
``preliminary'' FFY 2006 DSH allotments. These preliminary allotments 
were determined using the States' August 2005 expenditure estimates 
submitted by the States on the Form CMS-37. We will publish the final 
FFY 2006 DSH allotments for each State following receipt of the States' 
four quarterly Medicaid expenditure reports (Form CMS-64) for FFY 2006.

III. Calculation of the FFYs 2005 Through 2007 IMD DSH Limits

    Section 1923(h) of the Act specifies the methodology to be used to 
establish the limits on the amount of DSH payments that a State can 
make to IMDs and other mental health facilities. FFP is not available 
for IMD/DSH payments that exceed the lesser of the State's FFY 1995 
total computable mental health DSH expenditures applicable to the 
State's FFY 1995 DSH allotment as reported to us on the Form CMS-64 as 
of January 1, 1997; or the amount equal to the product of the State's 
current FFY total computable DSH allotment and the applicable 
percentage. We are publishing the final FFY 2005 IMD DSH limit, the 
preliminary FFY 2006 IMD DSH limit, and the preliminary FFY 2007 IMD 
DSH limit, along with an explanation of the calculation of these 
limits.
    For FFY 2003 and following fiscal years, the applicable percentage 
is the lesser of 33 percent or the 1995 DSH IMD percentage of the 
amount computed for FFY 2000. This percentage was applied to the 
State's fiscal year total computable DSH allotment. This result was 
then compared to the State's FFY 1995 total computable mental health 
DSH expenditures applicable to the State's FFY 1995 DSH allotment as 
reported on the Form CMS-64 as of January 1, 1997. The lesser of these 
two amounts was the State's limitation on total computable IMD/DSH 
expenditures for FFY 2003 and following fiscal years.
    Charts 4, 5, and 6 of the Addendum to this notice detail each 
State's final IMD/DSH limitation for FFY 2005, the preliminary IMD/DSH 
limitation for FFY 2006, and the preliminary IMD/DSH limitation for FFY 
2007, respectively, in accordance with section 1923(h) of the Act.

IV. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 35).

V. Regulatory Impact Statement

    We have examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). This notice 
does not reach the economic threshold and thus is not considered a 
major rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$6 million to $29 million in any 1 year. Individuals and States are not 
included in the definition of a small entity. Due to the various 
controlling statutes, the effects on providers are not impacted by a 
result of any independent regulatory impact and not this notice. The 
purpose of the notice is to announce the latest distributions as 
required by the statute.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Core-Based 
Statistical Area for Medicaid payment regulations and has fewer than 
100 beds.
    The MMA set statutorily defined limits on the amount of Federal 
share DSH expenditures available for FFY 2004 and subsequent fiscal 
years. Specifically, section 1001 of the MMA increased the DSH 
allotment for States beginning with fiscal year 2004. While overall the 
statute mandated some increases in DSH payments, we do not

[[Page 58402]]

believe that this notice will have a significant economic impact on a 
substantial number of small entities.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $120 million. This notice will have no 
consequential effect on State, local, or tribal governments or on the 
private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates 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 notice does not impose any costs on State or 
local governments, the requirements of E.O. 13132 are not applicable.
    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by the Office of Management and Budget.

Addendum

    This addendum contains the charts 1 through 6 (including associated 
keys) that are referred to in the preamble of this notice.

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    Authority: Section 1923(a)(2), (f), and (h) of the Social 
Security Act (42 U.S.C. 1396r-4(a)(2), (f), and (h), and Pub. L. 
105-33).


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

    Dated: August 30, 2006.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: September 14, 2006.
Michael O. Leavitt,
Secretary.
[FR Doc. 06-8421 Filed 9-29-06; 8:45 am]
BILLING CODE 4120-01-P