2236 Federal Register / Vol. 72, No. 11 / Thursday, January 18, 2007 / Proposed Rules 

• www.regulations.gov: Follow the 

on-line instruction for submitting 

comments. 

• E-mail: schrock.roy@epa.gov. 

• Fax: 215–814–3002. 

• Mail: Mr. Roy Schrock, Remedial 

Project Manager (3HS22), U.S. EPA, 

Region 3, 1650 Arch Street, 

Philadelphia, Pennsylvania 19103–

2029. 

• Hand Delivery: 1650 Arch Street, 

Philadelphia, Pennsylvania 19103–

2029. Such deliveries are only accepted 

during the Docket’s normal hours of 

operation, and special arrangements 

should be made for deliveries of boxed 

information. 

Instructions: Direct your comments to 

Docket ID No. EPA–HQ–SFUND–1989–

0008. EPA’s policy is that all comments 

received will be included in the public 

docket without change and may be 

made available online at 

www.regulations.gov, including any 

personal information provided, unless 

the comment includes information 

claimed to be Confidential Business 

Information (CBI) or other information 

whose disclosure is restricted by statute. 

Do not submit information that you 

consider to be CBI or otherwise 

protected through www.regulations.gov 

or e-mail. The www.regulations.gov Web 

site is an ‘‘anonymous access’’ system, 

which means EPA will not know your 

identity or contact information unless 

you provide it in the body of your 

comment. If you send an e-mail 

comment directly to EPA without going 

through www.regulations.gov, your email address will be automatically 

captured and included as part of the 

comment that is placed in the public 

docket and made available on the 

Internet. If you submit an electronic 

comment, EPA recommends that you 

include your name and other contact 

information in the body of your 

comment and with any disk or CD–ROM 

you submit. If EPA cannot read your 

comment due to technical difficulties 

and cannot contact you for clarification, 

EPA may not be able to consider your 

comment. Electronic files should avoid 

the use of special characters, any form 

of encryption, and be free of any defects 

or viruses. 

Docket: All documents in the docket 

are listed in the www.regulations.gov 

index. Although listed in the index, 

some information is not publicly 

available, e.g., CBI or other information 

whose disclosure is restricted by statute. 

Certain other material, such as 

copyrighted material, will be publicly 

available only in hard copy. Publicly 

available docket materials are available 

either electronically in 

www.regulations.gov or in hard copy at 

the EPA’s Region III, Regional Center for 

Environmental Information (RCEI) 2nd 

floor, 1650 Arch Street, Philadelphia, 

Pennsylvania, 19103–1029, (215) 814–

5254 OR (800) 553–2509 Monday 

through Friday 8 a.m. to 5 p.m. 

excluding legal holidays. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Roy Schrock, Remedial Project Manager 

(3HS22), U.S. Environmental Protection 

Agency, Region III, 1650 Arch Street, 

Philadelphia, Pennsylvania 19103–

2029; telephone number: 1–800–553–

2509 or (215) 814–3210; fax number: 

215–814–3002; e-mail address: 

schrock.roy@epa.gov. 

SUPPLEMENTARY INFORMATION: For 

additional information, see the Direct 

Final Notice of Deletion which is 

located in the Rules Section of this 

Federal Register. 

Information Respositories: 

Repositories have been established to 

provide detailed information concerning 

this decision at the following address: 

U.S. EPA Region III, Regional Center 

for Environmental Information (RCEI), 

2nd floor, 1650 Arch Street, 

Philadelphia, Pennsylvania, 19103–

2029, (215) 814–5254 or (800) 553–2509 

Monday through Friday 8 a.m. to 5 p.m. 

West Cocalico Township Municipal 

Building, 156B, West Main Street, 

Reinholds, Pennsylvania 17569, 

Monday through Friday 8 a.m. to 4:30 

p.m. 

List of Subjects in 40 CFR Part 300 

Environmental protection, Air 

pollution control, Chemicals, Hazardous 

waste, Hazardous substances, 

Intergovernmental relation, Penalties, 

Reporting and recordkeeping 

requirements, Superfund, Water 

pollution control, Water supply. 

Authority: 33 U.S.C. 1321(c)(2); 42 U.S.C. 

9601–9657; E.O.12777, 56 FR 54757, 3 CFR, 

1991 Comp., p. 351; E.O. 12580, 52 FR 2923; 

3 CFR, 1987 Comp., p. 193. 

Dated: November 16, 2006. 

Donald Welsh, 

Regional Administrator, Region III. 

[FR Doc. E7–534 Filed 1–17–07; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 433, 447, and 457 

[CMS–2258–P] 

RIN 0938–A057 

Medicaid Program; Cost Limit for 

Providers Operated by Units of 

Government and Provisions To Ensure 

the Integrity of Federal-State Financial 

Partnership 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would: 

Clarify that entities involved in the 

financing of the non-Federal share of 

Medicaid payments must be a unit of 

government; clarify the documentation 

required to support a certified public 

expenditure; limit reimbursement for 

health care providers that are operated 

by units of government to an amount 

that does not exceed the provider’s cost; 

require providers to receive and retain 

the full amount of total computable 

payments for services furnished under 

the approved State plan; and make 

conforming changes to provisions 

governing the State Child Health 

Insurance Program (SCHIP). The 

provisions of this regulation apply to all 

providers of Medicaid and SCHIP 

services, except that Medicaid managed 

care organizations and SCHIP providers 

are not subject to the cost limit 

provision of this regulation. Except as 

noted above, all Medicaid payments 

(including disproportionate share 

hospital payments) made under the 

authority of the State plan and under 

Medicaid waiver and demonstration 

authorities are subject to all provisions 

of this regulation. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on March 19, 2007. 

ADDRESSES: In commenting, please refer 

to file code CMS–2258–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.cms.hhs.gov/eRulemaking. Click 

on the link ‘‘Submit electronic 

comments on CMS regulations with an 

open comment period.’’ (Attachments 


jlentini on PROD1PC65 with PROPOSAL
Federal Register / Vol. 72, No. 11 / Thursday, January 18, 2007 / Proposed Rules 2237 

should be in Microsoft Word, 

WordPerfect, or Excel; however, we 

prefer Microsoft Word.) 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–2258–

P, P.O. Box 8017, Baltimore, MD 21244–

8017. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–2258–P, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786–

7195 in advance to schedule your 

arrival with one of our staff members. 

Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201; or 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

Submission of comments on 

paperwork requirements. You may 

submit comments on this document’s 

paperwork requirements by mailing 

your comments to the addresses 

provided at the end of the ‘‘Collection 

of Information Requirements’’ section in 

this document. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Aaron Blight, (410) 786–9560. 

SUPPLEMENTARY INFORMATION: 

Submitting Comments: We welcome 

comments from the public on all issues 

set forth in this rule to assist us in fully 

considering issues and developing 

policies. You can assist us by 

referencing the file code CMS–2258–P 

and the specific ‘‘issue identifier’’ that 

precedes the section on which you 

choose to comment. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://www.cms.hhs.gov/ 

eRulemaking. Click on the link 

‘‘Electronic Comments on CMS 

Regulations’’ on that Web site to view 

public comments. 

Comments received timely will be 

also available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

I. Background 

The Medicaid program is a 

cooperative Federal-State program 

established in 1965 for the purpose of 

providing Federal financial 

participation (FFP) to States that choose 

to reimburse certain costs of medical 

treatment for needy persons. It is 

authorized under title XIX of the Social 

Security Act (the Act), and is 

administered by each State in 

accordance with an approved State 

plan. States have considerable flexibility 

in designing their programs, but must 

comply with Federal requirements 

specified in the Medicaid statute, 

regulations, and program guidance. 

FFP is provided only when there is a 

corresponding State expenditure for a 

covered Medicaid service to a Medicaid 

recipient. Federal payment is based on 

statutorily-defined percentages of total 

computable State expenditures for 

medical assistance provided to 

recipients under the approved State 

plan, and of State expenditures related 

to the cost of administering the State 

plan. 

Since the summer of 2003, we have 

reviewed and processed over 1,000 State 

plan amendments related to State 

payments to providers. Of these, 

approximately 10 percent have been 

disapproved by the Centers for Medicare 

& Medicaid Services (CMS) or 

withdrawn by the States. Through 

examination of these State plan 

amendments and their associated 

funding arrangements, we have 

developed a greater understanding of 

how to ensure that payment and 

financing arrangements comply with 

statutory intent. As recently articulated 

by the U.S. Court of Appeals for the 

Ninth Circuit, ‘‘[t]he statutory text 

makes clear that the Secretary has the 

authority—indeed, the obligation—to 

ensure that each of the statutory 

prerequisites is satisfied before 

approving a Medicaid State plan 

amendment.’’ We believe that this 

proposed rule strengthens 

accountability to ensure that statutory 

requirements within the Medicaid 

program are met in accordance with 

sections 1902, 1903, and 1905 of the 

Act. 

Sections 1902(a)(2), 1903(a) and 

1905(b) of the Act require States to share 

in the cost of medical assistance and in 

the cost of administering the State plan. 

Under section 1905(b) of the Act, the 

Federal medical assistance percentage 

(FMAP) is defined as ‘‘100 per centum 

less the State percentage,’’ and section 

1903(a) of the Act requires Federal 

reimbursement to the State of the FMAP 

of expenditures for medical assistance 

under the plan (and 50 percent of 

expenditures necessary for the proper 

and efficient administration of the plan). 

Section 1902(a)(2) of the Act and 

implementing regulations at 42 CFR 

433.50(a)(1) require States to share in 

the cost of medical assistance 

expenditures but permit the State to 

delegate some responsibility for the 

non-Federal share of medical assistance 

expenditures to units of local 

government under some circumstances. 

Under Pub. L. 102–234, which 

inserted significant restrictions on 

States’ use of provider related taxes and 

donations at section 1903(w) of the Act, 

the Congress again recognized the 

ability of units of government to 

participate in the funding of the nonFederal share of Medicaid payments 

through an exemption at section 

1903(w)(6)(A) of the Act that reads: 

Notwithstanding the provisions of this 

subsection, the Secretary may not restrict 

States’ use of funds where such funds are 

derived from State or local taxes (or funds 

appropriated to State university teaching 

hospitals) transferred from or certified by 

units of government within a State as the 

non-Federal share of expenditures under this 

title, regardless of whether the unit of 

government is also a health care provider, 

except as provided in section 1902(a)(2), 

unless the transferred funds are derived by 

the unit of government from donations or 


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taxes that would not otherwise be recognized 

as the non-Federal share under this section. 

Subsequent regulations implementing 

Pub. L. 102–234 give effect to this 

statutory language. Amendments made 

to the regulations at 42 CFR. part 433, 

at 47 FR 55119 (November 24, 1992) 

explained: 

Funds transferred from another unit of 

State or local government which are not 

restricted by the statute are not considered a 

provider-related donation or health carerelated tax. Consequently, until the Secretary 

adopts regulations changing the treatment of 

intergovernmental transfer, States may 

continue to use, as the State share of medical 

assistance expenditures, transferred or 

certified funds derived from any 

governmental source (other than 

impermissible taxes or donations derived at 

various parts of the State government or at 

the local level). 

The above statutory and regulatory 

authorities clearly specify that in order for an 

intergovernmental transfer (IGT) or certified 

public expenditure (CPE) from a health care 

provider or other entity to be exempt from 

analysis as a provider-related tax or donation, 

it must be from a unit of State or local 

government. Section 1903(w)(7)(G) of the Act 

identifies the four types of local entities that, 

in addition to the State itself, are considered 

a unit of government: A city, a county, a 

special purpose district, or other 

governmental units in the State. The 

provisions of this proposed rule conform our 

regulations to the aforementioned statutory 

language and further define the 

characteristics of a unit of government for 

purposes of Medicaid financing. 

Intergovernmental Transfer (IGT) 

The Medicaid statute does not define 

an IGT, but the plain meaning in the 

Medicaid context is a transfer of funding 

from a local governmental entity to the 

State. As we discuss below, this 

meaning would not include a 

transaction that does not in fact transfer 

funding but simply refunds Medicaid 

payments. IGTs from units of 

government that meet the conditions for 

protection under section 1903(w)(6)(A) 

of the Act, as described above, are a 

permissible source of State funding of 

Medicaid costs. Section 1903(w)(6)(A) 

of the Act is an exception to the very 

restrictive requirements governing 

provider-related donations. The IGT 

provision was meant to continue to 

allow units of local government, 

including government health care 

providers, to share in the cost of the 

State Medicaid program. 

At section 1903(w)(6)(A) of the Act, 

the Medicaid statute provides that units 

of government within a State may 

transfer State and/or local tax revenue to 

the Medicaid agency for use as the nonFederal share of Medicaid payments. 

Because this provision does not override 

the definition of an expenditure as a net 

outlay, as discussed below, claimed 

expenditures must be net of any 

redirection or assignment from a health 

care provider to any State or local 

governmental entity that makes IGTs to 

the Medicaid agency. Generally, for the 

State to receive Federal matching on a 

claimed Medicaid payment where a 

governmentally operated health care 

provider has transferred the non-Federal 

share, the State must be able to 

demonstrate: (1) That the source of the 

transferred funds is State or local tax 

revenue (which must be supported by 

consistent treatment on the provider’s 

financial records); and (2) that the 

provider retains the full Medicaid 

payment and is not required to repay, or 

in fact does not repay, all or any portion 

of the Medicaid payment to the State or 

local tax revenue account. 

Under section 1903(a)(1) of the Act, 

the Federal government pays a share of 

State expenditures for medical 

assistance. Consistent with Office of 

Management and Budget (OMB) 

Circular A–87, an expenditure must be 

net of all ‘‘applicable credits’’ which 

include discounts, rebates, and refunds. 

Since the summer of 2003, we have 

examined Medicaid State financing 

arrangements across the country, and 

we have identified numerous instances 

in which health care providers did not 

retain the full amount of their Medicaid 

payments but were required to refund or 

return a portion of the payments 

received, either directly or indirectly. 

Failure by the provider to retain the full 

amount of reimbursement is 

inappropriate and inconsistent with 

statutory construction that the Federal 

government pay only its proportional 

cost for the delivery of Medicaid 

services. When a State claims Federal 

reimbursement in excess of net 

payments to providers, the FMAP rate 

has effectively been increased. To the 

extent that these State practices have 

come to light through the State plan 

amendment process, we have 

systematically required the States to 

eliminate these financing arrangements. 

Therefore, we have concluded that 

requirements that a governmentallyoperated health care provider transfer to 

the State more than the non-Federal 

share of a Medicaid payment creates an 

arrangement in which the net payment 

to the provider is necessarily reduced; 

the provider cannot retain the full 

Medicaid payment claimed by the State. 

This practice is not consistent with 

section 1902(a)(30)(A) of the Act. 

We have found instances in which the 

State or local government has used the 

funds returned by the health care 

provider for costs outside the Medicaid 

program or to help draw additional 

Federal dollars for other Medicaid 

program costs. The Government 

Accountability Office (GAO) and the 

Department of Health and Human 

Services Office of Inspector General 

(OIG) have reviewed these practices and 

shared our concerns that they are not 

consistent with Medicaid financing 

requirements. The net effect of this redirection of Medicaid payments is that 

the Federal government incurs a greater 

level of Medicaid program costs, which 

is inconsistent with the FMAP. This is 

because the claimed expenditure, which 

is matched by the Federal government 

according to the FMAP rate, is actually 

greater than the net expenditure, 

effectively producing an increase in the 

FMAP rate. 

Some States and providers have 

defended the practices in question as 

means for financing the cost of 

providing services to non-Medicaid 

populations or financing public health 

activities or even justifying what they 

consider to be ‘‘unfair’’ FMAPs. 

Whether the Federal Medicaid program 

should participate in a general way in 

that financing, however, is an important 

decision that the Congress has not 

expressly addressed. As we discuss 

below, the Congress has expressly 

provided for certain kinds of limited 

Federal participation in the costs of 

providing services to non-Medicaid 

populations and public health activities. 

Examples of limited congressional 

authorization of Federal financing for 

non-Medicaid populations and public 

health activities include the following. 

The Congress authorized 

disproportionate share hospital (DSH) 

payments to assist hospitals that serve a 

disproportionate share of low income 

patients which may include hospitals 

that furnish significant amounts of 

inpatient hospital services and 

outpatient hospital services to 

individuals with no source of third 

party coverage (that is, the uninsured). 

Under section 4723 of the Balanced 

Budget Act of 1997, the Congress also 

provided direct funding to the States to 

offset expenditures on behalf of aliens. 

Additional funding for payments to 

eligible providers for emergency health 

services to undocumented aliens was 

also provided by Congress under section 

1011 of the Medicare Modernization 

Act. The Congress has periodically, and 

as recently as the Deficit Reduction Act 

of 2005 (DRA, Pub. L. 109–171, enacted 

on February 8, 2006), adjusted FMAPs 

for certain States and certain activities 

such as an enhanced FMAP to create 

incentives for States to assist 

individuals in institutions return to 

their homes. These examples are 


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provided to illustrate that the Congress 

has previously authorized limited 

Federal financing of non-Medicaid 

populations and public health activities, 

but has not to date authorized wider use 

of Federal Medicaid funding for these 

purposes. 

Indeed, the Congress indicated that 

Medicaid funding was not to be used for 

non-Medicaid purposes when in the 

Balanced Budget Act of 1997 (BBA, 

Pub.L.105–33, enacted on August 5, 

1997), it added section 1903(i)(17) to the 

Act to prohibit the use of FFP ‘‘with 

respect to any amount expended for 

roads, bridges, stadiums, or any other 

item or service not covered under a 

State plan under this title.’’ NonMedicaid populations and nonMedicaid services simply are not 

eligible for Federal reimbursements 

except where expressly provided for by 

the Congress. 

We believe the lack of transparency 

and accountability undermine public 

confidence in the integrity of the 

Medicaid program as it is extremely 

difficult to track the flow of taxpayer 

dollars. These arrangements, regardless 

of the merits, are hidden in archaic, 

nearly indecipherable language that may 

be further re-interpreted over time, 

placing Federal and State dollars at risk 

as well as creating tensions and 

conflicts among the States. 

Certified Public Expenditure (CPE) 

As we have worked with States to 

promote appropriate Medicaid 

financing, it has become apparent that 

an increasing number of States are 

choosing to use CPEs as a method of 

financing the non-Federal share. 

Therefore, we are taking this 

opportunity to review key provisions 

governing the use of CPEs. 

A discussion about CPEs begins with 

the concept of an expenditure. The term 

‘‘expenditure’’ is defined in timing rules 

at 45 CFR 95.13. According to 45 CFR 

95.13(b), for expenditures for services 

under the Medicaid program, an 

expenditure is made ‘‘in the quarter in 

which any State agency made a payment 

to the service provider.’’ There is an 

alternate rule for administration or 

training expenditures at 45 CFR 

95.13(d), under which the expenditure 

is made in the quarter to which the costs 

were allocated or, for non-cash 

expenditures, in the quarter in which 

‘‘the expenditure was recorded in the 

accounting records of any State agency 

in accordance with generally accepted 

accounting principles.’’ In the State 

Medicaid Manual, at section 

2560.4.G.1.a(1), we indicated that ‘‘the 

expenditure is made when it is paid or 

recorded, whichever is earlier, by any 

State agency.’’ In either case, there must 

be a record of an actual expenditure, 

either through cash or a transfer of 

funds in accounting records. It is clear 

from these authorities that an 

expenditure must involve a shift of 

funds (either by an actual transfer or a 

debit in the accounting records of the 

contributing unit of government and a 

credit in the records of a provider of 

medical care and services) and cannot 

merely be a refund or reduction in 

accounts receivable. 

Furthermore, provisions at § 433.51 

clearly state that the CPE must, itself, be 

‘‘eligible for FFP.’’ In keeping with this 

language, there must be a provision in 

the State plan that would authorize the 

State to make the expenditure itself if 

the certifying governmental unit had not 

done so. In other words, a CPE must be 

an expenditure by another unit of 

government on behalf of the single State 

Medicaid agency. 

A CPE equals 100 percent of a total 

computable Medicaid expenditure, and 

the Federal share of the expenditure is 

paid in accordance with the appropriate 

FMAP rate. In a State with a 60 percent 

FMAP rate, the CPE would be equal to 

$100 in order to draw down $60 in FFP. 

The approach a unit of government 

can permissibly take to a CPE depends 

on whether or not the unit of 

government is the provider of the 

service. A governmental non-provider 

that pays for a covered Medicaid service 

furnished by a provider (whether 

governmental or not) can certify its 

actual expenditure, in an amount equal 

to the State plan rate (or the approved 

provisions of a waiver or demonstration, 

if applicable) for the service. In this 

case, the CPE would represent the 

expenditure by the governmental unit to 

the service provider (and would not 

necessarily be related to the actual cost 

to the provider for providing the 

service). 

If the unit of government is the health 

care provider, then it may generate a 

CPE from its own costs if the State plan 

(or the approved provisions of a waiver 

or demonstration, if applicable) contains 

an actual cost reimbursement 

methodology. If this is the case, the 

governmental provider may certify the 

costs that it actually incurred that 

would be paid under the State plan. If 

the State plan does not contain an actual 

cost reimbursement methodology, then 

the governmental provider may not use 

a CPE because it would not be able to 

establish an expenditure under the plan, 

consistent with the requirements of 45 

CFR 95.13, where there was no cost 

incurred that would be recognized 

under the State plan. A provider cannot 

establish an expenditure under the plan 

by asserting that it would pay itself. 

As part of the review of proposed 

State plan amendments and focused 

financial reviews, we have examined 

CPE arrangements in many States that 

include various service categories 

within the Medicaid program. We note 

that currently there are a variety of 

practices used by State and local 

governments in submitting a CPE as the 

basis of matching FFP for the provision 

of Medicaid services. Different practices 

often make it difficult to (1) Align 

claimed expenditures with specific 

services covered under the State plan or 

identifiable administrative activities; (2) 

properly identify the actual cost to the 

governmental entity of providing 

services to Medicaid recipients or 

performing administrative activities; 

and (3) audit and review Medicaid 

claims to ensure that Medicaid 

payments are appropriately made. 

Further, we find that in many instances 

State Medicaid agencies do not 

currently review the CPE submitted by 

another unit of government to confirm 

that the CPE properly reflects the actual 

expenditure by the unit of government 

for providing Medicaid services or 

performing administrative activities. 

These circumstances do not serve to 

advance or promote the fiscal integrity 

of the Medicaid program. By 

establishing minimum standards for the 

documentation supporting CPEs, we 

anticipate that this proposed rule would 

serve to enhance the fiscal integrity of 

CPE practices within the Medicaid 

program. 

State and Local Tax Revenue 

As explained previously, the 

Medicaid statute recognizes State and/or 

local tax revenue as a permissible 

source of the non-Federal share of 

Medicaid expenditures. In order for 

State and/or local tax dollars to be 

eligible as the non-Federal share of 

Medicaid expenditures, that tax revenue 

cannot be committed or earmarked for 

non-Medicaid activities. Tax revenue 

that is contractually obligated between a 

unit of State or local government and 

health care providers to provide 

indigent care is not considered a 

permissible source of non-Federal share 

funding for purposes of Medicaid 

payments. Health care providers that 

forego generally applicable tax revenue 

that has been contractually obligated for 

the provision of health care services to 

the indigent or for any other nonMedicaid activity, which is then used 

by the State or local government as the 

non-Federal share of Medicaid 

payments, are making provider-related 

donations. Any Medicaid payment 


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linked to a provider-related donation 

renders that provider-related donation 

non-bona fide. 

State Child Health Insurance Program 

(SCHIP) 

Section 2107(e)(1)(C) of the Act 

stipulates that section 1903(w) applies 

to the SCHIP program as well as 

Medicaid. Accordingly, SCHIP 

regulations at 42 CFR 457.628 

incorporate by reference the provisions 

at 42 CFR 433.51 through 433.74 

concerning the source of the nonFederal share and donations and taxes. 

Moreover, SCHIP rules at 42 CFR 

457.220 mirror the language in 42 CFR 

433.51. 

II. Provisions of the Proposed Rule 

The background section conveys 

critical information about the statutory 

and regulatory context of this proposed 

rule. We are proposing this rule 

specifically to (1) Clarify that only units 

of government are able to participate in 

the financing of the non-Federal share; 

(2) establish minimum requirements for 

documenting cost when using a CPE; (3) 

limit providers operated by units of 

government to reimbursement that does 

not exceed the cost of providing covered 

services to eligible Medicaid recipients; 

(4) establish a new regulatory provision 

explicitly requiring that providers 

receive and retain the total computable 

amount of their Medicaid payments; 

and (5) make conforming changes to the 

SCHIP regulations. 

The provisions of this regulation 

apply to all providers of Medicaid and 

SCHIP services, except that Medicaid 

managed care organizations and SCHIP 

providers are not subject to the cost 

limit provision of this regulation. Except 

as noted above, all Medicaid payments 

(including disproportionate share 

hospital payments) made under the 

authority of the State plan and under 

Medicaid waiver and demonstration 

authorities are subject to all provisions 

of this regulation. 

Defining a Unit of Government 

(§ 433.50) 

We are proposing to add new 

language to § 433.50 to define a unit of 

government to conform to the 

provisions of section 1903(w)(7)(G) of 

the Act. As discussed earlier, section 

1903(w)(7)(G) of the Act identifies the 

five types of units of government that 

may participate in the non-Federal share 

of Medicaid payments: A State, a city, 

a county, a special purpose district, or 

other governmental units within the 

State. The proposed provisions at 

§ 433.50 are modified to be consistent 

with this statutory reference. The newly 

proposed regulatory definition of unit of 

government includes: 

• Any State or local government 

entity (including Indian tribes) that can 

demonstrate it has generally applicable 

taxing authority, and 

• Any State-operated, city-operated, 

county-operated, or tribally-operated 

health care provider. 

Under the proposed rule, health care 

providers that assert status to make IGTs 

or CPEs as a ‘‘special purpose district’’

or some form of ‘‘other’’ local 

government must demonstrate they are 

operated by a unit of government by 

showing that: 

• The health care provider has 

generally applicable taxing authority; or 

• The health care provider is able to 

access funding as an integral part of a 

governmental unit with taxing authority 

(that is legally obligated to fund the 

governmental health care provider’s 

expenses, liabilities, and deficits), so 

that 

• A contractual arrangement with the 

State or local government is not the 

primary or sole basis for the health care 

provider to receive tax revenues. 

In some cases, evidence that a health 

care provider is operated by a unit of 

government must be assessed by 

examining the relationship of the unit of 

government to the health care provider. 

If the unit of government appropriates 

funding derived from taxes it collected 

to finance the health care providers 

general operating budget (which would 

not include special purpose grants, 

construction loans, or other similar 

funding arrangements), the provider 

would be considered governmentally 

operated. The inclusion of a health care 

provider as a component unit on the 

government’s consolidated annual 

financial report indicates the 

governmentally operated status of the 

health care provider. If the unit of 

government merely uses its funds to 

reimburse the health care provider for 

the provision of Medicaid or other 

services, that alone is not sufficient to 

demonstrate that the entity is a unit of 

government. The unit of government 

must have a greater role in funding the 

entity’s operations, including its 

expenses, liabilities, and deficits. 

In recent reviews, we have found that 

health care providers asserting status as 

a ‘‘special purpose district’’ or ‘‘other’’

local government unit often do not meet 

this definition. Although the special 

purpose district or a unit of government 

with taxing authority may be required, 

either by law or contract, to provide 

limited support to the health care 

provider, the health care provider is an 

independent entity and not an integral 

part of the unit of government. 

Typically, the independent entity will 

have liability for the operation of the 

health care provider and will not have 

access to the unit of government’s tax 

revenue without the express permission 

of the unit of government. Some of these 

types of health care providers are 

organized and operated under a not-forprofit status. Under these 

circumstances, the independently 

operated health care provider cannot 

participate in the financing of the nonFederal share of Medicaid payments, 

whether by IGT or CPE, because such 

arrangements would be considered 

provider-related donations. 

The rule also includes language in 

§ 433.50 referencing that units of 

government may participate in the 

financing of the non-Federal share of 

Medicaid expenditures. 

Sources of State Share and 

Documentation of Certified Public 

Expenditures. (§ 433.51(b)) 

This rule proposes to amend the 

provisions of § 433.51 to conform the 

language to the provisions of sections 

1903(w)(6)(A) and 1903(w)(7)(G) of the 

Act that are discussed above, and thus 

to clarify that the State share of 

Medicaid expenditures may be 

contributed only by units of 

government. This rule also proposes to 

include provisions requiring 

documentation of CPEs that are used as 

part of the State share of claimed 

expenditures. 

The regulatory provisions of § 433.51 

predate the statutory amendments found 

in section 1903(w) of the Act, which 

established a broad prohibition against 

provider-related donations and included 

provisions specifically identifying 

permissible IGTs and CPEs from units of 

government. Recently, some have 

expressed the view that the term 

‘‘public agency’’ in § 433.51(b) suggests 

that an entity which is not governmental 

in nature but has a public-oriented 

mission (such as a not-for-profit 

hospital, for example) may participate 

in the financing of the non-Federal 

share by CPEs. This view is inconsistent 

with the plain meaning of the Act; 

however, to avoid any further 

confusion, we are proposing to amend 

the regulation to conform the regulatory 

language to the current statutory 

language in section 1903(w) of the Act. 

This amendment also makes clear that 

a broader reading would be inconsistent 

with section 1902(a)(2) of the Act and 

§ 433.50(a)(1), which have historically 

stipulated that State and local 

governments are the entities eligible to 

finance the non-Federal share. 

As discussed previously, the 

donations and taxes amendments 


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specifically allowed units of 

government to continue providing 

funding by IGT or CPE because of 

explicit statutory and regulatory 

provisions that allow units of 

government to share in the burden of 

financing the non-Federal share of 

Medicaid payments. To make regulatory 

language consistent with the statute and 

avoid confusion about whether there is 

a different regulatory standard, this rule 

proposes to modify § 433.51 by 

removing the terms ‘‘public’’ and 

‘‘public agency’’ from § 433.51 and 

replacing these with references to units 

of government. 

This rule also proposes to clarify that 

appropriate documentation is required 

whenever a CPE is used to fund the nonFederal share of expenditures in the 

Medicaid program. The governmental 

entity using a CPE must submit a 

certification statement to the State 

Medicaid agency attesting that the total 

computable amount of its claimed 

expenditures are eligible for FFP, in 

accordance with the Medicaid State 

plan and the revised provisions of 

§ 433.51. That certification must be 

submitted and used as the basis for a 

State claim for FFP within 2 years from 

the date of the expenditure. 

In this regard, the rule proposes to 

modify § 433.51(b) to require that a CPE 

must be supported by auditable 

documentation in a form approved by 

the Secretary that will minimally: (1) 

Identify the relevant category of 

expenditure under the State plan; (2) 

explain whether the contributing unit of 

government is within the scope of the 

exception to the statutory limitations on 

provider-related taxes and donations; (3) 

demonstrate the actual expenditures 

incurred by the contributing unit of 

government in providing services to 

Medicaid recipients or in administration 

of the State plan; and (4) be subject to 

periodic State audit and review. 

To implement this rule, the Secretary 

would issue a form (or forms) that 

would be required for governments 

using a CPE for certain types of 

Medicaid services where we have found 

improper claims (for example, schoolbased services). These forms will be 

published in the Federal Register using 

procedures consistent with the 

Paperwork Reduction Act requirements. 

In preparing the way for these forms, 

this rule would serve to enhance fiscal 

integrity and improve accountability 

with respect to CPE practices in the 

Medicaid program. 

Costs that are certified by units of 

government for purposes of CPE cannot 

include the costs of providing services 

to the non-Medicaid population or costs 

of services that are not covered by 

Medicaid, except that a hospital may 

certify costs for inpatient and outpatient 

hospital services that are not covered 

under the State plan but are the basis for 

a disproportionate share hospital 

payment consistent with the 

requirements of section 1923 of the Act. 

It is important to note that the 

following conditions do not constitute 

compliance with the Federal statute and 

regulation governing CPEs: 

1. A certification that funds are 

available at a State or local level. This 

certification is irrelevant to whether or 

not State or local dollars have actually 

been expended to provide health care 

services to Medicaid individuals. 

2. An estimate of Medicaid costs 

derived from surveys of health care 

providers. 

3. A certification that is higher than 

the actual cost or expenditure of the 

governmental unit that has generated 

the CPE based on its provision of 

services to Medicaid recipients. 

4. A certification that presents costs as 

anything less than 100 percent of the 

total computable expenditure. Federal 

match is available only as a percentage 

of the total computable Medicaid 

expenditure documented through a CPE. 

A certification equal to the amount of 

the State share only is not acceptable. 

The above list is not all-inclusive of 

arrangements that do not constitute 

compliance. 

Cost Limit for Providers Operated by 

Units of Government (§ 447.206) 

As we have examined Medicaid 

financing arrangements across the 

country, we have found that many 

States make supplemental payments to 

governmentally operated providers that 

are in excess of cost. These providers, in 

turn, use the excess of Medicaid 

revenue over cost to subsidize health 

care operations that are unrelated to 

Medicaid, or they may return a portion 

of the supplemental payments to the 

State as a source of revenue. In either 

case, we do not find that Medicaid 

payments in excess of cost to 

governmentally operated health care 

providers are consistent with the 

statutory principles of economy and 

efficiency as required by section 

1902(a)(30)(A) of the Act. Consequently, 

this rule proposes to limit 

reimbursement for governmentally 

operated providers to amounts 

consistent with economy and efficiency 

by establishing a limit of reimbursement 

not to exceed cost. 

The cost limit in § 447.206 specifies 

that the Secretary will determine a 

reasonable method for identifying 

allowable Medicaid costs that 

incorporates not only OMB Circular A–

87 cost principles but also Medicare 

cost principles, as appropriate, and the 

statutory requirements of sections 1902, 

1903, and 1905 of the Act. While OMB 

Circular A–87 provides a framework for 

cost analysis, not all cost principles 

under OMB Circular A–87 are 

consistent with Medicare cost principles 

or requirements found in the Act for 

economy and efficiency and the proper 

and efficient administration of the 

Medicaid State plan. Developing cost 

finding methodologies more directly to 

the Medicaid program will provide for 

a more accurate allocation of allowable 

costs to the Medicaid program. 

For hospital and nursing facility 

services, we find that Medicaid costs are 

best documented when based upon a 

standard, auditable, nationally 

recognized cost report (for example, 

Medicare 2552–96 hospital cost report). 

Any hospital and nursing facility 

services that are not documented based 

on a standardized, nationally recognized 

cost report are generally not 

reimbursable Medicaid costs. We will 

address any exceptions to this on a caseby-case basis. 

For non-hospital and non-nursing 

facility services in Medicaid, we note 

that a nationally recognized, standard 

cost report does not presently exist. 

Therefore, the proposed rule stipulates 

that Medicaid costs must be supported 

by auditable documentation in a form 

approved by the Secretary that, at a 

minimum, will: (1) Identify the relevant 

category of expenditure under the State 

plan; (2) explain whether the 

contributing unit of government is 

within the scope of the exception to the 

statutory limitations on provider-related 

taxes and donations; (3) demonstrate the 

actual expenditures incurred by the 

contributing unit of government in 

providing services to Medicaid 

recipients or in administration of the 

State plan; and (4) be subject to periodic 

State audit and review. 

Each governmentally operated health 

care provider that is subject to cost 

reimbursement and using CPEs must file 

a cost report with the State Medicaid 

agency annually and retain records in 

accordance with 42 CFR 431.17 and 45 

CFR 92.42. 

Under a Medicaid cost reimbursement 

payment system funded by CPEs, States 

may utilize most recently filed cost 

reports to develop interim Medicaid 

payment rates and may trend these 

interim rates by an applicable health 

care-related index. Interim 

reconciliations must be performed by 

reconciling the interim Medicaid 

payment rates to the filed cost report for 

the spending year in which interim 

payment rates were made. Final 


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reconciliation must also be performed 

by reconciling the interim payments and 

interim adjustments to the finalized cost 

report for the spending year in which 

interim payment rates were made. 

When States do not use CPEs to pay 

providers operated by units of 

government, the new provisions would 

require the State Medicaid agency to 

review annual cost reports to verify that 

actual payments to each governmentally 

operated provider did not exceed the 

provider’s cost. 

Under this provision, if it is 

determined that a governmentallyoperated health care provider received 

an overpayment, amounts related to the 

overpayment would be properly 

credited to the Federal government, in 

accordance with part 433, subpart F. 

Retention of Payments (§ 447.207) 

In order to strengthen efforts to 

remove any potential for abuse 

involving the re-direction of Medicaid 

payments by IGTs in the future, this rule 

proposes a new regulatory provision at 

§ 447.207 requiring that providers 

receive and retain the full amount of the 

total computable payment provided to 

them for services furnished under the 

approved State plan (or the approved 

provisions of a waiver or demonstration, 

if applicable). Compliance with this 

provision will be determined by 

examining any transactions that are 

associated with the provider’s Medicaid 

payments to ensure that expenditures 

have been appropriately claimed and 

the non-Federal share has been satisfied. 

Compliance may be demonstrated by 

showing that the funding source of an 

IGT is clearly separated from the 

Medicaid payment that a health care 

provider received. Generally, an IGT 

that takes place before the Medicaid 

payment, which originates from an 

account funded by taxes that is separate 

from the account in which the health 

care provider receives Medicaid 

payments, is usually acceptable. 

Elimination of Payment Flexibility To 

Pay Public Providers in Excess of Cost 

(§ 447.271(b)) 

We are proposing to eliminate 

§ 447.271(b), as this provision is no 

longer relevant due to the new cost limit 

for units of government proposed in this 

rule. 

Conforming Changes To Reflect Upper 

Payment Limits for Governmental 

Providers (§ 447.272 and § 447.321) 

We are proposing a corresponding 

modification to the Medicaid upper 

payment limit (UPL) rules found at 

§ 447.272 for inpatient hospital and 

nursing facility services, as well as the 

UPL rules at § 447.321 for outpatient 

hospital and clinic services, to 

incorporate by reference the new cost 

limit for providers operated by units of 

government and to make the defined 

UPL facility groups consistent with the 

new provisions of § 433.50. 

With respect to the UPL regulations at 

§ 447.272 and § 447.321, this rule 

proposes to limit Medicaid 

reimbursement for State government 

operated and non-State government 

operated facilities to the individual 

provider’s cost, whereas the current 

UPL regulations provide an aggregate 

limit based on the UPL facility group. 

Formerly established UPL transition 

periods remain unchanged; therefore, 

any States that are still in transition 

periods under § 447.272(e) or 

§ 447.321(e) when this rule becomes 

effective will be permitted to make 

additional payments above the cost UPL 

to governmentally operated providers 

throughout the duration of their 

transition periods. The UPL rules at 

§ 447.272 and § 447.321 for privately 

operated facilities and Indian Health 

Service and tribal facilities remain 

unchanged. 

It is important to note that the 

provisions of this proposed rule are 

consistent with the regulatory 

provisions concerning Medicaid DSH 

payments. Medicaid DSH payments are 

limited to the uncompensated care costs 

of providing inpatient hospital and 

outpatient hospital services to Medicaid 

beneficiaries and individuals with no 

source of third party coverage for the 

services they receive. To the extent any 

governmentally operated hospital is 

reimbursed by Medicaid at the level of 

cost, there will be no Medicaid shortfall 

factored into the facility’s calculation of 

uncompensated care for purposes of 

DSH. This is true whether the Medicaid 

cost reimbursement is funded by CPEs 

or any other means. 

Conforming Changes to Public Funds as 

the State Share of Financial 

Participation (§ 457.220) 

Current provisions on the financing of 

the SCHIP at § 457.220 mirror the 

provisions at § 433.51. Because the 

changes we are making to § 433.51 

apply equally to SCHIP programs, we 

are proposing to make conforming 

changes to § 457.220 so that this 

provision continues to mirror § 433.51. 

Conforming Changes to Other 

Applicable Federal Regulations 

(§ 457.628) 

Current provisions on the financing of 

the SCHIP at § 457.628 incorporate by 

reference the provisions at § 433.51 

through § 433.74. Because the changes 

we are making to § 433.50, which 

implement section 1903(w) of the Act, 

apply equally to SCHIP programs, we 

propose to make conforming changes to 

§ 457.628 to incorporate § 433.50. In 

addition, the new provision at § 447.207 

requiring retention of payments is also 

incorporated by reference in § 457.628 

because this provision applies to SCHIP 

providers as well as Medicaid providers. 

Tool To Evaluate the Governmental 

Status of Providers 

With the issuance of this proposed 

rule, we recognize the need to evaluate 

individual health care providers to 

determine whether or not they are units 

of government as prescribed by the rule. 

States will need to identify each health 

care provider purportedly operated by a 

unit of government to CMS and provide 

information needed for CMS to make a 

determination as to whether or not the 

provider is a unit of government. We 

have developed a form questionnaire to 

collect information necessary to make 

that determination. The questionnaire 

will be published in connection with 

this proposed rule. For new State plan 

amendments that will reimburse 

governmentally operated providers or 

rely on the participation of health care 

providers for the financing of the nonFederal share, States will be required to 

complete this questionnaire regarding 

each provider that is said to be 

governmentally operated. For any 

existing arrangement that involves 

payment to governmentally operated 

providers or relies on the participation 

of health care providers for the nonFederal share, States will be required to 

provide the information requested on 

this form questionnaire relative to each 

applicable provider within three (3) 

months of the effective date of the final 

rule following this proposed rule. 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 


jlentini on PROD1PC65 with PROPOSAL
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• 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. 

We are soliciting public comment on 

each of these issues for the following 

sections of this document that contain 

information collection requirements 

(ICRs): 

Public Funds as the State Share of 

Financial Participation (§ 433.51) 

Section 433.51 requires that a 

certified public expenditure (CPE) be 

supported by auditable documentation 

in a form(s) approved by the Secretary 

that, at a minimum, identifies the 

relevant category of expenditures under 

the Medicaid State Plan, demonstrates 

the cost of providing services to 

Medicaid recipients, and is subject to 

periodic State audit and review. 

The burden associated with this 

requirement is the time and effort put 

forth by a provider to complete the 

approved form(s) to be submitted with 

a CPE. Depending upon provider size, 

we believe that it could take 

approximately 10–60 hours to fill out 

the form(s) that would be required for 

an annual certified public expenditure. 

We estimate that providers in 50 States 

will be affected by this requirement, but 

we are unable to identify the total 

number of providers affected or the 

estimated total aggregate hours of 

paperwork burden for all providers, as 

such figures will be a direct result of the 

number of providers that are determined 

to be governmentally operated. 

Cost Limit for Providers Operated by 

Units of Government (§ 447.206) 

Section 447.206(e) states that each 

provider must submit annually a cost 

report to the Medicaid agency which 

reflects the individual providers cost of 

serving Medicaid recipients during the 

year. The Medicaid Agency must review 

the cost report to determine that costs 

on the report were properly allocated to 

Medicaid and verify that Medicaid 

payments to the provider during the 

year did not exceed the providers cost. 

The burden associated with this 

requirement is the time and effort for 

the provider to report the cost 

information annually to the Medicaid 

Agency and the time and effort involved 

in the review and verification of the 

report by the Medicaid Agency. We 

estimate that it will take a provider 10 

to 60 hours to prepare and submit the 

report annually to the Medicaid Agency. 

We estimate it will take the Medicaid 

Agency 1 to 10 hours to review and 

verify the information provided. We are 

unable to identify the total number of 

providers affected or the estimated total 

aggregate hours of paperwork burden for 

all providers, as such figures will be a 

direct result of the number of providers 

that are determined to be 

governmentally operated. 

In the preamble of this proposed 

regulation, under the section titled 

‘‘Tool to Evaluate Governmental Status 

of Providers’’, we discuss a form 

questionnaire that we have developed to 

assist us in making a determination as 

to whether or not the provider is a unit 

of government. We have submitted this 

proposed information collection to OMB 

for its review and approval. To view the 

‘‘Governmental Status of Health Care 

Provider’’ form and obtain additional 

supporting information, please access 

CMS’ Web Site address at http:// 

www.cms.hhs.gov/ 

PaperworkReductionActof1995 or email your request and include CMS–

10176 as the document identifier to 

Paperwork@cms.hhs.gov. 

As required by section 3504(h) of the 

Paperwork Reduction Act of 1995, we 

have submitted a copy of this document 

to the Office of Management and Budget 

(OMB) for its review of these 

information collection requirements. 

If you comment on these information 

collection and record keeping 

requirements, please mail copies 

directly to the following: 

Centers for Medicare & Medicaid 

Services, Office of Strategic 

Operations and Regulatory Affairs, 

Division of Regulations Development, 

Attn.: Melissa Musotto, CMS–2258–P, 

Room C5–14–03, 7500 Security 

Boulevard, Baltimore, MD 21244–

1850. 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 

20503, Attn: Katherine T. Astrich, 

CMS Desk Officer, CMS–2258–P, 

Katherine_T._Astrich@omb.eop.gov. 

Fax (202) 395–6974. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

V. Regulatory Impact Analysis 

A. Introduction 

We have examined the impacts 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 (as amended 

by Executive Order 13258, which 

merely reassigns responsibility of 

duties) 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). 

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. 

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 603 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 and has 

fewer than 100 beds. For the reasons 

cited below, we have determined that 

this rule may have a significant impact 

on small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

That threshold level is currently 

approximately $120 million. We have 

determined that the rule will have an 

effect on State and local governments in 

an amount greater than $120 million. 

We have explained this assessment in 


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the section entitled ‘‘Anticipated 

Effects’’ below. 

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. 

For purposes of Executive Order 13132, 

we also find that this rule will have a 

substantial effect on State or local 

governments. 

B. Costs and Benefits 

This rule is a major rule because it is 

estimated to result in $120 million in 

savings during the first year and $3.87 

billion in savings over five years. 

As CMS has examined Medicaid State 

financing arrangements across the 

country, we have identified numerous 

instances in which State financing 

practices do not comport with the 

Medicaid statute. As explained in the 

preamble, Section 1903(w) of the Act 

permits units of government to 

participate in the financing of the nonFederal share; however, in some 

instances States rely on funding from 

non-governmental entities for the nonFederal share. Because such practices 

are expressly prohibited by the 

donations and taxes amendments at 

Section 1903(w), we are issuing this rule 

to clarify the requirements of entities 

and health care providers that are able 

to finance the non-Federal share. 

Furthermore, CMS has found several 

arrangements in which providers did 

not retain the full amount of their 

Medicaid payments but were required to 

refund or return a portion of the 

payments received, either directly or 

indirectly. Failure by the provider to 

retain the full amount of reimbursement 

is inappropriate and inconsistent with 

statutory construction that the Federal 

government pays only its proportional 

cost for the delivery of Medicaid 

services. When a State claims Federal 

reimbursement in excess of net 

payments to providers, the FMAP rate 

has effectively been increased, and 

federal Medicaid funds are redirected 

toward non-Medicaid services. When a 

State chooses to recycle FFP in this 

manner, the Federal taxpayers in other 

States disproportionately finance the 

Medicaid program in the State that is 

recycling FFP. This rule is designed to 

eliminate such practices. 

The rule should also have a beneficial 

distributive impact on governmental 

providers because in many States there 

are a few selected governmental 

providers receiving payments in excess 

of cost, while other governmental 

providers receive a lower rate of 

reimbursement. This rule will reduce 

inflated payments to those few 

governmental providers and promote a 

more even distribution of funds among 

all governmental providers. This is 

because all governmental providers will 

be limited to a level of reimbursement 

that does not exceed the individual 

provider’s cost. 

We have observed that there are a 

variety of practices used by State and 

local governments in identifying costs 

and submitting a CPE as the basis of 

matching FFP for the provision of 

Medicaid services. These different cost 

methods and CPE practices make it 

difficult to (1) Align claimed 

expenditures with specific services 

covered under the State plan or 

identifiable administrative activities; (2) 

properly identify the actual cost to the 

governmental entity of providing 

services to Medicaid recipients or 

performing administrative activities; 

and (3) audit and review Medicaid 

claims to ensure that Medicaid 

payments are appropriately made. Such 

circumstances present risks of 

inflationary costs being certified and 

excessive claims of FFP. This rule will 

facilitate a more consistent methodology 

in Medicaid cost identification and 

allocation across the country, thereby 

improving the fiscal integrity of the 

program. 

Because the RFA includes small 

governmental jurisdictions in its 

definition of small entities, we expect 

this rule to have a significant economic 

impact on a substantial number of small 

entities, specifically health care 

providers that are operated by units of 

government, including governmentally 

operated small rural hospitals, as they 

will be subject to the new cost limit 

imposed by this rule. We have reviewed 

CMS’s Online Survey and Certification 

and Reporting System (OSCAR) data for 

information about select provider types 

that may be impacted by this rule. 

According to the OSCAR data, there are: 

• 1,153 hospitals that have identified 

themselves as operated by local 

governments or hospital districts/ 

authorities; 

• 822 nursing facilities that have 

identified themselves as operated by 

counties, cities, or governmental 

hospital districts; 

• 113 intermediate care facilities for 

the mentally retarded (ICF/MR) that 

have identified themselves as operated 

by cities, towns, or counties. 

We have not counted State operated 

facilities in the above numbers because 

for purposes of the RFA, States are not 

included in the definition of a small 

entity. Note further that OSCAR data is 

self-reported, so the figures provided 

above do not necessarily reflect the 

number of providers CMS recognizes as 

governmentally operated according to 

the provisions of this rule. 

Some of the governmental providers 

identified as small entities for RFA 

purposes may have been receiving 

Medicaid payments in excess of cost, 

but as a result of this rule, payments 

will not be permitted to exceed cost. 

Governmentally operated providers will 

also be required under this rule to 

receive and retain the full amount of 

their Medicaid payments, which would 

result in a net increase in revenue to the 

extent such providers were returning a 

portion of their Medicaid payments to 

the State and payment rates remain the 

same following the effective date of this 

rule. On the other hand, if States reduce 

payment rates to such providers after 

this rule is effective, these providers 

may experience a decrease in net 

revenue. Finally, there are health care 

providers that are considered under the 

RFA as small entities (including small 

rural hospitals) but are not 

governmentally operated; to the extent 

these providers have been involved in 

financing the non-Federal share of 

Medicaid payments, this rule will 

clarify whether or not such practices 

may continue. However, for the most 

part, private health care providers are 

not affected by this rule. As stated 

earlier, for purposes of the RFA, the 

small entities principally affected by 

this rule are governmentally operated 

health care providers. In light of the 

specific universe of small entities 

impacted by the rule, the fact that this 

rule requires States to allow 

governmentally operated health care 

providers to receive and retain their 

Medicaid payments, and the allowance 

for governmentally operated health care 

providers to receive a Medicaid rate up 

to cost, we have not identified a need 

for regulatory relief under the RFA. 

Ultimately, this rule is designed to 

ensure that Medicaid payments to 

governmentally operated health care 

providers are based on actual costs and 

that the financing arrangements 

supporting those payments are 

consistent with the statute. While some 

health care providers may lose revenues 

in light of this rule, those revenues were 

likely in excess of cost or may have been 

financed using methods that did not 

permit the provider to retain payments 

received. Other health care providers 

that were adversely affected by 

questionable reimbursement and 

financing arrangements may now, under 

this rule, benefit from a more equitable 

distribution of funds. Private providers 


jlentini on PROD1PC65 with PROPOSAL
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are generally unaffected by this rule, 

except for limited situations where the 

clarification provided by the rule may 

require a change to current financing 

arrangements. 

With respect to clinical care, we 

anticipate that this rule’s effect on 

actual patient services to be minimal. 

The rule presents no changes to 

coverage or eligibility requirements 

under Medicaid. The rule clarifies 

statutory financing requirements and 

allows governmentally operated 

providers to be reimbursed at levels up 

to cost. Federal matching funds will 

continue to be made available based on 

expenditures for appropriately covered 

and financed services. While States may 

need to change reimbursement or 

financing methods, we do not anticipate 

that services delivered by 

governmentally operated providers or 

private providers will change. 

C. Anticipated Effects 

The following chart summarizes our 

estimate of the anticipated effects of this 

rule. 

ESTIMATED REDUCTION IN FEDERAL MEDICAID OUTLAYS RESULTING FROM THE PROVIDER PAYMENT REFORM PROPOSAL

BEING IMPLEMENTED BY CMS–2258–P 

[amounts in millions] 

Fiscal Year 

2007 2008 2009 2010 2011 

Payment Reform .......................................................................................................... ¥120 ¥530 ¥840 ¥1,170 ¥1,210 

These estimates are based on recent 

reviews of state Medicaid spending. 

Payment reform addresses both 

spending through intergovernmental 

transfers (IGT) and limiting payments to 

government providers to cost. For IGT 

spending, recent reports on spending on 

Disproportionate Share Hospitals (DSH) 

and Upper Payment Limit (UPL) 

spending were reviewed. From these 

reports, an estimate of the total 

spending that would be subject to the 

net expenditure policy was developed 

and then projected forward using 

assumptions consistent with the most 

recent President’s Budget projections. 

The estimate of the savings in federal 

Medicaid spending as a result of this 

policy factors in the current authority 

and efforts of CMS and the impact of 

recent waivers; the estimate also 

accounts for the potential effectiveness 

of future efforts. There is uncertainty in 

this estimate to the extent that the 

projections of IGT spending may not 

match actual future spending and to the 

extent that the effectiveness of this 

policy is greater than or less than 

assumed. 

Reports on UPL spending following 

the most recent legislation concerning 

UPL were reviewed to develop a 

projection for total enhanced payments 

in Medicaid spending. The estimate of 

savings from this policy reflects both 

estimates of the amount of UPL 

spending that exceeds cost and the 

effectiveness of this policy in limiting 

payments to cost. The estimate also 

accounts for transitional UPL payments, 

which are unchanged under this policy, 

and for the impact of recent waivers. 

There is uncertainty in this estimate to 

the extent that the projections of UPL 

spending may not match actual future 

spending, to the extent that the amount 

of UPL spending above cost differs from 

the estimated amount, and to the extent 

that the effectiveness of this policy is 

greater than or less than assumed. 

D. Alternatives Considered 

There is an option to implement 

policies surrounding retention of 

payments, certain elements of certified 

public expenditures, and the definition 

of a unit of government under existing 

statutory and regulatory authority. 

However, the proposed rule is a more 

effective method of implementation 

because it promotes statutory intent, 

strengthens accountability for financing 

the non-Federal share of Medicaid 

payments, and clarifies existing 

regulations based on issues we have 

identified. Similarly, an option exists to 

continue to allow governmental 

providers to be reimbursed at current 

rates; however, given the information 

CMS has gathered regarding the use of 

Medicaid payments to governmental 

providers, we find that the proposal to 

limit governmental providers to cost 

offers a way to reasonably reimburse 

providers while ensuring that Federal 

matching funds are used for their 

intended purpose, which is to pay for a 

covered Medicaid service to a Medicaid 

beneficiary and not something else. 

E. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in the table below, we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this proposed rule. This 

table provides our best estimate of the 

proposed decrease in Federal Medicaid 

outlays resulting from the provider 

payment reform proposal being 

implemented by CMS–2258–P (Cost 

Limit for Providers Operated by Units of 

Government and Provisions to Ensure 

the Integrity of Federal-State Financial 

Partnerships). The sum total of these 

expenditures is classified as savings in 

Federal Medicaid spending. 

ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM FISCAL YEAR 2007 TO FISCAL YEAR

2011 

[In Millions] 

Category Transfers 

Annualized Monetized Transfers .............................................................. Negative Transfer—Estimated decrease in expenditures: $774. 

From Whom To Whom? ........................................................................... Federal Government to States. 


jlentini on PROD1PC65 with PROPOSAL
2246 Federal Register / Vol. 72, No. 11 / Thursday, January 18, 2007 / Proposed Rules 

F. Conclusion 

We expect that this rule will promote 

the fiscal integrity of the Medicaid 

program. The proposed rule will 

enhance accountability for States to 

properly finance the non-Federal share 

of Medicaid expenditures and allow 

them to pay reasonable rates to 

governmental providers. To the extent 

prior payments to governmentally 

operated providers were inflated, the 

rule will reduce such payments to levels 

that more accurately reflect the actual 

cost of Medicaid services and ensure 

that the non-Federal share of Medicaid 

payments has been satisfied in a manner 

consistent with the statute. Private 

providers are predominately unaffected 

by the rule, and the effect on actual 

patient services should be minimal. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects 

42 CFR Part 433 

Administrative practice and 

procedure, Child support, Claims, Grant 

programs-health, Medicaid, Reporting 

and recordkeeping requirements. 

42 CFR Part 447 

Accounting, Administrative practice 

and procedure Drugs, Grant programshealth, Health facilities, Health 

professions, Medicaid Reporting and 

recordkeeping requirements, Rural 

areas. 

42 CFR Part 457 

Administrative practice and 

procedure, Grant programs-health, 

Health insurance, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR chapter IV as set forth below: 

PART 433—STATE FISCAL 

ADMINISTRATION 

1. The authority citation for part 433 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

2. Amend § 433.50 by revising 

paragraph (a)(1) to read as follows: 

§ 433.50 Basis, scope, and applicability. 

(a) * * * 

(1) Section 1902(a)(2) and section 

1903(w)(7)(G) of the Act, which require 

States to share in the cost of medical 

assistance expenditures and permits 

State and local units of government to 

participate in the financing of the nonFederal portion of medical assistance 

expenditures. 

(i) A unit of government is a State, a 

city, a county, a special purpose district, 

or other governmental unit in the State 

(including Indian tribes) that has 

generally applicable taxing authority. 

(ii) A health care provider may be 

considered a unit of government only 

when it is operated by a unit of 

government as demonstrated by a 

showing of the following: 

(A) The health care provider has 

generally applicable taxing authority; or 

(B) The health care provider is able to 

access funding as an integral part of a 

unit of government with taxing 

authority which is legally obligated to 

fund the health care provider’s 

expenses, liabilities, and deficits, so that 

a contractual arrangement with the State 

or local government is not the primary 

or sole basis for the health care provider 

to receive tax revenues. 

* * * * * 

3. Section 433.51 is revised to read as 

follows: 

§ 433.51 Funds from units of government 

as the State share of financial participation. 

(a) Funds from units of government 

may be considered as the State’s share 

in claiming FFP if they meet the 

conditions specified in paragraphs (b) 

and (c) of this section. 

(b) The funds from units of 

government are appropriated directly to 

the State or local Medicaid agency, or 

are transferred from other units of 

government (including Indian tribes) to 

the State or local agency and are under 

its administrative control, or are 

certified by the contributing unit of 

government as representing 

expenditures eligible for FFP under this 

section. Certified public expenditures 

must be expenditures within the 

meaning of 45 CFR 95.13 that are 

supported by auditable documentation 

in a form approved by the Secretary 

that, at a minimum —

(1) Identifies the relevant category of 

expenditures under the State plan; 

(2) Explains whether the contributing 

unit of government is within the scope 

of the exception to limitations on 

provider-related taxes and donations; 

(3) Demonstrates the actual 

expenditures incurred by the 

contributing unit of government in 

providing services to eligible 

individuals receiving medical assistance 

or in administration of the State plan; 

and 

(4) Is subject to periodic State audit 

and review. 

(c) The funds from units of 

government are not Federal funds, or are 

Federal funds authorized by Federal law 

to be used to match other Federal funds. 

PART 447—PAYMENTS FOR 

SERVICES 

1. The authority citation for part 447 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

2. Section 447.206 is added to read as 

follows: 

§ 447.206 Cost limit for providers operated 

by units of government. 

(a) Scope. This section applies to 

payments made to health care providers 

that are operated by units of government 

as defined in § 433.50(a)(1) of this 

chapter. 

(b) Exceptions. Indian Health Services 

and tribal facilities. The limitation in 

paragraph (c) of this section does not 

apply to Indian Health Services 

facilities and tribal facilities that are 

funded through the Indian SelfDetermination and Education 

Assistance Act (Pub. L. 93–638). 

(c) General rules. (1) All health care 

providers that are operated by units of 

government are limited to 

reimbursement not in excess of the 

individual provider’s cost of providing 

covered Medicaid services to eligible 

Medicaid recipients. 

(2) Reasonable methods of identifying 

and allocating costs to Medicaid will be 

determined by the Secretary in 

accordance with sections 1902, 1903, 

and 1905 of the Act, as well as 45 CFR 

92.22 and Medicare cost principles 

when applicable. 

(3) For hospital and nursing facility 

services, Medicaid costs must be 

supported using information based on 

the Medicare cost report for hospitals or 

nursing homes, as applicable. 

(4) For non-hospital and non-nursing 

facility services, Medicaid costs must be 

supported by auditable documentation 

in a form approved by the Secretary that 

is consistent with § 433.51(b)(1) through 

(b)(4) of this chapter. 

(d) Use of certified public 

expenditures. This paragraph applies 

when States use a cost reimbursement 

methodology funded by certified public 

expenditures. 

(1) In accordance with paragraph (c) 

of this section, each provider must 

submit annually a cost report to the 

Medicaid agency that reflects the 

individual provider’s cost of serving 

Medicaid recipients during the year. 

(2) States may utilize most recently 

filed cost reports to develop interim 

rates and may trend those interim rates 

by an applicable health care-related 

index. Interim reconciliations must be 


jlentini on PROD1PC65 with PROPOSAL
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performed by reconciling the interim 

Medicaid payment rates to the filed cost 

report for the spending year in which 

interim payment rates were made. 

(3) Final reconciliation must be 

performed annually by reconciling any 

interim payments to the finalized cost 

report for the spending year in which 

any interim payment rates were made. 

(e) Payments not funded by certified 

public expenditures. This paragraph 

applies to payments made to providers 

operated by units of government that are 

not funded by certified public 

expenditures. In accordance with 

paragraph (c) of this section, each 

provider must submit annually a cost 

report to the Medicaid agency that 

reflects the individual provider’s cost of 

serving Medicaid recipients during the 

year. The Medicaid agency must review 

the cost report to determine that costs 

on the report were properly allocated to 

Medicaid and verify that Medicaid 

payments to the provider during the 

year did not exceed the provider’s cost. 

(f) Overpayments. If, under paragraph 

(d) or (e) of this section, it is determined 

that a governmentally-operated health 

care provider received an overpayment, 

amounts related to the overpayment will 

be properly credited to the Federal 

government, in accordance with part 

433, subpart F of this chapter. 

(g) Compliance dates. A State must 

comply with the cost limit described in 

paragraph (c) of this section for services 

furnished after September 1, 2007. 

3. Section 447.207 is added to read as 

follows: 

§ 447.207 Retention of payments. 

(a) All providers are required to 

receive and retain the full amount of the 

total computable payment provided to 

them for services furnished under the 

approved State plan (or the approved 

provisions of a waiver or demonstration, 

if applicable). The Secretary will 

determine compliance with this 

provision by examining any associated 

transactions that are related to the 

provider’s total computable payment to 

ensure that the State’s claimed 

expenditure, which serves as the basis 

for Federal Financial Participation, is 

equal to the State’s net expenditure, and 

that the full amount of the non-Federal 

share of the payment has been satisfied. 

(b) [Reserved] 

4. Section § 447.271 is revised to read 

as follows: 

§ 447.271 Upper limits based on 

customary charges. 

(a) The agency may not pay a provider 

more for inpatient hospital services 

under Medicaid than the provider’s 

customary charges to the general public 

for the services. 

(b) [Reserved] 

5. Section 447.272 is amended by 

revising paragraphs (a) through (d) to 

read as follows: 

§ 447.272 Inpatient services: Application 

of upper payment limits. 

(a) Scope. This section applies to rates 

set by the agency to pay for inpatient 

services furnished by hospitals, NFs, 

and ICFs/MR within one of the 

following categories: 

(1) State government operated 

facilities (that is, all facilities that are 

operated by the State) as defined at 

§ 433.50(a) of this chapter. 

(2) Non-State government operated 

facilities (that is, all governmentally 

operated facilities that are not operated 

by the State) as defined at § 433.50(a) of 

this chapter. 

(3) Privately operated facilities (that 

is, all facilities that are not operated by 

a unit of government) as defined at 

§ 433.50(a) of this chapter. 

(b) General rules. (1) For privately 

operated facilities, upper payment limit 

refers to a reasonable estimate of the 

amount that would be paid for the 

services furnished by the group of 

facilities under Medicare payment 

principles in subchapter B of this 

chapter. 

(2) For State government operated 

facilities and for non-State government 

operated facilities, upper payment limit 

refers to the individual provider’s cost 

as defined at § 447.206. 

(3) Except as provided in paragraph 

(c) of this section, aggregate Medicaid 

payments to the group of privately 

operated facilities described in 

paragraph (a) of this section may not 

exceed the upper payment limit 

described in paragraph (b)(1) of this 

section. 

(4) Except as provided in paragraph 

(c) of this section, Medicaid payments to 

State government operated facilities and 

non-State government operated facilities 

must not exceed the individual 

provider’s cost as documented in 

accordance with § 447.206. 

(c) Exceptions. (1) Indian Health 

Services and tribal facilities. The 

limitation in paragraph (b) of this 

section does not apply to Indian Health 

Services facilities and tribal facilities 

that are funded through the Indian SelfDetermination and Education 

Assistance Act (Pub. L. 93–638). 

(2) Disproportionate share hospitals. 

The limitation in paragraph (b) of this 

section does not apply to payment 

adjustments made under section 1923 of 

the Act that are made under a State plan 

to hospitals found to serve a 

disproportionate number of low-income 

patients with special needs as provided 

in section 1902(a)(13)(A)(iv) of the Act. 

Disproportionate share hospital (DSH) 

payments are subject to the following 

limits: 

(i) The aggregate DSH limit using the 

Federal share of the DSH limit under 

section 1923(f) of the Act. 

(ii) The hospital-specific DSH limit in 

section 1923(g) of the Act. 

(iii) The aggregate DSH limit for 

institutions for mental disease (IMDs) 

under section 1923(h) of the Act. 

(d) Compliance dates. Except as 

permitted under paragraph (e) of this 

section, a State must comply with the 

upper payment limit described in 

paragraph (b) of this section by one of 

the following dates: 

(1) For State government operated and 

non-State government operated 

hospitals—September 1, 2007. 

(2) For all other facilities—March 13, 

2001. 

* * * * * 

Section 447.321 is amended by 

revising paragraphs (a) through (d) to 

read as follows: 

§ 447.321 Outpatient hospital and clinic 

services: Application of upper payment 

limits. 

(a) Scope. This section applies to rates 

set by the agency to pay for outpatient 

services furnished by hospitals and 

clinics within one of the following 

categories: 

(1) State government operated 

facilities (that is, all facilities that are 

operated by the State) as defined at 

§ 433.50(a) of this chapter. 

(2) Non-State government operated 

facilities (that is, all governmentally 

operated facilities that are not operated 

by the State) as defined at § 433.50(a) of 

this chapter. 

(3) Privately operated facilities that is, 

all facilities that are not operated by a 

unit of government as defined at 

§ 433.50(a) of this chapter. 

(b) General rules. (1) For privately 

operated facilities, upper payment limit 

refers to a reasonable estimate of the 

amount that would be paid for the 

services furnished by the group of 

facilities under Medicare payment 

principles in subchapter B of this 

chapter. 

(2) For State government operated 

facilities and for non-State government 

operated facilities, upper payment limit 

refers to the individual provider’s cost 

as defined at § 447.206. 

(3) Except as provided in paragraph 

(c) of this section, aggregate Medicaid 

payments to the group of privately 

operated facilities within one of the 

categories described in paragraph (a) of 

this section may not exceed the upper 

payment limit described in paragraph 

(b)(1) of this section. 


jlentini on PROD1PC65 with PROPOSAL
2248 Federal Register / Vol. 72, No. 11 / Thursday, January 18, 2007 / Proposed Rules 

(4) Except as provided in paragraph 

(c) of this section, Medicaid payments to 

State government operated facilities and 

non-State government operated facilities 

must not exceed the individual 

provider’s cost as documented in 

accordance with § 447.206. 

(c) Exception. Indian Health Services 

and tribal facilities. The limitation in 

paragraph (b) of this section does not 

apply to Indian Health Services 

facilities and tribal facilities that are 

funded through the Indian SelfDetermination and Education 

Assistance Act (Pub. L. 93–638). 

(d) Compliance dates. Except as 

permitted under paragraph (e) of this 

section, a State must comply with the 

upper payment limit described in 

paragraph (b) of this section by one of 

the following dates: 

(1) For State government operated and 

non-State government operated 

hospitals—September 1, 2007. 

(2) For all other facilities—March 13, 

2001. 

* * * * * 

PART 457—ALLOTMENTS AND 

GRANTS TO STATES 

1. The authority for part 457 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302) 

2. Section 457.220 is revised to read 

as follows: 

§ 457.220 Funds from units of government 

as the State share of financial participation. 

(a) Funds from units of government 

may be considered as the State’s share 

in claiming FFP if they meet the 

conditions specified in paragraphs (b) 

and (c) of this section. 

(b) The funds from units of 

government are appropriated directly to 

the State or local Medicaid agency, or 

are transferred from other units of 

government (including Indian tribes) to 

the State or local agency and are under 

its administrative control, or are 

certified by the contributing unit of 

government as representing 

expenditures eligible for FFP under this 

section. Certified public expenditures 

must be expenditures within the 

meaning of 45 CFR 95.13 that are 

supported by auditable documentation 

in a form approved by the Secretary 

that, at a minimum—

(1) Identifies the relevant category of 

expenditures under the State plan; 

(2) Explains whether the contributing 

unit of government is within the scope 

of the exception to limitations on 

provider-related taxes and donations; 

(3) Demonstrates the actual 

expenditures incurred by the 

contributing unit of government in 

providing services to eligible 

individuals receiving medical assistance 

or in administration of the State plan; 

and 

(4) Is subject to periodic State audit 

and review. 

(c) The funds from units of 

government are not Federal funds, or are 

Federal funds authorized by Federal law 

to be used to match other Federal funds. 

3. Amend § 457.628 by—

A. Republishing the introductory text 

to the section. 

B. Revising paragraph (a). 

The republication and revision read 

as follows: 

§ 457.628 Other applicable Federal 

regulations. 

Other regulations applicable to SCHIP 

programs include the following: 

(a) HHS regulations in § 433.50 

through § 433.74 of this chapter (sources 

of non-Federal share and Health CareRelated Taxes and Provider-Related 

Donations) and § 447.207 of this chapter 

(Retention of payments) apply to States’

SCHIPs in the same manner as they 

apply to States’ Medicaid programs. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.778, Medical Assistance 

Program) 

Dated: June 16, 2006. 

Mark B. McClellan, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: December 12, 2006. 

Michael O. Leavitt, 

Secretary. 

[FR Doc. 07–195 Filed 1–12–07; 4:21 pm] 

BILLING CODE 4120–01–P 

FEDERAL COMMUNICATIONS 

COMMISSION 

47 CFR Chapter I 

[CC Docket No. 01–92; DA 06–2548] 

Developing a Unified Intercarrier 

Compensation Regime 

AGENCY: Federal Communications 

Commission. 

ACTION: Proposed rule, reopening of 

reply comment period. 

SUMMARY: This document grants a 

request for an extension of time to file 

reply comments on a proposed process 

to address phantom traffic issues and a 

related proposal for the creation and 

exchange of call detail records filed by 

the Supporters of the Missoula Plan, an 

intercarrier compensation reform plan 

filed July 24, 2006 by the National 

Association of Regulatory Utility 

Commissioners’ Task Force on 

Intercarrier Compensation (the NARUC 

Task Force). The Order modifies the 

pleading cycle by reopening the 

comment period in order to facilitate the 

development of a more substantive and 

complete record in this proceeding. 

DATES: Submit reply comments on or 

before January 5, 2007. 

ADDRESSES: You may submit comments, 

identified by CC Docket No. 01–92, by 

any of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Federal Communications 

Commission Web Site: http:// 

www.fcc.gov. Follow the instructions for 

submitting comments on the Electronic 

Comment Filing System (ECFS) /http:// 

www.fcc.gov/cgb/ecfs/. 

• E-mail: To randy.clarke@fcc.gov. 

Include CC Docket 01–92 in the subject 

line of the message. 

• Fax: To the attention of Randy 

Clarke at 202–418–1567. Include CC 

Docket 01–92 on the cover page. 

• Mail: Parties should send a copy of 

their filings to Randy Clarke, Pricing 

Policy Division, Wireline Competition 

Bureau, Federal Communications 

Commission, Room 5–A360, 445 12th 

Street, SW., Washington, DC 20554. 

• Hand Delivery/Courier: The 

Commission’s contractor, Natek, Inc., 

will receive hand-delivered or 

messenger-delivered paper filings for 

the Commission’s Secretary at 236 

Massachusetts Avenue, NE., Suite 110, 

Washington, DC 20002. 

—The filing hours at this location are 8 

a.m. to 7 p.m. 

—All hand deliveries must be held 

together with rubber bands or 

fasteners. 

—Any envelopes must be disposed of 

before entering the building. 

—Commercial overnight mail (other 

than U.S. Postal Service Express Mail 

and Priority Mail) must be sent to 

9300 East Hampton Drive, Capitol 

Heights, MD 20743. 

• People with Disabilities: To request 

materials in accessible formats for 

people with disabilities (braille, large 

print, electronic files, audio format), 

send an e-mail to fcc504@fcc.gov or call 

the Consumer & Governmental Affairs 

Bureau at 202–418–0530 (voice), 202–

418–0432 (tty). 

Instructions: All submissions received 

must include the agency name and 

docket number. All comments received 

will be posted without change to http:// 

www.fcc.gov/cgb/ecfs/, including any 

personal information provided. For 

detailed instructions on submitting 


jlentini on PROD1PC65 with PROPOSAL