28930 Federal Register / Vol. 72, No. 99 / Wednesday, May 23, 2007 / Proposed Rules 

TABLE 2.—CROP GROUP 13-07: SUBGROUP LISTING

Representative commodities Commodities 

Crop Subgroup 13-07-A. Caneberry 

subgroup. 

Blackberry; Raspberry, red and black; wild raspberry; loganberry; cultivars and/or hybrids of these. 

Crop Subgroup 13-07-B. Bushberry 

subgroup. 

Aronia, berry; blueberry, highbush, and cultivars and/or hybrids of these; blueberry, lowbush; currant, 

buffalo; Chilean,guava; currant, black; and currant, red; elderberry, European, barberry; gooseberry; 

cranberry, highbush; Honeysuckle, edible; Huckleberry; jostaberry; Juneberry: lingonberry; Native, currant; salal; Sea, buckthorn. 

Crop Subgroup 13-07-C. Large shrub/ 

tree berry subgroup. 

Bayberry; Buffaloberry; che; chokecherry; elderberry; Juneberry; Mountain pepper, berries; mulberry; 

Phalsa; pincherry; riberry; salal; serviceberry. 

Crop Subgroup 13-07-D. Small fruit 

vine climbing subgroup. 

Amur river grape; gooseberry; grape; kiwifruit, fuzzy; kiwifruit, hardy; Maypop, Schisandra berry. 

Crop Subgroup 13-07-E. Small fruit 

vine climbing subgroup, except 

grape. 

Amur river grape; gooseberry; kiwifruit, fuzzy; kiwifruit, hardy; Maypop; schisandra berry. 

Crop Subgroup 13-07-F. Small fruit 

vine climbing subgroup except 

fuzzy kiwifruit. 

Amur river grape; grape, Kiwifruit, hardy; maypop; schisandra berry. 

Crop Subgroup 13-07-G. Lowgrowing 

berry subgroup. 

Bearberry; bilberry; blueberry,lowbush; cloudberry; cranberry; lingonberry; muntries; partridgeberry; 

strawberry 

Crop Subgroup 13-07-H. Lowgrowing 

berry subgroup, except strawberry. 

Bearberry; bilberry; blueberry, lowbush; cloudberry; cranberry; lingonberry; muntries; partridgeberry. 

* * * * * 

(22) Crop Group 21. Edible fungi 

Group. 

(i) Representative commodities. White 

button mushroom and any one oyster 

mushroom or any Shiitake mushroom. 

(ii) Table. The following is a list of all 

the commodities in Crop Group 21. 

There are no related subgroups. 

CROP GROUP 21: EDIBLE FUNGI

GROUP—COMMODITIES

Blewitt, Lepista nuda (Tricholomataceae) 

Bunashimeji, Hypsizygus marrmoreus 

(Agaricaceae) 

Chinese mushroom, Volvariella volvacea 

(Bull.) Singer (Pluteaceae) 

Enoki, Flammulina velutipes (Curt.) Singer 

(Tricholomataceae) 

Hime-Matsutake, Agaricus blazei Murill 

(Agaricaeae) 

Hirmeola, Auricularia auricular 

(Auricularicaceae) 

Maitake, Grifola frondosa (Polyporaceae) 

Morel, Morchella spp. (Morchellaceae) 

Nameko, Pholiota nameko, (Strophariaceae) 

Net Bearing Dictyophora, Dictyophora 

indusiata (Phallaceae) 

Oyster mushroom, Pleurotus spp. 

(Tricholomataceae) 

Pom Pom, Hericium erinaceus (Hydnaceae) 

Reishi mushroom, Ganoderma lucidum 

(Leyss. Fr.) Karst. (Ganodermataceae) 

Rodman’s agaricus, Agaricus bitorquis 

(Quel.) Saccardo (Agaricaceae) 

Shiitake mushroom, Lentinula edodes (Berk.) 

Pegl. (Polyporaceae) 

Shimeji, Tricholoma conglobatum, 

(Tricholomataceae) 

Stropharia, Stropharia spp. (Strophariaceae) 

Truffle, Tuber spp. (Tuberaceae) 

White button mushroom, Agaricus bisporous 

(Lange) Imbach (Agaricaceae) 

White Jelly Fungi, Tremella fuciformis 

(Tremellaceae) 

[FR Doc. E7–9595 Filed 5–22–07; 8:45 am] 

BILLING CODE 6560–50–S 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 438 and 447 

[CMS–2279–P] 

RIN 0938–A095 

Medicaid Program; Graduate Medical 

Education 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

clarify that costs and payments 

associated with Graduate Medical 

Education programs are not 

expenditures for medical assistance that 

are federally reimbursable under the 

Medicaid program. 

DATES: Comment date: To be assured 

consideration, comments must be 

received at one of the addresses 

provided below, no later than 5 p.m. on 

June 22, 2007. 

ADDRESSES: In commenting, please refer 

to file code CMS–2279–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 


cprice-sewell on PROD1PC71 with PROPOSALS
Federal Register / Vol. 72, No. 99 / Wednesday, May 23, 2007 / Proposed Rules 28931 

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 

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–2279–

P, P.O. Box 8016, Baltimore, MD 21244–

8016. 

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–2279–

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. For 

information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Dianne Heffron, (410) 786–3247. 

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. 

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 

Title XIX of the Social Security Act 

(the Act) authorizes Federal grants to 

States for Medicaid programs, operated 

by the State under an approved State 

plan, that provide medical assistance to 

needy individuals including lowincome families, the elderly, and 

persons with disabilities. Under section 

1903(a)(1) of the Act, federal grant 

funding, or federal financial 

participation (FFP), is available to States 

for a percentage of amounts ‘‘expended 

* * * for medical assistance under the 

State plan.’’ The care and services that 

may (or in some cases, must) be 

included within the scope of medical 

assistance under a Medicaid State plan 

are generally set forth in section 1905(a) 

of the Act. Included in this list, for 

example, in sections 1905(a)(1) and 

1905(a)(2), are inpatient and outpatient 

hospital services. Graduate medical 

education (GME) is not included in this 

list of care and services within the scope 

of medical assistance. 

Section 1902(a)(30) of the Act requires 

States to develop payment 

methodologies for services provided 

under the Medicaid State Plan that are 

consistent with economy, efficiency and 

quality of care. CMS has previously 

allowed States to include hospital GME 

activities as a component of the cost of 

Medicaid inpatient and outpatient 

hospital services. 

For the reasons we explain in more 

detail below, we do not believe that it 

is consistent with the Medicaid statute 

to pay for GME activities either as a 

component of hospital services or 

separately. GME is not a health service 

that is included in the authorized 

coverage package. Nor is GME 

recognized under the Medicaid statute 

as a component of the cost of Medicaid 

inpatient and outpatient hospital 

services. GME is not a health service (in 

contrast to the activities of 

disproportionate share hospitals). 

Therefore, we are proposing in this 

issuance to preclude FFP in State 

payments for GME. 

Inpatient Hospital Rates 

States are responsible for setting 

inpatient hospital rates. Section 

1902(a)(13) of the Act requires States to 

develop rates for inpatient hospital 

services in a public process. Section 

1902(a)(30)(A) of the Act further 

requires Medicaid service rates to be 

consistent with economy, efficiency, 

and quality of care. These provisions 

afford States a great deal of flexibility in 

determining their inpatient hospital 

rates. States may use various 

reimbursement systems including 

diagnosis-related groups (DRGs), per 

diem, case rates, cost or other payment 

methodologies as long as the 

methodologies meet the regulations at 

42 CFR part 447 subpart C. An 

important limitation States must adhere 

to is the upper payment limit (UPL) 

which describes a payment level above 

which FFP is not available. The UPL 

implements, in part, the statutory 

requirement for payment rates that are, 

‘‘consistent with efficiency, economy, 

and quality of care’’ at section 

1903(a)(30)(A) of the Act. The 

regulations at 42 CFR 447.272 and 

447.321 define the UPL for hospital 

services. States must demonstrate that 

the rates they have developed to 

reimburse Medicaid hospital services do 

not, in the aggregate, and within three 

provider categories (government, nonState government, or private), exceed a 

reasonable estimate of what Medicare 

would have paid for the same services 

using Medicare payment principles. 

Unlike Medicaid, the Medicare 

program has very specific and detailed 

statutory requirements regarding 

payments for hospital services. The 

current payment system for hospitals 

segregates payments made to hospitals 

into two basic payments; operating costs 

and capital costs of inpatient hospital 

services. Prospective Hospital Payments 

can be supplemented by direct medical 

education (DME) or indirect medical 

education (IME) payments. The 

requirements are set forth in section 

1886 of the Act. This section defines 

costs, details the cost reporting process, 

delineates a few categories of hospitals 

that are paid directly on the basis of 


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reported costs and provides for the use 

of reported costs in the development of 

Medicare’s prospective payment system 

for most hospitals. In particular, in 

section 1886(a)(4) of the Act, Medicare 

defines ‘‘operating costs of inpatient 

hospital services’’ as: 

* * * All routine operating costs, ancillary 

service operating costs, and special care unit 

operating costs with respect to inpatient 

hospital services as such costs are 

determined on an average per admission or 

per discharge basis (as determined by the 

Secretary), and includes the costs of all 

service for which payment may be made 

under this title that are provided by the 

hospital (or by an entity wholly owned or 

operated by the hospital) to the patient. 

* * * Such term does not include costs of 

approved educational activities. * * * 

Thus, Medicare expressly excludes 

costs associated with educational 

activities from the operating costs that 

can be included in the cost base used to 

develop the basic payment amounts 

under Medicare’s prospective payment 

system for inpatient hospital services. 

Medicare and Graduate Medical 

Education 

With the creation in 1965 of the 

Medicare program, in anticipation of a 

need for additional physicians to treat a 

newly insured, aged-patient population, 

the costs associated with GME were 

included as reimbursable Medicare 

costs. The Office of the Inspector 

General (OIG) issued a report in 1994 

entitled A Study of Graduate Medical 

Education Costs describing the origins 

of Medicare policy regarding GME as 

based on a physician shortage in the 

U.S. that existed in the 1950s and 1960s. 

Physician training was viewed as a 

public good and, 

* * * Congress decided that Medicare 

should participate in educating physicians 

until communities shouldered the costs in 

some other fashion. Hence, it created 

Medicare GME funding for teaching 

hospitals. 

By the 1980s, the U.S. had a surplus 

of physicians and the alternative 

community sources for GME funding 

never materialized. The same OIG report 

indicated that there were attempts by 

the Congress and this agency to 

substantially limit or eliminate 

Medicare GME subsidies. Instead, the 

Medicare payment system for inpatient 

hospital services was completely altered 

in 1983, moving from cost 

reimbursement to a prospective 

payment system (PPS). The PPS 

included payments to hospitals for the 

costs of GME. The new system created 

two types of payments unique to 

teaching hospitals. The direct graduate 

medical education payment (DGME) 

compensates teaching hospitals for the 

direct costs of their educational 

activities, as measured by the number of 

residents being trained and the historic 

cost of training residents. Additionally, 

qualifying teaching hospitals receive an 

indirect medical education (IME) 

adjustment to their per discharge 

payment under the Medicare IPPS 

(inpatient prospective payment system) 

to account for additional costs (other 

than the direct costs of the training 

program) that teaching hospitals incur 

in treating Medicare patients. This 

additional payment reflects the costs of 

providing care at teaching hospitals 

generally due to the added costs of 

‘‘learning by doing’’ treatment methods, 

and is in addition to the basic 

prospective payment for inpatient 

services based on ‘‘operating costs of 

inpatient hospital services’’. 

Medicare recognizes direct costs of 

approved educational programs in 

sections 1886(h) and (k) of the Act. 

Indirect medical education payments 

are provided for at section 1886(d)(5) of 

the Act. These sections address graduate 

medical education activities separate 

and apart from the other costs of 

providing inpatient hospital services. 

The statute provides specific 

instructions regarding which 

educational programs qualify a hospital 

for the additional GME payments and 

provides an explicit methodology to 

calculate the Medicare payment to an 

individual hospital for both its direct 

graduate medical education program 

and its indirect medical education 

payments. 

Regulations at 42 CFR part 412 

describe the prospective payment 

system. Again, direct medical education 

costs are identified as excluded from the 

other Medicare inpatient hospital 

operating costs used to develop 

Medicare’s prospective inpatient rates. 

Direct graduate medical education is 

specifically prohibited as part of the 

inpatient PPS rate at § 412.2(2)(e). 

Indirect medical education is separately 

identified as a payment adjustment 

based on a formula at § 412.105. The 

costs that the IME adjustment 

reimburses a qualifying hospital for are 

included as inpatient hospital operating 

costs on the Medicare cost report. IME 

is an adjustment to the IPPS discharge 

rate. The IPPS rate is an ‘‘average’’ rate 

based on the efficient provision of 

inpatient care at all hospitals. The IME 

adjustment is intended to compensate 

teaching hospitals for the additional 

costs they incur when providing 

hospital services versus non-teaching 

hospitals. 

Medicaid and Graduate Medical 

Education Generally 

In a 2003 state survey conducted by 

the Association of American Medical 

Colleges, 47 States and the District of 

Columbia reported using Medicaid 

funds to make GME payments under the 

Medicaid State Plan. Of these, 35 

indicated that the payments were 

included in their per diem inpatient 

hospital rates, and 15 stated using 

supplemental or a combination of 

supplemental and per diem payments to 

make GME payments. This same report, 

Medicaid Direct and Indirect Graduate 

Medical Education Payment: A 50 State 

Survey, indicates that while States view 

these Medicaid GME payments as 

critical to State GME policy 

implementation, they generally do not 

track these payments. 

In large part, this inability to track 

Medicaid GME payments is due to the 

way in which these payments are made 

(which we discuss in more detail 

below). Basically, payments are made 

through increases in the rates paid for 

covered Medicaid services. This 

methodology assures Federal 

participation, but does not provide clear 

accountability. Funding intended by the 

States to support GME often becomes 

subsumed within MCO or hospital rates 

(including supplements to these rates) 

or inpatient disproportionate share 

hospital (DSH) payments. As a result, it 

is difficult to quantify Medicaid GME 

payments or monitor and measure the 

effect of Medicaid payments on GME 

programs. 

Medicaid State Plan Payments 

As previously stated, Medicaid law 

does not dictate detailed payment 

requirements for covered hospital 

services. Rather, States are permitted 

flexibility, subject to a reasonable 

estimate of what Medicare would have 

paid for the services, to develop their 

own methods and standards to 

determine the price they will pay for 

Medicaid covered services. States are 

required to include such payment 

methodologies in their State plans, and 

thus must submit their payment 

methodologies to CMS for review and 

approval. Once approved, States receive 

FFP for the Medicaid payments they 

make under the approved methodology. 

Since there is no express authority in 

the Medicaid statute for payments to 

support GME programs, to receive FFP 

for such payments, the payments must 

be made under the guise of payments 

made for covered Medicaid services 

under the approved Medicaid State 

plan. Usually the payments are part of 

the inpatient hospital Medicaid rate 


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structure. This is because the Medicaid 

inpatient UPL references Medicare 

payment principles as an integral part of 

the inpatient UPL calculation, and 

Medicare makes GME payments as a 

supplement to inpatient hospital service 

payment rates. 

States routinely make payments to 

hospitals up to the maximum level 

permitted under the UPL, using 

methodologies that have a base payment 

rate and provide for supplemental 

payments to selected types of hospitals. 

This is possible because the base 

reimbursement rates are, in the 

aggregate, below the UPL for the 

particular category of provider. This 

creates a ‘‘gap’’ beneath the UPL that 

allows States to make the supplemental 

payments for select providers. Some or 

all of these supplemental payments may 

be directed at hospitals which operate 

GME programs. 

There are limitations on the State’s 

flexibility in designing their Medicaid 

programs and reimbursement under 

current regulations to provide funding 

for GME programs stemming from the 

absence of any direct authority to 

reimburse GME under Title XIX. 

Because this funding must be part of 

payment for medical services (either 

directly or included in comprehensive 

capitation rates paid to MCOs), this 

funding is not necessarily limited to 

teaching hospitals, linked to educational 

costs or measures, or coordinated with 

other sources of GME funding. 

Therefore, it is difficult for States to 

design Medicaid payments to 

correspond with the operation of GME 

programs in the State. This is 

particularly true in the case of GME 

programs that include significant 

training in non-hospital settings. As a 

result, there is generally no assurance 

that supplemental Medicaid payments 

for GME are actually effective in 

supporting these programs, or in 

furnishing any benefit to Medicaid 

program beneficiaries. 

Under the Medicaid program, 

beneficiaries receive a defined benefit 

package consisting of a variety of 

mandatory and optional services 

provided to qualifying recipients. The 

statute creates a Federal/State 

partnership to share in the cost of 

providing these health care services to 

low-income populations. The current 

program structure supports State 

definition of eligible populations, 

coverage options, and reimbursement 

for covered services for these eligible 

individuals. This structure does not 

accommodate the State medical training 

policy and goals. The Federal 

government is also limited by its 

statutory authority to only evaluate and 

monitor the efficiency and economy of 

Medicaid spending as it relates to rates 

paid for medical services and not for 

GME as no such authority to do so exists 

within current law. 

This rule proposes to clarify that CMS 

will not consider funding for GME as 

expenditures for a covered Medicaid 

service. We distinguish direct GME 

payments from indirect medical 

education (IME) payments because IME 

payments (as defined under Medicare 

payment principles) represent an 

additional Medicare payment for health 

care services provided to Medicare 

beneficiaries in teaching hospitals. This 

rule would clarify that GME is outside 

the scope of medical assistance, and that 

GME funding is not an allowable 

component of payment methodologies 

included in a State’s approved Medicaid 

State Plan or in any Medicaid managed 

care payment. This includes all 

payments under attachments 4.19–A 

and 4.19–B of a State’s Medicaid State 

Plan. The rule would also provide that 

when calculating an inpatient UPL, 

States may not include additional 

payments Medicare makes to a hospital 

for direct educational costs as part of the 

reasonable estimate of Medicare 

payment. And the rule would provide 

that States may, as part of their UPL 

calculation, include Medicare payments 

for indirect medical education as these 

payments represent additional costs 

associated with providing services in 

teaching hospitals. CMS specifically 

seeks comments on the propriety of 

including Medicare IME adjustments as 

part of the UPL calculation. 

States may not make any educational 

payments under the Medicaid State Plan 

but are able to recognize, as part of the 

inpatient hospital rate structure, the 

additional Medicaid covered service 

costs that teaching hospitals incur when 

delivering Medicaid covered services. 

States that currently include GME 

payments as part of other services or 

administrative costs under the Medicaid 

State Plan must also cease claiming 

Federal funds for these educational 

program payments. 

II. Provisions of the Proposed Rule 

The provisions of this rule propose to 

clarify that, for purposes of Medicaid 

reimbursement eligible for FFP, GME is 

not an allowable cost or payment for 

medical assistance under the approved 

Medicaid State Plan. The provision 

would apply to all Medicaid providers 

and must be implemented in the first 

full State fiscal year following the 

effective date of the subsequent final 

rule. 

We are proposing to modify the 

regulations at 42 CFR part 447. 

Currently the general instructions 

regarding Medicaid State Plan 

requirements for payment methods for 

all Medicaid services are provided at 

§ 447.201. We propose to add a new 

§ 447.201(c) to indicate that GME cannot 

be included as part of any payment 

methodology in the Medicaid State 

Plan. We have included this 

clarification to address States that have 

included GME as part of their rate 

system for non-institutional services, 

institutional services, or as an 

administrative cost eligible for FFP. 

We propose also to modify §§ 447.257 

and 447.304 to address that FFP is no 

longer available for any reimbursement 

that includes or specifically pays for 

GME. The current paragraph would be 

redesignated as paragraph (a) and a new 

paragraph (b) would be added providing 

that no FFP would be available for GME 

under the approved Medicaid State 

Plan. 

We propose to modify § 447.272(b)(1) 

and 447.321(b)(1) to indicate that the 

term ‘‘Medicare payment principles’’

must exclude any Medicare payments 

associated with direct GME when 

calculating the Medicaid UPL. 

We propose to modify § 438.6(c)(5) by 

removing paragraph (v) that addresses 

the coordination of GME payments 

under the State plan with capitated rates 

paid to a Medicaid MCO. 

We propose to modify § 438.60 to 

provide that the limit on payment to 

other providers would not include an 

exception related to GME payments 

made to providers outside the capitation 

rate and under the Medicaid State Plan. 

III. Collection of Information 

Requirements 

This document does not impose any 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 35). 

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. 


cprice-sewell on PROD1PC71 with PROPOSALS
28934 Federal Register / Vol. 72, No. 99 / Wednesday, May 23, 2007 / Proposed Rules 

V. Regulatory Impact Statement 

A. Overall Impact 

We have examined the impact of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–534), 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, and Executive Order 13422) 

directs agencies to assess all costs and 

benefits of all 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 ($100 

million or more in any 1 year). This rule 

would surpass the economic threshold 

and is considered a major rule. This rule 

is estimated to reduce Federal Medicaid 

outlays by $140 million in FY 2008, by 

$290 million in FY 2009, by $440 

million in FY 2010, by $450 million in 

FY 2011, and by $460 million in FY 

2012. 

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 $6.5 million to $31.5 million in any 

1 year. Individuals and States are not 

included in the definition of a small 

entity. We are not preparing an analysis 

for the RFA because the regulation 

would not have a direct impact on small 

entities. In this case, the regulation 

would directly affect payments the 

States receive from the Federal 

government, and the impact on health 

care facilities is a secondary impact. 

States may choose to continue to fund 

direct medical education programs 

using State-only funding; this rule 

simply eliminates the availability of 

Federal Medicaid funding for such 

direct education programs. 

Additionally, most hospitals that would 

qualify as small entities would likely be 

unaffected by this rule as they are 

unlikely to offer medical education 

programs. Generally, medical education 

programs are sponsored by large 

hospitals offering a variety of medical 

specialties and services. As we are 

uncertain of the impact on small 

entities, we specifically request public 

comment on the impact of small health 

care facilities. 

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. We are not 

preparing an analysis for section 1102(b) 

of the Act because we have determined, 

and the Secretary certifies, that this rule 

would not have a direct impact on the 

operations of a substantial number of 

small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

That threshold level is currently 

approximately $120 million. This rule 

would not result in expenditures in any 

1 year by State, local, or tribal 

governments, in the aggregate, or by the 

private sector, of $120 million. This rule 

anticipates federal savings in excess of 

$120 million but does not require States 

to replace that federal funding with state 

funding. There is no federal mandate to 

fund GME programs with State funding. 

Funding GME is not a required activity 

or enforceable duty arising from 

participation in Medicaid, thus any 

reduction in federal funding will not 

decrease the funding available for 

required activities under the Medicaid 

program. 

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 or cost on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

For purposes of Executive Order 13132, 

we find that this rule will not have a 

substantial effect on State or local 

government. While this regulation 

would eliminate the ability of States to 

claim Federal Medicaid funding for 

direct GME, it would not impose any 

requirement that States pay for such 

GME. The rule would simply recognize 

that GME is not authorized under the 

Medicaid statute as an element of 

medical assistance that is eligible for 

Federal Medicaid funding. 

B. Anticipated Effects 

ESTIMATED REDUCTION IN FEDERAL MEDICAID OUTLAYS RESULTING FROM THE GRADUATE MEDICAL EDUCATION

PROPOSAL BEING IMPLEMENTED BY THIS PROPOSED RULE—ANNUAL EXPECTED SAVINGS

[Amounts in millions] 

Reduction in Federal Medicaid outlays in million dollars by fiscal year 

2008 2009 2010 2011 2012 

Graduate Medical Education Exclusion ....................................................................... $140 $290 $440 $450 $460 

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 

provision of this proposed rule. This 

table provides our best estimate of the 

reduction in Federal Medicaid outlays 

for the years 2008 through 2012 as result 

of the changes presented in this 

proposed rule. This rule only affects 

transfer payments between the Federal 

government and State governments. 

Direct Graduate Medical Education 

(DGME) 

1. Effects on State Medicaid Programs 

Since Graduate Medical Education is 

not a Medicaid service authorized in 

Title XIX of the Act, States are not 

required to report GME costs on the 

form CMS–64–9. Instead, States that 

claim Federal funding for GME 


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Federal Register / Vol. 72, No. 99 / Wednesday, May 23, 2007 / Proposed Rules 28935 

generally do so as a portion of their 

inpatient hospital rates, inpatient 

hospital supplemental payments, MCO 

payments or, in limited instances, as 

part of a supplemental, non-institutional 

provider payment. 

Because of the absence of a reporting 

obligation, the amount actually 

expended for Medicaid GME is not 

readily determinable. The Federal 

Government has no way to directly 

determine the number of States making 

GME payments, amounts States are 

spending or claiming as GME or the 

total number of hospitals receiving such 

payments. Any GME funding claimed 

would simply be reflected within total 

outlays related to a particular service 

category, such as inpatient hospital, on 

the form CMS 64.9. In addition, the 

impact of eliminating the Medicare 

DGME payment as part of a State’s UPL 

calculation is difficult to determine 

because most states do not include their 

UPL methodology as part of their 

approved Medicaid State plan. States 

have the option of including this 

payment in their UPL calculation but it 

is not a requirement. 

Estimates of the impact of eliminating 

Direct Graduate Medical Education as 

an allowable program cost or payment 

were derived from data on State GME 

payments from a survey conducted by 

the National Conference of State 

Legislatures (NCSL) and published in 

the Journal of Health Affairs in 2000. 

The NCSL GME estimates were trended 

forward by the Consumer Price Index to 

establish a project baseline of GME 

payments for FY 2008 through 2012. 

CMS also estimates an offset applied to 

these payments to account for 

behavioral changes, including the 

likelihood that States may replace a 

portion of their GME payments with 

other payments to hospitals to achieve 

a similar Federal spending level. The 

resulting net savings were calculated 

using an average Federal matching rate 

of 57 percent. CMS specifically seeks 

comment on the amount States pay and 

methods States use to pay for DME and 

IME in their Medicaid programs. 

States have several options to address 

medical education funding. One option 

is to replace funding provided as the 

Federal share of a Medicaid GME 

payment with State-only funding or 

private sector funding. States may 

increase other generally applicable taxes 

to provide funding for general medical 

education. 

States could also work through a 

better coordination of funding to more 

effectively leverage and coordinate all 

GME funding in a State, including 

Federal funding available through Area 

Health Education Centers (AHECs), 

Medicare funding, grant funding, and 

State funding to more effectively 

manage health education policy and 

outcomes. 

2. Effects on Other Providers 

CMS currently cannot precisely 

estimate the total number of providers 

receiving Medicaid GME payments. 

States are not required to report this 

information nor are they required to 

make such payments to only teaching 

hospitals. The exclusion of the Medicare 

DGME payment when calculating a 

class of providers’ applicable UPL could 

lower the ceiling for Medicaid payments 

available to a provider within that class 

but CMS cannot estimate the impact 

since States are not required to include 

the adjustment and CMS currently does 

not have information on how many 

currently do include it. However, States 

may pay providers up to the UPL, 

including the IME payment adjustment 

made by Medicare to compensate 

teaching hospitals for additional service 

delivery costs associated with providing 

care in teaching hospitals. Providers 

will continue to receive payments for 

covered Medicaid services, and 

hospitals that serve a disproportionate 

share of low-income patients will 

continue to be eligible for additional 

DSH payments. States may also provide 

State-only funding for direct 

educational costs thus alleviating any 

revenue loss associated with the 

Medicaid DGME exclusion. 

C. Alternatives Considered 

In developing this regulation, the 

following alternatives were considered. 

We considered the possibility of 

providing stronger review of State Plan 

reimbursement methodologies for 

graduate medical education. In addition, 

we considered developing standard 

parameters applicable to all Medicaid 

GME payments (for example, a 

requirement that payment should not 

exceed the unmet cost of the GME 

program, counting all GME revenue 

when determining unmet GME program 

cost). These alternatives would address 

our concern over the lack of oversight 

and accountability for Medicaid GME 

funding. They would also address 

concerns that federal payments for GME 

through three separate programs 

(Medicare, Medicaid, and AHECs) are 

not coordinated with overall program 

goals. 

In evaluating these alternatives, 

however, we were limited by the 

absence of any statutory authority in the 

Medicaid program to make GME 

payments. Absent such authority, we 

believe we are limited in our ability to 

regulate such payments because the 

payments have been made under some 

other category. In other words, because 

there is no direct statutory authority for 

GME payments under a Medicaid State 

Plan, there is little authority to regulate 

or oversee such payments if allowed. 

As discussed above, States make GME 

payments through provider rates paid to 

reimburse medical services delivered. 

The existing statute and regulations 

addressing these payments do not 

provide CMS with the regulatory 

authority to require payment 

methodologies identified as GME to 

detail specific program requirements or 

apply any minimum program 

parameters for their approval. 

In short, CMS lacks any express 

statutory authority to match Medicaid 

GME payments as program costs and 

therefore lacks clear regulatory authority 

to manage Federal participation in GME 

programs under current law. 

OMB—STATEMENT OF ACCOUNTS

Annualized 

monetized 

transfers (in 

millions per year) 

Non-discounted ............... $356 

3% ................................... 351 

7% ................................... 345 

The savings reflect a reduction in payments 

from the federal government to the States. 

D. Conclusion 

For these reasons, we are not 

preparing an analysis for either the RFA 

or section 1102(b) of the Act because we 

have determined that this rule would 

not have a direct significant economic 

impact on a substantial number of small 

entities or a direct significant impact on 

the operations of a substantial number 

of small rural hospitals. 

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 438 

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. 

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: 


cprice-sewell on PROD1PC71 with PROPOSALS
28936 Federal Register / Vol. 72, No. 99 / Wednesday, May 23, 2007 / Proposed Rules 

PART 438—MANAGED CARE 

1. The authority citation for part 438 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

Subpart A—General Provisions 

§ 438.6 [Amended] 

2. Section 438.6 is amended by 

removing paragraph (c)(5)(v). 

Subpart B—State Responsibilities 

3. Section 438.60 is revised to read as 

follows: 

§ 438.60 Limit on payment to other 

providers. 

The State agency must ensure that no 

payment is made to a provider other 

than the MCO, PIHP, or PAHP for 

services available under the contract 

between the State and the MCO, PIHP, 

or PAHP, except when these payments 

are provided for in title XIX of the Act 

or in 42 CFR. 

PART 447—PAYMENTS FOR 

SERVICES 

4. The authority citation for part 447 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

Subpart B—Payment Methods: General 

Provisions 

5. Section 447.201 is amended by 

adding a new paragraph (c) to read as 

set forth below. 

§ 447.201 State plan requirements. 

* * * * * 

(c) The plan must not include 

payments for graduate medical 

education to any provider or institution 

or include costs of graduate medical 

education as an allowable cost under 

any cost-based payment system 

(including costs or payments claimed as 

administrative costs). 

Subpart C—Payment for Inpatient 

Hospital and Long-Term Care Facility 

Services 

6. Section 447.257 is amended by: 

A. Designating the existing paragraph 

as paragraph (a). 

B. Adding a new paragraph (b) to read 

as follows: 

§ 447.257 FFP: Conditions relating to 

institutional reimbursement. 

* * * * * 

(b) FFP is not available in 

expenditures for graduate medical 

education in hospitals and long-term 

care facilities. 

7. Section 447.272 is amended by 

republishing the heading to paragraph 

(b) and revising paragraph (b)(1) to read 

as follows: 

§ 447.272 Inpatient services: Application 

of upper payment limits. 

* * * * * 

(b) General rules. (1) ‘‘Upper payment 

limit’’ refers to a reasonable estimate of 

the amount that would be paid for the 

services furnished by the groups of 

facilities under Medicare payment 

principles in subchapter B of this 

chapter. For purposes of the Medicaid 

upper payment limit calculation, direct 

graduate medical education payments 

are not an allowable component of a 

Medicare payment and must be 

excluded from the calculation. 

* * * * * 

Subpart F—Payment Methods for 

Other Institutional and NonInstitutional Services 

8. Section 447.304 is amended by: 

A. Revising paragraph (b) to read as 

follows: 

§ 447.304 Adherence to upper limits; FFP. 

* * * * * 

(b) FFP is not available in 

expenditures for graduate medical 

education. 

* * * * * 

9. Section 447.321 is amended by 

republishing the heading to paragraph 

(b) and revising paragraph (b)(1) to read 

as follows: 

§ 447.321 Outpatient hospital and clinical 

services: Application of upper payment 

limits. 

* * * * * 

(b) General rules. (1) ‘‘Upper payment 

limit’’ refers to a reasonable estimate of 

the amount that would be paid for the 

services furnished by the groups of 

facilities under Medicare payment 

principles in subchapter B of this 

chapter. For purposes of the Medicaid 

upper payment limit calculation, direct 

graduate medical education payments 

are not an allowable component of a 

Medicare payment and must be 

excluded from the calculation. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.778, Medical Assistance 

Program) 

Dated: May 11, 2007. 

Leslie V. Norwalk, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: May 17, 2007. 

Michael O. Leavitt, 

Secretary. 

[FR Doc. 07–2576 Filed 5–18–07; 4:38 pm] 

BILLING CODE 4120–01–P 

FEDERAL COMMUNICATIONS 

COMMISSION 

47 CFR Part 54 

[WC Docket No. 05–337, CC Docket No. 96–

45, FCC 07–88] 

High-Cost Universal Service Support; 

Federal-State Joint Board on Universal 

Service 

AGENCY: Federal Communications 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: In this document, the 

Commission seeks comment on the 

Federal-State Joint Board on Universal 

Service’s recommendation that the 

Commission adopt an interim cap on 

support for competitive Eligible 

Telecommunications Carriers. 

DATES: Comments are due on or before 

June 6, 2007. Reply Comments are due 

on or before June 13, 2007. 

ADDRESSES: You may submit comments, 

identified by WC Docket No. 05–337 

and CC Docket No. 96–45, by any of the 

following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Federal Communications 

Commission’s Web Site: http:// 

www.fcc.gov/cgb/ecfs/. Follow the 

instructions for submitting comments. 

• People with Disabilities: Contact the 

FCC to request reasonable 

accommodations (accessible format 

documents, sign language interpreters, 

CART, etc.) by e-mail: FCC504@fcc.gov 

or phone: 202–418–0530 or TTY: 202–

418–0432. 

For detailed instructions for 

submitting comments and additional 

information on the rulemaking process, 

see the SUPPLEMENTARY INFORMATION

section of this document. 

FOR FURTHER INFORMATION CONTACT: Ted 

Burmeister, Attorney, Wireline 

Competition Bureau, 

Telecommunications Access Policy 

Division, (202) 418–7400, TTY (202) 

418–0484. 

SUPPLEMENTARY INFORMATION: This is a 

summary of the Commission’s Notice of 


cprice-sewell on PROD1PC71 with PROPOSALS