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[Federal Register: September 17, 2010 (Volume 75, Number 180)]
[Proposed Rules]               
[Page 56946-56961]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17se10-28]                         

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 431

[CMS-2325-P]
RIN 0938-AQ46

 
Medicaid Program; Review and Approval Process for Section 1115 
Demonstrations

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement provisions of section 
10201(i) of the Patient Protection and Affordable Care Act of 2010 
(Affordable Care Act) that set forth transparency and public notice 
procedures for experimental, pilot, and demonstration projects approved 
under section 1115 of the Social Security Act relating to Medicaid and 
the Children's Health Insurance Program (CHIP). This proposed rule 
would increase the degree to which information about Medicaid and CHIP 
demonstration applications and approved demonstration projects are 
publicly available and promote greater transparency in the review and 
approval of demonstrations. It would also codify existing statutory 
requirements pertaining to tribal consultation for section 1115 
demonstration projects.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on November 16, 
2010.

ADDRESSES: In commenting, please refer to file code CMS-2325-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-2325-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 to 
the

[[Page 56947]]

following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-2325-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 before the close of the comment period 
to either of the following addresses: a. For delivery in Washington, 
DC--Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201.

(Because access to the interior of the Hubert H. Humphrey 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.)

    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    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.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period and, thus, may not be considered timely.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions 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: Steven Rubio, (410) 786-1782, or 
Yolanda Reese, (410) 786-9898.

SUPPLEMENTARY INFORMATION:
    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://regulations.gov. Follow the search instructions 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.

Acronyms

    To assist the reader, the following is a list of the terms to which 
we refer by acronym in this proposed rule.

The Act--The Social Security Act
The Affordable Care Act--The Patient Protection and Affordable Care 
Act of 2010 (Pub. L. 111-148)
CHIP--The Children's Health Insurance Program
CMS--The Centers for Medicare & Medicaid Services
EQRO--External Quality Review Organization
FFP--Federal Financial Participation
GAO--Government Accountability Office
HHS--The Department of Health and Human Services
MCO--Managed Care Organization
The Recovery Act--The American Recovery and Reinvestment Act of 2009 
(Pub. L. 111-5)
SMDL--State Medicaid Directors' Letter
Title XIX--Grants to States for Medical Assistance Programs of the 
Social Security Act.
Title XXI--State Children's Health Insurance Program of the Social 
Security Act.

I. Background

A. Section 1115 Demonstrations

1. Overview
    Section 1115 of the Social Security Act (the Act) allows the 
Secretary of the Department of Health and Human Services (the 
Secretary) to waive selected provisions of section 1902 of the Act for 
experimental, pilot, or demonstration projects (demonstrations), and to 
provide Federal Financial Participation (FFP) for demonstration costs 
which would not otherwise be considered as expenditures under the 
Medicaid State plan, when the Secretary finds that the demonstrations 
are likely to assist in promoting the objectives of Medicaid. Section 
2107(e) of the Act states that the waiver authorities in section 1115 
apply to the Children's Health Insurance Program (CHIP) in title XXI of 
the Act in the same manner as they apply to the Medicaid program in 
title XIX of the Act.
    States have used section 1115 demonstrations for different reasons. 
Some States have tested new approaches to provide coverage or improve 
the scope or quality of benefits in ways that would not otherwise be 
permitted under the statute. For example, some States have used section 
1115 demonstrations to expand eligibility to individuals who would not 
otherwise qualify for benefits, or to establish innovative service 
delivery systems. Other demonstrations have constrained eligibility or 
benefits in ways not otherwise permitted by law. For example, some 
demonstrations have provided for a more limited set of benefits than 
the statute requires, for a specified population, implemented cost-
sharing at levels that exceed statutory requirements, or included 
enrollment limits. Some demonstrations have involved financing 
approaches that are not contemplated in title XIX or XXI.
    As such, demonstrations can have a significant and varied impact on 
beneficiaries, providers, as well as States and local governments. They 
can also influence policy making at the State and Federal level, by 
introducing new approaches that can be a model for other States and 
lead to programmatic changes nationwide. In light of the impact 
demonstration projects can have, the Congress has determined that the 
process by which States apply for and the Federal Government reviews 
demonstrations should assure public input. From time to time that 
process has come under criticism. In recent years, the Congress, the 
Government Accountability Office (GAO), and the stakeholders 
representing a range of interests affected by the Medicaid and CHIP 
programs have raised concerns regarding the need for greater 
transparency in the submission, review, and approval of demonstration 
applications.
2. Prior Guidance Related to Public Notice
    Over time, efforts were made to assure meaningful public 
involvement in the development and review of State demonstration 
projects. In the September 27, 1994 Federal Register on (59 FR 49249), 
the Department of Health and Human Services (HHS) published a notice 
that provided general principles and guidelines governing demonstration 
projects and provided for a public notice process that was designed to 
ensure that interested parties would have an opportunity to provide 
input into the design and review of a State demonstration application.
    The September 27, 1994 Federal Register notice listed examples of 
potential approaches States could use to solicit public comments, such 
as the State legislative process and hearings

[[Page 56948]]

conducted by State commissions, and it established a process for public 
input at the Federal level, including providing notice to interested 
parties when the Federal government receives a demonstration request. 
The September 27, 1994 Federal Register notice also established 
timeframes for the Federal government to receive and review public 
comments before acting on a State demonstration request.
    In 2002, we issued a letter to State Medicaid directors, State 
Medicaid Director Letter (SMDL) 02-007, to encourage States to 
facilitate public participation in the development of demonstration 
applications in an effort to ensure adherence to the public notice 
procedures outlined in the September 27, 1994 Federal Register notice.
    The 2002 SMDL (02-007) did not address the Federal level 
of review. Over the years some aspects of the Federal demonstration 
review process described in the September 27, 1994 Federal Register 
notice were abandoned. In 2002, the GAO issued a report entitled 
``Medicaid and SCHIP--Recent HHS Approvals of Demonstration Waiver 
Projects Raise Concerns,'' finding that HHS had not consistently 
followed its September 27, 1994 Federal Register notice process. GAO 
specifically found that, since 1998, HHS had not complied with the 
Federal notice procedures. GAO recommended that the HHS Secretary 
provide for a public process that, at a minimum, included publishing 
notices of demonstrations in the Federal Register and a 30-day comment 
period.
    In a subsequent 2007 report entitled ``Medicaid Demonstration 
Waivers: Lack of Opportunity for Public Input during the Federal 
Approval Process Still a Concern,'' the GAO examined demonstration 
projects in two States and found that HHS did not provide opportunity 
for public input at the Federal level during the Federal review 
process. It determined that the States that submitted the demonstration 
applications made efforts to obtain public input to comply with HHS' 
September 27, 1994 Federal Register notice, but that stakeholders in 
those States reported lacking access to information during the Federal 
review process about parts of the demonstration applications that had a 
significant impact on beneficiaries or having inadequate time to review 
and comment on the applications. GAO reiterated its longstanding 
concerns about the lack of public input into section 1115 
demonstrations and restated its recommendation for a process that 
assures public input.
    As we were considering potential processes and procedures for this 
proposed rule, we reviewed these GAO findings, various legislative 
proposals, and we conducted a listening session with stakeholders and 
States. In May 2010, we met with more than 20 representatives of 
stakeholder organizations including organizations advocating on behalf 
of the elderly, people with disabilities and other low income 
populations, as well as organizations representing health care 
providers regarding transparency in the demonstration approval process. 
We also held a listening session open to officials from all 50 States, 
the District of Columbia, and U.S. Territories.
    The stakeholder representatives generally expressed the need for 
better opportunities for the public to provide meaningful input into 
the development of State demonstration applications and the Federal 
review and approval process. These advocates expressed concern that the 
policies employed in demonstrations have far-reaching impact, and can 
happen with little meaningful stakeholder input into policy development 
at the Federal and State levels unlike the legislative and rulemaking 
processes, which have established mechanisms that assure some degree of 
transparency. They also expressed the view that since demonstrations 
allow States to ``not comply'' with requirements that the Congress put 
into law, the need for meaningful public input into these 
demonstrations is great. States agreed that public input is important 
although were concerned that any new requirements established under the 
new law could be administratively burdensome, and potentially 
duplicative of existing State policies and procedures. Some States 
reported that their existing public notice requirements and State 
legislative processes were strong and sufficient to ensure meaningful 
public input at the State level.
    Recently, the Federal government has made a broad commitment to 
transparency and public input, and this commitment informs the 
Secretary's approaches to ensuring transparency in this proposed rule. 
In a January 21, 2009 Memorandum to the Heads of Executive Departments 
and Agencies, President Obama established the Federal government's 
commitment to transparency, participation, and collaboration. Noting 
that public input can promote efficiency, effectiveness, and 
accountability in government, the President committed Federal agencies 
to disseminating information quickly and accessibly, and to ensure 
increased opportunities for the public to participate in policymaking. 
The Memorandum required each Federal agency to establish an Open 
Government plan, and on April 7, 2010, HHS announced its plan to 
achieve transparency, participation, and collaboration. HHS is 
committed to timely and responsive administration of the Medicaid and 
CHIP programs and seeks to assure transparency, input, and 
collaboration, while also being mindful of the need to avoid 
duplicative processes and unnecessary administrative burdens and 
delays.
3. Guidance Related to Tribal Consultation
    Over time, a different but related set of concerns has emerged 
about the need to ensure that Indian and Tribal governments be assured 
input into policies that impact Tribal governments, organizations, and 
Native Americans. In order to foster greater notice and a meaningful 
opportunity for input, in 2000, the Administration issued Executive 
Order 13175 regarding ``Consultation and Coordination with Indian and 
Tribal governments.'' Executive Order 13175 mandated the establishment 
of regular and meaningful consultation and collaboration with tribal 
officials in the development of Federal policies that have tribal 
implications. On November 5, 2009, President Obama issued a Memorandum 
for the Heads of Executive Departments and Agencies reiterating the 
importance of Executive Order 13175 and requiring a detailed plan for 
compliance with its provisions.
    In July 2001, we issued a letter to State Medicaid Directors (SMDL 
01-024) that required States, to allow federally-recognized 
Tribes to participate in the planning and development of Medicaid and 
CHIP demonstration applications and extensions through a consultation 
process. The guidance required at least 60 days notice to federally-
recognized Tribes before submission of a State's intent to submit a 
demonstration application or the extension of a previously approved 
section 1915 and/or 1115 waiver.
4. Changes Made by the Recovery Act and the Affordable Care Act
    Section 5006 of the American Recovery and Reinvestment Act of 2009 
(Recovery Act) (Pub. L. 111-5, enacted on February 17, 2009), among 
other protections for Indian beneficiaries in Medicaid and CHIP, 
required States to seek advice from Indian health programs and urban 
Indian organizations concerning Medicaid and

[[Page 56949]]

CHIP policies before submitting a Medicaid or CHIP State plan 
amendment, demonstration request or application that would directly 
affect Indian health programs and Indian beneficiaries. This provision 
was effective July 1, 2009, and was summarized in a letter to State 
Medicaid Directors dated January 22, 2010 (SMDL 10-001).
    Section 10201(i) of the Patient Protection and Affordable Care Act 
of 2010 (Pub. L. 111-148, enacted March 23, 2010) (the Affordable Care 
Act) amended section 1115 of the Act by adding a new subsection (d) to 
require the Secretary to issue regulations within 180 days of enactment 
that would ensure the public has adequate opportunities to provide 
meaningful input into the development of State demonstration projects, 
as well as in the Federal review and approval of State demonstration 
applications and renewals. The Affordable Care Act also requires 
periodic evaluations and implementation reports to ensure that 
information on the outcomes of demonstration projects is available to 
the public.
    Specifically, new section 1115(d) of the Act provides that these 
procedural requirements must include review standards pertaining to the 
goals of demonstration programs, the impact of the demonstration 
project on costs and coverage, and the plans of the State to ensure 
that the demonstration will comply with applicable title XIX and XXI of 
the Act. The law requires the establishment of a process to provide for 
public notice and comment on the State level and at the Federal level 
once an application for a demonstration is received by the Secretary. 
These public notice and comment processes are meant to ensure a 
meaningful level of public input. The statute also requires the 
Secretary to implement reporting requirements for States with approved 
demonstrations, and to establish a process for the periodic evaluation 
of demonstration projects. Under section 1115(d)(3) of the Act, the 
Secretary is required to report annually to the Congress on actions 
taken with respect to applications for demonstration projects.
    In this proposed rule, we seek to implement section 1115(d) of the 
Act to ensure transparency at each stage of the demonstration 
development and review process without interfering with the timely 
review of demonstration proposals. This rule will also codify the 
requirements of section 5006 of the Recovery Act that apply to 
demonstrations.
5. Findings Related to Section 1115 Demonstration Evaluations
    We recognize the importance of public availability and 
understanding of information about the impact and operations of health 
insurance and health insurance programs, including Medicaid and CHIP. 
Because demonstration projects are approved to pilot or experiment with 
new approaches, it is particularly important to evaluate such projects 
and to share lessons learned. Demonstration evaluations can document 
policies that succeed or fail and the degree to which they do so 
informs decisions about the demonstration at issue, as well as the 
policy efforts of other States and at the Federal level. In particular, 
evaluations of the impact of demonstration program features that depart 
from the statutory requirements can inform the Secretary's future 
decisions with regard to new approaches to coverage and care.
    More public involvement, understanding, and access to demonstration 
project evaluations will also provide greater understanding of 
demonstration effectiveness, and compliance. Public involvement can 
benefit all aspects of the evaluation process, including the process 
for submission of evaluation designs, approval of demonstration 
evaluations, and the submission of evaluation reports. Therefore, we 
are, as part of this transparency rule, codifying our existing policies 
to ensure greater transparency, communication, and collaboration in the 
evaluation aspect of the section 1115 demonstration process.

II. Provisions of the Proposed Rule

    This proposed rule would address the Affordable Care Act provisions 
requiring transparency in the process of developing and approving 
demonstrations. Consistent with the intention of these provisions, 
which is to ensure transparency and meaningful public input, we are 
soliciting public comments on this proposed rule's impact on 
beneficiaries, providers, and States, and as well as in the 
administrative processes, the timeframes described within the rule and 
the projected impact in sound policymaking at the State and Federal 
levels. At the end of this comment period, we will review the comments 
and take the comments into consideration before we issue a subsequent 
final rule. In the processes and timeframes that we propose in this 
rule, we have tried to ensure that the public has a full opportunity to 
provide meaningful input into the development and review of section 
1115 Medicaid and CHIP demonstrations consistent with the law while not 
impeding the process of developing, reviewing, approving, and 
implementing demonstrations. We welcome public comment on the balance 
this rule strikes between ensuring input and minimizing unnecessary 
administrative burden or delay, as well as the extent to which the rule 
ensures meaningful public comment at the State and Federal levels.
    We note that the procedures set forth in this proposed rule include 
procedures for submitting, publishing, and issuing public notices, 
applications, annual reports and other documents. In many cases, these 
procedures would allow for electronic documents, either as an 
alternative or a supplement to a printed document. Electronic documents 
should comply with all applicable civil rights requirements related to 
accessibility, including the requirements under section 508 of the 
Americans with Disabilities Act. Compliance with these requirements is 
necessary both to ensure accessibility by the public and to ensure 
accessibility by Federal employees who need to review the documents.
    In developing this rule, CMS reviewed prior guidance we issued 
regarding transparency in the waiver process, including the September 
27, 1994 Federal Register notice, and legislative proposals, including 
those that were proposed during the legislative process that resulted 
in the Affordable Care Act. These past guidance and proposals informed 
the development of the time requirements relating to the public comment 
period for new demonstrations and extending demonstrations; notifying 
organizations of the receipt of demonstration applications; 
acknowledging, if feasible, comments made; and refraining from 
approving or disapproving applications until public comments could be 
considered. In addition, as part of the task of establishing rules for 
the submission and review of demonstration proposals, we are codifying 
many of our existing processes to help create a more consistent 
demonstration submission and review process for States and to clarify 
for States, the Federal government, and the public when the public 
notice and input requirements take effect.

A. Section 1115 Demonstrations (Subpart G)

1. Basis and Purpose (Sec.  431.400)
    To incorporate the policies and implement the statutory provisions 
described above, we propose adding a

[[Page 56950]]

new subpart G under 42 CFR part 431 to implement the provisions of 
section 1115(d) of the Act, as amended by section 10201 of the 
Affordable Care Act. Subpart G includes guidance related to the 
development of demonstration applications, public notice for States and 
the Department, monitoring, compliance, evaluation of demonstration 
projects, and the submission of reports to the Secretary.
2. Coordination with Section 1332 Waivers (Sec.  431.402)
    Section 1332(a(5) of the Affordable Care Act requires the Secretary 
to develop a process for coordinating and consolidating the State 
waiver processes applicable under the provisions of section 1332 of the 
Affordable Care Act(as set forth in 45 CFR part 155), and the existing 
waiver processes applicable under titles XIX and XXI of the Social 
Security Act, and any other Federal law relating to the provision of 
health care items or services. Section 1332(a)(5) further requires the 
process developed by the Secretary to permit a State to submit a single 
application for a waiver under any and all of such provisions. The 
State waiver application processes applicable under section 1332 of the 
Affordable Care Act will be published in a separate rulemaking 
document. We have consulted with the Department in developing the 
demonstration application processes in this proposed rule and we will 
work to ensure that our final procedures are coordinated with section 
1332 waiver application requirements.
3. Definitions (Sec.  431.404)
    We are proposing to define the following terms as they are used in 
our current section 1115 demonstration review practices. In new Sec.  
431.404, we define the terms ``demonstration,'' ``public notice,'' and 
``section 1332 waiver'' that are used in new subpart G under 42 CFR 
part 431.
4. State Public Notice Process (Sec.  431.408)
    We recognize that demonstrations can have a significant impact on 
beneficiaries, providers, and States. Demonstrations can also influence 
policy making at the State and Federal level, by testing new approaches 
that can be models for programmatic changes nationwide or in other 
States. For these reasons, in Sec.  431.408, we propose a process that 
promotes transparency, facilitates public involvement and input, and 
encourages sound decision-making as demonstration applications are 
designed at the State level.
    In order to facilitate public involvement in the development of 
section 1115 demonstration applications, we propose in Sec.  
431.408(a)(1) that States issue a public notice with a comment period 
of at least 30 days prior to the State's submission of a new 
demonstration application or an application for an extension of an 
existing demonstration to CMS for review. Because meaningful input 
requires notice of the nature of the demonstration application or 
extension, we propose that the notice must include the following:
     A summary program description, including the goals and 
objectives to be implemented or extended under the demonstration 
project.
     The proposed health care delivery system and the 
eligibility requirements, benefit coverage, and cost sharing (for 
example, premiums, copayments, and deductibles) required of or 
available to individuals that will be impacted by the demonstration, 
and how the provisions vary from the State's current program features.
     An estimate of the expected increase or decrease in annual 
aggregate expenditures by population group impacted by the 
demonstration.
     An estimate of historic coverage data, as well as coverage 
projections expected over the term of the demonstration for each 
category of beneficiary whose health care coverage is impacted by the 
demonstration.
     The hypothesis and evaluation parameters of the 
demonstration.
     The locations and Internet address of where copies of the 
demonstration application will be available for public review and 
comment.
     Postal and Internet email addresses where written comments 
may be sent and reviewed by the public, and the timeframe during which 
comments will be accepted.
     The location, date, and time of at least two public 
hearings convened by the State to seek public input on the 
demonstration application.
    The September 27, 1994 Federal Register notice (59 FR 49249) 
provided general principles and guidelines governing demonstration 
projects, as well as a public notice process designed to ensure that 
interested parties have an opportunity to provide input on State 
demonstration applications. In proposed Sec.  431.408(a)(2)(i), we have 
expanded the methods for States to provide public notice that were 
first outlined in the September 27, 1994 Federal Register notice. We 
propose requiring the State to publish its public notice process, its 
public input process, planned hearings, and demonstration 
application(s) either on a main page of the public web site of the 
State agency responsible for making applications for demonstrations or 
on a demonstration-specific web page that is linked in a readily 
identifiable way to the main page of the State agency's web site. 
Public notice shall also be provided in at least one of the following 
publications:
     The State's Administrative Record in accordance with the 
State's Administrative Procedure Act, provided that such notice is 
provided at least 30 days prior to the submission of the demonstration 
application to CMS; or
     The newspaper of widest circulation in each city or county 
with a population of 50,000 or more, provided that such notice is 
provided at least 30 days prior to the demonstration application's 
submission to CMS.
    If the State utilizes a mechanism, such as an electronic mailing 
list, to notify interested parties of the demonstration application(s), 
the State may dispense with the notice procedures in Sec.  
431.408(a)(2)(i)(A) and (B).
    In Sec.  431.408(a)(3), consistent with the provisions of the 
Affordable Care Act, we propose that States would hold at least two 
public hearings regarding the State's demonstration application. These 
hearings must occur at least 20 days prior to the State's submission of 
a demonstration application to CMS for review. A State would have broad 
discretion to select the types of public forums it would rely on, 
choosing at least two of the following public forums:
     The Medical Care Advisory Committee that operates in 
accordance with Sec.  431.408; or
     A commission or other similar process, where meetings are 
open to members of the public; or
     A State legislative process, which would afford an 
interested party the opportunity to learn about the contents of the 
demonstration application, and to comment on its contents; or
     Any other similar process for public input that would 
afford an interested party the opportunity to learn about the contents 
of the demonstration application, and to comment on its contents.
    For the purposes of developing a coordinated process that is 
consistent with the provisions of section 5006(e) of the Recovery Act 
regarding tribal consultation at Sec.  431.408(b), we define State 
consultation activities to include a consultation to solicit advice 
from the Indian Tribes, Indian health programs, and Urban Indian 
Organizations prior to the publication and submission of any 
application, or extension of a demonstration when it has a direct 
impact on Indians, Indian health

[[Page 56951]]

providers or Urban Indian Organizations.
    Under Sec.  431.408(b)(1), we propose that States with federally-
recognized Indian tribes, Indian health programs, and/or urban Indian 
organizations, must include with their demonstration applications (for 
a new or renewed demonstration) evidence to CMS that the tribes and 
Indian health programs and Urban Indian Organizations in the State were 
notified in writing of the State's intent to submit a request for a new 
demonstration or extension, at least 60 days prior to the anticipated 
submission date of the demonstration application. This 60-day notice is 
not new and is consistent with previous guidance on this matter.
    Under Sec.  431.408(b)(2), we propose that consultation activities 
will be conducted in a manner consistent with the State approved 
consultation process outlined in the State's Medicaid State Plan.
    Under Sec.  431.408(b)(4), we propose that documentation of the 
State's consultation activities should be part of the application for 
any demonstration submitted to CMS for review and consideration, and 
must include issues raised and the potential resolution of such issues.
    We welcome comments on the requirements proposed in this section of 
the rule. Specifically, we are interested in receiving comments 
regarding activities that would provide the public opportunities to 
provide meaningful input into the development of State demonstration 
applications while ensuring that the demonstration process can move 
forward in a timely and efficient manner.
5. Application Procedures: Initial Demonstration Applications Content 
(Sec.  431.412(a))
    In reviewing section 1115 demonstration applications, CMS requests 
information from States in order to determine the nature, scope, and 
impact of the demonstration request. In this rule, we propose 
application components consistent with current practice both for new 
demonstrations and for the extension of an existing demonstration, in 
an effort to make the application process consistent and transparent.
    Under Sec.  431.412(a), we define when a State request for a new 
demonstration would be considered complete for the purposes of 
initiating the Federal review process described below. A request would 
be complete, for this purpose, when the State has submitted to CMS the 
following information:
     A demonstration program description, and goals and 
objectives that will be implemented under the demonstration project.
     The description of the proposed health care delivery 
system, eligibility requirements, benefit coverage, and cost sharing 
(for example, premiums, copayments, and deductibles) required of 
individuals that will be impacted by the demonstration.
     An estimate of the expected increase or decrease in annual 
aggregate expenditures by population group impacted by the 
demonstration. If available, include historic data for these 
populations.
     An estimate of historic coverage and enrollment data (as 
appropriate) and estimated projections expected over the term of the 
demonstration for each category of beneficiary whose health care 
coverage is impacted by the demonstration.
     Other demonstration program features that require the 
State to not follow the provisions of the Medicaid and CHIP programs.
     The type of waivers and expenditure authorities that the 
State believes to be necessary to authorize the demonstration.
     The research hypothesis or hypotheses that are related to 
the demonstration's proposed changes, goals, and objectives, a plan for 
testing the hypotheses in the context of an evaluation, and, if a 
quantitative evaluation design is feasible, the identification of 
appropriate evaluation indicators.
     Written evidence of the State's compliance with the public 
notice requirements set forth in Sec.  431.408, with a report of key 
issues raised by the public during the comment period, which shall be 
no less than 30 days, and how the State took those comments into 
consideration when developing the demonstration application.
    We also propose that after a request for a new demonstration or 
renewal of existing demonstration is considered complete, CMS may 
request, or the State may propose application modifications, as well as 
additional information to aid in the application review. If an 
application modification substantially changes the original 
demonstration design, CMS may, at its discretion, direct an additional 
30 day public comment period. We also clarify that nothing in this 
proposed rule precludes a State from submitting to CMS a pre-
application concept paper or from conferring with CMS about its intent 
to seek a demonstration prior to submitting a completed application.
6. Application Procedures: Demonstration Applications (Sec.  
431.412(b))
    We propose adding Sec.  431.412(b) to describe the application 
procedures that States must follow when submitting an application for a 
new demonstration or a request to extend an existing demonstration 
under section 1115 of the Act. This provision establishes a process for 
the State to submit an application, and for CMS to confirm that the 
application is complete, which in turn initiates the Federal comment 
and decision-making period. We developed these procedures because they 
represent a standardized approach that would be helpful to States, 
stakeholders, and CMS in the review of section 1115 demonstrations. We 
invite comments on the components of this application process.
    Under Sec.  431.412(b)(1), we propose to formally notify the State 
in writing within 15 days of receipt of a complete application for a 
new demonstration project or extension of an existing demonstration 
project. This notice triggers the start of the 30-day Federal public 
comment period. We chose these timeframes and action steps to 
effectively communicate to States the current status and sequential 
steps in the demonstration review process. We clarify that this notice 
of a ``complete'' application process is based on a preliminary review 
for the purpose of beginning the public comment period at the Federal 
level. It does not preclude CMS requests for additional or supplemental 
information, that would support or inform a final decision on the 
application, and it also does not prevent the State from supplying any 
additional information that it determines would aid CMS' review of its 
application. The notice simply represents a determination that the 
application is sufficient for the Federal review to commence.
    In order to inform the State and the public of the status of the 
demonstration or proposed activity, under Sec.  431.412(b)(2), we 
propose to provide the State a written notice within 15 days of receipt 
of a demonstration application that CMS determines is incomplete. In 
such notice, CMS will identify the elements missing from the 
application.
    Under Sec.  431.412(b)(3), we propose to publish on our web site at 
regular intervals the status of all State submissions, including 
information received from the State while CMS works with the State to 
meet the demonstration application process set forth in this section.

[[Page 56952]]

7. Application Procedures: Demonstration Extension Request (Sec.  
431.412(c))
    Generally, demonstrations may be extended up to 3 years under 
sections 1115(a), 1115(e), and 1115(f) of the Act. As sections 1115(e) 
and (f) of the Act provide for a substantially streamlined Federal 
review process, the timeframes constrain Federal review of the 
demonstration and consequently the time under which CMS can consider 
public input. In Sec.  431.412(c), we propose that, at least 30 days 
prior to a State's submission of a request for review under those 
sections, the State issue public notice of its intent to seek an 
extension under those sections and receive public comment on the 
proposed extension of the demonstration for at least 30 days. In 
addition, we propose that the State must provide a written summary to 
CMS of the key issues raised in the public comment period and how the 
State considered those issues when developing the demonstration 
extension application.
    The application prerequisites for the extension of a demonstration, 
codify current practice guidelines employed by CMS in the review of an 
existing section 1115 demonstration, which are consistent with the 
required timeframes in section 1115(e) and 1115(f) of the Act. In Sec.  
431.412(c), we propose that a demonstration extension request will be 
considered only if it is submitted no later than 12 months prior to the 
expiration date of the demonstration.
    In Sec.  431.412(c), we propose that a demonstration extension 
request or phase out plan be sent from the Governor of the State to the 
Secretary of HHS, as required by the statute, to extend a demonstration 
under sections 1115(e) and (f) of the Act. However, if an extension 
application includes substantial changes to the existing demonstration, 
CMS may, at its discretion, treat the application as an application for 
a new demonstration.
    To ensure an appropriate review of request to extend existing 
demonstrations and to provide information to the public for purposes of 
public comment, we propose a list of information States should provide 
CMS to facilitate public comment on and, CMS review of section 1115 
demonstration extensions. In Sec.  431.412(c)(2), we propose that a 
demonstration extension application submitted by the State will be 
considered complete by CMS when the State provides the following:
     A historical narrative summary of the demonstration 
project identifying the objectives set forth at the time the 
demonstration was approved and evidence of how these objectives have or 
have not been met, as well as future goals of the demonstration.
     If changes are requested, a narrative of the changes being 
requested along with the objective of the change and the desired 
outcomes.
     The types of waivers and expenditure authorities that are 
being requested in the extension period, or a statement that the State 
is requesting the same waiver and expenditure authorities as those 
approved in the current demonstration, as applicable.
     Summaries of External Quality Review Organization (EQRO) 
reports, managed care organization (MCO), and State quality assurance 
monitoring, and any other documentation of the quality of care provided 
under the demonstration.
     Financial data demonstrating the historical, and projected 
expenditures for the requested period of the extension, as well as 
cumulatively over the lifetime of the demonstration. This includes a 
financial analysis of changes to the demonstration requested by the 
State.
     An evaluation report of the demonstration inclusive of 
evaluation activities and findings to date, plans for evaluation 
activities during the extension period, and if changes are requested, 
identification of research hypotheses related to the changes and an 
evaluation design for addressing the proposed revisions.
     Written evidence of the State's compliance with the public 
notice process set forth in Sec.  431.408, including the post-award 
public input process described in Sec.  431.420(c) with a report of key 
issues raised by the public during the comment period and how the State 
took those comments into consideration when developing the 
demonstration extension application.
    We clarify that, while a request for an extension of a 
demonstration may preliminarily be considered ``complete,'' it does not 
preclude CMS requests for additional or supplemental information, to 
support or inform a final decision on the application, and it also does 
not prevent the State from supplying any additional information that it 
determines would aid CMS' review of its application. If an application 
modification substantially changes the original demonstration design, 
CMS may, at its discretion, direct an additional 30-day public comment 
period.
8. Federal Public Notice and Approval Process (Sec.  431.416)
    We chose the timeframes and action steps outlined in this subpart 
to effectively communicate to States and concerned stakeholders the 
current status and sequential steps in the demonstration review 
process. This approach would standardize and improve transparency in 
the section 1115 demonstration review process. In addition, by clearly 
communicating this process, we are striving to minimize confusion 
around the demonstration review process, satisfy key stakeholders' need 
for information and improve communication at the Federal level.
    In Sec.  431.416(a), we propose that within 15 days of receipt of a 
complete demonstration application for a new demonstration project or 
an extension of an existing demonstration project, CMS will send the 
State a written notice informing the State of the following:
     CMS' receipt of the request.
     The beginning of the 30-day Federal public notice process.
    Under Sec.  431.416(b) we propose to solicit public comment for 
demonstration applications received for at least a 30-day period 
through a variety of mechanisms, specifically by:
     Publishing demonstration applications and associated 
concept papers, if any, on the CMS Web site.
     Publishing the written notice of receipt of the State's 
request for CMS to review and consider the demonstration application.
     Publishing the proposed effective date of the 
demonstration.
     Publishing where inquiries and comments from the public 
may be directed to CMS via mail or e-mail.
     Notifying interested parties through an electronic mailing 
list that CMS will create for this purpose and will be available to all 
interested parties.
     Additional actions that may be warranted to comply with 
Federal policies regarding consultation with Indian tribes.
    Under Sec.  431.416(b)(2), we propose to create and solicit 
subscription to an electronic mailing list for the widespread 
distribution of information to individuals and organizations interested 
in demonstration applications.
    For the purpose of advising interested stakeholders of the status 
of demonstrations under CMS review, CMS proposes to publish on its 
website at regular intervals appropriate information, which may 
include, but is not limited to the following:
     Relevant status update(s).
     A listing of the issues raised through the public notice 
process.

[[Page 56953]]

    Under Sec.  431.416(d), we propose to publish all comments 
electronically. We will review and consider all comments, but will not 
provide written responses to public comments.
    Under Sec.  431.416(e), we propose not to render a final decision 
on a demonstration application until at least 45 days after notice of 
receipt of a completed application. This accommodates the 30-day notice 
period, as well as time to review the comments without unduly 
prolonging the review period. Some demonstration applications are 
particularly complex and will require a longer review period. The 
timeframes here provide for the minimum review period except in the 
case of emergencies.
    Under Sec.  431.416(f), we propose to maintain an administrative 
record which will generally consist of the following:
     The demonstration application from the State.
     Public comments (including Congressional comments) sent to 
the CMS and any CMS responses.
     For an approved application, the final special terms and 
conditions, waivers, expenditure authorities, and award letter sent to 
the State.
     The State's acceptance letter.
    We invite comment on all aspects of the demonstration development 
and review process, including what elements of the administrative 
record should be posted after a decision has been made, and how CMS can 
balance the need for transparency and the need for an expeditious 
review process.
    To ensure that States and the Federal Government are able to 
respond quickly to emergencies and unanticipated disasters, Sec.  
431.416(g) proposes a good cause exception to bypass, in whole or in 
part, the Federal and State notice and comment processes in order to 
expedite a decision on a proposed demonstration application or renewal.
    For an exception to the normal public notice process to exist, 
there must be unforeseen circumstances beyond the State's control that 
makes advance public notice impractical due to unusual circumstances 
the State could not reasonably foresee including, but not limited to, 
an emergent occurrence such as fire or earthquake or flood.
    The Secretary may grant the State an exception to the normal public 
notice process or from the timeliness requirement when the State 
demonstrates all of the following:
     The State acted in good faith.
     The State acted in a diligent, timely, and prudent manner.
     The circumstances constitute an emergency and could not 
have been reasonably foreseen.
     Delay would undermine or compromise the purpose of the 
demonstration and be contrary to the interests of the beneficiaries.
9. Monitoring and Compliance (Sec.  431.420)
    As section 1115 demonstrations have a significant impact on 
beneficiaries, States and the Federal Government, we are proposing 
processes and methodologies to assure we have adequate and appropriate 
information regarding the effectiveness of section 1115 demonstrations. 
Under Sec.  431.420(a), we propose that States must comply with all 
applicable Federal laws, regulations, policy statements and 
Departmental guidance unless a law or regulation has specifically been 
waived or determined not applicable under the demonstration. States 
must, within the timeframes specified in law, regulation, interpretive 
policy or guidance, come into compliance with any changes in Federal 
law, regulation, or interpretive policy affecting State demonstration 
projects, unless the provision being changed is expressly waived or 
identified as not applicable. States must comply with the terms and 
conditions of the agreement between the Secretary and the State to 
implement a State demonstration project or the demonstration will be 
suspended or terminated in whole or in part by the Secretary.
    Under proposed Sec.  431.420(b), as part of the special terms and 
conditions of any demonstration project, States will conduct periodic 
evaluations related to the implementation of the demonstration. CMS 
would review, and when appropriate investigate, documented complaints 
that a State is failing to comply with requirements specified in the 
special terms and conditions and implementing waivers of any approved 
demonstration.
    Another manner in which we propose strengthening our public notice 
procedures first set forth in the September 27, 1994 Federal Register 
notice is the post-implementation public forums. To assure continued 
public input after the initial 6 months of the demonstration's 
implementation, and annually thereafter, the States shall hold a public 
forum to solicit comments on the progress of the demonstration. The 
public forum must occur using either:
     The Medical Care Advisory Committee that operates in 
accordance with Sec.  431.408; or
     A State legislative process, commission or other similar 
process, where meetings are open to members of the public, and would 
afford an interested party the opportunity to learn about the 
demonstration's progress.
    Under Sec.  431.420(c), we propose that States will publish the 
date, time, and location of the public forum in a prominent location on 
the State's public Web site at least 30 days prior to the date of the 
planned public forum.
    Under Sec.  431.420 (d), we affirm the Secretary's right to suspend 
or terminate a demonstration, in whole or in part, any time before the 
date of expiration, whenever it determines that the State has 
materially failed to comply with the terms of the demonstration 
project.
    When a demonstration is terminated, suspended, or if waivers or 
expenditure authority are withdrawn, Federal funding is limited to 
normal closeout costs associated with an orderly termination of the 
demonstration or expenditure authority as described in Under Sec.  
431.420(e).
    Under Sec.  431.420(f), should we undertake an independent 
evaluation of any component of the demonstration, we propose the State 
must cooperate fully with CMS or the independent evaluator selected by 
CMS. The State must submit all necessary data and information to CMS or 
the independent evaluator.
10. Evaluation Requirements (Sec.  431.424)
    Under Sec.  431.424(a), we propose that the Secretary may use a 
broad range of evaluation strategies developed by States but subject to 
Secretarial approval in the application of evaluation techniques for 
measuring the effectiveness and usefulness of demonstration projects as 
models that help shape health care delivery and policy.
    Under proposed Sec.  431.424(b), demonstration evaluations will 
include the following criteria:
     Quantitative Research Methods: Quantitative research 
methods that involve the systematic empirical investigation of 
quantitative properties and phenomena and their relationships, are the 
preferred approach for most demonstrations. CMS will consider 
alternative evaluation designs when quantitative designs are 
technically infeasible or not well suited to the change made by the 
demonstration.
     Approaches that minimize Beneficiary Impact: The Secretary 
is issuing a requirement that the evaluation process must be as un-
intrusive as possible to the beneficiaries in terms of implementing and 
operating the policy approach to be demonstrated,

[[Page 56954]]

while ensuring that critical lessons are learned from the 
demonstration.
    Under Sec.  431.424(c), we propose that States submit and receive 
CMS approval of a design for an evaluation of the demonstration (or 
extension) and publish to the State's public web site the draft 
demonstration design. The draft evaluation design must include:
     A discussion of the demonstration hypotheses that are 
being tested including monitoring and reporting on the progress towards 
the expected outcomes.
     The data to be utilized and the baseline value for each 
measure.
     The methods of data collection.
     How the effects of the demonstration will be isolated from 
those other initiatives occurring in the State.
     A proposed date by which a final report on findings from 
evaluation activities conducted under the evaluation plan must be 
submitted to CMS.
     Any other information pertinent to the State's summative 
or formative research via the demonstration operations.
    Under proposed Sec.  431.424(d), in the event the State submits a 
request to extend the demonstration beyond the current approval period 
under the authority of sections 1115(a), (e), or (f) of the Act, the 
State should include an interim evaluation report as part of the 
State's request for each subsequent renewal.
    Under Sec.  431.424(e), we propose that States publish the approved 
demonstration evaluation design on the State's public Web site.
    Under Sec.  431.424(f) regarding Federal evaluations, we propose 
that States comply with all requirements set forth in this subpart.
    Under Sec.  431.424 (g),we propose to post all evaluation 
materials, including research and data collection, on our Web site for 
purposes of sharing findings with the public.
11. Reporting Requirements (Sec.  431.428)
    In order for CMS to effectively monitor the implementation of a 
demonstration, we propose States to submit an annual report, as 
described in Sec.  431.428(a), documenting the following:
     Any policy or administrative difficulties in the operation 
of the demonstration.
     The status of the health care delivery system under the 
demonstration.
     The impact of the demonstration in providing insurance 
coverage to beneficiaries and uninsured populations.
     Outcomes of care, quality of care, cost of care and access 
to care for demonstration populations.
     The results of beneficiary satisfaction surveys grievances 
and appeals.
     The results of any audits or lawsuits that impact the 
demonstration.
     The financial performance of the demonstration.
     The status of the evaluation and information regarding 
Progress in achieving demonstration evaluation criteria.
     Any State legislative developments that impact the 
demonstration.
     The results/impact of any demonstration programmatic area 
as defined by CMS that is unique to the demonstration design or 
evaluation hypothesis.
     A summary of the annual post-award public forum, including 
all public comments received regarding the progress of the 
demonstration project.
    Under Sec.  431.428(b), we propose States to submit a draft annual 
report to CMS no later than 90 days after the end of each demonstration 
year. Within 60 days of receipt of comments from CMS, the State will 
submit a final annual report for the demonstration year to CMS. The 
draft and final annual reports are to be published on the State's 
public Web site.
    Given the discretionary nature regarding demonstration approval, 
CMS is committed to relying on annual reports and other evaluations 
when making decisions on demonstration changes and renewals including 
information in such reports and whether the State has complied with 
reporting requirements.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 30-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.
     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):

A. ICRs Regarding State Public Notice Process (Sec.  431.408)

    Section Sec.  431.408 provides for a State to provide a public 
notice and comment period regarding applications for a demonstration 
project, or an extension of an existing demonstration project the State 
intends to submit to CMS for review and consideration. Section Sec.  
431.408(a)(1) specifies that prior to submitting an application to CMS 
for a new demonstration project, or an extension of a previously 
approved demonstration project, the State must provide public notice, 
and a comment period for at least 30 days. The public notice must 
address the information requirements listed at Sec.  431.408(a)(1)(i) 
through (iv).
    The burden estimate associated with this requirement is the time 
and effort necessary to develop and publish notice with a comment 
period that complies with the aforementioned information requirements. 
We estimate that, on average, each of the 15 States submitting 
applications for new demonstration projects, an extension of a 
previously approved demonstration project will require 40 hours to 
comply with the requirements in this section. The estimated annual 
burden associated with this section is 600 hours at a cost of 
$12,402.00.
    Section 431.408(a)(2) provides that States establish and maintain a 
readily identifiable link to a demonstration web page on the public Web 
site of the State agency responsible for making applications for 
demonstrations. The State public notice must appear in a prominent 
location on the demonstration web page of the State's public web site 
throughout the entire review process; and the public notice must appear 
in at least one of the publications listed at Sec.  431.408(a)(2)(i) 
through (ii).
    The burden associated with this is the time and effort necessary to 
develop a notice and to publish it both on the web site for State 
agency responsible for submitting demonstration applications and in at 
least one of the publication listed at Sec.  431.408(a)(2)(i) through 
(ii). While these requirements are subject to the PRA, we believe we 
addressed the burden estimates in our discussion of Sec.  
431.408(a)(1).
    Section Sec.  431.408(a)(3) requires that at least 20 days prior to 
submitting an

[[Page 56955]]

application for new demonstration projects, or an extension of a 
previously approved demonstration project to CMS for review, the State 
must have conducted at least two public hearings regarding the State's 
demonstration application using at least two of the following public 
forums contained in this section. The burden associated with this is 
the time and effort necessary for a State to conduct at least two 
public hearings 20 days prior to submitting an application for a 
demonstration. While this requirement is subject to the PRA, we believe 
the associated burden is exempt under 5 CFR 1320.3(h)(4). Facts or 
opinions submitted in response to general solicitations of comments 
from the public, published in the Federal Register or other 
publications, regardless of the form or format thereof, provided that 
no person is required to supply specific information pertaining to the 
commenter, other than that necessary for self-identification, as a 
condition of the agency's full consideration of the comment are not 
subject to the PRA.
    Section 431.408(b) requires States with federally recognized Indian 
tribes, Indian health programs, Urban Indian Organizations or all three 
of the aforementioned entities, to consult with the Indian tribes, 
Indian Health programs and Urban Indian Organizations in the State, 
before submitting a demonstration application. Section 431.408(b)(2) 
specifies that consultation activities must be conducted in a manner 
consistent with the State approved consultation process outlined in the 
State's Medicaid State Plan. Section 431.408(b)(3) further specifies 
that the State must submit evidence to CMS that the Indian Tribes, 
Indian Health programs, and Urban Indian Organizations were notified in 
writing of the State's intent to submit an application for a new 
demonstration project, or an extension of an existing demonstration 
project, at least 60 days prior to the anticipated submission date of 
the application. Section 431.408(b)(4) explains that documentation of 
the State's consultation activities must be included in the 
demonstration application, such as, the date and location of the 
consultation and must include issues raised and the potential 
resolution for such issues.
    The burden associated with these is both the time and effort 
necessary for a State to conduct its tribal consultations and the time 
and effort necessary to notify CMS of the State's compliance with Sec.  
431.408(b)(3). We estimate that this requirement applies to 37 States 
but that no more than, on average, 15 States would be subject to this 
requirement in a given year. We further estimate that it will take each 
State a total of 40 hours to both conduct its tribal consultations, 
notify the Indian Tribes in writing of its intent to submit an 
application for a new demonstration project, or an extension of an 
existing demonstration project and to submit the aforementioned 
evidence to CMS. The estimated annual burden associated with these 
requirements is 600 hours at a cost of $12,402.00.

B. ICRs Regarding Application Procedures (Sec.  431.412)

    Section 431.412(a) discusses the application process for Medicaid 
demonstration projects. A State's application for approval of a new 
demonstration project or an extension of an existing demonstration 
project must be submitted to CMS as both printed and electronic 
documents. Section Sec.  431.412(b) further explains that applications 
for the initial approval of a demonstration will not be considered 
complete if they do not comply with the requirements contained at Sec.  
431.412(b) and Sec.  431.408.
    The burden associated with the requirements in Sec.  431.412 is the 
time and effort necessary for a State to develop and submit a complete 
initial application for a demonstration. We estimate that we will 
receive, on average, 5 applications annually. Similarly we estimate 
that it will take 200 hours for a State to develop and submit a 
complete demonstration application. The total estimated annual burden 
associated with the requirements in Sec.  431.412(b) is 1000 hours at a 
cost of $20,067.00.
    Section 431.412(c) specifies that a State must submit a request to 
extend an existing demonstration under sections 1115(a), (e) and (f) of 
the Act at least 12 months prior to the expiration date of the 
demonstration. An extension application, including an extension for the 
purpose of phasing out a demonstration, must be sent from the Governor 
of the State to the Secretary. Section 431.412(c)(2) further specifies 
that an application to extend an existing demonstration will be 
considered complete when the State provides the required information 
listed at Sec.  431.412(c)(2)(i) through (vii). The burden associated 
with the requirements in Sec.  431.412(c) is the time and effort 
necessary for a State to develop and submit a demonstration extension 
application. CMS estimates that, on average, 10 States will apply for 
extensions annually. We further estimate that it will take each State 
approximately 160 hours to develop and submit a demonstration extension 
application. The total estimated annual burden is 1600 hours at a cost 
of $33,072.00.

C. ICRs Regarding Monitoring and Compliance (Sec.  431.420)

    According to Section 431.420(b), States will periodically perform 
reviews of the implementation of the demonstration. We estimate that it 
will take each State 40 hours annually to periodically review the 
demonstration's implementation. We also estimate that, on average, 15 
States must comply with this requirement. The total estimated annual 
burden associated with this requirement is 600 hours at a cost of 
$12,402.00.
    Section 431.420(c) states that at least 6 months after the 
implementation date of the demonstration and annually thereafter, the 
State must hold a public forum to solicit comments on the progress of a 
demonstration project. Section 431.420(c)(1)(i) through (ii) further 
specifies that the public forum to solicit feedback on the progress of 
a demonstration project, must occur at a Medical Care Advisory 
Committee, or a commission, or other similar process, where meetings 
are open to members of the public, and would afford an interested party 
the opportunity to learn about and comment on the demonstration's 
progress. Additionally, as stated in Sec.  431.420(c)(1)(iii), the 
State must publish the date, time, and location of the public forum in 
a prominent location on the State's public Web site, at least 30 days 
prior to the date of the planned public forum. The burden associated 
with these provisions includes the time and effort necessary to conduct 
public meeting and the time and effort necessary for a State to publish 
the date, time, and location of the public forum in a prominent 
location on the State's public Web site, at least 30 days prior to the 
date of the planned public forum. While these requirements are subject 
to the PRA, we believe the associated burden is exempt from the PRA. As 
discussed previously in this proposed rule, facts or opinions submitted 
in response to general solicitations of comments from the public, 
published in the Federal Register or other publications, regardless of 
the form or format thereof, provided that no person is required to 
supply specific information pertaining to the commenter, other than 
that necessary for self-identification, as a condition of the agency's 
full consideration of the comment are not subject to the PRA. 
Therefore, the burden associated with the annual public hearing 
requirement is exempt. Similarly, we believe the time and effort

[[Page 56956]]

necessary to a State to publish the date, time, and location of the 
public forum in a prominent location on the State's public web site is 
a burden that would be incurred in the course of usual and customary 
State business practices and is therefore exempt from the PRA under 5 
CFR 1320.3(b)(3).

D. ICRs Regarding Evaluation Requirements (Sec.  431.424)

    As required in Sec.  431.424(c)(1), simultaneous to receiving CMS' 
approval of a new demonstration project, or a extension of a previously 
existing demonstration project, the State must receive CMS approval of 
a design for an evaluation of the demonstration project and publish 
this document to the State's public Web site. The draft evaluation must 
include information established in Sec.  431.424(c) (2). The burden 
associated with this requirement is the time and effort necessary to 
design an evaluation for a new demonstration. We estimate that it will 
take each State 80 hours to develop an evaluation. Similarly, we 
estimate that, on average, 15 States must comply with this requirement. 
We further estimate that the total estimated annual burden associated 
with this requirement is 1,200 hours at a cost of $24,804.00.
    Section 431.424(d) specifies that in the event that the State 
requests to extend the demonstration beyond the current approval period 
under the authority of section 1115(a), (e), or (f) of the Act, the 
State must submit an interim evaluation report as part of the State's 
request for a subsequent renewal of the demonstration. The burden 
associated with this is the time and effort necessary for a State to 
develop and submit an interim evaluation report. We estimate that each 
State will take 80 hours to comply with this requirement. Similarly, we 
estimate that, on average, 10 States must comply with this requirement. 
We further estimate that the total estimated annual burden associated 
with this requirement is 800 hours at a cost of $16,536.00.
    Section 431.424(e) established that States will publish CMS-
approved demonstration evaluation designs on their State public Web 
site. We estimate that it will take 36 hours for each State to comply 
with this disclosure process. We further estimate that, on average, 15 
States must comply with this provision. We further estimate that the 
total estimated annual burden associated with this requirement is 540 
hours at a cost of $11,161.80.

E. ICRs Regarding Reporting Requirements (Sec.  431.428)

    Section 431.428 establishes that States will submit annual reports 
to CMS documenting the information listed in Sec.  431.428(a) (1) 
through (11). As part of the submission process, Sec.  431.428(b) 
requires States to submit draft annual reports to CMS no later than 90 
days after the end of each demonstration year. The burden associated 
with this reporting requirement is the time and effort necessary to 
submit draft annual reports to CMS. We estimate that, on average, 15 
States must comply with this. We estimate that it will take 24 hours 
for each State to comply with this reporting requirement. We further 
estimate that the total estimated annual burden associated with this 
requirement is 360 hours at a cost of $7,441.20.
    In Sec.  431.428(b)(1) establishes that within 60 days of receipt 
of comments from CMS, the State must submit to CMS the final annual 
report for the demonstration year. While this requirement is subject to 
the PRA, we believe the associated burden is exempt under 5 CFR 
1320.3(h) (9). Facts or opinions obtained or solicited through non-
standardized follow-up questions designed to clarify responses to 
approved collections of information are not subject to the PRA.
    Section Sec.  431.428(b)(2) states that the draft and final annual 
reports must be published on the State's public web site. The burden 
associated with the time and effort it takes for a State to post the 
aforementioned information on the State's public Web site. We estimate 
that, on average, each of the 15 States will require 2 hours to comply 
with this requirement. The total estimated annual burden associated 
with this requirement is 30 hours at a cost of $620.10.

                                              Table 1--Estimated Annual Recordkeeping and Reporting Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Hourly       Total
                                                OMB                              Burden per     Total    labor cost  labor cost     Total
           Regulation section(s)              control   Respondents   Responses   response     annual        of          of        capital/   Total cost
                                                no.                                (hours)     burden     reporting   reporting  maintenance      ($)
                                                                                               (hours)       ($)         ($)      costs  ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   431.408(a)(1)......................    0938-New           15           1          40         600       20.67   12,402.00            0   12,402.00
Sec.   431.408(b).........................    0938-New           15           1          40         600       20.67   12,402.00            0   12,402.00
Sec.   431.412(a) and (b).................    0938-New            5           1         200        1000       20.67   20,067.00            0   20,067.00
Sec.   431.412c...........................    0938-New           10           1         160        1600       20.67   33,072.00            0   33,072.00
Sec.   431.420............................    0938-New           15           1          40         600       20.67   12,402.00            0   12,402.00
Sec.   431.424(c).........................    0938-New           15           1          80       1,200       20.67   24,804.00            0   24,804.00
Sec.   431.424(d).........................    0938-New           10           1          80         800       20.67   16,536.00            0   16,536.00
Sec.   431.424(e).........................    0938-New           15           1          36         540       20.67   11,161.80            0   11,161.80
Sec.   431.428(b).........................    0938-New           15           1          24         360       20.67    7,441.20            0    7,441.20
Sec.   431.428(b)(2)......................    0938-New           15           1           2          30       20.67      620.10            0      620.10
                                           -------------------------------------------------------------------------------------------------------------
    Total.................................  ..........          130          10  ..........       7,330  ..........  150,908.10            0  150,908.10
--------------------------------------------------------------------------------------------------------------------------------------------------------

    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget,
    Attention: CMS Desk Officer, [CMS-2325-P];
    Fax: (202) 395-6974; or
    E-mail: OIRA_submission@omb.eop.gov.

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 Statement

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), the

[[Page 56957]]

Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Act, section 202 of the Unfunded Mandates Reform 
Act of 1995 (Pub. L. 104-4), Executive Order 13132 on Federalism 
(August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for rules with economically significant 
effects of $100 million or more in any 1 year. This proposed rule is 
estimated to have an overall economic impact of $113,726.90 annually. 
This rule does not reach the economic threshold and thus is not 
considered a major rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses, if a rule has a significant impact on a 
substantial number of small entities. For purposes of the RFA, small 
entities include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Individuals and States are not included in 
the definition of a small entity. We are not preparing an analysis for 
the RFA because we have determined, and the Secretary certifies, that 
this proposed rule would not have a significant impact on a substantial 
number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis, if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of Core-Based 
Statistical Area (for Medicaid) and outside of a Metropolitan 
Statistical Area (for Medicare) 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 proposed rule would 
not have a significant impact on the operations of a substantial number 
of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
(Pub. L. 104-4) also requires that agencies assess anticipated costs 
and benefits before issuing any rule whose mandates require spending in 
any 1 year of $100 million in 1995 dollars, updated annually for 
inflation. In 2010, that threshold is approximately $135 million. 
Because this rule does not mandate State participation in using section 
1115 demonstrations, there is no obligation for the State to make any 
change to their existing programs. As a result, there is no mandate for 
the State. Therefore, we estimate this rule would not mandate 
expenditures in the threshold amount of $135 million in any 1 year.
    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. As CMS was considering potential proposals to make in 
this proposed rule, CMS conducted a listening session in May 2010 with 
more than 20 representatives of stakeholder organizations and also held 
a separate listening session open to officials from all 50 States, the 
District of Columbia and U.S. Territories. The stakeholder 
representatives expressed concern that the policies employed in 
demonstrations have far-reaching impact, yet can happen with little 
meaningful stakeholder input into policy development at the Federal and 
State levels. They also expressed the view that since demonstrations 
allow States to ``not comply'' with requirements that the Congress put 
into law, the need for meaningful public input into these 
demonstrations is great. States agreed that public input is important, 
and while some States expressed concern that new requirements 
established by CMS could be potentially burdensome, other States 
reported that their existing public notice requirements and existing 
State legislative processes were strong and sufficient enough to ensure 
meaningful public input at the State level. Since this regulation will 
not impose substantial direct costs on State or local governments, the 
requirements of Executive Order 13132 are not applicable. In accordance 
with the provisions of Executive Order 12866, this regulation was 
reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 431

    Health care, Health insurance, Reporting and recordkeeping 
requirements.
    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services propose to amend 42 CFR chapter IV as follows:

PART 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION

    1. The authority citation for part 431 continues to read as 
follows:

    Authority:  Sec. 1102 of the Social Security Act, (42 U.S.C. 
1302).

    2. Subpart G is added to part 431 to read as follows:
Subpart G--Section 1115 Demonstrations
Sec.
431.400 Basis and purpose.
431.402 Coordination with section 1332 waivers.
431.404 Definitions.
431.408 State public notice process.
431.412 Application procedures.
431.416 Federal public notice and approval process.
431.420 Monitoring and compliance.
431.424 Evaluation requirements.
431.428 Reporting requirements.

Subpart G--Section 1115 Demonstrations

Sec.  431.400  Basis and purpose.

    (a) Basis. This subpart implements provisions in section 1115(d) of 
the Act, which requires all of the following:
    (1) The establishment of application requirements for Medicaid and 
CHIP demonstration projects that provide for:
    (i) A process for public notice and comment at the State level, 
including public hearings, sufficient to ensure a meaningful level of 
public input and that does not impose requirements that are in addition 
to, or duplicative of, requirements imposed under the Administrative 
Procedure Act, or requirements that are unreasonable or unnecessarily 
burdensome with respect to State compliance.
    (ii) Requirements relating to all of the following:
    (A) The goals of the program to be implemented or renewed under the 
demonstration project.
    (B) Expected State and Federal costs and coverage projections of 
the State demonstration project.
    (C) Specific plans of the State to ensure the demonstration project 
will be in compliance with title XIX or XXI.
    (2) A process for public notice and comment after a demonstration 
application is received by the Secretary that is sufficient to ensure a 
meaningful level of public input.
    (3) A process for the submission of reports to the Secretary by a 
State relating to the implementation of a demonstration project.
    (4) Periodic evaluation of demonstration projects by the Secretary.
    (b) Purpose. This subpart sets forth a process for application and 
review of Medicaid and CHIP demonstration

[[Page 56958]]

projects that provides for transparency and public participation.

Sec.  431.402  Coordination with section 1332 waivers.

    (a) States may apply jointly. States may submit a single 
application for waivers under section 1332 of the Affordable Care Act 
and demonstration projects under section 1115 of the Act that involve 
titles VIII, XIX, and XXI of the Act, provided that such application 
complies with the procedural requirements for section 1332 waivers, as 
described at 45 CFR part 155, and the procedural requirements described 
in this part.
    (b) [Reserved]

Sec.  431.404  Definitions.

    For the purposes of this subpart:
    Demonstration means any experimental, pilot, or demonstration 
project which the Secretary approves under the authority of section 
1115 of the Act because, in the judgment of the Secretary, it is likely 
to assist in promoting the statutory objectives of the Medicaid or CHIP 
program.
    Public notice means a notice issued by a government agency or 
legislative body that contains sufficient detail to notify the public 
at large of a proposed action, consistent with the provisions of Sec.  
431.408.
    Section 1332 waiver means a Waiver for State Innovation under 
section 1332 of the Affordable Care Act.

Sec.  431.408  State public notice process.

    (a) General. A State must provide at least a 30 day public notice 
and comment period regarding applications for a demonstration project, 
or an extension of an existing demonstration project that the State 
intends to submit to CMS for review and consideration.
    (1) Public notice and comment period. Prior to submitting an 
application to CMS for a new demonstration project or an extension of a 
previously approved demonstration project, the State must provide at 
least a 30 day public notice and comment period, and the public notice 
shall include all of the following information:
    (i) A comprehensive description of the demonstration application to 
be submitted to CMS, including:
    (A) The program description, goals, and objectives to be 
implemented or extended under the demonstration project, including a 
description of the current or new beneficiaries who will be impacted by 
the demonstration.
    (B) To the extent applicable, the proposed health care delivery 
system and the eligibility requirements, benefit coverage and cost 
sharing (premiums, co-payments, and deductibles) required of 
individuals that will be impacted by the demonstration, and how such 
provisions vary from the State's current program features.
    (C) An estimate of the expected increase or decrease in annual 
enrollment, and in annual aggregate expenditures, including historic 
enrollment or budgetary data, if applicable. This includes a financial 
analysis of changes to the demonstration requested by the State.
    (D) The hypothesis and evaluation parameters of the demonstration.
    (ii) The locations and Internet address of where copies of the 
demonstration application are available for public review and comment.
    (iii) Postal and Internet e-mail addresses where written comments 
may be sent and reviewed by the public, and the timeframe during which 
comments will be accepted.
    (iv) The location, date, and time of at least two public hearings 
convened by the State to seek public input on the demonstration 
application.
    (2) Statement of public notice and public input procedures.
    (i) The State shall publish its public notice process, public input 
process, planned hearings, and the demonstration application(s) in a 
prominent location on either the main page of the public Web site of 
the State agency responsible for making applications for demonstrations 
or on a demonstration-specific web page that is linked in a readily 
identifiable way to the main page of the State agency's Web site. The 
State must maintain and keep current the public Web site throughout the 
entire public comment and review process. The State shall also publish 
the public notice in at least one of the following publications:
    (A) The State's administrative record in accordance with the 
State's Administrative Procedure Act, provided that such notice is 
provided at least 30 days prior to the submission of the demonstration 
application to CMS; or
    (B) The newspaper of widest circulation in each city or county with 
a population of 50,000 or more, provided that such notice is provided 
at least 30 days prior to the submission of the demonstration 
application to CMS.
    (ii) If the State utilizes a mechanism, such as an electronic 
mailing list, to notify interested parties of the demonstration 
application(s), the State may dispense with the notice procedures in 
paragraphs (a)(2)(ii)(A) and (B) of this section.
    (3) Public hearings. At least 20 days prior to submitting an 
application for a new demonstration project or extension of an existing 
demonstration project to CMS for review, the State must have conducted 
at least two public hearings regarding the State's demonstration 
application using at least two of the following public forums:
    (i) The Medical Care Advisory Committee that operates in accordance 
with Sec.  431.408; or
    (ii) A commission or other similar process, where meetings are open 
to members of the public; or
    (iii) A State legislative process, which would afford an interested 
party the opportunity to learn about the contents of the demonstration 
application, and to comment on its contents; or
    (iv) Any other similar process for public input that would afford 
an interested party the opportunity to learn about the contents of the 
demonstration application, and to comment on its contents.
    (b) Tribal consultation. A State with federally recognized Indian 
tribes, Indian health programs, and/or Urban Indian Organizations shall 
include a process to consult with the Indian tribes, Indian Health 
programs and Urban Indian Organizations in the State, prior to 
submission of an application to CMS for a new demonstration project or 
an extension of a previously approved demonstration project.
    (1) The consultation with the federally-recognized Indian tribes, 
Indian health programs and Urban Indian Organizations must occur 60 
days prior to the publication and submission of an application for a 
new demonstration project or a renewal for a previously approved 
demonstration project when it has a direct impact on Indians, Indian 
health providers or Urban Indian Organizations.
    (2) The consultation activities must be conducted in a manner 
consistent with the State approved consultation process outlined in the 
State's Medicaid State Plan.
    (3) The State must include in its application evidence that the 
Indian Tribes and Indian Health programs and Urban Indian Organizations 
were notified in writing of the State's intent to submit an application 
for a new demonstration project or a renewal of a previously approved 
demonstration project, at least 60 days prior to the anticipated 
submission date of the application.
    (4) Documentation of the State's consultation activities must be 
included in the demonstration application, such as, the date and 
location of the consultation and must include issues raised and the 
potential resolution for such issues.

[[Page 56959]]

Sec.  431.412  Application procedures.

    (a) Initial demonstration applications content.
    (1) Applications for initial approval of a demonstration will not 
be considered complete unless they comply with the public notice 
process set forth in Sec.  431.408(a) of this part, and includes the 
following:
    (i) A comprehensive program description of the demonstration, 
including the goals and objectives to be implemented under the 
demonstration project.
    (ii) A description of the proposed health care delivery system, 
eligibility requirements, benefit coverage and cost sharing (premiums, 
co-payments, and deductibles) required of individuals that will be 
impacted by the demonstration to the extent such provisions would vary 
from the State's current program features and the requirements of the 
Act.
    (iii) An estimate of the expected increase or decrease in annual 
enrollment, and in annual aggregate expenditures, including historic 
enrollment or budgetary data, if applicable.
    (iv) Current enrollment data, if applicable, and enrollment 
projections expected over the term of the demonstration for each 
category of beneficiary whose health care coverage is impacted by the 
demonstration.
    (v) Other program features that the demonstration would modify in 
the State's Medicaid and CHIP programs.
    (vi) The type of waivers and expenditure authorities that the State 
believes to be necessary to authorize the demonstration.
    (vii) The research hypotheses that are related to the 
demonstration's proposed changes, goals, and objectives, a plan for 
testing the hypotheses in the context of an evaluation, and, if a 
quantitative evaluation design is feasible, the identification of 
appropriate evaluation indicators.
    (viii) Written evidence of the State's compliance with the public 
notice requirements set forth in Sec.  431.408, with a report of the 
key issues raised by the public during the comment period, which shall 
be no less than 30 days, and whether and how the State considered those 
comments when developing the demonstration application.
    (2) CMS may request, or the State may propose application 
modifications, as well as additional information to aid in the review 
of the application. If an application modification substantially 
changes the original demonstration design, CMS may, at its discretion, 
direct an additional 30-day public comment period.
    (b) Demonstration applications procedures. A State application for 
approval of a new demonstration project or an extension of an existing 
demonstration project must be submitted to CMS as both printed and 
electronic documents. Electronic documents should comply with all 
applicable civil rights requirements related to accessibility, 
including the requirements under Section 508 of the Americans with 
Disabilities Act.
    (1) As per Sec.  431.416(a), within 15 days of receipt of a 
complete application, CMS will send the State a written notice 
informing the State of receipt of the submitted application and the 
start date of the 30-day Federal public notice process set forth in 
Sec.  431.416. Such notice is provided for purposes of initiating the 
Federal-level public comment period and does not preclude a 
determination that, based on further review, further information is 
required to supplement or support the application, or that the 
application cannot be approved because a required element is missing or 
insufficient. It also does not prevent a State from modifying its 
application or submitting any supplementary information it determines 
necessary to support CMS' review of its application.
    (2) Within 15 days of receipt of a demonstration application that 
CMS determines is incomplete, CMS will send the State a written notice 
of the elements missing from the application.
    (3) CMS will publish on its Web site at regular intervals the 
status of all State submissions, including information received from 
the State while the State works with CMS to meet the demonstration 
application process set forth in this section.
    (c) Demonstration Extension Request. A request to extend an 
existing demonstration under sections 1115(a), (e) and (f) of the Act 
will be considered only if it is submitted at least 12 months prior to 
the expiration date of the demonstration. An extension application, 
including an extension for the purpose of phasing out a demonstration, 
must be sent from the Governor of the State to the Secretary.
    (1) Changes to existing demonstration. If an extension application 
includes substantial changes to the existing demonstration, CMS may, at 
its discretion, treat the application as an application for a new 
demonstration.
    (2) Demonstration extension application. An application to extend 
an existing demonstration will be considered complete, for purposes of 
initiating the Federal-level public notice period, when the State 
provides the following:
    (i) A historical narrative summary of the demonstration project, 
which includes the objectives set forth at the time the demonstration 
was approved evidence of how these objectives have or have not been 
met, and the future goals of the program.
    (ii) If changes are requested, a narrative of the changes being 
requested along with the objective of the change and the desired 
outcomes.
    (iii) A list and programmatic description of the waivers and 
expenditure authorities that are being requested for the extension 
period, or a statement that the State is requesting the same waiver and 
expenditure authorities as those approved in the current demonstration.
    (iv) Summaries of External Quality Review Organization (EQRO) 
reports, managed care organization (MCO) and State quality assurance 
monitoring, and any other documentation of the quality of care provided 
under the demonstration.
    (v) Financial data demonstrating the State's historical and 
projected expenditures for the requested period of the extension, as 
well as cumulatively over the lifetime of the demonstration. This 
includes a financial analysis of changes to the demonstration requested 
by the State.
    (vi) An evaluation report of the demonstration, inclusive of 
evaluation activities and findings to date, plans for evaluation 
activities during the extension period, and if changes are requested, 
identification of research hypotheses related to the changes and an 
evaluation design for addressing the proposed revisions.
    (vii) Written evidence of the State's compliance with the public 
notice process set forth in Sec.  431.408, including the post-award 
public input process described in Sec.  431.420(c) of this part, with a 
report of the key issues raised by the public during the comment period 
and whether the State considered the comments when developing the 
demonstration extension application.
    (3) CMS may request, or the State may propose application 
modifications as well as additional information to aid in the review of 
an application to extend a demonstration. If an application 
modification substantially changes the original demonstration design, 
CMS may, at its discretion, direct an additional 30 day public comment 
period.
    (d) Approvals. Approval of a new demonstration or a demonstration 
extension will generally be prospective only and Federal Financial 
Participation (FFP) will not be available for changes

[[Page 56960]]

to the demonstration that have not been approved by CMS.

Sec.  431.416  Federal public notice and approval process.

    (a) General. Within 15 days of receipt of a complete application 
from the State for a new demonstration project or an extension of a 
previously approved demonstration project, CMS will send the State a 
written notice informing the State of receipt of the demonstration 
application, the start dates of the 30-day Federal public notice 
process, and the end date of the 45-day minimum Federal decision-making 
period.
    (b) Public comment period. Upon notifying a State of a completed 
application, CMS will solicit public comment regarding such 
demonstration application for 30 days by doing the following:
    (1) Publishing the following on the CMS Web site:
    (i) The written notice of CMS receipt of the State's complete 
demonstration application, if any.
    (ii) Demonstration applications, including supporting information 
submitted by the State as part of the complete application, and 
associated concept papers, as applicable.
    (iii) The proposed effective date of the demonstration.
    (iv) Addresses to which inquiries and comments from the public may 
be directed to CMS by mail or e-mail.
    (2) Notifying interested parties through an electronic mailing list 
that CMS will create for this purpose.
    (c) Public disclosure. CMS will publish on its Web site, at regular 
intervals, appropriate information, which may include, but is not 
limited to the following:
    (1) Relevant status update(s);
    (2) A listing of the issues raised through the public notice 
process.
    (d) Publishing of comments. CMS will publish all comments 
electronically. CMS will review and consider all such comments, but 
will not provide written responses to public comments.
    (e) Approval of a demonstration application. CMS will not render a 
final decision on a demonstration application until at least 45 days 
after notice of receipt of a completed application, in order to receive 
and consider public comments. However, CMS may expedite this process 
under the exception to the normal public notice process provisions in 
Section Sec.  431.416(g).
    (f) Administrative record. CMS will maintain an administrative 
record that may include, but is not limited to the following:
    (1) The demonstration application from the State.
    (2) Public comments sent to the CMS and any CMS responses.
    (3) If an application is approved, the final special terms and 
conditions, waivers, expenditure authorities, and award letter sent to 
the State.
    (4) The State acceptance letter.
    (g) Exception to the normal public notice process. CMS may exercise 
its discretionary authority to bypass, in whole or in part, the Federal 
and State public notice procedures in order to expedite a decision on a 
proposed demonstration or demonstration renewal that addresses a 
natural, social, economic or similar disaster.
    (1) The Secretary may exempt a State from the normal public notice 
process or the required time constraints imposed in this section or 
paragraph (a) of Sec.  431.408 when the State demonstrates to CMS there 
is the existence of unforeseen circumstances that warrant an exception 
to the normal public notice process. The State is expected to discharge 
its basic responsibilities in submitting demonstration applications to 
the Secretary as required in Sec.  431.412 of this subpart. Such 
applications will be posted on the CMS Web site.
    (2) An exception from the normal public notice process exists when 
the Secretary finds that there are unforeseen circumstances beyond the 
State's control that makes full compliance with the public notice and 
comment provision impractical, including, but not limited to, an 
emergent occurrence such as fire or earthquake or flood.
    (3) A State must establish (or meet) all of the following criteria 
to obtain an exception from the normal public notice process or the 
timeliness requirement set forth in Sec.  431.408(a) of this subpart:
    (i) The State acted in good faith.
    (ii) The State acted in a diligent, timely, and prudent manner.
    (iii) The circumstances constitute an emergency and could not have 
been reasonably foreseen.
    (iv) Delay would undermine or compromise the purpose of the 
demonstration and be contrary to the interests of beneficiaries.

Sec.  431.420  Monitoring and compliance.

    (a) General. (1) States must comply with all applicable Federal 
laws, regulations, interpretive policy statements and interpretive 
guidance unless expressly waived by the demonstration. States must, 
within the timeframes specified in law, regulation, policy or guidance, 
come into compliance with any changes in Federal law, regulation, or 
policy affecting State demonstration projects, unless the provision 
being changed is expressly waived or identified as not applicable.
    (2) States must comply with the terms and conditions of the 
agreement between the Secretary and the State to implement a State 
demonstration project or the demonstration will be suspended or 
terminated, in whole or in part, by the Secretary.
    (b) Implementation reviews. (1) The terms and conditions will 
provide that the State will perform periodic reviews of the 
implementation of the demonstration.
    (2) CMS will review documented complaints that a State is failing 
to comply with requirements specified in the special terms and 
conditions and implementing waivers of any approved demonstration.
    (c) Post award. Within at least 6 months after the implementation 
date of the demonstration and annually thereafter, the State must hold 
a public forum to solicit comments on the progress of a demonstration 
project. The State must hold the public forum in such time as to 
include a summary of the forum in its annual report to CMS.
    (1) The public forum to solicit feedback on the progress of a 
demonstration project must occur using one of the following:
    (i) A Medical Care Advisory Committee that operates in accordance 
with Sec.  431.408.
    (ii) A commission or other similar process, where meetings are open 
to members of the public, and would afford an interested party the 
opportunity to learn about the demonstration's progress.
    (iii) The State must publish the date, time, and location of the 
public forum in a prominent location on the State's public Web site, at 
least 30 days prior to the date of the planned public forum.
    (2) [Reserved]
    (d) Terminations and suspensions. The Secretary reserves the right 
to suspend or terminate a demonstration in whole or in part, any time 
before the date of expiration, whenever it determines that the State 
has materially failed to comply with the terms of the demonstration 
project.
    (e) Closeout costs. When a demonstration is terminated, suspended, 
or if waivers or expenditure authority are withdrawn, Federal funding 
is limited to normal closeout costs associated with an orderly 
termination of the demonstration or expenditure authority, including 
service costs during any approved transition period, and administrative 
costs of disenrolling participants.
    (f) Federal evaluators. (1) The State must fully cooperate with CMS 
or an

[[Page 56961]]

independent evaluator selected by CMS to undertake an independent 
evaluation of any component of the demonstration.
    (2) The State must submit all requested data and information to CMS 
or the independent evaluator.

Sec.  431.424  Evaluation requirements.

    (a) General. States are permitted and encouraged to use a range of 
appropriate evaluation strategies (including true experimental, 
scientific, and qualitative designs) in the application of evaluation 
techniques with CMS' approval.
    (b) Demonstration evaluations. Demonstration evaluations will 
include the following:
    (1) Quantitative research methods. (i) These methods involve the 
empirical investigation of the impact of key programmatic features of 
the demonstration.
    (ii) CMS will consider alternative evaluation designs when 
quantitative designs are technically infeasible or not well suited to 
the change made by the demonstration.
    (2) Approaches that minimize beneficiary impact. The evaluation 
process must minimize burden on beneficiaries in terms of implementing 
and operating the policy approach to be demonstrated while ensuring the 
impact of the demonstration is measured.
    (c) Evaluation design plan. (1) The State will submit and receive 
CMS approval of a design for an evaluation of the demonstration project 
and publish this document to the State's public Web site.
    (2) The draft demonstration evaluation design must include all of 
the following:
    (i) A discussion of the demonstration hypotheses that are being 
tested including monitoring and reporting on the progress towards the 
expected outcomes.
    (ii) The data that will be utilized and the baseline value for each 
measure.
    (iii) The methods of data collection.
    (iv) How the effects of the demonstration will be isolated from 
those other changes occurring in the State at the same time through the 
use of comparison or control groups to identify the impact of 
significant aspects of the demonstration.
    (v) A proposed date by which a final report on findings from 
evaluation activities conducted under the evaluation plan must be 
submitted to CMS.
    (vi) Any other information pertinent to the State's research on the 
policy operations of the demonstration operations.
    (d) Evaluations for demonstration extensions. In the event that the 
State requests to extend the demonstration beyond the current approval 
period under the authority of section 1115(a), (e), or (f) of the Act, 
the State must submit an interim evaluation report as part of the 
State's request for a subsequent renewal of the demonstration. State 
evaluations must be published on the state's public Web site.
    (e) Approved evaluation designs. The State must publish the CMS-
approved demonstration evaluation design on the State's public Web 
site.
    (f) Federal evaluations. The State must comply with all 
requirements set forth in this subpart.
    (g) Federal public notice. CMS will post all evaluation materials, 
including research and data collection, on its Web site for purposes of 
sharing findings with the public.

Sec.  431.428  Reporting requirements.

    (a) Annual reports. The State must submit an annual report to CMS 
documenting all of the following:
    (1) Any policy or administrative difficulties in the operation of 
the demonstration.
    (2) The status of the health care delivery system under the 
demonstration.
    (3) The impact of the demonstration in providing insurance coverage 
to beneficiaries and uninsured populations.
    (4) Outcomes of care, quality of care, cost of care and access to 
care for demonstration populations.
    (5) The results of beneficiary satisfaction surveys grievances and 
appeals.
    (6) The results of any audits or lawsuits that impact the 
demonstration.
    (7) The financial performance of the demonstration.
    (8) The status of the evaluation and information regarding progress 
in achieving demonstration evaluation criteria.
    (9) Any State legislative developments that impact the 
demonstration.
    (10) The results/impact of any demonstration programmatic area 
defined by CMS that is unique to the demonstration design or evaluation 
hypothesis.
    (11) A summary of the annual post-award public forum, including all 
public comments received regarding the progress of the demonstration 
project.
    (b) Submitting and publishing annual reports. States must submit a 
draft annual report to CMS no later than 90 days after the end of each 
demonstration year.
    (1) Within 60 days of receipt of comments from CMS, the State must 
submit to CMS the final annual report for the demonstration year.
    (2) The draft and final annual reports are to be published on the 
State's public Web site.

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

    Dated: August 16, 2010.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: September 9, 2010.
Kathleen Sebelius,
Secretary of Health and Human Services.
[FR Doc. 2010-23357 Filed 9-16-10; 8:45 am]
BILLING CODE 4120-01-P
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