Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Rules and Regulations 71679 

[FR Doc. 2014–28384 Filed 12–2–14; 8:45 am] 

BILLING CODE 6560–50–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 300 

[EPA–HQ–SFUND–2001–0002; FRL–9920– 

08–Region–2] 

National Oil and Hazardous 

Substances Pollution Contingency 

Plan; National Priorities List: Deletion 

of the Consolidated Iron and Metal 

Superfund Site 

AGENCY: Environmental Protection 

Agency. 

ACTION: Final rule. 

SUMMARY: The Environmental Protection 

Agency (EPA), Region 2, announces the 

deletion of the Consolidated Iron and 

Metal Superfund Site (Site) located in 

the City of Newburgh, Orange County, 

New York, from the National Priorities 

List (NPL). The NPL, promulgated 

pursuant to section 105 of the 

Comprehensive Environmental 

Response, Compensation, and Liability 

Act (CERCLA) of 1980, as amended, is 

an appendix of the National Oil and 

Hazardous Substances Pollution 

Contingency Plan (NCP). The EPA and 

the State of New York, through the New 

York State Department of 

Environmental Conservation (NYSDEC), 

have determined that all appropriate 

response actions under CERCLA, other 

than operation, maintenance, and fiveyear reviews, have been completed. 

However, this deletion does not 

preclude future actions under 

Superfund. 

DATES: This action is effective on 

December 3, 2014. 

ADDRESSES: Docket: EPA has established 

a docket for this action under Docket 

Identification No. EPA–HQ–SFUND– 

2001–0002. All documents in the docket 

are listed on the http://

www.regulations.gov Web site. Although 

listed in the index, some information is 

not publicly available, e.g., Confidential 

Business Information or other 

information whose disclosure is 

restricted by statute. Certain other 

material, such as copyrighted material, 

is not placed on the Internet and will be 

publicly available only in hard copy 

form. Publicly available docket 

materials are available either 

electronically through http://

www.regulations.gov or in hard copy at 

the Site information repositories. 

Locations, contacts, phone numbers and 

viewing hours are: U.S. Environmental 

Protection Agency, Region 2, Superfund 

Records Center, 290 Broadway, 18th 

Floor, New York, NY 10007–1866, 

Phone: 212–637–4308, Hours: Monday 

to Friday from 9:00 a.m. to 5:00 p.m. 

and Newburgh Free Library, 

Consolidated Iron and Metal Site 

Repository File, 124 Grand Street, 

Newburgh, NY 12550, Phone: 845–563– 

3600, Hours: Monday & Thursday from 

9:00 a.m. to 9:00 p.m., Tuesday, 

Wednesday, & Friday from 9:00 a.m. to 

5:00 p.m., Saturday from 10:00 a.m. to 

3:00 p.m. 

FOR FURTHER INFORMATION CONTACT: 

Michael Negrelli, Remedial Project 

Manager, U.S. Environmental Protection 

Agency, Region 2, Emergency and 

Remedial Response Division, 290 

Broadway, 20th Floor, New York, NY 

10007–1866; (212) 637–4248; 

negrelli.mike@epa.gov. 

SUPPLEMENTARY INFORMATION: The site to 

be deleted from the NPL is: 

Consolidated Iron and Metal Superfund 

Site, City of Newburgh, Orange County, 

New York. A Notice of Intent to Delete 

for this Site was published in the 

Federal Register FRL–9917–27–Region– 

2 on October 1, 2014, (79 FR 59182). 

The closing date for comments on the 

Notice of Intent to Delete was October 

30, 2014. No adverse public comments 

were received and therefore no response 

to comments was required. The deletion 

action is appropriate. 

EPA maintains the NPL as the list of 

sites that appear to present a significant 

risk to public health, welfare, or the 

environment. Deletion from the NPL 

does not preclude further remedial 

action. Whenever there is a significant 

release from a site deleted from the NPL, 

the deleted site may be restored to the 

NPL without application of the hazard 

ranking system. Deletion of a site from 

the NPL does not affect responsible 

party liability in the unlikely event that 

future conditions warrant further 

actions. 

List of Subjects in 40 CFR Part 300 

Environmental protection, Air 

pollution control, Chemicals, Hazardous 

waste, Hazardous substances, 

Intergovernmental relations, Penalties, 

Reporting and record keeping 

requirements, Superfund, Water 

pollution control, Water supply. 

Dated: November 18, 2014. 

Judith A. Enck, 

Regional Administrator, EPA, Region 2. 

For the reasons set out in the 

preamble, 40 CFR part 300 is amended 

as follows: 

PART 300—NATIONAL OIL AND 

HAZARDOUS SUBSTANCES 

POLLUTION CONTINGENCY PLAN 

■ 1. The authority citation for part 300 

continues to read as follows: 

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

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

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

3 CFR 1987 Comp., p. 193. 

■ 2. Table 1 of Appendix B to part 300 

is amended by removing ‘‘NY’’, 

‘‘Consolidated Iron and Metal’’, 

‘‘Newburgh’’. 

[FR Doc. 2014–28445 Filed 12–2–14; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 447 

CMS–2315–F] 

RIN 0938–AQ37 

Medicaid Program; Disproportionate 

Share Hospital Payments—Uninsured 

Definition 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule addresses the 

hospital-specific limitation on Medicaid 

disproportionate share hospital (DSH) 

payments under the Social Security Act 

(the Act). Under this limitation, DSH 

payments to a hospital cannot exceed 

the uncompensated costs of furnishing 

hospital services by the hospital to 

individuals who are Medicaid-eligible 

or ‘‘have no health insurance (or other 

source of third party coverage) for the 

services furnished during the year.’’ 

This rule provides that, in auditing DSH 

payments, the quoted test will be 

applied on a service-specific basis; so 

that the calculation of uncompensated 

care for purposes of the hospital-specific 

DSH limit will include the cost of each 

service furnished to an individual by 

that hospital for which the individual 

had no health insurance or other source 

of third party coverage. 

DATES: Effective December 31, 2014. 

FOR FURTHER INFORMATION CONTACT: 

Robert Weaver, 410–786–5914; or Rory 

Howe, (410) 786–4878. 

SUPPLEMENTARY INFORMATION: 


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71680 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Rules and Regulations 

I. Background 

A. Introduction 

On December 19, 2008, we published 

a final rule in the Federal Register (73 

FR 77904) entitled ‘‘Medicaid 

Disproportionate Share Hospital 

Payments’’ (hereinafter referred to as the 

2008 DSH final rule) that implemented 

section 1001 of the Medicare 

Prescription Drug, Improvement and 

Modernization Act of 2003 (MMA) (Pub. 

L. 108–173), requiring State reports and 

audits to ensure the appropriate use of 

Medicaid Disproportionate Share 

Hospital (DSH) payments and 

compliance with the DSH limit imposed 

at section 1923(g) of the Social Security 

Act (the Act). The limit at section 

1923(g) of the Act is commonly referred 

to as the hospital-specific DSH limit and 

specifies that only the uncompensated 

costs of providing inpatient hospital and 

outpatient hospital services to Medicaid 

eligible individuals and uninsured 

individuals as described in section 

1923(g)(1)(A) of the Act are included in 

the calculation of the hospital-specific 

DSH limit. The statute describes 

uninsured individuals as those ‘‘who 

have no health insurance (or other 

source of third party coverage) for the 

services furnished during the year.’’ 

Citing an effort to adhere to an 

accurate representation of the broad 

statutory references to insurance or 

other coverage and to delineate more 

definitively the meaning of the term 

uninsured, we defined the phrase ‘‘who 

have health insurance (or other third 

party coverage)’’ to refer broadly to 

individuals who have creditable 

coverage consistent with the definitions 

under 45 CFR parts 144 and 146, as well 

as individuals who have coverage based 

upon a legally liable third party payer. 

This regulatory definition was not the 

same as the preliminary guidance 

previously issued to states and 

providers in 1994. 

In an August 17, 1994 letter to State 

Medicaid Directors (SMD), CMS 

included a summary of the DSH 

provisions in the Omnibus Budget 

Reconciliation Act of 1993 (OBRA 93) 

(Pub. L. 103–66), as a preliminary 

interpretation. In that letter, we 

endorsed a service-specific approach in 

which individuals were considered 

‘‘uninsured’’ for purposes of DSH to the 

extent that they did not have third party 

coverage for the specific hospital service 

that they received. A January 10, 1995 

letter to the Chair of the State Medicaid 

Director’s Association affirmed the 

service-specific interpretation of the 

definition of uninsured by clarifying 

that: ‘‘it would be permissible for States 

to include in their determination of 

uninsured patients those individuals 

who do not possess health insurance, 

which would apply to the service which 

the individual sought’’. 

The regulatory definition published in 

the 2008 DSH final rule was more 

restrictive than the service-specific 

definition and is applied on an 

individual-specific basis rather than a 

service-specific basis. This 

interpretation of the definition of 

‘‘uninsured’’ superseded all prior 

interpretive issuances. 

After publication of the 2008 DSH 

final rule, numerous states, members of 

the Congress, and related stakeholders 

expressed their concern that the 2008 

DSH final rule definition of the 

uninsured deviated from prior guidance 

and would have a significant financial 

impact on states and hospitals. This 

final rule is designed to mitigate some 

of the unintended consequences of the 

uninsured definition put forth in the 

2008 DSH final rule and to provide 

additional clarity on which costs can be 

considered uninsured costs for purposes 

of determining the hospital-specific 

limit. Specifically, this final rule’s 

interpretation and definition of 

‘‘uninsured’’ affords states and hospitals 

maximum flexibility permitted by 

statute in calculating the hospitalspecific DSH limit. Although this rule’s 

definition of uninsured may affect the 

calculation of the hospital-specific DSH 

limit, the final rule does not modify the 

DSH allotment amounts and will have 

no effect on a state’s ability to claim FFP 

for DSH payments made up to the 

published DSH allotment amounts. 

B. Legislative History 

Title XIX of the Act authorizes federal 

grants to states for Medicaid programs 

that provide Medical assistance to lowincome families, the elderly, and 

persons with disabilities. Section 

1902(a)(13)(A)(iv) of the Act requires 

that states make Medicaid payment 

adjustments for hospitals that serve a 

disproportionate share of low-income 

patients with special needs. Section 

1923 of the Act contains more specific 

requirements related to the DSH 

payments. 

The OBRA 93 was signed into law on 

August 10, 1993. Section 13621 of 

OBRA 93 added section 1923(g) of the 

Act, limiting Medicaid DSH payments 

to a qualifying hospital to the amount of 

eligible uncompensated costs incurred. 

This hospital-specific limit requires that 

Medicaid DSH payments to a qualifying 

hospital not exceed the costs incurred 

by that hospital for providing inpatient 

and outpatient hospital services 

furnished during the year to Medicaid 

patients and individuals who have no 

health insurance or other source of third 

party coverage for the services provided 

during the year, less applicable 

revenues for those services. 

C. Hospital-Specific DSH Limit 

Section 1923(g)(1) of the Act defines 

a hospital-specific limit on Federal 

financial participation (FFP) for DSH 

payments. Each state must develop a 

methodology to compute this hospitalspecific limit for each DSH hospital in 

the state. As defined in section 

1923(g)(1) of the Act, the state’s 

methodology must calculate for each 

hospital, for each fiscal year, the costs 

incurred by that hospital for furnishing 

inpatient hospital and outpatient 

hospital services during the applicable 

state fiscal year to Medicaid individuals 

and individuals who have no health 

insurance or other source of third party 

coverage for the inpatient hospital and 

outpatient hospital services they 

receive, less all applicable revenues for 

these hospital services. This difference, 

if any, between incurred inpatient 

hospital and outpatient hospital costs 

and associated revenues is considered a 

hospital’s uncompensated care cost 

(UCC) limit, or hospital-specific DSH 

limit. FFP is not available for DSH 

payments that exceed a hospital’s UCC 

for furnishing inpatient hospital and 

outpatient hospital services to Medicaid 

eligible individuals and individuals 

who have no health insurance or other 

source of third party coverage for the 

services they receive in any given state 

plan rate year. 

To be considered as an inpatient or 

outpatient hospital service for purposes 

of Medicaid DSH, a service must meet 

the federal and state definitions of an 

inpatient hospital service or outpatient 

hospital service and must be included 

in the state’s definition of an inpatient 

hospital service or outpatient hospital 

service under the approved state plan. 

While states may have some flexibility 

to define the scope of inpatient or 

outpatient hospital services, states must 

use consistent definitions. Hospitals 

may engage in any number of activities, 

or may furnish practitioner, nursing 

facility, or other services to patients that 

are not within the scope of inpatient 

hospital services or outpatient hospital 

services. These services are not 

considered inpatient or outpatient 

hospital services for purposes of the 

Medicaid DSH calculations. 

Sections 1923(a) and 1923(c) of the 

Act provide states some latitude in 

determining the level of DSH payment 

under the Medicaid State plan. Section 

1923(g) of the Act, however, provides 

for hospital-specific limitations on FFP 

for DSH payments to individual 


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Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Rules and Regulations 71681 

hospitals. These limits provide that FFP 

is not available in payments that exceed 

the level of costs that are considered 

uncompensated care costs (UCCs) that 

are specifically defined as certain net 

costs. The first component of the net 

costs is described in statute as 

attributable to hospital costs incurred by 

individuals eligible for medical 

assistance under the state plan and net 

of payments made under title XIX of the 

Act. We currently implement this 

provision by allowing all medically 

necessary inpatient and outpatient costs 

associated with Medicaid eligible 

individuals authorized under section 

1905 of the Act and covered under the 

approved Medicaid State plan 

regardless of whether those beneficiaries 

or hospitals were entitled to payment as 

part of the Medicaid benefit package 

under the state plan. To arrive at 

uncompensated Medicaid costs, all 

Medicaid payments received from the 

state for Medicaid hospital services, 

including supplemental payments, must 

be netted against those costs. 

The second type of costs allowable as 

part of the Medicaid DSH limit are 

described in statute as attributable to 

hospital costs incurred by individuals 

who have no health insurance or other 

source of third party coverage for 

services furnished during the year. To 

arrive at uncompensated costs for these 

services, all payments received for that 

care must be netted against those costs 

(without regard to whether the hospital 

received payments for services provided 

to indigent patients by a state or local 

governmental unit). 

D. CMS Guidance Regarding the 

Definition of Uninsured 

Following the passage of the OBRA 

93, we did not issue a rule 

implementing section 1923(g) of the 

Act. However, we did receive questions 

concerning the implementation of 

section 1923(g) of the Act from states, 

including many regarding the criteria 

used to determine which of a hospital’s 

patients ‘‘have no health insurance or 

other source of third party coverage for 

the services provided.’’ In response to 

these questions, we issued a letter on 

August 17, 1994 to all SMD’s 

delineating the Agency’s interpretation 

of statutory provisions of section 13621 

of OBRA 93. 

The SMD letter specifically 

established our interpretation of the 

term ‘‘uninsured’’ patients for purposes 

of the calculating OBRA 93 DSH limits. 

We developed a definition of 

‘‘individuals who have no health 

insurance or other source of third party 

coverage for the services provided’’ 

based on the statutory language linking 

coverage and the provision of services 

throughout the year in which the service 

was provided. The August 17, 1994 

SMD letter articulated this policy 

interpretation by stating that individuals 

who have no health insurance (or other 

source of third party coverage) for the 

services provided during the year 

include those ‘‘who do not possess 

health insurance, which would apply to 

the service the individual sought 

treatment.’’ We affirmed this guidance 

in a January 10, 1995 letter to the Chair 

of the SMD’s Association. This 

interpretation remained in effect until 

the January 19, 2009 effective date of the 

2008 DSH final rule implementing the 

DSH auditing and reporting 

requirements. 

E. MMA and the 2008 DSH Final Rule 

Several United States Department of 

Health & Human Services Office of 

Inspector General (OIG) audits and 

United States Government 

Accountability Office (GAO) reports 

detailing improper DSH expenditures in 

some states, raised concern that we did 

not have sufficient authority to 

appropriately monitor state compliance 

with section 1923 of the Act. In 

particular, concerns were expressed that 

states were not enforcing the OBRA 93 

limits on DSH expenditures. 

Subsequently, Congress include in the 

MMA section 1001(d), which added 

new audit and reporting requirements to 

the Act. Specifically, it added section 

1923(j)(1) of the Act, which requires 

states to submit an annual report and 

audit to ensure the appropriate 

compliance with DSH limits imposed at 

section 1923(g) of the Act. 

In promulgating the 2008 DSH final 

rule, we defined the phrase ‘‘who have 

health insurance (or other third party 

coverage)’’ by referencing individuals 

who have a legally liable third party 

payer for the services provided by a 

hospital and by referencing regulations 

that define creditable coverage under 45 

CFR parts 144 and 146. The regulatory 

definition of creditable coverage in Parts 

144 and 146 was developed to 

implement, in part, the Health 

Insurance Portability and 

Accountability Act (HIPAA) of 1996 

(Pub. L. 104–191) and was designed to 

offer protection to the broadest number 

of individuals. This definition of 

creditable coverage, which did not exist 

in 1994 when we issued initial guidance 

on the Medicaid DSH definition of 

uninsured, is applied on an individualspecific basis (that is, does an 

individual have coverage) rather than on 

the existing service-specific 

interpretation (that is, does an 

individual have coverage for a service). 

Creditable coverage includes coverage of 

an individual under a group health 

plan, Medicare, Medicaid, a medical 

care program of the Indian Health 

Service (IHS) or tribal organization, and 

other examples as outlined in the rules 

relating to creditable coverage at 

§ 146.113. 

The new interpretation of the 

definition of ‘‘individuals who have no 

health insurance or other source of third 

party coverage for the services 

provided’’ articulated in the 2008 DSH 

final rule, which relied on the existing 

regulatory definition of creditable 

coverage, superseded all prior 

interpretive issuances. 

F. Concerns Raised 

Numerous states, members of the 

Congress, hospitals and related 

stakeholders expressed concerns 

following the publication of the 2008 

DSH final rule that the rule’s definition 

of uninsured individuals would have a 

significant negative financial impact on 

states and hospitals. As states and 

hospitals began to complete the initial 

audits as defined in the final rule, they 

identified specific issues relating to the 

regulatory definition of uninsured 

adopted under the rule. Specific 

consequences regarding the practical 

application of the creditable coverage 

definition were identified and some 

stakeholders questioned the impact of 

the new definition of uninsured as it 

relates to individuals who had IHS and 

tribal health coverage for services and 

individuals who had exhausted their 

insurance benefits or who had reached 

their lifetime insurance limits. 

Uncompensated costs to hospitals for 

these services were no longer eligible 

DSH costs under the creditable coverage 

definition applied in the 2008 DSH final 

rule. 

The issue involving IHS and tribal 

programs arises because IHS coverage is 

within the scope of ‘‘creditable 

coverage’’ under the regulations in Parts 

144 and 146, and thus individuals with 

this coverage could not be considered 

‘‘uninsured’’ even if the IHS or tribal 

health program did not provide the 

service or authorize coverage through 

the contract health service program 

(through a purchase order or equivalent 

document). In that circumstance, the 

hospital would not be able to count, as 

costs eligible for Medicaid DSH 

payments, costs of uncompensated care 

associated with the provision of 

inpatient or outpatient hospital services 

to American Indians/Alaska Natives 

with access to IHS and tribal coverage 

(but no other source of third party 

payment). 


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71682 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Rules and Regulations 

The IHS and Tribal health programs 

provide two primary types of services: 

Direct health care services and contract 

health services. Direct health care 

services are oftentimes limited to 

primary care services and are limited to 

eligible beneficiaries identified at 42 

CFR § 136.12. Many of the beneficiaries 

that receive direct care services have no 

other source of third party coverage. 

Contract health services (CHS) are 

services provided outside of an IHS or 

Tribal facility to an eligible beneficiary 

(§ 136.23). CHS appropriations are 

discretionary; therefore, coverage is 

determined based on a priority system. 

Coverage for CHS services is specifically 

authorized on a case-by-case basis 

through a CHS purchase order or 

equivalent document. IHS and tribal 

health programs can also issue referrals 

that do not authorize CHS coverage of 

a service. 

For Medicaid DSH purposes, we 

believe that American Indians/Alaska 

Natives are considered to have third 

party coverage for inpatient and 

outpatient hospital services received 

directly from IHS or tribal health 

programs (direct health care services) 

and for services specifically authorized 

under CHS. The service-specific 

determination of third party coverage 

status of American Indian/Alaska 

Natives for services not authorized to be 

within the scope of coverage by CHS 

should be made consistently with 

determinations made for non-IHS 

patients. This is the same treatment that, 

as we describe below, we will give to 

these services that are outside the scope 

of coverage from any other insurer or 

third party payer. 

The second issue concerns the 

interaction between the creditable 

coverage definition in the 2008 DSH 

final rule and hospital services provided 

to individuals with creditable coverage 

but without coverage for specific 

hospital services received. By using the 

current regulatory creditable coverage 

definition, an individual is considered 

either to have coverage, as broadly 

described in regulations, or not to have 

coverage during the period a hospital 

service was provided. Under the 2008 

DSH final rule, if an individual had 

creditable coverage at the time of the 

service, that individual was not 

considered uninsured and the service 

costs would be excluded from the 

hospital-specific DSH limit calculation. 

In practical application, this definition 

appeared to exclude from 

uncompensated care for DSH purposes 

the costs of many services that were 

provided to individuals with creditable 

coverage but were outside the scope of 

coverage. Costs affected include those 

associated with individuals who have 

exhausted their insurance benefits or 

who have reached lifetime insurance 

limits for certain services, as well as 

services not included in a benefit 

package as covered, but those identified 

in section 1905 of the Act and covered 

under the approved Medicaid State 

plan. 

For purposes of defining 

uncompensated care costs for the 

Medicaid hospital-specific DSH limit, 

we believe that uncompensated costs of 

providing inpatient and outpatient 

hospital services to individuals who do 

not have coverage for those specific 

services should be considered costs for 

which there is no liable third party 

payer and thus eligible costs for 

Medicaid DSH payments. An example 

of a situation involves an individual 

with basic hospitalization coverage that 

has an exclusion for transplant services. 

Should the individual need the 

excluded service, the cost of that service 

could be included in the Medicaid 

hospital-specific DSH limit. Another 

example involves an individual with 

excluded benefits or services, or 

exhaustion of coverage or benefits for a 

limited covered service, due to a preexisting condition (for example, cancer 

or diabetes). Although both examples 

involve medically necessary services for 

which an individual is uninsured, 

associated costs would have been 

prohibited from inclusion in calculating 

the hospital-specific DSH limit based on 

the 2008 DSH final rule and related 

guidance. 

If an individual is Medicaid eligible, 

all costs incurred in providing inpatient 

and outpatient hospital services 

identified in section 1905 of the Act and 

covered under the approved Medicaid 

state plan should be included in 

calculating Medicaid hospital costs, not 

uninsured hospital costs, for purposes 

of calculating the hospital-specific DSH 

limit, regardless of whether the 

individual’s benefits have been 

exhausted or whether coverage limits 

have been reached. 

II. Provisions of the Proposed 

Regulations and Analysis of and 

Responses to Public Comments 

On January 18, 2012, we published a 

proposed rule entitled, Disproportionate 

Share Hospital Payments-Uninsured 

Definition (hereinafter referred to as the 

2012 DSH proposed rule). In that rule, 

we proposed to add a new 42 CFR 

447.298—Hospital-Specific 

Disproportionate Share Hospital 

Payment Limit-Definition of Individuals 

Who have no health Insurance (or Other 

Source of Third Party Coverage). 

Specifically, we proposed to describe 

the scope of the new regulation section 

and define the following terms: 

• Individuals who have no health 

insurance (or other source of third party 

coverage) for the services furnished 

during the year. 

• Health insurance coverage limit. 

• No source of third party coverage 

for a specific inpatient hospital or 

outpatient service. 

• Determination of an Individual’s 

Third Party Coverage Status. 

• Service-Specific Coverage 

Determination. 

In response to the 2012 DSH proposed 

rule, we received 71 public comments 

from State Medicaid agencies, provider 

associations, providers, and other 

interested parties. The following is a 

brief summary of each proposed 

provision, a summary of the public 

comments that we received related to 

that proposal, and our responses to the 

comments. 

A. Effective Date 

We proposed this final rule effective 

for DSH audits and reports submitted 

for state plan rate year 2011 and after, 

which are due to CMS on December 31, 

2014. In this final rule, we are making 

the effective date December 31, 2014. 

Medicaid DSH audits and reports 

required by section 1923(j) of the Social 

Security Act due to CMS on or after this 

date should rely on the provision of this 

final rule. We will continue to provide 

technical assistance and guidance to 

states to assure compliance with section 

1923(j) of the Act. Comments and our 

response to comments on the effective 

date are as follows: 

Comment: Many commenters 

requested clarification on the effective 

date of the rule. Specifically, the 

commenters wanted to know which 

DSH audit year the modified definition 

of uninsured would apply to and made 

various suggestions regarding the 

effective date and the application of the 

modified definition. Some commenters 

suggested that CMS make this final rule 

effective retroactive to the effective date 

of the 2008 DSH final rule and 

requested that CMS rescind the 

discussion of creditable coverage in that 

rule (that is, the 2008 DSH final rule). 

Other commenters suggested CMS 

clarify if states could use either 

definition for periods prior to the 

effective date of this rule. Some 

commenters requested that CMS specify 

whether the new definition of 

uninsured would be applicable to 

pending DSH audits and reports and 

requested that CMS extend the deadline 

for states to submit pending DSH audits 

and reports so that accurate data on 


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Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Rules and Regulations 71683 

costs and payments allowable under the 

definition will be captured. 

Response: This final rule has an 

effective date of December 31, 2014. We 

did not see a clear basis consistent with 

the requirements of the Administrative 

Procedure Act to make this rule 

retroactive. The provisions of this final 

rule will thus apply to audits due on or 

after that date. The first Medicaid State 

Plan Rate Year (SPRY) for which audits 

are due after that date, to which the 

modified definition of uninsured is 

applicable, is SPRY 2011. We believe 

that this effective date will provide 

states and hospitals with adequate time 

to implement any necessary changes to 

their administrative process. Therefore, 

we are not extending the submission 

deadline for any DSH audits and 

reports. 

B. Medicaid Eligible Individuals 

DSH payments are limited to the 

hospital-specific limit defined in section 

1923(g)(1) of the Act. For each fiscal 

year, the state must calculate this limit 

for each hospital. We proposed that the 

limit is the costs incurred by that 

hospital for furnishing inpatient 

hospital and outpatient hospital services 

during the applicable state fiscal year to 

Medicaid individuals and individuals 

who have no health insurance or other 

source of third party coverage for the 

inpatient hospital and outpatient 

hospital services they receive, less all 

applicable revenues for these hospital 

services. 

If an individual is Medicaid eligible, 

all costs incurred in providing inpatient 

and outpatient hospital services 

identified in section 1905 of the Act and 

covered under the approved Medicaid 

state plan should be included in 

calculating Medicaid hospital costs, not 

uninsured hospital costs, for purposes 

of calculating the hospital-specific DSH 

limit, regardless of whether the 

individual’s benefits have been 

exhausted or whether coverage limits 

have been reached. Comments and our 

response to comments on Medicaid 

eligible individuals are as follows: 

Comment: Several commenters 

requested clarification on the inclusion 

of hospital costs relating to services 

furnished to Medicaid eligible 

individuals for purposes of calculating 

the hospital-specific DSH limit. A few 

commenters wanted clarification that 

costs of services furnished to Medicaid 

eligible individuals who have exhausted 

hospital benefits available under a 

state’s Medicaid program will be 

included in the hospital-specific DSH 

limit calculation. Another commenter 

stated that the cost of hospital services 

furnished to Medicaid eligible 

individuals that are beyond state plan 

service limits would be allowable as 

uninsured costs when calculating the 

hospital-specific DSH limit. 

Response: We clarify that the cost of 

inpatient hospital and outpatient 

hospital services furnished to a 

Medicaid eligible individual who has 

exhausted applicable state coverage 

limits, and has no other source of third 

party coverage for the specific service, 

can be included as Medicaid shortfall in 

the hospital-specific DSH calculation. 

Comment: A few commenters 

requested clarification regarding the 

inclusion of inpatient hospital service 

costs and revenues in the hospitalspecific DSH limit when an individual’s 

Medicaid eligibility status ends prior to 

the completion of their inpatient stay. 

Commenters noted that under some 

Medicaid programs, hospitals are 

reimbursed by Medicaid on a per diem 

basis and may only bill for the days 

when patients are Medicaid eligible. For 

the days of care furnished when patients 

are not Medicaid eligible, the 

commenter requested clarification if the 

days of care would be considered 

uninsured for DSH purposes. 

Response: The hospital-specific limit 

is calculated by determining the 

uncompensated costs incurred in 

furnishing inpatient and outpatient 

hospital services to Medicaid eligible 

individuals and uninsured individuals. 

This final rule establishes a single 

determination of whether costs and 

revenues associated with a particular 

service are included in the hospitalspecific DSH limit calculation. If an 

individual is Medicaid eligible for any 

day during a single inpatient stay for a 

particular service, states must classify 

the individual as Medicaid eligible for 

all costs and revenues associated with 

that particular service, including, but 

not limited to, revenues from all third 

party payors. If the individual is not 

Medicaid eligible and has a source of 

third party coverage for all or a portion 

of the single inpatient stay for a 

particular service, states cannot include 

any costs and revenues associated with 

that particular service when calculating 

the hospital-specific DSH limit. If the 

individual has no source of third party 

coverage for the specific inpatient 

hospital or outpatient hospital service 

furnished by the hospital, states should 

classify the individual as uninsured for 

the particular service and include the 

costs and revenues associated with that 

particular service when calculating the 

hospital-specific DSH limit. 

Comment: A few commenters 

requested clarification with respect to 

Medicaid spend-down. States impose 

monthly or other periodic ‘‘spenddown’’ requirements on individuals that 

must be met for their incomes to qualify 

under Medicaid income eligibility 

criteria. Until an individual has satisfied 

his or her spend-down requirements, 

medical assistance is unavailable for 

services provided and these individuals 

must incur medical costs out-of-pocket. 

Commenters expressed that it is 

appropriate to treat these individuals as 

uninsured patients for services 

furnished to them prior to meeting 

Medicaid spend-down requirements. 

Response: To the extent that Medicaid 

does make any payment for a specific 

inpatient or outpatient hospital service 

furnished by the hospital to an 

individual who has not met spenddown obligations, and the individual 

has no source of third party coverage for 

the specific service, states must classify 

the individuals as uninsured for 

purposes of the hospital-specific DSH 

limit. After the individuals have been 

determined Medicaid eligible after 

meeting Medicaid spend-down 

requirements, states must classify them 

as Medicaid eligible for purposes of the 

hospital-specific DSH limit. 

Uninsured and Underinsured 

Individuals 

Comment: A few commenters 

expressed concern about patients who 

are severely underinsured. One 

commenter provided a situation where 

the cost to provide care for a 7-day 

inpatient stay was approximately 

$7,000, but the patient’s hospital 

insurance only paid the hospital 

approximately $2,250. The commenter 

asked CMS to define an exception that 

would allow these patients to be 

considered uninsured for purposes of 

the hospital-specific DSH limit. 

Response: To the extent that the 

hospital received payment for the 

service consisting of a 7-day hospital 

stay, the individual was ‘‘insured’’ for 

that specific service. Only the 

uncompensated costs of providing 

inpatient hospital and outpatient 

hospital services to Medicaid eligible 

individuals and uninsured individuals 

as described in section 1923(g)(1)(A) of 

the Act are included in the calculation 

of the hospital-specific DSH limit. The 

statute describes uninsured individuals 

as those ‘‘who have no health insurance 

(or other source of third party coverage) 

for the services furnished during the 

year.’’ We do not have the authority to 

craft an exception to include insured 

individuals whose insurance does not 

pay the full cost of covered services. 

Comment: A few commenters 

suggested that CMS should modify the 

definition of ‘‘no source of third party 

coverage’’ for a specific inpatient or 


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outpatient hospital service under 

§ 447.295(b) because it mentions only 

annual or lifetime limits. Commenters 

also suggested that CMS should revise 

the regulatory language to explicitly 

capture cost for individuals who ‘‘have 

exhausted covered benefits.’’ 

Response: We have revised the 

regulations text to clarify that 

individuals who have exhausted 

benefits before obtaining services will 

be considered uninsured. In contrast, 

individuals who exhaust covered 

benefits during the course of a service 

will not be considered uninsured for 

that particular service. We will work 

with states and stakeholders to ensure 

that all stakeholders receive clear 

federal and state guidance regarding 

service-specific coverage 

determinations. 

Comment: A few commenters stated 

that the final rule should define whether 

an individual is uninsured on a servicespecific basis. 

Response: This final rule implements 

a service-specific approach to define 

individuals who have no health 

insurance (or source of third party 

coverage) for purposes of calculating the 

hospital-specific DSH limit. 

Comment: Several commenters 

requested that Medicaid eligible 

individuals who have private insurance 

should be excluded from the hospitalspecific DSH limit calculation. In 

determining uncompensated care, CMS 

requires hospitals to take into account 

all revenues and costs associated with 

the care and treatment of Medicaid 

patients. When Medicaid patients also 

have insurance, the commenters suggest 

factoring payments from commercial 

insurance may artificially lower a 

hospital’s DSH limit, especially if the 

hospital serves a high percentage of 

Medicaid patients who have dual 

coverage. 

Response: To ensure payment 

accuracy and program integrity, the 

2008 DSH final rule and associated 

guidance clarified that all costs and 

revenues associated with Medicaid 

eligibles that have a source of private 

insurance coverage, including all third 

party payer revenues received by the 

hospital on behalf of the patient, must 

be included in the calculation of the 

hospital-specific DSH limit. Before this 

policy clarification, some states and 

hospitals were excluding costs and 

revenues, or simply revenues, 

associated with Medicaid eligible 

individuals with an additional source of 

coverage, such as Medicare or private 

insurance, when calculating hospitalspecific DSH limits. This practice led to 

the artificial inflation of hospitalspecific DSH limits and permitted some 

hospitals to be paid twice based on the 

same costs. The clarifying policy 

included in the 2008 DSH final rule and 

associated guidance promotes fiscal 

integrity by preventing duplicate 

payment to DSH hospitals. It also 

promotes program integrity by ensuring 

that hospitals receive Medicaid DSH 

payments only up to the 

uncompensated costs incurred in 

providing inpatient and outpatient 

hospital services to Medicaid 

individuals or individuals with no 

health insurance or other source of third 

party coverage. 

Scope of Inpatient and Outpatient 

Hospital Services 

To be considered as an inpatient or 

outpatient hospital service for purposes 

of Medicaid DSH, a service must meet 

the federal and state definitions of an 

inpatient hospital service or outpatient 

hospital service and must be included 

in the state’s definition of an inpatient 

hospital or outpatient hospital service 

under the approved state plan. 

Comments and our response to 

comments on the scope of inpatient and 

outpatient hospital services are as 

follows: 

Comment: Several commenters 

requested clarification on the scope of 

Medicaid inpatient and outpatient 

hospital services. Specifically, they 

requested CMS to confirm that it did not 

intend to narrow the scope of these 

services for DSH purposes from what is 

considered allowable under the 

Medicaid program section 1905(a) of the 

Act. 

Response: Within broad federal 

parameters, each state is responsible 

under §§ 440.10 and 440.20 for defining 

the amount, duration, and scope of 

inpatient or outpatient hospital services. 

This final rule does not affect the ability 

for states to define the scope of inpatient 

or outpatient hospital services. For 

Medicaid eligible or uninsured 

individuals, all costs incurred in 

providing inpatient hospital and 

outpatient hospital services identified in 

section 1905 of the Act and covered 

under the approved Medicaid state plan 

should be included when calculating 

the hospital-specific DSH limit. 

Comment: A few commenters 

requested that CMS confirm that 

uninsured costs of hospital-based 

outpatient departments and clinics are 

to be included in the calculation of 

uncompensated care costs, irrespective 

of whether the hospital department or 

clinic is a federal qualified health care 

(FQHC) for Medicaid payment purposes. 

Response: Services that could be 

included in more than one benefit 

category must be treated consistently for 

payment purposes, since the payment 

methodologies are different for each 

benefit category. In particular, if a 

hospital elects to have a department 

meet the conditions to participate in 

Medicaid as a provider of FQHC 

services, and claims payment for its 

services as an FQHC, the services of that 

department are not considered 

outpatient hospital services. Although 

the FQHC may be provider based, its 

services are not recognized or paid as 

outpatient hospital services, but instead 

are covered and paid for as an FQHC 

service under section 1905(a)(2)(C) of 

the Act. Section 1923(g) of the Act only 

permits costs and revenues associated 

with services furnished as inpatient 

hospital and outpatient hospital services 

to be included when calculating the 

hospital-specific DSH limit. Congress 

provided for a different, cost-based, 

payment methodology for FQHCs, under 

sections 1902(a)(15) and 1902(bb) of the 

Act and did not provide for DSH 

payments as part of that methodology. 

In sum, states cannot include costs and 

revenues associated with FQHC services 

because payment for the services is 

authorized under a statutory benefit 

separate and distinct from outpatient 

hospital services that entitles the 

provider to a cost-based payment rate. 

Comment: A few commenters noted 

the preamble in the proposed rule 

provided examples of hospital services 

that would have been prohibited from 

the hospital-specific DSH limit 

calculation based on the individualspecific approach set forth in the 2008 

DSH final rule, but would be 

permissible under the service-specific 

approach in the 2012 DSH proposed 

rule. The examples make reference to 

medically necessary hospital services 

furnished to individuals who did not 

have coverage for those specific 

services. Commenters requested CMS to 

clarify if hospitals had to verify with 

Medicaid that services to uninsured 

individuals meet Medicaid protocols, 

such as prior authorization, and medical 

necessity reviews. 

Response: Hospitals do not need to 

verify with Medicaid that services to 

uninsured individuals meet Medicaid 

protocols, such as prior authorization 

and medical necessity reviews. To the 

extent that there is a non-Medicaid third 

party payer that covers the service for 

the individual subject to reasonable 

conditions, we expect the hospital to 

take appropriate steps to ensure that the 

individual can take advantage of that 

coverage. Thus, we do not expect that 

hospitals will claim as uncompensated 

care services for which an insurer 

would have paid if the hospital had 

followed appropriate protocols. To the 


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extent that a hospital systematically 

fails to follow those protocols, there 

could be an issue for state regulatory 

authorities. 

Comment: Several commenters 

requested CMS to clarify statements in 

the preamble of the 2012 DSH proposed 

rule regarding the requirement that the 

definition of inpatient and outpatient 

hospital services for DSH purposes must 

be consistent with federal and state 

regulations and be included in a 

Medicaid state plan. With respect to 

being included in the state plan, several 

commenters noted possible scenarios 

where care and services may be 

available in an inpatient or outpatient 

basis, but the state plan might not cover 

the treatment at all, or might exclude it 

because the Medicaid individual had 

exceeded limits on amount or duration. 

Commenters cited transplants as a 

service that might not be available 

under a particular state’s Medicaid 

program, but fits within the federal 

definition of a Medicaid inpatient 

hospital service. 

Response: For Medicaid eligible or 

uninsured individuals, only costs 

incurred in providing inpatient hospital 

and outpatient hospital services 

identified in section 1905 of the Act and 

that would meet the definition under 

the approved Medicaid state plan as 

inpatient hospital or outpatient hospital 

services should be included when 

calculating the hospital-specific DSH 

limit. Any services that fall outside of 

either definition are not eligible for 

inclusion in the calculation of the 

hospital-specific limit. For example, if 

transplant services are not covered 

under the approved state plan in a 

particular state, costs associated with 

those services cannot be included in 

calculating the hospital-specific DSH 

limit. In another example, a hospital 

might own and operate a nursing facility 

or a home health agency, employ 

physicians or other licensed 

practitioners, and bill for their 

professional services. While a hospital 

may have a connection to these services, 

they are not recognized as inpatient or 

outpatient hospital services and are not 

covered under the inpatient hospital or 

outpatient hospital Medicaid benefit 

service categories. Accordingly, the 

associated costs and revenues cannot be 

included in calculating the hospitalspecific DSH limit. 

Services may be included in the DSH 

calculation if they are within the scope 

of the definition of inpatient or 

outpatient hospital services even if they 

are not covered under Medicaid because 

of amount or durational limits. States 

may establish reasonable limits on 

inpatient and outpatient services to 

ensure medical necessity or control 

utilization of services. Inpatient or 

outpatient hospital services furnished 

beyond state established limits on 

amount and duration may be included 

in the hospital-specific limit calculation 

to the extent that the services being 

sought are hospital services that the 

state Medicaid program would 

otherwise pay for if not for the limits 

being exceeded. 

Comment: Several commenters 

requested clarification of swing bed 

services and stated that because these 

services are categorically inpatient in 

nature they should be included in a the 

calculation of the hospital-specific DSH 

limit. 

Response: The commenters are 

referring to hospitals that have 

agreements to swing their acute hospital 

beds to long term care services in 

accordance with section 1913 of the Act. 

It is unclear if the commenters are 

referring to inpatient hospital care 

services or less acute nursing facility 

care services. The inpatient hospital 

care services must be included when 

calculating the hospital-specific DSH 

limit. The long term care services; 

however, are not inpatient hospital or 

outpatient hospital services and are 

covered under the nursing facility 

services benefit for Medicaid or skilled 

nursing facilities (SNF) benefit for 

Medicare. Therefore, these levels of 

services cannot be included in the 

calculation of the hospital-specific DSH 

limit. 

Comment: A commenter requested 

clarification of whether days of care 

provided while patients are waiting to 

be discharged due to lack of appropriate 

setting can be included in the 

calculation of the hospital-specific DSH 

limit. 

Response: Under Medicaid, these 

inpatient days are commonly referred to 

as inappropriate level of care days or 

administratively necessary care days. 

These days of care are recognized as 

inpatient hospital services under section 

1905(a) of the Act and are explicitly 

acknowledged in section 1923(b) of the 

Act that requires these days to be 

included in the DSH eligibility formula. 

C. Timing of Service Specific 

Determination 

We specified in the proposed rule the 

determination of an individual’s status 

as having a source of third party 

coverage can occur only once per 

individual per service provided and 

applies to the entire service, including 

all elements as that service, or similar 

services, would be defined in Medicaid. 

Comments and our response to 

comments on the timing of service 

specific determination are as follows: 

Comment: Many commenters 

suggested that it would be appropriate 

to allow for redeterminations during a 

stay when coverage benefits are 

exhausted during a hospital stay. 

Commenters suggested various 

scenarios. For example, a patient with 

private insurance coverage is admitted 

to a hospital for treatment and 10 days 

following admission they reach their 

lifetime maximum coverage limit, but 

remain in the hospital for a total of 20 

days. The commenters stated that a 

single determination would produce 

inequitable results. The commenters 

recommended that the patient should be 

considered uninsured for the remaining 

portion of their treatment after coverage 

limits are reached or exhausted during 

a hospital stay. 

Response: We are finalizing the 

provision of the proposed rule that the 

determination of an individual’s status 

as having a source of third party 

coverage can occur only once per 

individual per service provided and 

applies to the entire service, including 

all elements as that service, or similar 

services, would be defined in Medicaid. 

When benefits have been exhausted for 

individuals with a source a third party 

coverage, only costs associated with 

separate services provided after the 

exhaustion of covered benefits are 

permitted for inclusion in the 

calculation of the hospital-specific DSH 

limit. Section 1923(g) of the Act 

specifies that only certain costs 

associated with ‘‘individuals who are 

eligible for medical assistance under the 

state plan or who have no health 

insurance (or other source of third party 

coverage) for the services furnished 

during the year’’ are included when 

calculating the hospital-specific DSH 

limit. Even if the third party coverage is 

exhausted or otherwise limited for a 

particular service, the individual still 

has a source of third party coverage for 

that particular service. Therefore, we are 

finalizing the single service 

determination as proposed. 

Comment: Many commenters 

suggested allowing revisions to an 

individual’s insurance status during an 

inpatient hospital stay as necessary 

based on additional information 

received regarding the individual’s 

coverage. The commenters noted that 

the coverage determination usually 

occurs at intake, then new information 

may be obtained that warrants a change 

from the initial determination, (for 

example, a patient is retroactively 

determined eligible for Medicaid, or the 

patient’s third party insurance coverage 

has expired or has been exhausted). 


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Response: We do not think the single 

coverage determination precludes 

corrections to the initial determination. 

When a hospital classifies an individual 

as uninsured at intake, then later 

determines that the individual had 

Medicaid or third party coverage for that 

particular service, we would expect the 

hospital to re-classify the individual for 

purposes of calculating the hospitalspecific DSH limit. Any individuals that 

have a source of third party coverage for 

a particular service, even if that 

coverage is limited, are considered for 

Medicaid DSH purposes to have a 

source of third party coverage even if 

their initial determination at intake is 

uninsured. 

Comment: Several commenters 

expressed concern that a servicespecific coverage determination for each 

service rendered to each individual with 

third party liability could be unduly 

burdensome to hospitals, contracted 

DSH auditors and states. Commenters 

stated that CMS should issue clear 

instructions regarding acceptable 

implementation of this requirement, the 

level of detail of claims, and patient 

data needed. 

Response: We will work with states to 

ensure that all stakeholders receive clear 

federal and state guidance regarding 

service-specific coverage 

determinations. In general, it would be 

to the advantage of hospitals to engage 

in service-specific coverage 

determinations because it would result 

in more documented uncompensated 

care costs. 

Comment: One commenter 

recommended that CMS increase 

accountability and improve patient 

access to financial assistance by 

directing funding to states that 

condition hospital payments on 

provision of financial assistance to 

needy patients. 

Response: The comments are outside 

the scope of the proposed and final rule. 

Section 1923(c) of the Act provides 

states with considerable flexibility in 

establishing DSH payment 

methodologies as long as the DSH 

payments under the methodology do not 

exceed the state’s federal DSH allotment 

and the hospital-specific DSH limit. 

Co-Insurance, Co-Pays, and Deductibles 

Section 1923(g) of the Act excludes 

costs associated with individuals with a 

source of third party coverage for a 

service from the calculation of the 

hospital-specific DSH limit. In the 2012 

DSH proposed rule, we stated that costs 

associated with unpaid coinsurance, 

deductibles, bad debts, and payer 

discounts for individuals with a source 

of third party coverage are excluded 

when calculating the hospital-specific 

DSH limit. In the proposed rule, we 

reiterated this statement and are 

finalizing those provisions as proposed 

without change. Comments and our 

response to comments regarding coinsurance, co-pays, and deductibles are 

as follows: 

Comment: A commenter requested 

clarification regarding how Medicaid 

programs should treat out-of-pocket 

costs relating to an inpatient stay. The 

commenter provided an example where 

a patient is admitted for an inpatient 

stay and his or her insurance does not 

provide any payment for the first 5 days 

of the stay. The insurance plan requires 

that the patient pay out-of-pocket until 

day six. The commenter requested 

clarification regarding the treatment of 

the first 5 days for purposes of 

calculating the hospital-specific DSH 

limit, including cases where the 

payment exclusion is due to an 

individual’s pre-existing condition. 

Response: When an individual has a 

source of third party coverage for an 

inpatient or outpatient hospital service, 

the costs and revenues cannot be 

included in the calculation of the 

hospital-specific limit unless the 

individual is also Medicaid eligible. In 

the commenter’s example, to the extent 

that the individual has a source of 

coverage for the specific inpatient 

hospital service, it could not be 

included in the calculation of the 

hospital-specific limit. Any 

uncompensated costs that hospitals 

incur for unpaid co-pays, co-insurance, 

or deductibles associated with a nonMedicaid eligible individual who has 

insurance cannot be included in the 

calculation of the hospital-specific limit. 

Exclusions relating to pre-existing 

conditions would depend on the terms 

and nature of the exclusion. If the 

exclusion bars coverage for particular 

services, the person would be 

considered uninsured. When the 

exclusion results in a higher deductible 

or cost sharing for services related to the 

preexisting condition, the person would 

be considered insured. 

Comment: Many commenters stated 

that patients with a high-deductible 

plan/catastrophic plan should be 

consider uninsured for services until 

they meet their deductible or spending 

thresholds. The commenters stated that 

hospitals are bearing the burden of 

unreimbursed costs associated with 

high deductible amounts or catastrophic 

health plans where the individual has 

no means of paying the deductible 

amounts. Additionally, commenters 

noted that the unpaid deductible and 

copayments are the fastest growing part 

of uncompensated care costs and 

requested CMS to expand the definition 

of uninsured to include the 

underinsured costs associated with 

unpaid copayments and deductible in 

the hospital DSH limits. 

Response: We acknowledge concerns 

regarding the financial challenges that 

hospitals may encounter in providing 

services to individuals with high 

deductible or catastrophic coverage 

health plans. Section 1923(g) of the Act 

restricts the calculation of DSH-eligible 

uncompensated costs to those incurred 

in providing inpatient and outpatient 

hospital services to Medicaid-eligible 

individuals and those individuals with 

no source of third party coverage for the 

services they receive. When an 

individual’s policy includes in its 

benefit package inpatient or outpatient 

hospital services obtained by the 

individual, we consider this person to 

have a source of third party coverage for 

services included in the benefit package 

unless the individual has exhausted 

insurance coverage prior to the service 

at issue. When benefits have been 

exhausted for individuals with a source 

a third party coverage, only costs 

associated with separate services 

provided after the exhaustion of covered 

benefits are permitted for inclusion in 

the calculation of the hospital-specific 

DSH limit. The individual is considered 

insured for the service even in instances 

when the policy requires the individual 

to satisfy a deductible and/or share in 

the overall cost of the hospital service. 

Comment: Several commenters stated 

that individuals whose only source of 

coverage is a limited benefit plan should 

be treated as uninsured for purposes of 

the DSH limit calculation. For example, 

if a patient has an extended stay in a 

hospital trauma center after a car 

accident, and the patients only coverage 

is through limited medical care payment 

under an auto insurance plan (a per 

accident amount), the hospital should 

be able to include as uncompensated 

cost the significant services provided 

once the per accident limitation are 

exceeded. The commenter asserts that 

these plans that are not health plans or 

health insurers, and the medical 

benefits they afford are incidental to the 

principle insurance benefits. These type 

of policies are defined as ‘‘excepted 

benefits’’ under the Health Insurance 

Portability and Accountability Act 

regulations at § 148.220. In some cases, 

the legal liable third party may not be 

determined until years after the services 

were provided because the liability of 

these third parties are not established 

for specific services. A hospital’s 

entitlement may not be certain until 

after legal proceedings or negotiations. 

Individuals, in these situations should 


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be treated as uninsured for the costs of 

services provided offset by the amount 

of any payment actually received by the 

hospital from a legally liable third party. 

Response: We have previously 

considered limited benefit plans and 

issued our position in the 2008 DSH 

final rule. In that final rule, we provided 

that these plans, such as auto insurance, 

would not be considered insurance 

except when they are legally liable to 

pay for hospital care. The change to a 

service-specific approach does not affect 

our previous guidance. 

The 2008 final DSH rule and related 

CMS guidance addressed the treatment 

of revenue offsets that must be applied 

against the cost of providing services to 

individuals with no source of third 

party coverage. The guidance addressed 

future revenue streams including, but 

not limited to, legal decisions, payment 

plans, and recoveries. The General DSH 

Audit and Reporting Protocol specified 

that that states, hospitals, and auditors, 

for purposes of individuals with no 

source of third party coverage, should 

not attempt to allocate payments 

received during the State plan rate year 

to services provided in prior periods. It, 

instead, required that all payments 

received in the year will be counted as 

revenue to the hospital in that same 

year. It was understood that some costs 

incurred during the state plan rate year 

under audit may be associated with 

future revenue streams (legal decisions, 

payment plans, and recoveries), but that 

the payments must not counted as 

revenue until actually received. 

When a hospital classifies an 

individual as uninsured at intake, then 

later determines that the individual had 

Medicaid or third party coverage for that 

particular service, we expect the 

hospital to re-classify the individual for 

purposes of calculating the hospitalspecific DSH limit. Any individuals that 

have a source of third party coverage for 

a particular service, including limited 

coverage, are considered for Medicaid 

DSH purposes to have a source of third 

party coverage even if their initial 

determination at intake is uninsured. 

We recognize that corrections to the 

initial determination may be warranted 

based on information available only 

after the completion of the DSH audit 

and reports for a particular state plan 

rate year. In these instances, states are 

not required to correct the audit for the 

closed period to reclassify the 

individual. However, for individuals, 

states must still offset all associated 

revenues received by the third party 

payer against costs incurred for the 

uninsured in the year in which the 

revenue is received. If cumulative 

correcting adjustments would be 

significant on a state-wide basis due to 

a series of warranted corrections that 

arise post-audit (for example, 

widespread errors in individual 

coverage determinations), states should 

correct the audit and report by 

indicating post-audit adjustments and 

must reopen the audit to make a 

correction. 

Comment: A commenter 

recommended that costs associated with 

unpaid co-insurance, deductibles, and 

payer discounts that qualify as charity 

care be permitted in the calculation of 

the hospital-specific limit. The 

instructions for Form CMS 2552–10, 

Worksheet S–10 Hospital 

Uncompensated and Indigent Care Data 

specifically states that deductible and 

coinsurance payments for patients who 

are covered by public or private 

insurers, which the provider has a 

contractual relationship and are 

approved for charity care be included 

on line 20, column 2. The commenter 

believes that these instructions should 

be consistent for both the hospitalspecific DSH limit calculation and the 

Medicare Form 2552–10, Worksheet S– 

10. 

Response: Medicare and Medicaid are 

separate programs and the statutory 

framework for each program is different. 

Costs that may be relevant for Medicare 

purposes, such as bad debt or charity 

care, are not relevant to Medicaid DSH. 

These costs are relevant to Medicare 

payment mechanisms that ensure that 

the Medicare program does not shift 

costs onto other payers, which do not 

apply in the Medicaid program. Section 

112(b) of the Balance Budget 

Refinement Act (BBRA) requires that 

Medicare-participating hospitals submit 

in their Medicare cost reports data on 

costs incurred by a hospital for 

providing inpatient and outpatient 

hospital services for which no 

compensation is received. This 

provision specifically requires hospitals 

to include data on non-Medicare bad 

debt, charity care, and charges for 

Medicaid and indigent care. While there 

may be overlaps between these costs as 

reported in Medicare cost reports and 

the costs considered under the Medicaid 

hospital-specific DSH limit at section 

1923(g) of the Act, the Medicare 

reporting requirement is different and 

broader than the Medicaid hospitalspecific DSH limit at section 1923(g) of 

the Act. Thus, the same data cannot be 

used for both purposes. 

Comment: A number of commenters 

stated bad debt and payer discounts 

should be included in the Hospital DSH 

limit. 

Response: As defined in the DSH 

audit reporting requirement in 

regulations at § 447.299(c)(15), 

uncompensated care costs for inpatient 

and outpatient hospital services does 

not include bad debt or payer discounts 

related to services furnished to 

individuals who have health insurance 

or another third party payer. 

D. Physician Services 

The hospital-specific DSH limit 

established in section 1923(g) of the Act 

permits the inclusion of inpatient and 

outpatient hospitals service costs only. 

Services that are not inpatient or 

outpatient hospital services, including 

physician services, must be excluded 

when calculating the hospital-specific 

DSH limit. Comments and our response 

to comments regarding physician 

services are as follows: 

Comment: Many commenters 

requested that unreimbursed physician 

costs associated with hospital services 

should be included in the hospital DSH 

limit calculation. Two common requests 

were that states be permitted to define 

their inpatient and outpatient hospital 

benefits services of physicians 

employed by the hospital. The 

commenters stated that since the costs 

of physicians furnishing services to the 

hospital are already allowable, they 

interpret this to refer to direct patient 

care furnished by physicians. 

Additionally, commenters stated that 

CMS could allow a hospital to include 

the cost of its salaried physicians in its 

DSH costs as long as those salaries were 

not greater than what is allowed under 

the Medicare program. Commenters 

believe if the hospitals do not separately 

bill for physician services then the costs 

hospitals incur to secure physician 

services to serve a hospital’s Medicaid 

population are legitimate costs. 

Response: Section 1905(a) of the Act 

identifies categories of medical items 

and services eligible for federal 

matching payment under the Medicaid 

program. Inpatient hospital services, 

outpatient hospital services, and 

physician services are listed as separate 

and distinct categories of Medical 

assistance. Inpatient hospital services 

are defined in section 1905(a)(1) of the 

Act and implementing regulations at 

§ 440.10, outpatient hospital services are 

defined at section 1905(a)(2)(A) of the 

Act and implementing regulations at 

§ 440.20(a), and physician services are 

defined at section 1905(a)(5)(A) of the 

Act and implementing regulations at 

§ 440.50(a). 

The DSH limit provided in section 

1923(g) of the Act, refers only to 

hospital services and does not include 

physician services or any other 

Medicaid services listed in section 

1905(a) of the Act. Furthermore, state 


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DSH payments are made pursuant to 

section 1902(a)(13)(A)(iv) of the Act as 

part of state payment rates set for 

inpatient hospital services to take into 

account the situation of hospitals that 

serve a disproportionate share of lowincome patients with special health 

needs. Section 1923(a)(1)(B) of the Act 

requires states in paying for inpatient 

hospital services, to increase payments 

to the hospitals consistent with the 

minimum DSH payment requirements 

set forth in section 1923(c) of the Act. 

While the term ‘‘hospital services’’ does 

expand DSH beyond just inpatient 

hospital services, this expansion is not 

unlimited, and the legislative history 

shows that the term is limited to include 

only outpatient hospital services. 

The distinction between physician 

services, inpatient and outpatient 

services is a long standing position and 

recognized throughout the Medicaid 

program as well as other insurance 

programs and hospital accounting 

practices. The Medicaid program has 

special requirements that are unique to 

each service type. Hospital services are 

subject to public process requirement in 

section 1902(a)(13)(A) of the Act and as 

previously mentioned, rates set under 

that process must include payment 

adjustment for DSH providers that 

comply with the requirement in section 

1923 of the Act. Medicaid inpatient and 

outpatient hospital services are also 

subject to additional payment 

requirements known as Medicaid upper 

limits (UPLs) in regulations at § 447.272 

and § 447.321, with inpatient hospital 

service also being limited to customary 

charges pursuant to section 1903(i)(3) of 

the Act and regulations at § 447.271. 

Unlike hospital services, Medicaid 

physician services are subject to the 

general public notice requirements at 

§ 447.205, Medicaid economy, 

efficiency, and quality of care 

requirements, but not subject to any 

specific regulatory UPL requirements. 

With respect to primary care physician 

services are eligible for higher federal 

matching rate. 

As we explained in the preamble of 

the 2008 DSH final rule, physician 

professional services are generally not 

recognized or considered hospital 

service costs reporting process under 

either Medicaid or Medicare. Physician 

services cost identified as professional 

services are removed from the inpatient 

and outpatient hospital costs as part of 

the hospital cost step down process. The 

Medicare 2552 cost report does not 

include direct physician patient care 

services. These costs are identified, 

segregated, and are paid not as a 

hospital services but separately as 

professional services in accordance with 

a fee schedule established for physician 

services. Therefore, any physician costs 

attributable to professional services that 

are reimbursed as physician services 

under a state’s Medicaid program, are 

not allowable in the DSH limit 

calculation, since by statute, the DSH 

limit can include only inpatient and 

outpatient hospital services. 

The general rule is that physician 

services that are covered and 

reimbursed as such under a state’s 

Medicaid program are excluded from 

the DSH limit calculation. We realize in 

some instances, some states may set a 

single rate for an inpatient or outpatient 

hospital service and included in the rate 

is the costs of physician services. A 

hypothetical example might be a single 

per diem rate for a day of inpatient care, 

with no separate payment for physician 

services to a hospital or physician. In 

that instance, the physician cannot bill 

the patient or the Medicaid program for 

their professional services since it is 

already included in the per diem rate 

paid to the hospital. We do not feel this 

is the customary practice, but where this 

practice is used, the entire bundle of 

services included in the per diem 

hospital payment rate, including any 

physician and practitioner services, 

would be considered part of the 

inpatient or outpatient hospital services. 

Comment: A commenter noted that 

exclusion of physician uncompensated 

care costs in the DSH limit calculation 

has had a detrimental financial impact 

on children’s hospitals and fails to 

recognize the increasing important role 

of hospital based physicians in 

guaranteeing Medicaid and low-income 

children access to primary and specialty 

care. Commenters stated data indicates 

that hospitals now employ 

approximately 25 percent of all active 

physicians, and these employment 

relationships are expected to increase as 

more integrated care models enter the 

market place. Therefore, they believe it 

is critical for CMS to recognize the 

safety net role of children hospital and 

the financial losses that hospitals absorb 

should be eligible for inclusion in the 

hospital-specific DSH limit under 

section 1923(g) definition because they 

represent losses incurred by a DSH 

eligible hospital for services to Medicaid 

beneficiaries. 

Response: We appreciate and value 

the contribution children’s hospitals, 

the physicians they employ to assure 

Medicaid, and other low income 

children have access to needed care and 

services. While the Medicaid statute 

does not contemplate DSH payments 

beyond inpatient hospital services that 

exceed the uncompensated care cost 

incurred for inpatient and outpatient 

hospital services furnished to Medicaid 

and uninsured individuals, states have 

the option to increase Medicaid 

payments rate for physician services for 

services furnished in children’s hospital 

settings. Physician payment rates are 

not subject to the same limitations as 

payments to hospital services. 

Comment: A few commenters stated 

many safety net hospitals, particularly 

those located in inner-cities and rural 

areas, employ physicians in order to 

provide access to critical hospital 

inpatient and outpatient services for 

their communities. The commenters 

stated that the costs associated with 

employing physicians are legitimate 

hospital costs and should be included in 

the calculations of the hospital-specific 

DSH limitations. These commenters 

stated that excluding these costs from 

this calculation only further threatens 

the tenuous financial status of safety net 

hospitals and their ability to maintain 

services for underserved populations. 

Response: We value and appreciate all 

health care providers that participate in 

the Medicaid program to make health 

care available in the communities they 

serve. Hospital services and physician 

services are separate and distinct 

services. The DSH limit in section 

1923(g) of the Act is specific to only 

hospital services. Physician professional 

services recognized, billed, or paid as 

such under a state’s Medicaid program 

are not allowable costs for purposes of 

Medicaid DSH. To the extent that states 

wish to provide incentives for 

physicians to work in underserved 

areas, states have the option to target 

adjustments to physician payment rates. 

Comment: A commenter stated that it 

appears CMS has approved waivers in 

two states that allow state Medicaid 

programs to reimburse hospitals for 

hospital-based physician costs. These 

costs associated with securing physician 

services to serve a hospital’s Medicaid 

population are legitimate unreimbursed 

costs if the hospital does not separately 

bill for the services. The waivers seem 

to instruct that both costs and payments 

be excluded from DSH audits. If this is 

the case, this option would achieve the 

same result and could be considered by 

CMS as an alternative for the DSH limit 

calculation. 

Response: We believe the commenter 

may be referring to Section 1115 

waivers. Section 1115 of the Act gives 

the Secretary of Health and Human 

Services (the Secretary) authority to 

approve experimental, pilot, or 

demonstration projects that promote the 

objectives of the Medicaid and 

Children’s Health Insurance Program 

(CHIP) programs. The purpose of these 

demonstrations, give states additional 


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flexibility to design and improve their 

programs, to demonstrate and evaluate 

policy approaches such as: 

• Expanding eligibility to individuals 

who are not otherwise Medicaid or 

CHIP eligible. 

• Providing services not typically 

covered by Medicaid. 

• Using innovative service delivery 

systems that improve care, increase 

efficiency, and reduce costs. 

In general, the section 1115 

demonstrations are approved for a fiveyear period and can be renewed, 

typically for an additional 3 years. The 

demonstrations must be ‘‘budget 

neutral’’ to the federal government, 

which means that during the course of 

the project federal Medicaid 

expenditures will not be more than 

federal spending could have been 

without the use of 1115 waiver 

authority. Several states have requested 

and have approved section 1115 

demonstration proposals that, in part, 

allow the state to use savings generated 

by the overall demonstration project for 

payments to hospitals for unreimbursed 

physician costs provided by hospital 

employees or contractors. For DSH 

purposes, these are considered to be 

payment for physician services and; 

therefore, neither the costs nor 

payments related to physician services 

are included in the DSH limit 

calculation. 

E. Prisoners 

The preamble to the proposed rule 

clarified that the proposed change in the 

definition of uninsured would not have 

any impact on how prisoners are treated 

in the DSH limit calculation. The DSH 

limit includes hospital services to 

individuals who are Medicaid eligible 

or who have no health insurance. 

Current DSH inmate guidance issued to 

states in a letter dated August 8, 2002, 

addressed only the uninsured 

possibility, and clarified that prisoners 

would not qualify for DSH under that 

authority. That guidance stated that 

since the federal, state, or local agencies 

that hold individuals in custody are 

responsible to cover their basic needs 

(including medical needs), they are 

legally liable for medical care and are a 

source of third party coverage. 

The preamble discussion may have 

created some unnecessary confusion 

because it did not address Medicaid 

eligible inmates. We received many 

comments pointing to prior CMS 

guidance related to inmate and 

eligibility Medical Assistance. Medicaid 

generally does not pay for medical care 

and services to inmates. This is known 

as the inmate of a public institution 

exclusion. This exclusion is not 

absolute as there is an exception 

regarding patients in a medical 

institution. Pursuant to Medicaid policy 

set forth in a 1997 letter to all state 

Medicaid Directors, we interpreted this 

exception to allow Medicaid to pay for 

inpatient care furnished to inmates that 

have been determined to be eligible for 

Medicaid under a state’s program. In 

adopting the service specific definition 

of uninsured, we did not mean to 

suggest a change in long standing 

inmate policy under the regular 

program. With respect to DSH, in those 

cases in which a Medicaid eligible 

individual meets the patient in a 

medical institution exception—(that is, 

a Medicaid eligible inmate is transferred 

to a hospital to be a patient for inpatient 

services), the state Medicaid agency has 

determined the individual to be eligible 

for Medicaid, and makes a regular 

hospital payment, DSH can be used to 

make up any shortfall. The costs of the 

service less non-DSH payments would 

be factored into the limit calculation. 

(Services received or costs incurred as a 

patient in a prison hospital, or in a 

dedicated prison ward, cannot be 

included in the calculation of the 

hospital-specific DSH limit since these 

entities could not meet the hospital 

conditions of participation related to 

patient rights.) The exception to the 

exclusion is limited to inpatient 

services, so any outpatient services 

obtained by an inmate would not be 

reimbursable under regular Medicaid or 

could not be included in the calculation 

of DSH. 

Comment: Many commenters 

suggested CMS not to change current 

non-DSH Medicaid inmate policy. We 

also received many inquiries related to 

Medicaid eligibility related to inmates. 

Response: We agree eligibility for 

Medicaid and inmates is a separate 

policy area outside of the DSH program. 

In this final rule we are not making any 

changes to current Medicaid non-DSH 

inmate policy and we are not addressing 

specific inquiries related to that policy 

because it is outside the scope of this 

rule. 

F. Indian Health Services 

In the 2012 DSH proposed rule, we 

specified that, for Medicaid DSH 

purposes, American Indians/Alaska 

Natives are considered to have third 

party coverage for inpatient and 

outpatient hospital services received 

directly from IHS or tribal health 

programs (direct health care services) 

and for services specifically authorized 

under CHS. The service-specific 

determination of third party coverage 

status of American Indian/Alaska 

Natives for services not authorized to be 

within the scope of coverage by CHS 

should be made in the same way as all 

other patients. This is the same 

treatment that we apply to services that 

are outside the scope of coverage from 

any other insurer or third party payer. 

Comments and our response to 

comments regarding Indian Health 

Services are as follows: 

Comment: Many commenters stated 

that the regulation should allow 

hospitals to count unfunded and 

unreimbursed costs attributed to IHS 

facilities, tribal program, and contract 

health services toward the hospitalspecific DSH limit. Commenters 

recommended that any subsequent cash 

settlement should be treated as a cash 

collection from the uninsured in the 

ensuing DSH audit cycle. Another 

commenter expressed concern that 

when Indian Health Care Providers 

render services to IHS-eligible persons 

the uncompensated costs associated 

with the service could not be included 

in calculating the hospital-specific DSH 

limit. 

Response: The determining factor in 

deciding whether an American Indian 

or Alaska Native has health insurance 

for an inpatient or outpatient hospital 

service is if the providing entity is an 

IHS facility or tribal health program. In 

the case of contract services, the 

coverage of the services is specifically 

authorized via a purchase order or 

equivalent document because 

individuals in these circumstances are 

considered to have a source of third 

party payment. The cost of services and 

any revenues received would be 

excluded from the DSH calculation. 

Individuals obtaining inpatient or 

outpatient hospital services from a nonIHS or tribal facility without a purchase 

order (or other authorization) would be 

considered uninsured for these services. 

The costs of these services and revenues 

received could be included in the DSH 

limit calculation. 

Comment: A few commenters stated 

hospitals participate in the CHS 

program through a formal arrangement 

that includes a purchase order or its 

equivalent. A strict reading of the 

regulatory language suggest that 

hospitals’ formal arrangements with the 

CHS program would disqualify those 

unreimbursed costs as eligible to be 

counted for purposes of calculating the 

DSH limit. The commenters requested 

that CMS clarify that these unfunded 

services would be eligible for costs. 

Response: An American Indian or 

Alaska Native would be considered to 

have no health insurance when he or 

she obtains services without a purchase 

order or equivalent authorization to pay 

for them. If contract providers have 


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provided needed services that were not 

pursuant to a purchase order, the 

American Indian or Alaska Native 

would be considered uninsured (absent 

private coverage) and the costs and any 

revenues associated with these services 

could be included in the limit. 

Comment: A commenter indicated 

that CMS did not engage in tribal 

consultation on the 2012 DSH proposed 

rule as required under section 5006(e) of 

the American Recovery and 

Reinvestment Act or Executive Order 

13174, ‘‘Consultation with Tribal 

Governments.’’ Therefore, CMS should 

engage in consultation with the 

American Indians and Alaska Native 

tribes before issuing a final rule. 

Response: We solicited input on the 

proposed rule from IHS, Tribal, and 

urban programs on March 16, 2012 

during an All Tribes’ Call. The purpose 

of the call was to solicit input regarding 

how implementation or changes to 

regulatory provisions would affect 

American Indians and Alaska Native 

beneficiaries and the operation of the 

Indian health program delivery system. 

Comment: A commenter, recognizing 

that the statute only addresses ‘‘a State 

or local unit of government within a 

State,’’ recommends that CMS include a 

provision in the final regulation that 

would treat IHS and tribal hospitals 

similarly to ‘‘a State or unit of local 

government within a State’’ for purposes 

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

Response: The comments are outside 

the scope of the proposed and final rule. 

Comment: A few commenters 

expressed concern regarding the 

proposed rule’s reliance on the 

definition of creditable coverage under 

45 CFR parts 144 and 146. 

Response: In this final rule, we are 

defining ‘‘individuals who have no 

health insurance (or other source of 

third party coverage) for the services 

furnished during the year’’ for purposes 

of calculating the hospital-specific DSH 

limit on a service-specific basis rather 

than on an individual basis, and thus do 

not make reference to the regulatory 

definition of creditable coverage. The 

definition instead requires a 

determination of whether, for each 

specific service furnished during the 

year, the individual has third party 

coverage. 

G. Affordable Care Act 

In response to the 2012 DSH proposed 

rule, we received a number of comments 

requesting clarification regarding how 

this final rule interacts with the 

Affordable Care Act. Comments and our 

response to comments on the Affordable 

Care Act are as follows: 

Comment: A commenter stated that 

CMS should issue guidance on the 

definition of uninsured addressing 

issues that may be raised by the changes 

to the health insurance landscape when 

the remaining Affordable Care Act 

reforms take effect in 2014, including 

implementation of state Health 

Insurance Exchanges and individual 

mandates. After the implementation of 

state-based exchanges in 2014, the 

definition of uninsured should include 

people who do not qualify for exchangebased coverage because of immigration 

status; people who receive an 

affordability waiver of the individual 

mandate; patients with coverage that 

meets the essential health benefits 

standards or catastrophic plan 

requirements but does not cover a 

provided service, and other uninsured 

consumers. 

Response: Absent a legislative change 

to the DSH law, we believe the 

determination of uninsured status will 

continue to be a fact-based 

determination that occurs at the time a 

patient presents to a hospital. 

Undoubtedly, some or all of the 

individuals in the populations the 

commenters cited would be considered 

uninsured when presenting to the 

hospital. 

Comment: A commenter stated that, 

with the reduction in DSH dollars in 

accordance with the Affordable Care 

Act, it is critical to require that hospitals 

collect information for each patient to 

determine their status as uninsured. The 

commenter stated that these issues 

should be addressed in the proposed 

rule implementing provisions of the 

Affordable Care Act requiring a 

reduction to DSH allotments. The 

commenter recommended various 

reporting activities, to ensure DSH 

funds are used to pay for the uninsured. 

Response: The comments are outside 

the scope of this regulation. 

H. DSH Audit Oversight 

Comment: Several commenters 

provided inquiries related to the DSH 

Audit and Reports that are required by 

section 1923(j) of the Act and 

implemented in regulations Parts 447 

and 455. The commenters generally 

requested greater CMS oversight to the 

Medicaid DSH audit program, clearer 

guidance, better communication 

between state programs, auditors, and 

hospitals, or highlighted other 

programmatic concerns related to the 

audits. 

Response: While the methods and 

procedures related to state reports and 

audits is outside the scope of this 

regulation, we will continue to provide 

technical assistance and guidance to 

states to assure compliance with section 

1923(j) of the Act. 

Comment: Several commenters stated 

that CMS should conduct ongoing 

evaluation of how DSH funds are 

distributed within a state and how 

funds are used by states and hospitals 

to adequately address the needs of 

remaining uninsured patients. 

Commenters stated that it will be 

critical to ensure the diminishing 

uncompensated care funding like DSH, 

and related policies, is properly targeted 

and allocated to those providers who 

continue to serve the uninsured. 

Response: States are required under 

section 1923(j) of the Act to report 

information about their DSH program 

and have it independently audited. We 

will continue to review this 

information. 

III. Provisions of the Final Rule 

A. Definition of Uninsured Under 

Section 1923(g) of the Act 

We are finalizing with one clarifying 

change to the provisions in the 2012 

DSH proposed rule. Specifically, we 

have revised the regulations text to 

clarify the definition of ‘‘health care 

coverage limit’’ to include other 

coverage limits than annual and lifetime 

limits. We are adding a new § 447.295 

Hospital-Specific Disproportionate 

Share Hospital Payment Limit— 

Definition of Individuals Who Have no 

Health Insurance (or Other Source of 

Third Party Coverage) for the Services 

Furnished During the Year and the 

Determination of an Individual’s Third 

Party Coverage Status. Specifically, 

§ 447.295(a) describes the scope of the 

new regulatory section and its focus on 

defining the term ‘‘individuals who 

have no health insurance (or other 

source of third party coverage) for the 

services furnished during the year.’’ 

Section 447.295(b) defines through 

regulation ‘‘individuals who have no 

health insurance (or other source of 

third party coverage) for the services 

furnished during the year’’ for purposes 

of calculating the hospital-specific DSH 

limit as described in section 1923(g) of 

the Act effective for 2011. Section 

447.295(b) also provides specific 

definitions for the terms ‘‘servicespecific coverage determination’’ and 

‘‘health insurance coverage limit.’’ 

In this final rule, we are defining 

‘‘individuals who have no health 

insurance (or other source of third party 

coverage) for the services furnished 

during the year’’ for purposes of 

calculating the hospital-specific DSH 

limit on a service-specific basis rather 

than on an individual basis, and thus do 

not make reference to the regulatory 


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definition of creditable coverage. The 

definition instead requires a 

determination of whether, for each 

specific service furnished during the 

year, the individual has third party 

coverage. 

We are also implementing the 

definition of ‘‘no source of third party 

coverage for a specific inpatient or 

outpatient service’’ to mean that the 

service is not within a covered benefit 

package under a group health plan or 

health insurance coverage (including 

the Medicare program), and is not 

covered by another legally liable third 

party. We are specifying that services 

beyond health coverage limits on 

insurance coverage, including annual or 

lifetime limits, will not be considered to 

be within a covered benefit package. 

Because funding limitations for 

services furnished through the IHS or 

tribal health programs are similar in 

nature to benefit limitations, we 

consider them as such for this purpose. 

This final rule considers services 

furnished to American Indians/Alaska 

Natives to be covered by IHS or tribal 

health programs only to the extent that 

the individuals receive services directly 

from IHS or tribal health programs 

(direct health care services) or when IHS 

or a tribal health program has 

authorized coverage through the 

contract health service program 

(through a purchase order or equivalent 

document). 

We are not including in this final rule 

a single test for how a ‘‘service’’ is 

defined for these purposes because of 

the variance in the types of services that 

are at issue. However, we are including 

at § 447.295(c)(1) ‘‘Determination of an 

Individual’s Third Party Coverage 

Status,’’ the principle that a ‘‘service’’ 

should include the same elements that 

would be included for the same or 

similar services under Medicaid 

generally. The intent is that the hospital 

will generally determine that an 

individual is either insured or not 

insured for a given hospital stay, and 

will not separate out component parts of 

the hospital stay based on the level of 

payment received. 

Section 447.295(c) specifies that the 

determination of an individual’s third 

party coverage status is a servicespecific measure for purposes of 

calculating the hospital-specific DSH 

limit, based on the coverage and benefit 

exclusions of health insurers and the 

availability of coverage for that service 

from other third party carriers. This 

final rule establishes that the 

determination of an individual’s status 

as an ‘‘individual who has no health 

insurance (or other source of third party 

coverage)’’ for purposes of calculating 

the Medicaid hospital-specific DSH 

limit be based on coverage for the 

particular inpatient or outpatient 

hospital service provided to an 

individual under the terms of an 

insurance or other coverage plan, or 

actual coverage for the service through 

such a plan or another third party. The 

determination is not based on payment. 

B. Lifetime Limits, Limited Coverage 

Plans, and Exhausted Benefits 

This final rule clarifies the definition 

of ‘‘individuals who have no health 

insurance (or other source of third party 

coverage) for the services furnished 

during the year’’ so that inpatient and 

outpatient hospital costs associated with 

individuals who have third party 

coverage but have reached annual or 

lifetime insurance limits or have 

otherwise exhausted covered benefits 

can be included in calculating the 

hospital-specific DSH limit. For 

purposes of the preceding sentence, the 

only costs that are permitted for 

inclusion in the calculation of the limit 

are for separate services provided after 

the exhaustion of covered benefits. 

Additionally, inpatient and outpatient 

hospital costs of services provided to 

individuals whose coverage specifically 

excludes the hospital service provided 

can be included in calculating the 

hospital-specific DSH limit. This 

interpretation and definition of 

‘‘uninsured’’ affords states and hospitals 

maximum flexibility permitted by 

statute in calculating the hospitalspecific DSH limit. This clarification is 

effective for DSH audits and reports 

submitted following the effective date of 

the rule, thus avoiding any unintended, 

and potentially significant, financial 

impact resulting from the 2008 DSH 

final rule. 

While this final rule provides some 

relief for certain costs by allowing their 

inclusion in the calculation of the 

hospital-specific DSH limit, we believe 

that it is equally important to address 

those costs that are currently prohibited 

from inclusion and for which this rule 

provides no change in treatment under 

title XIX of the Act. For the reasons 

described below, we continue to believe 

that currently prohibited costs are not 

appropriate for purposes of Medicaid 

DSH and are not consistent with 

statutory language with respect to the 

hospital-specific DSH limit. 

C. Bad Debt and Unpaid Coinsurance 

and Deductibles 

This final rule clarifies the definition 

of ‘‘individuals who have no health 

insurance (or other source of third party 

coverage) for the services furnished 

during the year’’ such that costs 

associated with bad debt, including any 

unpaid coinsurance and deductibles 

required under third party coverage, and 

payer discounts under such coverage 

cannot be included in calculating the 

hospital-specific DSH limit for 

individuals with a source of third party 

coverage. In these instances, the cost of 

the service in question was provided to 

an individual with a source of third 

party coverage for the service, and the 

amount due represents uncollected 

revenues not uninsured costs. This 

clarification ensures that this final rule 

is consistent with existing DSH statute, 

regulations, and longstanding CMS 

policy. 

Section 1923(g) of the Act requires 

that costs associated with individuals 

with a source of third party coverage be 

excluded from the calculation of the 

hospital-specific DSH limit. The current 

DSH regulations, as modified by the 

2008 DSH final rule, also prohibit the 

inclusion of costs associated with 

unpaid coinsurance, deductibles, bad 

debt, and payer discounts for 

individuals with a source of third party 

coverage. This final rule makes no 

change to the allowability of these costs. 

D. Prisoners 

This final rule clarifies that the final 

definition of ‘‘individuals who have no 

health insurance (or other source of 

third party coverage) for the services 

furnished during the year’’ maintains 

the current position that individuals 

who are inmates in a public institution 

are considered to have a source of third 

party coverage as described in guidance 

issued to states in a letter dated August 

8, 2002. The final rule does not make 

any changes to current Medicaid NonDSH inmate policy. 

E. Clarification of the Application of the 

Definition of ‘‘Individuals Who Have No 

Health Insurance (or Other Source of 

Third Party Coverage) for the Services 

Furnished During the Year’’ for 

Purposes of Calculating HospitalSpecific DSH Limits 

Section 447.295(d) specifies that costs 

considered for purposes of calculating 

the hospital-specific limit are limited to 

net costs incurred for individuals who 

have no health insurance or source of 

third party coverage for the services 

furnished during the year. This section 

ensures that the regulatory definition of 

‘‘individuals who have no health 

insurance (or other source of third party 

coverage) for the services furnished 

during the year’’ is appropriately 

applied for purposes of calculating 

hospital-specific DSH limits. 


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IV. Waiver of 60-Day Delay in the 

Effective Date 

We ordinarily provide a 60-day delay 

in the effective date of the provisions of 

a major rule, pursuant to 5 U.S.C. 

801(a)(3). However, if we find, for good 

cause, that notice and public procedure 

are impracticable, unnecessary, or 

contrary to the public interest, and 

incorporates a statement of the finding 

and the reasons in the rule issued, the 

60-day delay in the effective date can 

take effect as we determine in 5 U.S.C. 

808(2)). 

We find good cause to provide a 30- 

day delayed effective date instead of a 

60-day delayed effective date. Many 

states and hospitals continue to apply 

the pre-DSH audit transition period 

definition of ‘‘uninsured’’ articulated in 

the August 17, 1994 letter to State 

Medicaid Directors. This rule, effective 

for the first audits due after the DSH 

audit transition period, realigns the 

definition of ‘‘uninsured’’ with the preDSH audit transition period definition. 

We find that a 30-day delay in the 

effective date would be sufficient to 

permit implementation of this 

definition, and that additional time 

would be unnecessary, because this rule 

conforms the audit standards to the 

practice and procedure that many states 

and hospitals followed through the DSH 

audit transition period and are 

following now. 

This rule ensures that audit standards 

for state DSH payments made to 

hospitals during the DSH audit 

transition period will not exceed the 

hospital-specific limit as a result of 

using the old definition. 

V. Collection of Information 

Requirements 

This rule does not impose any new or 

revised reporting, recordkeeping, or 

third-party disclosure requirements. 

Additionally, it does not impact any 

auditing or reporting requirements/

burden associated with section 1923(j) 

of the Act or information collections 

under the CMS–2552 (OMB control 

number 0938–0050) cost report. 

Consequently, the rule does not require 

additional review by the Office of 

Management and Budget under the 

authority of the Paperwork Reduction 

Act of 1995 (44 U.S.C. 3501 et seq.). 

VI. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impact of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

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

354), section 1102(b) of the Social 

Security Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 

(March 22, 1995; Pub. L. 104–4), 

Executive Order 13132 on Federalism 

(August 4, 1999) and the Congressional 

Review Act (5 U.S.C. 804(2)). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). We do not have definitive 

national data that isolates the impact of 

this rule on hospital-specific DSH limits 

or national DSH payments. Due to the 

lack of this data we are unable to predict 

and estimate the impacts of this final 

rule, including those of individual 

hospitals or groups of hospitals. 

However, a rough calculation for one 

large hospital system indicates that that 

system alone would experience ruleinduced transfer impacts of over $100 

million in the next year. As a result, this 

rule has been designated an 

‘‘economically significant’’ rule under 

section 3(f)(1) of Executive Order 12866, 

since it may have an economic impact 

in excess of $100 million. Furthermore, 

it is a major rule under the 

Congressional Review Act. Accordingly, 

we have prepared a Regulatory Impact 

Analysis (RIA) that, to the best of our 

ability, presents the costs and benefits of 

the rulemaking. In accordance with the 

provisions of Executive Order 12866, 

this regulation was reviewed by the 

Office of Management and Budget. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $7.5 million to $38.5 million in any 

1 year. Individuals and States are not 

included in the definition of a small 

entity. 

As its measure of significant 

economic impact on a substantial 

number of small entities, HHS uses a 

change in revenue of more than 3 to 5 

percent. This rule affects the calculation 

of the hospital-specific DSH limit. States 

may reduce Medicaid DSH payments to 

certain providers and increase DSH 

payments to other providers as a result 

of changes to the hospital-specific DSH 

limit, so it is possible that this rule 

could result in a change of more than 3 

to 5 percent of total hospital revenue 

due to the overall size of the Medicaid 

DSH program. Regardless, states alone 

are responsible in the management of 

their DSH allotment, retain the same 

flexibility to design DSH payment 

methodologies under the state plan, and 

are not required to increase or to 

decrease payments to providers as a 

result of this rule. Additionally, we do 

not have national data that isolates the 

impact of this rule on hospital-specific 

DSH limits or national DSH payments. 

Based on the lack of data and the factors 

described above, we cannot predict an 

accurate estimate of the impact on 

individual hospitals. As a result, this 

final rule may have a significant 

economic impact on a substantial 

number of small entities. This analysis, 

combined with the preamble, 

constitutes our final analysis for the 

RFA. 

In addition, section 1102(b) of the 

Social Security Act requires us to 

prepare a regulatory impact analysis if 

a rule may have a significant impact on 

the operations of a substantial number 

of small rural hospitals. This analysis 

must conform to the provisions of 

section 604 of the RFA. For purposes of 

section 1102(b) of the Act, we define a 

small rural hospital as a hospital that is 

located outside of a Metropolitan 

Statistical Area for Medicare payment 

regulations and has fewer than 100 

beds. This rule affects the calculation of 

the hospital-specific DSH limit. States 

may reduce Medicaid DSH payments to 

certain providers and increase DSH 

payments to other providers as a result 

of changes to the hospital-specific DSH 

limit, so it is possible that this rule may 

have a significant impact on small rural 

hospitals due to the overall size of the 

Medicaid DSH program. Regardless, 

states alone are responsible for the 

management of their DSH allotment, 

retain the same flexibility to design DSH 

payment methodologies under the state 

plan, and are not required to increase or 

to decrease payments to providers as a 

result of this rule. Additionally, we do 

not have national data that isolates the 

impact of this rule on hospital-specific 

DSH limits or national DSH payments. 

Based on the lack of data and the factors 

described above, we cannot predict an 

accurate estimate of the impact on small 

rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

In 2014, that threshold is approximately 


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Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Rules and Regulations 71693 

$141 million. This rule has no 

consequential mandate on state, local, 

or tribal governments or on the private 

sector. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a final 

rule that imposes substantial direct 

requirement costs on state and local 

governments, preempts state law, or 

otherwise has Federalism implications. 

Since this regulation does not impose 

any costs on state or local governments, 

the requirements of Executive Order 

13132 are not applicable. 

Pursuant to E.O. 13175 and the CMS 

Tribal Consultation Policy (November 

2011), CMS consulted with Tribal 

officials prior to the formal 

promulgation of this regulation. 

B. Anticipated Effects 

1. Effects on State Medicaid Programs 

CMS does not anticipate that the final 

rule will have significant financial 

effects on State Medicaid Programs. 

Federal share DSH allotments, which 

are published by CMS in an annual 

Federal Register notice, limit the 

amount of Federal financial 

participation (FFP) that can be paid 

annually to a state for aggregate DSH 

payments made to hospitals. This final 

rule does not modify the DSH allotment 

amounts and will have no effect on a 

state’s ability to claim FFP for DSH 

payments made up to the published 

DSH allotment amounts. 

This final rule, however, may affect 

the calculation of the hospital-specific 

DSH limit established at section 1923(g) 

of the Act. This hospital-specific limit 

requires that Medicaid DSH payments to 

a qualifying hospital not exceed the 

costs incurred by that hospital for 

providing inpatient and outpatient 

hospital services furnished during the 

year to Medicaid patients and 

individuals who have no health 

insurance or other source of third party 

coverage for the services provided 

during the year, less applicable 

revenues for those services. This final 

rule defines ‘‘individuals who have no 

health insurance (or other source of 

third party coverage) for the services 

furnished during the year’’ for purposes 

of calculating the hospital-specific DSH 

limit effective for 2011. This final rule 

also provides additional clarification to 

states and hospitals regarding costs 

eligible for inclusion in the calculation 

of the hospital-specific DSH limit. The 

provisions of this rule may have an 

effect on the calculation of the hospital’s 

specific DSH limit amount for some 

hospitals depending upon the method 

utilized by the hospital or state in 

calculating the limit prior to the 

effective date of the final rule. 

States retain considerable flexibility 

in setting DSH State plan payment 

methodologies to the extent that these 

methodologies are consistent with 

section 1923(c) of the Act and all other 

applicable statute and regulations. Some 

states may determine that implementing 

a retrospective DSH payment 

methodology or a DSH reconciliation in 

their state plan is a reasonable way to 

manage its DSH allotment and ensure 

that payments made in excess of 

hospital-specific DSH limits are 

redistributed to hospitals that have not 

exceeded their limits. Although the state 

may have to modify definitions 

provided to hospitals in determining the 

hospital-specific DSH limit, the 

potential effect on the calculation of 

these limits would not result in an 

increase or decrease in the amount of 

FFP available to states for aggregate DSH 

payments made to hospitals. 

2. Effects on Providers 

This final rule defines ‘‘individuals 

who have no health insurance (or other 

source of third party coverage) for the 

services furnished during the year’’ for 

purposes of calculating the hospitalspecific DSH limit effective for 2011. 

This final rule also provides additional 

clarification to states and hospitals 

regarding costs eligible for inclusion in 

the calculation of the hospital-specific 

DSH limit. This final rule may affect the 

calculation of the hospital-specific DSH 

limit established at section 1923(g) of 

the Act. Hospitals, if directly affected by 

the final rule, should have higher DSH 

eligible costs. This increase in eligible 

costs would result in an increase in the 

hospital-specific DSH limit of these 

affected hospitals. In particular, DSH 

hospitals that provide a high volume of 

hospital services to American Indians/

Alaska Natives where CHS payment is 

not authorized, individuals with 

creditable coverage but without 

coverage for the hospital services 

received as it relates to DSH costs, or 

individuals with limited coverage plans, 

lifetime limits, or exhausted benefits, 

may recognize an increase in their 

hospital-specific DSH limit. States are 

not required to increase DSH payments 

to affected hospitals based on increases 

in hospital-specific DSH limits. 

The increased DSH limits, however, 

may mitigate the potential return of 

DSH payments to hospitals that would 

have been considered to exceed the 

hospital-specific DSH limit absent the 

provisions of this final rule. 

Additionally, states may reduce 

Medicaid DSH payments to certain 

providers and increase DSH payments 

to other providers as a result of changes 

to the hospital-specific DSH limit. 

Regardless, states alone are responsible 

in the management of their DSH 

allotment, retain the same flexibility to 

design DSH payment methodologies 

under the state plan, and are not 

required to increase or to decrease 

payments to providers as a result of this 

rule. We do not have national data that 

isolates the impact of this rule on 

hospital-specific DSH limits or national 

DSH payments. Based on the lack of 

data and the factors described above, we 

cannot predict an accurate estimate of 

the impact on individual hospitals or 

groups of hospitals. 

C. Alternatives Considered 

In developing this rule, the following 

alternatives were considered. We 

considered not revising the definition of 

uninsured for purposes of determining 

the Medicaid DSH hospital-specific 

limit. However, we believe the 

individual-specific application of the 

definition of ‘‘uninsured’’ under the 

current rule effectively precludes 

recognition of uncompensated care costs 

for many services for which an 

individual is uninsured and has no 

third party coverage. Costs affected also 

include those associated with 

individuals who have reached health 

coverage limits, including annual or 

lifetime insurance limits, for certain 

services; have limited coverage through 

IHS or tribal health programs; or have 

inadequate insurance benefit packages. 

An alternative approach that we 

considered when developing this rule 

was to broaden even further the 

definition of uninsured to take into 

account costs associated with bad debt 

and prisoners. However, we believe that 

such an approach would not be 

consistent with the intent of both the 

hospital-specific limit and with the 

general exclusion of payment for 

services furnished to prisoners. 

D. Accounting Statement and Table 

As required by OMB Circular A–4 

(available at http://

www.whitehouse.gov/omb/circulars_

a004_a-4/), we have prepared an 

accounting statement table showing the 

classification of the impacts associated 

with implementation of this final rule. 


tkelley on DSK3SPTVN1PROD with RULES
71694 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Rules and Regulations 

ACCOUNTING TABLE

Category Estimate 

Transfers .................................................. Qualitative assessment of impacts as a result of this final rule may result in transfers that exceed 

$100 million in a given year. 

To: Hospitals whose DSH limits increase. 

From: Other disproportionate share hospitals. 

E. Conclusion 

For the reasons discussed above, this 

rule has been designated an 

‘‘economically significant’’ rule under 

section 3(f)(1) of Executive Order 12866, 

since it may have an economic impact 

in excess of $100 million on a 

substantial number of small entities or 

on a substantial number of small rural 

hospitals. We do not have definitive 

national data that isolates the impact of 

this rule on hospital-specific DSH limits 

or national DSH payments. Due to the 

lack of this data we are unable to predict 

and estimate the impacts of this final 

rule, including those of individual 

hospitals or groups of hospitals. 

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 447 

Accounting, Administrative practice 

and procedure, Drugs, Grant programs— 

health, Health facilities, Health 

professions, Medicaid, Reporting and 

recordkeeping requirements, Rural 

areas. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR part 

447 as set forth below: 

Title 42—Public Health 

PART 447—PAYMENTS FOR 

SERVICES 

■ 1. The authority citation for part 447 

continues as follows: 

Authority: Sec. 1102 of the Social Security 

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

Subpart E—Payment Adjustments for 

Hospitals That Serve a 

Disproportionate Number of LowIncome Patients 

■ 2. Add § 447.295 to read as follows: 

§ 447.295—Hospital-Specific 

Disproportionate Share Hospital Payment 

Limit: Determination of Individuals without 

Health Insurance or Other Third Party 

Coverage. 

(a) Basis and purpose. This section 

sets forth the methodology for 

determining the costs for individuals 

who have no health insurance or other 

source of third party coverage for 

services furnished during the year for 

purposes of calculating the hospitalspecific disproportionate share hospital 

payment limit under section 1923(g) of 

the Act. 

(b) Definitions. 

Individuals who have no health 

insurance (or other source of third party 

coverage) for the services furnished 

during the year means individuals who 

have no source of third party coverage 

for the specific inpatient hospital or 

outpatient hospital service furnished by 

the hospital. 

Health insurance coverage limit 

means a limit imposed by a third party 

payer that establishes a maximum dollar 

value or maximum number of specific 

services, for benefits received by an 

individual. 

No source of third party coverage for 

a specific inpatient hospital or 

outpatient hospital service means that 

the service is not included in an 

individual’s health benefits coverage 

through a group health plan or health 

insurer, and for which there is no other 

legally liable third party. When a health 

insurance coverage limit is imposed by 

a third party payer, specific services 

beyond the limit would not be within 

the individual’s health benefit package 

from that third party payer. For 

American Indians/Alaska Natives, IHS 

and tribal coverage is only considered 

third party coverage when services are 

received directly from IHS or tribal 

health programs (direct health care 

services) or when IHS or a tribal health 

program has authorized coverage 

through the contract health service 

program (through a purchase order or 

equivalent document). Administrative 

denials of payment, or requirements for 

satisfaction of deductible, copayment or 

coinsurance liability, do not affect the 

determination that a specific service is 

included in the health benefits coverage. 

(c) Determination of an individual’s 

third party coverage status. Individuals 

who have no source of third party 

coverage for a specific inpatient hospital 

or outpatient hospital service must be 

considered, for purposes of that service, 

to be uninsured. This determination is 

not dependent on the receipt of 

payment by the hospital from the third 

party. 

(1) The determination of an 

individual’s status as having a source of 

third party coverage must be a servicespecific coverage determination. The 

service-specific coverage determination 

can occur only once per individual per 

service provided and applies to the 

entire service, including all elements as 

that service, or similar services, would 

be defined in Medicaid. 

(2) Individuals who are inmates in a 

public institution or are otherwise 

involuntarily in secure custody as a 

result of criminal charges are considered 

to have a source of third party coverage. 

(d) Hospital-specific DSH limit 

calculation. Only costs incurred in 

providing inpatient hospital and 

outpatient hospital services to Medicaid 

individuals, and revenues received with 

respect to those services, and costs 

incurred in providing inpatient hospital 

and outpatient hospital services, and 

revenues received with respect to those 

services, for which a determination has 

been made in accordance with 

paragraph (c) of this section that the 

services were furnished to individuals 

who have no source of third party 

coverage for the specific inpatient 

hospital or outpatient hospital service 

are included when calculating the costs 

and revenues for Medicaid individuals 

and individuals who have no health 

insurance or other source of third party 

coverage for purposes of section 

1923(g)(1) of the Act. 

Dated: September 26, 2014. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Dated: November 19, 2014. 

Sylvia M. Burwell, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2014–28424 Filed 11–28–14; 11:15 am] 

BILLING CODE 4120–01–P 


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