Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Proposed Rules 28551 

Please see the direct final rule which 

is located in the Rules section of this 

Federal Register for detailed 

instructions on how to submit 

comments. 

FOR FURTHER INFORMATION CONTACT: 

Anthony Maietta, Environmental 

Protection Specialist, Control Strategies 

Section, Air Programs Branch (AR–18J), 

Environmental Protection Agency, 

Region 5, 77 West Jackson Boulevard, 

Chicago, Illinois 60604, (312)353–8777, 

maietta.anthony@epa.gov. 

SUPPLEMENTARY INFORMATION: In the 

Final Rules section of this Federal 

Register, EPA is approving the State’s 

SIP submittal as a direct final rule 

without prior proposal because EPA 

views this as a noncontroversial 

submittal and anticipates no adverse 

comments. A detailed rationale for the 

approval is set forth in the direct final 

rule. If no adverse comments are 

received in response to this rule, no 

further activity is contemplated. If EPA 

receives adverse comments, the direct 

final rule will be withdrawn and all 

relevant public comments received will 

be addressed in a subsequent final rule 

based on this proposed rule. EPA will 

not institute a second comment period. 

Any parties interested in commenting 

on this action should do so at this time. 

Please note that if EPA receives adverse 

comment on an amendment, paragraph, 

or section of this rule and if that 

provision may be severed from the 

remainder of the rule, EPA may adopt 

as final those provisions of the rule that 

are not the subject of an adverse 

comment. For additional information, 

see the direct final rule which is located 

in the Rules section of this Federal 

Register. 

Dated: April 30, 2013. 

Susan Hedman, 

Regional Administrator, Region 5. 

[FR Doc. 2013–11454 Filed 5–14–13; 8:45 am] 

BILLING CODE 6560–50–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R05–OAR–2012–0968 FRL–9812–1] 

Approval and Promulgation of Air 

Quality Implementation Plans; Ohio; 

Canton-Massillon 1997 8-Hour Ozone 

Maintenance Plan Revision to 

Approved Motor Vehicle Emissions 

Budgets 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: EPA is proposing to approve 

the request by Ohio to revise the 

Canton-Massillon, Ohio, 1997 8-hour 

ozone maintenance air quality State 

Implementation Plan (SIP) under the 

Clean Air Act to replace the previously 

approved motor vehicle emissions 

budgets with budgets developed using 

EPA’s Motor Vehicle Emissions 

Simulator (MOVES) emissions model. 

Ohio submitted the SIP revision request 

to EPA on November 26, 2012. 

DATES: Comments must be received on 

or before June 14, 2013. 

ADDRESSES: Submit your comments, 

identified by Docket ID No. EPA–R05– 

OAR–2012–0968, by one of the 

following methods: 

1. www.regulations.gov: Follow the 

on-line instructions for submitting 

comments. 

2. Email: blakley.pamela@epa.gov. 

3. Fax: (312) 692–2450. 

4. Mail: Pamela Blakley, Chief, 

Control Strategies Section, Air Programs 

Branch (AR–18J), U.S. Environmental 

Protection Agency, 77 West Jackson 

Boulevard, Chicago, Illinois 60604. 

5. Hand Delivery: Pamela Blakley, 

Chief, Control Strategies Section, Air 

Programs Branch (AR–18J), U.S. 

Environmental Protection Agency, 77 

West Jackson Boulevard, Chicago, 

Illinois 60604. Such deliveries are only 

accepted during the Regional Office 

normal hours of operation, and special 

arrangements should be made for 

deliveries of boxed information. The 

Regional Office official hours of 

business are Monday through Friday, 

8:30 a.m. to 4:30 p.m., excluding 

Federal holidays. 

Please see the direct final rule which 

is located in the Rules section of this 

Federal Register for detailed 

instructions on how to submit 

comments. 

FOR FURTHER INFORMATION CONTACT: 

Anthony Maietta, Environmental 

Protection Specialist, Control Strategies 

Section, Air Programs Branch (AR–18J), 

Environmental Protection Agency, 

Region 5, 77 West Jackson Boulevard, 

Chicago, Illinois 60604, (312) 353–8777, 

maietta.anthony@epa.gov. 

SUPPLEMENTARY INFORMATION: In the 

Final Rules section of this Federal 

Register, EPA is approving the state’s 

SIP submittal as a direct final rule 

without prior proposal because EPA 

views this as a noncontroversial 

submittal and anticipates no adverse 

comments. A detailed rationale for the 

approval is set forth in the direct final 

rule. If no adverse comments are 

received in response to this rule, no 

further activity is contemplated. If EPA 

receives adverse comments, the direct 

final rule will be withdrawn and all 

public comments received will be 

addressed in a subsequent final rule 

based on this proposed rule. EPA will 

not institute a second comment period. 

Any parties interested in commenting 

on this action should do so at this time. 

Please note that if EPA receives adverse 

comment on an amendment, paragraph, 

or section of this rule and if that 

provision may be severed from the 

remainder of the rule, EPA may adopt 

as final those provisions of the rule that 

are not the subject of an adverse 

comment. For additional information, 

see the direct final rule which is located 

in the Rules section of this Federal 

Register. 

Dated: April 30, 2013. 

Susan Hedman, 

Regional Administrator, Region 5. 

[FR Doc. 2013–11448 Filed 5–14–13; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 447 

[CMS–2367–P] 

RIN 0938–AR31 

Medicaid Program; State 

Disproportionate Share Hospital 

Allotment Reductions 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: The statute, as amended by 

the Affordable Care Act, requires 

aggregate reductions to state Medicaid 

Disproportionate Share Hospital (DSH) 

allotments annually from fiscal year 

(FY) 2014 through FY 2020. This 

proposed rule delineates a methodology 

to implement the annual reductions for 

FY 2014 and FY 2015. The rule also 

proposes to add additional DSH 

reporting requirements for use in 

implementing the DSH health reform 

methodology. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on July 12, 2013. 

ADDRESSES: In commenting, please refer 

to file code CMS–2367–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 


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28552 Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Proposed Rules 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the ‘‘Submit a comment’’ instructions. 

2. By regular mail. You may mail 

written comments to the following 

address only: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–2367–P, P.O. Box 8016, Baltimore, 

MD 21244–8016. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address only: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–2367–P, Mail 

Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. Alternatively, 

you may deliver (by hand or courier) 

your written comments only to the 

following addresses prior to the close of 

the comment period: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, call 

telephone number (410) 786–7195 in 

advance to schedule your arrival with 

one of our staff members. 

Comments erroneously mailed to the 

addresses indicated as appropriate for 

hand or courier delivery may be delayed 

and received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: Rory 

Howe, (410) 786–4878 and Richard 

Strauss, (410) 786–2019. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http:// 

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

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

appointment to view public comments, 

phone 1–800–743–3951. 

I. Executive Summary 

A. Purpose 

The statute as amended by the 

Affordable Care Act sets forth aggregate 

reductions to state Medicaid 

disproportionate share hospital (DSH) 

allotments annually from fiscal year 

(FY) 2014 through FY 2020. This 

proposed rule delineates the DSH 

Health Reform Methodology (DHRM) to 

implement the annual reductions for FY 

2014 and FY 2015. 

B. Summary of the Major Provisions 

The statute as amended by the 

Affordable Care Act directs the 

Secretary to implement the annual DSH 

allotment reductions using a DHRM. 

This rule proposes to amend part 447 by 

establishing the DHRM. The DHRM 

incorporates five factors identified in 

the statute. 

C. Costs and Benefits 

Taking these five factors into account 

for each state, the proposed DHRM 

would generate a state-specific DSH 

allotment reduction amount for FY 2014 

and FY 2015. The total of all DSH 

allotment reduction amounts would 

equal the aggregate annual reduction 

amounts identified in the statute for FY 

2014 and FY 2015. To determine the 

effective annual DSH allotment for each 

state, the state-specific annual DSH 

allotment reduction amount would be 

applied to the unreduced DSH allotment 

amount for its respective state. 

II. Background 

A. Introduction 

As a result of the Affordable Care Act, 

millions of Americans will have access 

to health insurance coverage through 

qualified health plans offered through 

Health Insurance Exchanges (also called 

marketplaces) or through the Medicaid 

program. This increase in the number of 

individuals having access to health 

insurance is expected to significantly 

reduce levels of uncompensated care 

provided by hospitals. 

On the assumption that the number of 

uninsured people will fall sharply 

beginning in 2014, the statute reforms 

an existing initiative under the 

Medicaid program to address the 

situation of hospitals which serve a 

disproportionate share of low income 

patients and therefore may have 

uncompensated care costs. Under 

sections 1902(a)(13)(A)(iv) and 1923 of 

the Social Security Act (the Act), states 

are required to make payments to 

qualifying ‘‘disproportionate share’’ 

hospitals (DSH payments). Section 2551 

of the Affordable Care Act amended 

section 1923(f) of the Act, by adding 

paragraph (7), to provide for aggregate 

reductions in federal funding under the 

Medicaid program for such DSH 

payments for the 50 states and the 

District of Columbia. This reform of the 

DSH payment authority is consistent 

with the reduction of uncompensated 

care costs (particularly those associated 

with the uninsured) expected to result 

from the expansion of coverage under 

the statute. 

Section 1923(f)(7)(A)(i) of the Act 

requires that the Secretary of Health and 

Human Services (the Secretary) 

implement the aggregate reductions in 

federal funding for DSH payments 

through reductions in annual state 

allotments of federal funding for DSH 

payments (state DSH allotments), and 

accompanying reductions in payments 

to each state. Since 1998, the amount of 

federal funding for DSH payments for 

each state has been limited to an annual 

state DSH allotment in accordance with 

section 1923(f) of the Act. Section 

1923(f)(7) of the Act requires the use of 

a DHRM to determine the percentage 

reduction in each annual state DSH 

allotment to achieve the required 

aggregate annual reduction in federal 

DSH funding. 

Section 1923(f)(7)(B) establishes the 

following five factors that must be 

considered in the development of the 

DHRM. The methodology must: 

• Impose a smaller percentage 

reduction on low DSH States; 

• Impose larger percentage reductions 

on states that have the lowest 


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percentages of uninsured individuals 

during the most recent year for which 

such data are available; 

• Impose larger percentage reductions 

on states that do not target their DSH 

payments on hospitals with high 

volumes of Medicaid inpatients; 

• Impose larger percentage reductions 

on states that do not target their DSH 

payments on hospitals with high levels 

of uncompensated care; and 

• Take into account the extent to 

which the DSH allotment for a state was 

included in the budget neutrality 

calculation for a coverage expansion 

approved under section 1115 as of July 

31, 2009. 

The statutory provision for each factor 

contains explicit principles, described 

below, to apply when calculating the 

annual DSH allotment reduction 

amounts for each state through the 

DHRM. 

B. Legislative History and Overview 

The Omnibus Budget Reconciliation 

Act of 1981 (OBRA ’81) (Pub. L. 97–35, 

enacted on August 31, 1981) amended 

section 1902(a)(13) of the Act to require 

that Medicaid payment rates for 

hospitals ‘‘take into account the 

situation of hospitals that serve a 

disproportionate share of low-income 

patients with special needs.’’ Over the 

more than 30 years since this 

requirement was first enacted, the 

Congress has set forth in section 1923 of 

the Act payment targets and limits to 

implement the requirement and to 

ensure greater oversight, transparency, 

and targeting of funding to hospitals. 

To qualify as a DSH under section 

1923(b) of the Act, a hospital must meet 

two minimum qualifying criteria in 

section 1923(d) of the Act. The first 

criterion is that the hospital has at least 

two obstetricians who have staff 

privileges at the hospital and who have 

agreed to provide obstetric services to 

Medicaid individuals. This criterion 

does not apply to hospitals in which the 

inpatients are predominantly 

individuals under 18 years of age or 

hospitals that do not offer 

nonemergency obstetric services to the 

general public as of the date of the 

enactment of the Act. The second 

criterion is that the hospital has a 

Medicaid inpatient utilization rate of at 

least 1 percent. 

Under section 1923(b) of the Act, a 

hospital meeting the minimum 

qualifying criteria in section 1923(d) of 

the Act is deemed as a DSH if the 

hospital’s Medicaid inpatient utilization 

rate (MIUR) is at least one standard 

deviation above the mean MIUR in the 

state, or if the hospital’s low-income 

utilization rate exceeds 25 percent. 

States have the option to define 

disproportionate share hospitals under 

the state plan using alternative 

qualifying criteria as long as the 

qualifying methodology comports with 

the deeming requirements of section 

1923(b) of the Act. Subject to certain 

federal payment limits, states are 

afforded flexibility in setting DSH state 

plan payment methodologies to the 

extent that these methodologies are 

consistent with section 1923(c) of the 

Act. Section 1923(f) of the Act limits 

federal financial participation (FFP) for 

total statewide DSH payments made to 

eligible hospitals in each federal FY to 

the amount specified in an annual DSH 

allotment for each state. Although there 

have been some special rules for 

calculating DSH allotments for 

particular years or sets of years, section 

1923(f)(3) establishes a general rule that 

state DSH allotments are calculated on 

an annual basis in an amount equal to 

the DSH allotment for the preceding FY 

increased by the percentage change in 

the consumer price index for all urban 

consumers for the previous FY. The 

annual allotment, after the consumer 

price index increase, is limited to the 

greater of the DSH allotment for the 

previous year or twelve percent of the 

total amount of Medicaid expenditures 

under the state plan during the FY. 

Allotment amounts were originally 

established in the Medicaid Voluntary 

Contribution and Provider Specific Tax 

Amendments of 1991 based on each 

state’s historical DSH spending. 

Section 1923(g) of the Act also limits 

FFP for DSH payments by imposing a 

hospital-specific limit on DSH 

payments. FFP is not available for DSH 

payments that exceed the hospital’s 

uncompensated cost of providing 

inpatient hospital and outpatient 

hospital services to Medicaid patients 

and the uninsured, minus payments 

received by the hospital by or on the 

behalf of those patients. 

The statute, as amended by the 

Affordable Care Act, requires annual 

aggregate reductions in federal DSH 

funding from FY 2014 through FY 2020. 

The aggregate annual reduction amounts 

are: 

• $500,000,000 for FY 2014; 

• $600,000,000 for FY 2015; 

• $600,000,000 for FY 2016; 

• $1,800,000,000 for FY 2017; 

• $5,000,000,000 for FY 2018; 

• $5,600,000,000 for FY 2019; and 

• $4,000,000,000 for FY 2020. 

To implement these annual 

reductions, the statute requires that the 

Secretary reduce annual state DSH 

allotments, and payments to states, 

based on a DHRM specified in section 

1923(f)(7)(B) of the Act. The proposed 

DHRM relies on the five statutorily 

identified factors collectively to 

determine a state-specific DSH 

allotment reduction amount to be 

applied to the allotment that is 

calculated under section 1923(f) of the 

Act prior to the reductions under 

section 1923(f)(7) of the Act. 

C. The Impact of a State’s Decision To 

Adopt the New Low-Income Adult 

Coverage Group 

The statute provides significant 

federal financial support for states to 

extend coverage to low-income adults 

under section 1902(a)(10)(A)(i)(VIII) of 

the Act. For a state that implements the 

new adult coverage group, the state and 

its hospitals will receive full Medicaid 

reimbursement for many previously 

uninsured patients. So on balance, we 

believe both hospitals and States stand 

to benefit greatly from expanding 

Medicaid. 

Implementation of the new coverage 

group is expected to affect the amount 

of uncompensated care and the 

percentage of uninsured individuals 

within states. Generally, we expect that 

states that do not implement the new 

coverage group would have relatively 

higher rates of uninsured, and more 

uncompensated care, than states that 

adopt the new coverage group. 

Because states that implement the 

new coverage group would have lower 

rates of uninsurance, the reduction in 

DSH funding may be greater for such 

states compared to States that do not 

implement the new coverage group. 

Consequently, hospitals in states 

implementing the new coverage group 

that serve Medicaid patients may 

experience a deeper reduction in DSH 

payments than they would if all states 

were to implement the new coverage 

group. Given the statutory reductions in 

the funding for Medicaid DSH in the 

Affordable Care Act, we intend to 

account for the different circumstances 

among states in the formula in future 

rulemaking. 

Currently, we do not have sufficient 

information on the relative impacts that 

would result from state decisions to 

implement the new coverage group, and 

thus we have determined to propose a 

DHRM only for the first two years 

during which the DSH funding 

reductions are in effect. The data that 

the reductions are based on for these 

two years will not reflect differential 

decisions to implement the new 

coverage group. Data reflecting the 

effects of the decision to implement the 

new coverage group may not be 

available to consider the impact of such 

a decision until 2016. Therefore, we 

intend to continue evaluating potential 


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implications for accounting for coverage 

expansion in the DHRM. While we are 

interested in public comment on this 

issue, we intend to address this issue 

more completely in separate rulemaking 

for DSH allotment reductions for FY 

2016 and thereafter. 

Accordingly, we are proposing to 

establish a DHRM that would be in 

effect for FY 2014 and FY 2015 and we 

are not including a method to account 

for differential coverage expansions in 

Medicaid for FY 2014 and FY 2015. 

D. DHRM Data Sources 

The statute establishes parameters 

regarding data and/or suggested data 

sources for specific factors in the 

development of the DHRM. We are 

proposing to utilize for the DHRM, 

wherever possible, data sources and 

metrics that are transparent and readily 

available to CMS, states, and the public, 

such as: United States Census Bureau 

data, Medicaid DSH data reported as 

required by section 1923(j) of the Act, 

existing state DSH allotments, and Form 

CMS–64 Medicaid Budget and 

Expenditure System (MBES) data. We 

are proposing to utilize the most recent 

year available for all data sources. For 

one data source, we intend to collect 

information directly from state 

Medicaid agencies outside of this rule. 

Specifically, we intend for states to 

submit the information used to 

determine which hospitals are deemed 

disproportionate share under section 

1923(b) of the Act. Although we do not 

currently collect this information 

because states are required to make DSH 

payments to hospitals that are DSH 

eligible, states should have this 

information readily available. To ensure 

that all hospitals are properly deemed 

disproportionate share, states must 

determine the mean MIUR for hospitals 

receiving Medicaid payments in the 

state and the value of one standard 

deviation above the mean. We are also 

proposing to rely on data derived from 

Medicaid DSH audit and reporting data. 

The data is reported by states as 

required by section 1923(j) of the Act 

and the ‘‘Medicaid Disproportionate 

Share Hospital Payments’’ final rule 

published on December 19, 2008 (73 FR 

77904) (and herein referred to as the 

2008 DSH final rule) requiring state 

reports and audits to ensure the 

appropriate use of Medicaid DSH 

payments and compliance with the DSH 

limit imposed at section 1923(g) of the 

Act. This is the only comprehensive 

data source for DSH hospitals that 

identifies hospital-specific DSH 

payments, hospital-specific 

uncompensated care costs, and hospitalspecific Medicaid utilization in a 

manner consistent with Medicaid DSH 

program requirements. 

To date, we have received rich, 

comprehensive audit and reporting data 

from each state that makes Medicaid 

DSH payments. To facilitate the 

provision of high quality data, we 

provided explicit parameters in the 

2008 DSH final rule and associated 

policy guidance for calculating and 

reporting data elements. The 2008 DSH 

final rule included a transition period in 

which states and auditors could develop 

and refine audit and reporting 

techniques. This transition period 

covered data reported relating to state 

plan rate years 2005 through 2010. We 

recognize that the DSH audit and 

reporting data during this transition 

period may vary in its quality and 

accuracy from state to state and have 

considered utilizing alternative 

uncompensated cost data and Medicaid 

utilization data from sources such as the 

Medicare Form CMS–2552. The DSH 

audit and reporting data, however, 

remains the only comprehensive 

reported data available that is consistent 

with Medicaid program requirements. 

States are already required to report this 

data by the last day of the federal fiscal 

year ending three years from the 

Medicaid State plan rate year under 

audit as required by the 2008 DSH final 

rule. However, state submitted audit 

and reporting data is subject to detailed 

CMS review and may require significant 

resources to ensure that it is compiled 

and prepared for use in the proposed 

DHRM. This means that the data used 

for the methodology may not be the 

most recently submitted data, but 

instead the most recent data available to 

us in usable form. We have been 

actively engaged in reviewing state 

audits and reports to ensure quality and 

accuracy. Consistent with ongoing 

efforts to ensure that the reported data 

is of the highest quality possible as we 

move through the transition period, we 

intend to issue additional detailed 

guidance to states by the end of calendar 

year (CY) 2013 that would be applicable 

to audits and reports due to us by the 

end of CY 2014. 

As required by the statute, the DHRM 

must impose the larger percentage DSH 

allotment reductions on the states that 

have the lowest percentages of 

uninsured individuals. Although other 

sources of this information could be 

considered for this purpose, the statute 

explicitly refers to the use of data from 

the Census Bureau for determining the 

percentage of uninsured for each state. 

We identified and considered two 

Census Bureau data sources for this 

purpose, the American Community 

Survey (ACS); and the Annual Social 

and Economic Supplement to the 

Current Population Survey (CPS). In 

consultation with the Census Bureau, 

we are proposing to use the data from 

the ACS for the following reasons. First, 

the ACS is the largest household survey 

in the United States; in that regard, the 

annual sample size for the ACS is over 

30 times larger than that for the CPS— 

about 3 million for the ACS versus 100 

thousand for the CPS. The ACS is 

conducted continuously each month 

throughout the year, with the sample for 

each month being roughly 1⁄12 of the 

annual total, while the CPS is 

conducted in the first four months 

following the end of the survey year. 

Finally, although the definition of 

uninsured and insured status is the 

same for the ACS and the CPS, the CPS 

considers the respondents as uninsured 

if they are uninsured at any time during 

the year whereas the ACS whether the 

respondent has coverage at the time of 

the interview, which are conducted at 

various times throughout the year. For 

these reasons, and with the 

recommendation of the Census Bureau, 

we determined that the ACS is the 

appropriate source for establishing the 

percentage of uninsured for each state 

for purpose of the proposed DHRM. 

In addition to Census Bureau data, we 

considered using various alternative 

data with different population 

parameters and/or different definitions 

of uninsured individuals. We are also 

considering adjusting the definition of 

the uninsured for reductions applicable 

for FY 2016 and beyond reductions 

through separate rulemaking. 

III. Provisions of the Proposed Rule 

A. DHRM Overview 

The statute requires aggregate annual 

reduction amounts for FY 2014 through 

FY 2020 to be reduced through a DHRM 

designed by the Secretary consistent 

with the statutorily-established factors. 

Taking these factors into account for 

each state, the proposed DHRM would 

generate a state-specific DSH allotment 

reduction amount for FY 2014 and FY 

2015 for all 50 states and DC. The total 

of all DSH allotment reduction amounts 

would equal the aggregate annual 

reduction amounts identified in the 

Affordable Care Act for FY 2014 and FY 

2015. To determine the effective annual 

DSH allotment for each state, the statespecific annual DSH allotment 

reduction amount would be applied to 

the unreduced DSH allotment amount 

for its respective state. 

We would calculate an unreduced 

DSH allotment for each state prior to the 

beginning of each FY, as we do 

currently. This unreduced allotment is 


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determined by calculating the allotment 

in section 1923(f) of the Act prior to the 

application of the DHRM under section 

1923(f)(7) of the Act. The unreduced 

allotment would serve as the base 

amount for each state to which the statespecific DSH allotment reduction 

amount would apply annually. In this 

proposed rule, we are utilizing 

estimated unreduced DSH allotments 

for FY 2014 for illustrative purposes. 

We propose to apply the DHRM to the 

unreduced DSH allotment amount on an 

annual basis for FY 2014 and FY 2015. 

Under the DHRM, we consider the five 

factors identified in the statute to 

determine each state’s annual statespecific annual DSH allotment 

reduction amount. Limitations on the 

availability of data relating to some of 

the five factors affect the calculation 

and, therefore, we are seeking comment 

regarding readily available data sources 

that may be useful. 

The proposed DHRM utilizes 

available data and a series of interacting 

calculations that result in the 

identification of state-specific reduction 

amounts that, when summed, equal the 

aggregate DSH allotment reduction 

amount identified by the statute for each 

applicable year. The proposed DHRM 

accomplishes this through the following 

summarized steps: 

1. Separate states into two state 

groups, non-low DSH states and lowDSH states. 

2. Proportionately allocate aggregate 

DSH funding reductions to each of these 

two state groups based on each state 

group’s total unreduced DSH allotment 

amount. 

3. Apply a Low DSH State Percentage 

Reduction Factor to adjust each state 

group’s DSH funding reduction amount 

while maintaining the combined 

aggregate DSH funding reduction. 

4. Divide each state group’s DSH 

allotment reduction amount among 

three statutorily identified factors, the 

Uninsured Percentage Factor (UPF), the 

High Level of Uncompensated Care 

Factor (HUF), and the High Volume of 

Medicaid Inpatients Factor (HMF). We 

are proposing to assign a 33 and 1⁄3

percent weight to the UPF and a 66 and 

2⁄3 percent combined weight for the two 

DSH payment targeting factors (a 33 and 

1⁄3 percent weight for the HUF, and a 33 

and 1⁄3 percent weight for the HMF). 

This weight assignment provides a 

higher weight to the DSH payment 

targeting requirements than the UPF. 

We considered various alternative 

weight assignments prior to proposing 

equal weights. We could have assigned 

a 50 percent weight to the UPF, and a 

50 percent combined weight for the two 

DSH payment targeting factors (25 

percent for the HUF and 25 percent for 

the HMF). This weight assignment 

would have provided an equal weight to 

the requirement at 1923(f)(7)(B)(i)(I) of 

the Act and the requirement at 

1923(f)(7)(B)(i)(II) of the Act. We also 

could have assigned an even lower 

weight to the uninsured factor than the 

payment targeting factors, or lower 

weights to the payment targeting factors 

than the uninsured factor. We also 

could have assigned no weight to the 

uninsured factor or no weight to the 

targeting factors. We are seeking public 

comment and input regarding alternate 

assignments. We also seek comments on 

how these weights would impact 

specific hospital types. 

5. For each state group, determine 

state-specific DSH allotment reduction 

amounts relating to the Uninsured 

Percentage Factor. 

6. For each state group, determine 

state-specific DSH allotment reduction 

amounts relating to the High Level of 

Uncompensated Care Factor. 

7. For each state group, determine 

state-specific DSH allotment reduction 

amounts relating to the High Volume of 

Medicaid Inpatients Factor. 

8. Apply a section 1115 Budget 

Neutrality Factor for each qualifying 

state. 

9. Identify the state-specific DSH 

allotment reduction amount. 

10. Subtract each state’s state-specific 

DSH allotment reduction amount from 

each state’s unreduced DSH allotment. 

The manner in which each of the five 

factors are considered and calculated in 

the proposed DHRM is described in 

greater detail below. 

The proposed DHRM recognizes the 

variations in the development of DSH 

allotments among states and the 

application of the methodology 

generates a lesser impact on low DSH 

states. Further, the proposed DHRM is 

designed to lessen the impact on states 

that have targeted DSH payments to 

hospitals that have high volumes of 

Medicaid inpatients and to hospitals 

that have high levels of uncompensated 

care. Concurrently, the proposed DHRM 

is designed to incentivize states to target 

current and future DSH payments to 

hospitals that have higher volumes of 

Medicaid inpatients and to hospitals 

that have higher levels of 

uncompensated care relative to all DSH 

eligible hospital in a state. The proposed 

DHRM also takes into account the extent 

to which the DSH allotment for a state 

was included in part or in whole in the 

budget neutrality calculation for a 

coverage expansion approved under 

section 1115 as of July 31, 2009 by 

excluding from DSH allotment 

reduction the amount of DSH that 

qualifying states continue to divert 

specifically for coverage expansion in 

the budget neutrality calculation. Any 

amount of DSH diverted for other 

purposes under the demonstration 

would still be subject to reduction by 

automatically assigning qualifying states 

an average percentage reduction amount 

for factors for which the state does not 

have complete and/or relevant DSH 

payment data. 

B. Factor 1—Low DSH Adjustment 

Factor (LDF) 

The first factor considered in the 

proposed DHRM is the Low DSH 

Adjustment Factor identified at section 

1923(f)(7)(B)(ii) of the Act, which 

requires that the DHRM impose a 

smaller percentage reduction on ‘‘low 

DSH states’’ that meet the criterion 

described in section 1923(f)(5)(B) of the 

Act in 2003. To qualify as a low DSH 

state, total expenditures under the state 

plan for DSH payments for FY 2000, as 

reported to us as of August 31, 2003, 

had to have been greater than zero but 

less than 3 percent of the state’s total 

Medicaid state plan expenditures during 

the FY. Historically, low DSH states 

(identified in Table 1) have received 

lower DSH allotments relative to their 

total Medicaid expenditures than nonlow DSH states. 

We propose to apply the Low DSH 

Adjustment Factor (LDF) by imposing a 

greater proportion of the annual DSH 

funding reduction on non-low DSH 

states. The factor is calculated and 

applied as follows: 

1. Separate states into two groups, 

non-low DSH states and low-DSH states. 

2. Divide each state’s unreduced 

preliminary DSH allotment for the year 

for which the reduction is calculated by 

estimated Medicaid service 

expenditures for that same year. 

Currently, we create a preliminary DSH 

allotment based on the estimates 

available in August of the prior year and 

we issue a final DSH allotment once the 

federal FY ends. 

3. For each state group, calculate the 

non-weighted mean of the value 

calculated in step 2 for states in the 

group. 

4. Divide the average calculated in 

step 3 for the low DSH state group by 

the average calculated in step 3 for the 

non-low DSH state group. 

5. Convert this number to a 

percentage. This percentage is the LDF. 

6. Multiply the proportionately 

allocated DSH funding reductions for 

the low-DSH state group by the LDF 

percentage to determine the aggregate 

DSH reduction amount that would be 

distributed across the low DSH state 

group. 


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7. Subtract the aggregate DSH 

reduction amount determined in step 6 

from the proportionately allocated DSH 

funding reduction for the low-DSH state 

group, and add the remainder to the 

aggregate DSH reduction amount that 

would be distributed across the non-low 

DSH state group. 

We considered using various alternative 

proportional relationships to establish 

the LDF, including the proportion of 

each state group’s annual Medicaid DSH 

expenditures to total Medicaid 

expenditures. 

C. Factor 2—Uninsured Percentage 

Factor (UPF) 

The second factor considered in the 

proposed DHRM is the Uninsured 

Percentage Factor (UPF) identified at 

section 1923(f)(7)(B)(i)(I) of the Act, 

which requires that the DHRM impose 

larger percentage DSH allotment 

reductions on states that have the lowest 

percentages of uninsured individuals. 

The statute also requires that the 

percentage of uninsured individuals is 

determined on the basis of data from the 

Census Bureau, audited hospital cost 

reports, and other information likely to 

yield accurate data, during the most 

recent year for which such data are 

available. 

To determine the percentage of 

uninsured individuals in each state, the 

proposed DHRM relies on the total 

population and uninsured population as 

identified in the most recent ‘‘1-year 

estimates’’ data available from the ACS 

conducted by the Census Bureau. The 

Census Bureau generates ACS ‘‘1-year 

estimates’’ data annually based on a 

point-in-time survey of approximately 3 

million individuals. For purposes of the 

proposed DHRM, we would utilize the 

most recent ACS data available at the 

time of the calculation of the annual 

DSH allotment reduction amounts. 

The UPF, as applied through the 

proposed DHRM, has the effect of 

imposing lower relative DSH allotment 

reductions on states that have the 

highest percentage of uninsured 

individuals. The UPF would mitigate 

the DSH reduction for states with the 

highest percentage of uninsured 

individuals. 

The proposed UPF is determined 

separately for each state group (low DSH 

and non-low DSH) as follows: 

1. Uninsured Value—Using Bureau of 

Census data, calculate each state’s 

uninsured value by dividing the total 

state population by the uninsured in the 

state. (This is different than the 

percentage rate of uninsurance; the rate 

of uninsurance can be obtained by 

dividing 100 by this number) 

2. Uninsured Allocation 

Component—Determine the relative 

uninsured value for each state compared 

to other states in the state group by 

dividing the value in step one by the 

state group total of step one values. The 

result should be a percentage, and the 

total of the percentages for all states in 

the state group should total 100 percent. 

3. Allocation Weighting Factor—To 

ensure that larger and smaller states are 

given fair weight in the final UPF, 

divide each state’s preliminary 

unreduced DSH allotment by the sum of 

all unreduced preliminary DSH 

allotments in the respective state group 

to obtain allocation weighting factor, 

expressed as a percentage. The sum of 

all weighting factors should equal 100 

percent. Then, take this percentage for 

each state and multiply it by the state’s 

uninsured allocation component 

determined in step 2. The result is the 

allocation weighting factor. 

4. For each state group, divide each 

state’s allocation weighting factor by the 

sum of all allocation weighting factors. 

The resulting percentage is the UPF. 

We would determine the UPF portion 

of the final aggregate DSH allotment 

reduction allocation for each state by 

multiplying the state’s UPF by the 

aggregate DSH allotment reduction 

allocated to the UPF factor for the 

respective state group. As with the prior 

factor, we propose to utilize preliminary 

DSH allotment estimates to develop the 

DSH reduction factors. 

D. Factor 3—High Volume of Medicaid 

Inpatients Factor (HMF) 

The third factor considered in the 

proposed DHRM is the High Volume of 

Medicaid Inpatients Factor (HMF) 

identified at section 

1923(f)(7)(B)(i)(II)(aa) of the Act, which 

requires that the DHRM impose larger 

percentage DSH allotment reductions on 

states that do not target DSH payments 

to hospitals with the highest volumes of 

Medicaid inpatients. For purposes of the 

DHRM, the statute defines hospitals 

with high volumes of Medicaid patients 

as those defined in section 1923(b)(1)(A) 

of the Act. These hospitals must meet 

minimum qualifying requirements at 

section 1923(d) of the Act and have an 

MIUR that is at least one standard 

deviation above the mean MIUR for 

hospitals receiving Medicaid payments 

in the state. Every hospital that meets 

that definition is deemed a 

disproportionate share hospital and is 

statutorily required to receive a DSH 

payment. The HMF, through the 

proposed DHRM, provides the 

mitigation of the DSH reduction amount 

for states that have been targeting and 

would in the future target DSH 

payments to these federally deemed 

hospitals. 

States that have been, and continue 

to, target a large percentage of their DSH 

payments to hospitals that are federally 

deemed as a DSH based on their MIUR 

would receive the lowest reduction 

amounts relative to their total spending. 

States that target the largest amounts of 

DSH payments to hospitals that are not 

federally deemed based on MIUR would 

receive larger reduction amounts under 

this factor. The current DSH allotment 

amounts are unrelated to the amounts of 

MIUR-deemed hospitals and their DSHeligible uncompensated care costs. By 

basing the HMF reduction on the 

amounts that states do not target to 

hospitals with high volumes of 

Medicaid inpatients, this proposed 

methodology incentivizes states to target 

DSH payments to such hospitals. 

To ensure that all deemed 

disproportionate share hospitals receive 

a required DSH payments, states are 

already required to determine the mean 

MIUR for hospitals receiving Medicaid 

payments in the state and the value of 

one standard deviation above the mean. 

This rule proposes to rely on MIUR 

information for use in the DHRM that 

CMS intends to collect from states on an 

annual basis outside of this rule. When 

a state does not timely submit this 

separately required MIUR information, 

for purposes of this factor, CMS will 

assume that the state has the highest 

value of one standard deviation above 

the mean reported among all other 

states. 

The calculation of the HMF would 

rely on extant data that should be 

readily available to states. The following 

data elements are used in the HMF 

calculation: the preliminary unreduced 

DSH allotment for each state, the DSH 

hospital payment amount reported for 

each DSH in accordance with 

§ 447.299(c)(17), the MIUR for each DSH 

reported in accordance with 

§ 447.299(c)(3), and the value of one 

standard deviation above the mean 

MIUR for hospitals receiving Medicaid 

payments in the state reported 

separately. 

The proposed HMF is a state-specific 

percentage that is calculated separately 

for each state group (low DSH and nonlow DSH) as follows: 

1. For each state, classify each 

disproportionate share hospital that has 

an MIUR at least one standard deviation 

above the mean MIUR for hospitals 

receiving Medicaid payments in the 

state as a High Medicaid Volume 

hospital. 

2. For each state, determine the 

amount of DSH payments to non-High 

Medicaid Volume DSH hospitals. This 


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data element should come from the 

most recently submitted and accepted 

DSH audit template. 

3. For each state, determine a 

percentage by dividing the state’s total 

DSH payments made to non-High 

Medicaid Volume hospitals by the 

aggregate amount of DSH payments 

made to non-High Medicaid Volume 

hospitals for the entire state group. 

4. The result of step 3 is the HMF. 

We would determine each state’s 

HMF reduction amount by applying the 

HMF percentage to the aggregate 

reduction amount allocated to this 

factor for each state group. 

As a result of this methodology, there 

are a number of interactions that may 

occur for states among DSH payment 

methodologies, DSH allotments, and 

DSH allotment reductions. Most of these 

scenarios work in concert with this 

factor’s established reduction 

relationship. For example, if a state paid 

out its entire DSH allotment to hospitals 

with high volumes of Medicaid 

inpatients, it would receive no 

reduction associated with this factor 

because all DSH payments were made 

only to hospitals that qualify as high 

volume. The results of this scenario 

would be consistent with the 

methodology because the state is 

incentivized to target DSH payments to 

high Medicaid volume hospitals. 

Another example is a state that makes 

DSH payments up to the hospitalspecific DSH limit to all hospitals with 

high Medicaid volume but also uses its 

remaining allotment to make DSH 

payments to hospitals that do not 

qualify as high volume. In this example, 

the state would receive a reduction 

under this factor based on the amount 

of DSH payments it made to non-high 

Medicaid volume hospitals. Though the 

state targeted DSH payments to 

hospitals with high Medicaid volume, 

the existing size of its DSH allotment 

permitted it to make DSH payments to 

hospitals that did not meet the statutory 

definition of high Medicaid volume. In 

that situation, this allotment reduction 

would effectively reduce a state’s 

existing DSH allotment to the extent 

that the allotment exceeded the 

maximum amount that the state could 

pay to hospitals that are high Medicaid 

volume. The resulting HMF reduction 

would be greater for states with DSH 

allotments large enough to pay 

significant amounts to non-high 

Medicaid volume hospitals. This 

ensures that states target DSH payments 

to high Medicaid volume hospitals and 

distribute the reductions in such a way 

as to promote the ability of all states to 

provide DSH funds to high Medicaid 

volume hospitals. 

We would continue to analyze the 

proposed DHRM and comments to the 

proposed rule to ensure that the DHRM 

is effective in tying the level of DSH 

reductions to the targeting of DSH 

payments to high Medicaid volume 

hospitals. 

E. Factor 4—High Level of 

Uncompensated Care Factor (HUF) 

The fourth factor considered in the 

DHRM is the HUF identified at section 

1923(f)(7)(B)(i)(II)(bb) of the Act, which 

requires that the DHRM impose larger 

percentage DSH allotment reductions on 

states that do not target DSH payments 

on hospitals with high levels of 

uncompensated care. We are proposing 

to rely on the existing statutory 

definition of uncompensated care cost 

used in determining the hospitalspecific limit on 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 FY, the difference 

between the costs incurred by that 

hospital for furnishing inpatient 

hospital and outpatient hospital services 

during the applicable state FY 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 limit, or 

hospital-specific DSH limit. 

For purposes of this rule, we are 

proposing to rely on this definition of 

uncompensated cost for the calculation 

of the HUF, as reported by states on the 

most recent available DSH audit and 

reporting data. For the proposed DHRM, 

hospitals with high levels of 

uncompensated care are defined based 

on a comparison with other Medicaid 

DSH hospitals in their state. Any 

hospital that exceeds the mean ratio of 

uncompensated care costs to total 

Medicaid and uninsured inpatient and 

outpatient hospital service costs within 

its state is considered a hospital with a 

high level of uncompensated care. This 

data is consistent with existing 

Medicaid DSH program definition of 

uncompensated care and is readily 

available to states and us. 

The following data elements are used 

in the HUF calculation: 

• The preliminary unreduced DSH 

allotment for each state; 

• DSH hospital payment amounts 

reported for each DSH in accordance 

with § 447.299(c)(17); 

• Uncompensated care cost amounts 

reported for each DSH in accordance 

with § 447.299(c)(16); 

• Total Medicaid cost amounts 

reported for each DSH in accordance 

with § 447.299(c)(10); and 

• Total uninsured cost amounts 

reported for each DSH in accordance 

with § 447.299(c)(14). 

The statute also requires that 

uncompensated care used in this factor 

of the DHRM exclude bad debt. The 

proposed rule relies on the 

uncompensated care cost data derived 

from Medicaid DSH audit and reporting 

required by section 1923(f) of the Act 

and implementing regulations. This 

uncompensated care data excludes bad 

debt, including unpaid co-pays and 

deductibles, associated with individuals 

with a source of third party coverage for 

the service received during the year. 

The HUF is a state-specific percentage 

that is calculated separately for each 

state group (low DSH and non-low DSH) 

as follows: 

1. Determine each disproportionate 

share hospital’s Uncompensated Care 

Level by dividing its uncompensated 

care cost by the sum of its total 

Medicaid cost and its total uninsured 

cost. This data element would come 

from the most recently submitted and 

accepted DSH audit template. 

2. For each state, calculate the 

weighted mean Uncompensated Care 

Level. 

3. Identify all hospitals that meet or 

exceed the mean Uncompensated Care 

Level as High Uncompensated Care 

Level hospitals. We also considered 

identifying a metric higher than the 

mean for purposes of identifying 

hospitals as High Uncompensated Care 

Level hospitals and are soliciting 

comments on this alternative. 

4. For each state, determine the 

amount of DSH payments to non-High 

Uncompensated Care Level hospitals. 

5. For each state, determine a 

percentage by dividing the state’s total 

DSH payments made to non-High 

Uncompensated Care Level hospitals by 

the aggregate amount of DSH payments 

made to non-High Uncompensated Care 

Level hospitals for the entire state 

group. The result is the HUF. 

We would determine each state’s HUF 

reduction amount by applying the HUF 

percentage to the aggregate reduction 

amount allocated to this factor for each 

state group. Similar to the HMF, this 

methodology may produce a number of 

interactions that could occur for states 

among DSH payment methodologies, 

DSH allotments, and DSH allotment 


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28558 Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Proposed Rules 

reductions. Most of these interactions 

work in concert with the intent of this 

factor’s established reduction 

relationship. However, we have 

identified some potential scenarios 

where the interactions may be 

inconsistent with the methodology. For 

example, it is possible that a hospital 

may not be considered to have a high 

level of uncompensated care even 

though it provides a higher percentage 

of services to Medicaid and uninsured 

individuals and has a greater total 

qualifying uncompensated care costs 

than another hospital that does qualify 

as having a high level of uncompensated 

care. Specifically, Hospital A has $20 

million in total hospital costs, $11 

million in DSH-eligible Medicaid and 

uninsured costs, and $5 million in 

uncompensated care cost. Hospital B 

has $50 million in total hospital costs, 

$2 million in DSH-eligible Medicaid 

and uninsured costs, and $1 million in 

uncompensated care cost. Assuming the 

weighted mean uncompensated care 

cost level in the state is 50 percent, 

Hospital B would be considered to have 

high level of uncompensated care and 

Hospital A would not. Given that 

Hospital A has 5 times the total 

uncompensated care of Hospital B and 

serves a much higher percentage of 

Medicaid and uninsured individuals, 

the results of this scenario are counter 

to the intent of the methodology. 

This scenario exists because the 

proposed formula does not take into 

account total hospital costs due to 

extant data limitations. To address this 

concern, we are proposing to modify 

DSH reporting requirements to collect 

total hospital cost from Medicare cost 

report data for all DSH hospitals. 

Through separately issued rulemaking 

for FY 2016 and thereafter, we intend to 

substitute total cost for the denominator 

in step one of the HUF calculation 

above. Since total cost is unavailable at 

this time, we are seeking comment on 

alternatives to the use of total 

uncompensated care cost as the 

denominator to alleviate this data issue. 

We would continue to analyze the 

proposed DHRM and comments to the 

proposed rule to ensure that the DHRM 

is effective in tying the level of DSH 

reductions to the targeting of DSH 

payments to hospitals with high levels 

of uncompensated care. We believe that 

the proposed methodology, in using the 

mean uncompensated care cost level as 

the measure to identify hospitals with 

high levels of uncompensated care, 

captures the best balance in tying the 

level of DSH reductions to the targeting 

of DSH payments to such high level 

hospitals. Understanding potential data 

limitations and that the proposed 

methodology does not precisely 

distinguish how states direct DSH 

payments among hospitals that are 

identified as at or above the mean 

uncompensated care, we solicit 

comments on alternative methodologies 

regarding state targeting of DSH 

payments to hospitals with high levels 

of uncompensated care. 

F. Factor 5—Section 1115 Budget 

Neutrality Factor (BNF) 

The statute requires that we take into 

account the extent to which a state’s 

DSH allotment was included in the 

budget neutrality calculation for a 

coverage expansion that was approved 

under section 1115 as of July 31, 2009. 

Prior to the implementation of this 

proposed rule, these states possess full 

annual DSH allotments as calculated 

under section 1923(f) of the Act. Under 

an approved section 1115 

demonstration, however, the states may 

have limited authority to make DSH 

payments under section 1923 of the Act 

because all or a portion of their DSH 

allotment was included in the budget 

neutrality calculation for a coverage 

expansion under an approved section 

1115 demonstration or to fund 

uncompensated care pools and/or safety 

net care pools. For applicable states, 

DSH payments under section 1923 of 

the Act are limited to the DSH allotment 

calculated under section 1923(f) of the 

Act less the allotment amount included 

in the budget neutrality calculation. If a 

state’s entire DSH allotment is included 

in the budget neutrality calculation, it 

would have no available DSH funds 

with which to make DSH payments 

under section 1923 of the Act for the 

period of the demonstration. 

Consistent with the statute, for states 

that include DSH allotment in budget 

neutrality calculations for coverage 

expansion under an approved section 

1115 demonstration as of July 31, 2009, 

we propose to exclude from DSH 

allotment reduction, for the HMF and 

the HUF factors, the amount of DSH 

allotment that each state currently 

continues to divert specifically for 

coverage expansion in the budget 

neutrality calculation. Amounts of DSH 

allotment included in budget neutrality 

calculations for non-coverage expansion 

purposes under approved 

demonstrations would still be subject to 

reduction. Uncompensated care pools 

and safety net care pools are considered 

non-coverage expansion purposes. For 

section 1115 demonstrations not 

approved as of July 31, 2009, any DSH 

allotment amounts included in budget 

neutrality calculations, whether for 

coverage expansion or otherwise, under 

a later approval would also be subject to 

reduction. 

We are proposing to determine for 

each reduction year if any portion of a 

state’s DSH allotment qualifies for 

consideration under this factor. To 

qualify annually, CMS and the state 

would have to have included its DSH 

allotment in the budget neutrality 

calculation for a coverage expansion 

that was approved under section 1115 

as of July 31, 2009, and would have to 

continue to do so at the time that 

reduction amounts are calculated for 

each FY. 

The proposed DHRM would take into 

account the extent to which the DSH 

allotment for a state was included in the 

budget neutrality calculation approved 

under section 1115 as of July 31, 2009 

by excluding amounts diverted 

specifically for a coverage expansion 

and automatically assigning qualifying 

states an average reduction amount 

(based on the state group) for any DSH 

allotment diverted for non-coverage 

expansion purposes and any amounts 

diverted for coverage expansion if the 

section 1115 demonstration was or is 

approved after July 31, 2009. DSH 

allotment reductions relating to two 

DHRM factors (the HUF and the HMF) 

are determined based on how states 

target DSH payments to certain 

hospitals. Since states qualifying under 

the budget neutrality provision would 

have limited or no relevant data for 

these two factors, we would be unable 

to evaluate how they spent the portion 

of their DSH allotment that was diverted 

for non-coverage expansion. 

Accordingly, we are proposing to 

maintain the HUF and HMF formula for 

DSH payments for which qualifying 

states would have available data. 

Because we would not have DSH 

payment data for DSH allotment 

amounts diverted for non-coverage 

expansion, we are proposing to assign 

average HUF and HMF reduction 

percentages for the portion of their DSH 

allotment that they were unable to use 

to target payments to disproportionate 

share hospitals. Instead of assigning the 

average percentage reduction to nonqualifying amounts, we considered 

using various alternative percentages. 

Additionally, for qualifying allotment 

amounts diverted specifically for 

coverage expansion, we considered 

applying the BNF reduction exclusion 

to the UPF in addition to the HMF and 

HUF. We are seeking comment 

regarding the use of different 

percentages for the reductions to nonqualifying diversion amounts and 

regarding alternative BNF 

methodologies that may prove 

preferable alternatives. 


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We recognize that the goal of the 

expanded coverage and/or payment of 

uncompensated care is directly 

addressed by the statute. The goal is 

addressed by statute by offering states 

other, non-DSH funds for such 

expansions, thus limiting the need for 

the diverted DSH under demonstrations. 

Accordingly, the group of states affected 

by this factor today may change at a 

later time, depending on how their 

coverage continues to be financed. In 

addition, based on changes in the health 

coverage landscape, we will reevaluate 

this policy in future rulemaking. 

G. Illustration of DSH Health Reform 

Methodology (DHRM) 

Table 1 and the values contained 

therein are provided only for purposes 

of illustrating the application of the 

DHRM and the associated DSH 

reduction factors described in this 

proposed rule to determine each states’ 

DSH allotment reduction for FY 2014. 

Note that these values do not represent 

the final DSH reduction amounts for FY 

2014. 

BILLING CODE 4120–01–P 


sroberts on DSK5SPTVN1PROD with PROPOSALS

EP15MY13.000</GPH>sroberts on DSK5SPTVN1PROD with PROPOSALS

TABLE 1: 

*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGY 

ILLUSTRATIVE DSH Reduction Factor Weighting Allocation* 

Uninsured Hi Volume Factor High Level Factor 

Total Reduction: Factor UPF HMF HUF TOTAL 

•

........ . 

..... 

• ;<{;'/ '.i.;\ /}[;;2::, /.<33,370·. . ... 

Total Reg. DSH 

Reduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649 

LOW DSH Adj. Factor Total Low DSH Reduction: $2,077,784 $2,077,784 $2,077,784 $6,233,351 

27.97% TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000 

A B C D E F 

Unreduced 

Reduction Reduction Based 

Reduction Based 

Re

Based on on A

STATE FY 2014 UPF HMF On HUF Total 

Reduction* Per

DSH Allotment Uninsured High Volume High Level Factor* 

Factor* Factor* Un

(Estimate)* 

All

ColJ, UPF WS ColO, HMFWS ColO, HUCWS C+D+E 

Alabama $327,306,706 $4,450,693 $6,450,832 $5,965,703 $16,867,229 Arkansas $107,771,720 $1,225,578 $2,320,621 $4,144,131 $7,690,330 

California $1,166,861,709 $12,496,019 $19,339,288 $787,771 $32,623,078 

Colorado $98,458,114 $1,227,835 $953,242 $3,262,103 $5,443,181 Connecticut $212,882,410 $4,646,855 $4,209,148 $4,474J69 $13,330J72 

District of Columbia 11 $65,195,237 $lJ03,076 $463,119 $844,089 $3,010,283 Florida $212,882,410 $1,987,539 $2,887,967 $5,215,949 $10,091,455 

Georgia $286,060,738 $2,882,526 $3,130,957 $5,060,927 $11,074,410 

Illinois $228,848,590 $3,298,528 $3,645,082 $3,899,617 $10,843,227 Indiana $227,518,076 $3,045,530 $3,282,746 $1,280,446 $7,608,722 

Kansas $43,906,997 $627,702 $922,471 $683,318 $2,233,492 Kentucky $154,339,747 $2,009,128 $2,429,559 $2,068,748 $6,507,436 

Louisiana $731,960,000 $8,157,359 $12,281,637 $4,906,454 $25,345,450 

EP15MY13.001</GPH>sroberts on DSK5SPTVN1PROD with PROPOSALS

*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGY 

ILLUSTRATIVE DSH Reduction Factor Weighting Allocation* 

Uninsured Hi Volume Factor High Level Factor 

Total Reduction: Factor UPF HMF HUF TOTAL r{;' / .jg.3:%<{,:J . 'lOO'iO% ... /// .. :/ ........ 

Total Reg. DSH 

Reduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649 

LOW DSH Adj. Factor Total Low DSH Reduction: $2,077,784 $2,077,784 $2,077,784 $6,233,351 

27.97% TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000 

A B C D E F 

Unreduced Reduction Reduction Based Reduction Based Re

Based on on A

STATE FY 2014 UPF HMF On HUF Total 

Reduction* Per

DSH Allotment Uninsured High Volume High Level Factor* 

Factor* Factor* Un

(Estimate)* 

All

Col J, UPF WS ColO, HMFWS ColO, HUCWS C+D+E 

Maine 11 $111,763,265 $2,189,425 $1,324,174 $2,413,463 $5,927,063 

Maryland $81,161,419 $1,430,089 $1,639,479 $1,726,902 $4,796,470 Massachusetts 11 $324,645,675 $14,612,915 $1,031,865 $1,076,550 $16,721,329 Michigan $282,069,193 $4,528,369 $3,256,081 $5,661,017 $13,445,466 Mississippi $162,322,837 $1,771,408 $1,928,694 $715J75 $4,415,876 Missouri $504,265,209 $7,606,111 $7,179,807 $11,117,502 $25,903,421 

Nevada $49,229,057 $432,077 $226,353 $258,039 $916,469 

New Hampshire $170,410,795 $3,039,010 $2,714,290 $2,903,827 $8,657,127 New Jersey $685,215,257 $10,273,222 $9,989,871 $9,086,087 $29,349,180 

New York $1,709,711,855 $28,517,869 $17,330,775 $19,682,882 $65,531,526 

North Carolina $314,001,555 $3,717,078 $6,628,232 $3,952,052 $14,297,361 

Ohio $432,417,395 $6,970,234 $6,496,637 $9,942,522 $23,409,393 

Pennsylvania $597,401,262 $11,667,972 $9,874,704 $12,323,972 $33,866,647 Rhode Island $69,186J83 $1,128,516 $1,332,369 $1,002,242 $3,463,128 

South Carolina $348,594,946 $3,947,977 $5,769,094 $3,995,248 $13J12,319 

EP15MY13.002</GPH>sroberts on DSK5SPTVN1PROD with PROPOSALS

*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGY 

ILLUSTRATIVE DSH Reduction Factor Weighting Allocation* 

Uninsured Hi Volume Factor High Level Factor 

Total Reduction: Factor UPF HMF HUF TOTAL 

pC':::..,::'·;)', ':!>;/7':: .i ... 7 •. ·· .. · ,·i .. ;! • .j .•.• ;.;.. ..... ' •• !.: .. '''33:''3%'';; i.(> .... 

Total Reg. DSH 

Reduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649 

LOW DSH Adj. Factor Total Low DSH Reduction: $2,077,784 $2,077,784 $2,077,784 $6,233,351 

27.97% TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000 

A B C D E F 

Unreduced Reduction Reduction Based Reduction Based Re

Based on on A

STATE FY 2014 UPF HMF On HUF Total 

Reduction* Per

DSH Allotment Uninsured High Volume High Level Factor* 

Factor* Factor* Un

(Estimate)* 

All

ColJ, UPF WS ColO, HMFWS ColO, HUCWS C+D+E 

Tennessee $54,007,000 $746,901 $860,219 $920,288 $2,527,408 Texas $1,017,844,022 $8,522,124 $18,255,733 $29,359,012 $56,136,869 

Vermont $23,949,271 $590,875 $434,558 $276,383 $1,301,816 Virginia $93,250,559 $1,416,841 $1,718,425 $1,230,356 $4,365,622 

Washington $196,916,230 $2,744,350 $3,136,466 $3,355,484 $9,236,300 West Virginia $71,847,813 $977,152 $1,144,386 $995,254 $3,116,792 

Total Regular DSH $11,164,203,854 $164,588,883 $164,588,883 $164,588,883 $493,766,649 

States 

LOW DSH STATES 

Alaska $21,681,747 $51,937 $173,996 $87,475 $313,408 

Arizona $45,916,375 $129,368 $129,235 $42,155 $300,758 

Delaware $9,636,331 $47,282 $0 $0 $47,282 Hawaii $10,393,800 $62,676 $70,765 $104,311 $237,752 

Idaho $17,496,274 $46,880 $111,960 $50,217 $209,057 

EP15MY13.003</GPH>sroberts on DSK5SPTVN1PROD with PROPOSALS

*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGY 

ILLUSTRATIVE DSH Reduction Factor Weighting Allocation* 

Uninsured Hi Volume Factor High Level Factor 

Total Reduction: Factor UPF HMF HUF TOTAL 

... /. 

Total Reg. DSH 

Reduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649 

LOW DSH Adj. Factor Total Low DSH Reduction: $2,077,784 $2,077,784 $2,077,784 $6,233,351 

27.97% TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000 

A B C D E F 

Reduction Reduction Based Re

Unreduced Reduction Based 

Based on on A

STATE FY 2014 UPF HMF On HUF Total 

Reduction* Per

DSH Allotment 

Uninsured High Volume High Level Factor* 

Factor* Factor* Un

(Estimate)* 

All

CoIJ, UPF WS ColO, HMFWS ColO, HUCWS C+D+E 

Iowa $41,917,760 $214,084 $75,590 $115,863 $405,536 

Minnesota $79,499,739 $416,944 $257,348 $623,061 $1,297,353 Montana $12,081,903 $33,172 $68,731 $89,562 $191,465 

Nebraska $30,120,968 $124,314 $238,785 $249,312 $612,411 New Mexico $21,681,747 $52,589 $168,797 $52,617 $274,003 North Dakota $10,167,243 $49,497 $60,321 $13,300 $123,117 

Oklahoma $38,545,326 $97,193 $110,492 $391,760 $599,445 Oregon $48,181,658 $133,619 $381,129 $9,220 $523,968 

South Dakota $11,756,055 $45,126 $70,228 $36,545 $151,899 

Utah $20,881,618 $64,735 $159,292 $211,938 $435,965 

Wisconsin 11 $100,621,875 $507,599 $0 $0 $507,599 Wyoming $240,907 $768 $1,115 $448 $2,331 

Total Low DSH States $520,821,329 $2,077,784 $2,077,784 $2,077,784 $6,233,351 

EP15MY13.004</GPH>sroberts on DSK5SPTVN1PROD with PROPOSALS

*FOR ILLUSTRATION PURPOSES ONLY - FY 2014 DSH HEALTH REFORM METHODOLOGY 

ILLUSTRATIVE DSH Reduction Factor Weighting Allocation* 

Uninsured Hi Volume Factor High Level Factor 

Total Reduction: Factor UPF HMF HUF TOTAL 

j, /?, .2', . •• ;; .>' '>f .... ;,,: ; 

Total Reg. DSH 

Reduction: $164,588,883 $164,588,883 $164,588,883 $493,766,649 

LOW DSH Adj. Factor Total Low DSH Reduction: $2,077,784 $2,077,784 $2,077,784 $6,233,351 

27.97% TOTAL: $166,666,667 $166,666,667 $166,666,667 $500,000,000 

A B C D E F 

Unreduced Reduction Reduction Based Reduction Based Re

Based on on A

STATE FY 2014 UPF HMF On HUF Total 

Reduction* Pe

DSH Allotment Uninsured High Volume High Level Factor* 

Factor* Factor* Un

(Estimate)* 

All

Col J, UPF WS ColO, HMFWS ColO, HUCWS C+D+E 

National Total $11,685,025,183 $166,666,667 $166,666,667 $166,666,667 $500,000,000 

Notes: 

*AII of the values on this chart are only for purposes of illustrating the DSH Health 

Reform Methodology (DHRM) 

/1 Potential DSH Diversion State 
Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Proposed Rules 28565 

BILLING CODE 4120–01–C 

IV. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

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

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

To derive average costs, we used data 

from the U.S. Bureau of Labor Statistics 

for all salary estimates. The salary 

estimates include the cost of fringe 

benefits, based on the December 2012 

Employer Costs for Employee 

Compensation report by the Bureau. 

We are soliciting public comment on 

each of the section 3506(c)(2)(A)- 

required issues for the following 

information collection requirements 

(ICRs): 

ICRs Regarding Reporting Requirements 

(§ 447.299) 

Beginning with each state’s Medicaid 

state plan rate year 2005, for each 

Medicaid state plan rate year, the state 

must submit to CMS, at the same time 

as it submits the completed DSH audit 

required under § 455.204, the following 

information for each DSH hospital to 

which the state made a DSH payment in 

order to permit verification of the 

appropriateness of such payments. 

The ongoing burden associated with 

the requirements under § 447.299 is the 

time and effort it would take each of the 

50 state Medicaid Programs and the 

District of Columbia to complete the 

annual Medicaid DSH reporting 

requirements. Based on the information 

proposed in this rule, we estimate that 

it would take an additional 4 hours per 

state (from 38 approved hr to 42 total hr) 

to complete the DSH reporting 

spreadsheets. Consequently, we also 

estimate an additional 204 (4 × 51) 

annual hours for all states and the 

District of Columbia (or 2,142 total hr) 

and an additional cost of $10,404 (or 

$85,434 total). 

In deriving these figures, we used the 

following hourly labor rates and 

estimated the time to complete each 

task: $51.00/hr and an additional 102 hr 

(1,071 total hours) for management and 

professional staff to review and prepare 

reports, and $28.77/hr and an additional 

102 hr (1,071 total hours) for office staff 

to prepare the reports. 

The preceding requirements and 

burden estimates will be added to the 

existing PRA-related requirements and 

burden estimates that have been 

approved by OMB under OCN 0938– 

0746 (CMS–R–266). The revised total 

burden estimates amount to: 51 annual 

respondents, 51 annual responses, and 

2,142 annual hours. 

Submission of PRA-Related Comments 

We have submitted a copy of this 

proposed rule to OMB for its review of 

the rule’s information collection and 

recordkeeping requirements. These 

requirements are not effective until they 

have been approved by the OMB. 

To obtain copies of the supporting 

statement and any related forms for the 

proposed paperwork collections 

referenced above, access CMS’ Web site 

at http://www.cms.hhs.gov/ 

Paperwork@cms.hhs.gov, or call the 

Reports Clearance Office at 410–786– 

1326. 

We invite public comments on these 

potential information collection 

requirements. If you comment on these 

information collection and 

recordkeeping requirements, please do 

either of the following: 

1. Submit your comments electronically as 

specified in the ADDRESSES section of this 

proposed rule; or 

2. Submit your comments to the Office of 

Information and Regulatory Affairs, Office of 

Management and Budget, Attention: CMS 

Desk Officer, (CMS–2367–P) Fax: (202) 395– 

6974; or Email: 

OIRA_submission@omb.eop.gov. 

V. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

VI. Regulatory Impact Statement 

A. Statement of Need 

The Affordable Care Act amended the 

Act by requiring aggregate reductions to 

state Medicaid DSH allotments annually 

from FY 2014 through FY 2020. This 

proposed rule delineates the DHRM to 

implement the annual reductions for FY 

2014 and FY 2015. 

B. 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 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). This rule has been designated 

an ‘‘economically significant’’ rule 

measured by the $100 million threshold, 

under section 3(f)(1) of Executive Order 

12866. 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. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

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 2013, that 

threshold is approximately $141 

million. This final rule would not 

mandate any requirements for State, 

local, or tribal governments, nor would 

it affect private sector costs. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

Since this rule does not impose any 

costs on State or local governments, the 

requirements of Executive Order 13132 

are not applicable. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities. For purposes of the RFA, small 


sroberts on DSK5SPTVN1PROD with PROPOSALS
28566 Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Proposed Rules 

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 $7.0 million to $34.5 million in any 

1 year. Individuals and states are not 

included in the definition of a small 

entity. 

We are not preparing an analysis for 

the RFA because we have determined, 

and the Secretary certifies, that this 

proposed rule would not have a 

significant economic impact on a 

substantial number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 603 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area for 

Medicare payment regulations and has 

fewer than 100 beds. We are not 

preparing an analysis for section 1102(b) 

of the Act because we have determined, 

and the Secretary certifies, that this 

proposed rule would not have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it issues a proposed 

rule (and subsequent final rule) that 

imposes substantial direct requirement 

costs on state and local governments, 

preempts state law, or otherwise has 

Federalism implications. Since this 

regulation does not impose any costs on 

state or local governments, the 

requirements of Executive Order 13132 

are not applicable. 

This proposed rule may be of interest 

to, and affect, American Indians/Alaska 

Natives. Therefore, we plan to consult 

with Tribes during the comment period 

and prior to publishing a final rule. 

C. Anticipated Effects 

1. Effects on State Medicaid Programs 

We anticipate, effective for FY 2014, 

that the proposed DSH allotment 

reductions would have a direct effect on 

the ability for some or all states to 

maintain state-wide Medicaid DSH 

payments at FY 2013 levels. Federal 

share DSH allotments, which are 

published by CMS in an annual Federal 

Register notice, limit the amount of 

federal financial participation (FFP) in 

the aggregate that states can pay 

annually in DSH payments to hospitals. 

This proposed rule would reduce state 

DSH allotment amounts and would, 

therefore, limit the states’ ability to 

make DSH payments and claim FFP for 

DSH payments at FY 2013 levels. By 

statute, the rule would reduce state DSH 

allotments by $500,000,000 for FY 2014 

and $600,000,000 for FY 2015. We 

anticipate that the rule would reduce 

total federal financial participation 

claimed by states by similar amounts, 

although it may not equal the exact 

amount of the allotment reductions. Due 

to the complexity of the interaction 

among the proposed DHRM 

methodology, state DSH allotments, 

DHRM data, future state DSH payment 

levels and methodologies for FY 2014 

and FY 2015, we cannot provide a 

specific estimate of the total federal 

financial impact for each year. 

The proposed rule utilizes a DHRM 

that would mitigate the negative impact 

on states that continue to have high 

percentages of uninsured and are 

targeting DSH payments on hospitals 

that have a high volume of Medicaid 

inpatient and on hospitals with high 

levels of uncompensated care. 

2. Effects on Providers 

We anticipate that the final rule 

would affect certain providers through 

the reduction of state DSH payments. 

We cannot, however, estimate the 

impact on individual providers or 

groups of providers. This proposed rule 

would not affect the considerable 

flexibility afforded states 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. States would retain the 

ability to preserve existing DSH 

payment methodologies or to propose 

modified methodologies by submitting 

state plan amendments to us. Some 

states may determine that implementing 

a proportional reduction in DSH 

payments for all qualifying hospitals is 

the preferred method to account for the 

reduced allotment. Alternatively, states 

could determine that it the best action 

is to propose a methodology that would 

direct DSH payments reductions to 

hospitals that do not have high 

Medicaid volume and do not have high 

levels of uncompensated care. 

Regardless, the rule incentivizes states 

to target DSH payments to hospitals that 

are most in need of Medicaid DSH 

funding based on their serving a high 

volume of Medicaid inpatient and 

having a high level of uncompensated 

care. 

This proposed rule also does not 

affect the calculation of the hospitalspecific 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. 

Although this rule would reduce state 

DSH allotments, the management of the 

reduced allotments still largely remains 

with the states. Given that states would 

retain the same flexibility to design DSH 

payment methodologies under the state 

plan and that individual hospital DSH 

payment limits would not be reduced, 

we cannot predict whether and how 

states would exercise their flexibility in 

setting DSH payments to account for 

their reduced DSH allotment and how 

this would affect individual providers 

or specific groups of providers. 

D. Alternatives Considered 

The Affordable Care Act specifies the 

annual DSH allotment reduction 

amounts for FY 2014 and FY 2015. 

Therefore, we were unable to consider 

alternative reduction amounts. 

Alternatives to the proposed DHRM 

methodology are discussed through the 

preceding section of this rule. 

E. 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 

proposed rule. 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Proposed Rules 28567 

TABLE 2—ACCOUNTING STATEMENT

Category Estimates 

Units 

Year dollar Discount rate Period 

covered 

Transfers: 

Annualized Reductions in Disproportionate Share Hospital Allotment (in 

millions) ................................................................................................. ¥548 2013 7% 2014–2015 

¥549 2013 3% 2014–2015 

From Whom to Whom .............................................................................. Federal Government to the States due to assumed reduced 

number of uninsured and uncompensated care. 

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 proposes to amend 

42 CFR chapter IV as set forth below: 

PART 447—PAYMENTS FOR 

SERVICES 

■ 1. The authority citation for part 447 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

Subpart E—Payment Adjustments for 

Hospitals That Serve a 

Disproportionate Number of LowIncome Patients 

■ 2. Section 447.294 is added to read as 

follows: 

§ 447.294 Medicaid disproportionate share 

hospital (DSH) allotment reductions for 

Federal fiscal year 2014 and Federal fiscal 

year 2015. 

(a) Basis and purpose. This section 

sets forth the DSH health reform 

methodology (DHRM) for calculating 

State-specific annual DSH allotment 

reductions from Federal fiscal year 2014 

and Federal fiscal year 2015 as required 

under section 1923(f) of the Act. 

(b) Definitions. For purposes of this 

section— 

Aggregate DSH allotment reductions 

mean the amounts identified in section 

1923(f)(7)(A)(ii) of the Act. 

Budget neutrality factor (BNF) is a 

factor incorporated in the DHRM that 

takes into account the extent to which 

the DSH allotment for a State was 

included in the budget neutrality 

calculation for a coverage expansion 

approved under section 1115 as of July 

31, 2009. 

DSH payment means the amount 

reported in accordance with 

§ 447.299(c)(17). 

Effective DSH allotment means the 

amount of DSH allotment determined by 

subtracting the State-specific DSH 

allotment from a State’s unreduced DSH 

allotment. 

High level of uncompensated care 

factor (HUF) is a factor incorporated in 

the DHRM that results in larger 

percentage DSH allotment reduction for 

States that do not target DSH payments 

on hospitals with high levels of 

uncompensated care. 

High Medicaid volume hospital means 

a disproportionate share hospital that 

has an MIUR at least one standard 

deviation above the mean MIUR for 

hospitals receiving Medicaid payments 

in the State. 

High uncompensated care hospital 

means a hospital that exceeds the mean 

ratio of uncompensated care costs to 

total Medicaid and uninsured inpatient 

and outpatient hospital service costs for 

all disproportionate share hospitals 

within a state. 

High volume of Medicaid inpatients 

factor (HMF) is a factor incorporated in 

the DHRM that results in larger 

percentage DSH allotment reduction for 

States that do not target DSH payments 

on hospitals with high volumes of 

Medicaid inpatients. 

Hospital with high volumes of 

Medicaid inpatients means a 

disproportionate share hospital that 

meets the requirements of section 

1923(b)(1)(A) of the Act. 

Low DSH adjustment factor (LDF) is a 

factor incorporated in the DHRM that 

results in a smaller percentage DSH 

allotment reduction on low DSH States. 

Low DSH State means a State that 

meets the criterion described in section 

1923(f)(5)(B) of the Act. 

Mean HUF reduction percentage is 

the mean of each State within a State 

group’s quotient of its HUF reduction 

dividing by its unreduced DSH 

allotment. 

Medicaid inpatient utilization rate 

(MIUR) means the rate defined in 

section 1923(b)(2) of the Act. 

Non-high Medicaid volume hospital 

means a disproportionate share 

hospitals that does not meet the 

requirements of section 1923(b)(1)(A) of 

the Act. 

State group means similarly situated 

States that are collectively identified by 

DHRM. 

State-specific DSH allotment 

reduction means the amount of annual 

DSH allotment reduction for a particular 

State as determined by the DHRM. 

Total Medicaid cost means the 

amount reported in accordance with 

§ 447.299(c)(10). 

Total population means the 1-year 

estimates data of the total noninstitutionalized population identified 

by United States Census Bureau’s 

American Community Survey. 

Total uninsured cost means the 

amount reported for each DSH in 

accordance with § 447.299(c)(14). 

Uncompensated care cost means the 

amount reported in accordance with 

§ 447.299(c)(16). 

Uncompensated care level means a 

hospital’s uncompensated care cost 

divided by the sum of its total Medicaid 

cost and its total uninsured cost. 

Uninsured percentage factor (UPF) is 

a factor incorporated in the DHRM that 

results in larger percentage DSH 

allotment reductions for States that have 

the lowest percentages of uninsured 

individuals. 

Uninsured population means 1-year 

estimates data of the number of 

uninsured identified by United States 

Census Bureau’s American Community 

Survey. 

Unreduced DSH allotment means the 

DSH allotment calculated under section 

1923(f) of the Act prior to annual 

reductions under this section. 

(c) Aggregate DSH allotment 

reduction amounts. The aggregate DSH 

allotment reduction amounts are as 

provided in section 1923(f)(7)(A)(ii) of 

the Act. 

(d) State data submission 

requirements. States are required to 

submit the mean MIUR, determined in 

accordance with section 1923(b)(1)(A) of 

the Act, for all hospitals receiving 

Medicaid payments in the State and the 


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28568 Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Proposed Rules 

value of one standard deviation above 

such mean. The State must provide this 

data to CMS by June 30 of each year 

identified in paragraph (c) of this 

section. 

(e) DHRM methodology. Section 

1923(f)(7) of the Act requires aggregate 

annual reduction amounts for FY 2014 

and FY 2015 to be reduced through the 

DHRM. The DHRM is calculated on an 

annual basis based on the most recent 

data available to CMS at the time of the 

calculation. The DHRM is determined as 

follows: 

(1) Establishing State groups. For each 

FY, CMS will separate low-DSH States 

and non-low DSH states into distinct 

State groups. 

(2) Aggregate DSH allotment 

reduction allocation. CMS will allocate 

a portion of the aggregate DSH allotment 

reductions to each State group by the 

following: 

(i) Dividing the sum of each State 

group’s preliminary unreduced DSH 

allotments by the sum of both State 

groups’ preliminary unreduced DSH 

allotment amounts to determine a 

percentage. 

(ii) Multiplying the value of paragraph 

(e)(2)(i) of this section by the aggregate 

DSH allotment reduction amount under 

paragraph (c) of this section for the 

applicable fiscal year. 

(iii) Applying the low DSH 

adjustment factor under paragraph (e)(3) 

of this section. 

(3) Low DSH adjustment factor (LDF) 

calculation. CMS will calculate the LDF 

by the following: 

(i) Dividing each State’s preliminary 

unreduced DSH allotment by their 

respective total Medicaid service 

expenditures for the applicable year. 

(ii) Calculating for each State group 

the mean of all values determined in 

paragraph (e)(3)(i) of this section. 

(iii) Dividing the value of paragraph 

(e)(3)(ii) of this section for the low-DSH 

State group by the value of paragraph 

(e)(3)(ii) for the non-low DSH state 

group. 

(4) LDF application. CMS will 

determine the final aggregate DSH 

allotment reduction allocation for each 

State group through application of the 

LDF by the following: 

(i) Multiplying the LDF by the 

aggregate DSH allotment reduction for 

the low DSH State group. 

(ii) Utilizing the value of paragraph 

(e)(4)(i) of this section as the aggregate 

DSH allotment reduction allocated to 

the low DSH State group. 

(iii) Subtracting the value of 

paragraph (e)(4)(ii) of this section from 

the value of paragraph (e)(2)(ii) of this 

section for the low DSH State group; 

and (iii) adding the value of paragraph 

(e)(4)(iii) of this section to the value of 

paragraph (e)(2)(ii) of this section for the 

non-low DSH State group. 

(5) Reduction factor allocation. CMS 

will allocate the aggregate DSH 

allotment reduction amount to three 

core factors by multiply the aggregate 

DSH allotment reduction amount for 

each State group by the following: 

(i) UPF—33 and 1⁄3 percent. 

(ii) HMF—33 and 1⁄3 percent. 

(iii) HUF—33 and 1⁄3 percent. 

(6) Uninsured percentage factor (UPF) 

calculation. CMS will calculate the UPF 

by the following: 

(i) Dividing the total State population 

by the uninsured in State for each State. 

(ii) Determining the uninsured 

reduction allocation component for each 

State as a percentage by dividing each 

State’s value of paragraph (e)(6)(i) of this 

section by the sum of the values of 

paragraph (e)(6)(i) of this section for the 

respective State group (the sum of the 

values of all States in the State group 

should total 100 percent). 

(iii) Determine a weighting factor by 

dividing each State’s unreduced DSH 

allotment by the sum of all preliminary 

unreduced DSH allotments for the 

respective State group. 

(iv) Multiply the weighting factor 

calculated in paragraph (e)(6)(iii) of this 

section by the value of each State’s 

uninsured reduction allocation 

component from paragraph (e)(6)(ii) of 

this section. 

(v) Determine the UPF as a percentage 

by dividing the product of paragraph 

(e)(6)(iv) of this section for each State by 

the sum of the values of paragraph 

(e)(6)(iv) of this section for the 

respective State group (the sum of the 

values of all States in the State group 

should total 100 percent). 

(7) UPF application and reduction 

amount. CMS will determine the UPF 

portion of the final aggregate DSH 

allotment reduction allocation for each 

State by multiplying the State’s UPF by 

the aggregate DSH allotment reduction 

allocated to the UPF factor under 

paragraph (e)(5) of this section for the 

respective State group. 

(8) High volume of Medicaid 

inpatients factor (HMF) calculation. 

CMS will calculate the HMF by 

determining a percentage for each State 

by dividing the State’s total DSH 

payments made to non-high Medicaid 

volume hospitals by the total of such 

payments for the entire State group. 

(9) HMF application and reduction 

amount. CMS will determine the HMF 

portion of the final aggregate DSH 

allotment reduction allocation for each 

State by multiplying the State’s HMF by 

the aggregate DSH allotment reduction 

allocated to the HMF factor under 

paragraph (e)(5) of this section for the 

respective State group. 

(10) High level of uncompensated care 

factor (HUF) calculation. CMS will 

calculate the HMF by determining a 

percentage for each State by dividing 

the State’s total DSH payments made to 

non-High Uncompensated Care Level 

hospitals by the total of such payments 

for the entire State group. 

(11) HUF application and reduction 

amount. CMS will determine the HUF 

portion of the final aggregate DSH 

allotment reduction allocation by 

multiplying each State’s HUF by the 

aggregate DSH allotment reduction 

allocated to the HUF factor under 

paragraph (e)(5) of this section for the 

respective State group. 

(12) Section 1115 budget neutrality 

factor (BNF) calculation. This factor is 

only calculated for States for which all 

or a portion of the DSH allotment was 

included in the calculation of budget 

neutrality under a section 1115 

demonstration for the specific fiscal 

year subject to reduction pursuant to an 

approval on or before July 31, 2009. 

CMS will calculate the BNF for 

qualifying states by the following: 

(i) For States whose DSH allotment 

was included in the budget neutrality 

calculation for a coverage expansion 

that was approved under section 1115 

as of July 31, 2009, (without regard to 

approved amendments since that date) 

determining the amount of the State’s 

DSH allotment included in the budget 

neutrality calculation for coverage 

expansion for the specific fiscal year 

subject to reduction. This amount is not 

subject to reductions under the HMF 

and HUF calculations. 

(ii) Determining the amount of the 

State’s DSH allotment included in the 

budget neutrality calculation for noncoverage expansion purposes for the 

specific fiscal year subject to reduction. 

(iii) Multiplying each qualifying 

State’s value of paragraph (e)(10)(ii) of 

this section by the mean HMF reduction 

percentage for the respective State 

group. 

(iv) Multiplying each qualifying 

State’s value of paragraph (e)(10)(ii) of 

this section by the mean HUF reduction 

percentage for the respective State 

group. 

(v) For each State, calculating the sum 

of the value of paragraphs (e)(10)(iii) 

and of (e)(10)(iv) of this section. 

(13) Section 1115 budget neutrality 

factor (BNF) application. This factor 

will be applied in the State-specific 

DSH allotment reduction calculation. 

(14) State-specific DSH allotment 

reduction calculation. CMS will 

calculate the state-specific DSH 

reduction by the following: 


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Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Proposed Rules 28569 

(i) Taking the sum of the value of 

paragraphs (e)(7), (e)(9), and (e)(11) of 

this section for each State. 

(ii) For States qualifying under 

paragraph (e)(12) of this section, adding 

the value of paragraph (e)(12)(v) of this 

section. 

(iii) Reducing the amount of 

paragraph (e)(14)(i) of this section for 

each State that does not qualify under 

paragraph (e)(12)(v) based on the 

proportion of each State’s preliminary 

unreduced DSH allotment compared to 

the national total of preliminary 

unreduced DSH allotments so that the 

sum of paragraph (e)(14)(iii) of this 

section equals the sum of paragraph 

(e)(12)(v) of this section. 

(f) Annual DSH allotment reduction 

application. For each fiscal year 

identified in paragraph (c) of this 

section, CMS will subtract the Statespecific DSH allotment amount 

determined in paragraph (e)(14) of this 

section from that State’s final unreduced 

DSH allotment. This amount is the 

State’s final DSH allotment for the fiscal 

year. 

■ 3. Section 447.299 is amended by 

adding paragraphs (c)(19), (c)(20) and 

(c)(21) to read as follows: 

§ 447.299 Reporting requirements. 

* * * * * 

(c) * * * 

(19) Medicaid provider number. 

(20) Medicare provider number. 

(21) Total hospital cost. The total 

annual costs incurred by each hospital 

for furnishing inpatient hospital and 

outpatient hospital services. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.778, Medical Assistance 

Program) 

Dated: April 26, 2013. 

Marilyn Tavenner, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: May 9, 2013. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2013–11550 Filed 5–13–13; 11:15 am] 

BILLING CODE 4120–01–P 

NATIONAL FOUNDATION ON THE 

ARTS AND HUMANITIES 

National Endowment for the 

Humanities 

45 CFR Part 1172 

RIN 3136–AA33 

Nondiscrimination on the Basis of Age 

in Federally Assisted Programs or 

Activities 

AGENCY: National Endowment for the 

Humanities, National Foundation on the 

Arts and Humanities. 

ACTION: Proposed rule. 

SUMMARY: The National Endowment for 

the Humanities (NEH) is issuing Age 

Discrimination Act of 1975 regulations 

at 45 CFR part 1172. These regulations 

implement provisions of the Age 

Discrimination Act of 1975 and the 

general, government-wide age 

discrimination regulations promulgated 

by the United States Department of 

Health and Human Services (HHS). 

These regulations are designed to 

guide the actions of recipients of 

Federal financial assistance from NEH 

and incorporate the basic standards set 

forth in the general, government-wide 

regulations for determining what 

constitutes age discrimination. The 

regulations also discuss the 

responsibilities of NEH recipients and 

the investigations, conciliation, and 

enforcement procedures NEH has been 

using and will continue to use to ensure 

compliance with the Act. 

DATES: Written comments must be 

postmarked and electronic comments 

must be submitted on or before July 15, 

2013. 

ADDRESSES: You may submit comments 

by any of the following methods: email 

to gencounsel@neh.gov; fax to 202–606– 

8600, please send your comments to the 

attention of Gina Raimond; or postal 

mail to Gina Raimond, Attorney 

Advisor, Office of the General Counsel, 

National Endowment for the 

Humanities, 1100 Pennsylvania Ave. 

NW., Room 529, Washington, DC 20506. 

To ensure proper handling, please 

reference ‘‘Age Discrimination Act 

Regulations’’ on your correspondence. 

FOR FURTHER INFORMATION CONTACT: Gina 

Raimond, Office of the General Counsel, 

National Endowment for the 

Humanities, 202–606–8322 (voice) or 

202–606–8282 (TDD). 

SUPPLEMENTARY INFORMATION: 

Background Information 

The Age Discrimination Act of 1975, 

as amended, 29 U.S.C. 6101, et seq., (the 

‘‘Act’’), prohibits discrimination on the 

basis of age in programs or activities 

receiving Federal financial assistance. 

The Act, which applies to persons of all 

ages, also contains certain exceptions 

that permit, under limited 

circumstances, use of age distinctions or 

factors other than age that may have a 

disproportionate effect on the basis of 

age. 

The Act required the former 

Department of Health, Education and 

Welfare (HEW) to issue general, 

government-wide regulations setting 

standards to be followed by all Federal 

agencies implementing the Act. These 

government-wide regulations, issued on 

June 12, 1979 and codified at 45 CFR 

part 90, require each agency to publish 

agency-specific regulations 

implementing the Act and to submit 

such final agency regulations to HEW 

(now HHS) before publication in the 

Federal Register (see 45 CFR part 

90.31). The Act became effective on July 

1, 1979—the effective date of HEW’s 

final government-wide regulations—and 

NEH has enforced the provisions of the 

Act since that time. NEH first proposed 

agency-specific regulations 

implementing the Act on October 4, 

1979 (44 FR 57130), which were closely 

based on the general, government-wide 

regulations. NEH’s original proposed 

rule adopted many substantively 

identical sections and cross-referenced 

sections from the government-wide 

regulations, rather than repeating them 

in full. HHS reviewed and approved 

NEH’s initial agency-specific regulations 

in 1985; however, NEH did not publish 

the final regulations. 

Since such a significant amount of 

time has passed since NEH initially 

drafted the proposed rule, and because 

regulatory development guidelines have 

changed over the years, NEH 

determined that it would be best to 

begin the regulatory process anew by 

drafting new agency-specific age 

discrimination regulations. As a 

practical matter, however, the absence 

of agency-specific regulations has not 

affected NEH’s enforcement of 

prohibitions against discrimination on 

the basis of age in programs or activities 

receiving financial assistance from NEH. 

Further, NEH has consistently fulfilled 

its obligation to report annually to 

Congress through HHS on its 

compliance and enforcement activities. 

Overview of Proposed Rule 

NEH has designed this proposed rule 

to fulfill the agency’s statutory and 

regulatory obligations to issue a 

regulation implementing the Act that 

conforms to the government-wide 

regulations at 45 CFR part 90. 


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