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[Federal Register Volume 77, Number 103 (Tuesday, May 29, 2012)]
[Rules and Regulations]
[Pages 31499-31513]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-12637]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 430, 433, 447, and 457

[CMS-2292-F]
RIN 0938-AQ32

Medicaid and Children's Health Insurance Programs; Disallowance 
of Claims for FFP and Technical Corrections

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

ACTION: Final rule.

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SUMMARY: This final rule reflects the Centers for Medicare & Medicaid 
Services' commitment to the general principles of the President's 
Executive Order 13563 released January 18, 2011, entitled ``Improving 
Regulation and Regulatory Review.'' This rule will: implement a new 
reconsideration process for administrative determinations to disallow 
claims for Federal financial participation (FFP) under title XIX of the 
Act (Medicaid); lengthen the time States have to credit the Federal 
government for identified but uncollected Medicaid provider 
overpayments and provide that interest will be due on amounts not 
credited within that time period; make conforming changes to the 
Medicaid and Children's Health Insurance Program (CHIP) disallowance 
process to allow States the option to retain disputed Federal funds 
through the new administrative reconsideration process; revise 
installment repayment standards and schedules for States that owe 
significant amounts; and provide that interest charges may accrue 
during the new administrative reconsideration process if a State 
chooses to retain the funds during that period. This final rule will 
also make a technical correction to reporting requirements for 
disproportionate share hospital payments, revise internal delegations 
of authority to reflect the term ``Administrator or current Designee,'' 
remove obsolete language, and correct other technical errors.

DATES: Effective Date: These regulations are effective on June 28, 
2012.

FOR FURTHER INFORMATION CONTACT: 
Robert Lane, (410) 786-2015, or Lisa Carroll, (410) 786-2696, for 
general information.
Edgar Davies, (410) 786-3280, for Overpayments.
Claudia Simonson, (312) 353-2115, for Overpayments resulting from 
Fraud.
Rory Howe, (410) 786-4878, for Upper Payment Limit and Disproportionate 
Share Hospital.

SUPPLEMENTARY INFORMATION: 

I. Background

    Title XIX of the Social Security Act (the Act) authorizes Federal 
grants to States to jointly fund programs that provide medical 
assistance to low-income families, the elderly, and persons with 
disabilities. This Federal-State partnership is administered by each 
State in accordance with an approved State plan. States have 
considerable flexibility in designing their programs, but must comply 
with Federal requirements specified in Medicaid statute, regulations, 
and interpretive agency guidance. Federal financial participation (FFP) 
is available for State medical assistance expenditures, and 
administrative expenditures related to operating the State Medicaid 
program, that are authorized under Federal law and the approved State 
plan.
    For a detailed description of the background of this final rule, 
please refer to the proposed rule published on August 3, 2011 (76 FR 
46685) in the Federal Register.
    In addition to the background described in the proposed rule, it is 
significant that section 6506 of the Patient Protection and Affordable 
Care Act (Pub. L. 111-148, enacted on March 23, 2010) (the Affordable 
Care Act) amended section 1903(d)(2) of the Act to extend the period 
from 60 days to 1 year for which a State may collect an overpayment 
from providers before having to return the Federal share of the funds. 
This section of the Affordable Care Act also provides for additional 
time beyond the 1 year for States to recover debts due to fraud when a 
final judgment (including a final determination on an appeal) is 
pending.

[[Page 31500]]

II. Summary of the Provisions of the Proposed Rule and Response to 
Comments

    This final rule finalizes provisions set forth in the proposed rule 
(76 FR 46684). The following is a summary of the provisions and the 
response to the comments received.

A. Administrative Review of Determinations to Disallow Claims for FFP

    Section 204 of the Medicare Improvements for Patients and Providers 
Act of 2008 (MIPPA), Public Law 110-275, entitled Review of 
Administrative Claim Determinations, amended section 1116 of the Act by 
striking ``title XIX'' from section 1116(d) of the Act, which describes 
a reconsideration process for disallowances of claimed Federal 
financial participation (FFP), and added a new section 1116(e) of the 
Act which provides for a new process for administrative review of 
Medicaid disallowances. Under the new process, a State may request a 
reconsideration of a Medicaid disallowance from the Secretary of the 
Department of Health and Human Services (Secretary) during the 60-day 
period following receipt of notice of the disallowance. Alternatively, 
or in addition, States may obtain review by the Department of Health 
and Human Services' (HHS) Departmental Appeals Board (Board) of either 
the initial agency decision or the reconsidered decision. Therefore, we 
proposed to revise Sec.  430.42 to set forth new procedures to review 
administrative determinations to disallow claims for FFP. These new 
procedures will provide for the availability of an informal agency 
reconsideration and a formal adjudication by the HHS Board.
    Specifically, we proposed to amend Sec.  430.42(b) to provide 
States the option to request administrative reconsideration of an 
initial determination of a Medicaid disallowance.
    In Sec.  430.42(c), we proposed the procedures for such a 
reconsideration, in Sec.  430.42(d) we described the option for a State 
to withdraw a reconsideration request, and in Sec.  430.42(e) we 
described the procedures for issuing reconsideration decisions and 
implementing such decisions.
    In Sec.  430.42(f), we proposed that States would have the option 
of appeal to the Board of either an initial determination of a Medicaid 
disallowance, or the reconsideration of such a determination under 
Sec.  430.42(b). The procedures for such an appeal are set forth in 
Sec.  430.42(g).
    In Sec.  430.42(h), we proposed the procedure for issuance and 
implementation of the final decision. For a detailed description of 
these options, please refer to the proposed rule (76 FR 46685).
    The following is a summary of the comments we received regarding 
the administrative review of determinations to disallow claims for FFP 
proposal, and our responses to those comments.
    Comment: One commenter disagreed with our proposal to create a 
regulatory framework where lack of timely action by the Administrator 
to issue a decision on a request for reconsideration affirms the 
disallowance. The commenter believes that this provision will undermine 
any advantage derived from creating an administrative reconsideration 
process and recommends that the provision be revised so that a lack of 
timely action by CMS results in a decision in the State's favor.
    Response: We do not believe that the implementation of this 
provision will undermine the advantage that may be provided to a State 
requesting an administrative reconsideration. Section 1116(e) of the 
Act provides that a State may appeal an unfavorable reconsideration of 
a disallowance. We believe that the advantage of creating an 
administrative reconsideration process is to help reduce legal costs, 
time, and resources for States and the Federal agency. We believe that 
the most prudent course is preserving the State's ability to proceed in 
the reconsideration process to the Board without impediment. This rule 
affords States the option to proceed to the appeals process without 
delay even in the event the Administrator does not provide a timely 
response to the reconsideration.
    Comment: One commenter requested that CMS revise the rule so that 
the agency will automatically suspend its disallowance determination 
during the internal reconsideration period so that a State will not be 
liable for interest if it elects to retain disallowed FFP. The 
commenter also stated that CMS proposed to charge interest during the 
administrative review period at the Current Value of Funds Rate (CVFR).
    Response: We work diligently to ensure that we have reviewed every 
option to resolve a financial issue before proceeding to the 
disallowance process and believe that to undo the process would be 
counterintuitive. The law provides for a request for reconsideration as 
an additional option for States in the disallowance process before 
proceeding to an appeal by the Board. Additionally, we believe that the 
language in section 1903 of the Act is clear and that we have no 
authority to revise current regulations to suspend a disallowance 
during the administrative reconsideration process.
    Regarding the liability of interest during the reconsideration 
process, we note that States are not required to request 
reconsideration and have the option to return the funds to us during 
the disallowance process. If a State is afforded the option to, and 
elects to, retain disallowed FFP during the administrative review 
period, the State will be charged interest based on the average of the 
bond equivalent of the weekly 90-day treasury bill auction rates from 
the date of the disallowance to the date of a final determination, in 
accordance with section 1903(d)(5) of the Act.
    Therefore, we are finalizing without change our proposed revisions 
to Sec.  430.42 as stated in the proposed rule.

B. State Option to Retain Federal Funds Pending Administrative Review 
and Interest Charges on Properly Disallowed Funds Retained by the State

    We proposed to revise Sec.  433.38 to clarify the application of 
interest when the State opts to retain Federal funds. In Sec.  433.38, 
we proposed to add language clarifying that interest will accrue on 
disallowed claims of FFP during both the reconsideration process and 
the Board appeal process. We also proposed to clarify that, if a State 
chooses to retain the FFP when a claim is disallowed and appeals the 
disallowance, the interest will continue to accrue through the 
reconsideration and the Board decision. If the disallowance is upheld, 
we proposed that the interest would continue to accrue on outstanding 
balances during any installment repayment period, until the total 
amount is repaid.
    We indicated in the preamble to the proposed rule that we were 
considering two options for the repayment of interest that accrues from 
the date of the disallowance notice until the final Board decision when 
a State elects repayment by installments. It has consistently been our 
policy that once the State has exhausted all of its administrative 
appeal rights and the disallowance has been upheld, the principal 
overpayment amount plus interest through the date of final 
determination becomes the new overpayment amount. We proposed to 
provide States with an additional option for repaying that interest 
during a repayment schedule. We believe that allowing greater 
flexibility in the repayment of interest during the

[[Page 31501]]

repayment schedule will assist States as they formulate their budgets.
    If a State chooses to repay the overpayment by installments, the 
State may choose the option of:
    (1) Dividing the new overpayment amount (principal plus initial 
interest) by the 12-quarters of repayment. The initial interest is 
interest from the date of the disallowance notice until the first 
payment. The State will still need to pay interest per quarter on the 
remaining balance of the overpayment until the final payment. To 
clarify how this option would work, we provided an example in Table 3 
of the proposed rule (76 FR 46689); or
    (2) Paying the first installment of the principal plus all interest 
accrued from the date of the disallowance notice through the first 
payment. The first installment would include the principal payment plus 
interest calculated from the date of the disallowance notice. Each 
subsequent payment would include the principal payment plus interest 
calculated on the remaining balance of the overpayment amount.
    Under section 1903(d)(5) of the Act, a State that wishes to retain 
the Federal share of a disallowed amount will be charged interest, 
based on the average of the bond equivalent of the weekly 90-day 
treasury bill auction rates, from the date of the disallowance to the 
date of a final determination.
    A State that has given a timely written notice of its intent to 
repay by installments to CMS will accrue interest during the repayment 
schedule on a quarterly basis at the Treasury Current Value Fund Rate 
(CVFR), from:
    (1) The date of the disallowance notice, if the State requests a 
repayment schedule during the 60-day review period and does not request 
reconsideration by CMS or appeal to the Board within the 60-day review 
period.
    (2) The date of the final determination of the administrative 
reconsideration, if the State requests a repayment schedule during the 
60-day review period following the CMS final determination and does not 
appeal to the Board.
    (3) The date of the final determination by the Board, if the State 
requests a repayment schedule during the 60-day review period following 
the Board's final determination.
    The initial installment will be due by the last day of the quarter 
in which the State requests the repayment schedule. If the request is 
made during the last 30 days of the quarter, the initial installment 
will be due by the last day of the following quarter. Subsequent 
repayment amounts plus interest will be due by the last day of each 
subsequent quarter.
    The CVFR is based on the Treasury Tax and Loan (TT&L) rate and is 
published annually in the Federal Register, usually by October 31st 
(effective on the first day of the next calendar year), at the 
following Web site: http://www.fms.treas.gov/cvfr/index.html.
    For a detailed description of these proposed options, please refer 
to the proposed rule (76 FR 46686).
    We solicited comments related to these approaches and the best 
application of interest when a State chooses repayment of FFP by 
installments. We were also interested in any suggestions on alternative 
approaches with respect to the repayment of interest during the 
repayment schedule.
    The following describes the one timely comment we received 
regarding the State option to retain Federal funds pending 
administrative review and interest charges on properly disallowed funds 
retained by the State.
    Comment: One commenter strongly recommended that CMS address what 
they believe to be an inherent inequity in charging interest on 
disputed funds when a State retains the FFP and loses on 
reconsideration/appeal. They stated that CMS should pay interest to a 
State if a State prevails on reconsideration or appeal.
    Response: Section 1903(d)(5) of the Act gives the State the option 
to retain the amount of Federal payment in controversy subject to an 
interest charge. Section 1903(d)(5) of the Act does not provide 
authority for CMS to pay a State interest on disputed funds when a 
State prevails in reconsideration or appeal. Nor do we see any 
significant equity issue, since interest is only due if a State 
exercises the option to retain the funds pending resolution of the 
dispute and it is determined that the State had no entitlement to the 
use of those funds. Additionally, as the State controls the funds 
during the reconsideration of appeal, CMS is in no way inhibiting the 
use of those funds pending resolution of the dispute. States have 
substantial control over both the quality and documentation of their 
claims.
    Therefore, we are finalizing without change our proposal to revise 
Sec.  433.38 to clarify the application of interest when the State opts 
to retain Federal funds as stated in the proposed rule.

C. Repayment of Federal Funds by Installments

    We proposed to amend Sec.  430.48 to revise the repayment schedule 
providing more options for States electing a repayment schedule for the 
payment of Federal funds by installment. We proposed three schedules 
including schedules that recognize the unique fiscal pressures of 
States that are experiencing economic distress, and to make technical 
corrections.
    The rationale for the installment repayment schedule is to enable 
States to continue to operate their programs effectively while repaying 
the Federal share.
    For a detailed description of the proposed options and repayment 
schedules, please refer to the proposed rule (76 FR 46686).
    The following is a summary of the comments we received regarding 
repayment of Federal funds by installments.
    Comment: One commenter recommended that CMS clarify the use of the 
term ``deposits,'' and asked if a State may continue to accomplish 
repayment through adjustments in the State's Payment Management System 
(PMS) account. The commenter suggests that CMS' intent may be better 
reflected by adding ``or adjustments'' to the provision.
    Response: The term ``deposit'' as used in Sec.  430.48(c)(5)(i) 
refers to the State making payment by Automated Clearing House (ACH) 
direct deposit, by check, or by Fedwire transfer in the State's PMS 
account. We recognize that the current process for repayment allows for 
an adjustment in the quarterly grants. Under this rule, a State will no 
longer be allowed to make repayment (of Federal funds by installments) 
through adjustments in the quarterly grants (reducing State authority 
to draw Federal funds) over the period covered by the repayment 
schedule. Due to the extended repayment periods, we believe that there 
is a need for accountability in the repayment made to PMS that cannot 
be attained through adjustments other than actual repayment. Adjustment 
of the grant award would only ensure actual repayment of the funds at 
the time of the adjustment if the State were simultaneously reducing 
its drawdown of federal funds in the same amount as the adjustment. If 
the State were doing so, the net effect should be the same as actual 
repayment. Because it would be almost impossible to determine what a 
State drawdown would have been, there is no way to determine if an 
actual payment was made until a State has to reconcile at the end of 
the year. The ability to track and record transactions will be enhanced 
by requiring actual repayment through Automated Clearing House (ACH) 
direct deposit, by check, or by Fedwire transfer in the State's PMS 
account.

[[Page 31502]]

    We have proposed three new repayment schedules that will allow 
States additional time (12 quarters) to make repayments, as well as 
extend the quarters for making repayment during periods of economic 
distress. The revisions to the repayment process in Sec.  430.48(c)(5) 
are needed to ensure that we can verify when repayments are made. We 
believe that the revised language of the section as stated in the 
proposed rule will permit this verification.
    Comment: One commenter expressed belief that it is a reasonable 
approach to use the Federal Reserve Bank of Philadelphia State 
coincident index because it is publicly available and routinely 
updated. The commenter, however, contended that setting the threshold 
at a negative percent change on each of 6 previous months sets a 
standard that is too stringent and does not correlate well with State 
budget experience. The commenter noted that because States use annual 
and biennial budget processes, the amount of funding a State can free 
up in the short term for a disallowance may not be related to the most 
recent 6 months of economic activity; rather, it is likely to be a 
function of longer term State economic conditions. The commenter also 
believes that the 6-month standard is unfair and may penalize States 
that experience a single month of growth during a period of overall 
economic decline. The commenter suggested that using a comparison of 
average annual totals based upon the monthly Federal Reserve Bank of 
Philadelphia State coincident index will better reflect a State's 
economic distress condition.
    Response: The proposed repayment by installments in this rule was 
developed to provide all States more flexibility and to recognize the 
unique fiscal pressures of States that are required to repay large 
amounts to the Federal government. This rule offers three repayment 
schedules. The establishment of the standard repayment schedule, which 
will provide all States that qualify a standard 12 quarter repayment, 
takes into account the fact that most State legislatures will need time 
to enact appropriations to repay significant amounts. This schedule is 
intended to assist States with budget concerns that may experience 
difficulty in freeing up funds in the short term.
    We also recognized the need for offering additional relief for 
States that continued to experience significant economic distress when 
either initiating a repayment schedule or while currently in the 
standard repayment process. The alternate repayment schedules were 
developed to assist only States that are experiencing continuous 
significant periods of economic distress. The National Bureau of 
Economic Research (NBER) recognizes that many professionals and experts 
around the world define a recession as two or more consecutive quarters 
of declining real Gross Domestic Product (GDP). Our development of a 
threshold set at a negative percent change on each of 6 previous months 
is consistent with this widely accepted definition of a recession. The 
use of a comparison of average annual total seems to be a good measure; 
however, our research did not identify a widely accepted basis for its 
use in determining a State's fiscal health.
    In consideration of the commenter's suggestion to use a comparison 
of average annual totals based upon the monthly Federal Reserve Bank of 
Philadelphia State coincident index, we conducted an analysis to see if 
the methodology suggested by the commenter will produce significantly 
different results. The commenter did not define ``average annual 
totals'' so we defined it for our analysis as the average of the 12 
consecutive months prior to the month in which the repayment was 
requested, resulting in a decline. We performed our analysis using 6 
States identified by the commenter as being penalized by the use of the 
6-month standard. Our analysis showed that the use of a comparison of 
average annual total in the States identified did not produce 
significantly different results. We also note that depending on the 
percent change identified by the index of a particular 12-month period, 
in some cases, the use of the average annual totals could have an 
adverse effect in certain circumstances. For example, if a State has 6 
consecutive months of minimal decline preceded by 6 months of growth 
exceeding the decline, the average annual total for that State will be 
positive growth. Under the methodology in this rule, that State will 
qualify for the alternate repayment schedule available upon request, 
but under the average annual total methodology that State will not 
qualify. Therefore, for the reasons noted above, we do not believe it 
will be beneficial to modify our methodology as identified in the 
proposed rule.
    Comment: One commenter stated that the use of the Federal Reserve 
Bank of Philadelphia to identify periods of economic distress in a 
State could be a good proxy for future State revenues for States that 
rely heavily on income taxes, but may be limited in its appropriateness 
for States that depend heavily on sales taxes. The commenter suggested 
that this indicator does not measure distress that comes from State 
spending obligations, including natural disasters, retiree pension and 
health care, State Medicaid program expenditures, and may be limited in 
its accounting of State spending on unemployment. The commenter 
recommended that alternative measures be expressly made available in 
the rule and that Statewide GDP growth should be included as a valid, 
alternative indicator of Statewide economic distress, as should a 
State's unemployment rates.
    Response: We acknowledge that a recession will affect States' 
revenue differently depending on the various revenue sources States use 
and how those sources respond to the economic conditions. We disagree 
that the use of the Federal Reserve Bank of Philadelphia to identify 
periods of economic distress is limited in its appropriateness for 
States that depend heavily on sales taxes.
    We reviewed this issue by identifying 9 States whose budgets rely 
heavily on sales taxes and 8 States whose budgets rely heavily on 
income taxes. We performed an analysis using the Federal Reserve Bank 
of Philadelphia State coincident index to see if we could determine a 
difference in States qualifying for an economic distress repayment 
schedule based on their tax revenue sources. Our analysis did not show 
a significant difference in qualifying for an alternate repayment 
schedule between States that rely heavily on general sales tax and 
those that rely heavily on income taxes.
    We also contacted various sources to obtain an understanding of how 
a State's revenue based on general sales tax will be affected by a 
recession. Our sources provided a general overview of the effect of 
State tax revenue during a recession stating that income tax is often 
more volatile than sales tax. In some States, the sales tax may also be 
volatile. Most States rely on both a sales and an income tax, which 
makes up less than one-third of the total taxes. Therefore, there will 
not necessarily be a significant difference during a recession.
    We believe that the use of the Federal Reserve Bank of Philadelphia 
State coincident index is the best indicator of a State's monthly 
fiscal health. We note that the trend for each State's index is set to 
the trend of its GPD and that the data used in determining the index is 
the best approximation of the type of information used to determine a 
national recession. We believe that the Federal Reserve Bank of 
Philadelphia provides for a more equitable treatment of States, is 
transparent to the public,

[[Page 31503]]

robust in its measurement of economic health, based on the most recent 
data possible, consistent across States, and predictably available on a 
regular basis in a timely manner.
    We also note the commenter's assertion that there are other 
indicators that may provide a more accurate determination of a State's 
fiscal health and that these indicators are not measured by the Federal 
Reserve Bank of Philadelphia. We conducted research and analyzed 
several potential economic distress measures before making our 
determination to use the Federal Reserve Bank of Philadelphia. Each 
measure has some advantages and disadvantages. We found that this is 
the best option for determining economic distress on a State-by-State 
basis. It also met the criteria that we believe will best serve States 
and CMS in making a determination.
    Comment: One commenter has concerns that this rule will 
institutionalize a data series produced by a private entity.
    Response: The Philadelphia Federal Reserve Bank is one of the 12 
regional Reserve Banks that, together with the Board of Governors in 
Washington, DC, make up the Federal Reserve System. It is headquartered 
in Philadelphia, Pennsylvania and is responsible for the Third Federal 
Reserve District.
    The Federal Reserve Banks have been operating since November 16, 
1914. The Federal Reserve Banks' structure consists of both the public 
or government sector and the private sector. The public sector is 
represented by a Board of Governors appointed by the President of the 
United States and confirmed by the U.S. Senate. The private sector is 
represented by a board of directors. We are confident in relying on 
data produced by an entity that is part of the Federal Reserve System.
    Therefore, we are finalizing without change our proposal to amend 
Sec.  430.48 to revise the repayment schedule providing more options 
for States electing a repayment schedule for the payment of Federal 
funds by installment as stated in the proposed rule.

D. Refunding of Federal Share of Overpayments to Providers

    We proposed to revise Sec.  433.300 through Sec.  433.322 in 
accordance with section 6506 of the Affordable Care Act. These 
provisions amended section 1903(d)(2) of the Act to provide an 
extension of the period for collection of provider overpayments. Under 
the new provisions, States have up to 1 year from the date of discovery 
of an overpayment made to a Medicaid provider to recover or to attempt 
to recover such an overpayment, unless the overpayment is due to fraud. 
At the end of the 1-year period, the State is required to return to the 
Federal government the Federal share of any overpayment not yet 
returned.
    For a detailed description of these provisions, please refer to the 
proposed rule (76 FR 46691).
    The following is a summary of the comments we received regarding 
refunding of Federal share of overpayments to providers.
    Comment: One commenter expressed concern regarding the definition 
of ``final written notice'' in Sec.  433.304. The commenter stated that 
the proposed changes to sections 433.304 and 433.316 could have the 
effect of binding the State Medicaid agency to actions taken by other 
State officials, and suggested some examples of potential problems that 
could arise, in practice, in situations where the State Medicaid agency 
does not have legal control over other State officials. The commenter 
recommended that the proposed regulation be amended to clarify that a 
State Medicaid agency may not be expected to repay FFP on the basis of 
allegations made against a provider or filed under authority of another 
State official. The commenter also recommended that the ``final written 
notice'' may only come from a State Medicaid agency official.
    Response: The State Medicaid agency is responsible for returning 
the Federal share of an overpayment based upon the amount discovered, 
which, for purposes of Sec.  433.316(d), is the amount identified in 
the final written notice, as defined in Sec.  433.304. Although we 
understand the commenter's concern that the State Medicaid agency may 
not have control over the overpayment determination stated in the final 
written notice, the only way a State Medicaid agency may treat an 
overpayment as resulting from fraud under Sec.  433.316(d) is for a law 
enforcement entity, for example, a Medicaid Fraud Control Unit (MFCU) 
to accept the case based on a referral from the State Medicaid agency, 
or for the law enforcement agency to file a civil or criminal case 
against a provider and notify the State Medicaid agency. There are 
likely to be instances when other State officials will take action in a 
State and provide notice to the State Medicaid agency. In those 
instances, the State Medicaid agency is ultimately responsible for 
returning the Federal share of the overpayment. Therefore, we decline 
to take the commenter's recommendations and amend the definition of 
``final written notice.''
    Comment: One commenter stated that the purpose of Sec.  433.316 
appears to ensure that the State Medicaid agency makes referrals to the 
MFCU when there is evidence of fraud. The commenter stated that in 
general, that expectation is reasonable, but a referral to a MFCU may 
be redundant in situations where the State Medicaid agency is first 
made aware of a fraud case because a criminal prosecution has already 
been initiated by the MFCU, a local prosecuting attorney, or through 
the U.S. Attorney's office.
    Response: Although it is true that MFCUs often develop their own 
cases, we encourage State Medicaid agencies and MFCUs to maintain open 
communications to keep all parties informed of the cases being worked 
by each of the offices. Referral of a case developed only by a MFCU 
back to the MFCU by the State Medicaid agency is not required by Sec.  
433.316. However, where the parties independently develop the same 
case, under Sec.  433.316(d)(3), for the State Medicaid agency to be 
able to consider the overpayment as resulting from fraud, either (1) 
the State Medicaid agency must refer the case to the MFCU or other 
appropriate law enforcement agency and receive a written notification 
of acceptance of the case from the MFCU or other appropriate law 
enforcement agency; or (2) the MFCU or other appropriate law 
enforcement agency must file a civil or criminal case against a 
provider and notify the State Medicaid agency. In the event the State 
Medicaid agency identifies allegations of fraud it determines are 
credible, it is required under Sec.  455.23 to refer the matter to the 
MFCU and suspend payments, unless good cause exceptions apply, even if 
the MFCU has developed the case independently.
    Comment: One commenter noted that a State Medicaid agency may 
already have commenced or concluded reasonable collection efforts under 
other procedures, for example, a provider that is associated with a 
criminal fraud case may also be associated with a bankruptcy case. The 
commenter recommended that a State be permitted discretion to pursue 
the most viable collection strategy.
    Response: Where a State Medicaid agency has commenced or concluded 
reasonable collection efforts under other procedures, we do not believe 
that utilizing the fraud exception under Sec.  433.316(d) is necessary. 
The State Medicaid agency has the discretion to pursue whichever 
collection strategy it deems most viable; however, the extended period 
for returning the Federal share under Sec.  433.316 may or may not 
apply to the extent that the selected collection strategy does not

[[Page 31504]]

lead the MFCU or appropriate law enforcement agency to file a civil or 
criminal action against a provider as referred to in Sec.  
433.316(d)(3).
    Comment: One commenter recommended that CMS clarify that the 
existence of an element of fraud in a case of an overpayment does not 
preclude a State from relying on other regulations such as bankruptcy 
or out of business exceptions to relieve a State of its obligation to 
repay FFP.
    Response: Under Sec.  433.318, a State Medicaid agency will not be 
required to repay the Federal share of a discovered overpayment if a 
provider is determined to be bankrupt or out of business in accordance 
with Sec.  433.318. As clarification, whether the provider's 
overpayment was a result of fraud is not material to the question of 
whether the State may rely upon Sec.  433.318. The existence of fraud 
does not extend the time period within which the provider may file its 
bankruptcy petition or for the State Medicaid agency to determine the 
provider is out of business.
    Comment: One commenter requested clarification on the use of 
bankruptcy terminology in Sec.  433.318(c)(1) and Sec.  433.318(e) of 
the rule. The commenter noted that there is a distinction between a 
voluntary bankruptcy petition filed by the debtor and an involuntary 
bankruptcy petition filed by a creditor. The commenter noted that this 
rule does not seem to fully describe the bankruptcy process and the 
variety of possible related outcomes. The commenter suggested that the 
language in the rule (``if the State recovers an overpayment amount 
under a court-approved discharge of bankruptcy'') suggests that a State 
will actually recover an overpayment amount through this process, which 
is a possible outcome, but unlikely to occur in practice. The commenter 
also suggests that the phrase ``discharge of bankruptcy'' is unclear 
and asks if the phrase is intended to convey a discharge of debt, or a 
discharge of a debtor. The commenter suggests that the phrase ``if a 
bankruptcy petition is denied, the agency must refund the Federal share 
of the overpayment in accordance with the procedures * * *'' appears to 
be problematic noting that it was probably intended to mean that the 
Medicaid provider, now a debtor, has been denied a discharge of debt. 
The commenter also suggested that it should be afforded discretion to 
tailor the collection process and strategy to the facts in the case and 
that if a State follows reasonable collection procedures; it should not 
be required to refund the Federal share. The commenter recommends that 
Sec.  433.318 be modified to reflect the most likely possible outcomes 
in bankruptcy cases and that a State should not be required to refund 
the Federal share of an overpayment in cases where a debt is 
uncollectible. They suggested that the determination should be based on 
whether a debt is collectible, and not on whether a formal discharge of 
debt has been granted.
    Response: We appreciate the comments, but note that the comments 
are outside the scope of this rule. We revised the overpayment 
regulations to bring them into compliance with section 6506 of the 
Affordable Care Act, which amended section 1903(d)(2) of the Act to 
extend the period from 60 days to 1 year for which a State may collect 
an overpayment from providers before having to return the Federal 
funds. This section also provides for additional time beyond the 1 year 
for States to recover debts due to fraud when a final judgment 
(including a final determination on an appeal) is pending. Therefore, 
we decline the commenter's recommendations to make clarifications on 
the use of bankruptcy terminology. We will consider these comments with 
respect to possible future rulemaking.
    Comment: One commenter sought clarification on whether States will 
be required to submit individualized documentation of reasonable 
collection efforts to make reclamation and believed that such a 
requirement will be administratively burdensome, and requested that CMS 
consider ways to minimize this documentation burden.
    Response: The submission of documentation for reclaiming of refunds 
is addressed in regulations. Current regulations at Sec.  433.320(g) 
state that if the agency reclaims a refund of the Federal share of an 
overpayment in cases of bankruptcy, the agency must submit to CMS a 
statement of its efforts to recover the overpayment during the period 
before the petition for bankruptcy was filed. In cases of out-of-
business providers, the agency must submit to CMS a statement of its 
efforts to locate the provider and its assets and to recover the 
overpayment during any period before the provider is found to be out-
of-business in accordance with Sec.  433.318. This rule did not revise 
any of the requirements for a State to document that it made reasonable 
efforts to obtain recovery. Since the overpayment rule was published in 
1989, we have not been made aware of any administrative burden that has 
been imposed on States. We appreciate the comment, but we do not see a 
need to revise the documentation requirement.
    Therefore, we are finalizing without change our proposal to revise 
Sec.  433.300 through Sec.  433.322 in accordance with section 6506 of 
the Affordable Care Act as stated in the proposed rule.

E. Technical Corrections to Medicaid Regulations

1. Grants Procedures
    This rule updates references at Sec.  430.30 by striking ``CMS-25'' 
and adding ``CMS-37.'' The CMS-25 was renamed to the CMS-37, but the 
changes were never codified in regulation. We took the opportunity in 
this final rule to make the correction. States are currently using the 
CMS-37 form.
2. Deferral of Claims for FFP
    This final rule will revise the language in the delegation of 
authority for deferral determinations under Sec.  430.40 and for 
disallowance determinations under Sec.  430.42 to reflect the term 
``Administrator or current Designee.'' This revision will ensure that 
future changes in the internal structure of CMS will not affect the 
authority of the Regional Office to impose deferral and disallowance of 
claims for FFP.
3. Inpatient Services: Application of Upper Payment Limits (UPLs)
    We proposed technical changes that remove UPL transition period 
language at Sec.  447.272 and Sec.  447.321. The last transition period 
expired on September 30, 2008.
4. Reporting Requirements for Disproportionate Share Hospital Payments
    This final rule corrects a technical error in the regulation text 
at Sec.  447.299(c)(15). This paragraph provides a narrative 
description of how ``total uninsured IP/OP uncompensated care costs'' 
is to be calculated from component data elements. The first sentence 
unintentionally and incorrectly references costs associated with 
Medicaid eligible individuals in the description of uninsured 
uncompensated costs. This reference is incorrect and could not be 
interpreted reasonably to contribute to an accurate description of 
``total uninsured IP/OP uncompensated care costs.'' Additionally, it 
erroneously contradicts section 1923(g) of the Act, Sec.  447.299, 42 
CFR part 455 subpart D, and longstanding CMS policy. The second 
sentence of Sec.  447.299(c)(15) accurately identifies the component 
data elements and correctly describes the calculation of ``total 
uninsured IP/OP uncompensated care costs,'' which does not include 
Medicaid eligible individuals.

[[Page 31505]]

    We did not receive any comments pertinent to these provisions. 
Therefore, we are finalizing without change these provisions as stated 
in the proposed rule.

F. Conforming Changes to CHIP Regulations

    The CHIP regulations at Sec.  457.210 through Sec.  457.212 and 
457.218 mirror Medicaid regulations at 42 CFR parts 430 and 433 related 
to deferrals, disallowances, and repayment of Federal funds by 
installments. We proposed to make conforming changes to both the 
Medicaid and CHIP programs by striking Sec.  457.210 through Sec.  
457.212 and Sec.  457.218 and incorporating the requirements of 42 CFR 
part 430. We are incorporating these through reference in Sec.  
457.628(a).
    We are also incorporating the requirements of 42 CFR part 433 with 
respect to overpayments. Section 2105(c)(6)(B) of the Act incorporates 
the overpayment requirements of section 1903(d)(2) of the Act into 
CHIP. Therefore, we are also amending the CHIP regulations to reflect 
the overpayment requirements as revised by the Affordable Care Act. We 
are incorporating these through reference in Sec.  457.628(a).
    We did not receive any comments pertinent to these provisions. 
Therefore, we are finalizing without change these provisions as stated 
in the proposed rule.

G. General Comments

    Comment: One commenter expressed thanks for the codification of the 
administrative reconsideration process, for increasing the time 
available to States to notify CMS of their intent, and for lowering the 
threshold level to qualify for a repayment by installments.
    Response: We appreciate the support for this rule.
    Comment: One commenter expressed appreciation for CMS' support of 
States' program integrity efforts and believes that this rule addresses 
the need to streamline certain administrative processes related to 
disallowances, which could lead to administrative cost efficiencies for 
States and the Federal government. The commenter agreed with the agency 
that this new administrative reconsideration process could help 
minimize the administrative burden and allow States to quickly identify 
and rectify blatant errors in disallowance determinations.
    The commenter also agreed that States should retain the authority 
to seek a formal adjudication by the Health and Human Services' 
Departmental Appeals Board.
    The commenter also stated support for the proposal to determine 
economic distress on a State-by-State basis rather than relying solely 
on a national indicator because since the causes and timing of economic 
distress and recovery vary dramatically by State.
    The commenter noted that the proposed change to Sec.  433.320 
aligns the Federal regulation with the requirements of the Affordable 
Care Act and provides State Medicaid agencies with the clarity needed 
to pursue overpayments to providers due to fraud. The commenter stated 
that State Medicaid directors are committed to working with Federal 
policymakers to improve program integrity tools and ensure States are 
not penalized for their diligent work in pursuing waste, fraud, and 
abuse.
    Response: We appreciate the commenter's support for this rule.
    Comment: One commenter noted inconsistency in the proposed rules 
regarding the change from ``Regional Administrator'' to ``Consortium 
Administrator.''
    Response: We have revised the final rule to remove staff titles 
from the regulations for deferral determinations under Sec.  430.40 and 
for disallowance determinations under Sec.  430.42. Specifically, we 
have revised the language in these sections to reflect the term 
``Administrator or current Designee.''

III. Provisions of the Final Regulations

    As a result of our review of the comments we received during the 
public comment period, as discussed in section II. of this preamble, we 
are finalizing the proposed revisions as outlined in the proposed rule 
with the following exception:
    We are revising Sec.  430.40(c)(4) to make the language consistent 
throughout the proposed rule. The regulation has been revised to change 
the language in the delegation of authority for deferral determinations 
under Sec.  430.40 and for disallowance determinations under Sec.  
430.42 to reflect the term ``Administrator or current Designee.''

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
provide 30-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. 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.
    All of the information collection requirements contained in this 
document are either exempt from the PRA or are currently approved under 
a valid OMB control number. Therefore, while we are not submitting any 
information collection requests to OMB for review and approval, we will 
consider public comments we may receive on these requirements.

A. ICRs Regarding Disallowance of Claims for FFP (Sec.  430.42)

    Section 430.42 was revised in accordance with the Medicare 
Improvement for Patients and Providers Act of 2008 (MIPPA) to set forth 
new procedures to review administrative determinations to disallow 
claims for FFP. These new procedures provide for an informal agency 
reconsideration that must be submitted in writing to the Administrator 
within 60 day after receipt of a disallowance letter. The 
reconsideration request must specify the findings or issues with which 
the State disagrees and the reason for the disagreement. It also may 
include supporting documentary evidence that the State wishes the 
Administrator to consider.
    The burden associated with this requirement is the time and effort 
necessary for the State Medicaid agency to draft and submit the 
reconsideration letter and supporting documentation. Although this 
requirement is subject to the PRA, we believe that 5 CFR 1320.4(a)(2), 
exempts the reconsideration letter as a collection of information and 
the PRA. In this case, the information associated with the 
reconsideration will be collected subsequent to an administrative 
action, that is, a determination to disallow.

B. ICRs Regarding the Maintenance of Records (Sec.  433.322)

    Section 2105(c)(6)(B) of the Act incorporates the overpayment 
requirements of section 1903(d)(2) of the Act into CHIP. The 
overpayment regulations at Sec.  433.322 require that the Medicaid 
Agency ``maintain a separate record of all overpayment activities for 
each provider in a manner that satisfies

[[Page 31506]]

the retention and access requirements of 45 CFR 92.42.'' We are 
incorporating these through reference in Sec.  457.628(a). Accordingly, 
it will require CHIP programs to comply with Sec.  433.322. States are 
currently required to maintain these records under current regulations 
for Medicaid (and by implication CHIP).
    The recordkeeping requirements set out under 45 CFR 92.42 (and 
Sec.  433.322) are adopted from OMB Circular A-110.

C. ICRs Regarding Medicaid Program Budget Report (CMS-37)

    The information collection requirements associated with CMS-37 are 
approved by OMB and have been assigned OMB control number 0938-0101. 
This final rule will not impose any new or revised reporting or 
recordkeeping requirements concerning CMS-37.

D. ICRs Regarding Quarterly Medicaid Statement of Expenditures for the 
Medical Assistance Program (CMS-64)

    The information collection requirements associated with CMS-64 are 
approved by OMB and have been assigned OMB control number 0938-0067. 
This final rule will not impose any new or revised reporting or 
recordkeeping requirements concerning CMS-64.
    If you comment on the information collection and recordkeeping 
requirements identified above, please submit your comments to the 
Office of Information and Regulatory Affairs, Office of Management and 
Budget,

Attention: CMS Desk Officer, 2292-F,
Fax: (202) 395-6974; or
Email: OIRA_submission@omb.eop.gov.

V. Regulatory Impact Statement

A. Statement of Need

    This final rule implements changes to the following:
     Section 1116 of the Act as set forth in section 204 of the 
Medicare Improvement for Patients and Providers Act of 2008 (Pub. L. 
110-275, enacted on July 15, 2008) to provide a new reconsideration 
process for administrative determinations to disallow claims for FFP 
under title XIX of the Act (Medicaid).
     Section 1903(d)(2) of the Act as set forth in section 6506 
of the Patient Protection and Affordable Care Act (Pub. L. 111-148, 
enacted on March 23, 2010) (the Affordable Care Act), to lengthen the 
time States have to credit the Federal government for identified but 
uncollected Medicaid provider overpayments and provides that interest 
is due for amounts not timely credited within that time period.
     Section 2107(e)(2)(B) of the Act which makes section 1116 
of the Act applicable to CHIP, to the same extent as it is applicable 
to Medicaid, for administrative review, unless inconsistent with the 
CHIP statute.
     Enable States to continue to operate their Medicaid 
programs effectively while repaying the Federal share of unallowable 
expenditures and to provide more flexibility for States to manage their 
budgets during periods of economic downturn.
     Clarify that interest charges accrue during the new 
administrative reconsideration process as set forth in section 204 of 
the Medicare Improvement for Patients and Providers Act of 2008 (Pub. 
L. 110-275, enacted on July 15, 2008) if a State chooses to retain the 
funds during that period.
    We conducted a review of existing regulations to correct a 
technical error in the regulation text at Sec.  447.299(c)(15) which 
erroneously contradicts section 1923(g) of the Act, Sec.  447.299, 42 
CFR part 455 subpart D, and longstanding CMS policy; revise internal 
delegations of authority to reflect the term ``Administrator or current 
Designee''; remove obsolete language; and correct other technical 
errors in accordance with section 6 of Executive Order 13563 of January 
18, 2011.

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), Executive Order 13563 on Improving Regulation 
and Regulatory Review (February 2, 2011), section 1102(b) of the Social 
Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 
(March 22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism 
(August 4, 1999) and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
This rule does not reach the economic threshold and thus is not 
considered a major rule.

C. Anticipated Effects

    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most physician practices, hospitals and 
other providers are small entities, either by nonprofit status or by 
qualifying as small businesses under the Small Business 
Administration's size standards (revenues of less than $7.0 to $34.5 
million in any 1 year). States and individuals are not included in the 
definition of a small entity. For details, see the Small Business 
Administration's Web site at http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf).
    The Secretary has also determined that this final rule will 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 
RIA if a rule may have a significant impact on the operations of a 
substantial number of small rural hospitals. This analysis must conform 
to the provisions of section 604 of the RFA. For purposes of section 
1102(b) of the Act, we define a small rural hospital as a hospital that 
is located outside of a Metropolitan Statistical Area for Medicare 
payment regulations and has fewer than 100 beds. We did not prepare an 
analysis for section 1102(b) of the Act because the Secretary has 
determined that this final rule will not have a significant impact on 
the operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 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 2012, that 
threshold is approximately $139 million. This rule will have no 
consequential effect on State, local, or tribal governments in the 
aggregate, or on the private sector.
    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 regulation does not impose any costs on State 
or local governments,

[[Page 31507]]

the requirements of Executive Order 13132 are not applicable.
Effects on State Medicaid Programs
    The final rule provides States with the option to use certain 
provisions as well as proposes new requirements or changes to existing 
interpretations of statutory or regulatory requirements. For a detailed 
description of the provisions of the proposed rule, please refer to the 
proposed rule (76 FR 46693).

D. Alternatives Considered

    This section provides an overview of regulatory alternatives that 
we considered for the proposed rule. In determining the appropriate 
guidance to assist States in their efforts to meet Federal 
requirements, we conducted analysis and research in both the public and 
private sector. Based, in part, on this analysis and research we 
arrived at the provisions which were in the proposed rule (76 FR 
46694).
1. Administrative Review of Determinations To Disallow Claims for FFP
    In the proposed rule (76 FR 46694), we set out procedures for 
States to request a reconsideration of a disallowance to the CMS 
Administrator. For a detailed description of the procedures considered, 
please refer to the proposed rule.
2. Repayment of Federal Funds by Installments
    In the proposed rule (76 FR 46694), we proposed three schedules 
including schedules that recognize the unique fiscal pressures of 
States that are experiencing economic distress. For a detailed 
description of the schedules considered, please refer to the proposed 
rule.

E. Conclusion

    For the reasons discussed above, we did not prepare analysis for 
either the RFA or section 1102(b) of the Act because we determined that 
this regulation will not have a direct significant economic impact on a 
substantial number of small entities or a direct significant impact on 
the operations of a substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 430

    Administrative practice and procedure, Grant programs-health, 
Medicaid, Reporting and recordkeeping requirements.

42 CFR Part 433

    Administrative practice and procedure, Child support, Claims, Grant 
programs-health, Medicaid, Reporting and recordkeeping requirements.

42 CFR Part 447

    Accounting, Administrative practice and procedure, Drugs, Grant 
programs-health, Health facilities, Health professions, Medicaid, 
Reporting and recordkeeping requirements, Rural areas.

42 CFR Part 457

    Administrative practice and procedure, Grant programs-health, 
Health insurance, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services amends 42 CFR Chapter IV, as set forth below:

PART 430--GRANTS TO STATES FOR MEDICAL ASSISTANCE PROGRAMS

0
1. The authority citation for part 430 continues to read as follows:

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

0
2. Section 430.30 is amended by revising paragraph (b) to read as 
follows:

Sec.  430.30  Grants procedures.

* * * * *
    (b) Quarterly estimates. The Medicaid agency must submit Form CMS-
37 (Medicaid Program Budget Report; Quarterly Distribution of Funding 
Requirements) to the central office (with a copy to the regional 
office) 45 days before the beginning of each quarter.
* * * * *

0
3. Section 430.33 is amended by revising paragraph (c)(2) to read as 
follows:

Sec.  430.33  Audits.

* * * * *
    (c) * * *
    (2) Appeal. Any exceptions that are not disposed of under paragraph 
(c)(1) of this section are included in a disallowance letter that 
constitutes the Department's final decision unless the State requests 
reconsideration by the Administrator or the Departmental Appeals Board. 
(Specific rules are set forth in Sec.  430.42.)
* * * * *

0
4. Section 430.40 is amended by revising paragraphs (a)(1), (b)(1) 
introductory text, (c)(3), (c)(4), (c)(5), (c)(6), and (e)(1) to read 
as follows:

Sec.  430.40  Deferral of claims for FFP.

    (a) * * *
    (1) The Administrator or current Designee questions its 
allowability and needs additional information to resolve the question; 
and
* * * * *
    (b) * * *
    (1) Within 15 days of the action described in paragraph (a)(2) of 
this section, the current Designee sends the State a written notice of 
deferral that--
* * * * *
    (c) * * *
    (3) If the current Designee finds that the materials are not in 
readily reviewable form or that additional information is needed, he or 
she promptly notifies the State that it has 15 days to submit the 
readily reviewable or additional materials.
    (4) If the State does not provide the necessary materials within 15 
days, the current Designee disallows the claim.
    (5) The current Designee has 90 days, after all documentation is 
available in readily reviewable form, to determine the allowability of 
the claim.
    (6) If the current Designee cannot complete review of the material 
within 90 days, CMS pays the claim, subject to a later determination of 
allowability.
* * * * *
    (e) * * *
    (1) The Administrator or current Designee gives the State written 
notice of his or her decision to pay or disallow a deferred claim.
* * * * *

0
5. Section 430.42 is amended by--
0
A. Revising paragraphs (a) introductory text and paragraph (a)(9).
0
B. Redesignating paragraphs (b), (c), and (d), as paragraphs (f), (g), 
and (h) respectively.
0
C. Adding new paragraphs (b), (c), (d), and (e).
0
D. Revising the paragraph heading of newly designated paragraph (f).
0
E. Revising newly designated paragraph (f)(2).
0
F. Adding new paragraph (f)(3).
0
G. Revising newly designated paragraphs (g) and (h).
    The revisions and additions read as follows:

Sec.  430.42  Disallowance of claims for FFP.

    (a) Notice of disallowance and of right to reconsideration. When 
the Administrator or current Designee determines that a claim or 
portion of claim is not allowable, he or she promptly sends the State a 
disallowance letter that includes the following, as appropriate:
* * * * *
    (9) A statement indicating that the disallowance letter is the 
Department's

[[Page 31508]]

final decision unless the State requests reconsideration under 
paragraph (b)(2) or (f)(2) of this section.
    (b) Reconsideration of a disallowance. (1) The Administrator will 
reconsider Medicaid disallowance determinations.
    (2) To request reconsideration of a disallowance, a State must 
complete the following:
    (i) Submit the following within 60 days after receipt of the 
disallowance letter:
    (A) A written request to the Administrator that includes the 
following:
    (1) A copy of the disallowance letter.
    (2) A statement of the amount in dispute.
    (3) A brief statement of why the disallowance should be reversed or 
revised, including any information to support the State's position with 
respect to each issue.
    (4) Additional information regarding factual matters or policy 
considerations.
    (B) A copy of the written request to the Regional Office.
    (C) Send all requests for reconsideration via registered or 
certified mail to establish the date the reconsideration was received 
by CMS.
    (ii) In all cases, the State has the burden of documenting the 
allowability of its claims for FFP.
    (iii) Additional information regarding the legal authority for the 
disallowance will not be reviewed in the reconsideration but may be 
presented in any appeal to the Departmental Appeals Board under 
paragraph (f)(2) of this section.
    (3) A State may request to retain the FFP during the 
reconsideration of the disallowance under section 1116(e) of the Act, 
in accordance with Sec.  433.38 of this subchapter.
    (4) The State is not required to request reconsideration before 
seeking review from the Departmental Appeals Board.
    (5) The State may also seek reconsideration, and following the 
reconsideration decision, request a review from the Board.
    (6) If the State elects reconsideration, the reconsideration 
process must be completed or withdrawn before requesting review by the 
Board.
    (c) Procedures for reconsideration of a disallowance. (1) Within 60 
days after receipt of the disallowance letter, the State shall, in 
accordance with (b)(2) of this section, submit in writing to the 
Administrator any relevant evidence, documentation, or explanation and 
shall simultaneously submit a copy thereof to the Regional Office.
    (2) After consideration of the policies and factual matters 
pertinent to the issues in question, the Administrator shall, within 60 
days from the date of receipt of the request for reconsideration, issue 
a written decision or a request for additional information as described 
in paragraph (c)(3) of this section.
    (3) At the Administrator's option, CMS may request from the State 
any additional information or documents necessary to make a decision. 
The request for additional information must be sent via registered or 
certified mail to establish the date the request was sent by CMS and 
received by the State.
    (4) Within 30 days after receipt of the request for additional 
information, the State must submit to the Administrator, with a copy to 
the Regional Office in readily reviewable form, all requested documents 
and materials.
    (i) If the Administrator finds that the materials are not in 
readily reviewable form or that additional information is needed, he or 
she shall notify the State via registered or certified mail that it has 
15 business days from the date of receipt of the notice to submit the 
readily reviewable or additional materials.
    (ii) If the State does not provide the necessary materials within 
15 business days from the date of receipt of such notice, the 
Administrator shall affirm the disallowance in a final reconsideration 
decision issued within 15 days from the due date of additional 
information from the State.
    (5) If additional documentation is provided in readily reviewable 
form under the paragraph (c)(4) of this section, the Administrator 
shall issue a written decision, within 60 days from the due date of 
such information.
    (6) The final written decision shall constitute final CMS 
administrative action on the reconsideration and shall be (within 15 
business days of the decision) mailed to the State agency via 
registered or certified mail to establish the date the reconsideration 
decision was received by the State.
    (7) If the Administrator does not issue a decision within 60 days 
from the date of receipt of the request for reconsideration or the date 
of receipt of the requested additional information, the disallowance 
shall be deemed to be affirmed upon reconsideration.
    (8) No section of this regulation shall be interpreted as waiving 
the Department's right to assert any provision or exemption under the 
Freedom of Information Act.
    (d) Withdrawal of a request for reconsideration of a disallowance. 
(1) A State may withdraw the request for reconsideration at any time 
before the notice of the reconsideration decision is received by the 
State without affecting its right to submit a notice of appeal to the 
Board. The request for withdrawal must be in writing and sent to the 
Administrator, with a copy to the Regional Office, via registered or 
certified mail.
    (2) Within 60 days after CMS' receipt of a State's withdrawal 
request, a State may, in accordance with (f)(2) of this section, submit 
a notice of appeal to the Board.
    (e) Implementation of decisions for reconsideration of a 
disallowance. (1) After undertaking a reconsideration, the 
Administrator may affirm, reverse, or revise the disallowance and shall 
issue a final written reconsideration decision to the State in 
accordance with paragraph (c)(4) of this section.
    (2) If the reconsideration decision requires an adjustment of FFP, 
either upward or downward, a subsequent grant award will be issued in 
the amount of such increase or decrease.
    (3) Within 60 days after the receipt of a reconsideration decision 
from CMS a State may, in accordance with paragraph (f)(2) of this 
section, submit a notice of appeal to the Board.
    (f) Appeal of Disallowance. * * *
* * * * *
    (2) A State that wishes to appeal a disallowance to the Board must:
    (i) Submit a notice of appeal to the Board at the address given on 
the Departmental Appeals Board's web site within 60 days after receipt 
of the disallowance letter.
    (A) If a reconsideration of a disallowance was requested, within 60 
days after receipt of the reconsideration decision; or
    (B) If reconsideration of a disallowance was requested and no 
written decision was issued, within 60 days from the date the decision 
on reconsideration of the disallowance was due to be issued by CMS.
    (ii) Include all of the following:
    (A) A copy of the disallowance letter.
    (B) A statement of the amount in dispute.
    (C) A brief statement of why the disallowance is wrong.
    (3) The Board's decision of an appeal under paragraph (f)(2) of 
this section shall be the final decision of the Secretary and shall be 
subject to reconsideration by the Board only upon a motion by either 
party that alleges a clear error of fact or law and is filed during the 
60-day period that begins on the date of the Board's decision or to 
judicial review in accordance with paragraph (f)(2)(i) of this section.
    (g) Appeals procedures. The appeals procedures are those set forth 
in 45 CFR part 16 for Medicaid and for many other

[[Page 31509]]

programs administered by the Department.
    (1) In all cases, the State has the burden of documenting the 
allowability of its claims for FFP.
    (2) The Board shall conduct a thorough review of the issues, taking 
into account all relevant evidence, including such documentation as the 
State may submit and the Board may require.
    (h) Implementation of decisions. (1) The Board may affirm the 
disallowance, reverse the disallowance, modify the disallowance, or 
remand the disallowance to CMS for further consideration.
    (2) The Board will issue a final written decision to the State 
consistent with 45 CFR Part 16.
    (3) If the appeal decision requires an adjustment of FFP, either 
upward or downward, a subsequent grant award will be issued in the 
amount of increase or decrease.

0
6. Section 430.48 is revised to read as follows:

Sec.  430.48  Repayment of Federal funds by installments.

    (a) Basic conditions. When Federal payments have been made for 
claims that are later found to be unallowable, the State may repay the 
Federal funds by installments if all of the following conditions are 
met:
    (1) The amount to be repaid exceeds 0.25 percent of the estimated 
or actual annual State share for the Medicaid program.
    (2) The State has given the Regional Office written notice, before 
total repayment was due, of its intent to repay by installments.
    (b) Annual State share determination. CMS determines whether the 
amount to be repaid exceeds 0.25 percent of the annual State share as 
follows:
    (1) If the Medicaid program is ongoing, CMS uses the annual 
estimated State share of Medicaid expenditures for the current year, as 
shown on the State's latest Medicaid Program Budget Report (CMS-37). 
The current year is the year in which the State requests the repayment 
by installments.
    (2) If the Medicaid program has been terminated by Federal law or 
by the State, CMS uses the actual State share that is shown on the 
State's CMS-64 Quarterly Expense Report for the last four quarters 
filed.
    (c) Standard Repayment amounts, schedules, and procedures--(1) 
Repayment amount. The repayment amount may not include any amount 
previously approved for installment repayment.
    (2) Repayment schedule. The maximum number of quarters allowed for 
the standard repayment schedule is 12 quarters (3 years), except as 
provided in paragraphs (c)(4) and (e) of this section.
    (3) Quarterly repayment amounts. (i) The quarterly repayment 
amounts for each of the quarters in the repayment schedule will be the 
larger of the repayment amount divided by 12 quarters or the minimum 
repayment amount;
    (ii) The minimum quarterly repayment amounts for each of the 
quarters in the repayment schedule is 0.25 percent of the estimated 
State share of the current annual expenditures for Medicaid;
    (iii) The repayment period may be less than 12 quarters when the 
minimum repayment amount is required.
    (4) Extended schedule. (i) The repayment schedule may be extended 
beyond 12 quarterly installments if the total repayment amount exceeds 
100 percent of the estimated State share of the current annual 
expenditures;
    (ii) The quarterly repayment amount will be 8\1/3\ percent of the 
estimated State share of the current annual expenditures until fully 
repaid.
    (5) Repayment process. (i) Repayment is accomplished through 
deposits into the State's Payment Management System (PMS) account;
    (ii) A State may choose to make payment by Automated Clearing House 
(ACH) direct deposit, by check, or by Fedwire transfer.
    (6) Reductions. If the State chooses to repay amounts representing 
higher percentages during the early quarters, any corresponding 
reduction in required minimum percentages is applied first to the last 
scheduled payment, then to the next to the last payment, and so forth 
as necessary.
    (d) Alternate repayment amounts, schedules, and procedures for 
States experiencing economic distress immediately prior to the 
repayment period--(1) Repayment amount. The repayment amount may not 
include amounts previously approved for installment repayment if a 
State initially qualifies for the alternate repayment schedule at the 
onset of an installment repayment period.
    (2) Qualifying period of economic distress. (i) A State will 
qualify to avail itself of the alternate repayment schedule if it 
demonstrates the State is experiencing a period of economic distress;
    (ii) A period of economic distress is one in which the State 
demonstrates distress for at least each of the previous 6 months, 
ending the month prior to the date of the State's written request for 
an alternate repayment schedule, as determined by a negative percent 
change in the monthly Philadelphia Federal Reserve Bank State 
coincident index.
    (3) Repayment schedule. The maximum number of quarters allowed for 
the alternate repayment schedule is 12 quarters (3 years), except as 
provided in paragraph (d)(5) of this section.
    (4) Quarterly repayment amounts. (i) The quarterly repayment 
amounts for each of the first 8 quarters in the repayment schedule will 
be the smaller of the repayment amount divided by 12 quarters or the 
maximum quarterly repayment amount;
    (ii) The maximum quarterly repayment amounts for each of the first 
8 quarters in the repayment schedule is 0.25 percent of the annual 
State share determination as defined in paragraph (b) of this section;
    (iii) For the remaining 4 quarters, the quarterly repayment amount 
equals the remaining balance of the overpayment amount divided by the 
remaining 4 quarters.
    (5) Extended schedule. (i) For a State that initiated its repayment 
under an alternate payment schedule for economic distress, the 
repayment schedule may be extended beyond 12 quarterly installments if 
the total repayment amount exceeds 100 percent of the estimated State 
share of current annual expenditures;
    (A) In these circumstances, paragraph (d)(3) of this section is 
followed for repayment of the amount equal to 100 percent of the 
estimated State share of current annual expenditures.
    (B) The remaining amount of the repayment is in quarterly amounts 
equal to 8\1/3\ percent of the estimated State share of current annual 
expenditures until fully repaid.
    (ii) Upon request by the State, the repayment schedule may be 
extended beyond 12 quarterly installments if the State has qualifying 
periods of economic distress in accordance with paragraph (d)(2) of 
this section during the first 8 quarters of the alternate repayment 
schedule.
    (A) To qualify for additional quarters, the States must demonstrate 
a period of economic distress in accordance with paragraph (d)(2) of 
this section for at least 1 month of a quarter during the first 8 
quarters of the alternate repayment schedule.
    (B) For each quarter (of the first 8 quarters of the alternate 
payment schedule) identified as qualified period of economic distress, 
one quarter will be

[[Page 31510]]

added to the remaining 4 quarters of the original 12 quarter repayment 
period.
    (C) The total number of quarters in the alternate repayment 
schedule shall not exceed 20 quarters.
    (6) Repayment process. (i) Repayment is accomplished through 
deposits into the State's Payment Management System (PMS) account;
    (ii) A State may choose to make payment by Automated Clearing House 
(ACH) direct deposit, by check, or by Fedwire transfer.
    (7) If the State chooses to repay amounts representing higher 
percentages during the early quarters, any corresponding reduction in 
required minimum percentages is applied first to the last scheduled 
payment, then to the next to the last payment, and so forth as 
necessary.
    (e) Alternate repayment amounts, schedules, and procedures for 
States entering into distress during a standard repayment schedule--(1) 
Repayment amount. The repayment amount may include amounts previously 
approved for installment repayment if a State enters into a qualifying 
period of economic distress during an installment repayment period.
    (2) Qualifying period of economic distress. (i) A State will 
qualify to avail itself of the alternate repayment schedule if it 
demonstrates the State is experiencing economic distress;
    (ii) A period of economic distress is one in which the State 
demonstrates distress for each of the previous 6 months, that begins on 
the date of the State's request for an alternate repayment schedule, as 
determined by a negative percent change in the monthly Philadelphia 
Federal Reserve Bank State coincident index.
    (3) Repayment schedule. The maximum number of quarters allowed for 
the alternate repayment schedule is 12 quarters (3 years), except as 
provided in paragraph (e)(5) of this section.
    (4) Quarterly repayment amounts. (i) The quarterly repayment 
amounts for each of the first 8 quarters in the repayment schedule will 
be the smaller of the repayment amount divided by 12 quarters or the 
maximum repayment amount;
    (ii) The maximum quarterly repayment amounts for each of the first 
8 quarters in the repayment schedule is 0.25 percent of the annual 
State share determination as defined in paragraph (b) of this section;
    (iii) For the remaining 4 quarters, the quarterly repayment amount 
equals the remaining balance of the overpayment amount divided by the 
remaining 4 quarters.
    (5) Extended schedule. (i) For a State that initiated its repayment 
under the standard payment schedule and later experienced periods of 
economic distress and elected an alternate repayment schedule, the 
repayment schedule may be extended beyond 12 quarterly installments if 
the total repayment amount of the remaining balance of the standard 
schedule, exceeds 100 percent of the estimated State share of the 
current annual expenditures;
    (ii) In these circumstances, paragraph (d)(3) of this section is 
followed for repayment of the amount equal to 100 percent of the 
estimated State share of current annual expenditures;
    (iii) The remaining amount of the repayment is in quarterly amounts 
equal to 8\1/3\ percent of the estimated State share of the current 
annual expenditures until fully repaid.
    (6) Repayment process. (i) Repayment is accomplished through 
deposits into the State's Payment Management System (PMS) account;
    (ii) A State may choose to make payment by Automated Clearing House 
(ACH) direct deposit, by check, or by Fedwire transfer.
    (7) If the State chooses to repay amounts representing higher 
percentages during the early quarters, any corresponding reduction in 
required minimum percentages is applied first to the last scheduled 
payment, then to the next to the last payment, and so forth as 
necessary.

PART 433--STATE FISCAL ADMINISTRATION

0
7. The authority citation for part 433 continues as follows:

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

0
8. Section 433.38 is amended by revising paragraphs (a) introductory 
text, (b)(1), (b)(3), (c), (e)(1)(i),(e)(1)(ii), (e)(1)(iii), 
(e)(1)(iv), and by adding paragraphs (e)(1)(v), and (e)(1)(vi) to read 
as follows:

Sec.  433.38  Interest charge on disallowed claims for FFP.

    (a) Basis and scope. This section is based on section 1903(d)(5) of 
the Act, which requires that the Secretary charge a State interest on 
the Federal share of claims that have been disallowed but have been 
retained by the State during the administrative appeals process under 
section 1116(e) of the Act and the Secretary later recovers after the 
administrative appeals process has been completed. This section does 
not apply to--
* * * * *
    (b) * * *
    (1) CMS will charge the State interest on FFP when--
    (i) CMS has notified the Medicaid agency under Sec.  430.42 of this 
subpart that a State's claim for FFP is not allowable;
    (ii) The agency has requested a reconsideration of the disallowance 
to the Administrator under Sec.  430.42 of this chapter and has chosen 
to retain the FFP during the administrative reconsideration process in 
accordance with paragraph (c)(2) of this section;
    (iii)(A) CMS has made a final determination upholding part or all 
of the disallowance;
    (B) The agency has withdrawn its request for administrative 
reconsideration on all or part of the disallowance; or
    (C) The agency has reversed its decision to retain the funds 
without withdrawing its request for administrative reconsideration and 
CMS upholds all or part of the disallowance.
    (iv) The agency has appealed the disallowance to the Departmental 
Appeals Board under 45 CFR Part 16 and has chosen to retain the FFP 
during the administrative appeals process in accordance with paragraph 
(c)(2) of this section.
    (v)(A)The Board has made a final determination upholding part or 
all of the disallowance;
    (B) The agency has withdrawn its appeal on all or part of the 
disallowance; or
    (C) The agency has reversed its decision to retain the funds 
without withdrawing its appeal and the Board upholds all or part of the 
disallowance.
* * * * *
    (3) Unless an agency decides to withdraw its request for 
administrative reconsideration or appeal on part of the disallowance 
and therefore returns only that part of the funds on which it has 
withdrawn its request for administrative reconsideration or appeal, any 
decision to retain or return disallowed funds must apply to the entire 
amount in dispute.
* * * * *
    (c) State procedures. (1) If the Medicaid agency has requested 
administrative reconsideration to CMS or appeal of a disallowance to 
the Board and wishes to retain the disallowed funds until CMS or the 
Board issues a final determination, the agency must notify the CMS 
Regional Office in writing of its decision to do so.
    (2) The agency must mail its notice to the CMS Regional Office 
within 60 days of the date of receipt of the notice of the 
disallowance, as established by the

[[Page 31511]]

certified mail receipt accompanying the notice.
    (3) If the agency withdraws its decision to retain the FFP or its 
request for administrative reconsideration or appeal on all or part of 
the FFP, the agency must notify CMS in writing.
* * * * *
    (e) * * *
    (1) * * *
    (i) On the date of the final determination by CMS of the 
administrative reconsideration if the State elects not to appeal to the 
Board, or final determination by the Board;
    (ii) On the date CMS receives written notice from the State that it 
is withdrawing its request for administrative reconsideration and 
elects not to appeal to the Board, or withdraws its appeal to the Board 
on all of the disallowed funds; or
    (iii) If the agency withdraws its request for administrative 
reconsideration on part of the funds on--
    (A) The date CMS receives written notice from the agency that it is 
withdrawing its request for administrative reconsideration on a 
specified part of the disallowed funds for the part on which the agency 
withdraws its request for administrative reconsideration; and
    (B) The date of the final determination by CMS on the part for 
which the agency pursues its administrative reconsideration; or
    (iv) If the agency withdraws its appeal on part of the funds, on--
    (A) The date CMS receives written notice from the agency that it is 
withdrawing its appeal on a specified part of the disallowed funds for 
the part on which the agency withdraws its appeal; and
    (B) The date of the final determination by the Board on the part 
for which the agency pursues its appeal; or
    (v) If the agency has given CMS written notice of its intent to 
repay by installment, in the quarter in which the final installment is 
paid. Interest during the repayment of Federal funds by installments 
will be at the Current Value of Funds Rate (CVFR); or
    (vi) The date CMS receives written notice from the agency that it 
no longer chooses to retain the funds.
* * * * *

0
9. Section 433.300 is amended by revising paragraph (b) to read as 
follows:

Sec.  433.300  Basis.

* * * * *
    (b) Section 1903(d)(2)(C) and (D) of the Act, which provides that a 
State has 1 year from discovery of an overpayment for Medicaid services 
to recover or attempt to recover the overpayment from the provider 
before adjustment in the Federal Medicaid payment to the State is made; 
and that adjustment will be made at the end of the 1-year period, 
whether or not recovery is made, unless the State is unable to recover 
from a provider because the overpayment is a debt that has been 
discharged in bankruptcy or is otherwise uncollectable.
* * * * *

0
10. Section 433.302 is revised to read as follows:

Sec.  433.302  Scope of subpart.

    This subpart sets forth the requirements and procedures under which 
States have 1 year following discovery of overpayments made to 
providers for Medicaid services to recover or attempt to recover that 
amount before the States must refund the Federal share of these 
overpayments to CMS, with certain exceptions.

0
11. Section 433.304 is amended by removing the definition of ``Abuse'' 
and adding the definition of ``Final written notice'' to read as 
follows:

Sec.  433.304  Definitions.

* * * * *
    Final written notice means that written communication, immediately 
preceding the first level of formal administrative or judicial 
proceedings, from a Medicaid agency official or other State official 
that notifies the provider of the State's overpayment determination and 
allows the provider to contest that determination, or that notifies the 
State Medicaid agency of the filing of a civil or criminal action.
* * * * *

0
12. Section 433.312 is amended by revising paragraph (a) to read as 
follows:

Sec.  433.312  Basic requirements for refunds.

    (a) Basic rules. (1) Except as provided in paragraph (b) of this 
section, the State Medicaid agency has 1 year from the date of 
discovery of an overpayment to a provider to recover or seek to recover 
the overpayment before the Federal share must be refunded to CMS.
    (2) The State Medicaid agency must refund the Federal share of 
overpayments at the end of the 1-year period following discovery in 
accordance with the requirements of this subpart, whether or not the 
State has recovered the overpayment from the provider.
* * * * *

0
13. Section 433.316 is amended by revising paragraphs (a), (c) 
introductory text, (d), (f), and (g) to read as follows:

Sec.  433.316  When discovery of overpayment occurs and its 
significance.

    (a) General rule. The date on which an overpayment is discovered is 
the beginning date of the 1-year period allowed for a State to recover 
or seek to recover an overpayment before a refund of the Federal share 
of an overpayment must be made to CMS.
* * * * *
    (c) Overpayments resulting from situations other than fraud. An 
overpayment resulting from a situation other than fraud is discovered 
on the earliest of---
* * * * *
    (d) Overpayments resulting from fraud. (1) An overpayment that 
results from fraud is discovered on the date of the final written 
notice (as defined in Sec.  433.304 of this subchapter) of the State's 
overpayment determination.
    (2) When the State is unable to recover a debt which represents an 
overpayment (or any portion thereof) resulting from fraud within 1 year 
of discovery because no final determination of the amount of the 
overpayment has been made under an administrative or judicial process 
(as applicable), including as a result of a judgment being under 
appeal, no adjustment shall be made in the Federal payment to such 
State on account of such overpayment (or any portion thereof) until 30 
days after the date on which a final judgment (including, if 
applicable, a final determination on an appeal) is made.
    (3) The Medicaid agency may treat an overpayment made to a Medicaid 
provider as resulting from fraud under subsection (d) of this section 
only if it has referred a provider's case to the Medicaid fraud control 
unit, or appropriate law enforcement agency in States with no certified 
Medicaid fraud control unit, as required by Sec.  455.15, Sec.  455.21, 
or Sec.  455.23 of this chapter, and the Medicaid fraud control unit or 
appropriate law enforcement agency has provided the Medicaid agency 
with written notification of acceptance of the case; or if the Medicaid 
fraud control unit or appropriate law enforcement agency has filed a 
civil or criminal action against a provider and has notified the State 
Medicaid agency.
* * * * *
    (f) Effect of changes in overpayment amount. Any adjustment in the 
amount of an overpayment during the 1-year period following discovery 
(made in accordance with the approved State plan, Federal law and 
regulations governing Medicaid, and the appeals resolution process 
specified in State administrative policies and procedures)

[[Page 31512]]

has the following effect on the 1-year recovery period:
    (1) A downward adjustment in the amount of an overpayment subject 
to recovery that occurs after discovery does not change the original 1-
year recovery period for the outstanding balance.
    (2) An upward adjustment in the amount of an overpayment subject to 
recovery that occurs during the 1-year period following discovery does 
not change the 1-year recovery period for the original overpayment 
amount. A new 1-year period begins for the incremental amount only, 
beginning with the date of the State's written notification to the 
provider regarding the upward adjustment.
    (g) Effect of partial collection by State. A partial collection of 
an overpayment amount by the State from a provider during the 1-year 
period following discovery does not change the 1-year recovery period 
for the balance of the original overpayment amount due to CMS.
* * * * *

0
14. Section 433.318 is amended by revising paragraphs (a)(2), (b) 
introductory text, (c) introductory text, (c)(1), (d)(1), and (e), to 
read as follows:

Sec.  433.318  Overpayments involving providers who are bankrupt or out 
of business.

    (a) * * *
    (2) The agency must notify the provider that an overpayment exists 
in any case involving a bankrupt or out-of-business provider and, if 
the debt has not been determined uncollectable, take reasonable actions 
to recover the overpayment during the 1-year recovery period in 
accordance with policies prescribed by applicable State law and 
administrative procedures.
    (b) Overpayment debts that the State need not refund. Overpayments 
are considered debts that the State is unable to recover within the 1-
year period following discovery if the following criteria are met:
* * * * *
    (c) Bankruptcy. The agency is not required to refund to CMS the 
Federal share of an overpayment at the end of the 1-year period 
following discovery, if--
    (1) The provider has filed for bankruptcy in Federal court at the 
time of discovery of the overpayment or the provider files a bankruptcy 
petition in Federal court before the end of the 1-year period following 
discovery; and
* * * * *
    (d) * * *
    (1) The agency is not required to refund to CMS the Federal share 
of an overpayment at the end of the 1-year period following discovery 
if the provider is out of business on the date of discovery of the 
overpayment or if the provider goes out of business before the end of 
the 1-year period following discovery.
* * * * *
    (e) Circumstances requiring refunds. If the 1-year recovery period 
has expired before an overpayment is found to be uncollectable under 
the provisions of this section, if the State recovers an overpayment 
amount under a court-approved discharge of bankruptcy, or if a 
bankruptcy petition is denied, the agency must refund the Federal share 
of the overpayment in accordance with the procedures specified in Sec.  
433.320 of this subpart.

0
15. Section 433.320 is amended by--
0
A. Revising paragraphs (a)(2), (b)(1), (d), (f)(2), (g)(1), and (h)(1).
0
B. Adding paragraph (a)(4).
    The revisions and addition read as follows:

Sec.  433.320  Procedures for refunds to CMS.

    (a) * * *
    (2) The agency must credit CMS with the Federal share of 
overpayments subject to recovery on the earlier of--
    (i) The Form CMS-64 submission due to CMS for the quarter in which 
the State recovers the overpayment from the provider; or
    (ii) The Form CMS-64 due to CMS for the quarter in which the 1-year 
period following discovery, established in accordance with Sec.  
433.316, ends.
* * * * *
    (4) If the State does not refund the Federal share of such 
overpayment as indicated in paragraph (a)(2) of this section, the State 
will be liable for interest on the amount equal to the Federal share of 
the non-recovered, non-refunded overpayment amount. Interest during 
this period will be at the Current Value of Funds Rate (CVFR), and will 
accrue beginning on the day after the end of the 1-year period 
following discovery until the last day of the quarter for which the 
State submits a CMS-64 report refunding the Federal share of the 
overpayment.
    (b) * * *
    (1) The State is not required to refund the Federal share of an 
overpayment at the end of the 1-year period if the State has already 
reported a collection or submitted an expenditure claim reduced by a 
discrete amount to recover the overpayment prior to the end of the 1-
year period following discovery.
* * * * *
    (d) Expiration of 1-year recovery period. If an overpayment has not 
been determined uncollectable in accordance with the requirements of 
Sec.  433.318 of this subpart at the end of the 1-year period following 
discovery of the overpayment, the agency must refund the Federal share 
of the overpayment to CMS in accordance with the procedures specified 
in paragraph (a) of this section.
* * * * *
    (f) * * *
    (2) The Form CMS-64 submission for the quarter in which the 1-year 
period following discovery of the overpayment ends.
    (g) * * *
    (1) If a provider is determined bankrupt or out of business under 
this section after the 1-year period following discovery of the 
overpayment ends and the State has not been able to make complete 
recovery, the agency may reclaim the amount of the Federal share of any 
unrecovered overpayment amount previously refunded to CMS. CMS allows 
the reclaim of a refund by the agency if the agency submits to CMS 
documentation that it has made reasonable efforts to obtain recovery.
* * * * *
    (h) * * *
    (1) Amounts of overpayments not collected during the quarter but 
refunded because of the expiration of the 1-year period following 
discovery;
* * * * *

0
16. Section 433.322 is revised to read as follows:

Sec.  433.322  Maintenance of Records.

    The Medicaid agency must maintain a separate record of all 
overpayment activities for each provider in a manner that satisfies the 
retention and access requirements of 45 CFR 92.42.

PART 447--PAYMENTS FOR SERVICES

0
17. The authority citation for part 447 continues as follows:

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

Sec.  447.272  [Amended]

0
18. Section 447.272 is amended by removing paragraphs (e) and (f).

0
19. Section 447.299 is amended by revising paragraph (c)(15) to read as 
follows:

Sec.  447.299  Reporting requirements.

* * * * *
    (c) * * *
    (15) Total uninsured IP/OP uncompensated care costs. Total annual 
amount of uncompensated IP/OP care for furnishing inpatient hospital 
and

[[Page 31513]]

outpatient hospital services to individuals with no source of third 
party coverage for the hospital services they receive.
    (i) The amount should be the result of subtracting paragraphs 
(c)(12) and (c)(13), from paragraph (c)(14) of this section.
    (ii) The uncompensated care costs of providing physician services 
to the uninsured cannot be included in this amount.
    (iii) The uninsured uncompensated amount also cannot include 
amounts associated with unpaid co-pays or deductibles for individuals 
with third party coverage for the inpatient and/or outpatient hospital 
services they receive or any other unreimbursed costs associated with 
inpatient and/or outpatient hospital services provided to individuals 
with those services in their third party coverage benefit package.
    (iv) The uncompensated care costs do not include bad debt or payer 
discounts related to services furnished to individuals who have health 
insurance or other third party payer.
* * * * *

Sec.  447.321  [Amended]

0
20. Section 447.321 is amended by removing paragraphs (e) and (f).

PART 457--ALLOTMENTS AND GRANTS TO STATES

0
21. The authority citation for part 457 continues as follows:

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

Sec.  457.210  [Removed]

0
22. Section 457.210 is removed.

Sec.  457.212  [Removed]

0
23. Section 457.212 is removed.

Sec.  457.218  [Removed]

0
24. Section 457.218 is removed.

0
25. Section 457.628 is amended by revising paragraph (a) to read as 
follows:

Sec.  457.628  Other applicable Federal regulations.

* * * * *
    (a) HHS regulations in Sec.  433.312 through Sec.  433.322 of this 
chapter (related to Overpayments); Sec.  433.38 of this chapter 
(Interest charge on disallowed claims of FFP); Sec.  430.40 through 
Sec.  430.42 of this chapter (Deferral of claims for FFP and 
Disallowance of claims for FFP); Sec.  430.48 of this chapter 
(Repayment of Federal funds by installments); Sec.  433.50 through 
Sec.  433.74 of this chapter (sources of non-Federal share and Health 
Care-Related Taxes and Provider Related Donations); and Sec.  447.207 
of this chapter (Retention of Payments) apply to State's CHIP programs 
in the same manner as they apply to State's Medicaid programs.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

    Dated: April 18, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: May 8, 2012.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2012-12637 Filed 5-25-12; 8:45 am]
BILLING CODE 4120-01-P
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