[Federal Register Volume 80, Number 73 (Thursday, April 16, 2015)]
[Proposed Rules]
[Pages 20455-20464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-08754]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 95

Centers for Medicare & Medicaid Services

42 CFR Part 433

[CMS-2392-P]
RIN 0938-AS53


Medicaid Program; Mechanized Claims Processing and Information 
Retrieval Systems (90/10)

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would extend enhanced funding for Medicaid 
eligibility systems as part of a state's mechanized claims processing 
system, and would update conditions and standards for such systems, 
including adding to and updating current Medicaid Management 
Information Systems (MMIS) conditions and standards. These changes 
would allow states to improve customer service and support the dynamic 
nature of Medicaid eligibility, enrollment, and delivery systems.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. June 15, 2015.

ADDRESSES: In commenting, please refer to file code CMS-2392-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-2392-P, P.O. Box 8016, 
Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-2392-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments ONLY to the following addresses prior to 
the close of the comment period:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-0265 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Victoria Guarisco (410) 786-0265, for 
issues related to administrative questions. Carrie Feher (410) 786-
8905, for issues related to regulatory impact questions. Denise G. 
Osborn-Harrison (410) 786-1661 or Martin Rice (410) 786-2417, for 
general questions.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

I. Executive Summary

A. Purpose

    This proposed rule would revise the regulatory definition of 
Medicaid mechanized claims processing and information retrieval systems 
to include Medicaid eligibility and enrollment (E&E) systems, which 
would have the consequence of making available for E&E systems the 
enhanced federal financial participation (FFP) specified in section 
1903(a)(3) of the Social

[[Page 20456]]

Security Act (the Act) on an ongoing basis. Enhanced FFP will be 
available, under certain circumstances, for costs of such systems at a 
90 percent federal matching rate for design and development activities, 
and at a 75 percent federal matching rate for maintenance and 
operations activities. In addition to lifting the time limit that 
currently applies to the inclusion of E&E systems in the definition of 
mechanized claims processing and information retrieval systems, we are 
proposing changes to the standards and conditions applicable to such 
systems in order to access enhanced funding. We are also soliciting 
comment on new approaches to systems development, acquisition approvals 
and formal certification. Specifically, we are proposing new 
definitions for ``Commercial Off the Shelf (COTS) software'', ``open 
source,'' ``proprietary,'' ``shared services,'' and ``MMIS Module.''

B. Summary of the Major Provisions

    We are proposing changes to Sec. Sec.  433.110, 433.111, 433.112, 
433.116, 433.119, and 433.120. These changes provide for the 90 percent 
enhanced FFP for design, development and implementation activities for 
E&E systems to continue on an ongoing basis. The proposed changes would 
allow the states to complete fully modernized E&E systems and will 
support the dynamics of national Medicaid enrollment and delivery 
system needs. The changes will also set forth additional criteria for 
the submission, review and approval of Advance Planning Documents 
(APDs).
    In addition, we are proposing changes to provisions within 45 CFR 
part 95, subpart F, Sec.  95.611. These changes align all Medicaid IT 
requirements with existing policy for Medicaid Management Information 
Systems (MMIS) pertaining to prior approvals when states release 
acquisition solicitation documents or execute contracts above a certain 
threshold amounts. In addition we propose to amend Sec.  95.611(a)(2) 
by removing the reference to 45 CFR 1355.52.

C. Summary of Costs and Benefits

------------------------------------------------------------------------
    Provision description          Total costs         Total benefits
------------------------------------------------------------------------
42 CFR part 433.............  The federal net       We project lower
                               costs from FY 2016    costs over the 10-
                               through 2025 of       year budget window
                               implementing the      due to the
                               proposed regulation   increased savings
                               on eligibility        to operating one
                               systems is            E&E system and
                               approximately $3      eliminating legacy
                               billion. This         systems. The costs
                               includes              shift from mostly
                               approximately $5.1    90 percent FFP for
                               billion in            design,
                               increased federal     development, and
                               costs for system      installation to 75
                               design and            percent FFP for
                               development, offset   maintenance and
                               by lower              operations over
                               anticipated           time. (federal
                               maintenance and       share only).
                               operations costs.
                               These costs
                               represent only the
                               federal share.
                               These figures were
                               derived from
                               states' actual
                               system development
                               and maintenance
                               costs as the
                               foundation for
                               projected costs.
42 CFR part 433.............  The state net costs   We project savings
                               from FY 2016          for states over the
                               through 2025 of       10-year budget
                               implementing the      window due to
                               proposed regulation   moving away from
                               on eligibility        operating two or
                               systems is            more systems, and
                               approximately -$1.1   replacing legacy
                               billion. This         systems.
                               includes
                               approximately $572
                               million in state
                               costs for system
                               design and
                               development, offset
                               by lower
                               anticipated
                               maintenance and
                               operations costs.
                               These costs
                               represent only the
                               state share.
45 CFR part 95, subpart F:    This is an            This administrative
 Sec.   95.611.                administrative        change is expected
                               change with no        to result in
                               associated costs.     nominal savings
                                                     from increased
                                                     efficiency.
------------------------------------------------------------------------
* See section VI. of this proposed rule for the underlying assumptions
  in support of these totals and further explanation.

II. Background

A. Legislative History and Statutory Authority

    Section 1903(a)(3)(A)(i) of the Act provides for federal financial 
participation (FFP) at the rate of 90 percent for state expenditures 
for the design, development, or installation of mechanized claims 
processing and information retrieval systems as the Secretary of the 
Department of Health and Human Services (the Secretary) determines are 
likely to provide more efficient, economical and effective 
administration of the state plan. In addition, section 1903(a)(3)(B) 
provides for federal financial participation (FFP) at the rate of 75 
percent for state expenditures for maintenance and operation of such 
systems.
    In a final rule published October 13, 1989, at 54 FR 41966, CMS 
revised the definition of a mechanized claims processing and 
information retrieval system at 42 CFR 433.111(b) to provide that 
eligibility determination systems would not be considered part of 
mechanized claims processing and information retrieval systems or 
enhancements to those systems. As a result, CMS also indicated at 42 
CFR 433.112(c) that the enhanced FFP for mechanized claims processing 
and information retrieval systems in accordance with section 1903(a)(3) 
of the Act would not be available for eligibility determination 
systems.
    We published a final rule entitled the ``Federal Funding for 
Medicaid Eligibility Determination and Enrollment Activities'' on April 
19, 2011 (76 FR 21949-21975) that temporarily reversed the 1989 rule. 
We explained that this reversal was in response to changes made by the 
Affordable Care Act that required sweeping changes in Medicaid 
eligibility and enrollment systems and removed certain linkages between 
Medicaid eligibility determinations and eligibility determinations made 
by other federal-state programs, as well as changes in Medicaid 
eligibility and business processes that have occurred since our 1989 
final rule to integrate eligibility and claims processing systems. The 
reversal was temporary to address the immediate need for eligibility 
system redesign to coordinate with the overall claims processing and 
reporting systems. Specifically, in the April 19, 2011 final rule (75 
FR 21950), we included eligibility determination systems in the 
definition of mechanized claims processing and information retrieval 
systems in Sec.  433.111(b)(3)(B). We also provided that the enhanced 
FFP would be available at the 90 percent rate for design, development, 
installation or enhancement of eligibility and enrollment systems and 
at the 75 percent rate for maintenance and operations of such systems, 
to the extent that the eligibility and enrollment systems were 
developed on or after April 19, 2011, operational by December 31, 2015, 
and met all standards for such

[[Page 20457]]

systems. Under that rule, the 90 percent enhanced matching rate for 
system development is available through calendar year (CY) 2015 for 
state expenditures on eligibility and enrollment systems that meet 
specific standards and conditions, and the 75 percent match for 
maintenance and operations is available for systems that meet specific 
standards and conditions before the end of calendar year 2015, as long 
as those systems are in operation.
    In the April 19, 2011 (75 FR 21950) regulation, under the authority 
of sections 1903(a)(3)(A)(i) and 1903(a)(3)(B) of the Act, we codified 
the conditions at 42 CFR 433.112(b) that must be met by the states for 
Medicaid technology investments including traditional claims processing 
systems, as well as eligibility systems, to be eligible for the 
enhanced funding match. We also issued sub-regulatory guidance: 
``Medicaid IT Supplement Version 1.0'' in April 2011 that outlined in 
greater detail the seven standards and conditions for enhanced funding.
    As explained in more detail below, we are proposing to make 
permanent the inclusion of eligibility and enrollment systems in the 
definition of mechanized claims processing and information retrieval 
systems, and to consequently extend the availability of enhanced FFP. 
We propose to define a state Medicaid eligibility and enrollment system 
as the system of software and hardware used to process applications, 
renewals and updates from Medicaid applicants and beneficiaries. In 
part, this proposed change reflects a new understanding of the 
complexity of the required eligibility and enrollment system redesign, 
and a new appreciation of the need for eligibility and enrollment 
systems to operate as an integral part of the mechanized claims 
processing and information retrieval systems using a standard Medicaid 
information technology architecture.
    We previously expected that fundamental changes to state systems 
would be completed well before December 31, 2015. It is now clear that 
additional improvements would benefit states and the federal 
government. It is also clear that such systems are integral to the 
operation of the state's overall mechanized claims processing and 
information retrieval systems and must be designed and operated as a 
coordinated part of such systems. Without recognition as an integral 
part of such systems, and without ongoing enhanced federal funding, 
state Medicaid eligibility and enrollment systems are likely to become 
out of date and would not be able to coordinate with, and further the 
purposes of, the overall mechanized claims processing and information 
retrieval systems.

B. Program Affected

    Since 2011, CMS has worked with the states on the design, 
development and implementation of modernized Medicaid and CHIP 
eligibility and enrollment systems, supported by the enhanced FFP, to 
achieve the technical functionality necessary for the implementation of 
the new eligibility and renewal policies on January 1, 2014. In 
December 2012, we identified critical success factors in order for the 
states to demonstrate operational readiness, including: Ability to 
accept a single, streamlined application; ability to convert existing 
state income standards to modified adjusted gross income (MAGI); 
ability to convey state-specific eligibility rules to the Federally-
Facilitated Marketplace (FFM), as applicable; ability to process 
applications based on modified adjusted gross income (MAGI) rules; 
ability to accept and send application files (accounts) to and from the 
Marketplace; ability to respond to inquiries from the Marketplace on 
current Medicaid or CHIP coverage; and, ability to verify eligibility 
based upon electronic data sources (the Federal Data Services Hub or an 
approved alternative).
    The states are in varying stages of completion of their E&E system 
functionality, with work still ahead to maximize automation, streamline 
processes, and to migrate non-MAGI Medicaid programs into the new 
system. In addition, the majority of the states are engaged in system 
integration with human services programs, further increasing 
efficiencies and improving the consumer experience for those seeking 
benefits or services from programs in addition to Medicaid.

III. Provisions of the Proposed Regulations

    The proposed regulatory changes in this proposed rule would 
permanently recognize Medicaid and CHIP eligibility and enrollment 
systems as an integral part of Medicaid mechanized claims processing 
and information retrieval systems, and would remove the time limits on 
the availability of enhanced rates of FFP for qualifying systems.
    In addition, we are proposing to strengthen the standards and 
conditions for qualifying systems. Our purpose in the April 19, 2011 
final rule (75 FR 21950) for moving to the standards and conditions-
based approach to approving federal funding was intended to foster 
strong collaboration with the states, streamline the business process 
between the states and CMS by reducing unnecessary paperwork, and focus 
attention on the key elements of success for modern systems development 
and deployment. With the proposed on-going access to enhanced funding 
for eligibility systems, and in recognition of refinements needed to 
the standards and conditions that pertain to MMIS and eligibility and 
enrollment systems, we are proposing new criteria and modifying the 
existing standards and conditions required for the states to access the 
enhanced funding and provide greater accountability for the system 
investment.
    These changes will permit states additional time to complete their 
full system modernization and retire their outdated ``legacy'' systems. 
In addition, these changes will promote an integrated, enterprise 
approach to Medicaid information technology. An enterprise approach 
involves the identification of functionality that can be shared across 
multiple programs, systems and subsystems. For example, a master person 
index or provider directory can be built once for multiple uses within 
the larger Medicaid enterprise. We anticipate that this approach will 
help drive down potentially redundant IT costs.
    Criteria will be set forth stating requirements for APDs and review 
of the same such as; for both MMIS and E&E systems, the state must 
identify in an APD its own key personnel (by type and time commitment) 
assigned to the project to ensure that sufficient state capacity is 
there to support a successful project outcome. We are proposing that 
for both MMIS and E&E systems, the state must meet the industry 
standards and conditions already in place.
    We are proposing that states will need to, for both MMIS and E&E 
systems, develop mitigation plans for all major milestones and 
functionality that will contain strategies to mitigate the failure to 
achieve compliance with applicable requirements. For eligibility 
systems, the state must have delivered acceptable MAGI-based system 
functionality as demonstrated by performance testing and results based 
on critical success factors, with limited mitigations and workarounds.
    Where applicable, we have proposed additional conditions that align 
to the best practices outlined in the new U.S. Digital Service Playbook 
(https://playbook.cio.gov/), such as the role of open source 
development. Other Playbook ideas will be included in sub-regulatory 
guidance regarding how CMS expects states to implement their Medicaid 
IT projects.

[[Page 20458]]

A. Proposed Amendments to 42 CFR Part 433

    We propose to amend Sec.  433.110 by removing paragraphs (a)(2)(ii) 
and (iii) and paragraph (b). Previously, regulations at Sec.  433.119 
indicated that we would review at least once every 3 years each system 
operation initially approved under Sec.  433.114 and, based on the 
results of the review, reapprove it for FFP at 75 percent of 
expenditures if certain standards and conditions were met. The final 
rule published April 19, 2011 (75 FR 21905) eliminated the requirement 
for the scheduled triennial review. Through a drafting error in the 
final rule published on April 19, 2011 (75 FR 21950), the reference to 
the scheduled triennial performance reviews at 42 CFR 433.110(a)(2)(ii) 
and (iii) was not deleted as intended, and we are proposing to delete 
the references here. The Secretary retains authority to perform 
periodic reviews of systems receiving enhanced FFP to ensure that these 
systems continue to meet the requirements of section 1903(a)(3) of the 
Act and that they continue to provide efficient, economical, and 
effective administration of the plan.
    We are also proposing a technical correction to amend Sec.  433.110 
by removing the reference to 45 CFR part 74, and replacing the 
reference with 45 CFR part 92. This proposed change is necessary 
because 45 CFR part 74 was supplanted by 45 CFR part 92 in September of 
2003. Therefore, reference made to 45 CFR part 74 should have been 
removed at that time.
    We are proposing to amend 42 CFR 433.111 to revise the definition 
of ``mechanized claims processing and information retrieval system'', 
and provide new definitions for ``Commercial Off the Shelf (COTS) 
software'', ``open source'', ``proprietary'', ``shared services,'' and 
``MMIS Module''. We are proposing to amend 42 CFR 433.112(c) to provide 
for the 90 percent enhanced FFP for design, development and 
implementation activities to continue on an on-going basis. Making 
enhanced E&E system funding available on an on-going basis, as is the 
case with the 90 percent match for the MMIS systems, would allow the 
states to complete fully modernized systems and avoid the situation 
where its ability to serve consumers well is limited by outdated 
systems. Enhanced funding will also support the dynamic and on-going 
nature of national Medicaid eligibility, enrollment, delivery system, 
and program integrity needs. Continued enhanced funding will support 
the retirement of remaining legacy systems, eliminating ongoing expense 
for maintaining these outdated systems. It will also achieve additional 
staffing and technology efficiencies over time by allowing for a more 
phased and iterative approach to systems development and improvement.
    Our 2011 final rule limited the availability of 75 percent enhanced 
funding for maintenance and operations to those eligibility and 
enrollment systems that have complied with the standards and conditions 
in that rule by December 31, 2015. Given our proposed modifications to 
42 CFR part 433, subpart C, on-going successful performance, based upon 
CMS regulatory and sub-regulatory guidance, is a requisite for on-going 
receipt of the 75 percent FFP for operations and maintenance, including 
for any eligibility workers (http://www.medicaid.gov/State-Resource-Center/FAQ-Medicaid-and-CHIP-Affordable-Care-Act-Implementation/Downloads/FAQs-by-Topic-75-25-Eligibility-Systems.pdf). We intend to 
work with the states to do regular automated validation of accurate 
processing and system operations and performance.

B. Technical Changes to 42 CFR Part 433, Subpart C--Mechanized Claims 
Processing and Information Retrieval Systems

    We are authorized under the Act to approve enhanced federal funding 
for the design, development, and installation and operation and 
maintenance of such mechanized claims processing and information 
retrieval systems that are likely to provide more efficient, 
economical, and effective administration of the Medicaid program and to 
be compatible with the claims processing and information retrieval 
systems utilized in the administration of the Medicare program.
    We implement this authority in part under regulations at 42 CFR 
part 433, subpart C. This regulation provides the primary technical and 
funding requirements and parameters for developing and operating the 
state MMIS and the state Medicaid eligibility and enrollment systems.
    We intend to amend Sec.  433.116, which details how MMIS are 
initially approved and certified in order to be eligible for the 75 
percent FFP for operations. Specifically, we propose that given the 
modular design approach required by our 2011 regulation, certification 
should also be available for MMIS modules, rather than only when the 
entire MMIS system is completed and operational. We have promulgated 
regulatory guidance at Sec.  433.112(b) that MMIS development be 
modular. The states are accordingly taking a phased approach, with the 
procurement of a module or modules occurring at different times.
    We believe in the reusability of existing or shared components so 
in the case that technology products exist that can be used for MMIS or 
E&E, we want to encourage that by allowing FFP for the developmental 
costs of integrating existing or shared components as part of the MMIS 
or E&E systems. We clarify that, while E&E system investments must be 
approved beforehand in order to be eligible for the enhanced FFP, the 
MMIS system certification requirements are not applicable at this time.
    We will provide a series of artifacts, supporting tools, 
documentation and diagrams to the states as part of our technical 
assistance, monitoring and governance of MMIS systems design and 
development. It is also our intent to work with the states as systems 
are designed and developed on a continuous basis so that issues and 
solutions are identified and addressed prior to the certification 
stage.
    We invite comment on our intention to move to a modular 
certification process for MMIS, based upon the Medicaid Information 
Technology Architecture (MITA) business processes http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Data-and-Systems/Medicaid-Information-Technology-Architecture-MITA.html in order 
to seek an optimal balance in the use of open source and proprietary 
commercial off-the-shelf (COTS) software solutions, to further promote 
reuse, to expand the availability of open source solutions, and to 
encourage the use of shared services. Modular MMIS certification would 
allow the states to access the 75 percent FFP for maintenance and 
operations of the certified module(s) prior to having completed their 
total MMIS system replacement.
    We are also seeking comment on the advantages and disadvantages of 
certifying MMIS modules, versus whole systems. We believe that 
certifying MMIS modules will remove the barrier to entry for many small 
IT solution vendors, increase the availability of certified modules in 
the market for the states to choose from, and create an incentive for 
the states to take a modular approach both in IT architecture and in 
procurement strategy. We are soliciting comments on the opportunities 
that a modular MMIS certification process may create as well as the 
challenges that might arise, including defining a finite list of MMIS 
modules to ensure the appropriate combinations of certification 
criteria are established.
    We also are seeking comments on a model where vendors propose 
modules

[[Page 20459]]

for CMS certification prior to the state installation, unrelated to the 
question of the state's enhanced match rate for maintenance and 
operations. We would issue sub-regulatory guidance on how MMIS modules 
would be defined and how a modular certification process would be 
implemented.
    With regard to all Medicaid IT, we are also seeking comments on how 
to achieve an effective and efficient balance when approving enhanced 
FFP for the acquisition of open source and proprietary COTS software 
and information technology solutions provided in the Medicaid 
information technology marketplace. 42 U.S.C. 1396b(a)(3)(A), which 
provides 90 percent FFP for the ``design, development, or installation 
of such mechanized claims processing and information retrieval 
systems'' could be interpreted to include use of COTS where that 
solution would be the more economical and efficient approach. CMS is 
proposing this approach, acknowledging that it would necessitate an 
exemption of COTS software (see proposed definition) from 45 CFR 
95.617(b) to protect intellectual property. We are seeking comment on 
the inclusion of COTS software in DDI to further encourage the states 
to opt for COTS and Software-as-a-Service option, currently matched at 
75 percent, rather than ground-up development approaches, which are 
duplicative and have a potentially much larger total cost over the span 
of the project. Commenters should take into consideration the costs and 
benefits to the Medicaid program of any proposed open source or 
proprietary COTS software solutions, as well as the technological 
benefits, including requirements for meeting the standards and 
conditions. Commenters are encouraged to recommend innovative ways to 
maximize CMS' and the states' ability to share and reuse IT solutions 
while at the same time ensuring that there are appropriate incentives 
in the marketplace to provide the best quality and value in IT 
solutions and services to enhance operation of Medicaid programs 
nationwide.
    Although we would like to encourage the use of COTS software 
solutions, we are proposing to clarify that states should only claim 
for the minimum necessary development costs to install and implement 
COTS. We are seeking to discourage the extra costs of unnecessary 
customization of COTS software solutions. Thus, we propose to 
explicitly provide in Sec.  433.112(c)(2) that development costs at the 
enhanced match rate would only include the minimum necessary to install 
the COTS software and ensure that other state systems coordinate with 
the COTS software solution.
    Currently, regulations at 45 CFR 95.617(b) provide that the federal 
government shall have a royalty-free, nonexclusive and irrevocable 
license to reproduce, publish or otherwise use and to authorize others 
to use for federal government purposes, software, modifications and 
documentation that are developed with federal support. We are also 
seeking comment on requiring that states affirmatively document and 
make available such software to ensure that others may use it. 
Commenters should note the infrastructure and resources that would be 
needed at the state and federal levels to support such a requirement in 
an effective manner. Commenters should also consider whether public 
disclosure of some types of Medicaid software systems might compromise 
enforcement of Medicaid requirements by announcing review strategies.
    Consistent with these requirements, and to encourage broader use 
and reuse of federally funded software, we are also proposing at Sec.  
433.112(b)(20) and (21) that software developed with the 90 percent 
federal match be adequately documented so that it can be operated by 
contractors and other users, and that states consider strategies to 
minimize the costs and difficulty of operating the software using 
alternate hardware or operating systems.
    We conduct periodic reviews of the states' MMIS and E&E system 
functionality and operations. Current regulations at Sec.  433.120 
allow for reduction of FFP for system operations from 75 percent to 50 
percent if the system fails to meet any or all of the standards and 
conditions. We are proposing to allow for the FFP reduction to be 
tailored where appropriate to specific operational expenditures related 
to the subpar system component rather than only being able to apply it 
across all operational expenditures. For example, we might reduce the 
FFP for operational expenditures for a particular sub-system, but not 
for the whole system. It is conceivable that the FFP reduction could be 
applied to an increasing percentage of operational expenditures over 
time as the impact of the system non-compliance grows. We have an 
established escalation process that includes notice and state appeal 
rights. We are also proposing to revise current regulations that 
require the disallowance to be for a minimum of four quarters so that 
there is no defined timeframe. Furthermore, we propose to remove the 
restriction on the FFP reduction occurring at least four quarters after 
the system was initially approved. When providing comments, the states 
should refer to the definitions found in Sec.  433.111 as they are 
provided to assist in formulating ideas and suggestions.

C. Proposed Changes to 45 CFR Part 95--General Administration--Grant 
Programs, Subpart F

    In the final rule titled ``State Systems Advance Planning Document 
(APD) Process'', (75 FR 66319, October 28, 2010), Sec.  95.611 was 
modified to include an acquisition threshold for prior approval of the 
state costs at the regular matching rate but noted that equipment or 
services at the enhanced matching rate necessitated prior approval 
regardless of the cost. We propose to amend Sec.  95.611 to align all 
Medicaid IT requirements with existing policy for MMIS regarding prior 
approvals, such that what is currently acceptable for regular match 
would be acceptable for enhanced match as well. We propose that if 
there is already an approved APD, prior approval will be required in 
order for the state to release acquisition solicitation documents or 
execute contracts when the contract is anticipated to or will exceed 
$500,000. For all Medicaid IT acquisition documents, an exemption from 
prior federal approval shall be assumed in the approval of an APD 
provided that: The acquisition summary provides sufficient detail to 
base an exemption request; the acquisition does not deviate from the 
terms of the exemption; and, the acquisition is not the initial 
acquisition for a high risk activity, such as software application 
development. All acquisitions, must comply with the federal provisions 
contained in Sec.  95.610(c)(1)(viii) and, (c)(2)(vi) or, submit an 
Acquisition Checklist for prior approval.
    For noncompetitive acquisitions, including contract amendments, 
when the resulting contract is anticipated to exceed $1,000,000, the 
state will be required to submit a sole source justification in 
addition to the acquisition document. The sole source justification can 
be provided as part of the APD.
    If the state does not opt for an exemption or submittal of an 
Acquisition Checklist for the contract, prior to the execution, the 
state will be required to submit the contract when it is anticipated to 
exceed the following thresholds, unless specifically exempted by CMS: 
Software application development--$6,000,000 or more (competitive) and 
$1,000,000 or more (noncompetitive); Hardware and

[[Page 20460]]

Commercial Off-the-Shelf (COTS) software--$20,000,000 or more 
(competitive) and $1,000,000 or more (noncompetitive); Operations and 
Software Maintenance acquisitions combined with hardware, COTS or 
software application development--the thresholds stated in Sec.  
95.611(b)(1)(v)(A) and (B) apply.
    For contract amendments within the scope of the base contract, 
unless specifically exempted by the Department, prior to execution of 
the contract amendment involving contract cost increases which 
cumulatively exceed 20 percent of the base contract cost.
    In addition, we propose to amend Sec.  95.611(a)(2) by removing the 
reference to 45 CFR 1355.52. This paragraph provides prior approval 
requirements when states plan to acquire ADP equipment or services with 
FFP at an enhanced matching rate for the title IV-D, IV-E, and XIX 
programs, regardless of acquisition costs. We propose to delete the 
reference to the title IV-E regulation, Sec.  1355.52 because enhanced 
funding for information systems supporting the title IV-E program 
expired in 1997.

IV. Collection of Information Requirements

    This proposed rule does not contain any new or revised reporting, 
recordkeeping, or third-party disclosure requirements. Consequently, 
the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 
chapter 35) and its implementing regulations (5 CFR part 1320) do not 
apply.

V. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

VI. Regulatory Impact Analysis

A. Statement of Need

    Experience with the Affordable Care Act implementation has shown 
that Medicaid eligibility policies and business processes benefit from 
continued updating and strengthening. System transformations are needed 
to apply new rules to adjudicate eligibility for the program; enroll 
millions of newly eligible individuals through multiple channels; renew 
eligibility for existing enrollees; operate seamlessly with the Health 
Insurance Marketplaces (``Marketplaces''); participate in a system to 
verify information from applicants electronically; incorporate a 
streamlined application used to apply for multiple sources of coverage 
and financial assistance; and produce notices and communications to 
applicants and beneficiaries concerning the process, outcomes, and 
their rights to dispute or appeal.
    We wish to ensure that our technology investments result in a high 
degree of interaction and interoperability in order to maximize value 
and minimize burden and costs on providers and beneficiaries. Thus, we 
are committed to providing ongoing 90 percent FFP for design, 
development, and installation or 75 percent FFP for maintenance and 
operations of such systems. We have provided that states must commit to 
a set of standards and conditions in order to receive the enhanced FFP. 
This enhanced FFP reduces the financial burden on states to 10 percent 
of the costs compared to the 50 percent financial burden currently in 
place and ensures that states continue to utilize current technology 
development and deployment practices and produce reliable business 
outputs and outcomes.

B. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the 
Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), 
Executive Order 13132 on Federalism (August 4, 1999) and the 
Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) (Having 
an annual effect on the economy of $100 million or more in any 1 year, 
or adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year). We estimate that this rulemaking is ``economically significant'' 
as measured by the $100 million threshold, and hence also a major rule 
under the Congressional Review Act. Accordingly, we have prepared a 
Regulatory Impact Analysis that to the best of our ability presents the 
costs and benefits of the rulemaking.

C. Anticipated Effects

    1. While it is difficult to predict state behavior, we believe all 
states will comply with the standards and conditions proposed in this 
regulation to receive the 90 percent FFP, and have assumed that for the 
purpose of these estimates.
    In order to meet the requirements of the Affordable Care Act, 
states, the District of Columbia and the U.S. Territories must build 
new eligibility and enrollment (E&E) systems or modernize existing E&E 
systems. Most states have added new functionalities to interface with 
the Marketplaces and implemented new adaptability standards and 
conditions (such as incorporation of mandated eligibility categories).
    There are currently 9 states that have relatively new E&E systems 
and do not need replacement of whole systems, but are instead making 
modular improvements and upgrades. We believe that most states have not 
had sufficient time to complete the total system replacement for both 
MAGI and non-MAGI eligibility functionality. We assume that an 
additional 28 states will quickly move forward to retire their legacy 
E&E systems with ongoing 90 percent FFP for design and development. 
Based on previous spending trends, we assume that those 9 states with 
new systems account for 15 percent of E&E spending and the 28 states 
that we anticipate retiring their legacy E&E systems account for 55 
percent of E&E spending. We believe that by eliminating 28 legacy 
systems,

[[Page 20461]]

we reduce M&O costs by maintaining only one E&E system per state. 
Eventually, we assume that all states will replace their current E&E 
legacy system(s) using ongoing 90 percent FFP. To calculate the impact 
of the regulation, we assumed that new E&E systems on average would 
cost $50 million over 3 years for each state ($15 million federal costs 
at 90 percent FFP per year).
    States will see a decrease in their net state share due to the 
enhanced federal match for eligibility systems and states will also 
realize benefits by putting in place the set of standards and 
conditions articulated in this proposed regulation.
    The state net costs from FY 2016 through 2025 of implementing the 
proposed regulation on eligibility systems is approximately - $1.1 
billion. This includes approximately $572 million in state costs for 
system design and development, offset by lower anticipated maintenance 
and operations costs. These costs represent only the state share.
    Similar to the federal budget impact, we expect to see higher 
savings achieved by states over the 10-year budget window due to the 
increased savings by moving away from operating two or more systems, 
and replacing legacy systems.
    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.
    Since this rule would primarily affect states, which are not 
considered small entities, the Secretary has determined that this 
proposed rule would not be likely to have a significant economic impact 
on a substantial number of small entities. Therefore, we have not 
prepared a regulatory flexibility analysis.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. This rule will not have a 
significant impact on hospitals. Therefore, the Secretary has 
determined that this proposed 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 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2015, that 
is approximately $144 million. This rule does not mandate expenditures 
by the state governments, local governments, tribal governments, or the 
private sector. This rule provides that states can receive enhanced FFP 
if states ensure that the mechanized claims processing and information 
retrieval systems, including those that perform eligibility 
determination and enrollment activities, as well as the Medicaid 
portion of integrated eligibility determination systems, meet with 
certain conditions including migrating to the MITA framework and 
meeting certain performance requirements. This is a voluntary activity 
and the rule imposes no substantial mandates on states.
    2. The federal net costs from FY 2016 through 2025 of implementing 
the proposed regulation on eligibility systems is approximately $3 
billion. This includes approximately $5.1 billion in increased federal 
costs for system design and development, offset by lower anticipated 
maintenance and operations costs. These costs represent only the 
federal share.
    We see lower costs over the 10-year budget window due to the 
increased savings to operating one E&E system and eliminating legacy 
systems. The costs shift from mostly 90 percent FFP for design, 
development, and installation to 75 percent FFP for maintenance and 
operations over time.
    Uncertainty exists because we are unsure of the rate of adoption 
for states to make the changes in this proposed rule.
    We considered a number of ways in which application of the 
standards and conditions, including increased use of MITA, could result 
in savings; however, as no states have yet reached MITA maturity, it is 
difficult to predict the savings that may accrue over any certain 
timeframe. These areas include the following:
    (a) Modular technology solutions: As states, or groups of states, 
would begin to develop ``modular'' technology solutions, these 
solutions could be used by others through a ``plug and play'' approach, 
in which pieces of a new MMIS would not need to be reinvented from 
scratch every time, but rather, could be incorporated into the MMIS 
framework.
    We assume that savings associated with reusable technology could be 
achieved in both the development and operation of new systems.
    (b) Increased use of industry standards and open source 
technologies: While HIPAA administrative transaction standards have 
existed for 8 to 10 years, use of more specific industry standards to 
build new systems would allow such systems to exchange information 
seamlessly. We also believe that more open source technology would 
encourage the development of software solutions that address the needs 
of a variety of diverse activities--such as eligibility, member 
enrollment, and pharmacy analysis of drug claims. Software that is 
sufficiently flexible to meet different needs and perform different 
functions could result in cost savings, as states are able to use the 
systems without making major adaptations to them.
    (c) Maintenance and operations: As states continue to implement 
changes, the maintenance and operation costs of new systems should 
decrease. Less maintenance should be required than that necessary to 
reengineer special, highly customized systems every time there is a new 
regulatory or legal requirement.
    (d) Reengineering business processes, more web based solutions, 
service-oriented architecture (SOA): Savings are likely to result from 
the modular design and operation of systems, combined with use of 
standardized business processes, as states are being compelled to 
rethink and streamline processes as a result of greater reliance on 
technology.
    There are uncertainties regarding our assumptions, including state 
behavior, and the associated cost estimates with respect to states 
implementing new systems. However, we have based our assumptions on 
data on states' previous behavior, spending and advance planning 
documents over the last 4 years. It is important to point out that we 
believe that systems transformation is necessary to meet the vision of 
the Affordable Care Act and consequently, these costs provide for 
efficient systems that in the end would provide for more efficient and 
effective administration of the state plan.

D. Alternatives Considered

    We considered as an alternative to our proposed rule to not 
continue to provide enhanced match for state eligibility systems builds 
after December 2015, and to not update federal standards and conditions 
for Medicaid IT development. We also considered an extension for a 2 or 
3 year timeline but deduced that it was both insufficient for states to 
effectively transition out of their legacy systems and to complete 
human services integration in the new shared eligibility system. 
Furthermore,

[[Page 20462]]

this assumes that all significant policy changes that trigger the need 
for IT updates were limited to those in the Affordable Care Act, 
however systems reforms are an on-going facet of eligibility policy 
with an accompanying ongoing financial burden. A limited extension 
would also ignore that states that already modernized and did not 
replace their systems starting in 2011 will eventually need to do so in 
order to maintain system integrity and modernity sometime after a two 
or three year extension. Absent an ongoing extension, states would 
receive the traditional 50 percent FFP for reasonable administrative 
expenditures for designing, developing, installing, or enhancing 
Medicaid eligibility determination systems. Similarly, states would 
receive 50 percent FFP for expenditures associated with the maintenance 
and operation of such systems. However, states would have to continue 
to meet the requirements of federal legislation. Since the Affordable 
Care Act significantly alters Medicaid eligibility, we believe that 
treating eligibility and enrollment systems as an integral part of 
mechanized claims processing system and information retrieval systems 
is consistent with the federal statute. This would have the effect of 
continuing the higher federal matching rate, which would provide states 
additional resources to meet this challenge. In addition, the federal 
guidance in the form of clearer federal standards and conditions would 
facilitate the design, development, implementation, and operation of IT 
and systems projects that fully support the Medicaid program, including 
the new responsibilities under the Affordable Care Act. Supporting the 
transformation of Medicaid eligibility and enrollment systems through 
these enhanced funding and clearer federal guidelines will also reduce 
duplication of systems and overall system costs.

E. Accounting Statement and Table

    Whenever a rule is considered a significant rule under Executive 
Order 12866, we are required to develop an Accounting Statement. We 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this rule. Tables 1 
through 5 provides our best estimate of the net costs as a result of 
the changes presented in this rule.

                                           Table 1--Federal Net Costs
----------------------------------------------------------------------------------------------------------------
                                                                                    Units
                                                           -----------------------------------------------------
                Category                      Estimates                         Discount rate
                                                               Year dollar           (%)         Period covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($million/year)....             444.3              2016                 7         2016-2025
                                                     363.6              2016                 3         2016-2025
----------------------------------------------------------------------------------------------------------------


                                                        Table 2--Federal Net Costs by Fiscal Year
                                                                      [In millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             2016      2017      2018      2019      2020      2021      2022      2023      2024      2025    2016-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
E&E Systems--DDI.........................     1,788     2,192       333       277       184       143        89        47        44        44      5,141
E&E Systems--M&O.........................      (19)      (19)      (95)     (120)     (165)     (298)     (325)     (344)     (360)     (367)     (2112)
                                          --------------------------------------------------------------------------------------------------------------
    Total................................     1,769     2,173       238       157        19     (155)     (236)     (298)     (315)     (323)       3029
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Numbers in parentheses represent savings to the federal government.


                                            Table 3--State Net Costs
----------------------------------------------------------------------------------------------------------------
                                                                                    Units
                                                           -----------------------------------------------------
                Category                      Estimates                         Discount rate
                                                               Year dollar           (%)         Period covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($million/year)....             -81.2              2016                 7         2016-2025
                                                     -99.1              2016                 3         2016-2025
----------------------------------------------------------------------------------------------------------------


                                                         Table 4--State Net Costs by Fiscal Year
                                                                      [In millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             2016      2017      2018      2019      2020      2021      2022      2023      2024      2025    2016-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
E&E Systems--DDI.........................       199       244        37        31        20        16        10         5         5         5        572
E&E Systems--M&O.........................      (19)      (19)      (95)     (120)     (165)     (213)     (240)     (263)     (280)     (286)     (1700)
                                          --------------------------------------------------------------------------------------------------------------
    Total................................       180       225      (58)      (89)     (145)     (197)     (230)     (258)     (275)     (281)     (1128)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Numbers in parentheses represent savings to State Governments.


[[Page 20463]]


   Table 5--Estimated Net Present Value of Federal Costs, FY 2016-2025
                        [In millions of dollars]
------------------------------------------------------------------------
                                                   Discount rate
                                         -------------------------------
                                                7%              3%
------------------------------------------------------------------------
Federal Costs NPV.......................        $3,120.6        $3,101.8
State Costs NPV.........................         -$570.7         -$845.5
------------------------------------------------------------------------

F. Conclusion

    We considered a number of ways in which application of the 
standards and conditions, including increased use of MITA, could result 
in savings. We see increased investments in DDI somewhat offset by 
lower costs over the 10-year budget window due to the increased savings 
to operating one E&E system and eliminating legacy systems. The costs 
shift from mostly 90 percent FFP for design, development, and 
installation to 75 percent FFP for maintenance and operations over 
time.
    The federal net costs from FY 2016 through 2025 of implementing the 
proposed regulation on eligibility systems is approximately $3 billion. 
This includes approximately $5.1 billion in increased federal costs for 
system design and development, offset by lower anticipated maintenance 
and operations costs. The state net costs from FY 2016 through 2025 of 
implementing the proposed regulation on eligibility systems is 
approximately - $1.1 billion. This includes approximately $572 million 
in state costs for system design and development, offset by lower 
anticipated maintenance and operations costs.
    There are uncertainties regarding our assumptions, including state 
behavior, and the associated cost estimates with respect to states 
implementing new systems. However, we have based our assumptions on 
data on states' previous behavior, spending and advance planning 
documents over the last 4 years. It is important to point out that we 
believe that systems transformation is necessary to meet the vision of 
the Affordable Care Act and consequently, these costs are necessary and 
would provide for efficient systems that in the end would provide for 
more efficient and effective administration of the state plan.
    The analysis above, together with the remainder of this preamble, 
provides a Regulatory Impact Analysis. The reason to refer to other 
portions of the preamble is that they include sections, such as the 
statutory authority and purpose that are required but are not normally 
included in the impact analysis section.
    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 433

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

45 CFR Part 95

    Claims, Computer technology, Grant programs-health, Grant programs-
social programs, Reporting and recordkeeping requirements, Social 
security.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth 
below:

PART 433--STATE FISCAL ADMINISTRATION

0
1. The authority citation for part 433 continues to read as follows:

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


Sec.  433.110  [Amended]

0
2. In Sec.  433.110--
0
a. Amend paragraph (a)(1) by removing the reference ``45 CFR part 74'' 
and adding in its place ``45 CFR part 92.''
0
b. Remove paragraphs (a)(2)(ii) and (iii).
0
c. Remove and reserve paragraph (b).
0
3. Section 433.111 is amended by revising paragraph (b) and adding 
paragraphs (d) through (h) to read as follows:


Sec.  433.111  Definitions.

* * * * *
    (b) ``Mechanized claims processing and information retrieval 
system'', or ``system'' means the system of software and hardware used 
to process claims for medical assistance and to retrieve and produce 
service utilization and management information required by the Medicaid 
single state agency and Federal government for program administration 
and audit purposes.
    (1) The system consists of--
    (i) Required subsystems specified by the Secretary.
    (ii) Required changes to the system or required subsystem that are 
specified by the Secretary.
    (iii) Approved enhancements to the system or subsystem.
    (2) A ``Mechanized claims processing and information retrieval 
system'' may include
    (i) An eligibility and enrollment system, or ``E&E system'', used 
to process initial claims (applications) from Medicaid or CHIP 
applicants and beneficiaries for eligibility for enrollment in the 
Medicaid or CHIP programs, as well as change in circumstance updates 
and renewals; and/or
    (ii) A claims system, or MMIS, used to process claims for Medicaid 
payment from providers of medical care and services furnished to 
beneficiaries under the medical assistance program.
* * * * *
    (d) ``Open source'' means software that can be used freely, 
changed, and shared (in modified or unmodified form) by anyone. Open 
source software is distributed under Open Source Initiative-approved 
licenses that comply with an open source framework that allows for free 
redistribution, provision of the source code, allowance for 
modifications and derived works, free and open distribution of licenses 
without restrictions and licenses that are technology-neutral.
    (e) ``Proprietary'' means closed source software licensed under 
exclusive legal right of the copyright holder with the intent that the 
licensee is given the right to use the software only under certain 
conditions, and restricted from other uses, such as modification, 
sharing, studying, redistribution, or reverse engineering.
    (f) ``Shared Services'' means the provision of a service by one 
part of an organization or group where that service had previously been 
found in more than one part of the organization or group. Thus the 
funding and resourcing of the service is shared and the providing 
department effectively becomes an internal service provider.
    (g) ``MMIS Module'' refers to a group of MMIS business processes 
that can be implemented through a collection of IT functionality.

[[Page 20464]]

    (h) ``Commercial Off the Shelf (COTS) software'' refers to 
specialized software designed for specific applications that is 
available for sale or lease to other users in the commercial 
marketplace, and that can be used with little or no modification. COTS 
software does not include software developed specifically for public 
assistance programs.
0
4. Section 433.112 is amended by revising paragraphs (b) introductory 
text, (b)(12), (b)(16), and (c); and, adding paragraphs (b)(17) through 
(b)(22) to read as follows:


Sec.  433.112  FFP for design, development, installation or enhancement 
of mechanized processing and information retrieval systems.

* * * * *
    (b) CMS will approve the E&E or claims system described in an APD 
if certain conditions are met. The conditions that a system, whether a 
claims or E&E system, must meet are:
* * * * *
    (12) The agency ensures alignment with, and incorporation of, 
industry standards adopted by the Office of the National Coordinator 
for Health IT in accordance with 45 CFR part 170, subpart B: The HIPAA 
privacy, security and transaction standards; accessibility standards 
established under section 508 of the Rehabilitation Act, or standards 
that provide greater accessibility for individuals with disabilities, 
and compliance with Federal civil rights laws; standards adopted by the 
Secretary under section 1104 of the Affordable Care Act; and standards 
and protocols adopted by the Secretary under section 1561 of the 
Affordable Care Act.
* * * * *
    (16) The system supports seamless coordination and integration with 
the Marketplace, the Federal Data Services Hub, and allows 
interoperability with health information exchanges, public health 
agencies, human services programs, and community organizations 
providing outreach and enrollment assistance services as applicable.
    (17) For eligibility and enrollment systems, the State must have 
delivered acceptable MAGI-based system functionality, demonstrated by 
performance testing and results based on critical success factors, with 
limited mitigations and workarounds.
    (18) The State must submit plans that contain strategies for 
reducing the operational consequences of failure to meet applicable 
requirements for all major milestones and functionality.
    (19) The agency, in writing through the APD, must identify key 
personnel by type and time commitment assigned to each project.
    (20) Systems and MMIS modules developed, installed or improved with 
90 percent match must include documentation of components and 
procedures such that the systems could be operated by a variety of 
contractors or other users.
    (21) For software systems and MMIS modules developed, installed or 
improved with 90 percent match, the State must consider strategies to 
minimize the costs and difficulty of operating the software on 
alternate hardware or operating systems.
    (22) Other conditions as required by the Secretary.
    (c) (1) FFP is available at 90 percent of a state's expenditures 
for the design, development, installation or enhancement of an 
eligibility and enrollment system that meets the requirements of this 
subpart and only for costs incurred for goods and services provided on 
or after April 19, 2011.
    (2) Design, development, installation or enhancement costs include 
costs to procure commercial off-the-shelf (COTS) software, but should 
only include the minimum necessary costs to analyze the suitability of 
COTS software, install and integrate the COTS software, and modify non-
COTS software to ensure coordination of operations. The nature and 
extent of such costs must be expressly described in the approved APD.
0
5. Section 433.116 is amended by revising paragraphs (b) and (c) to 
read as follows:


Sec.  433.116  FFP for operation of mechanized claims processing and 
information retrieval systems.

* * * * *
    (b) CMS will approve enhanced FFP for system operations if the 
conditions specified in paragraphs (c) through (i) of this section are 
met.
    (c) The conditions of Sec.  433.112(b)(1) through (22) must be met 
at the time of approval.
* * * * *
0
6. Section 433.119 is amended by revising paragraph (a)(1) to read as 
follows:


Sec.  433.119  Conditions for reapproval; notice of decision.

    (a) * * *
    (1) The system meets the requirements of Sec.  433.112(b)(1), (3), 
(4), and (7) through (22).
* * * * *
0
7. Section 433.120 is revised to read as follows:


Sec.  433.120  Procedures for reduction of FFP after reapproval review.

    (a) If CMS determines after the reapproval review that the system 
no longer meets the conditions for reapproval in Sec.  433.119, CMS 
will reduce FFP for certain expenditures for system operations.
    (b) CMS will reduce FFP from 75 percent to 50 percent for 
expenditures related to the operations of non-compliant functionality 
or system components.
    For the reasons set forth in the preamble, the Department of Health 
and Human Services proposes to amend 45 CFR part 95 as set forth below:

PART 95--GENERAL ADMINISTRATION--GRANT PROGRAMS (PUBLIC ASSISTANCE, 
MEDICAL ASSISTANCE AND STATE CHILDREN'S HEALTH INSURANCE PROGRAMS)

0
8. The authority citation for part 95 continues to read as follows:

    Authority: 5 U.S.C. 301, 42 U.S.C. 622(b), 629b(a), 652(a), 
652(d), 654A, 671(a), 1302, and 1396a(a).

0
9. Section 95.611 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  95.611  Prior approval conditions.

    (a) * * *
    (2) A State shall obtain prior approval from the Department which 
is reflected in a record, as specified in paragraph (b) of this 
section, when the State plans to acquire ADP equipment or services with 
proposed FFP at the enhanced matching rate subject to one of the 
following:
    (i) If authorized by 45 CFR 205.35 and 45 CFR part 307, regardless 
of the acquisition cost.
    (ii) If authorized by 42 CFR part 433, subpart C, if the contract 
is anticipated to or will exceed $500,000.
* * * * *

    Dated: March 11, 2015.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: March 27, 2015.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2015-08754 Filed 4-14-15; 4:15 pm]
BILLING CODE 4120-01-P