55158 Federal Register / Vol. 72, No. 188 / Friday, September 28, 2007 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 440 and 447 

[CMS–2213–P] 

RIN 0938–AO17 

Medicaid Program; Clarification of 

Outpatient Clinic and Hospital Facility 

Services Definition and Upper Payment 

Limit 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

amend the regulatory definition of 

outpatient hospital services for the 

Medicaid program. Outpatient hospital 

services are a mandatory part of the 

standard Medicaid benefit package. The 

current regulatory definition at 42 CFR 

440.20 is broader than the definition in 

Medicare, and can overlap with other 

covered benefit categories. The purpose 

of this amendment is to align the 

Medicaid definition more closely to the 

Medicare definition in order to improve 

the functionality of the applicable upper 

payment limits under 42 CFR 447.321 

(which are based on a comparison to 

Medicare payments for the same 

services), provide more transparency in 

determining available coverage in any 

State, and generally clarify the scope of 

services for which Federal financial 

participation (FFP) is available under 

the outpatient hospital services benefit 

category. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on October 29, 2007. 

ADDRESSES: In commenting, please refer 

to file code CMS–2213–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.cms.hhs.gov/eRulemaking. Click 

on the link ‘‘Submit electronic 

comments on CMS regulations with an 

open comment period.’’ (Attachments 

should be in Microsoft Word, 

WordPerfect, or Excel; however, we 

prefer Microsoft Word.) 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–2213–

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 (one 

original and two copies) to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–2213–P, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786–

7195 in advance to schedule your 

arrival with one of our staff members: 

Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201; or 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

HHH 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.) 

Comments 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: 

Jeremy Silanskis, (410) 786–1592. 

SUPPLEMENTARY INFORMATION: 

Submitting Comments: We welcome 

comments from the public on all issues 

set forth in this rule to assist us in fully 

considering issues and developing 

policies. You can assist us by 

referencing the file code CMS–2213–P 

and the specific ‘‘issue identifier’’ that 

precedes the section on which you 

choose to comment. 

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.cms.hhs.gov/ 

eRulemaking. Click on the link 

‘‘Electronic Comments on CMS 

Regulations’’ 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. Introduction 

Title XIX of the Social Security Act 

(the Act) authorizes the Secretary of the 

Department of Health and Human 

Services (the Secretary) to provide 

grants to States to partially finance 

programs furnishing medical assistance 

(State Medicaid programs) to specified 

groups of needy individuals in 

accordance with an approved State 

Plan. ‘‘Medical Assistance’’ is defined at 

section 1905(a) as payment for part or 

all of the cost of a list of specified care 

and services, including at section 

1905(a)(2)(A), ‘‘outpatient hospital 

services.’’

Details concerning the scope of 

covered services, the groups of eligible 

individuals, the payment methodologies 

for covered services, and all other 

information necessary to assure that the 

plan can be a basis for Federal Medicaid 

funding must be set forth in the 

approved Medicaid State Plan. For 

approval, the Medicaid State plan must 

comply with requirements set forth in 

section 1902(a) of the Social Security 

Act (the Act), as implemented and 

interpreted in applicable regulations 

and guidance issued by the Centers for 

Medicare & Medicaid Services (CMS). 

The Secretary has delegated overall 

authority for the Federal Medicaid 

program, including State Plan approval, 

to CMS. 

Medicaid services are jointly funded 

by the Federal and State governments in 

accordance with section 1903(a) of the 

Act. Section 1903(a)(1) of the Act 

provides for payments to States of a 

percentage of expenditures under the 

approved State Plan for covered medical 

assistance. The percentage of Federal 

financial participation (FFP) is the 

‘‘Federal Medicaid assistance 

percentage’’ (FMAP). For ordinary 

medical assistance, the FMAP varies 


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among the States based on a complex 

formula set forth in section 1905(b) of 

the Act. 

Section 1902(a)(30)(A) of the Act 

requires a State Medicaid plan to meet 

certain requirements in setting payment 

amounts for covered care and services. 

One of these requirements is that State 

Plan methodologies must assure that 

payments are consistent with efficiency, 

economy, and quality of care. This 

provision provides authority for specific 

upper payment limits (UPLs) set forth in 

Federal regulations in 42 CFR part 447 

relating to certain Medicaid covered 

services. The UPL applicable to 

outpatient hospital services is at 

§ 447.321. 

The purpose of this proposed rule is 

to clarify the definition of the benefit for 

‘‘outpatient hospital services’’ under 

section 1905(a)(2)(A) of the Act, and the 

application of that definition under the 

applicable UPL. This rule proposes to 

describe the scope of services States 

may include in the outpatient hospital 

UPL and define appropriate Medicare 

references that States must use when 

calculating the UPL for Medicaid 

outpatient hospital services. The rule 

proposes to align the Medicaid 

definition of outpatient services with 

the Medicare definition of outpatient 

services and clarify Medicaid’s 

corresponding UPLs for outpatient 

hospital and clinic services. 

II. Background 

A. Medicaid Outpatient Hospital 

Services as Currently Defined 

Section 1905(a)(2)(A) of the Act lists 

outpatient hospital services as a benefit 

that can be covered under a State 

Medicaid program, and it is among 

those benefits that is mandatory for the 

most eligible Medicaid populations 

under sections 1902(a)(10)(A) and 

1902(a)(10)(C)(iv) of the Act. The statute 

does not provide a definition for these 

services. The current implementing 

regulation at § 440.20 describes 

‘‘outpatient hospital services’’ as 

preventive, diagnostic, therapeutic, 

rehabilitative, or palliative services 

that—

(1) Are furnished to outpatients; 

(2) Are furnished by or under the 

direction of a physician or dentist; and 

(3) Are furnished by an institution 

that—(i) Is licensed or formally 

approved as a hospital by an officially 

designated authority for State standardsetting; and (ii) Meets the requirements 

for participation in Medicare as a 

hospital; 

(4) May be limited by a Medicaid 

agency in the following manner: A 

Medicaid agency may exclude from the 

definition of ‘‘outpatient hospital 

services’’ those types of items and 

services that are not generally furnished 

by most hospitals in the State. 

An ‘‘outpatient’’ is defined in 

§ 440.2(a) as ‘‘a patient of an organized 

medical facility, or distinct part of that 

facility who is expected by the facility 

to receive and who does receive 

professional services for less than a 24- 

hour period regardless of the hour of 

admission, whether or not a bed is used, 

or whether or not the patient remains in 

the facility past midnight.’’

Because the regulatory definition of 

outpatient hospital services is so broad, 

there is a high possibility of overlap 

between outpatient hospital services 

and other covered benefits. This overlap 

results in circumstances in which 

payment for services is made at the high 

levels customary for outpatient hospital 

services instead of the levels associated 

with the other covered benefits. For 

example, there have been instances of 

claims for payment of physician 

services as outpatient hospital services, 

which result in payment far in excess of 

the rates available in the State for 

physician services. In addition, the Fifth 

Circuit Court of Appeals, in Louisiana 

Department of Health and Hospitals v. 

CMS, 346 F. 3d 571 (2003), found that 

hospital-based rural health clinic 

services were within the current 

definition of outpatient hospital services 

and, although paid under a separate 

methodology, could be included in 

calculating supplemental payments for 

uncompensated care costs of outpatient 

hospital services. The result of these 

overlapping definitions is payment for 

identical services of a higher amount 

under the outpatient hospital benefit 

than otherwise available under the State 

Plan. 

In addition, the current broad 

definition of outpatient hospital services 

is not clear on whether outpatient 

hospital services can include types of 

services that are outside the normal 

responsibility of outpatient hospitals, 

such as practitioner, school-based, and 

rehabilitative services. In other words, 

the current broad definition does not 

clearly limit the scope of the outpatient 

hospital service benefit to those services 

over which the outpatient hospital has 

oversight and control. 

Also important, as we discuss further 

in the following section below, the 

broad definition of Medicaid outpatient 

hospital services is inconsistent with 

the applicable UPL, which is based on 

the premise of some level of 

comparability between the Medicare 

and Medicaid definitions of outpatient 

hospital and clinic services. The UPL 

regulation at § 447.321 limits outpatient 

service payments to what Medicare 

would pay for equivalent services. This 

proposed regulation would clarify the 

scope of services that may be included 

in the State Plan definition of outpatient 

hospital services to clarify coverage and 

payment requirements for outpatient 

services. 

B. Medicaid Outpatient Hospital 

Services Upper Payment Limit as 

Currently Defined 

Limitations on aggregate State 

payments for outpatient hospital and 

clinic services are established in 

regulation at § 447.321, ‘‘Outpatient 

hospital services and clinic services: 

Application of upper limits of 

payments.’’ This regulation requires that 

aggregate State Medicaid payments for 

outpatient hospital and/or clinic 

services not exceed a reasonable 

estimate of the amount the provider 

would be paid under Medicare payment 

principles, forming a UPL for these 

services. The aggregate Medicaid 

payments and corresponding UPL for 

outpatient hospital and/or clinic 

services are calculated for private 

facilities. FFP is not available for State 

expenditures that exceed the upper 

payment limit. 

Before 1981, States were required to 

pay rates for hospital and long-term care 

services that were directly related to 

Medicare reasonable cost 

reimbursement. To comply with this 

requirement, many States set Medicaid 

hospital rates using reasonable costs as 

determined by Medicare. The Congress 

removed the Medicare cost-based 

reimbursement requirements by 

enacting legislation in 1980 and 1981, 

collectively referred to as the Boren 

Amendment. 

Under section 962 of the Omnibus 

Reconciliation Act of 1980 (ORA 1980), 

Pub. L. 96–499, and Section 2173 of the 

Omnibus Budget Reconciliation Act of 

1981 (OBRA 1981), Pub. L. 97–85, the 

Congress provided States flexibility to 

deviate from Medicare cost 

determinations for hospital 

reimbursement. In lieu of using 

Medicare cost reimbursement rates, 

States were allowed to set rates based on 

the costs of efficiently and economically 

operated facilities. 

Though the Boren Amendment 

removed the specific requirement that 

States adhere to Medicare cost 

principles, the legislative history 

indicates the intent that the Secretary 

continue to require that payments made 

to hospitals and other inpatient facilities 

under the State Plan not exceed 

Medicare payment principles. 

The Senate Finance Committee stated 

that ‘‘the Secretary would be expected 


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to continue to apply current regulations 

that require that payments made under 

State plans do not exceed amounts that 

would be determined under Medicare 

principles of reimbursement (S. Rep. 

No. 471, 96th Cong. 1st Sess. (1979)).’’

These limitations provide us with the 

authority to establish UPLs for 

outpatient and inpatient hospital 

services. 

The Congress allowed for even more 

flexibility for State payments to hospital 

and other providers under the Balanced 

Budget Act of 1997 (BBA), Pub. L. 105–

33. The BBA effectively replaced the 

requirements of the Boren Amendment 

with a public process to determine the 

rates of payment under the State Plan. 

The public process requires that States 

publish proposed and final rates, the 

methodologies underlying the 

established rates, and the justification 

for the rates. Providers, beneficiaries, 

and other concerned State residents 

have an opportunity to review and 

comment on the rates before they 

become final. 

Section 705 of the Medicare, 

Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 

2000 (BIPA) required that we publish 

final regulations authorizing transition 

periods for States to comply with the 

UPL regulations. In response to this 

statutory directive, we modified the 

UPL regulations for inpatient and 

outpatient hospital services through a 

final regulation on January 12, 2001 (66 

FR 3147). 

In addition, on May 29, 2007 (72 FR 

29748), CMS published a final rule 

(CMS–2258–FC) which will impact the 

outpatient and inpatient hospital upper 

payment limits for services provided by 

units of government. Congress has 

enacted a one year moratorium that 

delays CMS from implementing the 

policies established under that final 

rule. The provisions proposed in this 

regulation address completely different 

policy matters than those set forth in 

CMS–2258–FC. 

The current outpatient hospital UPL 

regulation prohibits States from paying 

more, in the aggregate, for Medicaid 

outpatient hospital services than the 

‘‘reasonable estimate’’ that Medicare 

would pay for equivalent services in 

privately operated facilities. 

As with the scope of outpatient 

hospital services that may be included 

under the State Plan, the ‘‘reasonable 

estimate’’ of what Medicare would pay 

for equivalent Medicaid services has 

had varied interpretations. Some States 

have proposed to use their own hospital 

cost reports to assess the ‘‘reasonable 

estimate’’ of Medicare payment. These 

cost reports may not represent finalized 

data or accurately reflect Medicare 

payment and/or charge rates. To 

establish standardization across all 

States, the proposed rule would require 

States to base the ‘‘reasonable estimate’’

upon service charge ratios reported in 

the most recently filed Medicare 

hospital cost report, or a State cost 

report for which the State can clearly 

demonstrate gathers data elements 

directly from the proposed standard 

worksheets and lines on the most 

recently filed Medicare cost report. We 

believe that these standards will provide 

an accurate resource for the ‘‘reasonable 

estimate’’ of what Medicare would pay 

for equivalent Medicaid services. 

C. General Intention of Proposed Rule 

In our review of Medicaid State Plans, 

we have noted instances where the State 

allows non-facility services and/or nontraditional outpatient hospital services 

to be paid under the outpatient hospital 

benefit. The definition of outpatient 

hospital services in current regulation 

may allow States to include such nonfacility services (that is, physician and 

professional services) and/or nontraditional outpatient hospital services 

(that is, school-based and rehabilitative 

services) within the State Plan 

definition of outpatient hospital 

services. We do not believe that such a 

broad definition of outpatient hospital 

services is consistent with congressional 

intent when enacting section 

1905(a)(2)(A) of the Act. 

Therefore, as discussed in more detail 

below, we are proposing to change the 

definition and scope of outpatient 

hospital services, and the corresponding 

UPL for outpatient hospital and clinic 

services, in an effort to clarify the 

current regulatory language and make it 

consistent with the intent of the 

Congress in enacting section 

1905(a)(2)(A) of the Act. This revised 

definition of outpatient hospital services 

would align the outpatient services 

covered by Medicaid with those covered 

by Medicare. As a result, the calculation 

of the Medicaid UPLs would reflect a 

comparison of like services. The revised 

definition would also narrow the scope 

of Medicaid outpatient services to those 

traditionally and typically recognized as 

outpatient facility services. While we 

recognize that Medicaid covers certain 

services that are not covered by 

Medicare, this regulation would not 

prohibit States from covering any 

Medicaid service allowable under 

section 1905(a) of the Act. Rather, the 

regulation would only define services 

that may be covered, and reimbursed, 

under the outpatient hospital services 

benefit in the Medicaid State Plan. 

In addition, a number of States have 

requested that we clarify in regulation 

the requirements for calculating 

Medicare comparable UPLs on 

outpatient and clinic services. The 

current regulation at § 447.321 limits 

outpatient hospital and rural health 

clinic payments in privately operated 

facilities to ‘‘a reasonable estimate of the 

amount that would be paid for services 

furnished by the group of facilities 

under Medicare payment principles.’’

The current regulation does not 

address how this estimate should be 

made, nor does it address the treatment 

of services that are not comparable to a 

service furnished under Medicare. As 

States provide an array of services in a 

variety of settings authorized under 

§ 440.90, we are proposing to set forth 

effective UPLs to limit Medicaid 

payments in all clinic settings. 

To address these concerns, as 

discussed below in more detail, in 

addition to revising the definition of 

‘‘outpatient hospital services’’ for 

consistency between Medicare and 

Medicaid, we are proposing changes to 

address the method for calculating the 

UPL. The proposed UPL definition of 

outpatient hospital services and clinics 

would establish payments as reported 

on the most recently filed Medicare cost 

report, or a State cost report for which 

the State can clearly demonstrate 

gathers data elements directly from the 

proposed standard worksheets and lines 

on the most recently filed Medicare cost 

report, as the standard for the 

reasonable estimate of what Medicare 

would pay for equivalent Medicaid 

services. The Medicare cost report 

reflects cost-to-charge ratios for all 

outpatient services reimbursed 

prospectively or reimbursed under a fee 

schedule by Medicare. Additionally, 

payment-to-charge ratios may be 

derived from the Medicare cost report 

for all facility payments reported to the 

Medicare fiscal intermediary. Medicare 

regularly updates these payment 

systems to recover costs for providers. 

We believe that the Medicare costs or 

payments reported in the most recently 

filed Medicare cost reports, or an 

equivalent State cost report as described 

above, provide the most accurate 

measure of what Medicare would pay 

for Medicaid-equivalent outpatient 

hospital services. 

D. Medicaid Outpatient Hospital Service 

Definition 

Scope of Outpatient Hospital Services—

Proposed Rule 

The BBA required CMS (formerly the 

Health Care Financing Administration) 

to implement an outpatient prospective 


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payment system (OPPS) for hospital 

services reimbursed under the Medicare 

program. Before the implementation of 

OPPS, services were reimbursed on a 

formula-driven basis. As part of the 

development process for the OPPS, we 

published a proposed rule on September 

8, 1998 (63 FR 47552) that, among other 

provisions, described the services that 

would be paid for by Medicare on a 

prospective basis. The final rule was 

published in the Federal Register on 

April 7, 2000 (65 FR 18434). 

Regulations at 42 CFR part 419—

Prospective Payment System for 

hospital Outpatient Department 

Services—describes the categories of 

hospitals and the services that are 

included and excluded from the 

Medicare hospital OPPS. The proposed 

rule references the services that 

Medicare pays for under the OPPS, 

defined at § 419.2. In addition, the 

proposed rule references other 

outpatient hospital facility services that 

Medicare pays through an alternate 

methodology, such as a fee schedule, as 

coverable Medicaid outpatient hospital 

services. While Medicare pays for both 

professional and facility services 

through alternate payment 

methodologies, the proposed rule would 

limit Medicaid coverage and payment 

for outpatient hospital services to 

facility services only. For example, 

States may cover and reimburse 

prosthetic devices, prosthetics, supplies, 

and orthotic devices, durable medical 

equipment, and clinical diagnostic 

laboratory services as outpatient 

hospital services. 

In addition, the proposed rule would 

allow States to cover outpatient services 

provided outside of the hospital only in 

a department of a provider that meets 

the standards defined under Medicare 

regulations in 42 CFR part 413, subpart 

E—Payments to Providers. This section 

of the regulations describes the 

relationship that facilities with 

provider-based status must have with a 

hospital in order to receive Medicare 

payments equivalent to those received 

by hospitals. Specifically, our intention 

is to ensure that a department of a 

hospital that meets the Medicare 

requirements for provider-based status 

and is reimbursed for Medicaid 

outpatient hospital services is treated 

the same as the main provider. In 

contrast, a provider-based entity that is 

not a department of the main provider 

would be treated as a separate, nonhospital, entity for this purpose (by 

definition, under 42 CFR 413.65(a)(2), 

provider-based entities provide health 

care services of a different type from 

those of the main provider). 

We have considered other options and 

believe that the services recognized 

under Medicare regulations as 

outpatient hospital services represent an 

industry-accepted class of services. By 

including services reimbursed to 

outpatient hospitals under Medicare 

OPPS and outpatient services 

reimbursed through Medicare fee 

schedules within the Medicaid 

definition, we would provide greater 

consistency between the two federally 

funded programs. In addition, we are 

proposing to adopt Medicare’s 

definition of a department of a provider 

meeting the requirements of providerbased status, into Medicaid regulation to 

assure that all providers that are 

reimbursed for outpatient hospital 

services have a legal relationship with a 

main provider that is defined under 

regulation. This is consistent with 

efficiency and economy as set forth in 

section 1902(a)(30)(A) of the Act. 

The proposed rule also would exclude 

States from covering under the 

Medicaid outpatient hospital benefit 

services that are covered under another 

medical assistance service category 

under the State Plan. Our review of 

State Plan methodologies recently 

submitted to CMS finds that States may 

include non-facility and/or nontraditional hospital services (that is, 

school-based services and rehabilitation 

services) within the definition of 

covered outpatient hospital services. For 

example, States have proposed 

including school-based, adult day 

health and rehabilitative services in the 

outpatient hospital coverage section of 

the State Plan. In many cases, these 

services are already covered and paid 

for under another methodology under 

the plan. In at least one instance, a State 

reimburses non-traditional hospital 

services at the rate that community 

providers receive, as defined under the 

distinct payment methodology for those 

services under the State Plan, rather 

than the higher outpatient rate that 

should be paid for a covered outpatient 

service. 

Such inconsistencies have the 

potential to enhance the UPL for 

outpatient services by increasing the 

scope of outpatient hospital services 

that might be included in the UPL 

calculation. We are proposing to 

exclude non-facility and/or nontraditional hospital services from the 

outpatient definition in this proposed 

rule to assure efficiency and economy 

within the scope of outpatient hospital 

services as outpatient service rates are 

generally higher than rates for other 

Medicaid non-facility services. An 

outpatient hospital service may not be 

covered and/or reimbursed under 

another Medical Assistance services 

category under the State Plan. However, 

States may continue to cover any service 

that is authorized under section 1905(a) 

of the Act within the State Plan under 

a coverage benefit that is distinct from 

outpatient hospital services. 

Finally, the proposed rule would 

make a clear distinction between 

outpatient services billed by a 

recognized hospital facility in which 

services are furnished and those billed 

by physicians and other professionals. 

Under Medicaid, States generally pay a 

fee schedule rate for physician and 

other professional services and a 

separate rate to hospitals providing 

outpatient services. We are restricting 

the Medicaid outpatient hospital 

definition to facility services only to 

prevent duplicative payments for 

professional services that are 

reimbursed under a separate payment 

methodology, under a different benefit 

category under section 1905(a) of the 

Act. 

E. Upper Payment Limits—Proposed 

Rule 

We are proposing to revise § 447.321 

to clarify the appropriate Medicare 

references that States may use to derive 

the reasonable estimate of what would 

be paid for Medicaid outpatient and 

clinic services furnished by the group of 

facilities under Medicare payment 

principles. 

Outpatient Hospital Upper Payment 

Limit 

The revisions to the outpatient UPL, 

as defined in the proposed rule, would 

limit the services that may be included 

in the outpatient hospital UPL for 

privately operated facilities to those 

with a Medicare equivalent as reported 

through the most recently filed 

Medicare cost report, for each outpatient 

hospital Medicaid service provider, or a 

State cost report for which the State can 

clearly demonstrate gathers data directly 

from the proposed standardized 

Medicare cost report references. The 

proposed rule would allow States to 

include within the UPL calculation only 

services that (1) may be covered under 

the Medicaid outpatient coverage 

definition; and (2) that show up on 

outpatient-specific Medicare hospital 

cost report worksheets. Thus, the scope 

of outpatient hospital services as 

defined by Medicaid would be the same 

services as those included in the 

outpatient hospital UPL. Though we 

recognize that Medicaid covers more 

services than Medicare, we believe that 

an economic and efficient UPL should 

include only services to which there 

exists a Medicare equivalent. 


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Restricting the permissible scope of 

Medicaid outpatient hospital services to 

Medicare’s definition would allow us to 

define standard references that States 

may use to calculate the UPL. All 

Medicare-certified institutional 

providers, including hospitals, are 

required to submit annual cost reports 

to a fiscal intermediary. These cost 

reports include information such as 

facility characteristics, utilization data, 

cost and charges by cost center (in total 

and for Medicare), Medicare settlement 

data, and financial Statement data. The 

Medicare hospital cost report captures 

all of the services that are included in 

the proposed revised definition of 

Medicaid outpatient hospital services, 

and it is the most accurate reflection of 

what Medicare would pay for Medicaid 

equivalent services. 

As previously stated, the Medicare 

hospital cost report includes line items 

that calculate a cost-to-charge ratio 

(ratio of the provider’s actual costs vs. 

the amount the provider charges). The 

cost-to-charge ratio on the Medicare cost 

report captures the highest possible 

amount that Medicare would pay for an 

outpatient service. The proposed rule 

would allow States to use either the 

cost-to-charge ratio, as reported on the 

most recently filed Medicare hospital 

cost report, or a payment-to-charge ratio 

(the ratio of the amount that Medicare 

actually pays for outpatient hospital 

services through the fiscal intermediary 

vs. the amount of the hospital’s charges 

for such services) to develop the 

foundation of a reasonable estimate of 

what Medicare would pay for 

Medicaid’s outpatient hospital services. 

For either UPL methodology, the dates 

of service as reported to the Medicare 

hospital cost report for Medicare cost or 

payment must match the dates of 

service for Medicare charges as reported 

to the cost report. 

We currently require that States 

demonstrate compliance with the UPL 

for outpatient hospital services using 

one of the methods described above 

when the State submits a Medicaid State 

plan amendment for outpatient services. 

The UPL demonstration must include a 

formula that clearly accounts for either 

the ratio of Medicare cost to Medicare 

charges multiplied by Medicaid 

outpatient charges, or the ratio of 

Medicare payments to Medicare charges 

multiplied by Medicaid outpatient 

charges. The State must cite all 

references from the most recently filed 

Medicare hospital cost report that are 

included in the Medicare cost-to-charge 

ratio or Medicare payment-to-charge 

ratio portion of the UPL formula. States 

utilizing a State-specific cost report 

must demonstrate a clear crosswalk 

between the proposed Medicare cost 

report references that may be included 

in a UPL demonstration and the State’s 

reporting system. 

For a cost-to-charge UPL 

demonstration, the link to Medicare is 

made through reference to ancillary and 

outpatient hospital services cost center 

cost-to-charge ratios as found on 

Worksheet C, Column 9, lines 37—68 or 

Worksheet D, Part V, Column 1.01, lines 

37–68 of the CMS 2552–96. These 

ratios, which must be determined for 

each provider, include all cost 

regardless of payer for all ancillary and 

outpatient cost centers and charges 

made to all payers including Medicaid. 

CMS will not accept a UPL that is 

inflated by adjusting Medicare’s allowed 

cost as reported on these worksheets. 

The applicable outpatient hospital 

service payment references for a 

payment-to-charge UPL demonstration 

may be found on Worksheet E, Part B of 

the CMS 2552–96. While Worksheet E 

represents what Medicare pays for 

services within hospitals, States must 

make certain adjustments in order to 

reflect equivalent Medicaid outpatient 

hospital provider services that may be 

included in the UPL demonstration. For 

example, all lines that report payments 

associated with professional services 

must be removed from the numerator. 

Additionally, States must ensure that 

bad debts are not over-reported by 

including deductibles and coinsurance 

and reimbursable bad debt in Medicare 

payments. If deductible and coinsurance 

are added on to the Medicare payment, 

the State should remove reimbursable 

bad debts included in the Medicare 

payment. The resulting payments 

reported from Worksheet E should 

represent allowable Medicare payments 

for purposes of the UPL demonstration. 

The source of Medicare charge data, 

reflected in the ratio’s denominator, 

must come from Worksheet D, Part V 

and Part VI of the Medicare cost report. 

We note that a payment-to-charge 

ratio UPL methodology may not be 

inclusive of the full scope of outpatient 

hospital services because payments and 

charges on the Medicare cost report do 

not include payments and charges 

reimbursed on a fee-for-service basis 

through the Medicare Part B Carrier. For 

example, durable medical equipment 

payments and charges are not included 

on Worksheets E and D. We believe 

States should have the flexibility to 

determine the UPL through a 

comparison of Medicare payment. 

We also note that the specific line 

references from the Medicare hospital 

cost report are subject to change as the 

Medicare cost report and reporting 

requirements are modified by CMS. 

However, only those costs, charges, and 

payments included in the above 

worksheets and lines on the CMS 2552–

96 (the current standard Medicare 

hospital cost report form at the issuance 

of this proposed rule) may be included 

in the outpatient UPL demonstration for 

Medicaid services. 

Depending on which UPL 

demonstration methodology the State 

utilizes, the Medicare cost-to-charge 

ratio or the Medicare payment-to-charge 

ratio for each provider, this ratio is 

multiplied by the Medicaid outpatient 

hospital charges associated with paid 

claims for each provider as reported to 

the Medicaid Management Information 

System (MMIS). We have considered 

other methods and believe that the use 

of adjudicated claims excludes 

outpatient services paid for by Medicare 

for patients dually eligible for Medicare 

and Medicaid and helps to assure that 

charges represent covered Medicaid 

services. The Medicaid charge data must 

exclude clinical diagnostic laboratory 

services, which are limited to a separate 

UPL under section 1903(i)(7) of the Act, 

and all professional services. 

The resulting product is an estimate 

of the actual cost or payment associated 

with Medicaid outpatient hospital 

facility services. The total estimate of 

Medicaid cost or payment is compared 

to actual Medicaid paid claims to 

determine whether outpatient hospital 

payments exceed the UPL. 

States may choose to trend the UPL 

data to the current rate year. Under the 

proposed rule, we are proposing that all 

data must be trended uniformly in 

successive years and use the Medicare 

Market Basket Index as the trending 

factor. The State must demonstrate to 

CMS the effect of the trended data for 

each successive year from the base year 

to the current rate year. In addition, the 

State must demonstrate its methodology 

for any proposed volume trending. 

Clinic Upper Payment Limit 

For privately operated clinics that are 

not providing outpatient hospital 

services under § 440.20 (those that 

would not be paid by Medicare in that 

setting under OPPS or under an 

alternative outpatient hospital service 

payment methodology) but instead are 

covered under the authority of § 440.90, 

the UPL is the reasonable estimate of 

what would be paid for clinic services 

furnished by the group of facilities 

under Medicare payment principles. In 

calculating the reasonable estimate of 

what Medicare would pay for Medicaid 

clinic services, we must consider 

Medicare’s reimbursement methods for 

these services. 


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Medicare does not typically pay for 

clinic services on the basis of cost as 

reported by the facility. Rather, through 

the resource-based relative value 

(RBRVS) system, used to determine the 

fee-for-service rate, Medicare recognizes 

specific clinic costs eligible for 

reimbursement in a clinic setting. For 

clinic services, a reasonable estimate of 

what Medicare would pay for equivalent 

Medicaid services is the non-facility 

professional rate for those services. 

We propose two options for States to 

demonstrate compliance with the 

proposed UPL rule for clinic services 

provided in privately operated facilities, 

which requires payment that does not 

exceed a reasonable estimate of what 

Medicare would pay for equivalent 

Medicaid services. A State may choose 

to limit clinic reimbursement to a 

percentage, not to exceed 100 percent, 

of what Medicare pays under the nonfacility professional rate for equivalent 

Medicaid services. 

This first option would require States 

to include language in the State Plan 

that specifies the percentage of the 

Medicare facility fee schedule that 

would be paid for services in clinic 

settings. If the State pays a percentage 

of what Medicare pays under a facilityspecific fee schedule or the non-facility 

professional rate and wishes to make 

supplemental payments up to 100 

percent of what Medicare pays, the State 

must demonstrate per CPT code what 

Medicare would pay for equivalent 

Medicaid services. The calculation may 

be conducted in the aggregate for clinic 

type or by specific facilities (end-stage 

renal disease (ESRD), ambulatory 

surgical center (ASC), etc.). If a State 

opts to pay 100 percent of what 

Medicare pays under a facility-specific 

fee schedule or the non-facility 

professional rate for equivalent 

Medicaid services, the State would not 

have the option of making supplemental 

payments. However, the State would not 

be required to submit documentation for 

a clinic UPL demonstration. 

As a second option, a State may 

develop a fee schedule for Medicaid 

clinic services, which is not based on 

the Medicare professional fee schedule. 

Clinical diagnostic laboratory services 

may not be included in this 

demonstration because section 

1903(i)(7) of the Act requires that these 

services not exceed the Medicare fee 

schedule. For all other clinic services, 

the State may pay through an encounter 

rate or a Medicaid specific fee schedule 

that is not based on Medicare payment 

principles. Under this option, a UPL 

demonstration is required to 

demonstrate that Medicaid clinic 

reimbursement would not exceed what 

Medicare would pay for equivalent 

services. This demonstration must show 

a comparison by CPT code of the 

amount paid by Medicare for equivalent 

Medicaid services. The calculation may 

be conducted in the aggregate for clinic 

type or by specific facilities (ESRD, 

ASC, etc.). Under the second option, a 

State may pay more than Medicare for 

some services or facilities, and less than 

Medicare for others, as long as the 

aggregate Medicaid payment is equal to 

or less than the amount that Medicare 

would pay in the aggregate. 

We include a special provision for 

dental services provided in clinics for 

purposes of UPL calculations because 

we recognize that Medicare does not 

generally cover dental services. Since 

there is no Medicare payment for dental 

services in clinic settings, we allow the 

State to incorporate the Medicaid State 

Plan fee schedule rate as the reasonable 

estimate of what Medicare would pay 

for dental services. As a result, dental 

clinic providers are not excluded from 

the State’s aggregate clinic UPL 

calculation. 

III. Provisions of the Proposed Rule 

A. Overview 

Under our proposal, the outpatient 

hospital services covered under the 

Medicaid program would continue to be 

set forth in regulation under § 440.20. In 

addition, the UPL requirements for 

outpatient hospital services would 

continue to be defined under § 447.321. 

However, both current definitions 

would undergo significant revision to 

clarify the scope of outpatient hospital 

services recognized by the Medicaid 

program and to standardize Medicare 

cost and payment principles as the basis 

to accurately determine the reasonable 

estimate of what Medicare would pay 

for equivalent Medicaid services in a 

privately operated outpatient facility. 

B. General Provisions 

The revised definitions would begin 

with existing § 440.20 that describes 

outpatient hospital services and rural 

health clinic services. The definition of 

rural health clinic services would be 

revised to apply to all clinic settings. In 

addition, the existing § 447.321 that 

describes UPLs for Medicaid services 

provided in outpatient hospitals and 

clinics would be revised. 

1. Outpatient Hospital Services and 

Rural Health Clinic Services (Proposed 

§ 440.20) 

Existing § 440.20 sets forth definitions 

for outpatient hospital services and 

rural health clinic services. We are 

proposing to change § 440.20(a) to 

specify the scope of facility services 

covered under the Medicaid program. 

We propose to substitute in § 440.20(a) 

the term ‘‘by an institution’’ for ‘‘in a 

facility.’’ We believe this term better 

describes outpatient hospital settings 

where Medicaid services may be 

covered. 

We proposed to modify the 

requirements for a participating facility 

to include those described in § 413.65. 

Though the current regulation requires 

that participating facilities meet the 

requirements for participation in 

Medicare as a hospital, we included the 

criteria for provider-based status as a 

department of an outpatient hospital 

facility, as described in § 413.65, to 

recognize all settings where Medicaid 

outpatient hospital services may be 

provided. In accordance with § 413.65, 

a department of a provider must furnish 

health care services of a same type as 

those of the main provider under the 

name, ownership, and administrative 

and financial control of the main 

provider. 

We proposed to add to the current 

definition a comprehensive list of the 

scope of services that may be included 

under the Medicaid outpatient hospital 

services benefit. The modified 

definition allows States to cover 

outpatient services paid for under the 

Medicare OPPS and all other outpatient 

hospital facility services that Medicare 

pays under a fee schedule. These 

services are limited only to hospital 

facility services and exclude all 

professional services. Professional 

services may continue to be billed under 

a separate fee schedule rate. The 

Medicare provision for OPPS covered 

services may be found at § 419.2(b). 

Finally, we excluded all services, 

other than outpatient hospital services, 

that are covered and paid under medical 

assistance under section 1905(a) of the 

Act. For example, services paid for 

under a fee schedule (for example, 

Federally Qualified Health Centers) or 

services that are typically covered under 

a different section of the State Plan (for 

example, rehabilitative services). 

2. Outpatient Hospital and Clinic 

Services: Application of Upper Payment 

Limits (Proposed § 447.321) 

We propose to modify the existing 

definition of UPLs for outpatient 

hospital and clinic services to provide 

States with clear and accurate guidance 

on the ‘‘reasonable estimate of the 

amount that would be paid for the 

services furnished by the group of 

facilities under Medicare payment 

principles in subchapter B of this 

chapter.’’ The proposed rule would 

allow States to include within the UPL 


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calculation only services that may be 

covered under the Medicaid outpatient 

coverage definition and that appear on 

the Medicare hospital cost report. 

All hospitals throughout the nation 

report cost and charge data through 

Medicare hospital cost reports. Since 

these reports reflect Medicare data for 

all outpatient hospital payments made 

by Medicare, we require States to 

reference the Medicare hospital cost 

reports, or a State cost report for which 

the State can clearly demonstrate 

gathers data directly from the proposed 

standardized Medicare cost report 

references, when calculating the 

Medicaid outpatient UPL for privately 

operated facilities. From the Medicare 

cost reports, States may use payment-tocharge ratios or cost-to-charge ratios and 

apply the ratios to Medicaid outpatient 

hospital charges from the MMIS to 

determine the outpatient UPL. We base 

the UPL calculation on Medicare 

hospital cost reports because we believe 

they provide the most accurate 

reflection of what Medicare would pay 

for equivalent Medicaid outpatient 

hospital services. 

Medicare pays on a different basis for 

clinic services. These rates incorporate 

some of the facility costs and are higher 

than traditional fee schedule payments 

for professional services. States may 

continue to calculate the reasonable 

estimate of what Medicare would pay 

for equivalent Medicaid clinic services 

using these rates. However, States must 

demonstrate a clinic UPL by either 

specifying a percentage, not to exceed 

100 percent, of the Medicare rate that is 

paid by Medicaid. Or a State can 

demonstrate that, in the aggregate, 

Medicaid-specific payment rates that are 

not directly related to Medicare rates are 

less than what Medicare would pay 

based on a comparison of what 

Medicaid pays by CMS Common 

Procedure Coding System (CPT) code to 

the amount paid by Medicare for 

equivalent Medicaid services. 

In addition, Medicare generally does 

not reimburse for dental services. With 

this in mind, we added a provision 

allowing States to use the Medicaid fee 

schedule rate for dental services to 

calculate the UPL for such services. This 

provision would allow dental services 

to be included in the aggregate clinic 

UPL calculation, and, thus, allow dental 

providers to be eligible for supplemental 

payments. Since Medicare generally 

does not pay for dental services, we 

believe this is the best alternative for 

inclusion of dental services in the clinic 

UPL calculation. 

IV. Collection of Information 

Requirements 

This document does not impose 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 35). 

V. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

VI. Regulatory Impact Statement 

We have examined the impact of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–354), section 1102(b) of 

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–04), and Executive Order 13132. 

Due to a lack of available data, we 

cannot determine the fiscal impact of 

this proposed rule. The proposed rule 

defines the scope of services that may be 

reimbursed under the outpatient 

hospital benefit category covered in the 

Medicaid State plan. In addition, the 

rule clarifies the appropriate methods 

States may use to calculate the Medicaid 

upper payment limit for those services 

paid to private service providers. CMS 

does not intend to eliminate or limit the 

scope of Medicaid services that are 

defined under Title XIX of the Act. 

We have reviewed the effects of the 

proposed rule and have determined that 

it would clarify current vague regulatory 

language but would not significantly 

alter current practices in most States. 

This proposed rule is a proactive 

attempt to clarify and clearly define 

regulatory language and prevent over 

calculation of the outpatient hospital 

upper payment limit. Therefore, we do 

not believe the proposed rule would 

have significant economic effects. 

Over the past 4 years, CMS has 

approved outpatient hospital 

reimbursement methodologies 

submitted by 32 States. As part of our 

review process, we have determined 

that only one of the 32 States currently 

defines non-hospital services as part of 

the outpatient hospital Medicaid State 

plan service benefit. 

Furthermore, with respect to the one 

State that CMS believes currently 

includes non-hospital services under 

the outpatient hospital benefit category, 

this rule would not impact the rates of 

payment for these services under the 

State plan. While the current regulation 

might permit payment at a higher 

outpatient hospital payment rate, that 

State currently pays for such services at 

the same rate that is paid for such 

services outside of the outpatient 

hospital benefit category. 

The rule would have an 

undetermined effect on the aggregate 

upper payment limit for private 

outpatient hospital services within the 

State. As part of the upper payment 

limit calculation the State includes the 

non-hospital services. This effectively 

raises the limit that Medicaid may pay 

to hospitals. The rule would prevent the 

State from defining these services as 

outpatient hospital services and 

including them in the UPL calculation. 

States calculate the UPL, the 

reasonable estimate of Medicare 

payment for equivalent Medicaid 

services, in the aggregate for all 

Medicaid services provided by all 

private providers. This total for all 

providers is reduced by actual Medicaid 

payments in a rate year to determine a 

pool of funding that may be distributed 

as supplemental payments to outpatient 

hospital providers. Supplemental 

payments for outpatient hospital 

services up to the UPL may be 

distributed to any hospital within the 

private category. States are not required 

to equitably distribute supplemental 

payments among providers or exhaust 

the available supplemental payment 

pool. 

Considering the UPL is calculated in 

the aggregate for all outpatient hospital 

service for all private providers, it is 

impossible to isolate the exact fiscal 

impact of removing non-hospital 

services from the UPL calculation. Even 

if the payments for these services could 

be isolated in a particular year, the 

difference between the reasonable 

estimate of Medicare payment for a 

particular service and Medicaid 

payments for these services could vary 

drastically from year-to-year as payment 

amounts for services change within each 

program. Additionally, the UPL 

calculation considers the volume of a 

particular service rendered to Medicaid 

beneficiaries, which also varies between 

rate years. Therefore, we cannot 

determine the exact fiscal impact of 

removing non-hospital services from the 

private UPL calculation within this one 

State. 

We believe the fiscal impact would be 

minimal because most States 


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historically have not made 

supplemental payments to private 

providers up to the upper payment 

limit. In fact, the State that we suspect 

could be affected by this rule has 

recently reported paying approximately 

$68 million under the outpatient 

hospital UPL to private facilities. We do 

not believe the services that would be 

removed by this proposed rule would 

cause such a significant impact on the 

UPL calculation. We invite public 

comment on the potential impact of the 

rule. 

Executive Order 12866 directs 

agencies to assess all costs and benefits 

of available regulatory alternatives and, 

if regulation is necessary, to select 

regulatory approaches that maximize 

the 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). The rule proposes to 

clarify the definition of outpatient 

hospital services and the UPL for these 

services to provide additional guidance 

to States that interpret these definitions. 

Under the revised regulations, States 

would not be prevented from covering 

Medicaid services under the State Plan. 

Rather, a few States may need to move 

services that are not outpatient in 

nature, as defined by Medicare, to the 

appropriate coverage and payment 

methodology in the State Plan. With this 

in mind, the rule would not reach the 

economic threshold and thus is not 

considered a major rule. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and 

government agencies. Most hospitals 

and most other providers and suppliers 

are small entities, either by nonprofit 

status or by having revenues of $6 

million to $29 million in any 1 year. 

Individuals and States are not included 

in the definition of a small entity. We 

are not preparing an analysis for this 

RFA because we have determined that 

this rule would not have a significant 

economic impact on a substantial 

number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 603 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. We are not 

preparing an analysis for section 1102(b) 

of the Act because we have determined 

that this rule would not have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule that may result in expenditures in 

any 1 year by State, local, or tribal 

governments, in the aggregate, or by the 

private sector, of $110 million. The 

proposed rule would not prevent States 

from receiving FFP for Medicaid 

covered services. Therefore, the net 

change in appropriate FFP that can be 

received by States for Medicaid 

expenditures is economically 

insignificant. The proposed rule would 

not result in anticipated costs or 

benefits to 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. 

Because the proposed rule seeks to curb 

inappropriate Federal revenue 

maximization, the proposed rule would 

not impose any additional costs to 

States. Again, States may receive FFP 

for all appropriate Medicaid 

expenditures for covered services. 

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 440 

Grant programs—health, Medicaid. 

42 CFR Part 447 

Accounting, Administrative practice 

and procedure, Drugs, Grant programs—

health, Health facilities, Health 

professions, Medicaid, Reporting and 

recordkeeping requirements, Rural 

areas. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services would amend 42 CFR 

chapter IV as set forth below: 

PART 440—SERVICES GENERAL 

PROVISIONS 

1. The authority citation for part 440 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

2. Section 440.20 is amended by 

revising the section heading and 

paragraph (a) to read as follows: 

§ 440.20 Outpatient clinic and hospital 

facility services and rural health clinic 

services. 

(a) Outpatient hospital services means 

preventive, diagnostic, therapeutic, 

rehabilitative, or palliative services 

that—

(1) Are furnished to outpatients; 

(2) Are furnished by or under the 

direction of a physician or dentist; 

(3) Are furnished in a facility that—

(i) Is licensed or formally approved as 

a hospital by an officially designated 

authority for State standard-setting; and 

(ii) Meets the requirements for 

participation in Medicare as a hospital; 

(4) Are limited to the scope of facility 

services that—

(i) Would be included, in the setting 

delivered, in the Medicare outpatient 

prospective payment system (OPPS) as 

defined under § 419.2(b) of this chapter 

or are paid by Medicare as an outpatient 

hospital service under an alternate 

payment methodology; 

(ii) Are furnished by an outpatient 

hospital facility, including an entity that 

meets the standards for provider-based 

status as a department of an outpatient 

hospital set forth in § 413.65 of this 

chapter; 

(iii) Are not covered under the scope 

of another Medical Assistance service 

category under the State Plan; and 

(5) May be limited by a Medicaid 

agency in the following manner: A 

Medicaid agency may exclude from the 

definition of ‘‘outpatient hospital 

services’’ those types of items and 

services that are not generally furnished 

by most hospitals in the State. 

* * * * * 

PART 447—PAYMENTS FOR 

SERVICES 

3. The authority citation for part 447 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

4. Section 447.321 is amended by 

revising paragraphs (a) and (b) to read 

as follows: 

§ 447.321 Outpatient hospital and clinic 

services: Application of upper payment 

limits. 

(a) Scope. This section applies to rates 

set by the agency to pay for outpatient 

services furnished by hospitals and 

clinics within one of the following 

categories: 

(1) State government operated 

facilities (that is, all facilities that are 

operated by the State) as defined at 

§ 433.50(a) of this chapter. 


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(2) Non-State government operated 

facilities (that is, all governmentally 

operated facilities that are not operated 

by the State) as defined at § 433.50(a) of 

this chapter. 

(3) Privately operated facilities that is, 

all facilities that are not operated by a 

unit of government as defined at 

§ 433.50(a) of this chapter. 

(b) General rules. (1) For privately 

operated facilities, upper Payment Limit 

(UPL) refers to a reasonable estimate of 

the amount that would be paid for the 

services furnished by the group of 

facilities under Medicare payment 

principles in subchapter B of this 

chapter. 

(i) Private Outpatient Hospital 

Services. Services included in the 

calculation of the private outpatient 

hospital UPL must meet all of the 

criteria for outpatient hospital services 

defined in § 440.20 of this chapter. A 

reasonable estimate of the amount that 

would be paid for outpatient hospital 

services under Medicare payment 

principles is determined through—

(A) Calculation of estimated Medicare 

payment for Medicaid equivalent 

outpatient services reimbursed under 

current Medicare payment systems, 

including—

(1) Outpatient hospital services paid 

under the Medicare outpatient 

prospective payment system as defined 

under § 419.2 of this chapter; and 

(2) Outpatient hospital services or 

clinic services paid under a Medicare 

outpatient hospital or clinic fee 

schedule or alternate payment 

methodology. 

(B) The estimated Medicare payment 

may be based on the Medicare cost 

report, or an accepted State cost report 

that reports the same data from the 

Medicare cost report references in 

paragraphs (b)(1)(i)(B)(1) through 

(b)(1)(i)(B)(2) of this section, as the 

source to determine either: 

(1) The ratio of costs-to-charges for all 

services included in the outpatient 

hospital UPL calculation. The Medicare 

cost-to-charges ratios for outpatient 

hospital services are found on 

Worksheet C and Worksheet D, Part V 

of the Medicare cost report; or 

(2) The ratio of payments-to-charges 

for all services included in the 

outpatient hospital UPL calculation. 

Medicare outpatient payments are found 

on Worksheet E, Part B and outpatient 

charges are found on Worksheet D, Part 

V of the Medicare cost report. 

(3) The charge ratios in paragraphs 

(b)(1)(i)(B)(1) through (b)(1)(i)(B)(2) of 

this section for Medicare equivalent 

services are multiplied by Medicaid 

charges as reported to the Medicaid 

Management Information System 

(MMIS). 

(ii) Private Clinic Services. For 

privately operated clinics that are not 

providing outpatient hospital services 

under § 440.20 (those that would not be 

paid by Medicare in that setting under 

OPPS or under an alternative outpatient 

hospital service payment methodology), 

the reasonable estimate of what 

Medicare would pay for equivalent 

Medicaid services may be determined 

through: 

(A) A State Plan reimbursement 

methodology for covered services that is 

a defined percentage, not to exceed 100 

percent, of what Medicare pays under 

the non-facility fee schedule; or 

(B) For reimbursement methodologies 

based upon a Medicaid-specific fee 

schedule or encounter rate, a 

comparison by CPT code of the amount 

paid by Medicare for equivalent 

Medicaid services. The calculation may 

be conducted in the aggregate for clinic 

type or by specific facilities (ESRD, 

ASC, etc). Clinical diagnostic laboratory 

services or any other services for which 

the Act defines a separate upper limit 

for Medicaid reimbursement must be 

excluded from the clinic UPL. 

(C) For dentists providing services in 

clinics, the clinic UPL calculation may 

include payment amounts at the amount 

that Medicaid would pay outside of the 

facility. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.778, Medical Assistance 

Program) 

Dated: March 15, 2007. 

Leslie V. Norwalk, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: June 20, 2007. 

Michael O. Leavitt, 

Secretary. 

Editorial Note: This document was 

received at the Office of the Federal Register 

on September 24, 2007. 

[FR Doc. E7–19154 Filed 9–27–07; 8:45 am] 

BILLING CODE 4120–01–P 

DEPARTMENT OF COMMERCE 

National Oceanic and Atmospheric 

Administration 

50 CFR Part 648 

[Docket No. 070827484–7485–01] 

RIN 0648–AV99 

Fisheries of the Northeastern United 

States; Recreational Management 

Measures for the Summer Flounder 

Fishery; Fishing Year 2008 

AGENCY: National Marine Fisheries 

Service (NMFS), National Oceanic and 

Atmospheric Administration (NOAA), 

Commerce. 

ACTION: Proposed rule; request for 

comments. 

SUMMARY: NMFS proposes coastwide 

summer flounder recreational 

management measures to 

administratively complete the 

rulemaking process initiated in March 

2007. This action is necessary to 

propose appropriate coastwide 

management measures to be in place on 

January 1, 2008, following the 

expiration of the current state-by-state 

conservation equivalency management 

measures on December 31, 2007. The 

intent of these measures is to prevent 

overfishing of the summer flounder 

resource during the interim between the 

aforementioned expiration of the 2007 

recreational measures and the 

implementation of measures for 2008. 

DATES: Comments must be received by 

5 p.m. local time, on October 15, 2007. 

ADDRESSES: You may submit comments 

by any of the following methods: 

• E-mail: 0648–AV99@noaa.gov. 

Include in the subject line the following 

identifier: ‘‘Comments on 2008 Summer 

Flounder Interim Recreational 

Measures.’’

• Federal e-rulemaking portal: http:// 

www.regulations.gov 

• Mail: Patricia A. Kurkul, Regional 

Administrator, NMFS, Northeast 

Regional Office, One Blackburn Drive, 

Gloucester, MA 01930. Mark the outside 

of the envelope: ‘‘Comments on 2008 

Summer Flounder Interim Recreational 

Measures.’’

• Fax: (978) 281–9135. 

Copies of the Supplemental 

Environmental Assessment, as well as 

the original Environmental Assessment, 

Regulatory Impact Review, and Initial 

Regulatory Flexibility Analysis (EA/ 

RIR/IRFA) completed for the 2007 

recreational management measures are 

available from Daniel T. Furlong, 

Executive Director, Mid-Atlantic 

Fishery Management Council, Room 


pwalker on PROD1PC71 with PROPOSALS