Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 31499 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 and Part 70 

[EPA–R02–OAR–2012–0032, FRL–9675–1] 

Approval and Promulgation of 

Implementation Plans and Operating 

Permits Program; Commonwealth of 

Puerto Rico; Administrative Changes 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Withdrawal of direct final rule. 

SUMMARY: Due to an adverse comment, 

EPA is withdrawing the direct final rule, 

published on March 22, 2012, that 

approved revisions to the Puerto Rico 

Regulations for the Control of 

Atmospheric Pollution. Those revisions 

were submitted to EPA by the Puerto 

Rico Environmental Quality Board on 

July 13, 2011, and consist of 

amendments to Rules 102, 111, 115, 116 

and Appendix A. Generally the 

revisions to the regulations involve 

administrative changes which improve 

the clarity of the rules contained in the 

Commonwealth’s Implementation Plan 

and Operating Permits Program. 

DATES: The direct final rule is 

withdrawn as of May 29, 2012. 

ADDRESSES: EPA has established docket 

number EPA–R02–OAR–2012–0032 for 

this action. Copies of the state 

submittal(s) are available at the 

following address for inspection during 

normal business hours: Environmental 

Protection Agency, Region 2 Office, Air 

Programs Branch, 290 Broadway, 25th 

Floor, New York, New York 10007– 

1866. 

FOR FURTHER INFORMATION CONTACT: Kirk 

J. Wieber, Air Programs Branch, 

Environmental Protection Agency, 290 

Broadway, 25th Floor, New York, New 

York 10007–1866, (212) 637–3381. 

SUPPLEMENTARY INFORMATION: In the 

direct final rule published at 77 FR 

16676, EPA stated that if we received 

adverse comments by April 23, 2012, 

the rule would be withdrawn and not 

take effect. EPA subsequently received 

an adverse comment. EPA will address 

the comment received in a subsequent 

final action based upon the proposed 

action also published on March 22, 2012 

(77 FR 16795). EPA will not institute a 

second comment period on this action. 

List of Subjects 

40 CFR Part 52 

Environmental protection, Air 

pollution control, Incorporation by 

reference, Intergovernmental relations, 

Reporting and recordkeeping 

requirements, Volatile organic 

compounds. 

40 CFR Part 70 

Administrative practice and 

procedure, Air pollution control, 

Intergovernmental relations, Reporting 

and recordkeeping requirements. 

Dated: May 9, 2012. 

Judith A. Enck, 

Regional Administrator, Region 2. 

[FR Doc. 2012–12783 Filed 5–25–12; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 430, 433, 447, and 457 

[CMS–2292–F] 

RIN 0938–AQ32 

Medicaid and Children’s Health 

Insurance Programs; Disallowance of 

Claims for FFP and Technical 

Corrections 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule reflects the 

Centers for Medicare & Medicaid 

Services’ commitment to the general 

principles of the President’s Executive 

Order 13563 released January 18, 2011, 

entitled ‘‘Improving Regulation and 

Regulatory Review.’’ This rule will: 

implement a new reconsideration 

process for administrative 

determinations to disallow claims for 

Federal financial participation (FFP) 

under title XIX of the Act (Medicaid); 

lengthen the time States have to credit 

the Federal government for identified 

but uncollected Medicaid provider 

overpayments and provide that interest 

will be due on amounts not credited 

within that time period; make 

conforming changes to the Medicaid 

and Children’s Health Insurance 

Program (CHIP) disallowance process to 

allow States the option to retain 

disputed Federal funds through the new 

administrative reconsideration process; 

revise installment repayment standards 

and schedules for States that owe 

significant amounts; and provide that 

interest charges may accrue during the 

new administrative reconsideration 

process if a State chooses to retain the 

funds during that period. This final rule 

will also make a technical correction to 

reporting requirements for 

disproportionate share hospital 

payments, revise internal delegations of 

authority to reflect the term 

‘‘Administrator or current Designee,’’ 

remove obsolete language, and correct 

other technical errors. 

DATES: Effective Date: These regulations 

are effective on June 28, 2012. 

FOR FURTHER INFORMATION CONTACT: 

Robert Lane, (410) 786–2015, or Lisa 

Carroll, (410) 786–2696, for general 

information. 

Edgar Davies, (410) 786–3280, for 

Overpayments. 

Claudia Simonson, (312) 353–2115, for 

Overpayments resulting from Fraud. 

Rory Howe, (410) 786–4878, for Upper 

Payment Limit and Disproportionate 

Share Hospital. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Title XIX of the Social Security Act 

(the Act) authorizes Federal grants to 

States to jointly fund programs that 

provide medical assistance to lowincome families, the elderly, and 

persons with disabilities. This FederalState partnership is administered by 

each State in accordance with an 

approved State plan. States have 

considerable flexibility in designing 

their programs, but must comply with 

Federal requirements specified in 

Medicaid statute, regulations, and 

interpretive agency guidance. Federal 

financial participation (FFP) is available 

for State medical assistance 

expenditures, and administrative 

expenditures related to operating the 

State Medicaid program, that are 

authorized under Federal law and the 

approved State plan. 

For a detailed description of the 

background of this final rule, please 

refer to the proposed rule published on 

August 3, 2011 (76 FR 46685) in the 

Federal Register. 

In addition to the background 

described in the proposed rule, it is 

significant that section 6506 of the 

Patient Protection and Affordable Care 

Act (Pub. L. 111–148, enacted on March 

23, 2010) (the Affordable Care Act) 

amended section 1903(d)(2) of the Act 

to extend the period from 60 days to 1 

year for which a State may collect an 

overpayment from providers before 

having to return the Federal share of the 

funds. This section of the Affordable 

Care Act also provides for additional 

time beyond the 1 year for States to 

recover debts due to fraud when a final 

judgment (including a final 

determination on an appeal) is pending. 


erowe on DSK2VPTVN1PROD with RULES
31500 Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 

II. Summary of the Provisions of the 

Proposed Rule and Response to 

Comments 

This final rule finalizes provisions set 

forth in the proposed rule (76 FR 

46684). The following is a summary of 

the provisions and the response to the 

comments received. 

A. Administrative Review of 

Determinations to Disallow Claims for 

FFP 

Section 204 of the Medicare 

Improvements for Patients and 

Providers Act of 2008 (MIPPA), Public 

Law 110–275, entitled Review of 

Administrative Claim Determinations, 

amended section 1116 of the Act by 

striking ‘‘title XIX’’ from section 1116(d) 

of the Act, which describes a 

reconsideration process for 

disallowances of claimed Federal 

financial participation (FFP), and added 

a new section 1116(e) of the Act which 

provides for a new process for 

administrative review of Medicaid 

disallowances. Under the new process, 

a State may request a reconsideration of 

a Medicaid disallowance from the 

Secretary of the Department of Health 

and Human Services (Secretary) during 

the 60-day period following receipt of 

notice of the disallowance. 

Alternatively, or in addition, States may 

obtain review by the Department of 

Health and Human Services’ (HHS) 

Departmental Appeals Board (Board) of 

either the initial agency decision or the 

reconsidered decision. Therefore, we 

proposed to revise § 430.42 to set forth 

new procedures to review 

administrative determinations to 

disallow claims for FFP. These new 

procedures will provide for the 

availability of an informal agency 

reconsideration and a formal 

adjudication by the HHS Board. 

Specifically, we proposed to amend 

§ 430.42(b) to provide States the option 

to request administrative 

reconsideration of an initial 

determination of a Medicaid 

disallowance. 

In § 430.42(c), we proposed the 

procedures for such a reconsideration, 

in § 430.42(d) we described the option 

for a State to withdraw a 

reconsideration request, and in 

§ 430.42(e) we described the procedures 

for issuing reconsideration decisions 

and implementing such decisions. 

In § 430.42(f), we proposed that States 

would have the option of appeal to the 

Board of either an initial determination 

of a Medicaid disallowance, or the 

reconsideration of such a determination 

under § 430.42(b). The procedures for 

such an appeal are set forth in 

§ 430.42(g). 

In § 430.42(h), we proposed the 

procedure for issuance and 

implementation of the final decision. 

For a detailed description of these 

options, please refer to the proposed 

rule (76 FR 46685). 

The following is a summary of the 

comments we received regarding the 

administrative review of determinations 

to disallow claims for FFP proposal, and 

our responses to those comments. 

Comment: One commenter disagreed 

with our proposal to create a regulatory 

framework where lack of timely action 

by the Administrator to issue a decision 

on a request for reconsideration affirms 

the disallowance. The commenter 

believes that this provision will 

undermine any advantage derived from 

creating an administrative 

reconsideration process and 

recommends that the provision be 

revised so that a lack of timely action by 

CMS results in a decision in the State’s 

favor. 

Response: We do not believe that the 

implementation of this provision will 

undermine the advantage that may be 

provided to a State requesting an 

administrative reconsideration. Section 

1116(e) of the Act provides that a State 

may appeal an unfavorable 

reconsideration of a disallowance. We 

believe that the advantage of creating an 

administrative reconsideration process 

is to help reduce legal costs, time, and 

resources for States and the Federal 

agency. We believe that the most 

prudent course is preserving the State’s 

ability to proceed in the reconsideration 

process to the Board without 

impediment. This rule affords States the 

option to proceed to the appeals process 

without delay even in the event the 

Administrator does not provide a timely 

response to the reconsideration. 

Comment: One commenter requested 

that CMS revise the rule so that the 

agency will automatically suspend its 

disallowance determination during the 

internal reconsideration period so that a 

State will not be liable for interest if it 

elects to retain disallowed FFP. The 

commenter also stated that CMS 

proposed to charge interest during the 

administrative review period at the 

Current Value of Funds Rate (CVFR). 

Response: We work diligently to 

ensure that we have reviewed every 

option to resolve a financial issue before 

proceeding to the disallowance process 

and believe that to undo the process 

would be counterintuitive. The law 

provides for a request for 

reconsideration as an additional option 

for States in the disallowance process 

before proceeding to an appeal by the 

Board. Additionally, we believe that the 

language in section 1903 of the Act is 

clear and that we have no authority to 

revise current regulations to suspend a 

disallowance during the administrative 

reconsideration process. 

Regarding the liability of interest 

during the reconsideration process, we 

note that States are not required to 

request reconsideration and have the 

option to return the funds to us during 

the disallowance process. If a State is 

afforded the option to, and elects to, 

retain disallowed FFP during the 

administrative review period, the State 

will be charged interest based on the 

average of the bond equivalent of the 

weekly 90-day treasury bill auction rates 

from the date of the disallowance to the 

date of a final determination, in 

accordance with section 1903(d)(5) of 

the Act. 

Therefore, we are finalizing without 

change our proposed revisions to 

§ 430.42 as stated in the proposed rule. 

B. State Option to Retain Federal Funds 

Pending Administrative Review and 

Interest Charges on Properly Disallowed 

Funds Retained by the State 

We proposed to revise § 433.38 to 

clarify the application of interest when 

the State opts to retain Federal funds. In 

§ 433.38, we proposed to add language 

clarifying that interest will accrue on 

disallowed claims of FFP during both 

the reconsideration process and the 

Board appeal process. We also proposed 

to clarify that, if a State chooses to 

retain the FFP when a claim is 

disallowed and appeals the 

disallowance, the interest will continue 

to accrue through the reconsideration 

and the Board decision. If the 

disallowance is upheld, we proposed 

that the interest would continue to 

accrue on outstanding balances during 

any installment repayment period, until 

the total amount is repaid. 

We indicated in the preamble to the 

proposed rule that we were considering 

two options for the repayment of 

interest that accrues from the date of the 

disallowance notice until the final 

Board decision when a State elects 

repayment by installments. It has 

consistently been our policy that once 

the State has exhausted all of its 

administrative appeal rights and the 

disallowance has been upheld, the 

principal overpayment amount plus 

interest through the date of final 

determination becomes the new 

overpayment amount. We proposed to 

provide States with an additional option 

for repaying that interest during a 

repayment schedule. We believe that 

allowing greater flexibility in the 

repayment of interest during the 


erowe on DSK2VPTVN1PROD with RULES
Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 31501 

repayment schedule will assist States as 

they formulate their budgets. 

If a State chooses to repay the 

overpayment by installments, the State 

may choose the option of: 

(1) Dividing the new overpayment 

amount (principal plus initial interest) 

by the 12-quarters of repayment. The 

initial interest is interest from the date 

of the disallowance notice until the first 

payment. The State will still need to pay 

interest per quarter on the remaining 

balance of the overpayment until the 

final payment. To clarify how this 

option would work, we provided an 

example in Table 3 of the proposed rule 

(76 FR 46689); or 

(2) Paying the first installment of the 

principal plus all interest accrued from 

the date of the disallowance notice 

through the first payment. The first 

installment would include the principal 

payment plus interest calculated from 

the date of the disallowance notice. 

Each subsequent payment would 

include the principal payment plus 

interest calculated on the remaining 

balance of the overpayment amount. 

Under section 1903(d)(5) of the Act, a 

State that wishes to retain the Federal 

share of a disallowed amount will be 

charged interest, based on the average of 

the bond equivalent of the weekly 90- 

day treasury bill auction rates, from the 

date of the disallowance to the date of 

a final determination. 

A State that has given a timely written 

notice of its intent to repay by 

installments to CMS will accrue interest 

during the repayment schedule on a 

quarterly basis at the Treasury Current 

Value Fund Rate (CVFR), from: 

(1) The date of the disallowance 

notice, if the State requests a repayment 

schedule during the 60-day review 

period and does not request 

reconsideration by CMS or appeal to the 

Board within the 60-day review period. 

(2) The date of the final determination 

of the administrative reconsideration, if 

the State requests a repayment schedule 

during the 60-day review period 

following the CMS final determination 

and does not appeal to the Board. 

(3) The date of the final determination 

by the Board, if the State requests a 

repayment schedule during the 60-day 

review period following the Board’s 

final determination. 

The initial installment will be due by 

the last day of the quarter in which the 

State requests the repayment schedule. 

If the request is made during the last 30 

days of the quarter, the initial 

installment will be due by the last day 

of the following quarter. Subsequent 

repayment amounts plus interest will be 

due by the last day of each subsequent 

quarter. 

The CVFR is based on the Treasury 

Tax and Loan (TT&L) rate and is 

published annually in the Federal 

Register, usually by October 31st 

(effective on the first day of the next 

calendar year), at the following Web 

site: http://www.fms.treas.gov/cvfr/ 

index.html. 

For a detailed description of these 

proposed options, please refer to the 

proposed rule (76 FR 46686). 

We solicited comments related to 

these approaches and the best 

application of interest when a State 

chooses repayment of FFP by 

installments. We were also interested in 

any suggestions on alternative 

approaches with respect to the 

repayment of interest during the 

repayment schedule. 

The following describes the one 

timely comment we received regarding 

the State option to retain Federal funds 

pending administrative review and 

interest charges on properly disallowed 

funds retained by the State. 

Comment: One commenter strongly 

recommended that CMS address what 

they believe to be an inherent inequity 

in charging interest on disputed funds 

when a State retains the FFP and loses 

on reconsideration/appeal. They stated 

that CMS should pay interest to a State 

if a State prevails on reconsideration or 

appeal. 

Response: Section 1903(d)(5) of the 

Act gives the State the option to retain 

the amount of Federal payment in 

controversy subject to an interest 

charge. Section 1903(d)(5) of the Act 

does not provide authority for CMS to 

pay a State interest on disputed funds 

when a State prevails in reconsideration 

or appeal. Nor do we see any significant 

equity issue, since interest is only due 

if a State exercises the option to retain 

the funds pending resolution of the 

dispute and it is determined that the 

State had no entitlement to the use of 

those funds. Additionally, as the State 

controls the funds during the 

reconsideration of appeal, CMS is in no 

way inhibiting the use of those funds 

pending resolution of the dispute. States 

have substantial control over both the 

quality and documentation of their 

claims. 

Therefore, we are finalizing without 

change our proposal to revise § 433.38 

to clarify the application of interest 

when the State opts to retain Federal 

funds as stated in the proposed rule. 

C. Repayment of Federal Funds by 

Installments 

We proposed to amend § 430.48 to 

revise the repayment schedule 

providing more options for States 

electing a repayment schedule for the 

payment of Federal funds by 

installment. We proposed three 

schedules including schedules that 

recognize the unique fiscal pressures of 

States that are experiencing economic 

distress, and to make technical 

corrections. 

The rationale for the installment 

repayment schedule is to enable States 

to continue to operate their programs 

effectively while repaying the Federal 

share. 

For a detailed description of the 

proposed options and repayment 

schedules, please refer to the proposed 

rule (76 FR 46686). 

The following is a summary of the 

comments we received regarding 

repayment of Federal funds by 

installments. 

Comment: One commenter 

recommended that CMS clarify the use 

of the term ‘‘deposits,’’ and asked if a 

State may continue to accomplish 

repayment through adjustments in the 

State’s Payment Management System 

(PMS) account. The commenter suggests 

that CMS’ intent may be better reflected 

by adding ‘‘or adjustments’’ to the 

provision. 

Response: The term ‘‘deposit’’ as used 

in § 430.48(c)(5)(i) refers to the State 

making payment by Automated Clearing 

House (ACH) direct deposit, by check, 

or by Fedwire transfer in the State’s 

PMS account. We recognize that the 

current process for repayment allows for 

an adjustment in the quarterly grants. 

Under this rule, a State will no longer 

be allowed to make repayment (of 

Federal funds by installments) through 

adjustments in the quarterly grants 

(reducing State authority to draw 

Federal funds) over the period covered 

by the repayment schedule. Due to the 

extended repayment periods, we believe 

that there is a need for accountability in 

the repayment made to PMS that cannot 

be attained through adjustments other 

than actual repayment. Adjustment of 

the grant award would only ensure 

actual repayment of the funds at the 

time of the adjustment if the State were 

simultaneously reducing its drawdown 

of federal funds in the same amount as 

the adjustment. If the State were doing 

so, the net effect should be the same as 

actual repayment. Because it would be 

almost impossible to determine what a 

State drawdown would have been, there 

is no way to determine if an actual 

payment was made until a State has to 

reconcile at the end of the year. The 

ability to track and record transactions 

will be enhanced by requiring actual 

repayment through Automated Clearing 

House (ACH) direct deposit, by check, 

or by Fedwire transfer in the State’s 

PMS account. 


erowe on DSK2VPTVN1PROD with RULES
31502 Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 

We have proposed three new 

repayment schedules that will allow 

States additional time (12 quarters) to 

make repayments, as well as extend the 

quarters for making repayment during 

periods of economic distress. The 

revisions to the repayment process in 

§ 430.48(c)(5) are needed to ensure that 

we can verify when repayments are 

made. We believe that the revised 

language of the section as stated in the 

proposed rule will permit this 

verification. 

Comment: One commenter expressed 

belief that it is a reasonable approach to 

use the Federal Reserve Bank of 

Philadelphia State coincident index 

because it is publicly available and 

routinely updated. The commenter, 

however, contended that setting the 

threshold at a negative percent change 

on each of 6 previous months sets a 

standard that is too stringent and does 

not correlate well with State budget 

experience. The commenter noted that 

because States use annual and biennial 

budget processes, the amount of funding 

a State can free up in the short term for 

a disallowance may not be related to the 

most recent 6 months of economic 

activity; rather, it is likely to be a 

function of longer term State economic 

conditions. The commenter also 

believes that the 6-month standard is 

unfair and may penalize States that 

experience a single month of growth 

during a period of overall economic 

decline. The commenter suggested that 

using a comparison of average annual 

totals based upon the monthly Federal 

Reserve Bank of Philadelphia State 

coincident index will better reflect a 

State’s economic distress condition. 

Response: The proposed repayment 

by installments in this rule was 

developed to provide all States more 

flexibility and to recognize the unique 

fiscal pressures of States that are 

required to repay large amounts to the 

Federal government. This rule offers 

three repayment schedules. The 

establishment of the standard 

repayment schedule, which will provide 

all States that qualify a standard 12 

quarter repayment, takes into account 

the fact that most State legislatures will 

need time to enact appropriations to 

repay significant amounts. This 

schedule is intended to assist States 

with budget concerns that may 

experience difficulty in freeing up funds 

in the short term. 

We also recognized the need for 

offering additional relief for States that 

continued to experience significant 

economic distress when either initiating 

a repayment schedule or while currently 

in the standard repayment process. The 

alternate repayment schedules were 

developed to assist only States that are 

experiencing continuous significant 

periods of economic distress. The 

National Bureau of Economic Research 

(NBER) recognizes that many 

professionals and experts around the 

world define a recession as two or more 

consecutive quarters of declining real 

Gross Domestic Product (GDP). Our 

development of a threshold set at a 

negative percent change on each of 6 

previous months is consistent with this 

widely accepted definition of a 

recession. The use of a comparison of 

average annual total seems to be a good 

measure; however, our research did not 

identify a widely accepted basis for its 

use in determining a State’s fiscal 

health. 

In consideration of the commenter’s 

suggestion to use a comparison of 

average annual totals based upon the 

monthly Federal Reserve Bank of 

Philadelphia State coincident index, we 

conducted an analysis to see if the 

methodology suggested by the 

commenter will produce significantly 

different results. The commenter did not 

define ‘‘average annual totals’’ so we 

defined it for our analysis as the average 

of the 12 consecutive months prior to 

the month in which the repayment was 

requested, resulting in a decline. We 

performed our analysis using 6 States 

identified by the commenter as being 

penalized by the use of the 6-month 

standard. Our analysis showed that the 

use of a comparison of average annual 

total in the States identified did not 

produce significantly different results. 

We also note that depending on the 

percent change identified by the index 

of a particular 12-month period, in some 

cases, the use of the average annual 

totals could have an adverse effect in 

certain circumstances. For example, if a 

State has 6 consecutive months of 

minimal decline preceded by 6 months 

of growth exceeding the decline, the 

average annual total for that State will 

be positive growth. Under the 

methodology in this rule, that State will 

qualify for the alternate repayment 

schedule available upon request, but 

under the average annual total 

methodology that State will not qualify. 

Therefore, for the reasons noted above, 

we do not believe it will be beneficial 

to modify our methodology as identified 

in the proposed rule. 

Comment: One commenter stated that 

the use of the Federal Reserve Bank of 

Philadelphia to identify periods of 

economic distress in a State could be a 

good proxy for future State revenues for 

States that rely heavily on income taxes, 

but may be limited in its 

appropriateness for States that depend 

heavily on sales taxes. The commenter 

suggested that this indicator does not 

measure distress that comes from State 

spending obligations, including natural 

disasters, retiree pension and health 

care, State Medicaid program 

expenditures, and may be limited in its 

accounting of State spending on 

unemployment. The commenter 

recommended that alternative measures 

be expressly made available in the rule 

and that Statewide GDP growth should 

be included as a valid, alternative 

indicator of Statewide economic 

distress, as should a State’s 

unemployment rates. 

Response: We acknowledge that a 

recession will affect States’ revenue 

differently depending on the various 

revenue sources States use and how 

those sources respond to the economic 

conditions. We disagree that the use of 

the Federal Reserve Bank of 

Philadelphia to identify periods of 

economic distress is limited in its 

appropriateness for States that depend 

heavily on sales taxes. 

We reviewed this issue by identifying 

9 States whose budgets rely heavily on 

sales taxes and 8 States whose budgets 

rely heavily on income taxes. We 

performed an analysis using the Federal 

Reserve Bank of Philadelphia State 

coincident index to see if we could 

determine a difference in States 

qualifying for an economic distress 

repayment schedule based on their tax 

revenue sources. Our analysis did not 

show a significant difference in 

qualifying for an alternate repayment 

schedule between States that rely 

heavily on general sales tax and those 

that rely heavily on income taxes. 

We also contacted various sources to 

obtain an understanding of how a 

State’s revenue based on general sales 

tax will be affected by a recession. Our 

sources provided a general overview of 

the effect of State tax revenue during a 

recession stating that income tax is often 

more volatile than sales tax. In some 

States, the sales tax may also be volatile. 

Most States rely on both a sales and an 

income tax, which makes up less than 

one-third of the total taxes. Therefore, 

there will not necessarily be a 

significant difference during a recession. 

We believe that the use of the Federal 

Reserve Bank of Philadelphia State 

coincident index is the best indicator of 

a State’s monthly fiscal health. We note 

that the trend for each State’s index is 

set to the trend of its GPD and that the 

data used in determining the index is 

the best approximation of the type of 

information used to determine a 

national recession. We believe that the 

Federal Reserve Bank of Philadelphia 

provides for a more equitable treatment 

of States, is transparent to the public, 


erowe on DSK2VPTVN1PROD with RULES
Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 31503 

robust in its measurement of economic 

health, based on the most recent data 

possible, consistent across States, and 

predictably available on a regular basis 

in a timely manner. 

We also note the commenter’s 

assertion that there are other indicators 

that may provide a more accurate 

determination of a State’s fiscal health 

and that these indicators are not 

measured by the Federal Reserve Bank 

of Philadelphia. We conducted research 

and analyzed several potential 

economic distress measures before 

making our determination to use the 

Federal Reserve Bank of Philadelphia. 

Each measure has some advantages and 

disadvantages. We found that this is the 

best option for determining economic 

distress on a State-by-State basis. It also 

met the criteria that we believe will best 

serve States and CMS in making a 

determination. 

Comment: One commenter has 

concerns that this rule will 

institutionalize a data series produced 

by a private entity. 

Response: The Philadelphia Federal 

Reserve Bank is one of the 12 regional 

Reserve Banks that, together with the 

Board of Governors in Washington, DC, 

make up the Federal Reserve System. It 

is headquartered in Philadelphia, 

Pennsylvania and is responsible for the 

Third Federal Reserve District. 

The Federal Reserve Banks have been 

operating since November 16, 1914. The 

Federal Reserve Banks’ structure 

consists of both the public or 

government sector and the private 

sector. The public sector is represented 

by a Board of Governors appointed by 

the President of the United States and 

confirmed by the U.S. Senate. The 

private sector is represented by a board 

of directors. We are confident in relying 

on data produced by an entity that is 

part of the Federal Reserve System. 

Therefore, we are finalizing without 

change our proposal to amend § 430.48 

to revise the repayment schedule 

providing more options for States 

electing a repayment schedule for the 

payment of Federal funds by installment 

as stated in the proposed rule. 

D. Refunding of Federal Share of 

Overpayments to Providers 

We proposed to revise § 433.300 

through § 433.322 in accordance with 

section 6506 of the Affordable Care Act. 

These provisions amended section 

1903(d)(2) of the Act to provide an 

extension of the period for collection of 

provider overpayments. Under the new 

provisions, States have up to 1 year 

from the date of discovery of an 

overpayment made to a Medicaid 

provider to recover or to attempt to 

recover such an overpayment, unless 

the overpayment is due to fraud. At the 

end of the 1-year period, the State is 

required to return to the Federal 

government the Federal share of any 

overpayment not yet returned. 

For a detailed description of these 

provisions, please refer to the proposed 

rule (76 FR 46691). 

The following is a summary of the 

comments we received regarding 

refunding of Federal share of 

overpayments to providers. 

Comment: One commenter expressed 

concern regarding the definition of 

‘‘final written notice’’ in § 433.304. The 

commenter stated that the proposed 

changes to sections 433.304 and 433.316 

could have the effect of binding the 

State Medicaid agency to actions taken 

by other State officials, and suggested 

some examples of potential problems 

that could arise, in practice, in 

situations where the State Medicaid 

agency does not have legal control over 

other State officials. The commenter 

recommended that the proposed 

regulation be amended to clarify that a 

State Medicaid agency may not be 

expected to repay FFP on the basis of 

allegations made against a provider or 

filed under authority of another State 

official. The commenter also 

recommended that the ‘‘final written 

notice’’ may only come from a State 

Medicaid agency official. 

Response: The State Medicaid agency 

is responsible for returning the Federal 

share of an overpayment based upon the 

amount discovered, which, for purposes 

of § 433.316(d), is the amount identified 

in the final written notice, as defined in 

§ 433.304. Although we understand the 

commenter’s concern that the State 

Medicaid agency may not have control 

over the overpayment determination 

stated in the final written notice, the 

only way a State Medicaid agency may 

treat an overpayment as resulting from 

fraud under § 433.316(d) is for a law 

enforcement entity, for example, a 

Medicaid Fraud Control Unit (MFCU) to 

accept the case based on a referral from 

the State Medicaid agency, or for the 

law enforcement agency to file a civil or 

criminal case against a provider and 

notify the State Medicaid agency. There 

are likely to be instances when other 

State officials will take action in a State 

and provide notice to the State 

Medicaid agency. In those instances, the 

State Medicaid agency is ultimately 

responsible for returning the Federal 

share of the overpayment. Therefore, we 

decline to take the commenter’s 

recommendations and amend the 

definition of ‘‘final written notice.’’ 

Comment: One commenter stated that 

the purpose of § 433.316 appears to 

ensure that the State Medicaid agency 

makes referrals to the MFCU when there 

is evidence of fraud. The commenter 

stated that in general, that expectation is 

reasonable, but a referral to a MFCU 

may be redundant in situations where 

the State Medicaid agency is first made 

aware of a fraud case because a criminal 

prosecution has already been initiated 

by the MFCU, a local prosecuting 

attorney, or through the U.S. Attorney’s 

office. 

Response: Although it is true that 

MFCUs often develop their own cases, 

we encourage State Medicaid agencies 

and MFCUs to maintain open 

communications to keep all parties 

informed of the cases being worked by 

each of the offices. Referral of a case 

developed only by a MFCU back to the 

MFCU by the State Medicaid agency is 

not required by § 433.316. However, 

where the parties independently 

develop the same case, under 

§ 433.316(d)(3), for the State Medicaid 

agency to be able to consider the 

overpayment as resulting from fraud, 

either (1) the State Medicaid agency 

must refer the case to the MFCU or other 

appropriate law enforcement agency 

and receive a written notification of 

acceptance of the case from the MFCU 

or other appropriate law enforcement 

agency; or (2) the MFCU or other 

appropriate law enforcement agency 

must file a civil or criminal case against 

a provider and notify the State Medicaid 

agency. In the event the State Medicaid 

agency identifies allegations of fraud it 

determines are credible, it is required 

under § 455.23 to refer the matter to the 

MFCU and suspend payments, unless 

good cause exceptions apply, even if the 

MFCU has developed the case 

independently. 

Comment: One commenter noted that 

a State Medicaid agency may already 

have commenced or concluded 

reasonable collection efforts under other 

procedures, for example, a provider that 

is associated with a criminal fraud case 

may also be associated with a 

bankruptcy case. The commenter 

recommended that a State be permitted 

discretion to pursue the most viable 

collection strategy. 

Response: Where a State Medicaid 

agency has commenced or concluded 

reasonable collection efforts under other 

procedures, we do not believe that 

utilizing the fraud exception under 

§ 433.316(d) is necessary. The State 

Medicaid agency has the discretion to 

pursue whichever collection strategy it 

deems most viable; however, the 

extended period for returning the 

Federal share under § 433.316 may or 

may not apply to the extent that the 

selected collection strategy does not 


erowe on DSK2VPTVN1PROD with RULES
31504 Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 

lead the MFCU or appropriate law 

enforcement agency to file a civil or 

criminal action against a provider as 

referred to in § 433.316(d)(3). 

Comment: One commenter 

recommended that CMS clarify that the 

existence of an element of fraud in a 

case of an overpayment does not 

preclude a State from relying on other 

regulations such as bankruptcy or out of 

business exceptions to relieve a State of 

its obligation to repay FFP. 

Response: Under § 433.318, a State 

Medicaid agency will not be required to 

repay the Federal share of a discovered 

overpayment if a provider is determined 

to be bankrupt or out of business in 

accordance with § 433.318. As 

clarification, whether the provider’s 

overpayment was a result of fraud is not 

material to the question of whether the 

State may rely upon § 433.318. The 

existence of fraud does not extend the 

time period within which the provider 

may file its bankruptcy petition or for 

the State Medicaid agency to determine 

the provider is out of business. 

Comment: One commenter requested 

clarification on the use of bankruptcy 

terminology in § 433.318(c)(1) and 

§ 433.318(e) of the rule. The commenter 

noted that there is a distinction between 

a voluntary bankruptcy petition filed by 

the debtor and an involuntary 

bankruptcy petition filed by a creditor. 

The commenter noted that this rule does 

not seem to fully describe the 

bankruptcy process and the variety of 

possible related outcomes. The 

commenter suggested that the language 

in the rule (‘‘if the State recovers an 

overpayment amount under a courtapproved discharge of bankruptcy’’) 

suggests that a State will actually 

recover an overpayment amount 

through this process, which is a possible 

outcome, but unlikely to occur in 

practice. The commenter also suggests 

that the phrase ‘‘discharge of 

bankruptcy’’ is unclear and asks if the 

phrase is intended to convey a discharge 

of debt, or a discharge of a debtor. The 

commenter suggests that the phrase ‘‘if 

a bankruptcy petition is denied, the 

agency must refund the Federal share of 

the overpayment in accordance with the 

procedures * * *’’ appears to be 

problematic noting that it was probably 

intended to mean that the Medicaid 

provider, now a debtor, has been denied 

a discharge of debt. The commenter also 

suggested that it should be afforded 

discretion to tailor the collection 

process and strategy to the facts in the 

case and that if a State follows 

reasonable collection procedures; it 

should not be required to refund the 

Federal share. The commenter 

recommends that § 433.318 be modified 

to reflect the most likely possible 

outcomes in bankruptcy cases and that 

a State should not be required to refund 

the Federal share of an overpayment in 

cases where a debt is uncollectible. 

They suggested that the determination 

should be based on whether a debt is 

collectible, and not on whether a formal 

discharge of debt has been granted. 

Response: We appreciate the 

comments, but note that the comments 

are outside the scope of this rule. We 

revised the overpayment regulations to 

bring them into compliance with section 

6506 of the Affordable Care Act, which 

amended section 1903(d)(2) of the Act 

to extend the period from 60 days to 1 

year for which a State may collect an 

overpayment from providers before 

having to return the Federal funds. This 

section also provides for additional time 

beyond the 1 year for States to recover 

debts due to fraud when a final 

judgment (including a final 

determination on an appeal) is pending. 

Therefore, we decline the commenter’s 

recommendations to make clarifications 

on the use of bankruptcy terminology. 

We will consider these comments with 

respect to possible future rulemaking. 

Comment: One commenter sought 

clarification on whether States will be 

required to submit individualized 

documentation of reasonable collection 

efforts to make reclamation and believed 

that such a requirement will be 

administratively burdensome, and 

requested that CMS consider ways to 

minimize this documentation burden. 

Response: The submission of 

documentation for reclaiming of refunds 

is addressed in regulations. Current 

regulations at § 433.320(g) state that if 

the agency reclaims a refund of the 

Federal share of an overpayment in 

cases of bankruptcy, the agency must 

submit to CMS a statement of its efforts 

to recover the overpayment during the 

period before the petition for 

bankruptcy was filed. In cases of out-ofbusiness providers, the agency must 

submit to CMS a statement of its efforts 

to locate the provider and its assets and 

to recover the overpayment during any 

period before the provider is found to be 

out-of-business in accordance with 

§ 433.318. This rule did not revise any 

of the requirements for a State to 

document that it made reasonable 

efforts to obtain recovery. Since the 

overpayment rule was published in 

1989, we have not been made aware of 

any administrative burden that has been 

imposed on States. We appreciate the 

comment, but we do not see a need to 

revise the documentation requirement. 

Therefore, we are finalizing without 

change our proposal to revise § 433.300 

through § 433.322 in accordance with 

section 6506 of the Affordable Care Act 

as stated in the proposed rule. 

E. Technical Corrections to Medicaid 

Regulations 

1. Grants Procedures 

This rule updates references at 

§ 430.30 by striking ‘‘CMS–25’’ and 

adding ‘‘CMS–37.’’ The CMS–25 was 

renamed to the CMS–37, but the 

changes were never codified in 

regulation. We took the opportunity in 

this final rule to make the correction. 

States are currently using the CMS–37 

form. 

2. Deferral of Claims for FFP 

This final rule will revise the 

language in the delegation of authority 

for deferral determinations under 

§ 430.40 and for disallowance 

determinations under § 430.42 to reflect 

the term ‘‘Administrator or current 

Designee.’’ This revision will ensure 

that future changes in the internal 

structure of CMS will not affect the 

authority of the Regional Office to 

impose deferral and disallowance of 

claims for FFP. 

3. Inpatient Services: Application of 

Upper Payment Limits (UPLs) 

We proposed technical changes that 

remove UPL transition period language 

at § 447.272 and § 447.321. The last 

transition period expired on September 

30, 2008. 

4. Reporting Requirements for 

Disproportionate Share Hospital 

Payments 

This final rule corrects a technical 

error in the regulation text at 

§ 447.299(c)(15). This paragraph 

provides a narrative description of how 

‘‘total uninsured IP/OP uncompensated 

care costs’’ is to be calculated from 

component data elements. The first 

sentence unintentionally and 

incorrectly references costs associated 

with Medicaid eligible individuals in 

the description of uninsured 

uncompensated costs. This reference is 

incorrect and could not be interpreted 

reasonably to contribute to an accurate 

description of ‘‘total uninsured IP/OP 

uncompensated care costs.’’ 

Additionally, it erroneously contradicts 

section 1923(g) of the Act, § 447.299, 42 

CFR part 455 subpart D, and 

longstanding CMS policy. The second 

sentence of § 447.299(c)(15) accurately 

identifies the component data elements 

and correctly describes the calculation 

of ‘‘total uninsured IP/OP 

uncompensated care costs,’’ which does 

not include Medicaid eligible 

individuals. 


erowe on DSK2VPTVN1PROD with RULES
Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 31505 

We did not receive any comments 

pertinent to these provisions. Therefore, 

we are finalizing without change these 

provisions as stated in the proposed 

rule. 

F. Conforming Changes to CHIP 

Regulations 

The CHIP regulations at § 457.210 

through § 457.212 and 457.218 mirror 

Medicaid regulations at 42 CFR parts 

430 and 433 related to deferrals, 

disallowances, and repayment of 

Federal funds by installments. We 

proposed to make conforming changes 

to both the Medicaid and CHIP 

programs by striking § 457.210 through 

§ 457.212 and § 457.218 and 

incorporating the requirements of 42 

CFR part 430. We are incorporating 

these through reference in § 457.628(a). 

We are also incorporating the 

requirements of 42 CFR part 433 with 

respect to overpayments. Section 

2105(c)(6)(B) of the Act incorporates the 

overpayment requirements of section 

1903(d)(2) of the Act into CHIP. 

Therefore, we are also amending the 

CHIP regulations to reflect the 

overpayment requirements as revised by 

the Affordable Care Act. We are 

incorporating these through reference in 

§ 457.628(a). 

We did not receive any comments 

pertinent to these provisions. Therefore, 

we are finalizing without change these 

provisions as stated in the proposed 

rule. 

G. General Comments 

Comment: One commenter expressed 

thanks for the codification of the 

administrative reconsideration process, 

for increasing the time available to 

States to notify CMS of their intent, and 

for lowering the threshold level to 

qualify for a repayment by installments. 

Response: We appreciate the support 

for this rule. 

Comment: One commenter expressed 

appreciation for CMS’ support of States’ 

program integrity efforts and believes 

that this rule addresses the need to 

streamline certain administrative 

processes related to disallowances, 

which could lead to administrative cost 

efficiencies for States and the Federal 

government. The commenter agreed 

with the agency that this new 

administrative reconsideration process 

could help minimize the administrative 

burden and allow States to quickly 

identify and rectify blatant errors in 

disallowance determinations. 

The commenter also agreed that States 

should retain the authority to seek a 

formal adjudication by the Health and 

Human Services’ Departmental Appeals 

Board. 

The commenter also stated support 

for the proposal to determine economic 

distress on a State-by-State basis rather 

than relying solely on a national 

indicator because since the causes and 

timing of economic distress and 

recovery vary dramatically by State. 

The commenter noted that the 

proposed change to § 433.320 aligns the 

Federal regulation with the 

requirements of the Affordable Care Act 

and provides State Medicaid agencies 

with the clarity needed to pursue 

overpayments to providers due to fraud. 

The commenter stated that State 

Medicaid directors are committed to 

working with Federal policymakers to 

improve program integrity tools and 

ensure States are not penalized for their 

diligent work in pursuing waste, fraud, 

and abuse. 

Response: We appreciate the 

commenter’s support for this rule. 

Comment: One commenter noted 

inconsistency in the proposed rules 

regarding the change from ‘‘Regional 

Administrator’’ to ‘‘Consortium 

Administrator.’’ 

Response: We have revised the final 

rule to remove staff titles from the 

regulations for deferral determinations 

under § 430.40 and for disallowance 

determinations under § 430.42. 

Specifically, we have revised the 

language in these sections to reflect the 

term ‘‘Administrator or current 

Designee.’’ 

III. Provisions of the Final Regulations 

As a result of our review of the 

comments we received during the 

public comment period, as discussed in 

section II. of this preamble, we are 

finalizing the proposed revisions as 

outlined in the proposed rule with the 

following exception: 

We are revising § 430.40(c)(4) to make 

the language consistent throughout the 

proposed rule. The regulation has been 

revised to change the language in the 

delegation of authority for deferral 

determinations under § 430.40 and for 

disallowance determinations under 

§ 430.42 to reflect the term 

‘‘Administrator or current Designee.’’ 

IV. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995 (PRA), we are required to 

provide 30-day notice in the Federal 

Register and solicit public comment 

before a collection of information 

requirement is submitted to the Office of 

Management and Budget (OMB) for 

review and approval. To fairly evaluate 

whether an information collection 

should be approved by OMB, section 

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

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

All of the information collection 

requirements contained in this 

document are either exempt from the 

PRA or are currently approved under a 

valid OMB control number. Therefore, 

while we are not submitting any 

information collection requests to OMB 

for review and approval, we will 

consider public comments we may 

receive on these requirements. 

A. ICRs Regarding Disallowance of 

Claims for FFP (§ 430.42) 

Section 430.42 was revised in 

accordance with the Medicare 

Improvement for Patients and Providers 

Act of 2008 (MIPPA) to set forth new 

procedures to review administrative 

determinations to disallow claims for 

FFP. These new procedures provide for 

an informal agency reconsideration that 

must be submitted in writing to the 

Administrator within 60 day after 

receipt of a disallowance letter. The 

reconsideration request must specify the 

findings or issues with which the State 

disagrees and the reason for the 

disagreement. It also may include 

supporting documentary evidence that 

the State wishes the Administrator to 

consider. 

The burden associated with this 

requirement is the time and effort 

necessary for the State Medicaid agency 

to draft and submit the reconsideration 

letter and supporting documentation. 

Although this requirement is subject to 

the PRA, we believe that 5 CFR 

1320.4(a)(2), exempts the 

reconsideration letter as a collection of 

information and the PRA. In this case, 

the information associated with the 

reconsideration will be collected 

subsequent to an administrative action, 

that is, a determination to disallow. 

B. ICRs Regarding the Maintenance of 

Records (§ 433.322) 

Section 2105(c)(6)(B) of the Act 

incorporates the overpayment 

requirements of section 1903(d)(2) of the 

Act into CHIP. The overpayment 

regulations at § 433.322 require that the 

Medicaid Agency ‘‘maintain a separate 

record of all overpayment activities for 

each provider in a manner that satisfies 


erowe on DSK2VPTVN1PROD with RULES
31506 Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 

the retention and access requirements of 

45 CFR 92.42.’’ We are incorporating 

these through reference in § 457.628(a). 

Accordingly, it will require CHIP 

programs to comply with § 433.322. 

States are currently required to maintain 

these records under current regulations 

for Medicaid (and by implication CHIP). 

The recordkeeping requirements set 

out under 45 CFR 92.42 (and § 433.322) 

are adopted from OMB Circular A–110. 

C. ICRs Regarding Medicaid Program 

Budget Report (CMS–37) 

The information collection 

requirements associated with CMS–37 

are approved by OMB and have been 

assigned OMB control number 0938– 

0101. This final rule will not impose 

any new or revised reporting or 

recordkeeping requirements concerning 

CMS–37. 

D. ICRs Regarding Quarterly Medicaid 

Statement of Expenditures for the 

Medical Assistance Program (CMS–64) 

The information collection 

requirements associated with CMS–64 

are approved by OMB and have been 

assigned OMB control number 0938– 

0067. This final rule will not impose 

any new or revised reporting or 

recordkeeping requirements concerning 

CMS–64. 

If you comment on the information 

collection and recordkeeping 

requirements identified above, please 

submit your comments to the Office of 

Information and Regulatory Affairs, 

Office of Management and Budget, 

Attention: CMS Desk Officer, 2292–F, 

Fax: (202) 395–6974; or 

Email: OIRA_submission@omb.eop.gov. 

V. Regulatory Impact Statement 

A. Statement of Need 

This final rule implements changes to 

the following: 

• Section 1116 of the Act as set forth 

in section 204 of the Medicare 

Improvement for Patients and Providers 

Act of 2008 (Pub. L. 110–275, enacted 

on July 15, 2008) to provide a new 

reconsideration process for 

administrative determinations to 

disallow claims for FFP under title XIX 

of the Act (Medicaid). 

• Section 1903(d)(2) of the Act as set 

forth in section 6506 of the Patient 

Protection and Affordable Care Act 

(Pub. L. 111–148, enacted on March 23, 

2010) (the Affordable Care Act), to 

lengthen the time States have to credit 

the Federal government for identified 

but uncollected Medicaid provider 

overpayments and provides that interest 

is due for amounts not timely credited 

within that time period. 

• Section 2107(e)(2)(B) of the Act 

which makes section 1116 of the Act 

applicable to CHIP, to the same extent 

as it is applicable to Medicaid, for 

administrative review, unless 

inconsistent with the CHIP statute. 

• Enable States to continue to operate 

their Medicaid programs effectively 

while repaying the Federal share of 

unallowable expenditures and to 

provide more flexibility for States to 

manage their budgets during periods of 

economic downturn. 

• Clarify that interest charges accrue 

during the new administrative 

reconsideration process as set forth in 

section 204 of the Medicare 

Improvement for Patients and Providers 

Act of 2008 (Pub. L. 110–275, enacted 

on July 15, 2008) if a State chooses to 

retain the funds during that period. 

We conducted a review of existing 

regulations to correct a technical error 

in the regulation text at § 447.299(c)(15) 

which erroneously contradicts section 

1923(g) of the Act, § 447.299, 42 CFR 

part 455 subpart D, and longstanding 

CMS policy; revise internal delegations 

of authority to reflect the term 

‘‘Administrator or current Designee’’; 

remove obsolete language; and correct 

other technical errors in accordance 

with section 6 of Executive Order 13563 

of January 18, 2011. 

B. Overall Impact 

We have examined the impact of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

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

354), Executive Order 13563 on 

Improving Regulation and Regulatory 

Review (February 2, 2011), section 

1102(b) of the Social Security Act, 

section 202 of the Unfunded Mandates 

Reform Act of 1995 (March 22, 1995; 

Pub. L. 104–4), Executive Order 13132 

on Federalism (August 4, 1999) and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). 

This rule does not reach the economic 

threshold and thus is not considered a 

major rule. 

C. Anticipated Effects 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities, if a rule has a significant impact 

on a substantial number of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

physician practices, hospitals and other 

providers are small entities, either by 

nonprofit status or by qualifying as 

small businesses under the Small 

Business Administration’s size 

standards (revenues of less than $7.0 to 

$34.5 million in any 1 year). States and 

individuals are not included in the 

definition of a small entity. For details, 

see the Small Business Administration’s 

Web site at http://www.sba.gov/sites/ 

default/files/Size_Standards_Table.pdf). 

The Secretary has also determined 

that this final rule will not have a 

significant economic impact on a 

substantial number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare a RIA if a rule 

may have a significant impact on the 

operations of a substantial number of 

small rural hospitals. This analysis must 

conform to the provisions of section 604 

of the RFA. For purposes of section 

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

rural hospital as a hospital that is 

located outside of a Metropolitan 

Statistical Area for Medicare payment 

regulations and has fewer than 100 

beds. We did not prepare an analysis for 

section 1102(b) of the Act because the 

Secretary has determined that this final 

rule will not have a significant impact 

on the operations of a substantial 

number of small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

In 2012, that threshold is approximately 

$139 million. This rule will have no 

consequential effect on State, local, or 

tribal governments in the aggregate, or 

on the private sector. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

Since this regulation does not impose 

any costs on State or local governments, 


erowe on DSK2VPTVN1PROD with RULES
Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 31507 

the requirements of Executive Order 

13132 are not applicable. 

Effects on State Medicaid Programs 

The final rule provides States with the 

option to use certain provisions as well 

as proposes new requirements or 

changes to existing interpretations of 

statutory or regulatory requirements. For 

a detailed description of the provisions 

of the proposed rule, please refer to the 

proposed rule (76 FR 46693). 

D. Alternatives Considered 

This section provides an overview of 

regulatory alternatives that we 

considered for the proposed rule. In 

determining the appropriate guidance to 

assist States in their efforts to meet 

Federal requirements, we conducted 

analysis and research in both the public 

and private sector. Based, in part, on 

this analysis and research we arrived at 

the provisions which were in the 

proposed rule (76 FR 46694). 

1. Administrative Review of 

Determinations To Disallow Claims for 

FFP 

In the proposed rule (76 FR 46694), 

we set out procedures for States to 

request a reconsideration of a 

disallowance to the CMS Administrator. 

For a detailed description of the 

procedures considered, please refer to 

the proposed rule. 

2. Repayment of Federal Funds by 

Installments 

In the proposed rule (76 FR 46694), 

we proposed three schedules including 

schedules that recognize the unique 

fiscal pressures of States that are 

experiencing economic distress. For a 

detailed description of the schedules 

considered, please refer to the proposed 

rule. 

E. Conclusion 

For the reasons discussed above, we 

did not prepare analysis for either the 

RFA or section 1102(b) of the Act 

because we determined that this 

regulation will not have a direct 

significant economic impact on a 

substantial number of small entities or 

a direct significant impact on the 

operations of a substantial number of 

small rural hospitals. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects 

42 CFR Part 430 

Administrative practice and 

procedure, Grant programs-health, 

Medicaid, Reporting and recordkeeping 

requirements. 

42 CFR Part 433 

Administrative practice and 

procedure, Child support, Claims, Grant 

programs-health, Medicaid, Reporting 

and recordkeeping requirements. 

42 CFR Part 447 

Accounting, Administrative practice 

and procedure, Drugs, Grant programshealth, Health facilities, Health 

professions, Medicaid, Reporting and 

recordkeeping requirements, Rural 

areas. 

42 CFR Part 457 

Administrative practice and 

procedure, Grant programs-health, 

Health insurance, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

Chapter IV, as set forth below: 

PART 430—GRANTS TO STATES FOR 

MEDICAL ASSISTANCE PROGRAMS 

■ 1. The authority citation for part 430 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

■ 2. Section 430.30 is amended by 

revising paragraph (b) to read as follows: 

§ 430.30 Grants procedures. 

* * * * * 

(b) Quarterly estimates. The Medicaid 

agency must submit Form CMS–37 

(Medicaid Program Budget Report; 

Quarterly Distribution of Funding 

Requirements) to the central office (with 

a copy to the regional office) 45 days 

before the beginning of each quarter. 

* * * * * 

■ 3. Section 430.33 is amended by 

revising paragraph (c)(2) to read as 

follows: 

§ 430.33 Audits. 

* * * * * 

(c) * * * 

(2) Appeal. Any exceptions that are 

not disposed of under paragraph (c)(1) 

of this section are included in a 

disallowance letter that constitutes the 

Department’s final decision unless the 

State requests reconsideration by the 

Administrator or the Departmental 

Appeals Board. (Specific rules are set 

forth in § 430.42.) 

* * * * * 

■ 4. Section 430.40 is amended by 

revising paragraphs (a)(1), (b)(1) 

introductory text, (c)(3), (c)(4), (c)(5), 

(c)(6), and (e)(1) to read as follows: 

§ 430.40 Deferral of claims for FFP. 

(a) * * * 

(1) The Administrator or current 

Designee questions its allowability and 

needs additional information to resolve 

the question; and 

* * * * * 

(b) * * * 

(1) Within 15 days of the action 

described in paragraph (a)(2) of this 

section, the current Designee sends the 

State a written notice of deferral that— 

* * * * * 

(c) * * * 

(3) If the current Designee finds that 

the materials are not in readily 

reviewable form or that additional 

information is needed, he or she 

promptly notifies the State that it has 15 

days to submit the readily reviewable or 

additional materials. 

(4) If the State does not provide the 

necessary materials within 15 days, the 

current Designee disallows the claim. 

(5) The current Designee has 90 days, 

after all documentation is available in 

readily reviewable form, to determine 

the allowability of the claim. 

(6) If the current Designee cannot 

complete review of the material within 

90 days, CMS pays the claim, subject to 

a later determination of allowability. 

* * * * * 

(e) * * * 

(1) The Administrator or current 

Designee gives the State written notice 

of his or her decision to pay or disallow 

a deferred claim. 

* * * * * 

■ 5. Section 430.42 is amended by— 

■ A. Revising paragraphs (a) 

introductory text and paragraph (a)(9). 

■ B. Redesignating paragraphs (b), (c), 

and (d), as paragraphs (f), (g), and (h) 

respectively. 

■ C. Adding new paragraphs (b), (c), (d), 

and (e). 

■ D. Revising the paragraph heading of 

newly designated paragraph (f). 

■ E. Revising newly designated 

paragraph (f)(2). 

■ F. Adding new paragraph (f)(3). 

■ G. Revising newly designated 

paragraphs (g) and (h). 

The revisions and additions read as 

follows: 

§ 430.42 Disallowance of claims for FFP. 

(a) Notice of disallowance and of right 

to reconsideration. When the 

Administrator or current Designee 

determines that a claim or portion of 

claim is not allowable, he or she 

promptly sends the State a disallowance 

letter that includes the following, as 

appropriate: 

* * * * * 

(9) A statement indicating that the 

disallowance letter is the Department’s 


erowe on DSK2VPTVN1PROD with RULES
31508 Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 

final decision unless the State requests 

reconsideration under paragraph (b)(2) 

or (f)(2) of this section. 

(b) Reconsideration of a disallowance. 

(1) The Administrator will reconsider 

Medicaid disallowance determinations. 

(2) To request reconsideration of a 

disallowance, a State must complete the 

following: 

(i) Submit the following within 60 

days after receipt of the disallowance 

letter: 

(A) A written request to the 

Administrator that includes the 

following: 

(1) A copy of the disallowance letter. 

(2) A statement of the amount in 

dispute. 

(3) A brief statement of why the 

disallowance should be reversed or 

revised, including any information to 

support the State’s position with respect 

to each issue. 

(4) Additional information regarding 

factual matters or policy considerations. 

(B) A copy of the written request to 

the Regional Office. 

(C) Send all requests for 

reconsideration via registered or 

certified mail to establish the date the 

reconsideration was received by CMS. 

(ii) In all cases, the State has the 

burden of documenting the allowability 

of its claims for FFP. 

(iii) Additional information regarding 

the legal authority for the disallowance 

will not be reviewed in the 

reconsideration but may be presented in 

any appeal to the Departmental Appeals 

Board under paragraph (f)(2) of this 

section. 

(3) A State may request to retain the 

FFP during the reconsideration of the 

disallowance under section 1116(e) of 

the Act, in accordance with § 433.38 of 

this subchapter. 

(4) The State is not required to request 

reconsideration before seeking review 

from the Departmental Appeals Board. 

(5) The State may also seek 

reconsideration, and following the 

reconsideration decision, request a 

review from the Board. 

(6) If the State elects reconsideration, 

the reconsideration process must be 

completed or withdrawn before 

requesting review by the Board. 

(c) Procedures for reconsideration of a 

disallowance. (1) Within 60 days after 

receipt of the disallowance letter, the 

State shall, in accordance with (b)(2) of 

this section, submit in writing to the 

Administrator any relevant evidence, 

documentation, or explanation and shall 

simultaneously submit a copy thereof to 

the Regional Office. 

(2) After consideration of the policies 

and factual matters pertinent to the 

issues in question, the Administrator 

shall, within 60 days from the date of 

receipt of the request for 

reconsideration, issue a written decision 

or a request for additional information 

as described in paragraph (c)(3) of this 

section. 

(3) At the Administrator’s option, 

CMS may request from the State any 

additional information or documents 

necessary to make a decision. The 

request for additional information must 

be sent via registered or certified mail to 

establish the date the request was sent 

by CMS and received by the State. 

(4) Within 30 days after receipt of the 

request for additional information, the 

State must submit to the Administrator, 

with a copy to the Regional Office in 

readily reviewable form, all requested 

documents and materials. 

(i) If the Administrator finds that the 

materials are not in readily reviewable 

form or that additional information is 

needed, he or she shall notify the State 

via registered or certified mail that it has 

15 business days from the date of 

receipt of the notice to submit the 

readily reviewable or additional 

materials. 

(ii) If the State does not provide the 

necessary materials within 15 business 

days from the date of receipt of such 

notice, the Administrator shall affirm 

the disallowance in a final 

reconsideration decision issued within 

15 days from the due date of additional 

information from the State. 

(5) If additional documentation is 

provided in readily reviewable form 

under the paragraph (c)(4) of this 

section, the Administrator shall issue a 

written decision, within 60 days from 

the due date of such information. 

(6) The final written decision shall 

constitute final CMS administrative 

action on the reconsideration and shall 

be (within 15 business days of the 

decision) mailed to the State agency via 

registered or certified mail to establish 

the date the reconsideration decision 

was received by the State. 

(7) If the Administrator does not issue 

a decision within 60 days from the date 

of receipt of the request for 

reconsideration or the date of receipt of 

the requested additional information, 

the disallowance shall be deemed to be 

affirmed upon reconsideration. 

(8) No section of this regulation shall 

be interpreted as waiving the 

Department’s right to assert any 

provision or exemption under the 

Freedom of Information Act. 

(d) Withdrawal of a request for 

reconsideration of a disallowance. (1) A 

State may withdraw the request for 

reconsideration at any time before the 

notice of the reconsideration decision is 

received by the State without affecting 

its right to submit a notice of appeal to 

the Board. The request for withdrawal 

must be in writing and sent to the 

Administrator, with a copy to the 

Regional Office, via registered or 

certified mail. 

(2) Within 60 days after CMS’ receipt 

of a State’s withdrawal request, a State 

may, in accordance with (f)(2) of this 

section, submit a notice of appeal to the 

Board. 

(e) Implementation of decisions for 

reconsideration of a disallowance. (1) 

After undertaking a reconsideration, the 

Administrator may affirm, reverse, or 

revise the disallowance and shall issue 

a final written reconsideration decision 

to the State in accordance with 

paragraph (c)(4) of this section. 

(2) If the reconsideration decision 

requires an adjustment of FFP, either 

upward or downward, a subsequent 

grant award will be issued in the 

amount of such increase or decrease. 

(3) Within 60 days after the receipt of 

a reconsideration decision from CMS a 

State may, in accordance with 

paragraph (f)(2) of this section, submit a 

notice of appeal to the Board. 

(f) Appeal of Disallowance. * * * 

* * * * * 

(2) A State that wishes to appeal a 

disallowance to the Board must: 

(i) Submit a notice of appeal to the 

Board at the address given on the 

Departmental Appeals Board’s web site 

within 60 days after receipt of the 

disallowance letter. 

(A) If a reconsideration of a 

disallowance was requested, within 60 

days after receipt of the reconsideration 

decision; or 

(B) If reconsideration of a 

disallowance was requested and no 

written decision was issued, within 60 

days from the date the decision on 

reconsideration of the disallowance was 

due to be issued by CMS. 

(ii) Include all of the following: 

(A) A copy of the disallowance letter. 

(B) A statement of the amount in 

dispute. 

(C) A brief statement of why the 

disallowance is wrong. 

(3) The Board’s decision of an appeal 

under paragraph (f)(2) of this section 

shall be the final decision of the 

Secretary and shall be subject to 

reconsideration by the Board only upon 

a motion by either party that alleges a 

clear error of fact or law and is filed 

during the 60-day period that begins on 

the date of the Board’s decision or to 

judicial review in accordance with 

paragraph (f)(2)(i) of this section. 

(g) Appeals procedures. The appeals 

procedures are those set forth in 45 CFR 

part 16 for Medicaid and for many other 


erowe on DSK2VPTVN1PROD with RULES
Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 31509 

programs administered by the 

Department. 

(1) In all cases, the State has the 

burden of documenting the allowability 

of its claims for FFP. 

(2) The Board shall conduct a 

thorough review of the issues, taking 

into account all relevant evidence, 

including such documentation as the 

State may submit and the Board may 

require. 

(h) Implementation of decisions. (1) 

The Board may affirm the disallowance, 

reverse the disallowance, modify the 

disallowance, or remand the 

disallowance to CMS for further 

consideration. 

(2) The Board will issue a final 

written decision to the State consistent 

with 45 CFR Part 16. 

(3) If the appeal decision requires an 

adjustment of FFP, either upward or 

downward, a subsequent grant award 

will be issued in the amount of increase 

or decrease. 

■ 6. Section 430.48 is revised to read as 

follows: 

§ 430.48 Repayment of Federal funds by 

installments. 

(a) Basic conditions. When Federal 

payments have been made for claims 

that are later found to be unallowable, 

the State may repay the Federal funds 

by installments if all of the following 

conditions are met: 

(1) The amount to be repaid exceeds 

0.25 percent of the estimated or actual 

annual State share for the Medicaid 

program. 

(2) The State has given the Regional 

Office written notice, before total 

repayment was due, of its intent to 

repay by installments. 

(b) Annual State share determination. 

CMS determines whether the amount to 

be repaid exceeds 0.25 percent of the 

annual State share as follows: 

(1) If the Medicaid program is 

ongoing, CMS uses the annual estimated 

State share of Medicaid expenditures for 

the current year, as shown on the State’s 

latest Medicaid Program Budget Report 

(CMS–37). The current year is the year 

in which the State requests the 

repayment by installments. 

(2) If the Medicaid program has been 

terminated by Federal law or by the 

State, CMS uses the actual State share 

that is shown on the State’s CMS–64 

Quarterly Expense Report for the last 

four quarters filed. 

(c) Standard Repayment amounts, 

schedules, and procedures—(1) 

Repayment amount. The repayment 

amount may not include any amount 

previously approved for installment 

repayment. 

(2) Repayment schedule. The 

maximum number of quarters allowed 

for the standard repayment schedule is 

12 quarters (3 years), except as provided 

in paragraphs (c)(4) and (e) of this 

section. 

(3) Quarterly repayment amounts. (i) 

The quarterly repayment amounts for 

each of the quarters in the repayment 

schedule will be the larger of the 

repayment amount divided by 12 

quarters or the minimum repayment 

amount; 

(ii) The minimum quarterly 

repayment amounts for each of the 

quarters in the repayment schedule is 

0.25 percent of the estimated State share 

of the current annual expenditures for 

Medicaid; 

(iii) The repayment period may be 

less than 12 quarters when the 

minimum repayment amount is 

required. 

(4) Extended schedule. (i) The 

repayment schedule may be extended 

beyond 12 quarterly installments if the 

total repayment amount exceeds 100 

percent of the estimated State share of 

the current annual expenditures; 

(ii) The quarterly repayment amount 

will be 81⁄3 percent of the estimated 

State share of the current annual 

expenditures until fully repaid. 

(5) Repayment process. (i) Repayment 

is accomplished through deposits into 

the State’s Payment Management 

System (PMS) account; 

(ii) A State may choose to make 

payment by Automated Clearing House 

(ACH) direct deposit, by check, or by 

Fedwire transfer. 

(6) Reductions. If the State chooses to 

repay amounts representing higher 

percentages during the early quarters, 

any corresponding reduction in required 

minimum percentages is applied first to 

the last scheduled payment, then to the 

next to the last payment, and so forth as 

necessary. 

(d) Alternate repayment amounts, 

schedules, and procedures for States 

experiencing economic distress 

immediately prior to the repayment 

period—(1) Repayment amount. The 

repayment amount may not include 

amounts previously approved for 

installment repayment if a State initially 

qualifies for the alternate repayment 

schedule at the onset of an installment 

repayment period. 

(2) Qualifying period of economic 

distress. (i) A State will qualify to avail 

itself of the alternate repayment 

schedule if it demonstrates the State is 

experiencing a period of economic 

distress; 

(ii) A period of economic distress is 

one in which the State demonstrates 

distress for at least each of the previous 

6 months, ending the month prior to the 

date of the State’s written request for an 

alternate repayment schedule, as 

determined by a negative percent 

change in the monthly Philadelphia 

Federal Reserve Bank State coincident 

index. 

(3) Repayment schedule. The 

maximum number of quarters allowed 

for the alternate repayment schedule is 

12 quarters (3 years), except as provided 

in paragraph (d)(5) of this section. 

(4) Quarterly repayment amounts. (i) 

The quarterly repayment amounts for 

each of the first 8 quarters in the 

repayment schedule will be the smaller 

of the repayment amount divided by 12 

quarters or the maximum quarterly 

repayment amount; 

(ii) The maximum quarterly 

repayment amounts for each of the first 

8 quarters in the repayment schedule is 

0.25 percent of the annual State share 

determination as defined in paragraph 

(b) of this section; 

(iii) For the remaining 4 quarters, the 

quarterly repayment amount equals the 

remaining balance of the overpayment 

amount divided by the remaining 4 

quarters. 

(5) Extended schedule. (i) For a State 

that initiated its repayment under an 

alternate payment schedule for 

economic distress, the repayment 

schedule may be extended beyond 12 

quarterly installments if the total 

repayment amount exceeds 100 percent 

of the estimated State share of current 

annual expenditures; 

(A) In these circumstances, paragraph 

(d)(3) of this section is followed for 

repayment of the amount equal to 100 

percent of the estimated State share of 

current annual expenditures. 

(B) The remaining amount of the 

repayment is in quarterly amounts equal 

to 81⁄3 percent of the estimated State 

share of current annual expenditures 

until fully repaid. 

(ii) Upon request by the State, the 

repayment schedule may be extended 

beyond 12 quarterly installments if the 

State has qualifying periods of economic 

distress in accordance with paragraph 

(d)(2) of this section during the first 8 

quarters of the alternate repayment 

schedule. 

(A) To qualify for additional quarters, 

the States must demonstrate a period of 

economic distress in accordance with 

paragraph (d)(2) of this section for at 

least 1 month of a quarter during the 

first 8 quarters of the alternate 

repayment schedule. 

(B) For each quarter (of the first 8 

quarters of the alternate payment 

schedule) identified as qualified period 

of economic distress, one quarter will be 


erowe on DSK2VPTVN1PROD with RULES
31510 Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 

added to the remaining 4 quarters of the 

original 12 quarter repayment period. 

(C) The total number of quarters in the 

alternate repayment schedule shall not 

exceed 20 quarters. 

(6) Repayment process. (i) Repayment 

is accomplished through deposits into 

the State’s Payment Management 

System (PMS) account; 

(ii) A State may choose to make 

payment by Automated Clearing House 

(ACH) direct deposit, by check, or by 

Fedwire transfer. 

(7) If the State chooses to repay 

amounts representing higher 

percentages during the early quarters, 

any corresponding reduction in required 

minimum percentages is applied first to 

the last scheduled payment, then to the 

next to the last payment, and so forth as 

necessary. 

(e) Alternate repayment amounts, 

schedules, and procedures for States 

entering into distress during a standard 

repayment schedule—(1) Repayment 

amount. The repayment amount may 

include amounts previously approved 

for installment repayment if a State 

enters into a qualifying period of 

economic distress during an installment 

repayment period. 

(2) Qualifying period of economic 

distress. (i) A State will qualify to avail 

itself of the alternate repayment 

schedule if it demonstrates the State is 

experiencing economic distress; 

(ii) A period of economic distress is 

one in which the State demonstrates 

distress for each of the previous 6 

months, that begins on the date of the 

State’s request for an alternate 

repayment schedule, as determined by a 

negative percent change in the monthly 

Philadelphia Federal Reserve Bank State 

coincident index. 

(3) Repayment schedule. The 

maximum number of quarters allowed 

for the alternate repayment schedule is 

12 quarters (3 years), except as provided 

in paragraph (e)(5) of this section. 

(4) Quarterly repayment amounts. (i) 

The quarterly repayment amounts for 

each of the first 8 quarters in the 

repayment schedule will be the smaller 

of the repayment amount divided by 12 

quarters or the maximum repayment 

amount; 

(ii) The maximum quarterly 

repayment amounts for each of the first 

8 quarters in the repayment schedule is 

0.25 percent of the annual State share 

determination as defined in paragraph 

(b) of this section; 

(iii) For the remaining 4 quarters, the 

quarterly repayment amount equals the 

remaining balance of the overpayment 

amount divided by the remaining 4 

quarters. 

(5) Extended schedule. (i) For a State 

that initiated its repayment under the 

standard payment schedule and later 

experienced periods of economic 

distress and elected an alternate 

repayment schedule, the repayment 

schedule may be extended beyond 12 

quarterly installments if the total 

repayment amount of the remaining 

balance of the standard schedule, 

exceeds 100 percent of the estimated 

State share of the current annual 

expenditures; 

(ii) In these circumstances, paragraph 

(d)(3) of this section is followed for 

repayment of the amount equal to 100 

percent of the estimated State share of 

current annual expenditures; 

(iii) The remaining amount of the 

repayment is in quarterly amounts equal 

to 81⁄3 percent of the estimated State 

share of the current annual expenditures 

until fully repaid. 

(6) Repayment process. (i) Repayment 

is accomplished through deposits into 

the State’s Payment Management 

System (PMS) account; 

(ii) A State may choose to make 

payment by Automated Clearing House 

(ACH) direct deposit, by check, or by 

Fedwire transfer. 

(7) If the State chooses to repay 

amounts representing higher 

percentages during the early quarters, 

any corresponding reduction in required 

minimum percentages is applied first to 

the last scheduled payment, then to the 

next to the last payment, and so forth as 

necessary. 

PART 433—STATE FISCAL 

ADMINISTRATION 

■ 7. The authority citation for part 433 

continues as follows: 

Authority: Sec. 1102 of the Social Security 

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

■ 8. Section 433.38 is amended by 

revising paragraphs (a) introductory 

text, (b)(1), (b)(3), (c), (e)(1)(i),(e)(1)(ii), 

(e)(1)(iii), (e)(1)(iv), and by adding 

paragraphs (e)(1)(v), and (e)(1)(vi) to 

read as follows: 

§ 433.38 Interest charge on disallowed 

claims for FFP. 

(a) Basis and scope. This section is 

based on section 1903(d)(5) of the Act, 

which requires that the Secretary charge 

a State interest on the Federal share of 

claims that have been disallowed but 

have been retained by the State during 

the administrative appeals process 

under section 1116(e) of the Act and the 

Secretary later recovers after the 

administrative appeals process has been 

completed. This section does not apply 

to— 

* * * * * 

(b) * * * 

(1) CMS will charge the State interest 

on FFP when— 

(i) CMS has notified the Medicaid 

agency under § 430.42 of this subpart 

that a State’s claim for FFP is not 

allowable; 

(ii) The agency has requested a 

reconsideration of the disallowance to 

the Administrator under § 430.42 of this 

chapter and has chosen to retain the 

FFP during the administrative 

reconsideration process in accordance 

with paragraph (c)(2) of this section; 

(iii)(A) CMS has made a final 

determination upholding part or all of 

the disallowance; 

(B) The agency has withdrawn its 

request for administrative 

reconsideration on all or part of the 

disallowance; or 

(C) The agency has reversed its 

decision to retain the funds without 

withdrawing its request for 

administrative reconsideration and CMS 

upholds all or part of the disallowance. 

(iv) The agency has appealed the 

disallowance to the Departmental 

Appeals Board under 45 CFR Part 16 

and has chosen to retain the FFP during 

the administrative appeals process in 

accordance with paragraph (c)(2) of this 

section. 

(v)(A)The Board has made a final 

determination upholding part or all of 

the disallowance; 

(B) The agency has withdrawn its 

appeal on all or part of the 

disallowance; or 

(C) The agency has reversed its 

decision to retain the funds without 

withdrawing its appeal and the Board 

upholds all or part of the disallowance. 

* * * * * 

(3) Unless an agency decides to 

withdraw its request for administrative 

reconsideration or appeal on part of the 

disallowance and therefore returns only 

that part of the funds on which it has 

withdrawn its request for administrative 

reconsideration or appeal, any decision 

to retain or return disallowed funds 

must apply to the entire amount in 

dispute. 

* * * * * 

(c) State procedures. (1) If the 

Medicaid agency has requested 

administrative reconsideration to CMS 

or appeal of a disallowance to the Board 

and wishes to retain the disallowed 

funds until CMS or the Board issues a 

final determination, the agency must 

notify the CMS Regional Office in 

writing of its decision to do so. 

(2) The agency must mail its notice to 

the CMS Regional Office within 60 days 

of the date of receipt of the notice of the 

disallowance, as established by the 


erowe on DSK2VPTVN1PROD with RULES
Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 31511 

certified mail receipt accompanying the 

notice. 

(3) If the agency withdraws its 

decision to retain the FFP or its request 

for administrative reconsideration or 

appeal on all or part of the FFP, the 

agency must notify CMS in writing. 

* * * * * 

(e) * * * 

(1) * * * 

(i) On the date of the final 

determination by CMS of the 

administrative reconsideration if the 

State elects not to appeal to the Board, 

or final determination by the Board; 

(ii) On the date CMS receives written 

notice from the State that it is 

withdrawing its request for 

administrative reconsideration and 

elects not to appeal to the Board, or 

withdraws its appeal to the Board on all 

of the disallowed funds; or 

(iii) If the agency withdraws its 

request for administrative 

reconsideration on part of the funds 

on— 

(A) The date CMS receives written 

notice from the agency that it is 

withdrawing its request for 

administrative reconsideration on a 

specified part of the disallowed funds 

for the part on which the agency 

withdraws its request for administrative 

reconsideration; and 

(B) The date of the final determination 

by CMS on the part for which the 

agency pursues its administrative 

reconsideration; or 

(iv) If the agency withdraws its appeal 

on part of the funds, on— 

(A) The date CMS receives written 

notice from the agency that it is 

withdrawing its appeal on a specified 

part of the disallowed funds for the part 

on which the agency withdraws its 

appeal; and 

(B) The date of the final determination 

by the Board on the part for which the 

agency pursues its appeal; or 

(v) If the agency has given CMS 

written notice of its intent to repay by 

installment, in the quarter in which the 

final installment is paid. Interest during 

the repayment of Federal funds by 

installments will be at the Current Value 

of Funds Rate (CVFR); or 

(vi) The date CMS receives written 

notice from the agency that it no longer 

chooses to retain the funds. 

* * * * * 

■ 9. Section 433.300 is amended by 

revising paragraph (b) to read as follows: 

§ 433.300 Basis. 

* * * * * 

(b) Section 1903(d)(2)(C) and (D) of 

the Act, which provides that a State has 

1 year from discovery of an 

overpayment for Medicaid services to 

recover or attempt to recover the 

overpayment from the provider before 

adjustment in the Federal Medicaid 

payment to the State is made; and that 

adjustment will be made at the end of 

the 1-year period, whether or not 

recovery is made, unless the State is 

unable to recover from a provider 

because the overpayment is a debt that 

has been discharged in bankruptcy or is 

otherwise uncollectable. 

* * * * * 

■ 10. Section 433.302 is revised to read 

as follows: 

§ 433.302 Scope of subpart. 

This subpart sets forth the 

requirements and procedures under 

which States have 1 year following 

discovery of overpayments made to 

providers for Medicaid services to 

recover or attempt to recover that 

amount before the States must refund 

the Federal share of these overpayments 

to CMS, with certain exceptions. 

■ 11. Section 433.304 is amended by 

removing the definition of ‘‘Abuse’’ and 

adding the definition of ‘‘Final written 

notice’’ to read as follows: 

§ 433.304 Definitions. 

* * * * * 

Final written notice means that 

written communication, immediately 

preceding the first level of formal 

administrative or judicial proceedings, 

from a Medicaid agency official or other 

State official that notifies the provider of 

the State’s overpayment determination 

and allows the provider to contest that 

determination, or that notifies the State 

Medicaid agency of the filing of a civil 

or criminal action. 

* * * * * 

■ 12. Section 433.312 is amended by 

revising paragraph (a) to read as follows: 

§ 433.312 Basic requirements for refunds. 

(a) Basic rules. (1) Except as provided 

in paragraph (b) of this section, the State 

Medicaid agency has 1 year from the 

date of discovery of an overpayment to 

a provider to recover or seek to recover 

the overpayment before the Federal 

share must be refunded to CMS. 

(2) The State Medicaid agency must 

refund the Federal share of 

overpayments at the end of the 1-year 

period following discovery in 

accordance with the requirements of 

this subpart, whether or not the State 

has recovered the overpayment from the 

provider. 

* * * * * 

■ 13. Section 433.316 is amended by 

revising paragraphs (a), (c) introductory 

text, (d), (f), and (g) to read as follows: 

§ 433.316 When discovery of overpayment 

occurs and its significance. 

(a) General rule. The date on which an 

overpayment is discovered is the 

beginning date of the 1-year period 

allowed for a State to recover or seek to 

recover an overpayment before a refund 

of the Federal share of an overpayment 

must be made to CMS. 

* * * * * 

(c) Overpayments resulting from 

situations other than fraud. An 

overpayment resulting from a situation 

other than fraud is discovered on the 

earliest of—- 

* * * * * 

(d) Overpayments resulting from 

fraud. (1) An overpayment that results 

from fraud is discovered on the date of 

the final written notice (as defined in 

§ 433.304 of this subchapter) of the 

State’s overpayment determination. 

(2) When the State is unable to 

recover a debt which represents an 

overpayment (or any portion thereof) 

resulting from fraud within 1 year of 

discovery because no final 

determination of the amount of the 

overpayment has been made under an 

administrative or judicial process (as 

applicable), including as a result of a 

judgment being under appeal, no 

adjustment shall be made in the Federal 

payment to such State on account of 

such overpayment (or any portion 

thereof) until 30 days after the date on 

which a final judgment (including, if 

applicable, a final determination on an 

appeal) is made. 

(3) The Medicaid agency may treat an 

overpayment made to a Medicaid 

provider as resulting from fraud under 

subsection (d) of this section only if it 

has referred a provider’s case to the 

Medicaid fraud control unit, or 

appropriate law enforcement agency in 

States with no certified Medicaid fraud 

control unit, as required by § 455.15, 

§ 455.21, or § 455.23 of this chapter, and 

the Medicaid fraud control unit or 

appropriate law enforcement agency has 

provided the Medicaid agency with 

written notification of acceptance of the 

case; or if the Medicaid fraud control 

unit or appropriate law enforcement 

agency has filed a civil or criminal 

action against a provider and has 

notified the State Medicaid agency. 

* * * * * 

(f) Effect of changes in overpayment 

amount. Any adjustment in the amount 

of an overpayment during the 1-year 

period following discovery (made in 

accordance with the approved State 

plan, Federal law and regulations 

governing Medicaid, and the appeals 

resolution process specified in State 

administrative policies and procedures) 


erowe on DSK2VPTVN1PROD with RULES
31512 Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 

has the following effect on the 1-year 

recovery period: 

(1) A downward adjustment in the 

amount of an overpayment subject to 

recovery that occurs after discovery 

does not change the original 1-year 

recovery period for the outstanding 

balance. 

(2) An upward adjustment in the 

amount of an overpayment subject to 

recovery that occurs during the 1-year 

period following discovery does not 

change the 1-year recovery period for 

the original overpayment amount. A 

new 1-year period begins for the 

incremental amount only, beginning 

with the date of the State’s written 

notification to the provider regarding 

the upward adjustment. 

(g) Effect of partial collection by State. 

A partial collection of an overpayment 

amount by the State from a provider 

during the 1-year period following 

discovery does not change the 1-year 

recovery period for the balance of the 

original overpayment amount due to 

CMS. 

* * * * * 

■ 14. Section 433.318 is amended by 

revising paragraphs (a)(2), (b) 

introductory text, (c) introductory text, 

(c)(1), (d)(1), and (e), to read as follows: 

§ 433.318 Overpayments involving 

providers who are bankrupt or out of 

business. 

(a) * * * 

(2) The agency must notify the 

provider that an overpayment exists in 

any case involving a bankrupt or out-ofbusiness provider and, if the debt has 

not been determined uncollectable, take 

reasonable actions to recover the 

overpayment during the 1-year recovery 

period in accordance with policies 

prescribed by applicable State law and 

administrative procedures. 

(b) Overpayment debts that the State 

need not refund. Overpayments are 

considered debts that the State is unable 

to recover within the 1-year period 

following discovery if the following 

criteria are met: 

* * * * * 

(c) Bankruptcy. The agency is not 

required to refund to CMS the Federal 

share of an overpayment at the end of 

the 1-year period following discovery, 

if— 

(1) The provider has filed for 

bankruptcy in Federal court at the time 

of discovery of the overpayment or the 

provider files a bankruptcy petition in 

Federal court before the end of the 1- 

year period following discovery; and 

* * * * * 

(d) * * * 

(1) The agency is not required to 

refund to CMS the Federal share of an 

overpayment at the end of the 1-year 

period following discovery if the 

provider is out of business on the date 

of discovery of the overpayment or if the 

provider goes out of business before the 

end of the 

1-year period following discovery. 

* * * * * 

(e) Circumstances requiring refunds. If 

the 1-year recovery period has expired 

before an overpayment is found to be 

uncollectable under the provisions of 

this section, if the State recovers an 

overpayment amount under a courtapproved discharge of bankruptcy, or if 

a bankruptcy petition is denied, the 

agency must refund the Federal share of 

the overpayment in accordance with the 

procedures specified in § 433.320 of this 

subpart. 

■ 15. Section 433.320 is amended by— 

■ A. Revising paragraphs (a)(2), (b)(1), 

(d), (f)(2), (g)(1), and (h)(1). 

■ B. Adding paragraph (a)(4). 

The revisions and addition read as 

follows: 

§ 433.320 Procedures for refunds to CMS. 

(a) * * * 

(2) The agency must credit CMS with 

the Federal share of overpayments 

subject to recovery on the earlier of— 

(i) The Form CMS–64 submission due 

to CMS for the quarter in which the 

State recovers the overpayment from the 

provider; or 

(ii) The Form CMS–64 due to CMS for 

the quarter in which the 1-year period 

following discovery, established in 

accordance with § 433.316, ends. 

* * * * * 

(4) If the State does not refund the 

Federal share of such overpayment as 

indicated in paragraph (a)(2) of this 

section, the State will be liable for 

interest on the amount equal to the 

Federal share of the non-recovered, nonrefunded overpayment amount. Interest 

during this period will be at the Current 

Value of Funds Rate (CVFR), and will 

accrue beginning on the day after the 

end of the 1-year period following 

discovery until the last day of the 

quarter for which the State submits a 

CMS–64 report refunding the Federal 

share of the overpayment. 

(b) * * * 

(1) The State is not required to refund 

the Federal share of an overpayment at 

the end of the 1-year period if the State 

has already reported a collection or 

submitted an expenditure claim reduced 

by a discrete amount to recover the 

overpayment prior to the end of the 

1-year period following discovery. 

* * * * * 

(d) Expiration of 1-year recovery 

period. If an overpayment has not been 

determined uncollectable in accordance 

with the requirements of § 433.318 of 

this subpart at the end of the 1-year 

period following discovery of the 

overpayment, the agency must refund 

the Federal share of the overpayment to 

CMS in accordance with the procedures 

specified in paragraph (a) of this 

section. 

* * * * * 

(f) * * * 

(2) The Form CMS–64 submission for 

the quarter in which the 1-year period 

following discovery of the overpayment 

ends. 

(g) * * * 

(1) If a provider is determined 

bankrupt or out of business under this 

section after the 1-year period following 

discovery of the overpayment ends and 

the State has not been able to make 

complete recovery, the agency may 

reclaim the amount of the Federal share 

of any unrecovered overpayment 

amount previously refunded to CMS. 

CMS allows the reclaim of a refund by 

the agency if the agency submits to CMS 

documentation that it has made 

reasonable efforts to obtain recovery. 

* * * * * 

(h) * * * 

(1) Amounts of overpayments not 

collected during the quarter but 

refunded because of the expiration of 

the 1-year period following discovery; 

* * * * * 

■ 16. Section 433.322 is revised to read 

as follows: 

§ 433.322 Maintenance of Records. 

The Medicaid agency must maintain a 

separate record of all overpayment 

activities for each provider in a manner 

that satisfies the retention and access 

requirements of 45 CFR 92.42. 

PART 447—PAYMENTS FOR 

SERVICES 

■ 17. The authority citation for part 447 

continues as follows: 

Authority: Sec. 1102 of the Social Security 

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

§ 447.272 [Amended] 

■ 18. Section 447.272 is amended by 

removing paragraphs (e) and (f). 

■ 19. Section 447.299 is amended by 

revising paragraph (c)(15) to read as 

follows: 

§ 447.299 Reporting requirements. 

* * * * * 

(c) * * * 

(15) Total uninsured IP/OP 

uncompensated care costs. Total annual 

amount of uncompensated IP/OP care 

for furnishing inpatient hospital and 


erowe on DSK2VPTVN1PROD with RULES
Federal Register / Vol. 77, No. 103 / Tuesday, May 29, 2012 / Rules and Regulations 31513 

outpatient hospital services to 

individuals with no source of third 

party coverage for the hospital services 

they receive. 

(i) The amount should be the result of 

subtracting paragraphs (c)(12) and 

(c)(13), from paragraph (c)(14) of this 

section. 

(ii) The uncompensated care costs of 

providing physician services to the 

uninsured cannot be included in this 

amount. 

(iii) The uninsured uncompensated 

amount also cannot include amounts 

associated with unpaid co-pays or 

deductibles for individuals with third 

party coverage for the inpatient and/or 

outpatient hospital services they receive 

or any other unreimbursed costs 

associated with inpatient and/or 

outpatient hospital services provided to 

individuals with those services in their 

third party coverage benefit package. 

(iv) The uncompensated care costs do 

not include bad debt or payer discounts 

related to services furnished to 

individuals who have health insurance 

or other third party payer. 

* * * * * 

§ 447.321 [Amended] 

■ 20. Section 447.321 is amended by 

removing paragraphs (e) and (f). 

PART 457—ALLOTMENTS AND 

GRANTS TO STATES 

■ 21. The authority citation for part 457 

continues as follows: 

Authority: Sec. 1102 of the Social Security 

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

§ 457.210 [Removed] 

■ 22. Section 457.210 is removed. 

§ 457.212 [Removed] 

■ 23. Section 457.212 is removed. 

§ 457.218 [Removed] 

■ 24. Section 457.218 is removed. 

■ 25. Section 457.628 is amended by 

revising paragraph (a) to read as follows: 

§ 457.628 Other applicable Federal 

regulations. 

* * * * * 

(a) HHS regulations in § 433.312 

through § 433.322 of this chapter 

(related to Overpayments); § 433.38 of 

this chapter (Interest charge on 

disallowed claims of FFP); § 430.40 

through § 430.42 of this chapter 

(Deferral of claims for FFP and 

Disallowance of claims for FFP); 

§ 430.48 of this chapter (Repayment of 

Federal funds by installments); § 433.50 

through § 433.74 of this chapter (sources 

of non-Federal share and Health CareRelated Taxes and Provider Related 

Donations); and § 447.207 of this 

chapter (Retention of Payments) apply 

to State’s CHIP programs in the same 

manner as they apply to State’s 

Medicaid programs. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.778, Medical Assistance 

Program) 

Dated: April 18, 2012. 

Marilyn Tavenner, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: May 8, 2012. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2012–12637 Filed 5–25–12; 8:45 am] 

BILLING CODE 4120–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

45 CFR Parts 155, 156, and 157 

[CMS–9989–CN] 

RIN 0938–AQ67 

Patient Protection and Affordable Care 

Act; Establishment of Exchanges and 

Qualified Health Plans; Exchange 

Standards for Employers; Correction 

AGENCY: Department of Health and 

Human Services. 

ACTION: Final rule; correction. 

SUMMARY: This document corrects 

technical and typographical errors that 

appeared in the final rule, interim final 

rule, published in the Federal Register 

on March 27, 2012, entitled ‘‘Patient 

Protection and Affordable Care Act; 

Establishment of Exchanges and 

Qualified Health Plans; Exchange 

Standards for Employers.’’ 

DATES: Effective Date: These corrections 

are effective on May 29, 2012. 

FOR FURTHER INFORMATION CONTACT: 

Alissa DeBoy, (301) 492–4428. 

SUPPLEMENTARY INFORMATION: 

I. Background 

In FR Doc. 2012–6125 of March 27, 

2012, (77 FR 18310) there were 

technical and typographical errors that 

are identified and corrected in the 

‘‘Correction of Errors’’ section below. 

The provisions in this correction notice 

are effective as if they had been 

included in the document published on 

March 27, 2012. Accordingly, the 

corrections are effective on May 29, 

2012. 

II. Summary of Errors 

On page 18327, in the preamble 

discussion of standards for consumer 

assistance tools, there are errors in 

references to the regulations text. The 

cross references to § 155.200(a) and 

§ 155.200(b) are incorrect, and are being 

corrected to read § 155.205(a) and 

§ 155.205(b), respectively, which are the 

provisions discussing the Exchange call 

center and Web site. 

On page 18331, the preamble explains 

that Exchanges cannot require 

Navigators to have agent and broker 

licenses. However, one sentence implies 

that any licensure standards for 

Navigators would cause Navigators to be 

agents and brokers, which is inaccurate. 

The sentence also incorrectly implies 

that establishing any licensure 

standards would not be allowed, which 

would conflict with § 155.210(c)(1)(iii). 

Therefore, we are adding the word 

‘‘such’’ to the following sentence to refer 

specifically to agent and broker 

licensure. We are also adding the word 

‘‘in,’’ immediately preceding the 

citation, which was accidentally 

omitted before. The revised sentence 

will read as follows: ‘‘Thus, establishing 

such licensure standards for Navigators 

would mean that all Navigators would 

be agents and brokers, and would 

violate the standard set forth in 

§ 155.210(c)(2) of the final rule that at 

least two types of entities must serve as 

Navigators.’’ 

On page 18336, the preamble 

discusses the potential for future 

standards related electronic notices and 

coordination of notices between 

Medicaid, CHIP, and the Exchanges. We 

indicate that future rulemaking will be 

issued for these standards. We are 

correcting these references to state that 

future guidance will be released to 

provide more information on electronic 

notices and notices coordination. 

On page 18341, in preamble 

discussion of privacy and security 

standards, we are correcting two errors. 

First, the definition of personally 

identifiable information in § 155.260(a) 

of the proposed rule published on July 

15, 2011, was not included in the final 

rule in order to align the definition with 

a memorandum released by the Office of 

Management and Budget. In the 

preamble, the cross reference to 

§ 155.260(a), which does not exist in the 

final rule, is replaced with ‘‘as defined 

in the Office of Management and Budget 

Memorandum M–07–16.’’ 

Second, on page 18341, the preamble 

uses the term ‘‘personally identifiable 

health information.’’ The privacy and 

security section of the final rule applies 

to ‘‘personally identifiable information.’’ 

Personally identifiable health 

information is a subset of this term, and 

is not the focus of the rule, as stated in 

the preamble. The word ‘‘health’’ was 


erowe on DSK2VPTVN1PROD with RULES