Federal Register / Vol. 74, No. 124 / Tuesday, June 30, 2009 / Rules and Regulations 31183 

The number of weeks of instructional time offered in the

 program in the fall and spring semesters or trimesters

The number of weeks of instructional time in the program’s academic year

; or In a program using quarters— 

The number of weeks of instructional time offered in the

 program in the fall, winter, and spring quarters

The number of weeks of instructional time in the program’s academic year

; and 

* * * * * 

Dated: June 24, 2009. 

Daniel T. Madzelan, 

Director, Forecasting and Policy Analysis. 

[FR Doc. E9–15369 Filed 6–29–09; 8:45 am] 

BILLING CODE 4000–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 431, 433, 440 and 441 

[CMS–2287–F2; CMS–2213–F2; CMS 2237– 

F] 

RIN 0938–AP75 

Medicaid Program: Rescission of 

School-Based Administration/ 

Transportation Final Rule, Outpatient 

Hospital Services Final Rule, and 

Partial Rescission of Case 

Management Interim Final Rule 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This rule finalizes our 

proposal to rescind the December 28, 

2007 final rule entitled, ‘‘Elimination of 

Reimbursement under Medicaid for 

School Administration Expenditures 

and Costs Related to Transportation of 

School-Age Children Between Home 

and School;’’ the November 7, 2008 

final rule entitled, ‘‘Clarification of 

Outpatient Hospital Facility (Including 

Outpatient Hospital Clinic) Services 

Definition;’’ and certain provisions of 

the December 4, 2007 interim final rule 

entitled, ‘‘Optional State Plan Case 

Management Services.’’ These 

regulations have been the subject of 

Congressional moratoria and have not 

yet been implemented (or, with respect 

to the case management interim final 

rule, have only been partially 

implemented) by CMS. In light of 

concerns raised about the adverse 

effects that could result from these 

regulations, in particular, the potential 

restrictions on services available to 

beneficiaries and the lack of clear 

evidence demonstrating that the 

approaches taken in the regulations are 

warranted, CMS is rescinding the two 

final rules in full, and partially 

rescinding the interim final rule. 

Rescinding these provisions will permit 

further opportunity to determine the 

best approach to further the objectives 

of the Medicaid program in providing 

necessary health benefits coverage to 

needy individuals. 

DATES: Effective Date: These regulations 

are effective on July 1, 2009. 

FOR FURTHER INFORMATION CONTACT: 

Sharon Brown (410) 786–0673 or Judi 

Wallace (410) 786–3197, for issues 

related to the School-Based 

Administration/Transportation final 

rule. 

Jeremy Silanskis (410) 786–1592, for 

issues related to the Outpatient Hospital 

Services final rule. 

Jean Close (410) 786–2804 or Melissa 

Harris (410) 786–3397, for issues related 

to the Case Management interim final 

rule. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Elimination of Reimbursement Under 

Medicaid for School Administration 

Expenditures and Costs Related to 

Transportation of School-Age Children 

Between Home and School 

Under the Medicaid program, Federal 

payment is available for the costs of 

administrative activities as found 

necessary by the Secretary for the 

proper and efficient administration of 

the State plan. On December 28, 2007, 

we published a final rule entitled, 

‘‘Elimination of Reimbursement under 

Medicaid for School Administration 

Expenditures and Costs Related to 

Transportation of School-Age Children 

Between Home and School’’ (hereinafter 

referred to as the School-Based 

Administration/Transportation final 

rule (72 FR 73635)), to eliminate Federal 

Medicaid payment for the costs of 

certain school-based administrative and 

transportation activities based on a 

Secretarial finding that these activities 

are not necessary for the proper and 

efficient administration of the Medicaid 

State plan and are not within the 

definition of the optional transportation 

benefit. Under the final rule, Federal 

Medicaid payments were not available 

for administrative activities performed 

by school employees or contractors, or 

anyone under the control of a public or 

private educational institution, or for 

transportation between home and 

school. Federal financial participation 

(FFP) remained available for covered 

services furnished at or through a school 

that are included in a child’s 

individualized education program (IEP), 

and for transportation from school to a 

provider in the community for a covered 

service. FFP also remained available for 

the costs of school-based Medicaid 

administrative activities conducted by 

employees of the State or local Medicaid 

agency, and for transportation to and 

from a school for children who are not 

yet school age but are receiving covered 

direct medical services at the school. 

The December 28, 2007, School-Based 

Administration/Transportation final 

rule became effective on February 26, 

2008. Subsequent to publication of the 

final rule, section 206 of the Medicare, 

Medicaid, and SCHIP Extension Act of 

2007 (Pub. L. 110–173) imposed a 

moratorium until June 30, 2008, that 

precluded CMS from imposing any 

restrictions contained in the rule that 

are more stringent than those applied as 

of July 1, 2007. Section 7001(a)(2) of the 

Supplemental Appropriations Act of 

2008 (Pub. L. 110–252) extended this 

moratorium until April 1, 2009; and 

section 5003(b) of the American 

Recovery and Reinvestment Act of 2009 

(the Recovery Act) (Pub. L. 111–5) 

further extended the moratorium until 

July 1, 2009. 


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31184 Federal Register / Vol. 74, No. 124 / Tuesday, June 30, 2009 / Rules and Regulations 

B. Clarification of Outpatient Hospital 

Facility (Including Outpatient Hospital 

Clinic) Services Definition 

Outpatient hospital services are a 

required service under Medicaid. On 

November 7, 2008, we published a final 

rule entitled, ‘‘Clarification of 

Outpatient Hospital Facility (Including 

Outpatient Hospital Clinic) Services 

Definition’’ (hereinafter referred to as 

Outpatient Hospital Services final rule), 

to introduce new limitations on which 

treatments could be billed and paid as 

an outpatient hospital service, thereby 

altering the pre-existing definition of 

‘‘outpatient hospital services.’’ The final 

rule became effective on December 8, 

2008. Section 5003(c) of the Recovery 

Act precludes CMS from taking any 

action to implement the final rule with 

respect to services furnished between 

December 8, 2008 and June 30, 2009. 

C. Optional State Plan Case 

Management Services 

On December 4, 2007, we published 

an interim final rule entitled, ‘‘Optional 

State Plan Case Management Services’’ 

(hereinafter referred to as the Case 

Management interim final rule (72 FR 

68077)), that revised current Medicaid 

regulations to incorporate changes made 

by section 6052 of the Deficit Reduction 

Act of 2005 (DRA) (Pub. L. 109–171). In 

addition, we placed new limitations on 

the services and activities that could be 

covered and paid as an optional targeted 

case management (TCM) service or 

optional case management service. 

The interim final rule became 

effective on March 3, 2008. Section 

7001(a)(3)(B)(I) of the Supplemental 

Appropriations Act imposed a partial 

moratorium until April 1, 2009, 

precluding CMS from taking any action 

to impose restrictions on case 

management services that were more 

restrictive than those in effect on 

December 3, 2007. The law contained an 

exception for the portion of the 

regulation as it related directly to 

implementing the definition of case 

management services and targeted case 

management services. That partial 

moratorium was extended by section 

5003(a) of the Recovery Act until July 1, 

2009. 

II. Provisions of the Proposed 

Regulation and Response to Comments 

Since the publication of these final 

regulations, we have received additional 

public input about the adverse effects 

that could result from these regulations. 

In addition, the statutory moratoria 

indicate strong concern in Congress 

about the effects of these regulations. In 

particular, we have become aware that 

the provisions of these rules could 

result in restrictions on services 

available to beneficiaries and there is a 

lack of clear evidence demonstrating 

that the approaches taken in the 

regulations are warranted at this time. 

On May 6, 2009, we published a 

proposed rule (74 FR 21230) in the 

Federal Register to rescind the 

November 7, 2008 Outpatient Hospital 

Services final rule; the December 28, 

2007 School-Based Administration/ 

Transportation final rule; and certain 

provisions of the December 4, 2007 Case 

Management interim final rule. The May 

6, 2009 proposed rule solicited public 

comments on our proposal to rescind 

these rules and to aid our consideration 

of the many complex questions 

surrounding these issues and the need 

for regulation in these areas. 

We received a total of 556 timely 

comments from State officials, school 

districts and consortia, educational 

organizations, child advocacy groups, 

health care organizations, school nurses, 

parents, teachers, school officials, 

providers, and other interested 

individuals. All comments were 

reviewed and analyzed. After 

associating like comments, we placed 

them in categories based on subject 

matter. The commenters were 

overwhelmingly supportive of our 

proposal to rescind the School-Based 

Administration/Transportation final 

rule, the Outpatient Hospital Services 

final rule, and portions of the Case 

Management interim final rule. 

Summaries of the public comments and 

our responses to those comments are set 

forth under the appropriate headings 

below. 

A. Elimination of Reimbursement Under 

Medicaid for School Administration 

Expenditures and Costs Related to 

Transportation of School-Age Children 

Between Home and School 

We proposed to rescind the December 

28, 2007 School-Based Administration/ 

Transportation final rule in its entirety. 

The proposed rescission was based on 

concerns that the adverse consequences 

of the final rule may be more significant 

than previously assumed, and that the 

consideration of alternative approaches 

may be warranted. Since issuing the 

School-Based Administration/ 

Transportation final rule, we became 

aware that the limitations on Federal 

Medicaid funding under the final rule 

could adversely affect State outreach 

and enrollment efforts in schools, and 

therefore limit services for families in 

need. We had previously assumed that, 

since such activities were within the 

scope of the overall mission of the 

schools, the activities would continue 

with funding from other sources 

available for educational activities. 

Conversely, we thought that State 

Medicaid agencies had sufficient 

resources to outsource its employees in 

schools to absorb these functions. In 

summary, we were concerned that the 

assumptions underlying the 

promulgation of the rule may have been 

invalid, and that implementation of the 

rule could adversely affect Medicaid 

beneficiaries. We requested comments 

on this issue. 

Moreover, we were concerned that 

there is insufficient evidence on the 

need for the particular approach taken 

by the final rule. The oversight reviews 

that we cited in issuing the final rule, 

indicating some deficiencies in 

procedures for claiming school-based 

administrative expenditures and 

necessary transportation, were several 

years old and based on data collected 

more than 5 years ago. These claims did 

not reflect CMS guidance issued after 

the review data was collected; nor did 

they reflect the greater administrative 

oversight and technical assistance that 

we have made available more recently. 

Moreover, since CMS has tools at its 

disposal to address inappropriate 

claiming that could arise in any setting, 

we would continue to monitor claims 

and evaluate the efficacy of these tools 

in addressing any claiming issues even 

in the absence of this rule. 

In light of these concerns, we 

proposed to rescind the provisions of 

the final rule while we further review 

the underlying issues and determine 

whether a different approach is 

necessary, and revise the regulations to 

remove the regulatory provisions added 

by the December 28, 2007 final rule. We 

proposed to apply the policies in effect 

before the December 28, 2007 final rule 

became effective, as set forth in the May 

2003 Medicaid School-Based 

Administrative Claiming Guide which 

provides guidance to States on schoolbased administrative claiming and 

school transportation. 

Specifically, we proposed to revise 

§ 431.53(a) and § 440.170(a) to remove 

language indicating that, for purposes of 

Medicaid reimbursement, transportation 

does not include transportation of 

school-age children from home to 

school and back when a child is 

receiving a Medicaid-covered service at 

school. In addition, we proposed to 

remove § 433.20, which provides that 

Federal financial participation (FFP) 

under Medicaid is not available for 

expenditures for administrative 

activities by school employees, school 

contractors, or anyone under the control 

of a public or private educational 

institution. 


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Comment: Many commenters 

applauded CMS’ decision to reconsider 

the merits of the School-Based 

Administration/Transportation final 

rule. Commenters stated that the final 

rule was ‘‘bad public policy’’ and that 

efforts to rescind the rule are an 

acknowledgment of the impact the final 

rule would have had on a myriad of 

stakeholders. 

Response: We appreciate the 

commenters’ support of our proposal to 

rescind the School-Based 

Administration/Transportation final 

rule. After careful consideration of the 

concerns raised by commenters, we 

agree that the final rule should be 

rescinded. 

Comment: The largest number of 

comments in support of rescinding the 

School-Based Administration/ 

Transportation final rule focused on 

funding issues, noting that rescission 

will enable school districts and many 

others to continue receiving the 

desperately needed Federal funds to 

support school-based outreach, 

enrollment assistance, and improved 

access to medical and transportation 

services. Many commenters stated that 

students who receive specialized 

transportation and medical needs 

require schools to expend large sums of 

money and that reducing or eliminating 

Medicaid funds would have had a major 

impact on their ability to serve this 

population. The majority of commenters 

who supported the proposed rescission 

stated that the loss of funds would have 

been devastating to the school district 

and to the students served. The 

commenters also indicated that staff and 

services would have been cut due to 

loss of funding. 

Many commenters cited the economy 

in supporting the proposed rescission. 

‘‘In light of the recent budget problems,’’ 

one commenter stated, ‘‘school districts 

need all the resources they can get.’’ 

Another commenter stated that it is 

especially important during this time of 

dire budget constraints to maintain the 

ability of school staff to provide 

outreach and continue to be able to be 

reimbursed. In addition, the 

commenters believe that this 

reimbursement is a wise investment. 

Response: Since issuing the SchoolBased Administration/Transportation 

final rule, we have become aware that 

limitations on Federal Medicaid funding 

would have adversely affected State 

outreach and enrollment efforts in 

schools, therefore limiting services for 

families in need. We previously 

assumed that, since such activities were 

within the scope of the overall mission 

of the schools, the activities would 

continue with funding from other 

sources available for educational 

activities. 

We agree that rescission of the 

School-Based Administration/ 

Transportation final rule is necessary to 

ensure that Medicaid administrative 

activities in schools, and certain 

transportation services, will continue to 

be provided in schools with Federal 

Medicaid funding. We will continue to 

apply the policies set forth in guidance 

issued prior to that rule, including the 

1999 letter to State Medicaid Directors 

concerning school-based transportation 

services and the 2003 Medicaid SchoolBased Administrative Claiming Guide. 

We will continue to evaluate the 

efficacy of these tools in addressing 

school-based claiming issues and 

collaborate with education and 

Medicaid stakeholder groups to discuss 

ways to improve such tools. 

Comment: Some commenters 

applauded the proposed rescission of 

the School-Based Administration/ 

Transportation final rule because it 

would allow their school district to 

continue to help identify students that 

are in need of proper medical attention, 

as a service to the community, and 

provide needed services to eligible 

students. Other commenters stated that 

Medicaid funding not only leads to an 

increase in the number of children 

receiving health insurance, but also 

increases the number of students who 

receive vital health services. One 

commenter stated that the final rule 

would have only served to reduce 

school efforts to bring health services to 

medically compromised children in 

schools across the nation. 

Response: We agree that rescission of 

the School-Based Administration/ 

Transportation final rule is necessary to 

ensure that Medicaid administrative 

activities in schools, and certain 

transportation services, will continue to 

be provided in schools with Federal 

Medicaid funding. We will continue to 

apply the policies set forth in guidance 

issued prior to that rule, including the 

1999 letter to State Medicaid Directors 

concerning school-based transportation 

services and the 2003 Medicaid SchoolBased Administrative Claiming Guide. 

We will continue to evaluate the 

efficacy of these tools in addressing 

school-based claiming issues and 

collaborate with education and 

Medicaid stakeholder groups to discuss 

ways to improve such tools. 

Comment: Some commenters stated 

that the proposed rescission will make 

it easier for States to fulfill requirements 

under the Early and Periodic Screening, 

Diagnosis and Treatment (EPSDT) 

benefit specified in section 1905(a) of 

Social Security Act (the Act). They 

believe that the School-Based 

Administration/Transportation final 

rule contradicted Medicaid’s 

requirements for EPSDT and CMS’ 

previous guidance. The commenter 

indicated that this mandate requires 

States to inform families about the 

availability of EPSDT services and assist 

them in accessing services. In addition, 

commenters stated that many school 

systems have contracted with States so 

that school nurses and staff may inform 

families about EPSDT. Since schools are 

mandated to provide certain services for 

students with special needs, one 

commenter stated, the funds that 

support these services must not be cut 

off. 

Commenters cited the State Medicaid 

Manual as not only encouraging State 

Medicaid agencies to coordinate EPSDT 

administrative activities with ‘‘school 

health programs of State and local 

health agencies,’’ but also offering FFP 

to cover the costs to public agencies of 

providing direct support to the 

Medicaid agency in administering the 

EPSDT program. 

Response: We agree that rescission of 

the School-Based Administration/ 

Transportation final rule is necessary to 

ensure that Medicaid administrative 

activities, and certain transportation 

services, will continue to be provided in 

schools with Federal Medicaid funding. 

We will instead reinforce the policies 

that preceded the issuance of that final 

rule. 

Comment: Some commenters stated 

that the School-Based Administration/ 

Transportation final rule would have 

had a negative impact on Medicaid 

outreach activities in schools. One 

commenter stated, ‘‘* * * the practical 

effect of the final rule would [have been] 

to eradicate the successful efforts made 

by schools to identify and enroll lowincome children with disabilities into 

Medicaid.’’ A substantial number of 

commenters stated that schools provide 

a unique opportunity to enroll children 

in Medicaid because the bulk of the 

eligible that are uninsured children 

attend schools. Other commenters stated 

that schools serve as a safe haven and 

gateway to health care for some of the 

State’s most vulnerable residents, 

special education students, and children 

in families whose circumstances have 

limited their access to health care.’’ 

Another commenter stated that 

reimbursing schools for Medicaid 

administrative activities and health 

related services is an efficient and 

effective way of ensuring that Federal 

funds are directed to those schools that 

need them the most. Other commenters 

recommended that CMS continue its 

support for school-based Medicaid 


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31186 Federal Register / Vol. 74, No. 124 / Tuesday, June 30, 2009 / Rules and Regulations 

administrative activities because it can 

be an effective way to reach children in 

need of services and to ensure adequate 

medical care for disabled students and 

their families, who are often low-income 

and uninsured. 

Some commenters referenced the May 

2003 CMS Medicaid School-Based 

Administrative Claiming Guide, which 

states that ‘‘* * * the school setting 

provides a unique opportunity to enroll 

* * * and to assist’’ Medicaid eligible 

children ‘‘access the benefits available 

to them’’ as evidence that school-based 

Medicaid administrative claims should 

remain eligible for FFP. 

Response: We appreciate the 

commenters’ support of our proposal to 

rescind the School-Based 

Administration/Transportation final 

rule, and of the policies set out in the 

2003 CMS Medicaid School-Based 

Administrative Claiming Guide. After 

careful consideration of the concerns 

raised by commenters, we agree that the 

final rule should be rescinded, and the 

policies set out in the Medicaid SchoolBased Administrative Claiming Guide, 

will be reinforced. 

Comment: Some commenters stated 

that, in supporting the proposed 

rescission of the School-Based 

Administration/Transportation final 

rule, asking outside agencies to provide 

the services that schools currently 

provide would be more costly to the 

State. Other commenters stated that, 

even if employees of State or local 

Medicaid agencies were given this task, 

it would be far less efficient and 

effective than the current approach to 

outreach and enrollment activities, 

which is valuable specifically because 

staff and employees of schools are 

familiar to and trusted by families. 

Response: We agree that rescission of 

the School-Based Administration/ 

Transportation final rule is necessary to 

ensure that needed Medicaid 

administrative activities and related 

funding will continue in school settings. 

We will reinforce the policies that 

preceded the issuance of that final rule. 

Comment: Some commenters 

supported the proposed rescission of the 

School-Based Administration/ 

Transportation final rule because they 

believe their State’s claiming practices 

have improved considerably since the 

early 2000’s and that the rationale for 

developing the final rule was based on 

old data and old practices. As one 

commenter indicated, the main reason 

cited by CMS was the concern that 

school-based administrative 

expenditures are recognized and 

claimed properly, consistent with 

Federal law. One commenter indicated 

that there have been no published audit 

findings to gauge States’ compliance 

with the 2003 guidelines issued by 

CMS. Medicaid administrative funding 

for all schools should not have been 

eliminated for all schools due to the 

problems of a few schools, they 

concluded. The commenter believes 

CMS should focus its efforts on working 

with States to ensure proper claiming. 

The commenter also stated that CMS 

knows that schools provide critical 

administrative services to children in 

Medicaid. 

Response: We agree that rescission of 

the School-Based Administration/ 

Transportation final rule is necessary to 

ensure that needed Medicaid 

administrative activities and related 

funding will continue. We intend to 

provide additional guidance and greater 

administrative oversight and technical 

assistance. We will also focus on 

program and fiscal integrity to provide 

guidance and direction to avoid 

duplication and improper claiming. 

Comment: Some commenters focused 

on alternative approaches to meet the 

objectives of the School-Based 

Administration/Transportation final 

rule in ensuring valid Medicaid 

claiming procedures. In support of the 

proposed rescission, several 

commenters suggested measures that 

could achieve the objectives set out in 

the final rule, to include: issuance of 

one national standard for claiming 

developed in conjunction with public 

school officials; one national office to 

provide clear, consistent guidance; 

consistency of regulation 

implementation for administrative 

claiming among all regional CMS 

offices; annual national training of State 

officials overseeing school claiming to 

ensure compliance; individual States to 

determine how to process claims and 

audit; and a national committee to study 

the best methods to deliver information 

and services to families in need. 

Other commenters applauded CMS’ 

decision to explore alternatives and use 

existing tools to address inappropriate 

claiming to the extent that any 

questionable practices continue. 

Commenters stated that there was 

insufficient evidence to support the 

approach of the final rule and encourage 

CMS to investigate other, more 

appropriate methods of fulfilling its 

oversight role. These commenters 

believe that CMS can accomplish this 

objective without eliminating critically 

needed Federal funding of school-based 

Medicaid administrative and 

transportation services. The commenters 

stated that CMS has already increased 

its administrative oversight following 

reports of improper claiming. 

Many commenters recommended that 

CMS further promote sound Medicaid 

program operation through clear 

guidance and technical assistance 

specifically addressing the unique 

settings and circumstances in which 

school-based services are delivered. 

Several commenters recommended that 

CMS should simplify claiming for 

school-based administrative and direct 

medical services provided in the school 

setting. The commenters also stated that 

methodologies that allow schools to 

access funds legitimately available for 

Medicaid program services and 

administrative activities will provide 

the most effective means of serving 

beneficiaries while ensuring proper and 

efficient program administration. 

Response: In the proposed rescission, 

we specifically requested alternative 

approaches from the public that would 

allow us to achieve the objectives of the 

School-Based Administration/ 

Transportation final rule without 

eliminating funding for allowable 

school-based expenditures. We agree 

that consideration of alternative 

approaches with stakeholder input and 

transparency is warranted. We further 

agree that we already have tools at our 

disposal to address inappropriate 

claiming that could arise in any setting, 

including schools. We will continue to 

evaluate the efficacy of these tools in 

addressing school-based claiming issues 

and collaborate with education and 

Medicaid stakeholder groups to discuss 

ways to improve such tools. 

B. Clarification of Outpatient Hospital 

Facility (Including Outpatient Hospital 

Clinic) Services Definition 

We proposed to rescind the November 

7, 2008 Outpatient Hospital Services 

final rule in its entirety. While we 

previously had perceived the rule as 

having little impact (because it affected 

only the categorization of covered 

services), we became aware that this 

perception may have been based on 

inaccurate assumptions. In particular, 

we assumed that, to the extent that 

covered services were no longer within 

the outpatient hospital benefit category, 

those services could be easily shifted to 

other benefit categories. However, after 

publication of the final rule, we 

received input indicating that such 

shifts may be difficult in light of the 

complexity of State funding and 

payment methodologies and health care 

service State licensure and certification 

limits. As a result, we became 

concerned that the Outpatient Hospital 

Services final rule could have an 

adverse impact on the availability of 

covered services for beneficiaries. 


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Therefore, we proposed to rescind the 

November 7, 2008 Outpatient Hospital 

Services final rule in its entirety and 

reinstate the regulatory definition of 

‘‘outpatient hospital services’’ at 

§ 440.20 that existed before the final 

rule became effective. Specifically, we 

proposed to remove the provisions at 

§ 440.20(a)(4)(i), which define Medicaid 

outpatient hospital services to include 

those services recognized under the 

Medicare outpatient prospective 

payment system (defined under 

§ 419.2(b)) and those services paid by 

Medicare as an outpatient hospital 

service under an alternate payment 

methodology. We also proposed to 

remove the requirement at 

§ 440.20(a)(4)(ii) that services be 

furnished by an outpatient hospital 

facility or a department of an outpatient 

hospital as described at § 413.65. 

Finally, we proposed to remove the 

provision at § 440.20(a)(4)(iii) that limits 

the definition of outpatient services to 

exclude services that are covered and 

reimbursed under the scope of another 

Medicaid service category under the 

Medicaid State plan. 

In addition, we proposed to withdraw 

§ 447.321 of the proposed rule 

published on September 28, 2007 (72 FR 

55158) upon which we reserved action 

in the final rule. These provisions 

contained regulatory guidance on the 

calculation of the outpatient hospital 

and clinic services upper payment limit 

(UPL). 

Overall, many commenters offered 

general support for the rescission of the 

Clarification of Outpatient Hospital 

Facility (Including Outpatient Hospital 

Clinic) Services Definition as part of 

comments that specifically addressed 

other aspects of Outpatient Hospital 

Services final rule. 

Comment: One commenter explained 

that the Outpatient Hospital Services 

final rule could result in access and 

quality issues for Medicaid physical 

therapy services. The commenter 

reasoned that since outpatient hospital 

services are a mandatory Medicaid 

benefit and physical therapy services 

are optional, outpatient hospital settings 

offer ‘‘a bridge to care for thousands of 

physical therapy patients under their 

State Medicaid program’’ in States that 

offered a limited physical therapy 

benefit. The commenter stated that 

removing physical therapy services from 

the definition of outpatient hospital 

services would cause access and quality 

of care to suffer. 

Response: We understand the 

commenters’ concerns. However, we 

never intended to restrict access to 

physical therapy services and States 

have some flexibility in defining 

optional Medicaid benefits. The 

provisions of the Outpatient Hospital 

Services final rule should not have 

limited the access to and the quality of 

physical therapy services. This action 

rescinding the Outpatient Hospital 

Services final rule will eliminate this 

confusion. 

Comment: Several commenters stated 

that the clarification of Medicaid 

outpatient hospital services failed to 

recognize services that may be unique to 

individuals served under Medicaid, in 

particular services covered in children’s 

hospitals. These commenters stated that 

the Medicare outpatient hospital 

definition is too restrictive to meet the 

needs of those served under the 

Medicaid program. 

Response: The Outpatient Hospital 

Services final rule did not restrict the 

services which States could provide in 

outpatient hospital facilities or to 

individuals covered under the Medicaid 

program. The rule merely clarified 

which of those services could be 

defined as and reimbursed under 

‘‘outpatient hospital services.’’ States 

would have continued to be able to 

reimburse for other services provided in 

the outpatient hospital facility, if those 

services were authorized under the 

State’s approved Medicaid State plan. 

This final rule should alleviate any 

potential concerns with coverage 

limitations by reinstating the regulatory 

definition of ‘‘outpatient hospital 

services’’ at § 440.20 that existed before 

the previous final rule became effective. 

Comment: A number of commenters 

offered concerns that the Outpatient 

Hospital Services final rule placed 

limitations on payment for Medicaid 

services or restricted States’ abilities to 

move services from costly inpatient 

settings to less costly outpatient 

settings. 

Response: The Outpatient Hospital 

Services final rule did not place 

restrictions on States’ abilities to 

reimburse Medicaid providers, set 

payment rates within applicable upper 

payment limits, or provide services in 

outpatient settings. Medicaid outpatient 

hospital services are limited to a 

reasonable estimate of what Medicare 

would pay for Medicaid equivalent 

services in accordance with § 447.321. 

This is an aggregate test for State 

government-owned or operated, nonState government-owned or operated 

and private facilities. The rescission 

does not impact the UPL requirements 

for outpatient hospital or clinic services 

that are currently in the regulations. 

We are fully supportive of States’ 

efforts to provide quality services in 

low-cost settings. This final rule to 

rescind the previous rule should 

eliminate any potential issues with 

shifting services from more costly to less 

costly hospital settings. 

Comment: A few commenters 

supported the proposal to withdraw the 

outpatient hospital and clinic UPL 

requirements that were proposed in our 

Outpatient Hospital Services proposed 

rule (CMS reserved action on these 

provisions as part of Outpatient 

Hospital Services final rule). These 

commenters explained that the 

proposed UPL requirements were overly 

restrictive and excluded several 

Medicaid costs typically paid by States 

through the outpatient hospital benefit. 

Response: CMS appreciates the 

support of these commenters. However, 

we note that we will continue to require 

States to demonstrate that Medicaid 

outpatient hospital and clinic service 

payments, in the aggregate for State 

government-owned or operated, nonState government-owned or operated 

and private facilities, do not exceed a 

reasonable estimate of the amount that 

would be paid for the services furnished 

by the group of facilities under 

Medicare payment principles. To do so, 

States will need to show that they are 

comparing the same scope of covered 

services. 

Comment: Many rural health clinics 

commented that the Outpatient Hospital 

Services final rule would result in 

individuals seeking services through 

emergency departments ‘‘at a higher 

cost to taxpayers.’’ These providers also 

stated that excluding rehabilitative, 

school-based, and practitioner services 

from the outpatient hospital benefit 

would cut funding and services. Many 

of the rural health clinic providers were 

concerned that the final rule would 

eliminate the clinics’ costs from a 

hospital’s disproportionate share 

hospital (DSH) calculations. Several 

other commenters also raised concern 

that the clarification of the outpatient 

hospital services definition would 

reduce hospital DSH costs. 

Response: The Outpatient Hospital 

Services final rule did not require any 

shifting of services to more costly 

settings or cut funding for Medicaid 

covered services. Rather, the Outpatient 

Hospital Services rule was limited to 

requiring States to distinctly define 

outpatient hospital facility services and 

other Medicaid benefits in the Medicaid 

State plan. This final rule should 

eliminate the concerns expressed by the 

clinics and other providers by 

reinstating the regulatory definition of 

‘‘outpatient hospital services’’ at 

§ 440.20 that existed before the final 

rule became effective. 

Comment: One commenter stated 

concerns that the assumptions 


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acknowledged by CMS as inaccurate 

with respect to the Outpatient Hospital 

Services final rule were carried over 

into other Medicaid rulemaking. The 

commenter referenced the December 19, 

2008 DSH reporting and auditing 

requirements final rule (73 FR 77904). 

The commenter did not specify which 

provisions of the rulemaking were 

carried over from the Outpatient 

Hospital Services final rule to the 

Medicaid DSH Auditing and Reporting 

final rule. However, the commenter 

requested that CMS clarify that States 

are not bound by any of the provisions 

or policies reflected in the subject 

outpatient hospital regulations when 

determining the uncompensated costs of 

services for DSH purposes. 

Response: The Outpatient Hospital 

Services final rule addressed different 

policies than those discussed under the 

Medicaid DSH Auditing and Reporting 

final rule. The rescission of the 

Outpatient Hospital Services final rule 

has no impact on the provisions of the 

DSH Auditing and Reporting final rule. 

The DSH rule provides guidance to 

States on those outpatient hospital 

service costs that should be included in 

DSH calculations, which is independent 

from the outpatient hospital service 

clarification provided in the Outpatient 

Hospital Services final rule. For further 

discussion of the DSH Auditing and 

Reporting provisions, we refer readers to 

the December 19, 2008 final rule (73 FR 

77904). Any concerns over the potential 

impact of the Outpatient Hospital 

Services final rule on DSH should be 

alleviated by restoring the regulatory 

definition of ‘‘outpatient hospital 

services’’ at § 440.20 that existed before 

the Outpatient Hospital Services final 

rule became effective. 

Comment: One commenter supports 

the rescission of the Outpatient Hospital 

Services final rule because the 

clarification to the outpatient definition 

resulted in an administrative burden to 

States and offered no real policy 

purpose. 

Response: The proposed rescission 

acknowledged that we initially believed 

the Outpatient Hospital Services final 

rule would result in little administrative 

burden on States based on information 

we received through the State plan 

review process. Based on additional 

information from stakeholders, these 

assumptions appear inaccurate. The 

rescission should alleviate the concerns 

of the commenter by restoring the 

regulatory definition of ‘‘outpatient 

hospital services’’ at § 440.20 that 

existed before the Outpatient Hospital 

Services final rule became effective. 

C. Optional State Plan Case 

Management Services 

We proposed to rescind certain 

provisions of the December 4, 2007 Case 

Management interim final rule. In 

discussions with States about the 

implementation of case management 

requirements, we became concerned 

that certain provisions of the Case 

Management interim final rule may 

unduly restrict beneficiary access to 

needed covered case management 

services, and limit State flexibility in 

determining efficient and effective 

delivery systems for case management 

services. 

In particular, we were concerned that 

the Case Management interim final rule 

may be overly narrow in defining 

individuals transitioning to community 

settings. Specifically, the interim final 

rule contained parameters specifying 

short-term and long-term stays and 

included limits on days of targeted case 

management services associated with 

these different lengths of stay. In 

addition, we were concerned that States’ 

service delivery systems would be 

affected by the limitations in the interim 

final rule on payment methodologies, 

and on the provision of case 

management services by other agencies 

or programs. 

We were also concerned that the Case 

Management interim final rule may 

have unintentionally impacted Federal 

Medicaid requirements with respect to 

administrative claiming, as the 

regulation was not intended to redefine 

the types of activities that are allowable 

as Medicaid administrative case 

management. 

Many of these same issues were raised 

by public commenters, and we share 

their concern that beneficiaries and the 

program as a whole may be adversely 

impacted if these provisions were 

implemented. We believe that these 

same concerns were also reflected in the 

Congressional moratorium on the 

implementation of this rule and the 

administrative requirements and 

limitations included in the interim final 

rule. Therefore, we proposed to rescind 

certain provisions of the Case 

Management interim final rule. 

Specifically, we proposed to remove 

§ 440.169(c) and § 441.18(a)(8)(viii), 

because we were concerned that these 

provisions may be overly restrictive in 

defining ‘‘individuals transitioning to a 

community setting,’’ for whom case 

management services may be covered 

under § 440.169(a). We thought that, 

until we address the comments 

submitted on the Case Management 

interim final rule, States should have 

additional flexibility to provide 

coverage using a reasonable definition 

of this term. We also proposed to 

remove § 441.18(a)(5), which would 

have required case management services 

to be provided on a one-on-one basis to 

eligible individuals by one case 

manager. We believed that this 

provision may unduly limit States’ 

delivery systems for case management 

services. We further proposed to remove 

§ 441.18(a)(8)(vi) because the 

requirement for payment methodologies 

in this provision may be 

administratively burdensome, may 

result in restrictions on available 

providers of case management services, 

and generally may limit beneficiary 

access to services. For similar reasons, 

in § 441.18, we proposed to rescind 

paragraphs (c)(1), (c)(4), and (c)(5) that 

limit the provision of case management 

activities that are an integral component 

of another covered Medicaid service, 

another non-medical program, or an 

administrative activity. On the issues 

addressed by these rescinded 

provisions, we proposed to continue to 

apply the interpretive policies in force 

prior to issuance of the Case 

Management interim final rule. 

We proposed to rescind parts of 

§ 441.18(c)(2) and (c)(3) to remove 

references to programs other than the 

foster care program, because we are 

concerned that these provisions may be 

overly restrictive in defining State 

options for the delivery of case 

management services. We proposed to 

consolidate the remaining provisions of 

these paragraphs as paragraph (c) (see 

74 FR 21237, May 6, 2009). 

We proposed to retain the remaining 

provisions of the Case Management 

interim final rule, and finalize those 

provisions in a future rulemaking. 

Most commenters supported the 

rescissions included in the Case 

Management proposed rule. The 

following section summarizes general 

comments about the rule or issues not 

contained in specific provisions 

included in the proposed rule: 

General Comments 

Comment: Many commenters asked 

CMS to rescind all provisions of the 

Case Management interim final rule. 

Many commenters expressed concern 

that the provisions would significantly 

limit State flexibility in providing case 

management in the most effective and 

efficient manner possible. In addition, 

the commenters stated the provisions 

would pose additional barriers and 

would be more burdensome for 

providers of case management services. 

Several commenters stated the 

restrictions on case management 

included in the interim final rule would 


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inevitably shift the financial 

responsibility for case management to 

school districts across the nation. 

Response: Under section 6052 of the 

DRA, the Secretary of the Department of 

Health and Human Services was 

authorized to promulgate an interim 

final regulation to define case 

management and targeted case 

management services. 

We agree with commenters that 

certain provisions in the interim final 

rule may limit State flexibility in 

structuring case management services. 

Therefore, we proposed to rescind 

certain provisions of the Case 

Management interim final rule which 

are discussed in this document. 

However, we do not have the authority 

to rescind the interim final rule in its 

entirety, as section 6052 of the DRA 

amended the statute directly by defining 

case management services in section 

1915(g) of the Act. We disagree with 

comments contending that the proposed 

or interim final rules regarding 

Medicaid case management services 

would shift the financial responsibility 

for case management to school districts. 

It is important to clarify that Medicaid 

reimbursement remains available for 

targeted case management services and 

other covered services, which are 

included in an eligible child’s 

Individualized Education Program (IEP) 

or Individualized Family Service Plan, 

consistent with section 1903(c) of the 

Act. 

Comment: Many commenters 

indicated the final regulation should not 

apply to Home and Community-Based 

Services (HCBS) waiver programs 

operated under section 1915(c) of the 

Act. Several commenters expressed 

concern that the Case Management 

interim final rule would impede State 

efforts to end the institutional bias in 

Medicaid. The commenters expressed 

that it is contrary to a number of 

programs already implemented by the 

Administration such as the Money 

Follows the Person grant program and 

Aging and Disability Resource Centers 

grants, which provided States with the 

tools necessary to serve frail older 

people in their homes and communities. 

The commenters stated that States 

would have to revamp their existing 

programs in order to adhere to the rules 

set forth in the rule. The commenters 

stated the rule undermines State level 

efforts to streamline and provide more 

efficient and cost-effective targeted case 

management systems and home and 

community-based services through the 

aging services network under Medicaid 

and works against the Supreme Court’s 

decision in Olmstead and the Older 

Americans Act. 

Response: We clarify that the rule 

does not apply to those activities that 

HCBS waiver programs must perform to 

meet the statutory assurances and other 

requirements of section 1915(c) of the 

Act. These functions include—(1) an 

eligibility determination; (2) an 

evaluation of need that includes both an 

initial evaluation and periodic reevaluations; (3) a written plan of care; 

and (4) monitoring of the plan of care to 

assure the health and welfare of each 

individual served through the waiver 

program. However, in those instances in 

which States elect to offer targeted case 

management service as a State Plan 

service under section 1915(g) of the Act 

to persons enrolled in a 1915(c) waiver 

program, the provisions of the interim 

final rule would apply. 

We disagree that clearly defining case 

management and targeted case 

management services impedes State 

efforts to end institutional bias in 

Medicaid. In addition, we disagree that 

the rule is contrary to the Money 

Follows the Person grant program or 

Aging and Disability Resource Center 

initiatives which CMS and the 

Administration on Aging have promoted 

and funded. These initiatives are based 

on partnerships between the Federal 

government, State governments, and 

private organizations to serve and 

provide access to long-term care 

services and supports for older people 

and people with disabilities. These 

initiatives are not solely, or even 

primarily, dependent upon a funding 

stream under the Medicaid case 

management benefit. 

To the extent that the basis for the 

commenters’ concerns is that the rule 

restricts Medicaid beneficiaries to case 

management furnished through 

particular providers, these concerns are 

inconsistent with the Medicaid freedom 

of choice requirements in section 

1902(a)(23) of the Act (and the 

exceptions authorized to ensure 

qualified providers), which provide 

individuals with a choice of qualified, 

Medicaid providers. 

Comment: Several commenters 

submitted comments on provisions of 

the Case Management interim final rule, 

which were not included in the Case 

Management proposed partial rescission 

rule. 

Response: The comment period for 

the December 4, 2007 Case Management 

Services interim final rule closed on 

February 4, 2008. We appreciate the 

submitted comments; however, these 

comments are beyond the scope of the 

Case Management proposed partial 

rescission rule. CMS will respond to 

comments received on the interim final 

rule in a future rulemaking document. 

Comment: We received several 

comments in support of our proposal to 

remove § 440.169(c) and 

§ 441.18(a)(8)(viii), which defined case 

management services for the 

transitioning of individuals from 

medical institutions to the community 

as well as related State plan 

requirements. Commenters indicated 

the provisions would have limited 

services to individuals transitioning to 

community settings and applauded 

CMS for recognizing the provisions 

were overly restrictive in defining 

individuals transitioning to community 

settings. One commenter stated that 

these provisions would place stricter 

limits on the duration of case 

management services when an 

individual is transitioning from a 

hospital or other institution to the 

community. One commenter expressed 

concern that these provisions would 

have imposed unrealistic and 

impractical deadlines on the amount of 

time needed to assist in the safe and 

orderly transition of such individuals. 

One commenter stated these provisions 

were at odds with the Olmstead v. L.C. 

decision. 

One commenter requested 

clarification about transitional Targeted 

Case Management (TCM) services 

provided to residents of an institution 

for mental disease (IMD). 

A commenter stated that prohibiting 

Federal financial participation (FFP) 

until the date individuals leave the 

institution would place a significant 

cost burden on case management 

providers under Money Follows the 

Person grant and waiver programs. 

Response: Public comments on the 

rescission of § 440.169(c) and 

§ 441.18(a)(8)(viii) support our 

contention that the definition of targeted 

case management for the purpose of 

assisting individuals residing in medical 

institutions to community living was 

overly restrictive. We agree with 

commenters that some target groups 

receiving case management services in 

institutions may need a period of longer 

than 60 days of services in order to 

successfully transition to community 

living. We considered the many 

comments that indicated the period for 

facilitating transition is impacted by 

individuals’ changing health status as 

well as behavioral challenges, which 

may delay or prevent transition into the 

community. 

Our rescissions provide States with 

the flexibility to determine the duration 

of this service, up to 180 consecutive 

days, to respond to the complexity of 

the needs and the current capacities of 

the supports needed to successfully 

transition individuals to the 


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community. Guidance from the July 25, 

2000 State Medicaid Directors Letter, 

Olmstead Update No. 3, will continue to 

provide the parameters under which 

States may receive reimbursement for 

case management services for the 

purpose of transitioning from medical 

institutions to the community. 

Specifically, TCM, as defined in section 

1915(g) of the Act, may be furnished as 

a service to institutionalized persons 

who are about to leave the institution in 

order to facilitate their transition to 

community services and enable them to 

gain access to needed medical, social, 

educational and other services in the 

community. TCM may be furnished 

during the last 180 consecutive days of 

a Medicaid eligible person’s 

institutional stay for the purpose of 

community transition. States may 

specify a shorter time period or other 

conditions under which targeted case 

management may be provided. FFP is 

not available for any Medicaid service, 

including targeted case management 

services, provided to persons who are 

receiving services in an institution for 

mental disease (IMD), except for 

services provided to elderly individuals 

and children under the age of 21 who 

are receiving inpatient psychiatric 

services. 

Comment: One commenter supported 

our proposal to remove § 441.18(a)(4), 

which required that the State’s plan 

provide that case management services 

will not duplicate payments made to 

public agencies or private entities under 

the State plan and other program 

authorities, for the same purpose. (We 

note that this provision was included 

among the provisions to be rescinded in 

the Case Management proposed rule’s 

regulation text under Part 441.18; 

however, the proposed rule’s preamble 

did not discuss this provision.) 

Response: We acknowledge that this 

provision was included in the proposed 

rule’s regulation text in error. We are 

retaining § 441.18(a)(4). While we 

believe that States must have flexibility 

in establishing Medicaid programs that 

best meet their unique circumstances as 

well as those of Medicaid participants, 

we are also concerned that consistent 

guidance has not been available 

regarding the circumstances under 

which FFP would be available. The 

requirement that FFP would not be 

available for duplicate payments to 

public or private entities for the same 

purpose arose from the conference 

report of the Consolidated Omnibus 

Budget Reconciliation Act of 1985 

which accompanied the original 

authorization of case management under 

section 1915(g) of the Act. 

Subsequently, this guidance was 

reiterated in the State Medicaid Manual 

(SMM) at section 4302.2(F). 

Comment: One commenter stated that 

CMS needs to make it clear to State 

Medicaid agencies that this rule does 

not provide a basis for States requiring 

a Federally Qualified Health Center 

(FQHC) to use its section 330 grant 

funds to cover any portion of case 

management services provided by the 

health center to its patients. The 

commenter stated that such a 

requirement would be inconsistent with 

the long standing recognition on the 

part of the Congress and the Department 

of Health and Human Services (HHS) 

that Medicaid and Medicare are first 

payers for Medicaid and Medicare 

covered services provided to Medicaid 

and Medicare patients of a health 

center. 

Response: Federally Qualified Health 

Centers (FQHCs) will continue to be 

reimbursed in accordance with section 

1902(bb) of the Act, under which States 

reimburse FQHCs through either a 

prospective payment system or an 

alternative reimbursement methodology. 

The Case Management proposed rule 

would not have an impact on FQHC 

reimbursement methodologies or grants 

received under section 330 of the Public 

Health Service Act. 

Comment: We received many 

comments in support of our proposal to 

remove § 441.18(a)(5), which would 

require case management services to be 

provided on a one-to-one basis to 

eligible individuals by one case 

manager. The commenters expressed 

concern that the provision would limit 

the States’ flexibility by prohibiting a 

State from providing a child with more 

than one case manager even when the 

complexity of the child’s condition 

demands the expertise of more than one 

program. The commenters recognized 

the importance of limiting the number 

of case managers that may be involved; 

however, some individuals have 

multiple and complex needs that 

intersect with several service delivery 

systems of care. One commenter 

suggested States should be required to 

provide assurances in their State plans 

that case management will not be 

duplicative and to indicate a 

methodology that ensures that 

duplication does not occur. 

Response: We agree with the 

commenters and have removed 

§ 441.18(a)(5). Even though case 

management and targeted case 

management services are 

comprehensive services, we believe that 

more than one case manager may be 

responsible and accountable for 

facilitating access to needed services. In 

rescinding this provision, we recognize 

that case managers may need to draw on 

other practitioners with special 

expertise, and may also tap the 

resources of a larger organization for 

support and overhead. In addition, if 

case managers were on leave or 

vacation, others could be assigned as 

substitutes to facilitate continuity of 

care and services. In addition, we 

recognize that case managers may need 

to rely on other practitioners to provide 

support for particular tasks. That is, 

reimbursement would be available for 

services other than case management, 

including direct services provided to the 

individual, that may contribute to the 

case management process, such as 

assessments furnished under the benefit 

for physicians’ services or 

psychologists’ services under the 

rehabilitative services benefit. 

By removing the one case manager 

provision, we recognize the advantages 

of a team approach to case management 

services. For example, a lead case 

manager could coordinate resources and 

expertise from providers of medical, 

education, social, or other services for 

the benefit of the individual in 

developing a comprehensive plan of 

care and facilitating access to services. 

To facilitate this service model, States 

may set differential rates to reflect case 

or task complexity that would ensure 

sufficient payment to reflect the costs 

that case managers may incur in 

consulting with other practitioners. 

States should ensure that differential 

payment methodologies are reflected in 

the State’s Medicaid plan. 

Comment: We received a few 

comments in support of our proposal to 

remove § 441.18(a)(6), which prohibited 

providers of case management services 

from exercising the State Medicaid 

agency’s authority to authorize or deny 

the provision of other services under the 

plan. (We note that this provision was 

included among the provisions to be 

rescinded as described in the Case 

Management proposed rule’s preamble; 

however, this provision was not listed 

among those to be rescinded in the 

proposed rule’s regulation text under 

§ 441.18.) The commenters stated this 

provision is administratively 

burdensome and may limit beneficiary 

access to services. One commenter 

indicated it should be left to the States 

to delegate the agency’s authority to 

authorize or deny certain services to a 

case manager who is most familiar with 

the individual’s needs. 

Response: We acknowledge that this 

provision was included, in error, in the 

Case Management proposed rule 

preamble. We disagree with comments 

that this provision is administratively 

burdensome and have retained this 


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provision to clarify that the State 

Medicaid agency authorizes or denies 

services. The provision would not 

require the State Medicaid agency to 

review each individual’s care plan. 

Operating agencies or other entities 

such as counties may approve service 

plans as part of day-to-day operations. 

However, the Medicaid agency, at a 

minimum, must review at least a sample 

of care plans retrospectively or employ 

other methods to ensure that plans have 

been developed in accordance with 

applicable policies and procedures and 

that the plans ensure the health and 

welfare of participants. This oversight 

activity is a critical element of the 

Medicaid agency’s responsibility. 

Furthermore, the function of prior 

authorization requires the judgment of 

the Medicaid agency and may not be 

delegated to anyone other than a 

Medicaid agency employee. Prior 

authorization is a legitimate function of 

the State Medicaid agency, which is 

performed as an appropriate component 

of the administration of the State plan. 

Comment: We received many 

comments in support of our proposal to 

remove § 441.18(a)(8)(vi) concerning the 

payment methodology for case 

management services. This provision 

would have required a payment 

methodology under which case 

management providers would be paid at 

rates calculated using a unit of service 

that would not exceed 15 minutes. One 

commenter recommended that each 

State be allowed to design its own 

reimbursement methodology, rather 

than having one mandated. One 

commenter expressed concern that the 

15 minute unit requirement would be 

seen as the minimum standard of 

providing the service. Many 

commenters stated this provision was 

administratively burdensome and may 

limit beneficiary access to services. One 

commenter stated the 15 minute unit 

requirement may have resulted in 

additional costs for the State due to 

increased staffing needs, increased 

payments for case management 

activities, fewer controls, the need to 

restructure eligibility and service 

authorization and significant changes to 

information technology systems. A few 

commenters recommended CMS 

continue to allow flexibility in 

reimbursement methodologies. The 

commenters indicated that per diem, 

daily, weekly or monthly rates should 

be allowed as well as fifteen minute 

units. 

A few commenters expressed concern 

that the proposed rule did not address 

the prohibition on payment 

methodologies that bill under a 

‘‘bundled’’ rate. The commenters stated 

the continuation of this prohibition 

could lead to fragmentation in State 

systems, multiple providers duplicating 

activities, and decreased access to home 

and community based services through 

a single point of entry system. One 

commenter expressed concern that the 

15 minute unit would have required 

extensive cost analysis with 

accompanying time studies in order to 

validate rates. 

Response: We agree with commenters 

that the payment methodologies 

included in the Case Management 

interim final rule may be 

administratively burdensome and overly 

restrict service models employed by 

States, and therefore we are rescinding 

this provision. We believe States should 

have the flexibility to develop payment 

methodologies other than 15 minute 

units. By removing this provision, we 

are permitting billing units of 15 or 

fewer minutes, as well as hourly, daily 

and weekly units; however, States must 

continue to demonstrate the economy 

and efficiency of all billing units and 

rates. This policy is based on section 

1902(a)(30)(A) of the Act, which 

requires that States have methods and 

procedures to assure that payments are 

consistent with efficiency, economy, 

and quality of care. 

Specifically, States will be required to 

demonstrate the development of each of 

the billing unit rates based on identified 

cost elements, including the salaries of 

the professionals providing the service, 

the percentage of time case managers 

spend on case management activities, 

substantiated overhead or indirect costs 

and the methodology used to allocate 

those costs to Medicaid. States may not 

always have access to commercial 

provider costs, and in such 

circumstances, States will be permitted 

to provide evidence that rates are 

market-based. Evidence may include the 

demonstration of commercial rates 

charged for case management-like 

services in the State or other 

demonstrations of rates for like services 

in the local health care market. CMS 

does not permit the use of fee-forservice rates paid to providers on a 

monthly basis. States seeking to use 

monthly rates are to meet the managed 

care requirements of 42 CFR part 438. 

This rule does not address the issue 

of ‘‘bundled’’ payments. CMS will 

continue to work with States on an 

individual basis to establish an 

acceptable reimbursement methodology 

for TCM services. 

Comment: We received a few 

comments specifically supporting our 

proposal to remove § 441.18(c)(1), 

which stated that case management does 

not include and FFP is not available for 

expenditures for services defined in 

§ 440.169 when case management 

activities are an integral component of 

another covered Medicaid service. 

Another commenter requested 

clarification that case management 

activities provided or arranged by a 

provider in a Primary Care Case 

Management (PCCM) program are 

allowable. 

Response: We agree with the 

comments and have removed this 

provision. We will continue to apply 

existing interpretive policies regarding 

reimbursement for case management 

activities that are a component of 

another covered Medicaid service. 

Existing policies are summarized in the 

State Medicaid Manual at section 

4302.A.1. and 4302.B. To include those 

activities as a separate benefit would 

result in duplicate coverage and 

payment. This activity would not be 

consistent with effective and efficient 

operation of the program. 

To clarify, the rule does not apply to 

Primary Care Case Management (PCCM) 

services. PCCM services remain 

unchanged and are defined in § 440.168 

of the Medicaid regulation. 

Comment: We received several 

comments specifically supporting or 

disagreeing with our proposal to rescind 

parts of § 441.18(c)(2) and § 441.18(c)(3) 

and consolidate the remaining 

provisions of these paragraphs as 

paragraph (c). These provisions stated 

that case management does not include 

and FFP is not available for activities 

which constitute the direct delivery of 

underlying medical, educational, social, 

or other services to which an eligible 

individual has been referred, as well as 

activities integral to the administration 

of foster care programs, such as those 

described in proposed § 441.18(c)(1) 

through (c)(8). The commenters 

supporting the rescission of the 

provisions stated that the provisions 

would force States to fragment services 

provided to children in foster care, a 

situation that is contrary to the purpose 

of the case management benefit. One 

commenter did not support the 

rescission of 441.18(c)(3). The 

commenter stated case management is 

done appropriately when it is kept 

separately from the provision of direct 

services. 

Several commenters supported the 

creation of the new paragraph 441.18(c). 

In addition, one commenter suggested 

the rescission of the ‘‘making placement 

arrangements’’ provision, found in 

proposed § 441.18(c)(8), because 

including the provision in the list of 

activities for which reimbursement 

under Medicaid would not be available 

would be overly broad and restrictive. 


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Response: We agree with commenters 

that the provisions of § 441.18(c)(2) and 

§ 441.18(c)(3) in the interim final rule 

may be overly restrictive. By removing 

these provisions and revising the text of 

paragraph (c) under § 441.18, we are 

clarifying that case management does 

not include, and FFP is not available in 

expenditures for services defined in 

§ 440.169 when the case management 

activities constitute the direct delivery 

of underlying medical, education, 

social, or other services to which an 

eligible individual has been referred, 

including, for foster care programs, 

services such as, but not limited to, 

activities integral to the administration 

of the foster care program, such as those 

described in proposed § 441.18(c)(1) 

through (8). 

We disagree with the commenter’s 

characterization of the ‘‘making 

placement arrangements’’ provision of 

§ 441.18(c)(8) as overly broad and 

restrictive, and are retaining this 

provision on the list of activities for 

which FFP is not available. 

Comment: We received many 

comments in support of our proposal to 

remove § 441.18(c)(4), which stated that 

case management does not include, and 

FFP is not available in expenditures for 

services defined in § 440.169 when the 

activities for which an individual may 

be eligible, are integral to the 

administration of another non-medical 

program. Many commenters stated the 

provision would contradict the 

Medicaid statute and other laws 

impacting children with disabilities. 

Additionally, the commenters expressed 

concern that the ‘‘integral component’’ 

test would create a new parallel third 

party liability standard. The 

commenters also expressed concern that 

this provision would deny the rights 

guaranteed to children with disabilities 

in the Individuals with Disabilities 

Education Act and section 504 of the 

Rehabilitation Act of 1973. One 

commenter expressed concern that the 

provision would shift significant costs 

onto the child welfare and foster care 

systems to continue to provide TCM 

services. 

One commenter questioned the 

availability of FFP for TCM services 

provided by State child welfare workers 

to children in the foster care program. 

Several commenters indicated that the 

provision in the interim final rule 

prohibiting child welfare agencies as 

case managers went beyond the 

language in the DRA. 

Another commenter questioned the 

availability of Medicaid reimbursement 

for educational services under section 

504 of the Rehabilitation Act of 1973, 

which requires school districts to 

provide appropriate educational 

services to students with disabilities. 

Response: We agree with commenters 

that § 441.18(c)(4) may have resulted in 

compromising Medicaid beneficiaries’ 

eligibility for medically necessary 

services under the State plan, including 

medically necessary case management 

(and targeted case management) services 

that are not used to administer other 

programs. Therefore, we are removing 

this provision from the final rule. In 

doing so, we clarify that FFP will be 

available under the Medicaid program 

for medically necessary services. 

When activities constitute the 

administration of non-medical programs 

or are authorized or funded by such 

programs, reimbursement under 

Medicaid is not also available, because 

it supplants or duplicates the funding of 

these programs. The claiming, under 

Medicaid, of the administration for nonmedical programs compromises the 

integrity of the Medicaid program and is 

not consistent with the overall direction 

of section 6052 of the DRA and current 

policy. Current policy as expressed in 

section 4302.2 of the State Medicaid 

Manual indicates that payment for case 

management services under section 

1915(g) of the Act must not duplicate 

payments made to public agencies or 

private entities under other program 

authorities for this same purpose. 

In response to the comment 

questioning the availability of Medicaid 

reimbursement for educational services 

under section 504 of the Rehabilitation 

Act of 1973, we note that these 

educational services are designed to 

meet the individual needs of such 

students to the same extent as the needs 

of students without disabilities. That is, 

such educational services provide an 

equal opportunity for students with 

disabilities to participate in or benefit 

from education aids, benefits, or 

services. These educational services are 

not medical assistance, nor do they meet 

the definition of Medicaid 

administration; therefore, FFP would 

not be available under Medicaid. 

We disagree with commenters that 

this provision would deny the rights 

guaranteed to children with disabilities 

under the Individuals with Disabilities 

Education Act (IDEA). While Medicaid 

reimbursement would not be available 

for the administration of non-medical 

programs including IDEA administrative 

functions, reimbursement would 

continue to be available for covered 

Medicaid services furnished to a 

Medicaid eligible child and included in 

the child’s IEP. Specifically, section 

1903(a) of the Act states that payment 

for Medical assistance would not be 

restricted for covered Medicaid services 

furnished to a child with a disability 

because such services are included in 

the child’s IEP or Individual Family 

Service Plan (IFSP). States may choose 

to include Medicaid-covered services 

provided in schools, such as Medicaid 

case management or targeted case 

management services, in their State 

plans, which are provided by schoolbased providers qualified to provide the 

services. 

In response to the comment regarding 

whether FFP would be available for 

TCM services provided by State child 

welfare workers to children in foster 

care, we clarify that the activities of 

child welfare programs are separate and 

apart from the Medicaid program. 

Medicaid case management services 

must not be used to fund the services of 

child welfare programs. Children with 

medical needs who also receive child 

welfare services qualify for Medicaid 

targeted case management services 

when relevant criteria are met. 

Specifically, such services must meet 

the definition of Medicaid case 

management services, and must be 

provided according to a Medicaid State 

plan which assures participant 

protections are in place, and that 

participants have a choice of qualified 

Medicaid providers. We note that 

section 1915(g)(1) of the Act allows an 

individual’s choice of provider to be 

limited for targeted groups consisting of 

individuals with developmental 

disabilities or chronic mental illness. 

Comment: We received one comment 

that specifically supported our decision 

to remove § 441.18(c)(5), which 

specified that activities that meet the 

definition of case management services 

in § 440.169 and under the approved 

State plan cannot be claimed as 

administrative activities under 

§ 433.15(b). 

Response: We agree with the 

comment and are removing 

§ 441.18(c)(5) from the final rule. By 

removing this provision, we are 

clarifying that nothing in this regulation 

impacts Federal Medicaid requirements 

with respect to administrative claiming, 

nor does this regulation redefine the 

types of activities that are allowable as 

Medicaid administration. 

We will continue to apply the 

interpretive policies and statutory 

provisions in force before the issuance 

of the interim final rule. Specifically, 

section 1903(a)(7) of the Act and the 

implementing regulation at § 430.1 and 

§ 431.15 state that for the cost of any 

activities to be reimbursable under 

Medicaid as administration, they must 

be ‘‘found necessary by the Secretary for 

the proper and efficient administration 

of the plan’’ (referring to the Medicaid 


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State plan). Allowable administrative 

activities under Medicaid are sometimes 

referred to, by States and others, as 

‘‘administrative case management’’ 

(State Medicaid Manual section 4302 

A.2. and State Medicaid Director Letter, 

July 25, 2000, Olmstead Update Number 

3). Some examples of allowable 

administrative activities include 

Medicaid eligibility determinations and 

re-determinations; Medicaid intake 

processing; Medicaid preadmission 

screening for inpatient care; prior 

authorization for Medicaid services; 

utilization review; Medicaid outreach; 

training; transportation; and referral 

activities. These examples are not meant 

to be all-inclusive, and we may make 

determinations regarding whether these 

or other activities are necessary for the 

proper and efficient administration of 

the State plan. 

As reflected in prior guidance (State 

Medicaid Director Letter, December 20, 

1994), a State may not claim costs as 

administration if the activities are an 

integral part or extension of a direct 

medical service. In addition, States may 

not claim as administrative activities the 

costs related to general public health 

initiatives, overhead costs, or operating 

costs of an agency whose purpose is 

other than the administration of the 

Medicaid program. Activities directed 

toward services not included under the 

Medicaid program, although these 

services may be valuable to Medicaid 

beneficiaries, are not necessary for the 

administration of the Medicaid program 

and therefore, are not allowable 

administrative costs. In addition, with 

regard to any allowable administrative 

claims, payment may only be made for 

the percentage of time spent that is 

actually attributable to Medicaid eligible 

individuals. 

Payments for allowable Medicaid 

administrative activities must not 

duplicate payments that have been, or 

should have been, included as part of a 

direct medical service, capitation rate, 

or through another State or Federal 

program. It is the State’s responsibility 

to ensure that there is no duplication of 

cost in a claim prior to submitting the 

claim to CMS. 

The allocation methodology for costs 

claimed for the proper and efficient 

administration of the State plan must be 

specified in the State’s approved public 

assistance cost allocation plan in 

accordance with subpart E of 45 CFR 

part 95 and ASMB C–10 (that is, the 

HHS Implementation Guide for A–87). 

III. Provisions of the Final Regulations 

For the most part, this final rule 

incorporates the provisions of the 

proposed rules for rescission. Two 

provisions of the final rule differ from 

the proposed rule: 

We are retaining § 441.18(a)(6) under 

case management regulations. This 

provision was included among the 

provisions described in the proposed 

rule’s preamble to be rescinded. 

However, this provision was not listed 

among those to be rescinded in the 

proposed rule’s regulation text under 

§ 441.18. Section 441.18(a)(6) would 

prohibit providers of case management 

services from exercising the State 

Medicaid agency’s authority to 

authorize or deny the provision of other 

services under the State plan. Therefore, 

we are retaining this provision as it 

would clarify that the function of prior 

authorization requires the judgment of 

the Medicaid agency and may not be 

delegated to anyone other than a 

Medicaid agency employee. Prior 

authorization is a legitimate function of 

the State Medicaid agency, which is 

performed as an appropriate component 

of the administration of the State plan. 

If the provision were rescinded, case 

managers would have the authority to 

authorize or deny services that could 

serve to restrict participant protections 

and rights that are afforded through the 

rules governing the fair hearings process 

under § 431.200. Participants should be 

free to accept or reject the advice of a 

provider of case management services. 

Furthermore, case management services 

are designed to assist eligible 

individuals to access needed services 

rather than limit this access. 

We maintain that the reference to 

§ 441.18(a)(6) in the preamble was a 

drafting error. We acknowledge that 

error and clarify that CMS intends to 

retain this provision. It states that 

although a Medicaid agency may place 

great weight on the informed 

recommendation of a case manager, it 

must not rely solely on case 

management recommendations in 

making decisions about the medical 

necessity of other Medicaid services that 

the individual may receive. 

Retaining this provision clarifies that 

the State Medicaid agency authorizes or 

denies services. The provision would 

not require the State Medicaid agency to 

review each individual’s care plan. 

Operating agencies or other entities 

such as counties, may approve service 

plans as part of day-to-day operations, 

and the Medicaid agency, at a 

minimum, must review at least a sample 

of care plans retrospectively or employ 

other methods to ensure that plans have 

been developed in accordance with 

applicable policies and procedures and 

the plans ensure the health and welfare 

of participants. This oversight activity is 

a critical element of the Medicaid 

agency’s responsibility. 

The second provision of the final rule 

that differs from the proposed rule 

concerns § 441.18(a)(4), which required 

that a State’s plan provide that case 

management services will not duplicate 

payments made to public agencies or 

private entities under the State plan and 

other program authorities, for the same 

purpose. This provision was included 

among the provisions to be rescinded in 

the proposed rule’s regulation text 

under § 441.18. (We note that the 

proposed rule preamble did not discuss 

this provision.) 

CMS acknowledges that § 441.18(a)(4) 

was included in the proposed rule 

regulation text in error. We are retaining 

this section. While we believe that 

States must have flexibility in 

establishing Medicaid programs that 

best meet their unique circumstances as 

well as those of Medicaid participants, 

we are also concerned that consistent 

guidance has not been available 

regarding the circumstances under 

which FFP would be available. The 

requirement that FFP would not be 

available for duplicate payments to 

public or private entities for the same 

purpose arose from the conference 

report of the Consolidated Omnibus 

Budget Reconciliation Act of 1985, 

which accompanied the original 

authorization of case management under 

section 1915(g) of the Act. 

Subsequently, this guidance was 

reiterated in the State Medicaid Manual 

(SMM) at § 4302.2(F). 

IV. Waiver of Delay in Effective Date 

We ordinarily provide a 30-day delay 

in the effective date of the provisions of 

a notice in accordance with section 

553(d) of the Administrative Procedures 

Act (APA), at 5 U.S.C. 553(d). We can 

waive the 30-day delay in effective date, 

however, if the Secretary finds, for good 

cause, that it is impracticable, 

unnecessary, or contrary to the public 

interest, and incorporates a statement of 

the finding and the reasons in the 

notice. 

We find there is good cause to waive 

the delay in the effective date of this 

issuance because we find that, since the 

rescinded rules have been subject to 

Congressional moratoria and are not 

currently being implemented, it would 

be contrary to the public interest to 

implement them briefly and then 

change them back. Such sudden shortterm changes would result in public 

confusion and administrative chaos. 

Therefore, under 5 U.S.C. 553(b)(3)(B), 

for good cause, we waive notice and 

comment procedures. 


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V. Collection of Information 

Requirements 

This document does not impose 

information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995. 

VI. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impact of this 

final rule as required by Executive 

Order 12866, the Congressional Review 

Act, the Regulatory Flexibility Act 

(RFA), section 1102(b) of the Social 

Security Act, the Unfunded Mandates 

Reform Act of 1995 (Pub. L. 104–4), and 

Executive Order 13132 on Federalism. 

Executive Order 12866 (as amended) 

directs agencies to assess all costs and 

benefits of all 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). 

One of the three rules we proposed to 

rescind was estimated to save the 

Federal government, by reducing its 

financial participation in the Medicaid 

program, amounts in excess of this 

threshold, with corresponding increases 

in costs to States (or in some cases to 

local entities or to other Federal 

programs) that would essentially offset 

these savings. That is, the primary 

economic effect predicted under this 

rule was to change the sources of 

‘‘transfer payments’’ among government 

entities rather than the levels of actual 

services delivered. For example, the RIA 

for the School-Based Administration/ 

Transportation final rule regarding 

Medicaid reimbursement for school 

administration and transportation of 

school-aged children assumed that 

localities would continue to provide 

such transportation even though one 

source of funding was reduced. 

Rescission of these rules would simply 

restore the status quo ante. That is, the 

Medicaid program would not gain these 

savings and other Federal, State, or local 

programs would not lose the Medicaid 

funding. 

We acknowledge that many 

commenters were concerned that these 

three rules would have additional and 

substantial adverse effects on service 

provision and that the conclusions of 

the original RIAs did not reflect on this 

point. As explained earlier in this 

preamble, we share some of those 

concerns.) Except for portions of the 

Case Management interim final rule, 

these rules have not yet taken ‘‘real 

world’’ effect because of the 

Congressional moratoria on 

enforcement. Accordingly, we believe 

that the proposed rescissions would 

have no economic effect, assuming that 

the situation before July 1, 2009 is taken 

as the ‘‘counterfactual’’ case. 

In the alternative, it might be argued 

that the appropriate counterfactual is 

that rescinding these rules would create 

‘‘economically significant’’ benefits and 

costs of the same magnitude but exactly 

the opposite of those analyzed in the 

original RIAs. For example, the SchoolBased Administration/Transportation 

final rule regarding school 

administration expenditures and costs 

related to transportation was estimated 

to reduce Federal Medicaid outlays by 

$635 million in FY 2009 and by a total 

of $3.6 billion over the first 5 years (FY 

2009 through 2013). The proposed 

rescission would eliminate these 

Federal savings with a corresponding 

offset in State, local, and Federal 

funding increases that would otherwise 

be needed to maintain existing services. 

In the current economic climate, and 

with the drastic budgetary reductions 

being made in most States, the 

assumption of an essentially offsetting 

change in spending responsibilities that 

leaves service provision unchanged is 

completely unrealistic. However, 

because these rules were proposed for 

rescission without ever having been 

enforced, no purpose would be served 

in re-estimating hypothetically the 

effects of the original rules or in 

estimating hypothetically the potential 

effects of more realistically estimated 

current responses. 

Accordingly, we have decided for 

purposes of this rulemaking that the 

most straightforward assumption to 

make is that we are preserving the status 

quo, and that under the criteria of EO 

12866 and the Congressional Review 

Act this is not an economically 

significant (or ‘‘major’’) rule. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities if final rules have a ‘‘significant 

economic impact on a substantial 

number of small entities.’’ For purposes 

of the RFA, small entities include small 

businesses, nonprofit organizations, and 

small governmental jurisdictions, 

including school districts. ‘‘Small’’ 

governmental jurisdictions are defined 

as having a population of less than 

50,000. Individuals and States are not 

included in the definition of a small 

entity. Although many school districts 

have populations below this threshold 

and are therefore considered small 

entities for purposes of the RFA, we 

originally determined that the impact on 

local school districts as a result of the 

final rule on School Administration 

Expenditures and Costs Related to 

Transportation of School-Age Children 

would not exceed the threshold of 

‘‘significant’’ economic impact under 

the RFA, for a number of reasons. Most 

simply, the estimated annual Federal 

savings under this final rule were only 

about one eighth of one percent of total 

annual spending on elementary and 

secondary schools, far below the 

threshold of 3 to 5 percent of annual 

revenues or costs used by HHS in 

determining whether a proposed or final 

rule has a ‘‘significant’’ economic 

impact on small entities. Accordingly, 

regardless of the counterfactual, 

rescission of this rule would not have a 

‘‘significant’’ impact on a substantial 

number of small entities. Our analyses 

of the final rules concluded that neither 

rule would have a significant impact on 

a substantial number of small entities. 

Accordingly, rescinding those final 

rules in whole or in part and preserving 

the status quo ante would likewise fail 

to trigger the ‘‘significant’’ impact 

threshold. We further note that in all 

three cases any impact of this 

rulemaking would be positive rather 

than negative on affected entities. 

Accordingly, the Secretary certifies that 

this final rule will not have a significant 

impact on a substantial number of small 

entities. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 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 and has 

fewer than 100 beds. Of the three final 

rules we are rescinding in whole or in 

part, only the Outpatient Hospital 

Services rule would have had any 

possible effect on small rural hospitals. 

Our analysis of that rule concluded that 

it would have had no direct effect on 

these hospitals, and that any indirect 

effect as a result of State adjustments 

could not be predicted. Regardless, any 

effects of the proposed rescission on 

small rural hospitals would be positive, 

not negative. Accordingly, we are not 

preparing an analysis for section 1102(b) 

of the Act because we have determined, 

and the Secretary certifies, that this final 

rule would not have a direct impact on 


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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. 

That threshold level is currently 

approximately $133 million. This final 

rule contains no mandates that will 

impose spending costs on State, local, or 

Tribal governments in the aggregate, or 

by the private sector, of $133 million. 

Our analyses of all three final rules 

concluded that they would impose no 

mandates of this magnitude, and the 

rescissions create no mandates of any 

kind. 

Executive Order 13132 on Federalism 

establishes certain requirements that an 

agency must meet when it promulgates 

a proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirements on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

EO 13132 focuses on the roles and 

responsibilities of different levels of 

government, and requires Federal 

deference to State policy-making 

discretion when States make decisions 

about the uses of their own funds or 

otherwise make State-level decisions. 

The original final rules, however much 

they might have limited Federal 

funding, did not circumscribe States’ 

authority to make policy decisions 

regarding school-based transportation 

and administration, case management, 

or hospital outpatient services. This 

final rule will likewise not have a 

substantial effect on State or local 

government policy discretion. 

B. Anticipated Effects 

As discussed above, one of the three 

final rules (School-Based 

Administration/Transportation final 

rule (72 FR 73635)) was predicted to 

have substantial effects on the 

availability of Federal Medicaid funds 

for the cost of activities that were 

arguably not the responsibility of 

Medicaid to fund. Consequently, the full 

rescission of the final rules relating to 

outpatient hospital and school 

administration and costs related to 

transportation of school-aged children 

between home and school will have 

little or no immediate fiscal impact due 

to the fact that the projected changes 

never took place. Likewise, the partial 

rescission of the Case Management 

interim final rule will have little or no 

immediate fiscal effect since certain 

projected changes never occurred. 

C. Alternatives 

We welcomed comments not only on 

the proposed rescission of each rule, in 

whole or in part, but also on alternatives 

that may more constructively address 

the underlying issues and their likely 

impacts on State beneficiaries of the 

Medicaid program. No comments were 

received concerning alternatives to 

rescinding the Outpatient Hospital 

Services rule in its entirety. Rescission 

of the entire rule was the only 

alternative suggested with respect to the 

partial rescission of the case 

management services interim final rule. 

We received several suggestions for 

alternate approaches relating to the 

School-Based Administration/ 

Transportation final rule related to 

transportation of school-aged children 

between home and school. Alternative 

suggested approaches included the 

issuance of one national standard for 

claiming developed in conjunction with 

public school officials and the creation 

of one national office to provide clear, 

consistent guidance. Other suggestions 

included annual national trainings of 

State officials overseeing school 

claiming to ensure compliance, the 

review of individual States to determine 

how to process claims and audit, and 

the development of a national 

committee to study best methods to 

deliver information and services to 

families in need. The suggestions also 

included CMS’ further promotion of 

sound Medicaid program operation 

through clear guidance and technical 

assistance specifically addressing the 

unique settings and circumstances in 

which school-based administrative 

activities and services are provided. 

Stakeholders also suggested that CMS 

simplify claiming for school-based 

administrative and direct medical 

services provided in a school setting. 

We agree that these alternate approaches 

merit further consideration and will 

continue to explore with States how to 

best assure appropriate claiming related 

to the provision of Medicaid 

administrative, transportation, and 

medical services within the school 

setting. 

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 431 

Grant programs—health, Health 

facilities, Medicaid, Privacy, 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 440 

Grant programs—health, Medicaid. 

42 CFR Part 441 

Aged, Family planning, Grant 

programs—health, Infants and children, 

Medicaid, Penalties, 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 431—STATE ORGANIZATION 

AND GENERAL ADMINISTRATION 

■ 1. The authority citation for part 431 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

Subpart B—General Administrative 

Requirements 

■ 2. Section 431.53 is revised to read as 

follows: 

§ 431.53 Assurance of transportation. 

A State plan must— 

(a) Specify that the Medicaid agency 

will ensure necessary transportation for 

recipients to and from providers; and 

(b) Describe the methods that the 

agency will use to meet this 

requirement. 

PART 433—STATE FISCAL 

ADMINISTRATION 

■ 3. The authority citation for part 433 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

§ 433.20 [Removed] 

■ 4. Remove § 433.20. 

PART 440—SERVICES: GENERAL 

PROVISIONS 

■ 5. The authority citation for part 440 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

■ 6. Section 440.20 is amended by 

revising the section heading and 

paragraph (a) to read as follows: 

§ 440.20 Outpatient hospital services and 

rural health clinic services. 

(a) Outpatient hospital services means 

preventive, diagnostic, therapeutic, 

rehabilitative, or palliative services 

that— 


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31196 Federal Register / Vol. 74, No. 124 / Tuesday, June 30, 2009 / Rules and Regulations 

(1) Are furnished to outpatients; 

(2) Are furnished by or under the 

direction of a physician or dentist; and 

(3) Are furnished by an institution 

that— 

(i) Is licensed or formally approved as 

a hospital by an officially designated 

authority for State standard-setting; and 

(ii) Meets the requirements for 

participation in Medicare as a hospital; 

and 

(4) May be limited by a Medicaid 

agency in the following manner: A 

Medicaid agency may exclude from the 

definition of ‘‘outpatient hospital 

services’’ those types of items and 

services that are not generally furnished 

by most hospitals in the State. 

* * * * * 

§ 440.169 [Amended] 

■ 7. Section 440.169 is amended by 

removing and reserving paragraph (c). 

■ 8. Section 440.170(a)(1) is revised to 

read as follows: 

§ 440.170 Any other medical care or 

remedial care recognized under State law 

and specified by the Secretary. 

(a) Transportation. (1) 

‘‘Transportation’’ includes expenses for 

transportation and other related travel 

expenses determined to be necessary by 

the agency to secure medical 

examinations and treatment for a 

recipient. 

* * * * * 

PART 441—SERVICES: 

REQUIREMENTS AND LIMITS 

APPLICABLE TO SPECIFIC SERVICES 

■ 9. The authority citation for part 441 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

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

■ 10. Section 441.18 is amended by 

removing and reserving paragraphs 

(a)(5), and (a)(8)(vi); removing 

(a)(8)(viii); and revising paragraph (c) to 

read as follows: 

§ 441.18 Case management services. 

* * * * * 

(c) Case management does not 

include, and FFP is not available in 

expenditures for, services defined in 

§ 441.169 of this chapter when the case 

management activities constitute the 

direct delivery of underlying medical, 

educational, social, or other services to 

which an eligible individual has been 

referred, including for foster care 

programs, services such as, but not 

limited to, the following: 

(1) Research gathering and completion 

of documentation required by the foster 

care program. 

(2) Assessing adoption placements. 

(3) Recruiting or interviewing 

potential foster care parents. 

(4) Serving legal papers. 

(5) Home investigations. 

(6) Providing transportation. 

(7) Administering foster care 

subsidies. 

(8) Making placement arrangements. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medical Assistance 

Program.) 

Dated: June 5, 2009. 

Charlene Frizzera, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: June 17, 2009. 

Kathleen Sebelius, 

Secretary. 

[FR Doc. E9–15345 Filed 6–29–09; 8:45 am] 

BILLING CODE 4120–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 433 

[CMS–2275–F2] 

RIN 0938–AP74 

Medicaid Program; Health CareRelated Taxes 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This rule finalizes our 

proposal to delay enforcement of certain 

clarifications regarding standards for 

determining hold harmless 

arrangements in the final rule entitled, 

‘‘Medicaid Program; Health CareRelated Taxes’’ from the expiration of a 

Congressional moratorium on 

enforcement from July 1, 2009 to June 

30, 2010. 

DATES: Effective Date: These regulations 

are effective on July 1, 2009. 

FOR FURTHER INFORMATION CONTACT: 

Stuart Goldstein, (410) 786–0694. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Section 1903(w) of the Social Security 

Act (the Act) provides for a reduction of 

Federal Medicaid funding based on 

State health care-related taxes unless 

those taxes are imposed on a 

permissible class of health care services; 

broad based, applying to all providers 

within a class; uniform, such that all 

providers within a class must be taxed 

at the same rate; and are not part of hold 

harmless arrangements in which 

collected taxes are returned, whether 

directly or indirectly. A similar hold 

harmless restriction applies to providerrelated donations. Section 1903(w)(3)(E) 

of the Act specifies that the Secretary 

shall approve broad based (and uniform) 

waiver applications if the net impact of 

the health care-related tax is generally 

redistributive and the amount of the tax 

is not directly correlated to Medicaid 

payments. The broad based and 

uniformity requirements are waivable 

through a statistical test that measures 

the degree to which the Medicaid 

program incurs a greater tax burden 

than if these requirements were met. 

The permissible class of health care 

services and hold harmless 

requirements cannot be waived. The 

statute and Federal regulation identify 

19 permissible classes of health care 

items or services that States can tax 

without triggering a penalty against 

Medicaid expenditures. 

On February 22, 2008, we published 

a final rule entitled, ‘‘Medicaid Program; 

Health Care-Related Taxes’’ (73 FR 

9685). This final rule amended 

provisions governing the determination 

of whether health care provider taxes or 

donations constitute ‘‘hold harmless’’ 

arrangements, codified statutory 

changes to the indirect guarantee 

threshold test and the definition of the 

class of managed care organization 

services, and deleted certain obsolete 

transition period regulatory provisions. 

The rule codified the reduction in the 

indirect guarantee threshold test in 

order to reduce the allowable amount 

that can be collected from a health carerelated tax for the period of January 1, 

2008, through September 30, 2011, as 

required by the Tax Relief and Health 

Care Act of 2006 (Pub. L. 109–432). The 

rule also codified changes to the 

permissible class of health care items or 

services related to managed care 

organizations as enacted by the Deficit 

Reduction Act of 2005 (Pub. L. 109– 

171). 

The February 22, 2008 final rule 

became effective on April 22, 2008. 

However, section 7001(a)(3)(C) of the 

Supplemental Appropriations Act of 

2008, Pub. L. No. 110–252, imposed a 

partial moratorium until April 1, 2009, 

prohibiting CMS from taking any action 

to implement any provisions of the final 

rule that are more restrictive than the 

provisions in effect on February 21, 

2008, with the exception of the change 

in the statutory definition of the class of 

services of a managed care organization 

and the statutorily-required change to 

the indirect guarantee threshold test. 

This moratorium was extended by 


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